Why is mainstream media ignoring Equity Crowdfunding?

How many of you have actually seen a blurb on your local or national new channel, or even a VNR on Equity Crowdfunding?  Is it because businesses cannot legally raise monies via equity crowdfunding until the SEC promulgates rules early next year?

Engage in casual conversation with people you meet and ask if they have heard the term.  My experience shows that some have, most haven’t and those that have do not know much about it.

The JOBS Act, signed into law April 5th, 2012 by President Obama has eight Titles (parts).  Title III – Crowdfunding allows businesses (Issuers) to raise small dollar amounts from many investors (the crowd) though registered websites, called funding portals, in return for securities.  While most people have heard of the JOBS Act, they remain unfamiliar with a component which is poised to allow American entrepreneurs and business owners create American jobs.  Wikipedia states: “The Jumpstart Our Business Startups Act or JOBS Act is a law intended to encourage funding of United States small businesses by easing various securities regulations.”

So why, during a Presidential election year focused on the US economy and job creation, isn’t equity Crowdfunding being promoted?  The Act passed with bipartisan support from the House and Senate.

I would like to hear comments from potential Investors and Issuers (businesses wanting to Crowdfund) to some of the questions posed below.  Keep in mind, since the SEC has not yet promulgated rules for equity Crowdfunding, background information on each category below is subject to change:

Investors

Will you invest in Crowdfund companies?
What criteria will you use to select an investment via a registered Funding Portal (sector specific investments, past performance of portal, your own research)?
What are your thoughts on resale restrictions and lack of liquidity?

Specifically, what would you like to learn more about regarding equity Crowdfunding?

There are restrictions on the amount of money non-accredited investors can invest and on the aggregate amount invested:

Non-accredited investors can invest the greater of $2,000 or 5 percent of their annual income or net worth if either their annual income or  net worth is less than $100,000; and 10 percent of their annual income or net worth (not to exceed a maximum aggregate amount sold of $100,000), if either their annual income or net worth is equal to or more than $100,000.

You will not be able to readily sell your shares for a period of one year unless they are bought by an accredited investor, the issuer or under certain circumstances (death or divorce) a family member.

There may not be an established trading market after the one year holding period and therefore limited liquidity.

Issuers

Can you recite the current rules and regulations required for an Issuer to offer securities?
What is your plan for choosing a registered Funding Portal?

How will you value you company’s securities offered to satisfy regulations and not discourage subsequent financings?

Specifically, what would you like to learn more about regarding equity Crowdfunding?

The rules can be onerous for the unfamiliar.  As an Issuer, you are required to file with the SEC and provide to investors and the relevant broker or funding portal pertinent information about your company and its owners; describe the financial condition of your business, the amount you want to raise, the deadline for raising the funds and the price and terms of the securities being offered; explain how the securities being offered are being valued; define the risks to purchasers of the securities; only provide notices which direct investors to the funding portal or broker (e.g., you may not advertise the terms of the offering).  In addition you must be familiar with corporate governance and the financial statements reporting requirements.

That’s why it is important to start the education process early and align yourself with industry experts who can guide you and help manage the reporting requirements of the Act. Consider the long term picture too. Crowdfund Investing portals that have thoughtfully considered how to educate and align you, the owner, with capable experts will pay off. Select ones that can introduce you to Merger and Acquisition (m&a) firms that specialize in helping Emerging Companies. You will need their help securing future financing or negotiating and executing the sale of your company. This will help keep your new shareholders satisfied.

Current rules in the Act require issuers to make available to potential investors the price to the public of the securities or the method for determining the price, provided that, prior to sale, each investor shall be provided in writing the final price and all required disclosures, with a reasonable opportunity to rescind the commitment to purchase the securities. Issuers must also show how the securities being offered are being valued, and provide examples of methods for how such securities may be valued by the issuer in the future, including during subsequent corporate actions.

Navocate provides Business Sales and Acquisition services for Emerging Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com.

