What are the Global Implications for CFI

What are the Global Implications for CFI?

Government focused on growing economies focus on creating jobs. Small business and entrepreneurs are the driving force behind every successful economy across the globe. Cultures and governments that embrace and celebrate the entrepreneur are more likely to succeed in both the short and long term.

Although crowdfund investing is not an economic cure-all, it can be an important part of the solution. It allows significant numbers of citizens to make modest investments in high-growth and/or community businesses. And it can benefit your country for the following reasons:

1. Ideas Follow the Money

Fostering an ecosystem that encourages entrepreneurship and innovation requires capital. If the financial markets or regulations in a particular country are such that capital isn’t flowing, businesses can’t get the money they need. Entrepreneurs who are passionate enough about their ideas will go where the money is available to fund them. This is why many Canadian entrepreneurs head to the United States: because capital is more readily available to fund them there. Countries that wait to update their securities laws will create “brain drain” as skilled entrepreneurs head to other countries where they can fund and launch their businesses. An idea that is successfully funded in one country generally stays there and rarely returns back to the entrepreneur’s country of origin.

2. Ideas Turn into Job-Producing Businesses

Ideas launch businesses. Businesses require people to grow. Good ideas can turn into great job-creating businesses. According to the Small Business Administration, all net new jobs in the United States in the past 30 years were created by small businesses. Big businesses employ thousands of people, but tens of thousands of small businesses create a much larger number of jobs. Crowdfund investing allows a community to fund local businesses and, in doing so, to create its own jobs.

3. Job-Producing Businesses Are Tax Revenue Generators

Businesses pay salaries to employees. Employees pay payroll taxes to the government. U.S. payroll taxes fund both Social Security and Medicare. The more jobs there are, the greater the tax receipts. The greater the tax receipts, the more money the government has to cover these expenses and pay for the future health of its citizens. In addition profitable businesses pay taxes on their profits to help support the infrastructure (roads, electricity, water, and so on) without which a business could not operate. Crowdfund investing will encourage more profit-seeking businesses that will generate more tax receipts for governments.

4. Economic Stimulus Is a Byproduct of Entrepreneurship and Innovation

Entrepreneurship and innovation are about creating and sustaining ideas — ideas that provide solutions to problems and are purchased by consumers domestically and globally. The cash that consumers pay to a business is used to purchase goods to make the product or service, to hire employees, and to pay for things like lawyers, marketing services, and rent. This flow of capital is a boost to an economy. The more a government can do to encourage entrepreneurship and innovation, the more capital will flow, and the better off its economy will be.

5. Local Investing Keeps Money in the Community and Country

The vast majority of capital local businesses spends stays in the local communities where other shops reside. That money is spent on chamber of commerce dues, tax attorney services, lawyers, general contractors, landlords, business services (phone, Internet, trash pickup), local advertising, and so on. Businesses also employ people who make a living from a business’s revenue and, in turn, support the local communities further via grocery stores, gas stations, restaurants, and other everyday expenses. Many state and federal governments understand this multiplier and try to make their regions as attractive as possible for entrepreneurs to start businesses.

6. Crowdfund Investing Leads to a Larger Middle Class and Greater Stability

Having a “barbell” economy with a large underclass, a large wealthy class, and very little in the middle is unhealthy. A barbell economy doesn’t offer people in the underclass models for how to improve their circumstances or create better lives for their families. Also large unemployed population is a dangerous situation for political stability. When you have over 15 percent unemployment in a country, and when that unemployment is particularly pronounced in citizens under 30 (who are educated and frustrated because they are unable to work), you have a recipe for unrest. Crowdfund investing provides communities with a way to build businesses that add value and create jobs. Countries must create ways to grow the size of their middle class.

7. The Number-One Source of Net New Jobs Is Small Businesses

Many economic studies show that the number-one source of net new jobs is small businesses. To create new jobs in your country, you need to help small businesses to start and grow. With the legalization of equity-based crowdfund investing, small businesses have a new spigot of capital that they can use to grow their businesses and create jobs.  People working in small businesses are already oftentimes wearing multiple hats (sales manager, sales person, marketing manager, social media marketer, advertising manager, and so on). When small businesses grow, they have no choice but to hire more people.

