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I'm an American (EEUU) by birth, but certainly a mutt by ethnicity. I prefer the Southern Hemisphere nowadays, and I try to spend time on at least 3 continents per year, in more than a few different countries. While there I explore intriguing social, investment, business and lifestyle... More
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Capex Ltd.
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Capitalist Exploits
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Mongolia Investment Report
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  • Crowdfunding - The Real Story

    The excitement surrounding crowdfunding continues to grow. I've written about it several times, and a lot of questions have been raised by subscribers as a result.

    Recently a reader of ours, Sam Houghton, who also happens to be an attorney focusing on finance-related issues, corporate structuring and ownership transfer at Clark, Campbell & Lancaster, P.A. in Lakeland, Florida, reached out to me to help clarify and explain the important issues surrounding the JOBS Act and it's implications for crowdfunding.

    Sam has spoken on the subject numerous times in the past couple of months at events focusing on the new legislation. He rung me up during a rare lapse in his schedule, and I think you'll find his insights valuable.

    What follows is one of the best primers on the JOBS Act and crowdfunding that I've seen... bias aside, of course!


    Mark: Sam, I've written about the JOBS Act and the implications it will have on the nascent crowdfunding initiatives that are currently being birthed as a result. You've researched and lectured on this extensively, so I wanted to pick your brain a bit on a few things.

    Sam: Sure, absolutely. Like most things there are more moving parts than it might appear.

    Mark: Of course, and when you throw regulators into the mix it just gets all that much more confusing, as you never know the direction their going to head, but you can Sam: almost always count on it being more oversight, not less.

    Sam: And especially when you are dealing with crowdfunding, which will be the riskiest unleveraged investment known to man.

    Mark: So let's jump Sam: in. You put together a great one-page fact sheet on crowdfunding - it's history, the size of the market and the risks. Can you summarize some of that for us?

    Sam: Sure. Crowdfunding began as a grass-roots way for fans to raise money for their favorite bands to go on tour. The first crowdfunded venture was Marillion (an English rock band). In 1997 its fans secretly raised $60,000 for the band to tour the US. The band of course loved it, and went on to use the idea a number of other times to do the same thing.

    The "crowdsourcing" (which is what raising money is called when investment is not involved) movement made its way into movies and arts (through sites like Artistshare) and is now a real option for businesses to use to raise funds. Businesses raise funds by giving something back to the donor. All sorts of creative rewards are available. What is not available, until the JOBS Act takes effect after the SEC regulations (likely January 1, 2013), is debt or equity in the company. The JOBS Act changed that.

    Once the rules are complete, accredited or unaccredited investors can invest directly into these businesses. What this means is that the average American can now invest in a market that was previously unavailable. Private equity investment is no longer limited to the extremely wealthy.

    Massolution put together some really excellent data on the market. Their research determined that the 2011 market was $1.47 Billion and growing at a rate of 63% CAGR. They expect the market to nearly double in 2012 to $2.8 Billion. The total world market includes 456 portals (the sites that list the crowdfunding/crowdsourcing projects) as of April 2012. That number is expected to be 536 by the end of the year.

    Mark: WOW!! I didn't expect to see a number like that, it's huge!

    Sam: It is huge, and of course many will fade away relatively quickly. But there are risks here, and those risks are losing your money. David Rose, CEO of Gust, LLC, stated that 50% of all investments will lose their entire investment. 40% will make a decent return (10-25%). 10% will be a home run (100%+). Every investor is different, but one proper investment strategy might be to use 5% of your income and split it into 10 different investments.

    Mark: This is EXACTLY the advice that Doug Casey gives to speculators in general. He talks about the mining and resource business, but it's applicable with any speculative investment.

    Sam, the JOBS Act is actually 6 different bills, correct? Which ones pertain to crowdfunding?

    Sam: Yes, the JOBS Act is a conglomeration of 6 bills. The crowdfunding bill is H.R. 2930 - "The Entrepreneur Access to Capital Act." The other huge change in private equity is the removal of the ban on solicitation of regulation D offerings (H.R. 2940).

