FBN’s Charles Payne, NewOak Capital President James Frischling, Tea Party News Network News Director Scottie Nell Hughes, small business expert Susan Solovic, retail analyst Hitha Prabhakar and Penn Financial Group founder Matt McCall debate what is consider fair wages.
Right now we’re seeing the business of “crowdfunding” mature somewhat and the process is a little painful for many involved in the industry. Crowdfunding, as you may know, is the process of leveraging the Internet to raise capital to fund a project. Kickstarter may be the most well known of the crowdfunding sites. Other notables are Indiegogo and AngelList. If you need more names, check out this article on Forbes.
Two crowdfunding models
For commercial fundraising, there are really two ways crowdfunding sites work. Fundraisers on Kickstarter usually offer the product they plan to produce in exchange for some cash. In other cases, premiums such as t-shirts are offered and some times nothing tangible is delivered; supporters make donations.
In the other crowdfunding model, kicking in cash buys you equity in the company. The crowdfunding investors are all mini-angels.
All the Internet-based pieces of the crowdfunding puzzle came together around 2010 and it really took off. Now, in 2014, the process is starting to have some history and go through a few growing pains.
Rules and regulation
Some of the growing pains are being caused by the anticipated Security and Exchange Commission (SEC) rules governing equity crowdfunding. Late last month Robb Mandelbaum gave an update on the proposed rules in his NY Times blog. He noted that the SEC posted the rules for comments more than three months earlier and still hadn’t shown any signs of issuing final regulations.
That leaves the world of equity crowdfunding up in the air and its future somewhat in doubt. There is nothing investors like less than uncertainty.
A different issue faces the “product promising” crowdfunding industry. Ethan Molllick, a Wharton School professor, says that among the tech and design-related crowdfunded projects, 75 percent failed to finish on time. It seems like no one will say publicly how many funded projects ultimately fail to deliver their proposed products.
Guessing at failure rates
Kickstarter is an “all or nothing” crowdfunding site. Proposals don’t get funded until their targets are met. Kickstarter is great about reporting stats on the percent of projects that get their desired funding. But failures among funded projects is left to speculation.
All of these developments are indicative of an industry that’s beginning to mature. Initial unbridled enthusiasm is replaced by measured judgment. For long term success this is necessary.
And if you’re considering crowdfunding a project, there is really one major takeaway here for you: thoroughly researching all your options today is more important—and probably a little more difficult—than it was yesterday.
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Image: Flickr “Crowd,” © 2007 James Cridland, used under a Creative Commons Attribution-ShareAlike license: http://creativecommons.org/licenses/by-sa/2.0/
The fourth quarter of 2013 is here, and for a small business or startup, it can be a make-it-or-break-it time of year. Entrepreneurs are busy fine-tuning products and pitches in preparation for 2014, while scrambling to scrape together the funding necessary to get their ideas off the ground. It’s the “American Dream,” a set of ideals in which freedom includes the opportunity for prosperity and success, and an upward social mobility achieved through hard work. For many years, that chance to grab a piece of the pie has been drastically limited due to a sluggish economy and government regulations. Finally the tide is turning, thanks to the JOBS Act, and the innovation and foresight of crowdfunding pioneers like Kendall Almerico.
Kendall Almerico is the founder of Crowd It Forward and the CEO of ClickStartMe.com, the former a charitable crowdfunding site, the latter an entrepreneurial crowdfunding site. He is an expert on both crowdfunding and the JOBS Act, having worked as an attorney for 25 years specializing in helping people start a business. He knew how to get his client the money necessary to start a business. As a reputable attorney in Tampa, Florida, a well-placed phone call to the local bank was enough to jump-start the process. Almerico was an integral figure in helping so many see the American Dream become reality. And then, the economy tanked.
