David Drake

Communities like yours are using Crowdfunding to take matters into their own hands

David Drake - CEO - LDJ Capital - Credit Linkedin.com

David Drake – CEO – LDJ Capital – Credit Linkedin.com

While Crowdfunding gets most of its publicity due to massive campaigns for sexy devices on Kickstarter our US Crowdfunding expert David Drake says that increasingly companies like Fundrise are running projects that use Crowdfunding to fund real estate, in particular providing investors access to wholesale development deals and giving members of the community the ability to fund local community real estate projects.

ED: Funrise recently announced they have raised ~$30 million infunding from Chinese Social Networking company RenRen

Crowdfunding has now grown from a niche to a legitimate platform for funding projects of all kinds by raising money from the public at large. Nowhere has this been more pronounced than the real estate sector where there are now a number of crowdfunding platforms offering investors the chance to participate directly in real estate projects. Traditionally, the real estate market has been the exclusive preserve of wealthy and well-connected individuals with the exception of real estate investment trusts (REITs).

Credit - Fundrise.com

Credit – Fundrise.com

Leading real estate crowdfunding platform Fundrise takes a slightly different approach from other platforms because it emphasises the social benefits that arise from investors having a say in the development of their own communities.

A case in point is the Transfer Station in Philadelphia which set out to test the market and got $1.8 million committed on a target of only $500,000 to create a community-oriented co-working, retail, education and event space.

It points out that local residents have a better appreciation of their community needs and should have a say in what happens there.

Sometimes, the dominance of large investors can lead to a disconnect between fund managers and the properties in which they invest.

The process is relatively straightforward with developers listing projects on the website and investors buying shares in these projects for sums starting as low as $100. Returns to the investors come from rental income and capital appreciation when the property is sold.

Fundrise is a pioneer in offering “Regulation A” investments, which allows any investor, and not just the wealthy individuals, to invest in real estate and receive attractive returns.

A good way of getting the flavor of how they operate is to look at the details of its recently closed third public offering, which was a property where any resident of DC, Virginia and Maryland could invest in for as little as $100 each. Fundrise ended up raising $350,000 from 378 investors, and what is interesting is that 25 percent of these investors live within a distance of 1 mile from the property.

The total project cost was $1.7 million with a projected return of 8 percent. Of the 378 investors, 51.6 percent (195) came from Washington DC of whom 16 percent were accredited investors; 24.9 percent (94) from Virginia of whom 29 percent were accredited investors; and 23.5 percent (89) from Maryland of whom 21 percent were accredited investors. Of the total investors, 51.4 percent were between the ages of 18 to 35 years, 41.1 percent between 35 years and 55 years and the remaining 7.9 percent were over 55 years old. The average age of an investor is 37 years.

The maximum number of orders was 100 for $100 apiece, followed by 80 orders for $500 each. The average order size was $926.

The numbers and the structuring may vary from transaction to transaction but this is a good representation of the investment trend on Fundrise. All their offerings have been fully funded. There is clearly considerable demand for small value investments as well as a reasonable amount of demand from investors who live in the neighbourhood.

When you tie in the fact that investors are comfortable with real estate and that diversification can be easily achieved with multiple investments in different properties in the Fundrise portfolio, the value of crowdfunding as a legitimate and credible means of funding real estate projects is clearly established. This model is certainly one template for structuring real estate crowdfunding in the future.

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City-based family office, and The Soho Loft Media Group, a global financial media company with divisions in Corporate Communications, Publishing and Conferences.

GROUNDFLOOR launches peer to peer Real Estate Crowdfunding platform

By David Drake

GroundFloor, a peer-to-peer real estate lending platform, is launching a landmark securities offering that enables crowdfunding of real estate transactions. This innovative move will allow approximately 43 million Americans in six states to invest in real estate in a way that wasn’t possible until now.

Lending money to a real-estate developer used to be something reserved for banks and other accredited investors. GroundFloor is changing the rules of the game, allowing individuals to become lenders in real-estate projects. The developers of such projects will pay investors interest on the loan just as they would a bank. This new initiative provides the general public with the opportunity to diversify their investments, without being limited by their income or wealth. Also, real estate developers will have access to a new way of financing their projects and ideas, which will stimulate new real estate developments.

Federal regulations generally define an accredited investor as someone with an annual income of over $200,000 or liquid net worth of $1 million. These regulations are keeping the vast majority of Americans out of real estate investing. GroundFloor came up with an interesting and novel strategy. Instead of waiting for new crowdfunding regulations promised by the Securities and Exchange Commission (SEC) that will supposedly allow non-accredited investors to participate in real-estate crowdfunding, the company decided to work within existing state laws. So far, regulators in six states (Pennsylvania, Georgia, Arizona, Illinois, Virginia and Massachusetts) authorized the company’s initiative to solicit residents’ participation in its deals.

