Crowdfund Investing Experts Complete Framework for Equity-based Crowdfunding

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Entrepreneurs, Investors, Bankers and Legal Experts Convene in Support of the Startup Exemption Initiative

A Crowdfund Investing Working Group convened on August 1st to review the Startup Exemption Framework to make equity-based crowdfunding legal. This Framework is a proposal to the SEC for creating an exemption to enable entrepreneurs and small businesses to utilize their personal networks to raise small amounts of capital to start or grow their businesses. This framework takes a balanced approach to include appropriate anti-fraud and investor protection mechanisms.    

Crowdfund Investing (CFI) is a concept that originates from crowdfunding. The main difference is in crowdfunding, a group of individuals are “donating” small amounts of money to an idea (mainly art related) to help start it. In Crowdfund Investing a group of individuals are using small amounts of money to buy equity in a small business. The goal of Crowdfund Investing is to provide a financial incentive to the action of crowdfunding and get capital flowing to entrepreneurs.

Sherwood Neiss, the organizer of the event said, “This framework is a jobs initiative. Everyone agrees that small businesses and entrepreneurs are the engine of our economy. However, they need capital to grow and succeed. And that has dried up since the 2008 financial meltdown. Since then, banks and government have talked a great deal about getting capital flowing without much substantive result. Our proposal provides a framework the SEC can use to make a significant step toward solving this capital crunch and connecting entrepreneurs with capable investors.”

The goal of calling the industry participants together was to gain buy-in for the rules under which equity-based crowdfunding should be allowed. In addition, they believe having the group draft the rules better serves the foundational principles of limiting investor risk, optimizing fraud protection, enhancing informational transparency, and standardizing disclosure and enforcement.

Neiss and his peers are making progress. They started an online petition, which is gaining momentum, and were part of a hearing on Capitol Hill in May, 2011 in front of the Government Oversight and Reform Committee on business capital formation. It was at that hearing that SEC Chairman Mary Schapiro, responded to questions on crowdfunding they posed to her with the help of Chairman Darrell Issa.

About STARTUP EXEMPTION: Startup Exemption is an initiative spearheaded by Sherwood Neiss Jason Best and Zak Cassady-Dorion. Mr. Neiss, a 3-time INC500 entrepreneur, came across the problem when trying to help crowdfund two of his startups. While discussing it with Mr. Best, a 2-time Inc 500 entrepreneur, lawyers made it clear that the rules for raising capital where arcane, complicated and required costly compliance measures. Understanding the critical importance of startup capital, Neiss & his peers set about changing the regulations for investing in Startups. Their goal is to add an additional exemption to the Securities & Exchange laws based on equity based crowdfunding aka ‘Crowdfund Investing.’ Online petition and more information can be found at: http://www.startupexemption.com.

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Sherwood Neiss
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