JOBS Act’s Crowdfund Investing Architect Speaks at Rutgers

Sherwood_Neiss_at_Rutgers stopped by Rutgers Entrepreneurship Day on April 17, 2012 and found about 400 people listening to speakers discuss academic innovation, using technology to help people in underdeveloped nations and crowdfund investing.

The day—whose theme was “Innovate for Humanity”—featured posters and pitches by early-stage companies.

One of the most interesting keynotes was given by serial entrepreneur Sherwood Neiss, now with Startup Exemption. Along with Jason Best and Zak Cassady-Dorion, Neiss is the architect of the framework for the crowdfund investing portion of the Jumpstart Our Business Startups (JOBS) Act signed into law by President Obama on April 5.

Tying crowdfund investing to the day’s theme, Neiss said this new method of financing startups can be applied worldwide and is needed in developing countries. “I think we are on the cusp of something very, very exciting for the world.”

Neiss noted that when he was speaking about crowdfund investing at a conference in Turkey, people from all over the world approached him about the need for something like it in their countries. They told him, “You have to help us make this legal in our country.”

Crowdfund investing is different from the sort of donation-based crowdfunding Kickstarter does because those involved receive stock, a security, some piece of the business in return.

Explaining why the country needed this alternative way to invest in young companies, Neiss said everything changed in investing with the financial markets’ collapse in 2008. Access to capital for small startups was severely limited.

As a serial investor, Neiss was affected by this lack of capital. He had an idea for a startup—using smartphones for instant polling—but couldn’t get funding, even from people who had funded him before. He wasn’t able to use the equity in his house because the amount had decreased. No bank would give him a loan.

A friend was having the same problem raising money for his business. Talking over the issue with each other and another friend, they decided to write a framework for a bill that would change SEC rules so ordinary people could invest in young companies.

The three—Neiss, Best and Cassady-Dorion—showed up in Washington with their framework 15 months ago, and “everyone told us, ‘Don’t do it; you can’t change the security laws.’ ” However, “We were naive enough to believe we could give it a shot.”

The framework merged the donation-based aspect of crowdfunding with seed investing. “It’s meant to address up to $250,000 of small businesses’ startup funding needs,” said Neiss. He noted that crowdfund investing won’t replace Wall Street. “It’s community investing and will probably impact companies in local communities who have the greatest need for funding.”

The security laws were written at a time when the information-flow technology in place today didn’t exist, he added. “You can’t do anything on the Internet today without being exposed. Our principle was to apply Internet transparency to crowdfunding to update the security laws.”

As the legislation is written, anyone who wants to take advantage of crowdfund investing will have to go to SEC-approved websites, which an oversight body will regulate. Entrepreneurs will have to submit to fraud and background checks, and perhaps there will be a minimum credit score for an entrepreneur to be approved. Entrepreneurs will be permitted to solicit via these websites.

Says Neiss, “The framework specifies an adjusted gross income minimum for investors, and the way we came up with the numbers was, we didn’t want anyone in the angel or VC world to think we were stepping on their toes.” This was meant to be an onramp to more sophisticated financing.

Neiss recalled that when the legislation was first written, it stripped out many safeguards he and his partners had put into it. However, Washington insiders told him to sit tight; when the whole thing was finished and both the Democrats and Republicans had satisfied their constituencies, everything would be worked out in committee. In fact, the final bill looked very much like the framework they had proposed.

“A lot of people think Washington is broken and doesn’t work. I now have a tremendous amount of respect for what these people do. They are working nonstop. I worked with them around the clock. I worked at the White House until 5:30 a.m. so many nights, all due to a true desire to do something that was going to have a positive impact,” he concluded.

Eva_WojkowskaThe event also featured many presentations including one from Ewa Wojkowska, one of Advance’s 50 emerging women leaders and co-founder and COO of Kopernik, an online marketplace for cutting-edge technologies designed specifically for emerging economies. The site matches donors with communities in need and technology that will make people’s lives better.

N.J. life sciences startups won the majority of awards offered at the event.

Braun C. Keiss of Parsippany won the SNR Denton Elevator Pitch Competition. Keiss, who is CEO of Polymer Therapeutics, gave a presentation on his company’s polymer drug-delivery technology and  will receive a $2,500 cash award and one year of cost-free mentoring through the new Rutgers Entrepreneur Mentor Program (REMP).

Two runners up in the pitch competition also won a year of mentoring from REMP. They are New Jersey residents John Vitug of Wayne with “Heart Juice” and Lawrence Sasso, Ph. D., of Fluimetrics in New Brunswick.

Winners of the poster contest, potential entrepreneurs with ideas for startups:

  • Most Likely to Get Funded: John Eibelheuser of Flemington, with “Triple Jays” snacks.
  • Greatest Potential for Social Impact: William Ward, Associate Professor of Biochemistry and Microbiology, Rutgers-New Brunswick, Brighter Ideas Inc.
  • Most Innovative Technology: Tamara Minko, Professor II and Chair, Department of Pharmaceutics, Rutgers.

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