GroundFloor’s initiative is granting access to virtually any person interested in real estate investing, regardless of their income or net worth. Anyone can become an investor and the minimum investment is $100. Loan terms vary from six months to five years. As for safety measures, the company has a thorough pre-screening process for developers before they are able to list their projects. Most importantly, the loans are secured by the properties themselves, which is not a feature of other platforms that provide equity in real estate.

GroundFloor concentrates on smaller, residential projects. The pilot project for this whole new real-estate investment philosophy was the renovation of a historical single family home in Atlanta by John Mangham, a successful independent developer. The project was listed in February, and 39 Georgia residents lent the developer $40,000 to complete the restoration. The cash was raised in just five days and the developer will pay to investors 8% interest on the loan.

After the success of the pilot project, GroundFloor has now expanded to five more states (Virginia, Arizona, Illinois, Pennsylvania, and Massachusetts). The long-term goal of the company is to make this type of investment accessible to all Americans.

Other real-estate crowdfunding platforms are relying on wealthy accredited investors to raise money for their projects. GroundFloor, on the other hand, is building a platform for the rest of us, where any investor can access quality real estate investment opportunities. GroundFloor investors will invest anywhere from a few hundred to a few thousand dollars, making a safe investment that will bring nice returns on short to medium terms (from six months to five years). In other words, the company is focusing on a new market, tens of millions of potential investors, and it might just be the boost that the real estate industry and construction industry really need to make a recovery from the recession.

This type of real estate investing comes with a series of advantages for both developers and investors. Developers gain access to funds more rapidly: let’s remember that the funds for the pilot project in Atlanta were raised in just five days! Also, the developers are no longer dependent on financial institutions or accredited investors, which allows them more flexibility and creativity in their projects. Investors, on the other hand, have access to a form of investing that is safer than stock market investing and more profitable than depositing money in a bank.

One more thing worth mentioning: this form of financing is a way of bringing ethics back to real estate. Communities are offered the opportunity to back up projects that bring them something valuable, instead of dealing with real estate projects drawn by huge corporate developers who are far removed from the needs of the community.

GroundFloor makes investing in real estate projects accessible to anyone, building the path to a new way of financing the real estate industry – more flexible, more transparent, more dynamic, and more importantly: open to all.

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity advisory firm, and The Soho Loft – The Voice of Capital Formation – a global financial media company with divisions in Corporate Communications, Publishing and Expos & Events. You can reach him directly at [email protected].

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Australia’s Small Scale Offering Board has been Equity Crowdfunding for 8 years, here is what they learnt


Paul Niederer CEO ASSOB - Credit dagvandeinformal.nl

Paul Niederer CEO ASSOB – Credit dagvandeinformal.nl

One of our regular contributors David Drake visited Australia last year speaking at a number of events on crowdfunding and equity raising, he interviews Paul Niederer CEO of Australian Small Scale Offering Board about their experience over the last eight years.


Even before crowdfunding became a global phenomenon on the rise, investors in Australia had already been funding startups through equity investments that work a lot like crowdfunding.

And they’ve been doing it for almost eight years: long enough to learn quite a lot about what works.

ASSOB (Australia Small Scale Offering Board) has been funding startups through equity investments, limited to only 20 unaccredited investors. This may not be entirely the same as the equity crowdfunding that is now shaking the 80-year-old securities law in the U.S., but needless to say, ASSOB has made great and impressive strides in the last eight years since taking its approach to crowdfunding online.

I was down there early last year to speak in several conferences, and I have met with ASSOB to discuss developments in Australia. I was fortunate to catch up again this time with Paul Niederer, CEO of ASSOB. From years of offline equity funding to the digital leap made in 2005, we can learn lessons from the ASSOB experience that will be useful as the rest of the world maps out its road to equity crowdfunding success.

While you may dispute that Kylie Minogue is the best thing that ever happened to the Australian music industry, you will have to agree that the pioneering ASSOB is the best lesson that ever happened to equity-based crowdfunding.

The following interview with Paul provides rich insights on the keys to a successful equity crowdfunding platform. Experience is still the best teacher, and ASSOB has loads of it.

David Drake: You are the longest running crowdfunding for equity platform there is. What can you tell us about the history of ASSOB?

Paul Niederer: In 2005 we decided to take an offline unaccredited and accredited capital raising business online. Eight years later over 300 raises have been handled with over 2,500 investors having invested. Only equity transactions are handled, and nearly $140 million has been raised to date. The smallest raise is $55,000 and the largest $3.5 million.

David: What are three of the strengths of ASSOB?

