Tag Archives: crowdfunding


What are the risks and rewards of crowdfunding law?

Arizona’s new crowdfunding law, which is intended to give small companies in the local Arizona economy greater access to capital, took effect on July 3. Arizona joins a growing number of states that have recently enacted laws permitting some form of equity crowdfunding. For startups and other emerging growth businesses that may not have ready access to traditional sources of funding, equity crowdfunding may be an attractive option for raising capital.

Crowdfunding is the process by which companies raise capital with relatively small individual investments from a large number of investors, typically through the Internet and social media. Historically, crowdfunding has existed primarily in reward-based or donation-based models which allow individuals to contribute funds to particular projects, either as donations or in exchange for certain products or prizes. By comparison, equity crowdfunding is the process by which a company raises capital through crowdfunding in exchange for equity interest in the company.

Under Arizona’s crowdfunding law, a company can raise up to $2.5 million if it provides investors with its audited financial statements, or up to $1 million otherwise, from investors in an offering. An investor can invest up to $10,000 in any company, or if he or she is an “accredited investor” under federal law, an unlimited amount.

Arizona’s new law is not available for everyone. The company can only offer and sell securities to Arizona residents and must be “doing business” in Arizona, which requires, among other things, that it maintain its principal office in Arizona and derive at least 80 percent of its gross revenues from operations in Arizona. Although many local companies will satisfy these requirements, businesses with a more regional or national presence will likely not qualify.

Raising capital under the Arizona crowdfunding law has its drawbacks. Prior to commencing an offering, the company must specify the offering period and the target offering amount. All funds invested during the offering period must go to an escrow account until the end of the offering period. If the company fails to raise at least 80 percent of the target offering amount, the offering is deemed a failed offering and all funds must be returned to investors. Additionally, federal law also imposes limitations that could restrict a company from raising additional funds for up to six months after the offering, which might not be a viable option for many startups. Going forward, companies must also provide quarterly disclosure regarding the business to investors. Consequently, companies considering an offering under Arizona’s crowdfunding law must carefully consider their short-term and long-term capital needs before commencing any offering.

Investors should be aware of the risks of any crowdfunding offering. Most startups go out of business within a few years of launching, and because there is no active market for securities bought in a crowdfunding offering, even investors who invest in successful companies may find it difficult to achieve liquidity for their investment. Unless and until a market for these securities develops or the company is acquired, investors could be holding their investment indefinitely.

Kevin J. Walsh is an attorney at Quarles & Brady in Phoenix. For more information, visit quarles.com.


Op-Ed: Crowdfunding, bubbles, donuts and Millennials

By Steve Sadler, CEO, Allegiancy

A quick question: What’s the connection between bubbles, donuts, Millennials living at home with their parents and a new crowdfunding model recently approved by the Securities Exchange Commission?

You’re probably stumped. The first part of the answer lies in an alarming trend affecting an entire generation of Americans that has far-reaching economic implications in this country and even the world. The second part is how a rather obscure federal regulation that was recently passed that’s related to crowdfunding can become a harbinger of new opportunity for recent college graduates and become a big boost to the American economy along the way.

The first connection is the college bubble. We’ll define it roughly as college students getting hosed by institutions of higher learning that keep jacking tuition rates and failing to teach our kids much that is actually relevant.

This comes at a time good jobs are hard to find for new graduates and the income of all Americans is stagnant. It’s not a formula that’s going to breed a successful younger generation of American workers.

The data speaks for itself: Tuition rates, adjusted for inflation, have jumped 129 percent in the past three decades while the real median family income has risen about 8 percent, according to the Institute of Education Sciences.

The Shackles of Student Debt

In conjunction with this, student loan debt has climbed rapidly over the last two decades. Writing in a Federal Reserve Bank paper published earlier this year, authors Felicia Ionescu and Marius Ionescu write that student debt reached $1.3 trillion in 2014. Yes, trillion. Or about the annual gross domestic product of South Korea.

Five years ago, total student loan debt surpassed total credit card debt for the first time. With 70 percent of individuals who enroll in college taking out student loans, the recent college graduates are the most indebted in history, lugging around an average debt load of $27,300.

So let’s break this down: Young Americans are financing something they obviously can’t afford on the hope — prayer? — they’ll hit the jackpot with a decent job when they graduate to pay the bill coming due. Yet many of them can’t pay off these loans because they can’t get good jobs. So they’re stuck. People say you should invest in education…but does it count as an investment if the return is ZERO?

The New Donut Shape of Cities

Which leads to a conversation about donuts. No, we’re not talking Krispy Kreme or Dunkin’. These donuts describe what’s happening in cities across America such as Charlotte, N.C., Houston, Tex., Denver, Colo., and elsewhere.

The Weldon Cooper Center for Public Service at the University of Virginia published a fascinating study earlier this year titled, “The Changing Shape of American Cities.” Author Luke Juday writes that many American cities have historically had a “donut” model in which a ring of thriving suburbs occupied by wealthy, educated residents lived in a safe setting and surrounded a city center populated by a poor, minority population living in crime-ridden neighborhoods that were increasingly being abandoned.

