Update on Crowdfunding Legislation

Great news – tomorrow the Senate is voting on the crowdfunding bill and, with your support, it could soon become law.

If you support crowdfunding, please email your Senator today and tell them: “I support crowdfunding and hope that Senator X will vote in favor of it during tomorrow’s deliberations on the JOBS Act”

Find your Senator here. Every senator has a contact page where you can quickly and easily submit this message.

More background:

The crowdfunding bill is now packaged as part of the JOBS Act and the Senate is voting on the whole package tomorrow with language already approved by the House. If it passes, the President has already indicated that he will sign it into law right away. Once law, it will then go to the SEC for additional rule making and fleshing out. If the bill doesn’t pass as-is, but the Senate passes its set of proposed amendments to the Act instead, it will go back to the House for a compromise and the process with repeat. Instead of taking sides on one version of the bill versus another, we think it’s important to support the idea of crowdfunding and stay out of the politics. We feel that at the end of the day, passing either version will create a framework that the SEC and industry groups can build on.

Some resources: 

A summary of what’s included in the JOBS Act.

Full text of the House version of the crowdfunding bill (HR 2930) which is in the current version of the JOBS Act

Full text of the Senate’s version of the crowdfunding bill (S 2190) which will be included in a package of proposed amendments to the JOBS Act

ProFounder Shutting Down

We started ProFounder in August 2009 with the mission of ensuring that all entrepreneurs have access to the resources they need to succeed through the engagement of robust, supportive communities. We created a platform and set of tools that made the process of raising investment capital from friends, family and community more efficient, inexpensive, straightforward and legally compliant. We’re proud of both the impact we’ve had on individual entrepreneurs who have accessed capital and grown their businesses using ProFounder’s platform, as well as our influence on crowdfunding regulatory reform in Washington.

 

Despite our progress, the current regulatory environment prevents us from pursuing the innovations we feel would be most valuable to our customers, and we’ve made the decision to shut down the company.

 

While this means the entity will be officially closing, we are still committed to our vision. One way we’ll be pursuing this is by joining forces with GOOD, partnering to continue innovating around crowdfunding. Our founding team will be collaborating with theirs in coming months to launch new tools and community experiences to empower entrepreneurs and creators. We look forward to bringing what we’ve developed and learned at ProFounder to GOOD, and are eager to work together to shape the next chapter of crowdfunding.

 

We will also continue to contribute to efforts in Washington. While it’ll take time, we believe changes are imminent in the crowdfunding regulatory environment and we are committed to being a part of those reforms. If you are also passionate about making crowdfunding accessible for entrepreneurs, legalizecrowdfunding.org provides great tools for getting involved. 

 

Most importantly, we want to express our gratitude to you, our community, for contributing to ProFounder’s journey. If you still want to access our tools and any data you may have inputted, the site will remain live through the end of March.

 

It’s been an incredible ride, and an honor to be a part of this together. Thank you!

 

Jessica & Dana 

 

 

ProFounder goes to Washington Part 2

Crowdfunding was the talk of the town today in Washington and we were honored to be part of the conversation. I testified on ProFounder’s behalf at the crowdfunding hearing held by the House Committee on Oversight and Government Reform and was incredibly energized to be in the company of such a bright and motivated group of fellow witnesses and Committee Members.

A video of the entire proceedings are here. My biggest take-away from the morning is that there is tremendous interest and excitement around crowdfunding as a means of capital formation, but many questions remain about how to best implement it and, specifically, how to mitigate the potential fraud risks. There was a very lively discussion around what responsibilities the platform, the purchaser, and the issuers should have and what liability they should bear. There were diverse view points represented, but unanimous opinion that there needs to be a fairly weighed balance struck between investor protection and access to capital.

Chairman McHenry announced that he officially submitted a crowdfunding bill yesterday (HR 2930). Congratulations to Chairman McHenry on the swift progress! I was truly impressed by the way he handled today’s hearing in a balanced way and infused it will aggressive passion as well as real empathy for the entrepreneurs who would be impacted by this bill.

So what do we do with all of this excitement now? I spoke to Doug Rand, Policy Advisor at the Office of Science and Technology Policy, this afternoon who is involved in the Start-Up American initiative and also engaged in the legislative work around crowdfunding. I asked him what ProFounder could do to push the crowdfunding bill forward and I wanted to share his response with you as a way of publicly committing ProFounder to fulfilling these requests and doing our part to be agents of change.

