- Category: Crowdfunding Platforms
- Published on July 24, 2014
- Written by Jason Best
Broker dealers of the distant past (circa 2010) who worked in the private capital markets never thought their jobs would change. They thought only other industries could be disrupted by the Internet and technology. They assumed investment banking was secure because securities regulations written in 1933 and 1934 were fixed in place. It was generally assumed that public solicitation of private stocks would never be allowed.
Fast forward to 2014 – Parts of the JOBS Act are in full effect, general solicitation has been lifted, and the average American is about to be allowed to partake in the private capital markets. Everything is changing and some are still in denial. Remember what happened to most travel agencies in the 1990's?
Unlike travel agencies that could fully be displaced by websites, broker dealers play a critical role in the capital markets. However the time has come for them to make some radical shifts in how they approach their businesses. Here are three things every broker dealer needs to be working on now to avoid the same fate as the travel agents who said "why would anyone buy an airplane ticket himself? It’s too difficult!"
- Much time and resources will be spent on background and diligence checks for the many new issuers entering the market. Looks at ways to outsource this. Leverage powerful and scalable due diligence technologies that go way beyond just the basic "bad actor" checks. This will allow BDs to focus their time and resources on what they do best: curating deals, matching them to investors, and raising serious cash.
- Look at every step in the transaction process to see how new technology solutions can replace skilled professionals needing to shuffle paper or run process. In doing so, BDs can increase transactions and decrease the number of hands that have to touch everything. Nothing replaces the judgment of seasoned professionals in making the decision to work with a client or not. But seasoned professionals shouldn’t conduct their work like it is 1985.
- Use new sourcing tools for high quality deal flow. Crowd finance platforms are coming online, entrepreneurs are listing their offerings with them, and deals are getting funded. Use these platforms to quickly and easily find companies that have proven they have a market, a customer, can raise money, and can execute. Most likely these companies will need follow on capital. Most likely the crowd won’t have deep enough pockets for follow on rounds. This is where BDs can acquire deal flow and raise money for these firms faster. Consider ways to partner with crowd finance platforms for early access to these deals. More deals means more money in the BD’s pockets.
Broker/Dealers and securities professionals in the US and abroad need to heed this advice. Those who focus on this intensely over the next 12-18 months are the ones that will thrive in the future. Those who do not, may be wondering what happened to their businesses 2 years from now.
- Category: Creating a Global Framework
- Published on July 21, 2014
- Written by Sherwood Neiss
Nestled among the beautiful scenery of Lake Como, Italy with pristine lake and soaring evergreen mountains a group of 23 hyper connected individuals from biotech, NGOs, non-profits and global funds gathered to answer the question "How can we use the 'evolving collaborative economy' to treat diseases in very effective ways without destroying incentives?"
It was apparent to the attendees that process for drug discovery and development is broken. These problems include:
- Scientists who are afraid of losing their intellectual properties (consisting of molecules, compounds and libraries) are not sharing them, and this is inhibiting innovation.
- A lack of collaboration among scientists means repeating costly errors and duplicating unnecessary research. This ends up increasing the length of drug discovery, only leads to incremental improvements, and furthers the "drug development is a costly initiative" theory. And
- The lack of funding is falling short of what is needed to move from drugs from Phase II to Phase III clinical trials -- the point at which drugs go from 'proof of concept' to 'human consumption.'
These individuals aren't focused on the problems but the solutions. "Open Source Pharma" (#OpenSourcePharma) is the idea where the process of drug discovery is brought online, everyone collaborates, time and costs are reduced, solutions to developing economy and small market ailments are addressed, and the world wins.
Luckily the biotech industry understands the power of collaboration because crowdsourcing, where people are invited online to collaborate in solving a curated problem, is rapidly evolving as a tool among scientist to foster innovation. Data points to the fact that crowdsourcing has proven to lead to better solutions faster. However there are still many problems to be resolved. These include the time to take drugs to market and funding.
Crowdfunding is sweeping the globe as a solution to the funding void in many industries. The funding void is the most difficult money to raise between one's own personal cash and that of venture investors who tend back projects that have a greater likelihood of being viable with their investment. Crowdfunding is the ancient practice of 'friends and family' financing brought to the Internet age where websites list fund raising campaigns and individuals use their social networks to solicit contributions. Crowdfunding saw its emergence around 2009 with artists using it to raise funds for their concerts or projects. Today companies are using crowdfunding to pre-sell products, raise equity funds or borrow money from the crowd on more favorable terms than the banks. In 5 short years, it has grown into a multi billion dollar industry.