8. The Web Can Get Capital Flowing

Before the Internet, banks or other third parties were the only way for individuals to pool their resources and then provide them (via the banks and their lending guidelines) to other individuals to build businesses. Now, individuals can use the web to connect people who have capital to people and businesses that need capital. Other than face-to-face communication, there is no more transparent communication channel than the Internet. The web supports many-to-many communication that enables people to communicate their needs and allows other people to evaluate those needs and determine whether to provide the requested resources.

9. People Want to Support Their Country

Don’t underestimate the power of national pride. People want to support the country and culture they know. People want to invest in people, products, and services they know. In a lot of countries it’s hard for people to invest in businesses that their fellow countrymen are starting and growing. Rather they have to send capital to other countries where it is easier to find a return on their investment. National pride is one reason, but savvy and successful businessmen and women also understand that the better off their country’s economy is, the better off their own businesses will be. This is one reasons we believe crowdfund investing will increase the flow of diaspora money. Today, literally billions of diaspora remittances are already flowing back.  With crowdfund investing, countries create the opportunity for additional capital flows to not only support basic needs but also to make real investments in high value and potentially high-growth businesses in the countries to which people feel deeply connected.

10. You Don’t Want to Be Left Behind!

Crowdfund investing is the dawn of Web 3.0, where the social web meets capital formation. It’s a true disruption of the private capital markets. For the first time, both existing Main Street businesses and startup businesses can seek capital via the same channel and can leverage the power of their communities. More and more countries are exploring this opportunity and working to legalize versions of crowdfund investing that are appropriate for their culture and capital markets. This is another step in making the world a smaller and more connected place. Don’t be left behind!

Sherwood Neiss is a Principal at Crowdfund Capital Advisors.  CCA is a strategy and technology advisory firm that works with Governments and NGO on implementing a CFI infrastructure.

New Data Released by CfPA Shows Suprising Results

How much do you know about Crowdfunding?  This was the context of a survey conducted by Crowdfunding Professional Association in conjunction with Crowdfund Capital Advisors.  They asked 442 entrepreneurs, investors and intermediaries about their interest in crowdfunding, and also about themselves. What they discovered was encouraging as to the level of interest and how much capital they wish to invest, but there still is confusion about all the “CF” buzz words and how specifically equity-based crowdfunding platforms will differ from things like the popular platform Kickstarter.

Since the survey was hosted by Crowdfunding Professional Association, many of the responders (68 percent) were already very familiar with crowdfunding.  However, when asked to rank their understanding on a scale of 1 to 10 as to the difference between what is allowed under current crowdfunding, and how it differs from what we will have in 2013 under the JOBS Act, 36.64 percent ranked themselves as a 5 or less, showing there is a real opportunity to educate the public. Fortunately, a majority of those sampled self-reported a high level of understanding of the implications of this new law, with a full 20.14 percent ranking themselves as having an understanding of 10.

“The general awareness of investment crowdfunding has increased substantially since April but there is still a meaningful opportunity to help entrepreneurs and investors better understand both the nuances of the JOBS Act and early-stage investing in general,” said Ryan Feit, CEO of SeedInvest, an equity-based platform and a leader within the Crowdfunding Professional Association. “Both of these objectives are critical in order to ensure that the investment crowdfunding industry takes off with the massive potential it possesses.”

Distinguishing between token crowdfunding and equity or debt-based crowdfund investing could pose a challenge for new investors, and it is important that people understand these differences if they are to meet their investment objectives. Token crowdfunding, the current model, only allows crowdfunding campaigns to reward donors with gifts, free

samples of their product , or other perks. In contrast, under the JOBS Act, the crowd will be able to be full-fledged investors with an equity stake in the company and a right to a share of the profits. A third popular kind of crowdfunding is debt-based, which allows investors to provide small loans to entrepreneurs similar to the kind of micro lending we have seen used for international development from people like Dr. Muhammad Yunus’ Grameen Bank.