    Mark: Let's review that in a bit, but right now tell us why you think crowdfunding such a big deal now?

    Sam: That's pretty easy to understand I think...

    1) You've invented a new way to fund a business. Prior to this, entrepreneurs borrow money from family members and mortgage their houses to start businesses. Well, neither Uncle Jerry nor your house has a ton of equity at this point, so those options are depressed.

    2) The investor pool is multiplied by a factor of 99. Anyone can invest in anyone (with limitations). Prior to the JOBS act, unaccredited investors (you can think of them as the 99%) were (generally speaking) not able to invest in businesses without the issuers facing significant legal hurdles with the SEC. Startups have never before been able to raise money from the general public.

    3) Issuers can't lose (much). Let's say you make furniture. You want to start another line of chairs. You put a video out on a crowdfunding site showing your chairs and offering a chair and a share in exchange for $100. If people like your chairs, they will give you the money. You've now done market research and pre-sold merchandise - or alternatively, you've been told that your chairs aren't that great - so you don't go to the expense of making them.

    Mark: I hate to interrupt, but this is precisely what Michael Joyce did with kickstarting a disruptive technology for 3D printing. He used the Kickstarter platform as a way to validate his thesis and test the market first. It cost him nothing... it's really very, very smart.

    Sam: It has its advantages. So to add to that with my final point:

    ... 4) The crowd will find the winners. Let's face it, angel groups and VCs might be intelligent, but they're not 18-25 year olds. Bridging on the market research argument in #3 above, the crowds will find more winners than the previous model. 10,000 Americans can't be wrong.

    Mark: Sounds like you're describing American Idol meets private equity! (laughs)

    Let's define a few terms. You have the Issuers, or companies that want to sell stock to the public; the intermediaries, or portals, broker/dealers, etc. who wish to act as the middle-men; and, finally the investors that want to buy the issuers stock and invest in the offering.

    I covered those definitions in my post Dissecting Crowdfunding. What can you add to what I discussed therein, regarding the descriptions of the various players that might not be clear or obvious?

    Sam: You did a great job describing the players and the process. I thought the article was very informative. I can tell you that there are a couple of items that the regulators are going to be discussing that might not have been obvious from the legislation.

    First of all, some are saying that the $100,000 limit on the amount invested might not apply to accredited investors or institutional investors. Instead, those investors might be able to invest as much as they'd like. Secondly, the $1,000,000 cap on annual issuance might only apply to unaccredited investors. If there is more money that can be poured in by accredited investors, why would the SEC want to stop the company from being further funded?

    Mark: That's actually really encouraging and exciting Sam! Chris and I speak a lot about how we don't like the whole "accredited investor" thing, however it isn't likely to change anytime soon.

    I recently spoke to Nick Bhargava, the CEO of Motaavi in my post Making Money with Crowdfunding. Nick's company is an intermediary portal. They were actually pretty involved in helping craft the crowdfunding components of the JOBS Act, and actually lobbied in Washington to support the legislation.

    They seem to have a very solid understanding of crowdfunding, however I fear there are a lot of others entering the space, or wanting to enter it, who don't have the same understanding. Can you outline some of the likely pitfalls for these "would-be" intermediaries?

    Sam: The biggest pitfall is that right now there are no pitfalls. The rules are being discussed right now at the SEC. What makes this an interesting game is that the funding portals are working feverishly to get their sites together for a January 1, 2013 launch, but they are having to make guesses as to the rules. They must guess as to what is required to ensure that the investors aren't investing more per year than they are permitted. They must guess as to the amount of due diligence necessary into the issuer.

    Is it their responsibility to be sure they don't allow their investors to invest in a fraud scheme? How much insurance should they buy and what should they insure against? They must guess as to what is allowed in terms of solicitation for investors to come to their site. What can they say about their site and what can they not say? Can they talk about their success rate or is that giving investment advice? Can institutional investors invest more than the $100,000 limit?