Today, however, is arising the “new donut” featuring a resurgence of historic downtowns and urban neighborhoods that’s often driven by an influx of educated Millennials. Beyond this thriving inner core, Juday writes, are neighborhoods that were once the domain of middle-class professionals and their families that now attract lower-income residents.

Beyond this ring is an expanding countryside attracting the middle-class population that once populated the inner ring. Even in the face of longer commute times that are much less attractive to younger workers, wealthy residents are seeking rural seclusion while still holding onto urban paychecks.

Here’s key data from Juday’s study:

—Millennials who are significantly more educated and have higher incomes have increased in the center of cities across the country, while at the same time the Baby Boomer generation forms a smaller proportion of the inner-city population than they did in 1990;

—In most cities, a decrease in income and education levels from 1990 to 2012 is evident several miles outside the inner core, while households below the federal poverty line are migrating outwards from city centers;

—Most growth in housing units and population continues to come at the outer edges of cities, a population that is more educated and has higher incomes, but is less likely to be younger adults.

What do we read into this trend? The good jobs to be had are often in the cities.

So the Millennials carrying around their student debt are heading to these cities where they can find a decent-paying job and still enjoy the amenities they hold dear, such as cultural attractions, brew pubs, nightlife and close proximity to work. They are getting married later and not much interested in owning a home…so apartment renting and city living is just fine.

Those that can’t get jobs and aren’t heading to the cities are in a tough spot. Good jobs aren’t readily available in Smalltown, USA. Or even Mediumtown, USA. But they’re still shackled by this student debt. Which, by the way, is the ONLY debt (other than what is owed to the IRS) that cannot be discharged in bankruptcy no matter how dire your situation.

Millennials Are Homebodies

Which brings us to another alarming trend that’s also afoot: Hello Mom and Dad…we’re back!

As outlined in a paper for the Federal Reserve Bank of New York titled, “Debt, Jobs, or Housing: What’s Keeping Millennials at Home?” Millennials are living at home, still. Even after they get out of college with their degrees. The paper outlines how young Americans’ residence choices have changed markedly over the past 15 years.

Millennials are entering the housing market at lower rates and lingering much longer in their parents’ households. The ownership of homes among those 30 or younger is steadily deteriorating. Other data suggests Millennials are retreating rather alarmingly from the housing and auto ownership markets, meaning the economy isn’t getting a boost from newcomers to those markets.

Why are cars and homes out of reach for Millennials? Not to sound like a broken record, but once again a couple of factors are at play, according to the paper: The aforementioned student debt and a lack of jobs due to the recent recession.

The Game-Changer

It’s a pretty bleak picture we’re painting, right? But wait, we at Allegiancy have what we think is a game-changer to all this dreariness and we fully intend to capitalize on it.

Tucked into Title IV of the 2012 JOBS Act is a rather obscure regulation related to crowdfunding. It’s known as the new Reg A and it allows small businesses to raise up to $50 million through public stock offerings. The new regulation bumps the amount businesses can raise from $5 million to $50 million and allows regular folks to participate in these investments for the first time.

So what does this have to do with bubbles, donuts and Millennials living at home? It means that later this year, when we at Allegiancy are offering $30 million in preferred equity securities under these new regulations, we can grow our business.

We can hire those recent college graduates and give them a good job right here in Richmond, Va. They won’t have to go to the big city for a good job. Not only will they be able to finance their student debt, but as we grow and take on new commercial property assets to manage, their income increases and home ownership is attainable. So long Mom and Dad! Oh…and by the way, we are hiring young people with alternative degrees and no student loans…and even some (GASP!) of our staffers have no degree at all. Education is what happens between your ears; it doesn’t have to be in some formal classroom.

And although we may be the first to make use of the new Reg A crowdfunding rules, we won’t be alone. There are about 27 million private companies in the U.S. who will now be able to access capital markets much more easily. Imagine what a boon to the American economy this new crowdfunding model can be. If these companies grow by 20 percent, that will create as much new value as the ENTIRE S&P 500…and then some!

Where We Go From Here

The potential to tap into this new crowdfunding model is open to any business owner savvy enough to run with it. The financing is now within reach for the plumbing shop owner in Peoria who wants to expand and take on new employees and equipment. The successful restaurant entrepreneur in Wichita who wants to become a small chain now has the opportunity to obtain financing. The trucking firm in Amarillo that wants to add to its fleet can buy more trucks and hire drivers, mechanics and managers.

It’s the story of how a new crowdfunding model is the answer to bubbles, donuts and Millennials living at home…stay tuned!


Crowdfunding law gives Arizona startups a boost

A bill was introduced at the Arizona State Legislature during the 2015 session and signed by Gov. Doug Ducey that allows entrepreneurs to raise equity for their company from the general public.

The passage of HB2591 allows people to invest and potentially hold stock in companies that raise money through crowdfunding websites such as Kickstarter and Indiegogo.

“It’s basically the idea that companies shouldn’t be limited to having just rich people be their investors, and individuals shouldn’t be restricted from investing small amounts of money in companies that they know and love,” said Jonathan Frutkin, a Scottsdale attorney and author of “Equity Crowdfunding: Transforming Customers into Loyal Owners.”