Webcast Attendance Indicates Business Owners’ Excitement Over Crowdfunding

Recently, Navocate business sales + acquisitions hosted a web seminar with strategic alliance partners EarlyShares and Crowdfunding Roadmap titled “Get Funded Through Crowdfunding.” The webinar was Navocate’s best-attended in the company’s history—both relative to the number of people who participated as well as the duration of the event. 

Entrepreneurs are about to receive a new and unprecedented capital funding opportunity as a result of Congress passing the Jumpstart Our Business Startups (JOBS) Act in April. The JOBS Act allows non-accredited investors to participate in Crowdfunding as of January 1^st, 2013—allowing them to make equity investments in privately-held U.S. companies for the first time.

“Recognizing that the recently passed JOBS Act will drive monumental changes for both entrepreneurs and investors, this webinar was designed to help everyone understand what Crowdfunding is, how it works, and specifically what companies need to think about to get Crowdfunded,” said Karl F. Buhl, managing member of Navocate. 

During the webinar Paul Winkle (Navocate) reviewed the Act’s issuer guidelines as well as the June 8^th Securities and Exchange Commission update. Ruth Hedges (CEO, Crowdfunding Roadmap) reviewed eligibility and reporting requirements, while Maurice Lopes (CEO, EarlyShares) discussed how to position a company to receive Crowdfunding capital. Karl Buhl (Navocate) reviewed Navocate’s valuation model for both revenue and pre-revenue companies, relative to the how the securities being offered can be valued, as required by the Act.

“The Q&A session lasted about 45-minutes—almost as long as the webinar itself—which demonstrates how hungry the audience was for this knowledge. More importantly, it reflects the intense need for relevant and transparent information about Crowdfunding throughout the market in general,” Mr. Buhl concluded.

Navocate hosts monthly webinars about business sales, acquisitions, valuation, private equity, and Crowdfunding for emerging companies with revenues between $3M - $30M, focusing on the under-served M&A segment that is above the business brokers’ and below investment banks. As part of this series, Navocate will continue to provide updates about Crowdfunding, how the regulations are evolving, as well as implications for both entrepreneur and investor as the January 1^st start date approaches.

Click this link to view the Crowdfunding webinar

Click this link to be notified of future Navocate webinars.

Navocate to launch Crowdfunding Valuation Model*: free webcast

Posted by Paul Winkle on Mon, Jun 04, 2012 @ 10:12 AM

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Companies wanting to access capital through equity crowdfunding are required to produce a third-party valuation of their business and provide a price for the securities offered as well as the method used for determining that price. Navocate Business Sales + Acquisitions is sponsoring a free webcast to discuss their Valuation Model developed exclusively for companies wanting to access capital through crowdfunding.

In order to crowdfund, a company (start-up, pre-revenue or revenue producing) must be incorporated. In addition, a Company (referred to as an “Issuer”) must disclose how the securities offered are being valued and provide examples of methods for how such securities may be valued in the future.

Navocate provides Crowdfund companies with an affordable business valuation and securities pricing report as mandated under Title III (Crowdfunding) of the JOBS Act. Navocate’s proprietary valuation model uses three methods to analyze both pre-revenue and income-producing companies:

1. Sell-Side (historic view) — Navocate analyzes your financial statements (or pro formas and forward-looking financials for pre-revenue companies) to understand your business’s performance relative to a database of over 650 industry sectors.

2. Buy-Side (future view) — Navocate next analyzes how a potential investor would evaluate your company relative to deal structure, cash flow, risks, and ROI.

3. Soft-Side — Finally, Navocate models soft parameters that can have exponential effects on your company’s success (either positive or negative), such as management structure, financial controls, market opportunity and growth rate, and overall risk factors.

The result: Navocate’s valuation and securities pricing report provides you with a thorough valuation of your business, our assessment of an appropriate stock price range, and an explanation of the methodologies and rationale behind the analysis—in an affordable, easy to read document.

The intent of the JOBS Act is to provide companies access to capital via crowdfunding to grow their business and create jobs. If you are an Issuer wanting to learn more about Crowdfunding, click this button to register now for “Get Funded Through Crowdfunding,” June 12^th, 1 pm Eastern time:

Register Here

When asked ‘How did you hear about this webcast?’ during the registration process, please select ‘Paul Winkle’ in the drop-down menu.