Crowdfunding isn't a panacea. Taking into account all forms of crowdfunding, less than 35% of initiatives are successful with their fundraising. However, it does increase the opportunity for individuals' to access capital where the traditional financiers have either shown no interest in funding or have stepped out of the equation. Depending on the type of crowdfunding it requires that certain technology, social, cultural, regulatory pieces are in place. Globally an entire industry has sprouted to support crowdfunding.
Here are 3 ways the nascent Open Source Pharma community could use crowdfunding to further its goals:
- Host a crowdfunding campaign with the goal of launching the Open Source Pharma initiative. Set a realistic goal to create a minimum viable organization that leverages a community of engaged supporters but understands the need for a central organization to represent them as the voice of the Open Source Pharma network.
- Figure out if the organization is best suited to buy, build or white label its own crowdfunding platform. It is critically important to understand that crowdfunding platforms are complicated websites with major technical needs. The Open Source Pharma initiative needs to support scientists at all stages in development. They should promote innovate crowdfunding terms that include donation at the earliest/riskiest stages to engage both communities of affected people and communities of scientists. At later stages of development these platforms should leverage equity and revenue based financing to further incentivize people should be promoted.
- Seek matching funds or create an X-Prize type of reward to further encourage collaboration and move development through the pipeline. Reward people along the way and promote multiple smaller campaigns rather than one large one. This will continually engage backers along the development lifecycle.
These are a few of the ways that will get the Open Source Pharma movement up, running, promoting crowdfunding, and fostering innovation. There are many more. Crowdfunding works because it engages the community where they have interest and provides not only money but a voice to the initiative. It is 'open source financing' and can be a huge benefit to Open Source Pharma initiative. It needs to be carefully curated though.
- Category: Entrepreneurship
- Published on July 13, 2014
- Written by Sherwood Neiss
When recently visiting Wine Country USA for a storybook wedding, I was taken aback by the wine, the scenery, and the lifestyle. I understood why so many people are drawn to a life of making wines. However, I learned that making wine isn't easy, isn't cheap, most vineyards take a long time before they start-producing grapes, and a longer time before they see a profit. I also learned that businesses that support the industry are categorized as either those that grow grapes or those that make wine. What about all the other opportunities?
Being an entrepreneur, proponent of the crowdfunding movement, and a consummate 'idea guy,' I thought there was so much more potential to Wine Country USA than what I was seeing. Sure there were the hotels, spas, and restaurants that come with such an ideal location but what about the startups? Why isn't Wine Country USA another Silicon Valley? Not for technology, but for the wine industry? Why isn't there an incubator there focused on creating businesses that come from selling all parts of the wine than just the grapes?
In June, I had the chance to speak at Startup Iceland. In a speech given by the President of Iceland before I spoke about Crowdfunding's potential for Iceland, I learned how this island nation of 300,000 people is turning their core competency, fishing, into an industry of products and services consumed by the global fishing industry. In doing this, these businesses have helped the country recover from the its own financial meltdown to create jobs and economic opportunity.
Iceland did this by thinking out of the box. A perfect example of this is the Iceland Ocean Cluster House, a privately owned business incubator focused on ocean-related industries. The Ocean Cluster brings together people from very different companies and industries so they can exchange ideas and collaborate on money-generating concepts. Businesses have to pay a fee to join, but they are paired with other businesses to develop projects.
Nearly 40 companies in the group have offices in the Ocean Cluster House, an old fish warehouse in Reykjavik that was renovated in 2012. And it isn't just about the fillets. Companies produce products that turn enzymes from fish intestines into cosmetics, bones into protein powder, and fish leather into expensive garments. They sell these products globally. And when you start to think about how broadly these products are used you can see the potential is much more than just the meat.
How would Wine Country USA take its core competency and accomplish the same? Here are some thoughts:
- Find an old abandoned warehouse and convert it into a modern incubator. From the looks of it, there are hundreds of options.
- Fund this with either private donations, a matching grant by local municipalities or crowdfund it with the community. If you crowdfund it, give investors some equity in the incubator. This will turn them from passive supporters to active investors. They will become marketing and branding agents for the incubator and help spread the word. (Note: The Iceland Ocean Cluster is a private company that receives little government funding).