Paul: 1) Internal legal monitors [for] people, entity and offering compliance. 2) Handholding through the process by ASSOB Partners and ASSOB. 3) Templated process to make it easier for capital raisers.

David: What were three of the weaknesses in the past?

Paul: 1) Not having oversight of the issuers share registry. 2) Thinking it could be all done online. 3) Expecting issuers could manage large parts of the process themselves.

David: How is ASSOB going to operate in the US now with your new investors, and what are the synergies you see?

Paul: ASSOB has licensed the platform to Offerboard.com. They will be using the ASSOB capital raising engine, but their implementation will be different than ASSOB’s — understandably so, as Title III (unaccredited investors) will not have access to the platform until part way through 2014

David: ASSOB platform exemption only allows 20 investors, so how do you engage the crowd and the crowdfunding in this limitation?

Paul: Every raising builds its own crowd. Some raises have hundreds in their crowd, others have thousands. In this respect it does not differ from the majority of reward crowdfunding platforms. Unlimited accredited and overseas investors can exist, but only 20 unaccredited investors per annum. This is strictly monitored. Issuers need to ensure that when they accept investment from unaccredited investors, they choose the 20 largest suitable applications and return the funds for the others.

David: What do the Aussies have that the U.S. doesn’t? You have been on this longer than we have.

Paul: There is more emphasis in the Australian legislation on putting the onus of responsibility on the investor. If they have acknowledged the warnings that they may very well lose all their money, then provided the offer has been marketed compliantly, the onus is on the investor.

David: Tell us about a success story — in your eyes — in one of the investments.

Paul: We have had mining companies go from an ASSOB raise to international stock exchanges. Other companies have exited through trade sales.

David: What are three things you advise investors to take away?

Paul: The relationship is always between the issuer and the investor. We purposely do not give advice. However, we do suggest they take independent advice. If they have doubts, they have 10 days to seek a refund, and they should thoroughly do their own research as there is a chance they could lose all their money.

David: What are three things you advise issuers to take away?

Paul: Teamwork is required to raise the capital you need. You need a good story, team, followers, and an aggregating platform that keeps your raise compliant and is proven to raise capital. Only make promises you can deliver on.

David: Where is the scale of this industry? We see LendingClub hitting $2.1 billion and Kickstarter potentially doubling its $275 million last year. Crowdcube has done $30 million, and you have done 6 times more than them. So where do you see the scale for yourself in Australia?

Paul: At present the average investment per investor on our platform is around $30,000. With regulation change, we hope that the number of unaccredited investors per raise will move from around 20 to 100 or 200. This will allow platforms to scale. However, there is a difference between pledge crowdfunding and equity crowdfunding from an operational point of view. With “pledge crowdfunding,” the contributor is expecting a reward. A gratification. Probably instant gratification. Meaning if they contribute $100 for a watch, they are pretty sure they will get the watch within a few months.

However with “equity or investor crowdfunding,” there is uncertainty and hope. The investor hopes that when they invest they will get their money back or better, but it is uncertain as to when this will happen. Meaning if they contribute $20,000, they trust that the founders of the company will be good custodians of the money and will deliver on the promises they have made or the picture they have painted. Hope also must endure. From the time of the crowdfunding investment until its return, or not, communications need to be maintained with investors because they are still living on hope.

They hope that they will at least get their money back, and it should not be a surprise after three years if they don’t.

Ongoing communication is essential.

David: Where do you see the scale in the U.S. with your new investors?

Paul: Scale in the U.S. will come through lowering the cost structure of running raises. It is prudent to have some upfront costs to discourage the non-serious, but the majority of fee income should come from actually raising the funds.

David Drake

David Drake

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity advisory firm, and The Soho Loft – The Voice of Capital Formation – a global financial media company with divisions in Corporate Communications, Publishing and Expos. You can reach him directly [email protected].

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Regulation A+ opens the Floodgates of Real Estate Investing

by David Drake

Regulation A+, which is also known as Direct Public Offering, will significantly bring down the cost of raising capital for businesses. Such incidences like paying $250,000 legal fees when you raise $5,000,000 will no longer exist. Regulation A+ is expected to greatly influence direct public funding and give people an opportunity to raise capital more affordably.

Many people have been unable to start businesses in the States due to the strict regulations that have been in existence especially as far as raising capital is concerned. People have been paying thousands of dollars as legal fees on every capital they raise. This has always been the biggest discouragement especially for startup businesses. Business experts have argued that this has been a big obstacle especially to people who wanted to do business but did not have access to sufficient capital on their own.As a result, operating business in the States has been left to the few lucky ones who can easily raise money and pay the legal fees.