1. Share stories of small businesses that have achieved success via crowdfunding and gone on to create jobs
2. Work with a coalition of crowdfunding companies to propose industry guidelines for self-regulation.

And what can you do? You can also influence the success of this bill and here’s how:

1. Amplify the conversation by blogging and talking about the issues, so that it’s so loud it can’t be ignored and great new ideas keep rising to the top
2. Tell your Congressional Representative that you are looking forward to seeing them pass this bill (HR 2930)
3. Send me (dana@profounder.com) your stories of how you were able to grow your business through funding from your community. Did you raise your first capital from friends and family, classmates, business partners, or customers and now have a thriving business that has created jobs? Those stories would be tremendously helpful to pass on.

I can’t wait to see what’s next! What an exciting ride – thank you going on this journey with us and inspiring us every step of the way.

Dana

ProFounder Goes to Washington

We started ProFounder because we believe in creating more access to capital for entrepreneurs and feel that crowdfunding is an ideal solution for this. It looks like the government agrees.

Obama stated in his speech on the American Jobs bill that one of his priorities with this legislation is to “help entrepreneurs and small businesses access capital and grow.” In keeping with this goal, he proposed a change to regulation around crowdfunding:

• Reducing Regulatory Burdens on Small Business Capital Formation: As part of the President’s Startup America initiative, the Administration will pursue efforts to reduce the regulatory burdens on small business capital formation in ways that are consistent with investor protection. This includes working with the SEC to explore ways to address the costs that small and new firms face in complying with Sarbanes-Oxley disclosure and auditing requirements. The administration also supports establishing a “crowdfunding” exemption from SEC registration requirements for firms raising less than $1 million (with individual investments limited to $10,000 or 10% of investors’ annual income) and raising the cap on “mini-offerings” (Regulation A) from $5 million to $50 million. This will make it easier for entrepreneurs to raise capital and create jobs.

Change is in the air for the crowdfunding industry and we are thrilled to be given the opportunity to work with the government to help shape new solutions to improve capital access for entrepreneurs. We got a call from the House Committee on Oversight and Government Reform a few weeks ago letting us know that they would be holding a hearing on crowdfunding and soliciting our feedback on potential regulatory change. We’ve learned an incredible amount over the past two years about the legal, business, and social aspects of crowdfunding and are honored to be identified for our expertise.

A bill is currently being drafted to embody the change that Obama outlined in his address. When asked for our feedback on important provisions to this bill we outlined three key areas that we feel are critical to success and plan to outline specific suggestions in each of these categories during our testimony:

1. Reducing the barriers for new businesses to form which facilitate crowdfunding
2. Reducing the barriers for entrepreneurs to access all of the capital that is available in their communities
3. Protecting investors and preventing fraud

From an entrepreneur’s perspective, the key changes being discussed to get excited about are

• being able to advertise your offering widely (general solicitation)
• allowing anyone to participate (including an unlimited number of unaccredited investors).

My (Dana’s) full testimony submitted for this hearing is posted online here.

We admire Committee Chairman McHenry, Ranking Member Quigley and the Members of the Committee for taking such fast action to draft a bill and are very excited to be a part of this on going dialogue. We also recognize that many people have been working very hard to get this issue the attention that it deserves, including the Start-up Exemption Team, and sincerely applaud their efforts as well. Lastly, and most importantly, a huge thank you to all of the entrepreneurs that we’ve had the privilege of working with over the past two years — you are our inspiration and why we motivated to be in DC right now pushing for change.

The hearing will be this Thursday 9/15/11 at 9:30amEST and will be streaming live here.

What an adventure! More updates coming soon.

Dana

Keeping Your Investors Engaged Long-Term

Yesterday we got an email from Bronson Chang and Uncle Clay at the House of Pure Aloha, one of the first businesses to use ProFounder!  Here’s what it looked like:

Bronson and Uncle Clay, from the beginning, have been passionate and proactive about engaging their community of investors in unique and compelling ways! We thought this was another great example of how you can keep your community involved in a meaningful way, long after you have completed your fundraising round.

