Early-stage equity expert David Drake caught up with Gary Spirer, author of “Crowdfunding: The Next Big Thing,” to discuss the new SEC law 506(c) and the opportunities the open advertising of deals brings to issuers and investors.
Gary Spirer is an entrepreneur, a crowdfunding expert, and the author of “Crowdfunding: The Next Big Thing.” He is also the founder of Questionmine.com, a dynamic interactive marketing- solution firm that rapidly produces and deploys video surveys, quizzes, and automated webinars that enable marketers to discover customer intentions and reactions in real time and provide relevant content and offers.
Our discussion went something like this:
David: What are your views on the new SEC law 506(c)?
Gary: The SEC voted in favor of the JOBS Act section 201(a), which does away with the ban on general solicitation. The lifting of the ban allows venture capitalists, hedge funds and early stage companies to advertise openly in various media to raise money in private offerings.
Before the ban, communications about their offerings had to be private, relying on just word of mouth and networking.
Now, the ability to market and advertise private offerings will make it easier for companies to raise money, and also will open up an entirely new business for marketers, advertisers and sites seeking to match deals to investors.
Before the ban, it was difficult for most accredited investors to know about and get access to the best deals. Now, they will not only be able to find deals that excite them, but the information about similar deals and the specific deal that interests them will be much more transparent and open.
Accredited investors must have $1 million net worth (exclusive of their home) or annual income greater than $200.000. And David, you said in a recent article that there are 8.99 million US households with a net worth of $1 million, which qualifies them to be accredited investors. But only 3% are actively investing in technology companies.
The new law provides a choice. Companies can continue to raise money just as they did before, or they can elect to advertise their private offerings openly.
If they opt to advertise, the SEC has set up additional criteria and guidelines. For example, they must file a form D with the SEC at least 15 days before the advertising or general solicitation begins, and then amend it, stating that they’ve finished their soliciting, within 30 days of finishing.
The SEC also has significantly increased the proactive, “reasonable” steps companies or issuers must take to verify investors are indeed accredited, and released “bad actor” criteria that list certain individuals who cannot be associated with an offering.
David: What are some of the opportunities that allowing the general solicitation of private offerings ushers in?
Gary: As I write in my book Crowdfunding: The Next Big Thing, the new law unleashes easier access to a large pool of private capital for companies. The new law begins the movement toward the democratization of capital, since you can advertise on the web, social and mobile. Just as the worlds of music and publishing have faced disintermediation, the squeezing out of the middleman, so will capital raising become more efficient.
To this end, new businesses will arise to service the rise in the marketing and advertising of private offerings. Think of investor verification, due diligence, deal analysis and valuation, private placement memorandum creation, websites that cater to specific industries, investor and entrepreneurial education, internet marketing, content creation on industries, portal platform creators, website designers and developers, specialized accounting and legal services, investment advisers and broker-dealer compliance, marketing, advertising, presentations and pitches, services and training, to name a few.
David: How does today’s Internet technology come into all this?
Gary: There will be new types of technology to present to, pitch and educate investors, entrepreneurs, creative types, small businesses and non-profits, such as Questionmine (my company). Questionmine uses interactive video and mobile video to engage and measure viewer (investor) feedback on a company deal or product, or both. Using video surveys, polls, quizzes, assessments, lead gen forms and call-to-action buttons, companies can find out what investors like or don’t like about their private offerings, and score, segment and respond to investors in real time. The presentations and pitches can be marketed and advertised across the web, mobile and social.
Imagine investors being able to interact with your private offering via a pitch video or recorded webinars and respond on their mobile phones. What if you could feed investors different videos based upon their answers to you in video surveys, polls, quizzes and assessments? You could entertain, educate, encourage (use rewards, white papers, incentives) to engage, get to know them and build a following. One of the key areas for crowdfunding and technology will be investor and entrepreneurial education online and via mobile, which Questionmine and Capital Hill, our entrepreneurial resources companies, provide.
That’s why Crowdfunding Is the Next Big Thing!
Note by author:
The following link leads to a video by The Soho Loft using Questionmine’s technology:
It shows an interview that Vince Molinari of GATE Technologies and I did with Rep. Patrick McHenry, who sponsored the crowdfunding bill in Congress. The bill was known as the Entrepreneur Access to Capital Act, or HR 2930; it was later integrated into the larger HR 3606 – the Jumpstart Our Business Startups (JOBS) Act. As you view the video, you will see the interactive survey questions.
David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity and venture capital firm, and The Soho Loft, a financial media company helping funds and firms advertise to investors, QIBs and family offices in compliance with the new SEC law 506(c). You can reach him directly at [email protected].