With the new laws contained in Regulation A+, startups will be able to raise up to $50 million in capital per year. Unlike the previous years, startups can now sell securities to the public and raise capital even from more non-accredited financiers. Basically, this is aimed at giving equal opportunities to those interested in doing business, regardless of their capability to raise capital. As a matter of fact, more people will now be able to raise capital, start businesses and generate additional jobs.
One of the sectors that will benefit greatly from Regulation A+ is the real estate industry. The demand for real estate properties has always been strong in the States. Many people have showed interest in investing in this industry. With the Regulation A+ in place, startups will now be able to raise sufficient capital and develop real estate properties hassle free.

Experts have been making comparisons between Regulation A+ and Regulation D. Definitely, both Regulations have their advantages and disadvantages. But the fact that Regulation A+ enables businesses to raise capital from non-accredited investors makes it far better than Regulation D. In addition, the scrapped off legal fees and reduced compliance costs in Regulation A+ also make it affordable for startup businesses to raise capital and start operations immediately.

In general, the Jumpstart Our Business Startups Act, or JOBS Act, brings a different business climate in the States. From the time JOBS Act was signed into law by President Barack Obama in April 2012, there are great steps that have been made already. Currently, a lot of capital is being raised by startups through crowdfunding.

Regulation A+ is more advantageous than Regulation D, because with Regulation A+ startups can raise money from non-accredited investors.

There is high anticipation that Regulation A+ will be approved. This is because it is believed that the law will enable more people to participate in building wealth in the country. Before Regulation A+, only the rich investors have been dominating the real estate industry and giving no room for startups to get established.

But with Regulation A+, the many startups that have not been able to operationalize their business ideas for lack of funds can now do so. The business platform will be made neutral as every business will easily access the funds it requires. This means that there will be more competition, especially in the real estate sector, and this will lead to high quality products and services. Many people are also expected to shift from leasing to owning properties because nearly everybody will now be able to invest.

Regulation A+ gives the public an opportunity to participate in active business and thus, in building wealth. Previously, this was left to privately owned companies and individuals who were able to pay for the high costs of operating business in the States. Regulation A+ will connect the public directly with investors and their investments. Most importantly, transaction costs and fees will be sliced making it affordable for startups to get established and operate efficiently.

If you have been thinking and reflecting on making an investment, especially in the real estate sector, this is the best opportunity for you to explore. Regulation A+ provides a conducive environment to crowdfund capital from non-accredited investors and fund your startups, and for investors to gain wealth as well. Businesses are expected to be more competitive and manageable even by startups. Just make sure that you understand comprehensively Regulation A+ and then make the necessary steps to start your business.

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity advisory firm, and The Soho Loft – The Voice of Capital Formation – a global financial media company with divisions in Corporate Communications, Publishing and Expos. You can reach him directly [email protected].

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Syndicated Equity Crowdfunding for Startups takes off in UK & Europe

David-Drake-CEO-LDJ-CapitalThe following guest post is by David Drake, founder and chairman of LDJ Capital, a New York City private equity firm, and The Soho Loft, a financial media company.

How does one become an angel investor?

There is no university where one can learn angel investing. However, crowdfunding is creating a unique path for learning through a system calledsyndicate funding. A growing trend in the U.K. and other parts of Europe, such as Belgium and Italy, this system allows professional business angels and crowd investors to participate on the same deals.

Syndicate Room (SR) and the Cambridge Capital Group (CCG) joined together third quarter of this year to leverage crowdfunding for the first time. CCG, an ultra-exclusive by-invitation business angel group of around 50 investors and private venture funds that annually invest £1-2 million each to its current portfolio of more than 30 high-tech start-up companies, became lead investors to Syndicate Room’s member investors.

Cambridge Capital Group

Cambridge Capital Group

“Membership in Syndicate Room is free,” says its founder and CEO Goncalo de Vasconcelos. As an SR investor, the member can invest as little as £500 ($800) directly into real business angel investments.

The site launched its online presence last August and recently closed its first deal with a £590,000 ($960,000) investment in Eagle Genomics. The lead investor, requesting anonymity, led the round with £300,000 ($480,000). Syndicate Room’s requirement is that a lead investor, or investors, puts in a minimum £50,000 ($80,000), or 25% of the company value, whichever is lower. Ideally, its focus are on firms in need of £500,000 to £1,000,000 ($800,000-$1,600,000).

While Syndicate Room investors will not be able to influence a startup company’s direction and strategy, they will get exactly the same economic deal, as well as make the same profit pound for pound, as the experienced and larger business angels of CCG.

Knowing that these angel investors only invest their own money into businesses they believe will give them a great return, it’s only smart for the crowd to follow where the angels lead. With their professional guidance, due diligence is done and deal quality is increased with proper valuations in place.

Angel networks benefit from this setup as this allows them to invest comfortably in a single deal while having a crowd of small investors to fill up the rest of the amount needed for seed funding.