One issue with debt-based crowdfunding is the loans are often unsecured by collateral, meaning investors take on the same level of risk as they would with equity-based crowdfunding, but the upside potential of a company taking off is removed as investors would only receive their loan repayment plus interest.  However, statistics are showing low or no default rates, particularly on debt-based crowdfunding platforms like SoMoLend.

As for concerns within the crowdfunding space, respondents were generally enthusiastic and did not, on average, place one concern over another (on a scale of one to five). The respondents were more concerned about lack of business prowess (3.07), lack of entrepreneurial education (3.07) and fraudsters (3.05), than they were about the investor’s level of sophistication (2.98) or whether they will be overloaded with information (2.84).  Interesting enough, ‘investors only’ ranked their concern over fraud a bit lower (3.02) than ‘entrepreneurs only’ (3.11) — surprising many who assumed investors would be markedly more concerned.

However, seeing fraud not at the top of the list is good news for the industry considering that crowdfunding in the UK has over the last two years produced a sterling record when it comes to fraud. Similarly, crowdfunding has been legal in Australia for seven years with no incidence of fraud. One widely reported incident of fraud involving a Massachusetts company was falsely associated with crowdfunding in the U.S. by the North American Securities Administrators Association, a major regulator of the traditional securities market — however they failed to point out that this particular incidence of fraud did not actually involve crowdfunding; it took place in 2010 long before the crowdfunding law was under consideration by Congress, and furthermore, all under the watchful eye of the old (and current) securities regime. The current securities laws, for several reasons, allow more secrecy in small investments (e.g.: they don’t require background checks) and make them harder to do (because of legal/compliance fees) and hence less common.

While we don’t like to harbor on fraud because the markets do operate at 99.9 percent efficiency, the truth is that there has been much more fraud in the traditional regulated market than there has been in crowdfunding.  “We believe this is due to the community-based system,” says Sherwood Neiss, co-founder and principal at Crowdfund Capital Advisors.  “Committing fraud within the crowdfund investing (CFI) framework is going to be hard to perpetrate. In CFI, all deals will have to flow through SEC-registered portals.  These portals will be regulated and the offerings policed by the crowd.  If there’s one thing we’ve seen come from social media, is it is nearly impossible to pull the wool over thousands of watchful eyes on the Internet.”

Since the data revealed 41 percent of responders had a desire to help companies get capital where they couldn’t before, 44 percent wanted to be part of something bigger than themselves, and 35 percent wanted to make a difference in the life of an entrepreneur, it seems investors are not afraid to roll up their sleeves and really look into what a company is doing to judge the viability of the investment themselves. The community aspect comes into play within the portals where current and prospective investors will be able to rate and comment on the activities of the various investments and hold management’s feet to the fire if things are being mismanaged.  Such open dialog on a medium like the Internet, where thoughts and comments are recorded for history, leads to transparency and accountability.

In the seven years crowdfund investing has been legal in Australia and in the two years it has been legal in the UK, no cases of successful fraud have been discovered. In donation-based crowdfunding in the US, fraud has been caught rapidly, and always before funds are distributed, as social networks uncover the truth. Experience has already shown that potential sponsors are able to collectively crowdsource a startlingly effective due diligence machine far better than the eyes of a single Wall Street analyst. They are able to shed light on every aspect of the business. This is very different from the market of the early 2000′s when people bought and sold derivatives products blindly without looking at the underlying assets or what the original investment actually was. This type of community driven investing means people will have intimate knowledge of the activities of the few crowdfunded ventures in which they are able to participate before they reach a legal cap based on their income and net worth. This is a system by which friends, and friends-of-friends,  get together to grow an idea they understand and personally support.