Crowdfunding has become a popular method used by up-start businesses to raise money for product launches or other business ventures. It works by allowing anyone to funnel money into thousands of projects you can find online.

However, concerns over fraud loom over the different crowdfunding websites. Although many remain hesitant to give money to companies electronically, concerns over fraud and embezzlement may be unfounded, Frutkin said.

“When an organization may ask ‘hey, you want to raise money online?’ Give me a copy of your articles of organization, your lease, intellectual properties.’ When you ask those question the fraudsters say, ‘there’s a lot easier ways to steal money that this,’ ” Frutkin explained.

HB2591 was originally introduced to the legislature by Rep. Jeff Weninger, R-Phoenix. The Arizona Small Businesses Association helped write it.

Besides Arizona, 17 other states have passed crowdfunding bills. Frutkin said he expects at least 25 states total to have passed similar bills to HB2591 by the end of 2015.

Only Arizona residents would be allowed to invest in Arizona companies, according to the bill. Investors can donate up to $10,000, while companies can raise up to $2.5 million through crowdfunding campaigns.

Arik Tasa-Bennett, a finance major at Arizona State University, has run his own phone-resale business for several years. Tasa-Bennett said he hopes to become a successful entrepreneur, and sees the potential for future businesses to grow through crowdfunding.

“I think this system could be more efficient than traditional ways of financing a product,” Tasa-Bennett said. “With this idea, where the public can see the product and get an opportunity to invest in it, the advantage is that it brings the product closer to the end-user. That’s the whole goal of marketing. You want to know your consumer as well as possible.”

Said Frutkin: “The ability for the small investors, regular people, to invest $100, $200 in a company they love, a night club or restaurant they go to, that really doesn’t exist now. That’s what the Arizona crowdfunding bill will allow. It will allow Arizona people to invest in Arizona businesses.”


Here are the best ways for funding a startup

Researching how to fund a startup can be an arduous task. Many start the process by “bootstrapping”, which is the exact opposite of funding. It essentially means the entrepreneur uses their own savings to fund the business. There are many companies that have successfully launched using this strategy before taking on investors. For example, MailChimp and AirBnB founders both used bootstrapping to launch their ideas. Although as funding options go, bootstrapping tends to be a less-popular choice, as it generally involves more risk.

If access to cash reserves or savings is limited, we recommend these five alternatives to consider for funding a startup:


This is one of the newer ways to secure funding and it has recently taken the entrepreneurial world by storm. Popular platforms like kickstarter or Indiegogo are great examples of websites that allow users to create crowdfunding campaigns.

Here’s how it works: an entrepreneur will post a detailed description of his/her business on the platform of choice along with the goals of the business, future financial strategies for turning a profit, the target audience, how much funding they require and the reasons. Anyone can contribute money toward helping a business that they believe in. Generally, those giving money will make online pledges with the promise of pre-buying the product or service. While there are many advantages to this tactic, competition is widespread, so startups need to make an idea stand out from the crowd in order to attract the crowd.

Venture Capitalist Funding

Venture capitalists specifically look for startups to fund. For many businesses this option is ideal, as venture capitalists have a lot of money at their disposal and plenty of resources readily available to help companies succeed. On the flipside, the business owner can end up giving away a considerable percentage of the company, and the underwriting and funding process can take longer than anticipated.

Angel Investor Funding

Angel investors work similarly to venture capitalists except their operations are much smaller, sometimes only one person. Like venture capitalists, angel investors will often want a large portion of your company, e.g. owning 49 percent of your company is not unheard of with an angel investor.

Credit Cards

If you have excellent credit history you may be able to use it to establish a line of credit to help fund your startup. There are specific credit cards designed for entrepreneurs, so visit your bank to learn about the options that may be available. While a line of credit is a way to access funds quickly, it can have a negative impact on your personal credit, especially if you find yourself unable to make timely payments.


Factoring is one of the oldest forms of financing. Factors offer lines of credit like a bank, except a factor will underwrite the credit quality of the company’s customers, not the company. Everything comes at a price when it involves financing a startup, and factors will need to see a return on their investment. They charge a fee instead of an interest rate, and you can expect it to be comparable to a cash discount. One of the major benefits of factoring is funds can be available within five to 10 business days of receiving your application. Factors are lenders who don’t require equity and they can grow your credit limit as your business grows.

While any one of these options will traditionally lead to secured funding, we encourage you to continue working on your idea, even if you don’t initially succeed in getting the monies needed. If you’ve exhausted all of these avenues, it may be worth pitching your idea to friends and family, but remember nothing kills a relationship like money so give it serious consideration first.

Entrepreneurs are typically thick-skinned individuals who are accustomed to having the door shut in their faces many times before getting a positive response. If an idea is a good one, and it’s marketable, through hard work and perseverance, funding will be attainable, and the business should come to fruition.

7th Gate Center

Strength in Numbers: Crowdfunding bullish on real estate

Crowdfunding isn’t just about raising capital for smart watches, giant batches of potato salad or unexpected life events. It’s increasingly an online marketplace used by real estate investors around the country. Massolution reported last April that crowdfunding platforms raised $2.7 billion for more than a million campaigns in 2012. It went on to predict, as reported by Fortune magazine, that by 2025 the global crowdfunding market would see business between $90 billion and $96 billion — two times the size of the current venture capital industry, per a 2013 study by World Bank.

