CROWDFUND INVESTINGInnovation Napa Valley

October 17, 2012

Our Financial System is Broken

U.S. Savings AllocationU.S. Savings Allocation U.S. Jobs/GDP by Business SizeU.S. Jobs/GDP by Business Size

Although half of our jobs and output comes from startups and small businesses, essentially all of our savings go into Fortune 500 companies

1%99%

Startups & SMBs Other

50%50%

Large Businesses Small Businesses

WHO WE ARE

Jason, Zak & Sherwood•3 entrepreneurs, co-founders of the Startup Exemption•Co-authors of the Crowdfund Investing Framework•Inc. 500 award recipients – Fastest growing private companies in US•Together raised over $80M in VC/PE capital•Authors of Crowdfund Investing book (Wiley) November 27, 2012•Co-Founders and Board members of CfIRA and CfPA•Co-Founders Crowdfund Capital Advisors

DEFINITION

CROWDFUND INVESTINGA large number of unaccredited investors making modest investments in a small business in exchange for equity or debt securities.

CROWDFUND INVESTING

CURRENT CROWDFUNDING

CURRENT BUSINESS NEED

DONATION-BASED EQUITY FUNDING

•Small businesses & start-ups• Up to $1M

GAP

THIS IS WHERECROWDFUND INVESTING

COMES IN

Everyone we talked to said it would never happen…“The House and Senate will never agree”

“Don’t waste your time”

“You’re crazy…”

“What can 3 regular guys get done in Washington?”

“Who’s gonna pay for this?”

WHAT WE DIDJanuary 2011 Jason, Zak & Woodie have an idea to make it

easier for small businesses to raise capital

Summer 2011 Testify in front of House Committees

November 2011 House passes the first version of the law

November 2011 Rally in D.C.

February 2012 Participate in Senate Committee hearings

March 2012 Senate passes the final version of the law

April 2012 President Obama signs JOBS Act

460 DAYS

AND ON THE 460TH DAY…

HOW IT WORKS1/ THE BIG IDEAStart up or small business owner has a high-potential idea

2/ WEB 3.0Leverages social media for community financing

3/ CROWDFUND INVESTINGCrowdFund Investing provides funds at a crucial growth point

4/ GO PROSuccess attracts professional investment

5/ THE CYCLE CONTINUESMore entrepreneurs follow, transforming Main Street through ‘localvesting’

LEGISLATIVE FRAMEWORKSMALL BUSINESS

OWNERS•Raise up to $1M per year with ‘all or nothing’ terms

UNACCREDITED INVESTORS

Invest at 1 of 2 levels:•Lesser of $2K or 5% income (<$100K income)•Greater of $100K or 10% income (>$100K income)

• Regulate websites for all CrowdFund Investing• State registration pre-emption

SELF-REGULATING ORGANIZATION

• CfIRA, CfPA Boards• Engaged with FINRA• SEC negotiations• NASAA engagement

SEC

CROWDFUND INVESTING FRAMEWORK

THE FUTURE OF CFI April 2012JOBS Act signed into law

December 31 2012General solicitation begins for accredited investors

January 2013 - DelayedSEC rulemaking process continues

March 2013FINRA rulemaking begins

July 2013 (best guess)Crowdfund Investing begins

2012

2013

INDUSTRY BEST PRACTICES

1/ Criminal and securities background checks

2/ Easy to understand T&C, investor agreements and disclosures

3/ Robust investor education

4/ Social connectivity tools

5/ Investor communication tools

LET’S TALK ABOUT FRAUD

1. Background check before starting2. Still need to market a smart idea3. Need to post it on a funding portal4. Need to have a strong network of people

you want to take advantage5. Need to be able to respond to their

potentially exposing inquiries … fast6. Must hit 100% of your funding target

within the time frame

CROWDFUNDING IS GLOBAL 1/ Use social media to create a transparent market

to connect entrepreneurs with capital

2/ Possible solution to “gap financing” problem

3/ Geography, Interest and Origin Communities

4/ Crowd validation + entrepreneur execution = positive signaling for follow-on capital

5/ Investor and Entrepreneur education required

WHAT WE LEARNED

1/ PUT A STAKE IN THE GROUND

2/ SHOW UP

3/ SELL WHAT PEOPLE ARE BUYING

4/ STAY ON POLICY & OUT OF POLITICS

5/ SUCCESS HAS MANY FATHERS

More Funding, Much More Funding

Gartner estimated market size in 2013

Friends and Family investing

will shift to crowdfunding

“Just a 1% Shift to Startups & SMBs =

$300 Billion”- Fred Wilson

$6.2 Billion

$60 Billion in Friends &

Family

$30 Trillion in Total U.S.

Savings

Estimated equity crowdfunding market size is in the billions

18

The Crowdfunding Professional Association (CfPA) is dedicated to facilitating a vibrant, credible and growing crowdfunding community while also advocating for an industry view versus a single company perspective. Uniting a broad-based coalition of industry participants, the association is committed to ensuring the credible development of the industry, including a commitment to the highest ethical standards.

www.crowdfundingprofessional.org

THANK YOU

EMAIL SHERWOOD@THECCAGROUP.COM

WEB WWW.CROWDFUNDCAPITALADVISORS.COM

QUESTIONS?

Donation/Equity/Debt Platforms

Examples of Donation-Based Crowdfunding Platforms:•www.rockethub.com•www.kickstarter.com

Platform Links

Examples of CrowdFund Investing Platforms:•www.seedinvest.com (equity based)•www.crowdfunder.com (equity based)•www.somolend.com (debt based)•www.gatetechnologies.com (broker dealer platform)

REGULATORY UPDATES

Startup Exemption Framework: www.startupexemption.com/exemption-framework#axzz1vANkx2lL

SEC JOBS Act Comments Page:www.sec.gov/spotlight/jobsactcomments.shtml

SEC FAQ for Crowdfunding Platforms:www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htm

Crowdfunding Professional Association (CfPA) Launch Release: www.prnewswire.com/news-releases/crowdfunding-pioneers-launch-professional-association-in-concert-with-regulatory-advocacy-group-150451405.html