One major industry that will be big in crowdfunding is technology. A full 30 percent of the entrepreneur responders were in the technology sector with 10.3 percent in media and entertainment, 9.87 percent in finance, and 9.44 percent in consumer goods. 19.47 percent were in the catchall “Other” category, which included ideas such as Space and Robotics , Energy, Health, Beauty, Medical Devices and others. Crowdfunding seems to have natural allies among the tech sector innovators of Silicon Valley, as they are constantly starting new ventures and they understand the power of social media. “What they don’t have access to is the capital that only resides within 60 miles of Silicon Valley — which is where CFI steps in.  It allows tech companies in Anytown, USA to raise capital for their ideas locally,” says Jason Best, co-founder and principal of Crowdfund Capital Advisors.

Where will the entrepreneurs gravitate to fund their ideas?  The largest portion, 34.67 percent of respondents, said they would go to the most visible portal or platform to help raise the most capital, while another 34.34 percent were interested in industry-specific platforms. We surmise the interest in industry-specific platforms is based on a belief those platforms might better target more savvy investors interested in funding innovative technical niche ideas.  The thinking driving that statistic might be that industry-specific ideas may not get traction from the average investor looking at returns alone on some other platform with more ‘generic’ offerings, despite the platform’s visibility. “

Since a large portion of the respondents were in technology and a sizable portion were interested in industry specific portals and platforms, it is likely that there will be room for several tech industry crowdfunding platforms to become successful in the new market.

Are these all zero revenue companies?  Surprisingly, they are not.  The respondents were generally small companies. Of the 122 that responded to the question about 2011 revenues, 81 percent reported under $100K. 15.7 percent reported having 2011 revenues between $500K and $1 Million. 1.65 percent had 2011 revenues between $1 million and $5 million, with another 1.65 percent reporting 2011 revenues of over $5 million. Don’t let their small sizes fool you, these entrepreneurs have big dreams! Although 36 percent of respondents were looking to raise capital for the first time, 35 percent have been part of a startup before, showing they have experience with startups.

While 15.88 percent of respondents had only an idea for a startup, 33.48 percent had a formal business plan, 27.04 percent  had a product or prototype, and a full 23.61 percent were already operating and bringing in revenue. Those figures show the error in the notion that anyone and everyone with an idea will be throwing it up on CFI platforms, as the majority of respondents had much more than simply an idea.

36.64 percent of entrepreneurs were looking to raise under $100K in capital from portals to fund their venture. 35.34 percent wanted to raise between $100K to $500K. 16.81 percent wanted to raise between $500K and $1 million, while the remaining 11.21 percent were hoping to raise more than $1 million. With  88.79 percent of the respondents looking to raise amounts under the $1 million dollar threshold set out by the JOBS Act, it is clear that this new asset class will find an under-served market.   It wouldn’t make sense for these companies to go though the red tape and regulatory burden of an IPO or formal Reg D to raise such a relatively small sum of capital. An exorbitant percentage of that raised capital would be taken up in attorney and investment bank fees under the traditional IPO process.

These companies aren’t looking for huge amounts of capital, but they do want to grow. 79.39 percent have three or fewer employees, and of that group 44.05 percent are companies made up of only one individual. They want money to expand, 41.24 percent of the companies want to take their employee count to five or more.  “Jobs might be the biggest thing to come out of Crowdfund Investing,” says Neiss.  “Capital to fund an idea is just one part of the equation.  Having the capital you need to build a successful team to help you grow your business to the next level is another.  Getting these entrepreneurs the capital they need will allow them to hire the Americans they want to launch great businesses.”

Small businesses find it difficult to get the eyes and ears of professional investors. With the current economy banks are failing to lend and refusing to take a chance on small businesses, to the point where many people have stopped trying. Out of 124 respondents 18.22 percent tried to get a loan from a traditional bank. Compare that figure with the 20.44 percent that approached Angel Investors, 13.78 percent that went to VC’s and 12 percent that went to private equity.  To add further credibility as to why the community will be where these entrepreneurs find their funds, 35.56 percent went to friends and family.  Clearly, people are eschewing the institutionalized paths to capital and opting for less formal sources of money that may be more interested in the upside potential of their business or idea rather than concerned about collateral.

