SEC Gives Hints on Equity Crowdfunding at June 13 and June 18 Meetings in Washington, DC

The Soho Loft Capital Creation CEO, David Drake and Launcht CEO, Freeman White, were in DC June 18 as part of a delegation from CFIRA to discuss equity crowdfunding rule-making with the SEC, FINRA, and Congress. Today July 13 they meet again.




SeedInvest, Jul 20, 2012
SeedInvest Returning to Philadelphia

Next week SeedInvest will be returning to Philadelphia on Thursday, July 26 to present at The Soho Loft & FundingPost’s Consumer Products Investing Event.  The event will feature a Crowdfunding Panel in which I will be joining Alon Hillel-Tuch, Co-Founder & CFO of RocketHub and Bill Davis, the President of GATE Impact.  In addition, a number of highly regarded investors and leaders in the consumer products space will be presenting.  The current lineup of speakers includes:

Patrick Raymond, Co-Host, The Food Network’s Invention Hunters
Andrew S. Whitman, Managing Partner, 2x Consumer Products Growth Partners
Jonathan Hakakian, Managing Partner, Soundboard Angel Fund
Michael Kopelman, Partner, Edison Venture Fund
Liam Patrick, Partner, Fireman Capital Partners
Elijah Duckworth-Schachter, Family Office Fund, Point One Percent
Keynote: Harris Romanoff, VP Product Management, Neat
Josh Weisman, Partner, Precision Ventures
Michael Stich, Chief Growth Officer, Rockfish
Carter Weiss, Managing Partner, Silas Capital
Adam Borden, Founder, Bradmer Foods
Steve Sinek, Angel Investor, ARC Angel Fund
Marit Molin, Principal, Frontier Equities Venture Capital

I are honored to serve as a panelist at such a phenomenal event, hosted by The Soho Loft, a world-renowned thought leader in the emerging Crowdfunding space and byFundingPost, an established leader in the business of connecting entrepreneurs and investors.  I am particularly excited that this event represents the amalgamation of Consumer Products and Crowdfunding because, at SeedInvest, we believe that Crowdfunding will greatly empower Consumer Products businesses.  I say that because one of the biggest challenges to launching a successful Consumer Products business involves gaining brand awareness for your product.  Consumer Products companies that successfully raise seed capital on SeedInvest will not only gain funding, but also hundreds of powerful brand ambassadors with a vested interest in their success.  Furthermore, successfully raising capital on SeedInvest will enable these companies to prove that there is a market for their product at the onset.

If you are interested in attending the event, tickets are available here:


PRLog (Press Release)Jul 16, 2012

June 21, 2012 by Freeman – The Soho Loft Capital Creation Events CEO, David Drake and Launcht CEO, Freeman White, were in Washington DC on June 18 as part of a delegation from Crowdfund Intermediary Regulatory Advocates (CFIRA) to discuss equity crowdfunding rule-making with the SEC, FINRA, and Congress.  Today, Friday July 13, CFIRA is meeting with SEC, FINRA and Congress again in a full day sold out event in Washington, DC.  The general tenor of the meetings was very hospitable on June 18.  The SEC, FINRA, and Congress are all interested in getting this right and we commend them for their continued and diligent efforts.  The SEC and FINRA are both still deliberating, mostly separately at this point, so none of our observations from the 18th are conclusive or definitive.  The SEC seemed further along in their deliberations than FINRA, based on the depth of questions asked and topics covered; thus this article mostly covers indications received from the SEC.

Mr. Drake comments “We are confident SEC and FINRA are working really hard on meeting the deadlines as this is what they have indicated in public hearings and in private with us.  The world is attentively following these developments.  I have been told by a large majority of European crowd funding platforms that they intend to expand into the US based on this legislation.  We are expecting a surge of inflows from abroad to the US in both capital, technological intellectual property and global entrepreneur talents – we realize the system must adjust to allow as several pending green card and immigration proposals are in the works.”

