To probe the legal intricacies revolving around the JOBS Act and how these new laws might impact the crowd funding scene in the next months leading to and right after the much-anticipated full implementation of crowd funding for equity, David Drake spoke with Chance Barnett, CEO of CrowdFunder, a platform that enables businesses to raise equity and revenue-based financing.
This exciting venture will allow everyday Americans to, for the first time, participate and invest in companies and founders they believe in, while providing small businesses with the guidance and training necessary to establish a successful future and accelerate the rebuilding of the American economy.
Barnett is a respected entrepreneur in the field of startups, product development, marketing, strategy, social media, and fundraising. Highlights of his accomplishments include: bootstrapping businesses that sell over $25 million in products annually; actualizing multiple online services and accumulating active subscriber bases in the millions; and spearheading high-scale advertising and marketing communications which have been seen by over 850 million users.
He is a published best-selling Author & Speaker in the area of Personal Development & Entrepreneurship. He extends that role into mentoring and counseling many new businesses and Internet company founders in Southern California. Chance plays a central role in fostering mutually beneficial relationships in the Los Angeles start-up community as the founder of NetPositive, an invite-only network of Technology and Media entrepreneurs.
Drake: Chance, you are one of the US leading company in crowd funding for equity which is under the JOBS Act regulations that are pending SEC approval for legalization. The law is changing through your work with us. The US is the first country in the world taking a leadership position and changing the law for crowdfunding. This is a momentous change in how capital flows.
How do you feel about the progress the crowdfunding for equity portion of the bill has taken to date and where are the 3 industry areas for this new regulation?
Barnett: When I sat down with you at the SEC April 20 to our pleasure and surprise both leadership and the staff expressed their sincere desire and interest to meet the staggered rulings throughout the 270 days timeline. Unfortunately the big boss was not present. While key staffers have worked diligently on crowd funding they have also drafted proposals for commenting on regulation D 506 c which removes the general solicitation ban. Neither of those rulings are making the deadline the SEC had. In an ideal world Mary Schapiro Chair of SEC would accelerate the ruling on these underlying JOBS Act bills.
Drake: What could you ask readers to do to accelerate implementation of the rules.
Barnett: Reach out to your congressmen and ask how they care for job creation, capital access for small business owners by writing the SEC.
Drake: How is Reg D 506 important to you, give us your secret sauce?
Barnett: The truth is crowd funding for equity won’t be around till 2014. Accredited investors are the only game in town for security transactions. We are now getting our hunting gear ready. The more public message is that this is a more crowd funding like environment prior to ruling on the SEC rules where we circulate offerings to accredited investors. Accredited investors are the best ‘trial group’ to solicit as FINRA and SEC would agree.
Drake: Guess a date crowd fund equity will be legal in the US?
Barnett: January 30, 2014
Drake: Who should pay attention to CrowdFunder?
Barnett: People interested in this newly forming capital market for early stage investments. While these investments might carry significant risk, not unfamiliar to traders, but along with that comes potential for large returns for successes. At crowdfunder we are serving three name areas: 1. small businesses 2. social enterprises 3. technology startups.
Drake: What’s going to be the total cost for issuers to do crowdfunding for equity before a campaign launches when it is legal?
Barnett: Gaining to raise any investment round can be costly. Raising investment in crowdfunding will include legal background checks, external accounting reviews and any cost associated with your legal agreements. For less than $500,000 would cost up front $12,500. For above $500,000 raises would cost an additional $25,000 in audits if you have a history of revenue.
Drake: How will Fortune 10,000 companies get involved in Crowdfunding for Reward?
Barnett: Strong brands with large communities and strong following have a huge opportunity to use crowdfunding to use it as a marketing vehicle for their products and services. Crowdfunding offers unique and innovative ways to make people more closely aligned with the brand.
Drake: What are the three things below the first 2 most important things you would advise an issuer on crowdfunding for equity to be cognizant of?
Barnett: Work with a crowd funding platform that will protect your proprietary information. Crowdfunder does that by having a private layer to your deals and documents and requiring that each investor has a personal profile connected to their social networks and proof to accredit investor profile. This way you can accept or reject potential investors.
Drake: How many investors do you have now and how many are foreign investors?
Barnett: 12,000 and 10% foreign.
Drake: What are the fears and pitfalls of crowdfunding for equity?
Barnett: That inexperienced investors don’t understand the difference between fraud and failure in an early stage company. Crowdfunding portals are required to do things like review disclosures and do criminal background checks. Making an offering you still don’t understand as an entrepreneur and still receiving funding would be my second. The choice of equity or debt is a critical one and entrepreneurs don’t understand this enough.
Drake: Chance, what are the biggest opportunities for your firm positioning yourself as a leader and where do you see most of your business emanating?
Barnett: One of the largest where we integrate leadership positions for is to power local investment in small businesses. Crowdfunder’s focused on being the social network where deserving entrepreneurs connect with and get matched to the right investors. Crowd funding in the past has been focused on flashy campaign pages. We see the future of crowdfunding investing resembling investing in the real world compared to the old crowd funding for donation.
Drake: How big do you see this industry be in dollar amounts in 2014?
Barnett: $10.5 billion
Drake: How will broker dealers and angels be affected by this law and how can they best leverage it?
Barnett: Broker dealers will be the sole security participants and beneficiaries of the crowd funding legislation of 2014. Angel investors will have new and unique opportunities on platforms like crowdfunder to have access to deal flow they would have never had otherwise.
Drake: Final question, which is your favorite non US national soccer team and why?
Barnett: Real Madrid and Barcelona have great publicity so I have to go with them.
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