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Q&A with David Drake: Perspectives on Global SME Policies and Early Stage Equity Developments

Below is part 1 of a 2-part series on our interview conducted with Mr David Drake, chairman and founder of LDJ Capital and The Soho Loft, and an early stage equity expert with his focus now on

Below is part 1 of a 2-part series on our interview conducted with Mr David Drake, chairman and founder of LDJ Capital and The Soho Loft, and an early stage equity expert with his focus now on private equity advisory, financial innovations and the communications and media propelling all of them into the future.  

David, you are a thought leader on early-stage private equity for start-ups, entrepreneurs, and small and mid-sized enterprises (SMEs) globally.  You write regularly for Forbes, Thomson Reuters and dozen other magazines on these topics.  You spent this year traveling heavily, including to the White House for the Champions of Change earlier this summer, and last summer represented the U.S. Department of Commerce as an SME policy expert before the EU Commission in Rome.  We are eager to hear your perspective on what is happening globally.  

Q: What do you see happening in the SME arena globally?

David: Thank you for asking.  The first part of my European tour just ended and I had a chance to visit Milan, Venice, Athens and Istanbul to discuss SME policies and what banks and institutions are doing to improve capital access, as well as review the European regulatory changes in this area.  It’s fascinating to watch the developments.  

I saw during my Australasia tour to New Zealand and Australia in May that banks are slowly and lethargically getting involved in the SME arena, but regulatory changes in Australasia are not yet occurring.  I wrote a piece for the  AFR (Australia Financial Review) magazine on the report that they are planning on crowdfunding and stock-sharing schemes that is due out in mid-2014. 
Meanwhile, Italy just became the first nation in the world to pass an equity-based crowdfunding law, ahead of the United States.  Even though the law has restrictions, it still has no limit to how much capital can be raised, whereas the pending law in the United States limits it to $1 million per year. 

Q: What are your thoughts on Title 2 which the SEC passed July?

David:  Title 2 of the JOBS Act is monumental; it is a gigantic change to the 1933 SEC Act allowing advertising for private offerings.  Personally, I think the fund industry seeking retail investors will benefit the most, including existing brands and broker-dealers, and firms dealing with retail investors.

For instance, this law will allow funds and firms to advertise their offerings to the 3,000 Qualified Investment Buyers.  These investors have less paperwork and restrictions, as they have $100 million plus under management.  

The biggest issue is that there were only 268,000 accredited investors active in 2012, though they invested $22+ million last year.  Other numbers show that in 2013, 8.99 million households have over $1 million in net worth, which would qualify them as accredited investors and allow them to be solicited by advertising under this new law.  So, I expect to see an explosion of new investors that are accredited.  It puts our firm in the middle to facilitate the noise that is occurring and drive the media to the best-of-the-best solutions for microcaps.

Q: Do you mean this is the law today?
David: The law comes into effect 60 days after its publication in The Federal Register.  It is the law Monday September 23 and on that date Regulation D 506 c will allow funds and companies to advertise their private offerings; yet, they have to be compliant. 

This new law says capital can only be taken from accredited investors but advertising is allowed. It will be a powerful tool for SMEs and startups to raise money. It will allow fundraising to double in 2014, as every fund and firm in the world will take advantage of it.  It is one of the reasons TSL is positioning itself as a media buyer for firms raising money.  

Q:  So the law is more important than crowdfunding for small companies?

David:  As a law, yes, it is gigantic.  However for small businesses, crowdfunding is going to reach $5.1 billion in 2013, while equity crowdfunding is about 3% of that. Yet crowdfunding is a marvelous tool for startups and early-stage firms with consumer services and products.  Both are marvelous injections into the economy, but we still need to see what impact they will have on job creation, which was the intent of the JOBS Act.  Unfortunately, we don’t expect equity crowdfunding to be legal before 2014, as I predicted last November in some of my articles. Yet, microcaps should ask how the distribution model of crowd funding can help their reach and capital formation.

Q: How can developing countries learn about SME capital access and formation strategies?

David: I would think by reaching out to me directly at [email protected] for advice. We welcome NGOs, government agencies, fund managers, angel networks and associations to learn more. Reading my articles at will help.  We also have industry events to facilitate learning.  The technologies we have reviewed are extremely relevant to developing countries, and for universities that want to make alumni communication more efficient.  They all benefit from the same technologies, which are readily available.

Q:  Can you tell us more about your university relationships?
David:  We have advisers from Cambridge and Harvard and have done events at 80 different universities. I think the capital formation for research is terribly interesting, as some research never gets to see the light of day. Online technology now allows that bridging between researchers thinking about a project and capital of $5,000-$15,000.  This will be the great development in 2014-2015.  I also just authored a chapter on early-stage financing for a new book Planet Entrepreneur: The World Entrepreneurship Forum’s Guide to Business Success Around the World in Lyon that we will be selling in a couple of months; stay tuned. And I am writing several research papers with Cornell, Edinburgh University, Cambridge and Harvard.  My book on Crowd Fund Economics will come out at the end of the year.

Q: Where are you traveling next?

David:  Just in the next 45 days I will be in Ireland, Holland, Luxembourg, the U.K., Sweden, Norway, Italy. Ministers and angel networks there are asking me to speak and share what we see globally.  It will be very exciting.

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