The platform also allows the angel networks to find and train new angels from the crowd. Investors from the crowd will eventually learn the ropes, become angel investors themselves, and join the angel networks.

When angels get involved with crowdfunding platforms and in systems like syndicate funding, they take a proactive step in growing the angel network globally.
Are you joining to become one?

You can reach Drake directly at [email protected].

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The Economics of Immigration – US has a similar problem to Australia


David-Drake-CEO LDJ Capital

David Drake is founder of LDJ Capital and The Soho Loft and a fervent Jobs Act Advocate. Opinions expressed here are entirely his own (but I happen to agree with them) Ed: The problem stated by David is in my opinion one of the major problems Australia faces in creating new enterprises and innovation, we have experienced a net migration loss of both inventors and entrepreneurs for much of the last decade, see the article I wrote on Australia’s Net Inventor Loss – a must read for both sides of politics . If Australia wants to be competitive they should look to Singapore who will give you a visa if you have a valid business plan, we should also be stapling a permanent residency visa to every Masters and PhD that our foreign students receive and provide a fast track entry for anyone in the world who has Masters or PhD and anyone in the world who can present a valid business plan. Singapore and others are going to wipe the floor with Australia in attracting the best talent to start new businesses. We need to retain brain capital in the U.S. as the foreign nationals who exit our universities with graduate degrees are currently not allowed to stay. Entrepreneurs return home and end up competing with American companies – removing potential jobs that should be kept in the U.S. Foreign Harvard graduates who partner with peer entrepreneurs are 21% more likely to see their startups exit versus 15% of graduates without a graduate school partner.

