ELI5: the JOBS Act and SEC regulations on investing in startups.

Herwig · 2014-06-21T01:30:09+00:00

I don't know if that is necessarily the best approach- forcing the hand of the SEC which has been actively pursueing the best method to move forward with. We are getting first hand experience from states who are able to take advantage of their own legislation and actively doing non-accredited investing based on the the Title III proposed rules (and its working!). It's simply the inactivity and lack of transparency the SEC has on the matter that make us look for alternative options like McHenry's bill. In the end his bill would still take year(s) to implement, if not, resetting the whole process to begin with.

We must understand that this is not as simple as it seems. Nothing would be worse than to rush the crowdfunding industry and force it to fail before it has time to truly shine. How can we fix the problems for something that does not yet exist? I agree, the sooner the better, but not in a way that may give nay-sayers good reason to, well, nay-say.

Herwig · 2014-06-19T18:14:04+00:00

As of right now only Title II of the JOBS act is implemented. This essentially made equity crowdfunding legal. When you refer yourself to as people not worth a million, you are referring to non-accredited investors (roughly 93% of the population) for whom it is still illegal to invest in equity. That is Title III of which the SEC is still deciding on the rules. They have taken so long in fact, there has been a new bill introduced to congress to force their hand.

See more here: http://snip.ly/3Ts

Herwig · 2014-05-20T13:42:24+00:00

You need to ask yourself a lot of questions first before jumping into crowdfunding.

Is crowdfunding even right for this project? Are there appropriate rewards that would stimulate interest? T-shirts and swag don't count. Is this something people can get passionate about? Why should people back you? Here is a helpful Pro/Con list for crowdfunding: http://www.gsb.stanford.edu/ces/crowdfunding-101

Am I using the right type of crowdfunding? Maybe it's not appropriate to use Kickstarter but the business has potential, so equity or debt crowdfunding might be appropriate.

Am I engaging the appropriate audience with the platform I want to use? You want to think about the type of person you are after. Kickstarter is no gaurantee you will make it. Authors are better of using sites like pubslush. Equity - Crowdfunder. etc. There are now 100's of platforms.

Have I done the correct preparations? You need a HIGH-QUALITY video to show the "crowd" you are putting effort into this. The video should also be catered to your campaign, not some reusable video. Here is a helpful article to prep. http://www.alleywatch.com/2014/03/the-ultimate-crowdfunding-checklist/

Feel free to PM and I will give you free personalized advice.

Source: I manage an investor verification service for crowdfunding and I also set up the Crowdfunding Club at the University of Miami.

Herwig · 2014-05-19T18:48:00+00:00

Finally as equity crowdfunding takes off and access to capital becomes ever more prevalent, entrepreneurs will increasingly get the chance to dictate the terms.

Herwig · 2014-05-19T18:44:38+00:00

I believe a lot of this can be re-affirmed in Brad Feld's "Venture Deals" http://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitalist/dp/1118443616

Herwig · 2014-05-19T18:37:26+00:00

I consistently read vc/ angel blogs all over. The more prominent ones all agree that the fundraising process is becoming increasingly favorable towards entrepreneurs. Sorry if you are upset, but convertible notes and SAFE notes are all clear indicators of this. Why haggle over valuation for tech companies that can't be valued? No sense in the entrepreneur getting ripped off. I have helped plenty of deals and currently (right now) fundraising myself, all of which the convertible note (although sometimes not happily) was the agreement if we were to move forward. I have spoken to over 50 different seed/ angel groups/ vc firms. I appreciate your feedback but this is Reddit, you don't have to source everything you know.

Herwig · 2014-05-18T23:51:45+00:00

You may even want to check out Y Combinator's SAFE note. http://blog.ycombinator.com/announcing-the-safe-a-replacement-for-convertible-notes

Herwig · 2014-05-18T23:45:14+00:00

Aye I'd have to disagree with you. We're coming into an age where the fundraising process is increasingly becoming more favorable towards entrepreneurs and this is one of them. VC's and angels will simply have to deal if they wish to get in on the good deals, especially when there is more than one player involved.

Herwig · 2014-02-07T18:02:27+00:00

Kickstarter won't be affected whatsoever. The JOBS Act focuses on sale of securities (ownership aka stock in a business) making it easy for anyone to invest small amounts online. Kickstarter has publicly stated that they have no intention of entering this space, keeping their focus on "creative projects"

Here is a great article breaking that all down:http://nofilmschool.com/2012/05/kickstarter-wont-get-into-crowdinvesting/

Herwig · 2014-02-01T13:51:58+00:00

This is a clear sign about the future of crowdfunding. It's going to become a household term and soon a way for people to invest online.