Justin Headshot

Justin Hughes

Realty Mogul, Co., Co-founder and CTO Justin Hughes likens getting in on the ground floor to people who reserved email addresses in the early ‘90s, before it became mainstream.

“Sometimes we’re rewarded for being the early adopter,” says Hughes. “If it hits, you’re front in line.”

The recovery, in part, paved the way for crowdfunding, he says. Investors wanted to deploy capital in a market without a lot of opportunities to invest. About 7 percent of the U.S. population is considered an accredited investor, says Hughes. An accredited investor is someone who is worth $1M outside of his or her primary residence.

Nav Bio Photo

Nav Athwal

Last June, downtown Phoenix’s 7th and Gate Center became one of the largest commercial transactions in Arizona to be crowdfunded. Cole Value Partners brought the opportunity to online real estate investing marketplace RealtyShares, which underwrote it and then listed it for funding on its online platform. It takes only minutes for a registered investor to complete the funding process once he or she reviews the opportunity information, says Nav Athwal, co-founder and CEO of RealtyShares. It took a little over a week to raise $750,000 for 7th and Gate Center.

“Investors are no longer restricted to investing only in their backyard and can instead passively invest with a qualified real estate sponsor in markets that otherwise would not be accessible,” says Athwal. RealtyShares is especially bullish on regions with population and job growth or a lack of cap rate or valuation compression, such as Dallas, Seattle, Chicago, Portland and Phoenix.

“Phoenix is especially attractive for office and retail assets due to an improving job market, which is contributing to reduced vacancy rates,” he says.


SEED SPOT hires Director of Entrepreneur Initiatives

Phoenix-based SEED SPOT, one of six incubators in the country focused on social entrepreneurs in the fields of health, education, energy and environment, human and basic rights, civic engagement, and community impact, hired C’pher Gresham as its Director of Entrepreneur Initiatives.

In his new role at SEED SPOT, Gresham will be responsible for enhancing programs, strengthening recruitment efforts, supporting funding development and guiding overall program growth strategy.

Hailing from the nation’s capital, Gresham attended The George Washington University, graduating with a BA in Psychology, Pre-Medicine, and a minor in Fine Arts and Art History. In May 2014, C’pher received his MBA with Distinction from Thunderbird School for Global Management.

Professionally, Gresham has consulted with venture capital firms, hedge funds, and large institutional investors. Prior to Thunderbird, he worked at Razoo.com, a crowdfunding platform for nonprofits and social enterprises. He has presented to the Arizona Tech Council and the Thunderbird Business Accelerator on how to leverage crowdfunding for early-stage for-profit and non-profit companies. Having worked with several startups and entrepreneurs, Gresham’s passion is spurring innovation, disrupting the market, and helping entrepreneurs.

Ovation at Tempe, WEB

Passco offers investors crowdfunding option for Tempe property

Passco InSite, LLC,  a joint venture between Passco Companies, LLC and InSite Investment Realty, has acquired the 270-unit Class B garden-style multifamily community Ovation at Tempe for $25.85 million. According to Bill Passo, CEO and Founder of Passco Companies, this new joint venture is an extension of a 20-year relationship with long-standing track record, market expertise and multifamily investment experience.

According to Passo, investors will have the opportunity to invest in the Ovation at Tempe property through crowdfunding, as well as through the broker-dealer community.

“This is a strong, value-add investment opportunity in a market that is in a proven recovery,” explained Passo. “The Tempe submarket posted positive absorption and a low 3.7 percent vacancy in the first quarter of 2014, and a 3.5 percent rental growth is forecasted by the end of the year.”

In addition, Tempe’s market fundamentals are rebounding rapidly according to Passo, who noted that the state of Arizona is on track to rank first in the nation in future job growth, projecting a three percent rise annually over the next five years.
“This projected job growth will drive deep demand for quality housing, which will bolster the profitability of this investment over our hold period,” he explained.

The Passco InSite partnership plans to hold the property for three years.  Under this ownership, value-add improvements will be implemented, which will drive rent growth for the asset, according to Passo.

Planned renovations include upgrading unit interiors, constructing additional carports and enhancing the property’s exterior and community amenities.
The property, which was originally built to condo specifications, is unique in its residential setting, according to Passo.

“The community is situated against open space to the West and East, with no adjacent apartment communities,” he said.  “In addition, this property has one of the lowest unit densities in Tempe at 16.5 units per acre.  These factors, along with the community’s easy freeway access and close proximity to retail, recreation, employment and educational centers make it a highly desirable investment property.”

Ovation at Tempe is located at 4502-4505 S. Hardy Drive in the city of Tempe, Arizona. The community features one- and two-bedroom apartment units, as well as separate casitas and townhomes situated on approximately 16 acres.

Units range in size from 700 to 980 square feet and feature walk-in closets, private patios or balconies and stackable washers/dryers.

Community amenities include a state-of-the-art fitness center, two swimming pools, two spas, tennis court, children’s playscape, picnic area with barbeque grills, and covered parking.

