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CROWDFUND INVESTING

CROWDFUND INVESTING. Innovation Napa Valley October 17, 2012. Our Financial System is Broken. Although half of our jobs and output comes from startups and small businesses, essentially all of our savings go into Fortune 500 companies. U.S. Savings Allocation. U.S. Jobs/GDP by Business Size.

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CROWDFUND INVESTING

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  1. CROWDFUND INVESTING Innovation Napa Valley October 17, 2012

  2. Our Financial System is Broken Although half of our jobs and output comes from startups and small businesses, essentially all of our savings go into Fortune 500 companies U.S. Savings Allocation U.S. Jobs/GDP by Business Size

  3. 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

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

  5. CROWDFUND INVESTING GAP CURRENT CROWDFUNDING CURRENT BUSINESS NEED DONATION-BASED EQUITY FUNDING • Small businesses & start-ups • Up to $1M THIS IS WHERE CROWDFUND INVESTING COMES IN

  6. Everyone we talked to said it would never happen… “The House and Senate will never agree” “Don’t waste your time” “What can 3 regular guys get done in Washington?” “Who’s gonna pay for this?” “You’re crazy…”

  7. WHAT WE DID Jason, Zak & Woodie have an idea to make it easier for small businesses to raise capital January 2011 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

  8. AND ON THE 460TH DAY…

  9. HOW IT WORKS 1/ THE BIG IDEA Start up or small business owner has a high-potential idea 2/ WEB 3.0 Leverages social media for community financing 3/ CROWDFUND INVESTING CrowdFund Investing provides funds at a crucial growth point 4/ GO PRO Success attracts professional investment 5/ THE CYCLE CONTINUES More entrepreneurs follow, transforming Main Street through ‘localvesting’

  10. LEGISLATIVE FRAMEWORK SMALL BUSINESS OWNERS SEC • Raise up to $1M per year with ‘all or nothing’ terms • Regulate websites for all CrowdFund Investing • State registration pre-emption CROWDFUND INVESTING FRAMEWORK UNACCREDITED INVESTORS SELF-REGULATING ORGANIZATION • CfIRA, CfPA Boards • Engaged with FINRA • SEC negotiations • NASAA engagement • Invest at 1 of 2 levels: • Lesser of $2K or 5% income (<$100K income) • Greater of $100K or 10% income (>$100K income)

  11. THE FUTURE OF CFI April 2012 JOBS Act signed into law December 31 2012 General solicitation begins for accredited investors 2012 2013 January 2013 - Delayed SEC rulemaking process continues March 2013 FINRA rulemaking begins July 2013 (best guess) Crowdfund Investing begins

  12. 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

  13. LET’S TALK ABOUT FRAUD Background check before starting Still need to market a smart idea Need to post it on a funding portal Need to have a strong network of people you want to take advantage Need to be able to respond to their potentially exposing inquiries … fast Must hit 100% of your funding target within the time frame

  14. 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

  15. 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

  16. More Funding, Much More Funding Estimated equity crowdfunding market size is in the billions $30 Trillion in Total U.S.Savings “Just a 1% Shift to Startups & SMBs = $300 Billion” - Fred Wilson Friends and Family investing will shift to crowdfunding $60 Billion in Friends & Family $6.2 Billion Gartner estimated market size in 2013

  17. THANK YOU QUESTIONS? EMAIL SHERWOOD@THECCAGROUP.COM WEB WWW.CROWDFUNDCAPITALADVISORS.COM

  18. Donation/Equity/Debt Platforms Platform Links • Examples of Donation-Based Crowdfunding Platforms: • www.rockethub.com • www.kickstarter.com • 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)

  19. 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

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