Ellis Island

Ellis Island – Credit Ellisisland.org

This statistic suggests something of the value of both collaboration and of the intellectual capital and drive international postgraduate students bring to our economy. Encouraging foreign postgraduate entrepreneurs to stay in the U.S. and build businesses here is a hot topic at the moment because we are facing the start of negotiations in both houses in January around a comprehensive immigration bill that President Barack Obama is seeking. Several reforms to immigration law have been proposed in the last four years. The Startup Visa proposal by Senator John Kerry looked to allow investments of $250,000 by VCs to allow foreign nationals temporary green card visas to stay and build startups in the U.S. These were intended to turn into permanent visas after the startups show at least five full time employed U.S. jobs were created within two years. However, since Senators Kerry and Lugar are both out of the Senate for next term, there’s no stand alone startup visa bill — it is the view of key immigration reform leader, Craig Montuori, that “the Kerry-Lugar Startup Visa Act will almost certainly not be reintroduced in the Senate in 2013.” Another bill proposed by Sen. Jerry Moran (R-KS) and Sen. Mark Warner (D-VA) is the Startup Act 2.0 and it may yet form the final blueprint for change (see summary at end of article). Indeed, Craig Montuori terms the Moran/Warner plan, “the primary bill for startup visa supporters.” The STEM green card program is another program getting a lot of attention. It allows Ph.D. level foreign nationals studying engineering in the U.S. to get temporary visas to stay. The message is clear – immigrants are eager to contribute to our economy. Foreigners and the brightest of those abroad want our opportunities and these bills to be discussed this winter will allow the investor and VC community to gain access to these highly motivated entrepreneurs who want to stay in the U.S. after their postgraduate work is finished. The Commerce Department’s goal is also to attract startups and brain capital from abroad to the U.S. as well as foreign investments into the U.S. The Startup Visa would accomplish both. In his Ph.D. on entrepreneurial success, Hoan Lee at Harvard Business School found that graduate level entrepreneurs that partner up with peer colleagues from graduate school have a 21% likelihood of an IPO exit compared with those that do not (15%). Lee also found that, “Being socially connected to peer venture capital firms and private equity seeking startups leads to more deal flow, larger asset under management and better performance in the inaugural funds of HBS-executive run venture capital firms.” This study was not exclusive to foreign students, but it does make clear the centrality of pairing up potential entrepreneurs with other entrepreneurs and venture capital sources – of social networks – to achieve business success. Stories of bright and brilliant startups that created U.S. jobs (or have the potential to create U.S. employment) but which are lead by foreign nationals who cannot enter the U.S. or who are facing deportation were frequent last year. Ankush Aggarwal is one example of an entrepreneur the U.S. has not retained – even though he is open to holding a U.S. visa to accelerate the growth of his businesses. Aggarwal received his MBA in International Business from Pepperdine University in Malibu, California, lives in Chandigarh, India and regularly visits the U.S. on a business visa. His two internet sites, www.spicylegs.com and www.partybell.com, feature products sourced from the U.S., and almost all his customers are in the US (95%). His company, Northern Planet LLC, has 25 employees in India and one part-time worker in the U.S. Another excluded entrepreneur is Asaf Darash, an Israeli whose U.S. software company, Regpack, is growing rapidly. Regpack employs 19 Americans and raised $1.5 million in financing. Born in Israel, raised in Australia and now seeking to live in San Francisco, Darash used his Fulbright scholarship to spend three years at the University of California, Berkeley while working on his thesis. Even though he attempted to meet the federal government’s requirements when applying for his H1-B visa, a minor error meant that he had to return to Israel last October. As Inc.com’s Eric Markowitz’s article on the case began, “Wait, Don’t We Want This Guy?” The EB5 program has been in place since 1990 and has allocated approximately 10,000 visas annually. The program remains inefficient. The recent EB6 proposal would allow unused EB5 visas to be utilized by creating new criteria otherwise not obtainable through the EB5 program. Significantly, in the last year there were almost 8,000 applicants for an EB5, so that potential reallocation pool is currently quite small, even if the EB6 visa gets off the ground. Mathew Charnay, Managing Director of the International Development Expansion Organization, has led a trend of innovative EB5 visas. He has described the EB5 program as one of a few creative measures implemented by legislation that are at the forefront of redeveloping the economic infrastructure in the U.S. My personal investments continue to develop creative measures within legislation, sophisticated finance and integrated global marketing which are all focused on capital growth and improving job creation within the U.S. economy. With the fiscal cliff having been resolved, the EB5 program continues to be the most viable solution to remaining fiscal uncertainty in the U.S. EB5 application numbers have recently doubled this year and have not reached such heights since 2006, and 2008. With most surges in the EB5 program occurring towards Q2 and Q3 of each year, EB5 analysts like Charnay must continue to implement significant research towards filling voids in far reaching programs like the EB5 as well as continued efforts within legislature. Significant marketing ingenuity of the EB5 program and other fiscally forward legislature is required in order to fill the gaps within the economic infrastructure of the U.S. marketplace. Chart: Rising support in both Houses of Congress for Startup Visa. Source: Craig Montuori President Obama wants a complete overhaul of the immigration program and we are seeing drafting of immigration policies occurring ahead of the opening of the Senate and House of Representatives Jan. 16, 2013. In Congress, immigration discussion occurs within the House and Senate Judiciary Committees. The former will be led by Rep. Bob Goodlatte (R-VA, Roanoke), who is the father of a Facebook employee, while the latter continues to be led by Sen. Patrick Leahy (D-VT), who was the sponsor of the EB-5 provision in the 1990 immigration reform bill. The immigration subcommittee on the House side is not clear at this point, but on the Senate side, it will almost certainly be lead by Sen. Schumer again. Sen. Schumer is also the lead Democrat on messaging and has replaced Sen. Bob Menendez (D-NJ) as the Senate Democrats’ point person on immigration. Craig Montuori maintains, “Comprehensive Immigration Reform is the President’s top priority for 2013, so the White House wants us to contribute to the overall push for Comprehensive Reform. The Startup Act signals support for high-skilled reform within the larger comprehensive package.” He is critical of Senator Menendez for not including high-skilled reform as part of the comprehensive immigration reform bills he introduced, even after President Obama supported high-skilled reform in his speeches and blueprint. “So we need a guarantee from Schumer, as the new architect of comprehensive immigration reform, that we’ll be part of the proposed package,” Montuori says. “Remember that a key talking point for the President on the campaign was that high-skilled immigration reform is an important component that will contribute to American economic growth, towards a 21st century economy that’s built to last.” In a speech on the floor of the Senate, Senator Moran, one of the proposers of Startup Act 2.0, summed up the urgency of the need for the bill – “The future of our country’s economic competitiveness depends on America winning the global battle for talent. The Department of Commerce projects STEM jobs to grow by 17 percent in the years ahead. We have to retain more of the highly-skilled and talented individuals we educate in America to remain competitive in the global economy. Doing so will fuel American economic growth and result in the creation of jobs for more Americans.” David Drake is founder of LDJ Capital and The Soho Loft and a fervent Jobs Act Advocate. Opinions expressed here are entirely his own.

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The Emerging Trend in Entertainment: Crowdfunding

Adam & Zack Braff - Credit Kickstarter.com

Adam & Zack Braff – Credit Kickstarter.com

Look at Scrubs star Zach Braff who, after appealing to his fans to support his indie film “Wish I Was Here,” raised more than $2 million in less than 30 days on crowdfunding site Kickstarter.

When its TV network canceled the show “Veronica Mars,” creator Rob Thomas wrote a film script to continue the series. Warner Bros. passed on the project—so Thomas and star Kristen Bell took to crowdfunding and raised $5.7 million in 30 days.
Crowdfunding in Entertainment

Online crowdfunding can be traced back to 1997, when UK band Marillion asked fans to donate $60,000 for its US tour over the internet—in effect pioneering crowdfunding.