 

Here, the House of Pure Aloha offers the opportunity to vote on what their new company logo will be for their T-shirts! To vote yourself, click here! Great job HOPA!

 

We’d love to hear some interesting ways you’ve found to keep your community involved in your business…let us know in the comments section or send us an email at rachel@profounder.com!

ProFounder Fashion & Handicraft Swap+Meet Recap!

This month, ProFounder hosted our original Swap+Meet event, this time for Fashion & Handicraft Entrepreneurs in the Los Angeles area. We host these events on a regular basis to provide an live (and fun!) example of how entrepreneurs can leverage their community to help grow their business. To learn how you can bring this event to your own community, please email rachel@profounder.com and we will send you a Swap+Meet Guidelines and Planning Packet.

We are still beaming with joy and pride at the fantastic group of entrepreneurs and community members who came out to support each other and local entrepreneurship! We partnered with Atwater Crossing, who was able to provide a gorgeous outdoor space for the event! (Click here to learn more about Atwater Crossing and the different work space and event venue opportunities they offer!)

We were fortunate enough to hear presentations from industry experts like our co-founder Dana Mauriello, who talked about community-based crowdfunding and how to grow your business with the help of your community! We also heard from Jan McCarthy of Ladies Who Launch, who provided some valuable insight around marketing your business effectively through storytelling!

We then invited 6 entrepreneurs to give a short business pitch on their business. We heard from Lucy at fair ivy (surprise package subscriptions!), Jessica at Disregard{en} (repurposed furniture to benefit the homeless), Kristeen at rhope (stylish bags made by women’s coops in India), Angela at Umma Baby (baby dresses made from saris), Colleen at Urban Crochet (crocheted hats & scraves), and Haily at Voz (artisanal clothing products from global designers).

These entrepreneurs shared the story of their business and their vision for its future, and additionally made 4 asks to the audience. These asks ranged from introductions to local bloggers or journalists to help finding a mentor to graphic design or web design support. A few needed help growing their community, and requested likes on Facebook and reviews on Yelp. Others were in need of boutiques and retailers to stock their products. The critical part of these asks were the fact that they made everyone feel as though they had something to contribute.

Everyone in the audience was given a packet which contained information on each entrepreneur and their 4 Asks. This was helpful for the audience to follow along with the presentation and take notes on how they could support each entrepreneur.

After the presentations, everyone was able to pledge support to the individual asks they were capable and willing to support. We found that there was a tremendous overlap in the resources individuals had and the resources they were looking for, which resulted in a wonderful spirit of generosity and collaboration!

Changes to our site

As many readers know, there are some key changes taking place to the ProFounder product offering.  We have decided to stop offering the transaction of securities on our site for new customers as of June 24, 2011.

Going forward, this means entrepreneurs using ProFounder cannot invite investors to view, pledge to, or invest in raises on the site.  Users can continue to:

• use compliance tools to plan out how many investors can be considered in each state, and to understand what laws and filing fees might be relevant for each raise
• develop and hone a pitch to potential investors
• use our term sheet generator to create custom terms based on your business’ unique needs
• learn best practices for engaging community support

We apologize for the inconvenience this change may cause for entrepreneurs who may seek to use our site in the future (current raises are not being affected) and appreciate your patience as we shift our focus.  We highly value your feedback, and are committed to incorporating that feedback going forward to make ProFounder better over time.

We will continue to keep you updated!

Dana Mauriello, co-Founder of ProFounder at TEDxUSC

The Myth of the Crowd

Crowdfunding, like crowdsourcing, is appearing in the mainstream internet lexicon with increasing regularity. But what does it mean? The prevailing assumption is that crowdfunding is the aggregation of small amounts of money from a large number of people. The term is used most commonly to describe these aggregated fund collections for movies, music or other creative projects. However, the term is also being applied to similar processes for political campaigns, advertisements, and even business investments. At ProFounder, as we learn new things everyday, we are discovering new ways to define what crowdfunding means for investing in small businesses and startups.

Most notably, we have learned that the word “crowd” is misleading. We believe the more accurate word is “community,” which is why we refer to ProFounder as a community-based crowdfunding platform. Entrepreneurs succeed on our platform when they reach out to those with whom they have a specific, identifiable connection or affiliation – and when they identify in their outreach how the connection can be relevant to that individual’s participation in their fundraising pursuits. While the idea of reaching out to the masses is exciting, and new connections can of course be formed, we’ve found that existing communities continue to step up and be more than adequate for most entrepreneurs to reach their goals. Turning to certain family, friends, customers, and colleagues for support is legal, secure, and effective.