Zen Class Travel product

Mixed-use project becomes largest crowd-funded real estate transaction in Phoenix

7th Gate Center, a 43,426 square foot mixed-use project located at 1601 North 7th Street in Phoenix, closed for $5,025,000 on June 17. Braxton Glass, Vice President of ORION Investment Real Estate in Scottsdale, facilitated the transaction purchased by Cole Valley Partners, a boutique commercial real estate investment firm based in San Francisco. Harnessing an innovative trend in the real estate capital market, Crowdfunding platform RealtyShares, Inc.n assisted Cole Valley Partners in sourcing equity for the transaction.

The project is located on the northeast corner of 7th Street and McDowell Road, one of the highest traffic dual artery intersections in metropolitan Phoenix. The property consists of approximately 39,000 square feet of multi-tenant office space over two levels of underground parking, along with a ground floor Chase bank branch, drive through lanes and associated surface parking. 7th Gate Center is the second Phoenix area purchase for Cole Valley Partners. This also marks the second transaction closed through a Cole Valley/RealtyShares collaboration, as well as the largest crowdfunded commercial real estate transaction to date in metropolitan Phoenix.

“7th Gate Center represented a rare opportunity to acquire an attractive and highly visible asset at a discount to replacement cost, within a tightly supply constrained submarket. ORION is very excited to have participated in this groundbreaking transaction, the largest of its kind thus far in this market,” said Glass.

Crowdfunding emerged in 2012 from the JOBS Act and may have a transformative effect on how commercial real estate properties are transacted.

“Crowdfunding is one of the most revolutionary industry events in recent years and is a great way to diversify and broaden our equity base,” stated Zach Bonsall, Managing Partner of Cole Valley Partners.

Nav Athwal, Co-Founder and CEO of RealtyShares, remarked that, “RealtyShares provides an online platform that pools accredited investors into funds that hold an interest in a pre-identified private real estate investment. Investors can invest as little as $5,000 into any one property. We have been very pleased with the response from both investors and sponsors such as Cole Valley Partners and are excited for the future of crowdfunded real estate investments.”

“We have enjoyed our association with ORION and RealtyShares, and look forward to continuing to acquire property in Arizona and throughout the Western United States,” concluded Bonsall.


Equity Crowdfunding Rules Approved by SEC

Although delayed for nearly a year, today the Securities and Exchange Commission unanimously approved the release of proposed equity crowdfunding rules. The proposed rules have been published and are available on the SEC website for public comments. The rules are part of the implementation of The JOBS Act, a 2012 law which legalized the opportunity for regular people to invest in local businesses without cumbersome regulations.

Attorney Jonathan Frutkin wrote the book “Equity Crowdfunding: Transforming Customers into Loyal Owners” which was published earlier this year. The book, available on Amazon.com, explains how this extraordinary opportunity will allow local businesses to generate new enthusiasm to accelerate their growth. Frutkin is Principal with The Frutkin Law Firm, PLC in Scottsdale, Arizona.

“The release of proposed rules by the SEC is a monumental step forward,” Frutkin says. “It finally moves the ball forward, permitting equity crowdfunding to be finally legal and implemented in 2014.”

Frutkin believes that the ability of regular people to own part of their local economy, rather than being limited to simply investing in large multi-national companies like Exxon and Apple will be transformative to communities.

“People have become far too disconnected from their investment dollars. Instead of driving Wall Street, their investment in Main Street will make their neighborhood a much more interesting place to live,” Frutkin notes. “Now, at least some of their net worth will help their community flourish.” Frutkin also emphasized that equity crowdfunding is not permitted yet, and any company looking at this type of financing should contact their legal counsel.

Frutkin has been active in the crowdfunding movement since The JOBS Act was passed last year. He is a frequent speaker and commentator on the future of crowdfunding finance.


Tempe Start-Up a Finalist for Crowdfunding Contest

Out of over 125 small businesses that applied, Tempe start-up – Global Cancer Diagnostics, Inc. – has been selected by The National Association for the Self-Employed (NASE), the nation’s leading advocate and resource for the self-employed and micro-businesses, and the Small Business & Entrepreneurship Council (SBE Council), an advocacy and research organization for entrepreneurs, and Fundable, a crowdfunding platform partner focused exclusively on startup companies, as one of the finalists in a recently announced, national crowdfunding contest.

Global Cancer Diagnostics, Inc. – a medical laboratory established to confidentially diagnose lung cancer at its earliest stages with a new test — is one of nine diverse and unique companies, with varying funding needs, committed to starting and growing their own small business that will raise money to compete for the $10,000 cash prize.  The national contest is committed to supporting America’s small business community in their goal of raising and securing capital through the powerful platform of crowdfunding.

The finalist companies will have 30 days to meet their individual fundraising goal through the Fundable platform. The first company to reach their goal will receive an additional $10,000 in funds from the contest sponsors to support the growth of their small business.  The contest will begin on Wednesday, August 21, 2013 and continue through September 20, 2013.  The contest winner will be announced on September 23, 2013.

“We are thrilled to offer this opportunity for these businesses to raise capital through crowdfunding while providing additional cash prize of $10,000 to the business that reaches their fundraising goal first.  Crowdfunding is not only a creative, but also a practical way for a small business to grow. Crowdfunding unlocks new streams of capital, and allows determined small business owners the opportunity to live their entrepreneurial dreams,” said Karen Kerrigan of SBE Council, Katie Vlietstra of NASE, and Eric Corsi of Fundable.