- Court the local universities and institutions focused on educating students about the wine industry and foster business plan competitions to spur innovation. Invite winning ideas and the ones with the greatest potential to join the incubator.
- Use crowdfunding to test the viability of these businesses to raise seed capital to build out their business concepts in the incubator. Provide matching grants from the wine industry.
- Encourage traditional businesses (technology, graphic artists, legal and accounting) to set up offices in the incubator to support these startups and share ideas and best practices.
- Mimic the "Alliance of Ocean Clusters in the North Atlantic" an association of similar fish-focused clusters to form the "Alliance of Wine Clusters" to cross-pollinate ideas and technologies.
The Ocean Cluster House is an amazing center for startups focused on the fish industry. A Wine Cluster can be a potential model for fostering innovation in Wine Country's manufacturing, processing and agriculture industries. Wine Country is well suited to develop its own version of the Iceland Ocean Cluster because it has a wide variety of wine-related businesses and some top wine research institutions, such as the University of California, Davis. A Wine Cluster could serve as a model for similar wine clusters globally. And it can bring a lot more innovation, entrepreneurship, and jobs to an area where a lot of people would love to live.
- Category: Entrepreneurship
- Published on June 19, 2014
- Written by Sherwood Neiss
Today, I turn 45. To be honest, I’m not in the least bit thrilled about that number. Sure I don’t feel like I’m 45. Clearly my sense of humor wouldn’t match that of a 45 year old. But I’m 45 and that’s a reality, so I just have to deal with it.
I do this crazy thing every 5 years where I get my body in the best shape it has ever been in. This anniversary is no different with the exception that I decided to do what many advised against. I did the unthinkable for a person my age and joined CrossFit®. CrossFit for those who don’t know is an intense cardio weight workout. Those in it espouse its benefits as if they were members of a cult. Those outside of it fear it is a masochistic workout that can do more harm than good.
After 4 months, I have to admit I’ve become part of the cult. I’ve remained unscathed despite the naysayers. And I’m getting more than a fit body. CrossFit has made me a sharper entrepreneur and the lessons that I’ve learned are many of the same lessons any entrepreneur can learn about building and growing a successful venture.
- It all starts with a healthy body. Without a healthy body you cannot accomplish anything. Exercise while it may be painful during, makes you feel good afterwards. A healthy body leads to a healthy mind. A healthy mind gives you the ability to think clearly, logically, and strategically. These are all skills entrepreneurs need to use everyday.
- CrossFit is both an individual and team sport. So is entrepreneurship. Both require that you set individual and team (aka company) goals. In both cases, you should have a long-term objective. In both cases if you set smaller, daily, challenging yet achievable goals, you will have a greater chance of reaching your desired outcomes.
- Crossfit like running a business is never the same routine. Working out and managing the operations of a business is never ending. If you give it your all every day you will never let yourself or your company down. CrossFit also teaches you how to manage multiple things at the same time and how to prioritize. Important business skills.
- In CrossFit it is all about showing up and execution. This includes stretching, warming up, exercising, and cooling down. In business this equals researching, preparing, executing, and following through. Taking time to prepare for what you are going to do will allow you to execute better and that doesn’t only relate to what happens in a gym.
- In CrossFit if you aren’t a puddle of sweat afterwards you lack commitment. In business if you don’t feel like you’ve given it your all, you lack determination. A business cannot succeed without determination and your body will not get into shape without commitment.
- Getting in shape isn’t a sprint but a marathon. You train daily for incremental improvement. The end game comes from your ability to stay on track and endure the hard work. Growing a business doesn’t happen overnight and neither does getting rich. So go into it with a long-term outlook and you can get both the business and body you desire.
- It isn’t about the weight but the form. I’ve never had a CrossFit coach tell me to put on more weight. As a matter of fact I usually do less than the prescribed women’s weight. However what I do hear is coaching (aka mentorship in business) about how to perform the exercise (or deal with a business challenge). In business execution isn’t always about how fast you do something but how well you do it. People judge you for what you can accomplish and how well you accomplish it.
- In CrossFit even though you might have done an exercise 100 times, they teach it to you as if it were your first time. In business repetition is key. Employees and investors need to understand what you are trying to accomplish. By repeating it you reinforce in them what you want them to know, what you want them to do, how you want them to do it, and what outcome you expect.