    3 Big Questions:

    1) Can institutional investors invest more than $100,000 per year? If so, the market matures immediately;

    2) Whose responsibility is it to ensure individuals don't invest more than they are allowed and how will this be enforced?;

    3) What disclosures/anti-fraud measures does the SEC deem appropriate? This will determine the price of the funding portal, which will determine crowdfunding's viability.

    Mark: I've asked this question before and gotten various answers. How do you interpret the revenue model for intermediaries? How are they going to make money while staying within the law as it's likely to be interpreted? Are these guys really just going to be "virtual" broker/dealers?

    Sam: With over 500 sites already, there will likely be variants. However, there are models out there currently which charge 5-10% of the raise. Some require a higher percentage if the raise does not meet the threshold. They do that because they don't want people to throw out unrealistic numbers or amounts that they don't really need for what they are doing.

    According to the JOBS Act, portals can not pay their employees for sales made and the employees can not own any part of the issuers. Portals can not actively solicit for investments. I think the SEC will take the position that this ban on solicitation relates to the solicitation of individual issuers (i.e. "come on down to and see our deal of the day - the 'IChair.'").

    I do, however, believe that the SEC will allow those funding portals to advertise. If I were to guess at an average revenue model, it would be to take 7% of the raise or $5,000, whichever is greater. Some, including Senator Scott Brown, are calling for the ability for funding portals to invest in the issuers. So some funding portals could perhaps require a certain amount of equity for each raise.

    Mark: Let's talk about the obvious and less obvious risks for issuers.

    Some of our readers are familiar with the more typical types of offerings... Reg D 506, a 505 or 504 exemption, and S1 registrations. How does crowdfunding differ from the Reg D 506, which is the most predominant for funding a private offering?

    Sam: Issuers cannot advertise the offering. They can point people to the funding portal but they can not actively advertise. The rules will likely clarify this, but what this means is that while they can point people to the funding portal via a facebook post, they can not in the same facebook post say "I am starting a business that I expect to make $100,000 EBITDA in the first year and I need your help to make it happen." Splitting hairs to be sure.

    Mark: The biggest risk is regulatory in my opinion. Issuers will have a lot of rules to follow, although they won't be new to some, they will be to others who may be funding a company for the first time. It's probably a miscalculation for them to think this is easy and they can just start offering securities to whoever they want to, correct?

    It seems that some issuers might want to focus on the new Reg D advertising and rule changes, and going that route instead of messing around with crowdfunding. Am I wrong there?

    Sam: If the SEC is involved, it is not going to be "easy," but it has to be easier than Reg D. Again, we won't know the ease of use until the SEC issues its rules - and perhaps not until they've interpreted those rules. If crowdfunding is not easy, it will not survive.

    With crowdfunding, you are dealing with much smaller amounts than your typical Reg D offering. You are only permitted to raise $1 Million annually via crowdfunding. The crowdfunding market is a completely different animal - it is a group of 200 people from 20 different states paying $200 each to help start a brewery in exchange for a case of beer and .1% ownership. If that brewery becomes a $10MM enterprise, then their $200 is now worth (on paper) $10,000. And the investments will come from anybody - including unaccredited investors.

    Reg D offerings are typically $5 Million plus. And if you are attempting to solicit your Reg D offering, you'd better be sure your investors are accredited, because the new law requires that issuers take reasonable steps to ensure that all investors are accredited if you plan to solicit your Reg D filing.

    Mark: Something not so obvious that was brought to my attention is the negative perceptions that might be created if an issuer used crowdfunding, and then wanted to work with a traditional VC or IB, or even a more traditional broker/dealer.

    Some are of the opinion that those issuers would find a cold reception when and if they chose to do a larger raise and needed the help of these more "traditional" institutions, thereby stranding them in a sense. What's your opinion?

    Sam: That is a great problem for an issuer to have and one they would not have had if crowdfunding were not in place. If crowdfunding weren't in place, all they'd have is an idea. If the VC or banker is interested in the company, they will find a way to solve the problem.

