Advertising and Crowdfunding: Brave New World

from MorgueFile, by clarita
from MorgueFile, by clarita

Only three days after the commencement of the new SEC regs on advertising for private placements, and we’re seeing impressive activity.  Some of the emails/promotions have me scratching my head, as they are not from BD’s, or at least none that I am aware of.   And they are promotional, all with the disclaimer:  “Assume you will lose 100 percent of your investment.”

One of the more impressive promotions was from Tim Ferriss, author of The Four Hour Work Week, the Four Hour Body, and lastly The Four Hour Guide to Everything.  To the best of my knowledge, Mr. Ferriss ( two s’s) is not associated with a broker dealer, though he seems to be investing solely with AngeList.  What he is doing is right on the line, from a regulatory perspective.  He’s saying:

 

I’m investing in Shyp, and I’m offering you the opportunity to invest in Shyp, also.  If you’re an accredited investor you can invest anywhere from $2,500, up.  Better yet, you can check “this” box and invest along side of me in every deal in which I invest.

This may be a great opportunity.  If I had money that I was willing to pour down a dark, black hole, I would sign up.  However, not my style.

I would argue that with Mr. Ferriss’ notoriety and the reach of his blog, this is akin to advertising.  We’ll see the SEC’s view, which is sure to be looking over his shoulder.  Presumably, Mr. Ferriss does not receive incentive-based compensation for these promotions, as he’s not affiliated with a broker-dealer to the best of my knowledge.

I did a FINRA broker check to see if Mr. Ferriss was registered with a Broker Dealer.  The response was literally “No results.” Ferriss’ disclosure page is very cheeky.  This is literally what it says:

  • Writer got fed
  • Writer got some sweet gadgets
  • Writer got busy w/ member of story
  • Writer received mad scrilla
  • Writer got a helluva schwag bag
  • Writer got stock options

Also, take a look at “RockThePost” where they’re promoting CoFoundersLab, ClouidMine, and  Yosko on their front page.  I did not bother to Log In or Register to find more information.  On its home page, AngeList sites Mitch Kapor as investing in SoundFocus, which is raising $1,000,000; Yves Behar as investing in Soil IQ, which is raising $600,000; and Hiro Maeda as investing in Asseta, which is raising $500,000.  AngeList does do a good job of explaining the rules around general solicitations, with an interesting and easy to read FAQs page

Ancillary businesses are sprouting up around crowdfunding.  There are the perfunctory “industry” organizations, newsletters and conferences.  Some companies are:

  • CrowdCheck does basic due diligence for the entrepreneur founding the Company, and guides them through the disclosure process.
  • Crowdnetic.  If I have it right, NowStreetMedia seems to have morphed into Crowdnetic, which is hoping to provide funding portal platform technology and market data solutions to the private equity and crowdfunded securities industry.

BlueLake, a non-broker dealer affiliate of BLP Advisors, our Broker-Dealer, is also considering offering certain services.  However, for better or worse, we are not the first to jump in.  After all, we are based in New England, which tends to be a tad more conservative.

The opportunity is boundless in this Brave New World, though the question is what type of opportunity.  As the head of private placements at Needham & Company, I saw first hand how conservative individual entrepreneurs are with their hard earned money.  Entrepreneurs may have the reputation as being “swing from the fences” sorts of guys, but the reality couldn’t be more different.

As compared to gambling in Las Vegas, investing in startups is a better bet.  Especially, if you follow Peter Lynch’s advice to invest in products and markets that you understand.  We do like Tim Ferriss’ thought, which is to invest a small amount, $2,500, in many (of his) deals.  As long as he doesn’t write a lot of checks, that’s  not a lot of money each year.  Ferriss, himself, is saying that he only invests around $25,000 per investment.  If 2,000 people invest $2,5000 in each startup, that Company just raised $5 million.  While $5 million doesn’t go far in startup land, it’s impressive.

Are you going to participate in these crowdfunded startups?  Have you done so already?  What is your experience?