Almerico says the last seven years of financial famine has hit Main Street the hardest. Small businesses couldn’t, and still can’t, get loans. As a result, in 2009, he became fascinated with crowd funding, and some very important things caught his eye. First, the Pebble Watch. Based only on a prototype, the inventors of this “smart watch” needed $100,000 dollars to get the product to market. By appealing to the public, they raised $10 million. Around that same time, Congress took notice and decided to get on board. The Jump Start Our Business Start-ups (JOBS) Act was born. The JOBS Act, in a nutshell, Kendall Almerico says, “Is the great democratization of the investment process; you no longer have to be rich to invest in a company because of equity crowfunding starting next year.” He breaks it down for us in easily digestible morsels.
The JOBS Act idea is simple: why not let the everyday Joe be allowed to own a part of a company and help fund a new business? A no-brainer, right? Well, an 80 year old law said otherwise. It stated you cannot advertise the sale of securities to the general public if it’s a privately held business. As of September 23, 2013, that law is null and void. The meat and potatoes of the JOBS act, as it applies to equity based crowdfunding, says a business can advertise that they’ve created this offering, but for now, only to “accredited investors” — those deemed wealthy and sophisticated enough to understand and withstand risk. Why? The SEC and federal government are working to minimize the chance of fraud, without making the crowdfunding process too difficult.
The JOBS Act was passed in April of 2012, and, Almerico says, sometime next year, the SEC rules and regulations that will govern equity based crowdfunding will be finalized. At that time, anyone can purchase equity in a new business via an online portal. And, new businesses will be able to raise up to $1 million through those same online portals, by selling equity to anyone who wants to buy in, not just wealthy investors like today. “This is the game-changer,” Kendall Almerico said. “These types of businesses are the ones that put people to work and keeps the economy flowing. It’s Small Town USA; Main Street at its best.”
Currently, the only legal type of crowdfunding available is rewards based. Almerico explains it this way: “Someone says, ‘I have a product, it’s not finished, and I need money to complete the process; in turn, if you give me the money, I will give you the product when it’s ready.’ It’s pre-sell in the product arena; acknowledgement or trade in the project arena. Simply put, rewards based crowfunding is perks or rewards that you receive for helping someone do something. This is my company, ClickStartMe. ClickStartMe will be one of the only sites, if not the only site, that will allow both rewards based and equity based crowdfunding. You will even be able to mix the two. My goal has always been to give the entrepreneur the opportunity to do both in one place. It’s the market. It’s America.”
To see if your business can benefit from the JOBS Act you can visit the SEC website.
Recently I spoke at an event with Barbara Cochran, the New York real estate mogul turned Shark Tank investor, and she said in her remarks, every time her back was up against the wall, she created a movie in her head of how see was going to succeed. She used the conversation in her mind to figure out a way around the problem and invent her success.
Language is power. It does invent the future. One of my granddaughters was on a trip with me and I arranged for her to have a lesson on a surf simulator. The night before she said she was looking forward to it, but she knew she wouldn’t be any good at it. That was a big red flag for me. If you go into it with that attitude, I explained to her, then you’re definitely not going to be good. On the other hand, if you visualize yourself doing it and you tell yourself you can do it, then you’ll enjoy a more positive result. When you tell yourself that something isn’t going to work out, you’re creating the outcome. If you go after a big sale, but you keep reminding yourself that you’ll probably never get it, then you most likely won’t.
I’m going to draw on my old beauty pageant experiences. The judges used to say, the queen reveals herself. When I competed for Miss Missouri, I thought about that comment and decided that I was going to project throughout the competition that I was the winner. I went to bed every night visualizing myself winning. Every time I walked I staged I did so with the attitude of, “Here I am. The next Miss Missouri.” And yes, I did win. Later, people said there was an aura about me that set me apart from the rest of the women competing for the title. I am confident it was the power of visualization and language that helped me win. Never once did I allow myself to doubt the fact that I would win.
Create the story of your success. Visualize it. Share it with your team and your customers. You can be a winner.