More information on Global Cancer Diagnostics, Inc. can be found online at http://www.globalcancerdx.com.  Global Cancer Diagnostics, Inc.’s individual fundraising page at Fundable is located at http://www.fundable.com/global-cancer-diagnostics.


Frutkin Publishes Equity Crowdfunding book

There has been widespread recognition of the emerging power of crowdfunding, the online phenomenon that provided more than $10 million for iPhone-compatible watch creator Pebble and $5.7 million for the upcoming Veronica Mars movie. Valley Attorney Jonathan Frutkin of The Frutkin Law Firm recently published a new book about this new source of finance, known as “equity crowdfunding”. According to Frutkin, the same power of online funding will soon let local companies raise capital online – and more importantly, make customers into owners, increasing the market share of businesses that successfully leverage this new opportunity.

The book, titled Equity Crowdfunding: Transforming Customers into Loyal Owners, provides insight into how business owners can turn their customers into loyal customers while raising money for their company. It is now available for print and digital purchase on Amazon.com.

“Equity crowdfunding is the single largest marketing opportunity for local businesses to transform mere customers into loyal owners,” Frutkin said when describing the concept. “By resetting the relationship between corporation and patron, the new rules for crowdfunding are going to fundamentally shift the way entrepreneurs think about both raising capital and creating long-term engagements with their customers.”

Interest in crowdfunding drastically increased after President Barack Obama signed the JOBS Act (Jumpstart our Business Startups) in 2012 legalizing equity crowdfunding, subject to new rules being agreed by regulators. A total of $2.7 billion was provided through crowdfunding by individual donors last year, according to reports by research firm Massolution — up 81% from 2011. This space is only going to heat up further when SEC rules for the JOBS Act are released this year, paving the way for equity crowdfunding.

For more information on the book, author Jonathan Frutkin, and The Frutkin Law Firm, visit www.frutkinlaw.com.


Need $1 million for your business?

On April 5, 2012 President Obama signed into law the Jumpstart Our Business Startups Act, or JOBS Act.  Business owners and entrepreneurs need to know about the JOBS Act because it will allow startups and existing businesses to raise up to $1 million in investment capital each year using the Internet and other social media platforms.

Raising money on the internet has exploded in recent years.  This type of money raising, called “crowdfunding” or “crowdsourcing,” is used by both nonprofit and for profit organizations. Crowdfunding projects are advertised or posted on various websites like kickstarter.com.  Prospective investors can view the projects on the Internet and make funding pledges online.  However, investors do not receive any stock in the company promoting the project nor do the investors receive any monetary return on their investment.  In essence, the investor’s investment constitutes a charitable contribution to a project that the investor believes will benefit society.   This type of crowdfunding has been termed “charitable crowdfunding.”  With charitable crowdfunding, no shares of stock can be sold to investors nor can investors receive a monetary return on their investment because such events violate both federal and state securities laws.  Therefore, under the current law, charitable crowdfunding cannot be used to raise investment capital.

Beginning in January 2013, new and existing businesses can raise up to $1 million per year in investment capital utilizing crowdfunding.  Companies will not be able to raise money on their own website.  Instead, they will have to use a licensed securities broker or an intermediary (also called a funding portal) registered with the U.S. Securities and Exchange Commission.

Companies using this new type of crowdfunding, called “equity crowd funding,” must prepare substantial documentation to meet the requirements of the JOBS Act.  The Act requires a company to disclose certain information to potential investors including:

•  Background information on the officers, directors and 20 percent shareholders of the company;
• The amount of money sought to be raised;
• How the money will be used by the company;
• A description of the ownership and capital structure of the company.

Each company must also prepare and submit a detailed business plan and provide detailed information on the company’s financial condition, if more than $100,000 in equity capital is sought.

Since the JOBS Act will not become effective until January 2013, new and established businesses have a little time time to gear up and take advantage of the new law.  Those interested in equity crowdfunding should become familiar with the JOBS Act and what needs to be done to comply with the Act.  Interested companies should:

• Prepare an extensive business plan;
• Perform market research to support the business plan;
• Prepare a list of contacts of those who may be interested in investing in the business;
• Prepare a video that promotes the company’s products or services;
• Review crowdfunding websites like kickstarter.com to see how successful projects are presented on crowdfunding websites.

Mark Svejda is Scottsdale-based attorney. You can email him at mark@azrealestatelawyers.com.    


Kickstarter projects generate millions of dollars

A funny thing happens on Kickstarter, the website where people ask for money to finance their projects. Sometimes, they get more money than they ask for.

Sometimes, they get millions more.

In April, three-person startup Pebble Technology sought to raise $100,000 to make 1,000 wristwatches that can be programmed with different clock faces. Donors on Kickstarter showered them with more than 100 times that amount: $10.3 million. It would have gone higher had Pebble not put a cap on contributions and ended the fundraising early.

“We had tried raising money through the normal routes, and it didn’t really work,” said Eric Migicovsky, the 25-year-old founder of Pebble.