From the survey we also learned quite a bit about potential Crowdfund Investors. Most respondents were not accredited investors. 71.43 percent self identified as non-accredited investors while 28.57 percent stated they were accredited. After the passage of Dodd-Frank in the US, the definition of an accredited investor changed to a person with a net worth over $1 million dollars, not including home equity, or a person making $200,000 per year for at least the past two years .This change in definition bumped many investors who were formerly accredited investors out of that class because many had a large portion of their assets tied up in home equity. 8.51 percent of responders had an annual income or net worth less then $40,000, 25.53. percent between $40,000 – $100,000, 42.55 percent between $100,000 and $500,000, 9.55 percent between $500,000 and $1M, and 13.83 percent had a net worth or annual income over $1 million.

According to the legislation, there are restrictions placed on how much each person can invest through crowdfunding,  based on income or net worth.. If you make less than $40,000 per year you can only invest $2,000 in to all crowdfund projects. You can put up to 5 percent of your income (or net worth) if you make between $40,000 and $100,000. If you make or have over $100,000 in net worth you will be able to invest 10 percent of your income in crowdfund equities. It was important to look at these numbers from both an accredited and unaccredited point-of-view.  Based on the chart below certain things became clear.  1) Accredited investors will be investing larger amounts in terms of dollars (34 percent said they would invest over $25,000), 2) the bulk of the contributions will come from unaccredited investors (71 percent), and 3) the median investments look to be in the $2,000 to $5,000 range.

If we drill down to the data some more and make some (overly) general assumptions that the middle of each of the ranges in the columns above is where the average investment will fall (and no investment will be greater than $100,000) then, on average, it would appear that unaccredited investors will deploy $4,347 per year and accredited investors will deploy $29,987per year. (If we toss out the top 10 percent and bottom 10 percent, the figures change to $26,188 for accredited and $3,635 for unaccredited).

You can see how quickly an entrepreneur who is one of the 72 percent hoping to raise under $500K in capital could meet his benchmark if only he can get the attention of enough of those investors looking to invest $29,987. It also is readily apparent that there is a sizeable group of people who fall outside the accredited parameters but are willing to invest in crowdfunding. The change in the legislation will allow this for the first time.

Since the folks who can invest more than $20,000 in crowdfunded ventures are likely to be accredited investors (if they have earned that $200K for two years or more) then we can see by the fact that we have some respondents wanting to invest $25K, $50K, and even more than $100K in crowdfunded equities, that this industry has tremendous potential.

At the end of the day, the fight to legalize crowdfunding was about democratizing access to capital so startups and small businesses could get back to innovating and creating jobs.  Who was more excited?  Entrepreneurs ranked it a 3.48 while investors put it at 3.37.  Entrepreneurship was second and tied with investors at 3.25, and innovation was third with 2.98 for entrepreneurs vs. 2.87 for investors.  What about the excitement over investment opportunities? Well, that’s where the investors came in above entrepreneurs, at 2.78 vs. 2.59.  Seems like the investors really are interested!

One part of the survey results stood out from the rest with surprising results. When asked what the biggest driver is to investors in making their investment decisions,  while 33 percent said the obvious answer was investment returns, 20 percent said their biggest driver was helping companies get capital where they couldn’t before. Another 20 percent said their main driver was being part of something greater than themselves. 17 percent said the ability to make a difference in the life of an entrepreneur was their biggest driver. Try getting that from the traditional economy.

“I think this survey shows how inspired people are by the unlimited possibilities that can happen with the crowdfunding bill. For once our entire society can play an active role in job creation and help level the playing field for access to capital for entrepreneurs everywhere.The Crowdfund Professional Association will continue to take a leading role in educating one and all, and help to create a strong and solid foundation for this new industry to thrive, ” stated Ruth Hedges, CEO of Funding RoadMap and Founding Governance board member of the CfPA.

The Crowdfunding Bootcamp and CFPA Convention in Las Vegas

Las Vegas, Nevada (PRWEB) October 17, 2012 – The Crowdfunding Bootcamp and CFPA Convention in Las Vegas Nevada, October 9-11, was a pivotal event in the establishment of the Equity Crowdfunding industry. Hundreds of crowdfunding thought leaders, service providers, nascent funding portals, social media experts, accounting, legal and policy professionals, and individual entrepreneurs gathered to understand the challenges, the promise, and the nuts and bolts of the coming equity crowdfunding era, how it will be executed, and how it can be made to work for everyone.