“Wish I Was Here” Wins

The passionate support of Zach Braff’s fans is what actually enabled him to raise the bar, getting about $8 million in additional funding, not just domestically but also from international sources like Cannes financiers. Although the inclusion of international investors brought criticisms from his fans, Braff explained that the funds they brought will enable him to fulfill his plans for the movie.

While Braff is engaging and funny on his Kickstarter video campaign, he gets serious with one of his posts on his Kickstarter page.

“I’m sorry for the hoopla,” he wrote. “I’m sorry if your friends think you’ve been duped. But you haven’t been. This is real. Crowdsourcing films is here to stay.”

Veronica Mars - Credit Kickstarter.com

Veronica Mars – Credit Kickstarter.com

Victory for “Veronica Mars”

The Veronica Mars Movie Project ran from March 13 to April 12, 2013, with a goal of $2 million. It was such a smashing success that it set Kickstarter records for:

All-time highest-funded project in the film category.

Fastest project to reach its goal ($2 million in 12 hours)

All-time highest number of backers (91,585, who raised $5,702,153).

Picture Courtesy of Digital Spy

Jennifer Lawrence – Picture Courtesy of Digital Spy

Silver Linings Playbook, released in 2012, was also financed through crowdfunding—and proved to be both a critical and commercial success. It received nominations from the Academy and Golden Globe Awards, among others, and star Jennifer Lawrence won Best Actress. It was also a blockbuster hit, taking in more than $235 million—11 times its budget.

No Guarantees

Not every crowdfunding project is a winner, though, as former Sabrina the Teenage Witch, Melissa Joan Hart, found out the hard way last week. After asking her fans to “help prove to people that I’m more than just Clarissa or Sabrina,” she had to cancel her month-old Kickstarter campaign to raise $2 million when she came up $1.95 million short.

The Future of Crowdfunding

The power of the fan base has never been tapped with “the ask,” as musician Amanda Palmer succinctly notes in her Ted talks. So on April 30, 2012, she launched a campaign on Kickstarter where fans can download her music for as little as $1. In a month, she raised $1.1 million from 24,000 backers.

Crowdfunding is just that: It’s extending the ask, subtly or not so subtly, and having fans respond. It’s all done online; the asking is free, and the reach is global. The sites take their cut (5%-15%) only after you get your money.

Where historically fans have only been asked to buy a ticket for a show, now they can play a creative role themselves, financing and marketing the films and the stars they believe in. This is the ask at work, empowering your fan base.

But you must build a very strong connection with your fans (like Braff did), or your ask will not be noted (like what happened to Hart).

Producers and directors this year will be resurrecting failed TV shows for the large screen, and crowdfunding is one powerful tool when you need to ask for help. And best of all, you don’t have to give up one single share of stock or profit.

What do you think your “ask” could be, or should be?

About the Author:

David Drake - CEO - LDJ Capital - Credit Linkedin.com

David Drake – CEO – LDJ Capital – Credit Linkedin.com

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity firm, and The Soho Loft, a global event-driven financial media company helping firms and funds advertise for investors. He is running the Real Estate Investing and Leading Crowdfunding Conference in NYC on Nov 14, 2013. Listen to him speak together with Keynotes Dennis Irvin of Rockefeller Group and Barry Sternlicht of Starwood Capital. Check out: https://thesoholoft-real-estate-investing-newyork.eventbrite.com/. You can reach him directly at [email protected]

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@Upstart – Crowdfunding for promising people – Your own personal Angel Round


Getting through college is tough and even more so in a recession. The Consumer Financial Protection Board (CFPB) estimates that Americans are currently carrying $165 billion worth of private student loans and nearly a total of $1.2 trillion worth of student debt.

Dave Girouard - CEO Upstart - Credit Linkedin.com

Dave Girouard – CEO Upstart – Credit Linkedin.com

I recently spoke with Dave Girouard, former president of Google Enterprise and now the founder and CEO of Upstart, a crowdfunding service that helps people who are just starting their careers raise capital from backers in exchange for a small share of their future income.

Upstart provides a way for students not to default on their loans and retire their debts in a timely manner, to invest further on their education, or even to raise seed capital for their startup venture. It creates yet another way for crowdfunding to fill in the gap by getting investors to back not just brilliant business ideas but also the people who could be creating those ideas in the future.

Ed: The crowdfunding market and aggregation of debt is hotting up with many players in the space with AngelList, Lending Club, Crowdcube.com Tuition.io, zerobound.com, YouveGotFunds.com, FundAnything.com, GrowVC, all receiving either funding or major press coverage.