Kickstarter is the largest of dozens of sites devoted to crowdfunding, in which donors contribute small sums of money to get a project off the ground.

Inventors, artists and entrepreneurs post their projects on a Kickstarter page, usually with a video presentation. They set a fixed duration for their fundraising, from one to 60 days, and a dollar goal for contributions. Anyone can contribute. If the goal isn’t reached by the deadline, the money goes back to the contributors and the project is cancelled.

Usually, the contributors get something beyond the satisfaction of knowing they helped turn a dream into reality — like a ticket to a theater production, or in the case of Pebble, a programmable watch.

Designer Casey Hopkins asked for $75,000 to make a luxury iPhone dock out of solid aluminum. He got $1.4 million. When that happened, in February, his was the first Kickstarter project to surpass $1 million. There have been six more since then. Artist Rich Burlew asked for $57,750 to put his comic books back in print, and ended up with $1.3 million.

Since launching in 2009, Kickstarter has raised $250 million for projects. Starting a project is free, but Kickstarter takes 5 percent of contributions if a project is funded, and Amazon.com Inc. takes another 3 to 5 percent for processing the payments.

Crowdfunding started as a way to fund band tours and albums. Kickstarter wasn’t the first site of its kind. It is, however, the most successful. Co-founder Perry Chen has said that the site was born out of his frustration at being unable to organize a concert. But it’s becoming a potent launchpad for tangible products as well, upending in some cases the usual way things get made.

There’s a time-worn route for entrepreneurs: They come up with an idea, find funding, make a product, sell it, then pay back the funders — with interest or an equity stake in the fledgling company. Under that model, funders are usually looking for a big payoff on their early investment.

Finding funding is, of course, where many projects hit the rocks. Those who put up money for a project have to be convinced that it will yield something others want — and that’s not easy to figure out.

For contributors to take part in a Kickstarter project, all they have to do is ask themselves: Do I want that?

In that sense, Kickstarter is a great way to sell things that don’t yet exist. In effect, Pebble sold 85,000 watches, and artist Rich Burlew sold 94,000 books. Now, they just have to make these things.

Migicovsky, the Pebble founder, is based in Silicon Valley, where venture capital runs in rivers. He got some funding from “angel investors” — wealthy individuals — early on and produced a small run of watches last year. But to realize his vision of a programmable watch that only needs to be charged once a week, he needed more money. The venture capitalists, who generally invest bigger sums than angels, didn’t bite. They’re used to backing Web and software projects but are apprehensive about hardware, he says.

So Migicovsky went to Kickstarter, figuring he’d raise enough money for a production run of 1,000 watches. But the project got attention from technology blogs, and the orders started pouring in. Over 37 days, he sold one watch every 38 seconds. Frantically trying to satisfy the orders, he hired six people in two weeks, tripling Pebble’s staff.

The watches will be ready this fall — without the help of venture capital.

“You want to spend your time talking to customers. You don’t really want to spend your time talking to venture capitalists. Because at the end of the day, they’re just guys with money,” Migicovsky says.

The success of Pebble and others is clearly attracting more ambitious projects. A Los Angeles-based startup, Ouya, is collecting money to create a game console. It set a $950,000 minimum — reflecting the complexity of competing against the PlayStation, Xbox and Wii — and hit $8.6 million in pledges.

David Tisch, the founder of “startup accelerator” firm TechStars, says posting a product on Kickstarter is a great way to gauge demand. If it turns out to be strong, that can make it easier to attract investment that can turn the project into an ongoing business.

“For the first time, there’s a way to get customer feedback with money attached to it,” he said.

While entrepreneurs revel in the attention they get from donors on the website, Kickstarter’s founders are uncomfortable with the site’s role as a fundraising tool for products. The company wouldn’t comment for this story, and it doesn’t release financial data to the public because it’s a private company.

In past interviews, co-founder Yancey Strickler has suggested that Kickstarter wasn’t intended to be an engine of commerce or a route to riches.

“There is this greater idea of helping people out and that art still has value in the world,” he told board-game blog Purple Pawn earlier this year. “We generally don’t like Kickstarter to be used to, say, start a business.”

Of course, several Kickstarter projects have turned into businesses, like ElevationLab, the Portland Ore.-based startup that makes the Elevation iPhone docking station and Touchfire, a company in Redmond, Wash., that created a keyboard for the iPad.

The majority of Kickstarter projects are still non-commercial ventures like photo books and amateur musicals. At this year’s South by Southwest Film Festival in Austin, 33 films, or 10 percent of the lineup, were funded through Kickstarter.

Kickstarter’s focus on artistic and creative pursuits to the exclusion of others might make it vulnerable to competition. Sam Gordon, who funded his “Brydge” keyboard for the iPad through the site, says Kickstarter needs to clearly define its guidelines for product development.

“If they don’t, then there’s room for other sites,” Gordon said.

Business and technology consultant Scott Steinberg, who has written a guide to crowdfunding, says it’s inevitable that commercialism would seep into it as the phenomenon grows.

“Crowdfunding is almost in the pre-K phase, and it’s about to grow up very fast here, and become more complex,” he says. “Inevitably, more businesses and profit-minded organizations are going to gravitate there.”