Combined with the event was the first annual Crowdfunding Professionals Association CfPA Conference, a group of first movers in the industry. The Crowdfund Intermediary Regulatory Advocates was a co-sponsor of the event.

“Reflecting crowdfunding itself, the CFPA conference had an authentic DIY spirit and excitement that more ‘corporate’ conferences lack.” said Paul Spinrad, “I connected with people doing a diverse range of great things there, and gathered some information that will really help me. I look forward to an even bigger crowd at the 2013 event.”

CfPA board member Kim Wales said, “We all have a role to play! Whether you led from the front or led from the back; showed up to learn, teach, encourage or laugh – sell products or just to be seen – the conference hall was 250+ persons strong. All of our hands and minds came together in unity; forming the industry’s first Annual Crowdfunding Bootcamp and Crowdfunding Professional Association Conference in October 2012.”

Ruth Hedges, Crowdfundingroadmap.com bootcamp creator and organizer and board member of CfPA, hosted and moderated the event. “We are on the threshold of a new era in the financing and creation of new businesses. The JOBS Act crowdfunding provisions will allow for vastly expanded participation by all Americans who will be able to make small investments to participate in job creation and capital formation,” says Hedges, “the challenge now is two-fold: for the SEC to meet their responsibilities in finalizing the rules of the road by the end of the year, as stipulated in the bill, and the education and creation of a pipeline of entrepreneurs and as well as the education for a country of newly enfranchised small investors -that means you!- to be able to take advantage of this opportunity.”

Keynoter Peter Shankman, founder of Help A Reporter Out (HARO) and now small business evangelist for Vocus, was on hand to help frame conference business in terms of “understanding the rapidly changing technological, social and economic ecosystems that enable crowdfunding, along with examples of viral success stories and why they worked.” said Meghan Cole, VP of Operations for Laughlin Associates one of the event’s coordinators and sponsors.

Alix Shaer, fundraiser and well known for raising millions of dollars for the American Cancer Society, helped entrepreneurial attendees to think about how to leverage and recruit who they know and the importance of communicating one’s passion directly.

Wednesday’s panel featured a heady line-up including; Maurice Lopes of Early Shares, Candace Klein of Bad Girl Ventures and SoMoLend, Scott Purcell of the crowdfunding platform Arctic Island, Joy Schoffler of Leverage PR, D.J. Paul of Crowdfunder, Rodney Sampson of Legacy Opportunity Fund and Dara Albright of NowStreetMedia. “If one could choose one element of the event that people would have wanted a lot more of, it was this incisively intelligent and practical-minded panel,” said conference staffer Joe Phelan.
Other amazing speakers included Douglas Ellenoff, of Ellenoff Grossman & Schole LLP, who has consulted with the SEC on crowdfunding rules and whose firm, along with Sara Hanks founder of Crowdcheck, has played leadership roles in communication with the SEC to help establish those rules; bringing further credibility, Gary Milkwick of 1800Accountant- a firm specialized in small business; Michael Fultz of Fund All Be All, a full spectrum crowdfunding service provider; Bruce Johnston and Zachary Hedges of CaptureTrackConvert, a customer acquisition optimizing platform, and; Karl Burl of Navicate, a service to streamline the valuation process and Arron Young CEO of Laughlin Associates a first mover in providing Incorpoation and corporate veil protection to the crowdfunding industry.

The event featured the first Funding Portal Pavillion TM, with booths featuring 30+ companies who provide services and support to entrepreneurs. Many new portal companies were able to interact with their future customers and each other. “The CFPA conference was an incredible event, probably the largest CrowdFunding event to date in number of attendees. The vibe and deals were so positive that even direct competitors became great new friends.” said Maurice Lopes CEO of EarlyShares.com “When the right people get together to support a new industry great things can really happen!”