    The issuer can solve this problem at the outset if it would like to - just put together a stockholders agreement that permits the owner to buy the crowdfunded shares at its option for a set price. What the issuer can get away with is the question - should the option purchase price be 10x the investor's original investment, 20x, 100x? Or you could put a clause in that forces the crowdfunded shares to sell when the founder decides to sell. Those are two options, but the sky is the limit (and the SEC).

    If the issuer chose not to cover himself (either because the market would have said no or because he just failed to do so), then you have this issue - if an investor comes in and buys the company (and does not buy out the crowdfunders), then what reporting requirements will that (now very well funded) company have? Will it continue to have to comply with the same crowdfunding reporting requirements? Because that could turn off some investors. They don't want their competitors having access to that information.

    Mark: The regulators use language like this: "Provide such disclosures as the SEC deems appropriate." That kind of thing is so purposefully vague as to just make me think this whole thing is a hornets nest. Are my fears overblown, or could this turn out really badly for those intermediaries and issuers who jump the gun willy-nilly?

    Sam: You are right that the SEC has huge rulemaking authority in this process. What the SEC "deems as appropriate" will be set forth in the rules, which are scheduled to be completed by January 1. A lot of people think that the rules will not be finished by then. I don't think they can afford to drag it out much further than that, because crowdfunding is already gaining significant traction.

    I happen to believe that crowdfunding will be a part of the election campaign - Obama will use it to tout his record as pro-business and Romney will warn against over-regulation. If it gets that exposure, then the SEC better not be late with its homework.

    Mark: Either candidates argument, under that scenario, would be pro-crowdfunding for sure.

    How about the investors themselves. We have a lot of accredited and high-net worth readers. However we also have a lot of folks who aren't there yet, although working hard! For the non-accredited investor that wants to particpate in crowdfunding, what are the "rules?"

    Sam: Anyone can participate in crowdfunding, regardless of whether you are an accredited investor. There are limits, though, based on your income and net worth.

    Mark: You mention in your presentation that Angel Networks are likely to see an incredible uptick in the amount of deal flow coming their way. It's going to make the job of separating the wheat from the chaff all that much more difficult.

    Sam: Some people see it differently. Some think that crowdfunding will take deals away from angels. I think the opposite. I think that all angels should be patrolling the funding portals for deals and potentially make unsolicited offers to entrepreneurs based on what they see on the funding portals.

    Mark: Hmmmm, interesting angle!

    Sam: Remember, there is new money coming to the market. The pie is getting bigger. As far as the wheat and chaff, I don't think you'll see any significant increase in chaff (compared with wheat). You might have more deal flow, which means you'll have more deals (more wheat and chaff). How much grain you are willing to process is up to you.

    Lets keep going with this analogy... It may be that this crowdfunding thing provides you with a fancy new combine (I think that is what separates the...) because the 10,000 Americans can help you be more certain about a winner. Remember, however, that other angels and the issuer itself will have the same combine, so you need to be faster with your combine or pick the right field. OK, I think we've killed the analogy.

    Mark: No, that was great stuff Sam.

    What about fraud. I've been in the public markets for a bit, and I've seen all kinds of scams perpetrated on naive investors. I can foresee crowdfunding as a way for some really crappy issuers and all-out fraudsters to extract cash from more than a few greedy and eager "investors".

    What are the obvious risks in your opinion? What about the less obvious ones?

    Sam: Fraud exists in every market, be it public, private, or flea. Massolution reports that fraud in the UK (where equity crowdfunding is legal) is between 2-4%, so not very material. The concern with crowdfunding fraud is that it could happen to someone with literally no money left in the bank. His last $2,000 could be taken. In reality, the chances of that happening are about as likely as him being robbed for the same amount during the next year. Look, its a math problem. For every incremental increase in regulation, fraud goes down and so does wealth creation.

    Mark: No arguments there! I'm not overly enthusiastic about regulation. Especially because it obviously doesn't work. Where were the regulators for the decades that Maddoff was defrauding his investors? Where were they on Enron? Where were they on MF Global? Where were they with the unfolding CDS debacle with JP Morgan? Where will they be when the next shoe drops?