For the time being, Steinberg thinks crowdfunding will be dominated by products whose appeal is easily communicated visually, like the Pebble watch, or products aimed at fans of existing creators or products, like Burlew’s “Order of the Stick” comic.

Burlew says he believes it was crucial to have a core base of fans. His “Dungeons & Dragons”-themed Web comic has been running for eight years, and has supported Burlew and his family for most of that run.

“Have an established audience before you launch your Kickstarter drive. Don’t rely on word-of-mouth or sheer luck for people to find your project,” Burlew advises.

Once fans got it started, Burlew’s Kickstarter project turned into a self-propelled marketing tool. As contributions rose, the project drew attention from comics and publishing blogs, driving more contributions in a “snowballing” effect, Burlew says.

Added to that was the sense of urgency the project instilled, he says.

“I had a lot of readers who either never thought about buying books, or thought about it as something they’d like to do in the nebulous future,” Burlew said in an email interview from his home in Philadelphia. “The Kickstarter drive gave them a strong incentive to buy the books right now, so I was able to convert more readers into sales than usual.”

Burlew, who says he’s “generally a suspicious person,” was wary of getting prematurely excited about the size of his Kickstarter fund.

“I kept waiting for the other shoe to drop. It hasn’t yet,” he says.

Creative Financing: Options for Funding Business

Creative Financing: Innovative Options For Funding Business

Whether you are just formulating a business plan for launch or you already have a company that is in need of a cash infusion, bank loans are often unattainable if you don’t meet the proper requirements. Fortunately, there are a variety of creative ways to fund the growth.

If your banker turns you down, instead of becoming discouraged, consider one of these 10 alternative financing options:


Before there was currency, there was only bartering. The U.S. Department of Commerce estimates that 25 percent of the world’s trade is still done this way. Bartering can save money, move unused inventory and find new customers. Think about how you can trade or exchange your products or services. Bartering directly with another business can be done through a barter exchange like IMS Barter.

Business incubators

If your business is new and technology-based, then it may be a good candidate for seed money or a mentorship program that will help connect to capital. Organizations like Excelerate Labs and TechStars have a great track record of success. While there is a lot of competition to become part of an incubator, it is good to focus on a handful of organizations which match up best with your goals.

Business plan competitions or other contests

When all else fails, try to win the money! There are a number of regional and national competitions giving away substantial amounts of money. These include the MIT $100K Entrepreneurship Challenge, the GE Ecomagination Challenge and the Amazon Web Services Start-Up Challenge. This is one of the toughest ways to raise money, but if you have a very competent team, a great idea and a stand-out presentation, go for it.


A sister method to peer-to-peer, you can now get people to invest in your cause in exchange for something other than money. This is a different source of funding because the money is not repaid. The incentives for donors range from receiving your first products to having a product named after them. Popular sites that facilitate crowdfunding include IndieGoGo.com and Kickstarter.com. Crowdfunding is very emotional and involves gathering cash from many people. The success in raising cash is based on the appeal of your idea, but if you don’t raise your goal amount, in some instances, you don’t receive any money from the people that pledged to invest.

Government grants

There is money to be found in government grants, but these programs require research at local, state and federal levels. Agencies such as USDA, the Department of Commerce, and the Treasury Department offer some attractive programs, but they are very specific and technical in nature, and each comes with reporting strings attached.


Receiving an immediate cash advance against invoices or accounts receivable from asset-based lenders called factors can be an optimal solution for securing cash needed to grow. The factor advances most of the invoice amount, usually 70-90 percent, after reviewing the credit-worthiness of the billed customer. When the bill is paid, the factor remits the balance, minus a transaction or factoring fee. Factoring can be a good source of capital for high growth or start-up companies, but not a method of financing for a company that is shrinking or losing money.


While this is relatively new in the United States, small loans up to $10,000 are gaining popularity. The loans are based on your experience, passion, market opportunity and sales. Organizations offering microfinancing include Accion USA, Grameen Bank and Kiva. If you have an appealing idea and only need a small about of money, it can be a good alternative.

Peer-to-peer lending (P2P)

It is now possible to go online and get funding from people you do not know on sites such as Prosper.com and LendingClub.com. P2P loan amounts will depend on credit score, the economy, the length of the loan and the business’ story. The downside here is P2P loans are not easy to secure, and the interest rates can be very high.

Retirement accounts

Before borrowing money from an IRA or 401(k), first find out if you can get a 60-day interest-free loan from your retirement account. The benefit here is there are no fees, if the loan is paid back in the 60-day time frame. Remember, this is your retirement money, so using it is risky and potentially devastating to your livelihood — if the business fails.

Supplier or wholesaler financing

Supplier or wholesaler financing secures money needed through a business’ supply chain. This method works best with a smaller, local supplier that really wants business and is willing to work with you. Factors can be a big help in this area, as they can offer vendor assurance letters which can help garner additional credit from a vendor.

The key is to think beyond the traditional and to research various avenues to determine what may work for you. Although these options may not all be long-term financing solutions, they can definitely help bring in the cash you need for growth, until you qualify for a traditional bank loan or can appeal to investors.

For more information about financing, visit fswfunding.com.