*Crowdfunding was signed into Law April 5th, 2012 by President Obama. However, it will not be legal under the federal securities laws until the U.S. Securities and Exchange Commission (SEC) adopts rules to implement a new exemption that will allow crowdfunding. In addition, the SEC has latitude to prescribe additional rules and requirements.

Navocate provides Business Sales and Acquisitions services for Entrepreneurial Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com.

Tags: valuation, Crowdfunding, valuation model

 

Get Funded Through CrowdFunding

 Entrepreneurs are about to receive a new and unprecedented funding opportunity—an opportunity that may ultimately determine the success of their business. I’m referring to the method of raising business capital through Crowdfunding.

I want you to be ready to take advantage of this opportunity, and that’s why I’m excited to announce our next webcast on June 12th, 2012. 

Register Today.  Seats Are Limited!

Click this link to register now for
“Get Funded Through Crowdfunding.”

◊ https://navocate.webex.com

When asked ‘How did you hear about this webcast?’ during the registration process, please select ‘Paul Winkle’ in the drop-down menu.

Gov't. Contracts for Technology Companies: Bypass Barriers to Entry

Posted by Paul Winkle on Mon, May 14, 2012 @ 11:54 AM

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A great way for tech companies to grow organically with their current products and/or service offerings is to procure government contracts. The federal government is the largest contractor in the United States. Landing a government contract, however, is not the same as contracting out your product or service commercially. It is a process that involves considerable up-front work.

There are tactics technology companies can use to break through the barriers to entry and land those contracts. But before we go there, let’s explore some do’s and don’ts when dealing with the government, as described by Matt Hankes in his article “Secret to Winning Federal Contracts” published at www.fedmarket.com.

Matt states, "The game known as federal contracting is fraught with rules and regulations. The game is so complicated that it even has its very own rulebook, the Federal Acquisition Regulation ('FAR')." He goes on to say that "Winning the game is not about following the FAR, though. The winners of government business know the secret is in selling. Yes, selling to those with whom you have created relationships built on trust."

As you can see, relationship building and the sales process is just as important in landing government contracts as it is with commercial ones. You can secure government contracts if your company has products and/or services the government needs AND the ability to build relationships through a skilled and motivated sales department.  The article continues to make this point clear: “Although there are many pitfalls for companies embarking on an adventure in the federal arena, none is more costly or prevalent than the mistake of not adequately focusing on the relationship-building (or sales) process. Selling in the federal marketplace is much simpler in practice than it is in theory. To sell successfully in the federal market, one needs only do three things properly:

1. Establish the customer’s pain point;
2. Create a solution; and
3. Make it easy for the agency to choose you.”
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Bypassing the key barrier to entry: past performance

In late 1990’s the federal government codified detailed past performance rules within FAR. Past performance is a significant barrier to entry for companies wanting lucrative government contracts. An article published on http://www.smalltofeds.com/entitled ‘The Small Business Government Contracting “Past Performance” Challenge’ describes it best:

“As a small business begins the proposal submission process to federal government agencies or to prime contractors the past performance challenge is a major challenge. By definition a start-up company in government contracting has no direct government agency past performance projects to site in meeting the requirement in requests for proposals (RFP’s) for historical references to similar projects in terms of size, duration and complexity.”

So how can an established technology company sell their offerings to the federal government?  The article makes one suggestion: “Many small businesses work through prime contractors to "grow" past performance history (subcontracts count). By teaming with a sizable firm a small entity can relate its participation to larger projects and ultimately graduate to a good library of references, carefully maintained and kept as a living, growing data base of good customer service records that can be sited again and again in proposals.”

A better, quicker way:

I will now share a shrewder way to enter the government market.  It can take years for a company to develop past performance status. A great way to eliminate this barrier to entry is to acquire a company which already has a past performance history. The challenge is to locate a target with synergies and a coverage area of expertise in information technologies.

Ideally, you want to acquire a company with a comprehensive understanding of technology and revenue procurement process as well as a proven focus on relationships and sales.

To view a spot-on example of such a company for sale and Navocate's Featured Listings, click here