    Despite my feelings, they will continue to exist and become more and more powerful as things disintegrate (which we believe they will). So my question is, how do you see this playing out, from a regulatory perspective? It would seem the regulators will have some pressure to balance the potential positives of job creation, free-flow of capital, etc. with their instinctual desire to make those same things as difficult as possible..?

    Sam: While I agree with you that regulation can kill great intentions, and it has, I believe there is certainly a place for it. To say that regulation doesn't work because bad things still happen assumes that the regulation did nothing. In reality, there may have been 100 more Maddoffs that would have made their way to the newspapers without any regulations whatsoever. In fact, there would be a much lower level of trust in the system without any regulations.

    The SEC has a job that is unenviable (and unfunded, by the way). You are very correct - it is certainly a balancing act. Lets hope their decisions are based on the proper motive of extracting the greatest benefit out of this piece of legislation, rather than whitewashing the bill into non-existence. I would encourage you and your readers to write letters to the SEC about these rules that are being written (they are in the comment period right now). The SEC, by law, has to post your letter for the public to see.

    Mark: We may just do that... We do sometimes "pick" on regulation herein, but I do respect the job these guys do and the intention. Unfortunately sometimes the best intentions go awry. I really do hope they get it right on crowdfunding, it's crucial to America's competitiveness and the fostering of the culture that made the country great to begin with.

    Thanks Samuel, it's been very helpful.

    Samuel: Thank you, Mark.


    If you have questions on crowdfunding, the JOBS Act or anything that you feel is related, please feel free to post comments below.

    This is an important topic, and one which I know strums the heart strings of a lot of our readers, especially the ones who aren't yet accredited but are eager to get into private equity in some way.

    - Mark

    "Make things as simple as possible, but not simpler." - Albert Einstein

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jun 07 10:58 AM | Link | Comment!
  • Making Money With Crowdfunding - Motaavi

    We've spent a fair amount of time discussing and dissecting crowdfunding herein. I've written more than a few posts about it, and we've reviewed the topic with guys we trust.

    Dan Faiman spoke to us about it briefly in Tech Geekery and Tech Geekery - Part II. Jeff Bone gave us some pointers in Angels, Incubators, Venture Capital and Crowdfunding, and John Robb touched on it briefly in Urban Guerilla to Rural Resiliency.

    Today we'll get it straight from the horse's mouth, with a guy who is right in there making stuff happen. We're having a conversation with Nick Bhargava, the CEO of Motaavi, one of the first-movers, and an innovator in the crowdfunding space.

    As you'll see, Motaavi co-founder Melanie Plageman was instrumental in helping to shape some of the crowdfunding points in the JOBS Act, so Nick and his partners are uniquely qualified to give us their insights... Enjoy!


    Mark: Nick, you co-founded Motaavi with 3 other friends. How was the idea for a crowdfunding site conceived? What was your motivation to get into the space?

    Nick: Alex, Kaiting, and Melanie had been working on this idea for a year before I joined in September 2011. The problems they saw can be summarized as such: how can we get startups and high growth companies funded more efficiently? How do you deal with the inherent illiquidity of any equity you own in these small private companies?

    They began working on a technology platform to solve these problems. The obvious first application was crowdfunding. Unfortunately, at that time, US securities laws effectively precluded crowdfunding. The JOBS Act provided a broad reformation of many of these laws, and when we saw the House pass crowdfunding legislation in November of 2011, we immediately focused our efforts on lobbying to get crowdfunding passed into law.

    Our motivation is to make it easier for startups and small, high growth private companies to access capital. Startup founders have to spend a huge amount of resources getting funded, and capital only exists in disparate pockets.

    Many companies which may potentially be very successful nevertheless fail to bridge the "funding gap" that exists when a company is in its earliest growth stages. Moreover, in trying to bridge the gap, startup founders frequently are presented with unfavorable investment terms. We think providing one place, where anyone can be a provider of capital, is the optimal solution.