David Drake: Upstart’s concept is selling your future salary income for cash today. Your firm sets the term of five to ten years from the date that earnings commence, with a minimum $30,000 per year threshold, or the timetable can be extended. You also only allow entrepreneurs or individuals to offer up to seven percent of their future earnings in total, with an average ask of $25,000 and an average received of $17,000. These fund raises take 30-90 days, and Upstart manages the collection and investor relations for the investors and the lenders. Is that all correct?

Dave Girouard: It’s not technically “selling” anything. Upstart is about raising capital (or borrowing) with repayment defined as a fixed and small fraction of income earned, instead of a fixed interest rate. Upstarts can choose either a five-year or 10-year agreement and can share as much as seven percent of their income (they can raise approximately twice as much for the 10-year as the 5-year contract). The average upstart aims to raise about $30,000, and nets about $25,000. They have 60 days to fund. And we manage all distribution of funds, collection and redistribution of repayments etc. Our investors are referred to as “backers.”

Drake: Technically you are crowdfunding future earnings, for which you do not need to register as a security under SEC regulation. Tell us how you see this working.

Girouard: We are a private offering under SEC rules, only available to accredited investors as of today.

ED: Crowdfunding in the Asia Pacific region is still somewhat limited with Government Legislation struggling to keep up. Australia has a new discussion paper (which means changes to legislation are a long way off), there is a good review here http://www.smh.com.au/it-pro/it-opinion/crowdfunding-rules-to-change-help-australian-entrepreneurs-20130916-hv1pn.html and a discussion website launched by Andrew Ward here http://www.csef-australia.com.au/

Drake: In your first year last April, you had 83 “upstarts” backed by 135 “backers” with 555 offers, and a total value of $1,030,740. Who are these backers? Do they have to be accredited or can anyone offer to put money in?

Girouard: As of now, we have 130 upstarts, 200 backers, and 1,000 offers made for about $1.8 million. Backers are a varied lot: successful entrepreneurs, venture capitalists, other types of investors. You do need to be an accredited investor today. We hope to change this over the next few months by registering the security interest with the SEC, similar to what Lending Club and Prosper did in 2008.

Drake: You’ve raised $7.65 million in funding to date, and previously spent eight years at Google. Where do you want the scale to be 18 months from now? Is it domestic mainly or will it be global?

Girouard: I expect to focus on the U.S. for the next couple of years. Each country has entirely different regulations in this area, so I’d rather get it right in one big market before spreading to others. We’d like to have several thousand upstarts funded within a couple of years.

Drake: Who should be looking to raise money against their future earnings on your site?

Girouard: We’re focused today on people early in their careers who need capital to invest in themselves and their careers. This can include eradicating student debt, starting a business, or investing in their skills in opportunities such as learn-to-code programs that are becoming really popular. We see a huge part of our population that has little or no access to capital on reasonable terms, but who could benefit enormously from a bit of economic freedom.

Drake: Who are the ideal investors that should get the most out of this program?

Girouard: Upstart isn’t about donations or philanthropy, but we are mission-driven. Ideal investors are those who are compelled by a novel new financial instrument, are interested in generating a compelling return, but also want to participate in a network designed to help young people succeed and do compelling things with their careers.

Drake: How do you scale this business, as you clearly have to underwrite all the individuals applying, and what are the challenges to growth for your firm?

Girouard: We’re quickly automating many aspects of the underwriting: the identify proof, credit verification, verifying academic credentials, and more. We are confident we can scale that part of our business very quickly. The biggest challenge in a two-sided market like Upstart is to balance supply and demand, to make sure the marketplace works well for all participants. In our short life, we’ve already experienced times when there are too many backers and not enough upstarts, and vice versa.

Drake: How do you differentiate your service from other crowdfunding platforms out there?

Girouard: Upstart is 180 degrees different than other crowdfunding sites because it has real economics underpinning it. On the upstart side, the idea of borrowing from your future self is liberating and has far-reaching potential to unlock value in the economy. On the investor side, the opportunity to invest in the wages and income of a diverse group of people has been discussed for decades, has a risk/return profile that is really compelling, and provides a way to hedge against your own future earnings. The idea of human capital contracts (the economist’s term for what we do) goes back to Milton Friedman, and has potential to create an entirely new asset class for the next 100 years.

@ David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity firm, and The Soho Loft, a global event-driven financial media company helping firms advertise for investors. He writes regularly for Forbes and Thomson Reuters. You can reach him directly at [email protected] or make connect on linkedin.com/in/ldjcapital

David Drake - CEO - LDJ Capital - Credit Linkedin.com

David Drake – CEO – LDJ Capital – Credit Linkedin.com

This article was first published at Venturebeat.com and was republished with permission of the author.

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