Friday, March 23, 2012

Senate crowdfunding tweaks will cause US brain-drain

A bittersweet moment in entrepreneurial history recently occurred, with the Senate passage of the JOBS Act. After passing in the House, this 6-pack of small business modernization reforms cleared the Senate. While most things were left intact from the House bill, the crowdfunding component was tweaked to allow for "more investor protections". In my opinion, crowdfunding was the most economically important part of the bill, so it's no surprise that the special interests have dipped their fingers in the mix. Unfortunately, America will pay a price for this in terms of brain-drain. Sound familiar?

In over four years of operation, leading crowdfunding site Indiegogo reports virtually no fraud. U.K. crowdfunding leader Crowdcube (which does allow equity finance) reports no fraud.  As is the case for U.S. based peer-to-peer lending site Prosper or AngelList, the popular site for angel investors searching for deal flow from entrepreneurs.  Never let the facts get in the way of a good FUD story.  If you commit fraud online, your life is over.

Fraud feeds on opacity and on small groups, because those factors increase the probably of not being "found out".  Ironically, that would well describe the environment of the traditional investment paradigm.  But in the social networking sphere, the more viral any story gets, the more the chances that fraud will be exposed by the people who would know.  Take for example, the recent viral story of the guy who claimed to achieve flight with a bird-like flapping contraption.  It was actually a hoax, 8 months in the making, from a Dutch artist.  Time for the world to find out it was a hoax and have the artist "fess up" -- measured in hours.

As reports SBE Council CEO Karen Kerrigan about the recent Senate vote, "We would have preferred that crowdfunding provision to be less onerous and complex for small businesses, and feel the Securities and Exchange Commission has been given too much rein from a regulatory perspective."  Apparently the SEC, who recently warned that the JOBS Act may harm investors, has not had the time to learn about the years of crowdfunding and social networking experience that we have already.  Perhaps, they are very busy trying to find out where the still-missing $1.6 billion went, that is owed to 35,000 MF Global customers.

But the worst part of the onerous changes is something that few seem to have contemplated.  Every extra bit of regulatory complexity is not only costly to American small businesses.  It will also create an unfortunate "brain drain".  It's very simple.  If we make it hard for Americans to invest in crowdfunding, then entrepreneurs will tend to get funded with larger percentages of foreign money.  Even worse, limitations on the amounts or percentages that Americans can invest in national crowdfunding, will force Americans to crowdfund invest overseas. Well, duh!

Many countries are watching the crowdfunding legislation intently and will "fast follow" with their own regulatory changes.  Thus, we absolutely need to keep regulation clean, lightweight and harmonizable.  It may seem counter-intuitive at first, but every extra regulatory hurdle will produce further economic and entrepreneurial brain drain.  Why on Earth, would we want to limit the amount that Americans can invest in their own country?  Let's please not make this the "Suck America Dry Act".  Please contact your Representative and request that they "keep the SEC out of crowdfunding".  Send them this article if you like.

Sunday, March 18, 2012

Senate vote on crowdfunding -- a call to action!

The House recently passed the JOBS Act, which includes an exemption allowing meaningful crowdfunding for small businesses and other positive reform.  And now the Senate is set to cast its first procedural vote on the House's bill, this Tuesday.  We are on the precipice of a historical moment for entrepreneurs, and for America to set the precedent for innovation again.  Crowdfunding is not only a win for the 99%.  Allowing it is a veritable 1st Amendment for American business owners.  We need your support, NOW!

The criticism of such a bill has proven to be be vacuous, and is collapsing under the weight of its own ignorance and FUD.  Many hit pieces, including "peer reviewed papers", warn of us dark shadowy cretins who will fleece Grandma for everything she's worth.  And yet in all of these hit pieces, I challenge you to find a single one which makes meaningful mention of the words 'portfolio' or 'diversification'.  Do tell, how does one lose all of their money when they are diversified?  And btw, it's telling that critics use the little old lady meme, which I find to be the ultimate combination of age and gender bigotry.

There's the fact that early stage investments look to be a safer bet than do penny stocks, given diversification.  Apparently you don't need any extra government 'protection' with penny stocks, as long as brokers are collecting commissions.  Or the fact that the gender profile of crowdfunding investors and entrepreneurs looks like America, instead of the dismal statistics for women in Venture Capital.  Women are still stuck in the back of the entrepreneurial bus, while the guys drive.

Wasn't eBay supposed to be a "Wild West" of fraud.  Nope, seller ratings.  Then there's the ever popular argument that crowdfunding will allow investors to get bit by the group-think bug.  Spoken by people who then check out Yelp to see if a restaurant is any good.  Hello, you just used a crowdsourced diligence mechanism!  This won't be developed for crowdfunding, because?  Never mind that, you're told that your walls will be ripped out when you use AirBnB, and online dating is full of danger (now the second most common way for couples to meet).  This meme that we are all too stupid to make our own decisions has reached such an epic proportion, that it has gone South Park!

Crowdfunding is about bringing back community business.  It's about freedom of choice.  It's about re-gaining freedom of our voice.  It represents what we used to call "The American Way".  This is your revolution.  Don't just sit idly.  Absolutely contact your Senator, and say "Vote YES to the #JOBSAct".  As a Kauffman Foundation's recent study reports, "startups aren’t everything when it comes to job growth. They’re the only thing."  If this is the only thing we have, then your actions are everything...

Sunday, March 11, 2012

Senate: passage not a question of if, but of when

In a recent Senate hearing, Spurring Job Growth Through Capital Formation While Protecting Investors, Part II, Senator Schumer made comments which are very encouraging for crowdfunding and capital formation for small businesses.

He made reference to the 6-pack of related House bills which were rolled into the JOBS Act (which overwhelmingly passed), and said the Senate can and will offer something comparable.  At 13m:40s in the video, you can hear the following quote from Senator Schumer, which hopefully presages real and meaningful reform:
“Passage in the Senate appears not to be a question of if, but of when...”
Now is the time to push for real action.  Please visit LegalizeCrowdfunding.org to find out how.