    Mark: Melanie (Plageman) actually moved to DC in November, right after hearing of the JOBS Act to head up your lobbying efforts. That was a pretty bold move for a young person with no political experience. Did she draw the short straw? She did pretty well it seems!

    Nick: Melanie did a fantastic job in DC. She's pretty fearless and a relentless networker. She made it work because she made the process her own. We didn't have any kind of budget to hire professional lobbyists.

    Our approach was to establish personal relationships with legislators and get them to understand that we really know the issues in this space and care about good outcomes. People in DC became very receptive to our ideas and were willing to give us their time. It was very humbling. Many of our ideas are reflected in the final piece of legislation.

    It was crucial to get involved in the legislative process. It determined whether or not our business would even be legal. Many startups don't realize that their business is impacted by regulation in some form, and a result, never become politically active when it might actually benefit them.

    Mark: Nick, I've written a bit about crowdfunding, and most of our audience is pretty familiar with the way it works. The space is going to get 'crowded' (pun intended) quickly. How is Motaavi going to differentiate itself?

    Nick: Great question. Crowdfunding intermediaries are coming out of the wood works now that the laws have been reformed. We think there will be a shakeout within the first year of transactions commencing. Not to sound petty, but a lot of the people who claim to be in this space don't seem to have any idea about how to make this a sustainable business.

    We're differentiating ourselves in two ways.

    First, we're focused on what we like to call "exponential growth companies" in the areas of technology, life sciences, and energy. This is also a reflection of our respective backgrounds and being located in North Carolina's Research Triangle Park.

    We want companies that scale very quickly and have good exit potential, whether acquisition or VC investment. We understand how the broader private company financing space works, and are committed to making sure crowdfunded companies are in the best position to receive future investment as their capital needs grow. If the company wins, the crowdfunding investors will win.

    Second, our own technology sets us apart. We have patent pending tech that allows us to create very robust markets for crowdfunded and private company securities. If you are a crowdfunding investor, you will have access to a market for any issuer that offers through us.

    Mark: That second point is really the crux of the matter in my opinion. For crowdfunding to be successful there has to be liquidity for the investors and issuers.

    Nick: Exactly.

    Mark: I'm pretty familiar with the public markets, specifically with reverse mergers, filings, private placements, etc. Most of the time the deals are legit, but you see a lot of scumbags floating around, preying off of startups and small companies in general.

    One of the main concerns with crowdfunding is potential fraud. Although there is still a lot of regulation applicable in the new law, fraudsters are a creative lot! How are you guys dealing with protecting your users? How about protecting Motaavi - as the platform will bear a lot of the risk it seems..?

    Nick: That's correct, there is still a lot of regulation in place to provide investors with disclosures and to place liability on issuers for misstatements or omissions.

    Our own platform aims to to be as transparent as possible. The idea is that issuer disclosures, investor interaction, and market activity can be easily tracked to provide any individual investor with complete information. For any relevant issuer, the information you need as an investor will not exist in "pockets," but in one central place. This includes what other investors are saying about the issuer. We want there to be a discourse around offerings. In this way we can truly create an environment that fosters the "social proof" that has been attributed to crowdfunding.

    The legal risk we face as an intermediary is similar to what a broker-dealer faces. It can be readily managed through the same processes and procedures which BDs have employed for years.

    Mark: Of course, that makes perfect sense.

    What about liquidity? That's a major hurdle for investors in private equity. Are you looking at assisting the issuers or providing liquidity for their stock in any way, or are you leaving it up to participants, both issuers and investors, to work out terms?

    Nick: As you can probably guess from my earlier responses, we are providing a market to access liquidity for crowdfunded and private company shares. Issuers and investors will not be left to their own devices.

    We have a very real, very usable market where you can access liquidity, even in inherently illiquid environments, while still finding good prices. This is no small undertaking, as it took a long time to figure out how to make a market that works. The crowdfunding legislation actually gives issuers a lot of flexibility in their offering, including what terms attach to the securities. We have taken this all into account.