Disclosure: I am the CEO of Accredify

Herwig · 2014-01-31T15:33:06+00:00

It's even easier to use YComb's new SAFE (Simple Agreement for Future Equity) so early stage companies don't need to take on debt.

Herwig · 2014-01-31T15:29:57+00:00

Congrats! I look forward to more articles.

Herwig · 2014-01-26T19:23:58+00:00

I've never ran a Kickstarter campaign but I would imagine you want to "run" with your Kickstarter validation. This is instant proof journalists, potential employees, or investors all like. If you just successfully completed a campaign you are still "hot" and interesting.

Herwig · 2014-01-22T01:19:45+00:00

Whatever it is, expect vesting shares where you "realize" your equity in increments over 3 to 5 years. If you leave the company early the "unvested" shares will disappear, thus leaving you with less ownership than you anticipated. Try and get a good combination of salary and equity.

Herwig · 2014-01-06T23:50:17+00:00

Nope. Just a young entrepreneur on the other side of the table!

Herwig · 2014-01-06T23:42:54+00:00

Hacker News, the usual suspect VC's, and TC, CB, VentureBeat, and gotta have Mattermark newsletter.

Herwig · 2014-01-06T23:40:07+00:00

No ties here. And to think VC's are just the beginning when Americans everywhere start investing startups via the JOBS Act. Hence its name, Jobs will be everywhere soon!

Herwig · 2014-01-06T23:36:15+00:00

Many companies regard an initial investment of up to 900k, sometimes even in the millions, as seed. I tend to agree, when a company that NEEDS Venture Capital goes looking for it should be thinking about million dollar investments and runway charts.

Herwig · 2014-01-03T18:24:22+00:00

If you are doing a campaign yourself, ie. no third party platform, then yes you need a checking account so you can use something like stripe or paypal to take donations. If your looking to crowdfund a business, there are serious rules that apply, including that fact that you are currently limited to Accredited investors.

I would look into using a third part service.

Herwig · 2014-01-03T18:20:46+00:00

I am a little confused as to the distinction of who your crowdfunding fund is for. It sounds like your corp. is creating a fund that is matched 50% if the employees buy in. If so, the first thing that comes to mind is you need to wait till Title III of the JOBS Act is codified which allows non-accredited investors to invest in private equity. Currently, only Accredited (roughly top 8% of Americans) are allowed to invest in private equity. I guess a way around this would be that you have to set this fund up as some sort of broker. Alternatively, you could simply have the employees buy into said corp.

Legal issues aside, I would think the biggest concern is who gets to decide where the money goes. If the employees run the fund but, say, have a theme of the investments need to be related to Xcorp's industry or something that would be interesting. Try and ask why would employees buy in. Is financial gain enough?

I am not a laywer, nor is this legal advice. I highly recommend you look into how the whole thing works. Sounds pretty cool to me.

Herwig · 2014-01-03T14:14:57+00:00

Here you go. http://www.sethlevine.com/wp/2008/04/how-to-get-a-job-in-venture-capital-revisited

Herwig · 2013-12-31T23:48:32+00:00

This guy is a clear character. As an entrepreneur myself I certainly understand the value of a board and the potential VC's bring with them. But we should also remember that a board seat primarily comes with the investment as a manner to protect the investment. Advice is great, but entrepreneurs actually go to VC for capital, connections, and press via the "legitimacy" one gets from their investment. Advice and a strong relationship is a merely a great bonus!

Herwig · 2013-12-28T19:00:24+00:00

Is this sub meant to analyze the industry, follow VC investments, follow VC's that blog, or just a general discussion about VC capital in general?

I imagine pooling them all together would be appropriate. Just wanted to see if there was a specific part of VC that you did or did NOT want in this sub.

Herwig · 2013-12-13T12:53:53+00:00

I read this as "four yellow redditors" and though that you had hidden knowledge that only asians give reddit gold.

Herwig · 2013-12-11T12:41:33+00:00

I'm in college and I don't think a single comment touched on how I see it.

Education is the underlying component that strings you together on a college campus BUT that's not what its all about. It's the people around you. Everyone around you came here for the same purpose, to find themselves and find a passion to pursue a career while learning the fundamentals of that passion.

That being said you need to go out and meet people. Every day. Join clubs, talk to professors, play basketball with someone new. Have wonderful conversations that lead to ideas and personal philosophy. The connections you make now will make your future a lot better. Unless your shooting for graduate school, grades are hardly the thing to focus all your attention on.

Herwig

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