26 July 2012
Steven Cinelli, CEO of Primarq
Ms. Elizabeth M. Murphy
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re: JOBS Act Rulemaking — Crowdfunding
Dear Ms. Murphy:
I appreciate the opportunity to provide comments on the JOBS Act, with this letter directed specifically to Title III — Crowdfunding. As background, I have been involved in corporate finance my entire career, in commercial and investment banking, providing both debt and equity financing to early stage companies through large publicly traded enterprises. Of particular note, in 1999, I was a founder of OffRoad Capital, a financial technology company, which, in many ways, serves as a godfather to the crowdfunding phenomena. I would like to reflect a bit about OffRoad with the intent of commenting on the framework of crowd investing.
Specifically, OffRoad Capital developed and deployed an internet-based private capital market system. Operating under Regulation D, we aggregated approximately 9,000 accredited investors, representing both domestic as well as offshore individuals and institutions. Such investors were seeking increased exposure to private emerging growth company opportunities and angel/venture investments. What was clear at the time, most early stage private investing was highly localized, angel groups reviewing, assessing and investing in nearby companies. One of OffRoad’s goals was to democratize private investing.
Additionally, and modeled after the Exchange Act, we developed and mandated post-market reporting for the companies that had raised funds through the OffRoad market. Though condensed from the initial investment disclosures, we required companies to prepare a quarterly report, delineating financial and operating performance for the prior quarter and fiscal-year-
This recollection is provided as it may serve as perspective for equity crowd funding platform design and framework. The vision of OffRoad was to be an agnostic, objective market system for private companies, ultimately creating a platform for such companies and their agents to raise levels of private capital efficiently and transparently. At OffRoad, we set best practice standards in initial disclosures, utilizing various media, established transparent price discovery, and provided on-going investor reporting, all of which was dedicated to keeping the investor informed, through his investment decision making process and during the life of the investment.
Capital formation for small business is a critical need that we as an economy must address. Unlike larger businesses which have access to various degrees of equity funding, or companies in select industries with expansive potential which can attract professionally managed venture capital, most small businesses rely on limited personal funds, or even more common, debt financing, either at the business level or, quite frequently, tapping into the equity of their personal residence. Now with the sentiments of the lending community, underscoring those in housing finance, availability of capital is limited. Small business is claimed to be the engine of job creation, wealth creation and a stabilizing force in communities. It would seem from a pure policy standpoint, that creating enabling mechanisms to direct equity capital into small business, such as crowd funding, should not lead to a contentious debate of “why or why not?” It should rather be a discussion of “how can we do it”. The regulatory framework of our securities markets is not to guarantee the success or failure of an issuer, rather the intent is to build trust through adequate, consistent, and uniform disclosure so investors have a true and level playing field for investing activities. If the intent of a framework is/was to avoid losses, then similar frameworks would have been designed and defined for other investment activities, including, say, the purchase of a home. Digressing, over the last five years, nearly $8 trillion of household wealth was destroyed within the residential real estate market, as homebuyers had discretion as to where and how much they invested (or how much they borrowed), and unfortunately, markets move and success is not guaranteed.In the case of housing, we believe the wrath of wealth destruction emanated from the form of financing used in housing (excessive leverage), which my company, PRIMARQ, is seeking to address. Nonetheless, investors (i.e., homebuyers) had carte blanche ability to invest at will and be subject to rises and falls in asset levels.
I submit that it is critically important to find capital formation mechanisms to enable the flow of equity capital into small business. As a regulatory body, and consistent with how our public markets are framed, I believe the narrative should be focused on “how to do it”, rather than “should we do it”, with the goal toprovide a fair playing field, requiring appropriate, comparable and timely information to the investor to enableinformed decision-making on any issuing company and its investment opportunity. OffRoad was an example of one approach.
ABOUT THE SOHO LOFT
The Soho Loft Capital Creation Events "TSL" is a world leader in conference speaking and paneling on crowd funding and the JOBS Act (Jump Start Opportunities for Business StartUps) Act signed into law by President Obama April 5, 2012. TSL provides education and leadership to startups, and Small and Medium-sized Enterprises in the areas of capital formation, crowd funding, angel networking, venture capital and private equity. In 2013 TSL is hosting 120 events. David Drake Founder and CEO of TSL co-founded the Crowdfund Intermediary Regulatory Advocates (CFIRA) and is a representative of the U.S. Commerce delegation to Brussels and Rome with European Ministers and legislators. Overall mission is to bring global awareness and develop infrastructure to facilitate countries’ capital formation, innovation and job creation. For more information, visit www.thesoholoft.com.