    Mark: Do you put any restrictions on offerings? Things such as enforcing existing legislation... or will you be leaving that up to issuers to decipher and abide by on their own?

    Nick: We will put only those restrictions on our offerings that we think will enhance the safety and soundness of our market. We do have to ensure that the statutory requirements are met. Issuers are not left on their own to figure out how to structure the offerings. Though issuers can tailor an offering to suit their needs, the options and features are thoroughly explained in the issuer facing portions of our platform.

    Mark: OK. let's cut to the chase with the question on everyone's mind - how are you guys going to make money? My interpretation of the law is that portals like Motaavi cannot charge issuers or investors. This is the question I get asked most by those interested in the space... You guys aren't philanthropists, so what's
    the business model?

    Nick: We will be operating as broker-dealers and taking transaction-based compensation. If you look at the fee schedule of most discount broker-dealers, you'll get an idea of what it costs to transact with us.

    Mark: Short and sweet answer. Given that you'll be new competition in what's already an incredibly competitive space, what's the brokerage community feedback to Motaavi thus far?

    Nick: Most broker-dealers seem content to watch on the sidelines and see what innovation develops in this space before deciding how they want to participate in crowdfunding. That being said, when we do have conversations with broker-dealers about our particular solution, the responses have been positive.

    Mark: Have you been approached by traditional VC's and PE firms to work with them? I can imagine some of these guys wanting to get a 'first-look' so to speak at specific types of opportunities.

    Nick: Yup! That's all I can say about this for now (laughs and smiles).

    Mark: Well, we will have to take that conversation up again at a later date then!

    Nick: Of course!

    Mark: OK, so take us through the process of becoming an issuer on Motaavi.

    Nick: To become an issuer on Motaavi you must first register a profile with us.

    The user experience is similar to many social networking sites. You will have to provide basic information about who you are, your company, details of your incorporation, details about your basic business model, and the kind of raise you are looking to do. You will also be asked for more specific information in order for us to do a background check.

    From there, you will be asked to complete a formal listing profile which includes the statutorily required disclosures, such as the issuer's financial condition, business plan, use of funds, and more complete details of the offering. You must also determine what it is you are offering and at what price.

    Once the statutorily required disclosures are met, your profile goes live to potential investors. You give people notice about your offering and begin interacting with the crowd, addressing any issues they bring up. It is an iterative process. Once the amount the issuer seeks has been fully committed, the offering may close.

    Mark: How about the investor, what do they need to provide?

    Nick: Again, the analog is registering for a social networking site.

    Naturally, the requirements are much less detailed. However, an investor must provide his or her actual contact information and must indicate his or her annual income or net worth. This is because investors are limited in how much they can invest in crowdfunded companies in a 12-month period based on their income/net worth.

    Once an investor has supplied that information they are given a profile page through which they can interact with issuers and other investors.

    Mark: You touched on your issuer target market a moment ago. Can you elaborate a bit more?

    Nick: We are focused on tech, life sciences, and energy. We understand the unique needs these issuers have. They are typically capital intensive and have some IP at their core. They are looking to do a larger raise.

    We are focused on this segment because members of our founding team have worked in these kinds of companies in the past. We think we are in a unique position to help them and that our solution is particularly valuable to them because of the potential for investors in such companies to desire a secondary market, or for the company itself to pursue another round of funding.

    Mark: I've heard a lot about how great the work environment is at Motaavi. It has to be exciting, as this is really a brand new space you are playing in, and you have a chance to be an instrumental part of it. What's it like for you and your staff on a daily basis right now?

    Nick: We are based in Durham, NC, part of North Carolina's Research Triangle Park. It's an area well known for entrepreneurship and there is a burgeoning startup scene here. It's very refreshing.

    We work in a building which houses many startups and we are constantly surrounded by creative people with unique ideas. It greatly helps us understand who our customers are and what we need to do to better serve them. I don't think we could be doing this in any other kind of environment.