- There is risk everywhere. You might have heard stories about people hurting themselves doing CrossFit. In CrossFit you are taught over and over how to perform an exercise. (See repetition above). They teach you the right way to do an exercise and also show you the wrong way. Nonetheless, people sometimes don’t listen or forget what they are taught. That can lead to harm. Business is the same. You need to listen to learn. You need to practice to make perfect but there’s always the risk that something could go wrong. There are no guarantees.
- You can’t think negative thoughts and complete a rigorous workout the same as you can’t think negative thoughts and succeed as an entrepreneur. You need to think positive, have a “can do” attitude, and push forward. You need to have a dose of humility and a strong sense of confidence. Not everyone can lift heavy weights (nor should they). And not everyone can take on the challenges of starting and growing a business. You need to be honest about what you can do however you should be confident in your capabilities.
- Be encouraging and help others. Ever try to exercise when people tell you not to? Ever try to work when people tell you not to? It is easy to skip out. If you are encouraging and helping others chances are they’ll be better off for it and you’ll feel good about it. A simple “you can do it” shows you care. It will also engage people to do more than they think they can. It sure helps when lifting heavy weights.
- Competition is a natural part of CrossFit. It is also a natural part of business and life. How you deal with it determines how you will succeed. Look at competition with a positive attitude and not something from which to run away.
- Engage diversity. In CrossFit, you don’t have to be a 20 something white male to compete. Thanks to crowdfunding now you don’t have to live in Silicon Valley and be a tech only company to start and grow a business. You can be a minoirty in an innercity but leverage your online social network to help you succeed. Embrace who you are, what you want to do, and a community of people around you to fulfill your dreams.
- Watch others but be your own person. In Crossfit I like to see how others are performing an exercise and when they hit exhaustion. I use that to pace myself so that I can complete what I need in the time allocated. In business survey the landscape to see what others are doing. Use that to strategically plan your path forward. And finally …
- A fist bump means “job well done,” “I’m proud of you,” “we did it,” “let’s keep on going.” Start bumping fists or whatever else you can do to commend people in your business and around you on a job well done. It is a small gesture that will carry you and your company a long way.
- Category: Creating a Global Framework
- Published on June 09, 2014
- Written by Jason Best
Are US crowdfunding regulations in line with other Global players? And which markets are leading crowdfunding and what can be learned from them? Two very important questions to consider when understanding how crowdfunding is evolving globally. Here are our thoughts:
US regs are NOT in line with other global players. The new UK rules were seen as favorable by Crowdcube and we continue to believe that the UK is a great example of the success of a moderate regulatory regime that leverages the value of the transparency that is created by crowdfinance (both debt and equity). Regulators get transparency and better data monitoring than was ever possible before in the private markets and lenders/investors also benefit from both the transparency and real time engagement with their investments. Australia has also issued some new draft rules that make CF easier there as well: http://paulniederer.com/2014/05/equity-crowdfunding-and-australia/
The EU's statement a few months ago was split between wanting to regulate, but also understanding that overregulation could kill the industry. As of May 1, 2014 Italy's highly, highly restricted form of CF has only been successfully completed by 1 company in the 9 months it has been available.
The short version is that where CF has been given a fair shot by regulators, it has generally worked with extremely low levels of fraud and/or default. The US rules (if issued as the draft rules are written) will significantly reduce the utilization of this powerful new tool in business finance. This will enable other countries to continue to move ahead in strengthening their entrepreneurial ecosystems.
Lessons Learned? Strong communication and collaboration between the industry and the securities/banking regulator creates an industry that best serves the needs of both investor protection and capital formation. A regulator that enables CF to function with prudent monitoring enables the regulator to modify regulation when needed, based on actual experience, not based on fears that are not based in fact.
We have created the CCA Balanced Regulatory Framework(TM) that enables the 5 constituencies that must be satisfied/included in a workable solution, to work through those issues together and form a regulated industry that creates prudent investor protection and enables streamlined capital formation. To do this you must balance the needs of:
- Protection for Investors
- Capital for Companies
- Transparency for Regulators
- "Oxygen" for the Industry (enough regulatory room to compete, grow a profitable industry)
- Engagement opportunities for the entrepreneurial ecosystem (NGO's multi-laterals, development organizations) - this is more vital in developing economies but also plays a role in developed economies.