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Tuesday, 04 September 2012 09:18

Startups await regs to dive into crowdfunding

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GRAND RAPIDS — Entrepreneurs will soon be able to access crowdfunding to help start their businesses, but until the regulations are written later this year, many are left wondering just what the new tools will mean.

The bipartisan Jumpstart Our Business Startups (JOBS) Act signed earlier this year raises the number of shareholders that trigger public financial reporting requirements and permits a new capital-raising strategy known as crowdfunding. Supporters hope the changes will stimulate the U.S. economy, while detractors say it would open the door to wholesale fraud.

How the actual regulations will read has been in the hands of the U.S. Securities and Exchange Commission since April 5, when the law was signed by President Obama. Commissioners will take up the rules again during an Aug. 29 meeting. Final implementation isn’t expected until first quarter 2013.

“We’re still not sure what the regulations will say, but we believe the act will unlock a huge pool of funds,” said Zakaria Shaikh, coordinator of Startup Michigan.

The organization, part of the Startup America Partnership, used the JOBS Act as the focus of a daylong educational program Aug. 23 at the Steelcase Town Hall. The update provided an overview of the act, plus a legal panel that explored its implications for entrepreneurs and professional investors.

Shaikh said the mission of his group is to support startups, in part through education. Another part of Startup Michigan, one of 27 regional communities in the 18-month old entrepreneurial support group, will be to showcase the state’s entrepreneurs.

Startup Michigan now includes 178 companies that have generated $68 million in revenue and created nearly 1,100 jobs. The JOBS Act could stimulate a tremendous amount of investment in startups and help propel Michigan into the future, Shaikh said.

“The biggest question is what’s the maximum amount Joe Public will invest,” he said.

In this case, Joe Public is not the well-heeled “accredited investors” that pool their money with others in an angel fund. Accredited investors make at least $200,000 a year, or have a net worth of more than $1 million, not counting the value of their home.

The JOBS Act allows everyday people to invest up to $2,000 a year, or 5 percent of their net worth. The idea is to get thousands of investors to pool their money in what’s called crowdfunding done via an Internet portal.

Earlier this year, Grand Rapids-based investor and public relations firm Lambert, Edwards & Associates, in partnership with Hartwick Capital of Grand Rapids, created the crowdfunding site RelayFund Inc.

RelayFund principal Jeff Lambert participated in a panel discussion at the Startup America JOBS Act program.

Like Startup Michigan, RelayFund will also provide educational support to entrepreneurs, such as teaching them how to value their businesses, how to write a business plan, and how to plan an investor road show.

“The biggest challenge for entrepreneurs is finding capital,” Lambert said. “Traditionally, you would start a business with growth capital. The only way most startups could do that was through friends and family, or through accredited investors. The funding mechanism for friends and family was second mortgages. The mortgage market has dried up.”

The other issue is accredited investors — angel funds — seldom put money into lifestyle businesses, the restaurants, memorabilia shops and brewpubs, for example. Lambert said RelayFund will serve those kinds of companies.

“We’ll target these types of lifestyle businesses,” he said.

Now all eyes are on the SEC, which is expected to fully implement the JOBS Act and spell out the new regulations by early 2013. When that happens, Startup America will work with crowdfunding platforms as another tool to help entrepreneurs, Startup America CEO Scott Case told the audience.

Case said research shows the average age of a startup founder is 40 years. By this time, the founder has gained extensive knowledge that helps him or her have a better chance of success. But what founders need — and what Startup America can help them find — are customers, talent and capital, he said.

For Startup Michigan, the relationship with the national organization will help Michigan members connect with other entrepreneurial ecosystems around the country, Case said. But the focus remains firmly on acting locally.

“We’ve got to get back to our earlier history of locally grown,” Case said. “That is what Startup America is about.”

Mike Brennan is senior technology writer at MiBiz. His day job is editor and publisher of MITechNews.com.

Read 1887 times Last modified on Monday, 17 September 2012 12:15

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