Future posts will discuss FINRA’s deliberations.  CFIRA went into the SEC meetings seeking guidance or general opinions on the following:

1. Unaccredited investor verification standards for checking annual income and aggregate annual crowdfunded investment amounts.
2. The ability for intermediaries to have a criteria-based screen for which companies can conduct offerings on their platforms
3. Whether intermediaries can offer advice to the companies issuing stock on their platforms under the equity crowdfunding provisions.
4. How intermediaries can advertise their platforms vs. advertise investments on their platforms vs. offer advice about the investments on their platforms
5. Whether regulators see the law also applying to debt-based securities.
6. How regulators would treat concurrent offerings under both crowdfunding and Reg. D

CFIRA advocated strongly for allowing unaccredited investors to declare their income and aggregate equity crowdfunding activity. However, it sounded like the SEC was leaning towards the use of a central database for verifying aggregate annual investment amounts instead of taking the investor’s word for it. In an interesting move, it was suggested that the optional use of such a database by the intermediaries might earn them safe harbor protections regarding that aspect of the law.

Understandably, CFIRA advocated for letting the intermediaries decide what types of businesses could list offerings on their platforms. The SEC seemed to be ok with this so long as it didn’t start looking like investment advice. Specifically, the more objective and transparent the criteria, the better. Both sides saw how these criteria could help prevent fraud and build a stronger market.

CFIRA raised the point that intermediaries would be very commonly approached by companies seeking advice about how to set up and conduct their offering. Thus CFIRA advocated for allowing the intermediaries to provide the type of advice that would ensure the offering is well conceived and appropriate for the company. As this topic is not particularly covered in the JOBS Act, the SEC indicated it was not eager to regulate this topic in the first place.

“SEC has been very forthcoming in our meetings with them and very open to suggestions and best practices outlines.  Just having SEC sit on panels today Friday July 13 at our CFIRA event in Washington DC speaks highly of the importance the see in the JOBS Act.” says Mr. Drake – also a founding Executive Board Member of the CFIRA.

We engaged the SEC in a lengthy discussion of the finer points distinguishing advertising the platform from providing investment advice. CFIRA’s position is that the intermediaries should be able to advertise their platforms and highlight specific companies conducting offerings on their platforms. Intermediaries would like to use the current model of featuring listings on the home page of a crowdfunding platform. The SEC was not wild about this. It sounds like they picture the intermediaries operating more like a retail investment platform for the public capital markets (think Fidelity’s investment/trading platform), where investors search for, research, and invest in companies. In this model the platform itself doesn’t really promote any one company, just the ability to invest. Specifically, the SEC was more in favor of user-driven search and filter mechanisms than behavioral based analysis to serve them investment opportunities that might interest them. The more individualized the experience might be on the platform, the more the SEC got concerned.

We stated our interest in making sure that a company could simultaneously raise seed funding under a crowdfunded offering and a Reg. D offering to Angel Investors. The SEC pointed to concerns they had about the integration between these two types of funding. Their most pointed concern was regarding the new Reg. D general solicitation provisions also in the JOBS Act. They were very concerned about a hypothetical scenario where a company’s Reg D. offering could be advertised publicly and drive viewers to a site where the individual could either invest through the Reg. D offering or the equity crowdfunding offering, depending on whether they were an accredited investor or not. This would effectively allow a company to publicly advertise their equity crowdfunding offering, which is not allowed in the crowdfunding part of the JOBS Act.

While some of this points to equity crowdfunding being more difficult than we would like, more importantly it appears the SEC is acting in good faith to try and get this right. To that end, CFIRA is organizing a summit today July 13 in Washington to bring together folks from the SEC, FINRA, and Congress to talk through the rulemaking process together. Our conversations with our contacts in the Senate highlighted the need to emphasize the legislative history that led to the crowdfunding elements of the JOBS Act. We’re hoping that bringing this perspective front and center to the SEC may help develop lighter weight rules that balance investor protection with the development of a robust crowdfunding marketplace.

Mr. Drake conclude “I’m impressed with how CFIRA managed to bring heads of several departments at SEC, FINRA to sit on three panels today in Washington, DC and discuss crowd funding for equity with two Senators and a Congressman.  It speaks loudly that the crowd funding for equity portion of the JOBS Act is moving forward.  We never thought we would one day have them all in a room together.”

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