    Though we have doubled down on development now, we still spend a great deal of time speaking to potential issuers and investors in this space. We learn something new with every conversation and that helps us create a better product. Though risky, it's hard to beat the dynamic nature of being an entrepreneur.

    Mark: You won't find an argument from us on that point Nick! Thanks for taking the time to brief our readers, we know you're super-busy right now.

    Nick: You're welcome. I look forward to future dialogs.


    That interview helped answer a few questions that our readers have hit us with regarding crowdfunding.

    Clearly Nick and his team have a good understanding of the market and a plan to monetize the opportunity.

    Chris and I have invested some time and resources into an incubator that is involved with a crowdfunding technology platform. We're pretty excited about it for many of the same reasons Nick and his team are.

    We'll revisit this topic periodically herein.

    - Mark

    "We need to modernize and tweak outdated rules to allow Americans to invest in promising small businesses. Access to capital is becoming much more difficult and we need to identify and develop effective and modern ways for entrepreneurs to connect with potential funders." - SBE Council President & CEO Karen Kerrigan

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 17 3:41 AM | Link | Comment!
  • A Mongolian Meet Up

    It is no secret that Mark and I are bullish on certain frontier and emerging markets which are somewhat uncorrelated to the West. One of our favourite countries is unquestionably Mongolia... of this we have not been shy!

    We first discussed the country in a post entitled: Mongolia - The New Asian Tiger. We then went on to write about this fascinating and intriguing place another dozen times or so. Search the website just to the right of this paragraph, using the keyword: Mongolia to review all of our posts and interviews. You can also download our special Investing in Mongolia report if you haven't already.

    We believe that we could make as much as 10X on our money over the next decade, if not more, investing in select Mongolian opportunities. In fact we've made over 7x on our money in just the last 12 months in one select real estate and financial services company.

    We've also participated in several private placements, and have plans to participate in several more coming up.

    Plus, we've partnered on-the-ground with a young, well-known Mongolian national with a proven track-record of success. Our JV is breaking ground as I write this and should be close to operational by the time of the Summit.

    We have put our money where our mouth is, and we'll continue to invest in Mongolian opportunities that make sense.

    Due to our readers intense interest and curiosity about Mongolia (partially our fault, I'm sure!), Chris and I have put together a VERY SPECIAL EVENT for a limited number of our subscribers. The event is first-come-first-served. There are no requirements other than a strong interest in Mongolia and a passport!

    To download the Summit Agenda, CLICK HERE

    To download a Registration Form, CLICK HERE

    This isn't a vacation to the Gobi, it's an intensive 3-day Summit being held in the capital of Ulaanbaatar, where you'll meet members of Mongolia's Parliament, top business leaders and influencers in the country, tour local real estate developments and be exposed to unique one-of-a-kind opportunities.

    Response to our original mention of the Summit has been overwhelming. While availability is still open, we recommend you send in your reservation form immediately to secure your spot. PLEASE DO NOT send in a reservation form if you have no intention of coming to the Summit. This event is extremely limited and we want everyone who sincerely has an interest to be able to attend.

    We can tell you that from the confirmations we've received already, this is going to be an awesome group! Our "delegates" as we're calling those who attend, are some savvy ladies and gentlemen, to be sure. The networking and deal-making should be intense, and Chris and I literally cannot wait to get to UB and meet everyone.

    We've chosen our dates carefully. Summer is an electric time to be in Mongolia. The elections are slated for the end of June, and shortly thereafter is the nationwide celebration of Naadam, so we'll experience the excitement of the season without the craziness.

    The dates are July 25-28 at The Corporate Hotel in Ulaanbaatar, Mongolia's capital city.

    To download the Summit Agenda, CLICK HERE

    To download a Registration Form, CLICK HERE

    We look forward to meeting more than a few of you in UB in July!

    - Chris and Mark

    P.S. If you can't make it to UB in July but you have a genuine interest in Mongolia, or special opportunities in Frontier Markets in general, drop us a note and introduce yourself.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 26 8:40 AM | Link | Comment!
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