Toward the end of the last day, Sherwood Neiss, a founding member of the Crowdfund Professional Association, who also helped push the Jumpstart Our Business Startups Act in Congress, stood up and talked about the issues of potential fraud, transparency and accountability, and noted that with equity crowdfunding, as with the current gift-based crowdfunding, the safety is in that one has to build support from your friends and family who expand out to their friends and family; without the trust of the people who know you, there is little chance of your campaign going viral and getting funded. Support doesn’t come from an impulse. The internet has a memory. Neiss explained. “Con-artists will for the most part be identified and the disclosure and transparency as stipulated in the bill and registration process will keep fraudsters from even starting.”

Ms. Hedges emphasized the need for getting entrepreneurs educated and prepared in the crowdfunding process: “To feed the demand next year from these new funding portals and the millions of new investors who will be looking for quality deal flow, we need to start now and build a pipeline of one million crowdfund compliant small businesses who will be ready to launch an equity crowdfunding campaign once its legal to do so. We need to ramp this up now in order to provide a continuous flow to create the new businesses and jobs that will power our economy forward.”

On the last day, Jed Cohen, CEO of Rocket Hu b gave the closing keynote, brilliantly explaining the logical dynamics of crowdfunding with diagrams that in one case resembled the clusters of star systems he studied as an astrophysics student. Rocket Hub is one of the existing crowdfunding sites that sees equity crowdfunding in its own future.


Survey Shows Many Small Business Are Not Aware Of Crowdfunding

At a time when small businesses cannot find capital, it’s hard to believe that small businesses do not know where to look to raise funds. Credit agency Experian discovered that more than two-third of small businesses surveyed by Experian are unaware of crowdfunding.

Experian surveyed 300 small and medium enterprises (SME) and found that awareness of different types of business finance is very low among SMEs, with most continuing to rely on traditional bank overdrafts or personal sources of cash for additional funding. Alternative sources of finance are yet to have made a significant impact.  ”Of the various forms of business funding options, crowd-funding was the least well-known among respondents, with 69 per cent never having heard of it,” Experian reported. “Meanwhile, angel investment, business cash advances and government grants also scored poorly in terms of awareness.”

When questioned about the first thing they do when thinking about additional financing, the respondents disclosed:

  • 42 per cent of them would go to their personal bank.
  • One in ten said they would try all the major banks first.
  • Seven per cent said they would search the internet for the best deals.
  • Six per cent said they would speak to a broker.

The findings also reveal that 60 per cent of respondents had sought some form of extra funding in the last 12 months and the need to alleviate short-term cash flow problems was by far the biggest reason for applying for extra cash (58 per cent). This outstripped activities for growth, such as expanding their product portfolio (20 per cent) or hiring more staff (12 per cent).

Experian also found that only one in four (27 per cent) SMEs definitely planned to apply for some form of extra funding in the coming year.

Image (c) by Crestock

SEC Offers Forum on Small Business Capital Formation

Washington, D.C., Sept. 20, 2012 – The Securities and Exchange Commission will hold its annual SEC Government-Business Forum on Small Business Capital Formation on November 15 at its Washington, D.C. headquarters.

This year’s forum will begin with panel discussions on the implementation of the recently enacted Jumpstart Our Business Startups Act, or JOBS Act, and on small business capital formation issues not addressed by the JOBS Act. During the afternoon, participants will work in groups to formulate specific policy recommendations.

The forum begins at 9 a.m. ET with the panel discussions, which will be webcast live on the SEC’s website. The afternoon breakout group sessions will be open to the public and accessible by teleconference, but will not be webcast. Anyone wishing to participate in a breakout group, either in person or by teleconference, must register online by November 12.

The names of panel participants and the full agenda for the forum will be announced at a later date and posted on the SEC’s website. Members of the public are invited to make suggestions for recommendations or topics to be discussed at the forum. These suggestions, and any questions about the forum, should be e-mailed to the SEC’s Office of Small Business Policy at SmallBusiness@sec.gov. For more information, call (202) 551-3460.