As legal background, all securities (whether they are the revenue share-based or equity-based investments that ProFounder entrepreneurs offer to potential investors) must be either registered with the SEC, as well as the states in which they are sold – or, alternatively, the securities must be exempt from registration. The SEC has designed a series of exemptions designed for everyone’s protection, and in particular, with a focus on protecting investors from fraud. Because we at ProFounder believe so much in the value of community-based crowdfunding, we have focused our tools for entrepreneurs around compliance with the laws and regulations that make an offer of securities to close friends and family – people with whom an entrepreneur has a “substantial, pre-existing relationship” – exempt from registration.  This means that the entrepreneurs (or, technically, the companies issuing the securities) need not incur the same amount of time and financial costs of full registration if they offer their securities only to their close community.  This is exactly what ProFounder allows entrepreneurs to do, empowering entrepreneurs to offer securities to the people that know them best, and who they know best.  Because the investors and entrepreneurs share a substantial relationship, the risk of fraud is low and investors are protected.  As a result, they get to participate in the business of an entrepreneur who they believe in.

Aside from legal questions, many entrepreneurs who come to ProFounder highly value the security of the information they provide and the transactions in which they participate online as they use the site. One thing we’ve heard is a concern about posting sensitive company information online, which if viewed by just anyone would put companies at risk. We agree, so on ProFounder’s platform, the only way for a potential investor to view an offering is through a link in a secure email that’s been sent by the entrepreneur. Investors then have to login and create unique accounts verifying their information before they can see any details. Not only does this system provide a safe way for an investor to see the offering, but it provides a personalized and professional channel to communicate with potential investors.

The final and perhaps most important reason we champion community-based crowdfunding is that it’s effective. Earlier this year, we ran a guest post from Del Smith, President and CEO at D.A. Smith & Associates and Assistant Professor of Management at the Rochester Institute of Technology, describing the importance of trust on early stage ventures. Del’s research enlightened us with the idea of affective and cognitive trust: how the two differ and why each are important. Del states:

“When you look to leverage your social capital during a crowdfunding raise, you are tapping into two dimensions of trust: an affective trust rooted in emotions and a cognitive trust rooted in rationality. Affective trust occurs when individuals emotionally invest in relationships, resulting in genuine concern for a person’s welfare and a belief in the relationship’s intrinsic virtue. Cognitive trust occurs when individuals make a conscious decision to trust based upon knowledge and evidence of trustworthiness (e.g., everything seems in proper order or the other party appears to possess required capabilities).”

As you can see from the graph above, the most effective way for early stage and small businesses to build the trust necessary to attract investment is by leveraging the affective trust of others. Commonly, those with the most emotional connection to entrepreneurs are those closest to them: friends, family, coworkers. Del’s research reinforced our experiences with the entrepreneurs who were successfully raising money on ProFounder. Success was closely tied to the ability and dedication to reaching out to their personal networks.

ProFounder Father’s Day Gift Guide

If you haven’t gotten a gift yet for Father’s Day, well, you may be in trouble. But luckily for you, we have some last minute Father’s Day suggestions!

We love these fun ties from Proud Mary, one of our early ProFounder entrepreneurs! These cotton ties, sewn in Guatemala, are available in black and white stripes, or mint stripes. Just lovely!

 

How about some new, hip shoes for good ‘ol dad? Bucketfeet has great hand-made designs sourced from designers and artists across the globe. Even better, they donate %5 of their profits to childrens organizations around the world! Here’s a couple of our favorite designs.

     

P.S. We wear our Bucketfeet constantly here at ProFounder and love them!

If you’re really looking to go above and beyond this Father’s Day, consider taking a Father-Son/Daughter weekend in Hawaii for and treating him to some shaved ice at the Grand Opening of Uncle Clay’s House of Pure Aloha. After all, everyone likes ice cream!

Also, here’s what I got my dad for Father’s Day. Not a ProFounder entrepreneur (yet), but certainly a great local business! Here’s the Caperon (as in part cape, part apron!) from Beta Brand:

Happy Father’s Day!