Today, the Obama Administration is hosting the conference "Access to Capital: Fostering Growth and Innovation for Small Companies." Hopefully, the event will produce actionable steps that will be pursued and implemented to help entrepreneurs obtain needed capital and financing to help their firms grow or survive. For the past several months, SBE Council has been working with one of its member-entrepreneurs to reform outdated Security & Exchange Commission (SEC) rules that are preventing small business owners from tapping into ready sources of capital.
Capital is critical for startups and small businesses to grow and add to their payrolls. From a policy perspective, there is a long list of reforms and changes that need to take place to ensure capital formation, access and investment. Our success in pushing for reforms has only occurred because of the active support and engagement of our members, and we are thankful one of our long-time members, Woodie Neiss, is stepping up to help us untangle outdated SEC laws.
SBE Council entrepreneur and Miami Beach resident Woodie Neiss is making headway in his reform crusade by using proven skills that helped him launch a successful business. Neiss has been featured in a 2006 INC. magazine cover story, and his business was a three-time INC. 500 listing. His "Type-A, I can do anything I put my mind to" personality is also responsible for Neiss's recent win at Miami's "Startup Weekend" with an idea to use smartphones for instant polling. Neiss is using these skills to attack the policy world, reaching key voices in government, entertainment and business in an effort to reform outmoded SEC rules -- antiquated laws that are prohibiting Americans from investing in entrepreneurs.
According to Neiss, the background of this story is easy enough to understand. Cash is hard to come by. The banks aren't lending like they used to; credit card financing is becoming less of an option because of high interest rates and credit has been cut; Private Equity and Angels seem to be chasing the same few deals; and Venture Capital networks remain difficult to break into.
Unless you can self-fund, have friends with deep pockets or win the lottery, there's really nowhere to turn.
"If you've ever tried to raise capital you know that almost 80 years ago Congress enacted legislation designed to prevent big business from taking advantage of the little guy. These are the same rules that look at a $1 million investment in a business, in the same way as a $1,000 investment. Not quite the same degree of risk," says Neiss.
According to Neiss, the laws are cost-prohibitive from a compliance perspective. Big businesses and the wealthy may be able to afford such red tape, but the little guy cannot.
Companies like Kiva and Kickstarter are trying to address the problem. Entrepreneurs go to the "crowd" and thousands of people fork over millions of dollars in little amounts in return for t-shirts, tokens (or nothing) and warm tingly vibes.
"That's great," says Neiss. "However, what if we could earn a return on our investment? Wouldn't that help foster the capital formation that is currently lacking in the marketplace?"
So Neiss took it upon himself to craft a solution with the SBE Council. Neiss says the solution "is in the spirit of the law and contains very important investor protections and restrictions."
At the end of January he and Kerrigan met with the SEC to plead their case. Neiss has also talked with key staff on Capitol Hill. Next, he flew to New York, won the support of Whoopi Goldberg, and launched http://www.startupexemption.com/ and now has Whoopi talking about it.
Together SBE Council, Goldberg and Neiss are pushing for a new exemption to the Securities laws that would:
Create an exemption for small business offerings (debt or equity) of less than $1,000,000.
Limit the maximum contribution by any one individual to no more than 10% of their prior year's Adjusted Gross Income or up to $10,000/individual, whichever is less. ($10,000 is also in line with banking, foreign exchange, and other established financial limits).
Require a set of standardized and automated procedures for these financing offerings to reduce time and expense for all parties while maintaining transparency. (Neiss suggests using a modified SCOR form. Especially for those companies that are just ideas and don't have financials yet).
Have investors complete an online form/test on the risks involved in private offerings before being allowed to invest.
Allow the creation of channels or sites where ideas, individuals, companies and investors can meet, be vetted by the organizations hosting those channels and entrepreneurial funding can take place. (The SEC could even go so far as to require the registration of these channels/sites for transparency purposes).
What is the goal of this?
"To kickstart ideas that otherwise would never have left the kitchen table. To provide access to capital from peers, and provide entrepreneurs with tools to hold them accountable. Businesses will have capital to innovate and hire, which will eventually provide tax revenues to our hurting government," says Neiss.
Does this compete or replace Private Equity (PE) or Venture Capital (VC)? "No" says Neiss. "Private Equity and Venture Capital aren't focused on these deals. We want to help germinate ideas that will be funded in the future by PE or VCs. However right now we are unable. As a "Type-A, I can do anything" personality, Neiss is determined to change the rules of the game. And you know what? If he's successful, he just might be one of the reasons why our economy roars back to strong levels of growth and job creation.
Karen Kerrigan, President & CEO