“The JOBS Act & Crowdfunding” Panel at Venture Association New Jersey Meeting
Thursday, August 2, 2012 • 10:39am
The regular monthly meeting of the Venture Association New Jersey (www.vanj.com) was held on Tuesday, July 17, at the Marriott Hanover, Whippany, NJ. The presentation was a panel discussion, moderated by Frank Graziano, Managing Partner, Monmouth Venture Partners (www.monmouthventurepartners.com), on the topic of, “Democratizing Capital Formation: The JOBS Act & Crowdfunding.” The panelists were Ryan Feit, CEO & Co-Founder, SeedInvest (www.seedinvest.com); Vince Molinari, CEO & Founder, GATE Technologies (www. gatetechnologies.com); Jay S. Rand, Esq., Partner, SorinRand LLP (www.sorinrand.com) and Stacey Rasgado, VP-Corporate Development, SecondMarket (www.secondmarket.com). Biographies of the Moderator and all four Panelists can be found on the VANJ website at www.vanj.com.
Graziano initiated the discussion by noting that although crowdfunding has only recently begun to capture the attention of legislators and the media in the U.S., it is actually not a new phenomenon. “That’s right,” Feit agreed. “Actually, it has evolved from earlier means of fundraising. Entrepreneurs have always raised money from friends and family and by borrowing from multiple sources. They have also welcomed multiple equity investors and crowdfunding offers expanded opportunities in this regard.”
Molinari agreed. “The watershed occurred when the desire for multiple sources of funding began to shift more to an equity-based model,” he noted.
“This natural evolution has been primarily due to the development of enabling technology, especially the Internet,” added Rand. “Not only has Venture Capitalist become a more desirable job classification, but today there are more entrepreneurs, more investors and a much wider geographic distribution of both.”
Graziano then posed the question, “How has this evolution provided impetus for legislation?”
“Smaller entrepreneurs used to have very limited access to capital,” answered Molinari. “As donation crowdfunding has grown, however, legislators have begun to pay more attention, especially since entrepreneurs now solicit this type of private capital using social media and other means. Extending this to equity crowdfunding requires some form of investor protection.”
A member of the audience then raised the question, “Do we need a simplified description of crowdfunding?”
“I would call it an IPO Onramp,” Rasgado replied. “It makes it easier for smaller companies to go public because they can now state publicly that they are raising capital. I also believe that we should raise the cap from 500 to 2,000 shareholders. This would make it even easier for smaller companies to go public by offering them greater flexibility.”
“Thanks to the JOBS act, investment opportunities are no longer limited to accredited investors,” added Feit. “This legislation also raises the shareholder cap, allows any amount up to $1 million to be aggregated, allows entrepreneurs to send messages via social media and allows the formation of crowdfunding portals that do not need to be registered with a dealer/broker. As a result, about 98 percent of the population of the U.S. that has never been able to invest directly in new ventures is now able to.”
A member of the audience then raised the question, “Are portals allowed to advertise?”
“Yes, but members within the portal cannot advertise directly for funding,” Molinari answered. “They can advertise only to drive traffic to the portal.”
Another member of the audience then raised the question, “Are legislators willing to allow crowdfunding to continue to evolve, or are they still living in the past?”
“FINRA has been very cooperative,” answered Molinari. “After cracking down with legislation like Dodd-Frank, the SEC has been gradually relaxing the rules for crowdfunding,” added Rand.
“It is very important for both entrepreneurs and investors to follow these evolving regulations closely,” Feit noted.
Rasgado agreed. “Entrepreneurs need to be aware that the JOBS Act gives them the flexibility to decide how they want to raise capital depending on whether they just want to raise money or whether they also want to seek help and advice from their investors or sell them products and services.”
A member of the audience then raised the question, “What about reverse auctions, where entrepreneurs put up shares and take bids for them?” Molinari answered the question by saying that would be part of Generation 2.
“So what am I really buying?” Graziano asked the panel. “Are we talking LLC membership interests, S-Corp. shares or what?”
“We really do need more standardization of documents, etc.” said Feit. “We also need more educational activities to prevent less financially savvy investors from being victimized.”
“Crowdfunding is a natural outgrowth of social media,” said Molinari. “It’s the opposite of investment banking and will probably grow virally.”
“One problem I see is that with so many small investors, lawyers will not want to represent them,” said Rand.
A member of the audience then raised the question, “What is the Number One thing you would change if you could do it over?”
“I would impose stricter limits on what is an accredited versus unaccredited investor,” Rasgado replied.
“I would hold out for a better definition of investment advice,” said Feit.
“We need a central database to monitor what one investor is doing through multiple portals,” Molinari suggested.
A member of the audience then raised a final question, “What about the role of the press in manipulating public opinion for or against crowdfunding?”
“This question needs to be looked at from two different perspectives,” Rasgado replied. “On the one hand, companies will now be able to proactively manage what is being said about them. On the other, the press will have a heyday publicizing those who benefit from crowdfunding versus those who are victimized by it, just as they did in the early days of credit cards.”
Next Meeting September 11
There will be no VANJ meeting in August. The next regularly scheduled VANJ meeting will be held on Tuesday, September. The featured speaker will be announced.
Advance reservations can be made by calling Clara Stricchiola at (973) 631-5680, faxing (973) 984-9634 or e-mailing firstname.lastname@example.org and mailing a check ($35 for members, $55 for non-members) to VANJ, 26 Main Street, Chatham, NJ 07928-2402. Registration at the door is $75 after 12:00 Noon on Monday, September 10.