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Showing posts with label SEC. Show all posts
Showing posts with label SEC. Show all posts
Wednesday, November 29, 2023
Wednesday, December 30, 2015
Financial Sarcasm Roundup for 12/30/15
Social media users often tempt me to follow them down endless rabbit holes of replies. That is not how I prefer to spend my time. I would rather use my hours wisely in the pursuit of sarcasm.
The SEC's report on last August's volatility spike is out. It should have taken the SEC weeks, not months, to produce this report and it doesn't even draw any conclusions. A bunch of people at the SEC must be very concerned about how any hard evidence of malfunctioning markets would make them look bad or endanger their prospects with future employment on Wall Street. Fund managers are becoming very concerned about how liquidity interruptions in the bond market can trigger illiquidity in equity markets. They worry about being forced to sell stocks just to pay for bond fund redemptions. The SEC doesn't even get that the trading halts triggered in August can cause such illiquidity. We're sleepwalking into another market crisis and the SEC has no idea how to untangle its vine jungle of trading rules.
The wealthiest Americans have created their own private tax system. Affluenza has replaced civic obligation as the defining characteristic of this country's ruling elite. Rich people who claim they are willing to pay more in taxes aren't serious. Their claims are a stalking horse for increasing the burden on "tax donkeys" in the upper middle class of professionals who could displace them. I'll bet Bermuda is really nice this time of year. I wouldn't go there for vacation because these "income defense" people would just shoo me away. They don't even realize that they are the intended targets of their super-rich masters' desire to push the income tax burden downwards.
Bridgestone will allow Carl Icahn to walk away with Pep Boys. I think this deal is a play on the sharing economy for cars. Think about how car-sharing services will eventually hurt sales of new cars to Millennials who can't afford to drive anyway. Car-sharing services will still have cars on the road, driving constantly. Those cars will have to last longer and will need constant maintenance. Auto parts and services will always be in demand, even if corporations own most of the cars. Lots of aspiring Uber drivers can switch to jobs stocking parts at Pep Boys once Uber starts buying self-driving cars.
Let me get back to Bermuda as a tax haven. I don't see why Congress doesn't grant the same preferred status to Puerto Rico. Just think of all the professional income defenders who could then set up shop on that poverty-stricken island and help alleviate its insolvency. I guess the ultra-rich prefer to confine their tax donkeys to the same island where they take vacations, just to push them around in person. No one pushes me around. I'm a CEO, in case anyone forgets.
The SEC's report on last August's volatility spike is out. It should have taken the SEC weeks, not months, to produce this report and it doesn't even draw any conclusions. A bunch of people at the SEC must be very concerned about how any hard evidence of malfunctioning markets would make them look bad or endanger their prospects with future employment on Wall Street. Fund managers are becoming very concerned about how liquidity interruptions in the bond market can trigger illiquidity in equity markets. They worry about being forced to sell stocks just to pay for bond fund redemptions. The SEC doesn't even get that the trading halts triggered in August can cause such illiquidity. We're sleepwalking into another market crisis and the SEC has no idea how to untangle its vine jungle of trading rules.
The wealthiest Americans have created their own private tax system. Affluenza has replaced civic obligation as the defining characteristic of this country's ruling elite. Rich people who claim they are willing to pay more in taxes aren't serious. Their claims are a stalking horse for increasing the burden on "tax donkeys" in the upper middle class of professionals who could displace them. I'll bet Bermuda is really nice this time of year. I wouldn't go there for vacation because these "income defense" people would just shoo me away. They don't even realize that they are the intended targets of their super-rich masters' desire to push the income tax burden downwards.
Bridgestone will allow Carl Icahn to walk away with Pep Boys. I think this deal is a play on the sharing economy for cars. Think about how car-sharing services will eventually hurt sales of new cars to Millennials who can't afford to drive anyway. Car-sharing services will still have cars on the road, driving constantly. Those cars will have to last longer and will need constant maintenance. Auto parts and services will always be in demand, even if corporations own most of the cars. Lots of aspiring Uber drivers can switch to jobs stocking parts at Pep Boys once Uber starts buying self-driving cars.
Let me get back to Bermuda as a tax haven. I don't see why Congress doesn't grant the same preferred status to Puerto Rico. Just think of all the professional income defenders who could then set up shop on that poverty-stricken island and help alleviate its insolvency. I guess the ultra-rich prefer to confine their tax donkeys to the same island where they take vacations, just to push them around in person. No one pushes me around. I'm a CEO, in case anyone forgets.
Sunday, November 01, 2015
Inside Information Is Worthless And Illegal
Every analyst on Wall Street has access to the same public information about corporate performance and the economy's health. Just like in school, when every student has access to the same course material, a few with superior abilities will get the top grades just by bringing better insights to bear. Financial analysis works the same way. Intellectual firepower and solid character are the top investor's primary tools. Only criminals resort to insider trading. Competent investors never use inside information.
Any US government intelligence analyst who has ever held a security clearance and handled classified information can draw analogies between their responsibilities and those of a Wall Street analyst. Intelligence professionals cannot discuss their classified work in public. Only very privileged insiders at higher levels of the government can make policy using classified information. Policy actions for classified information must adhere to FedRAMP security protocols and Freedom of Information Act (FOIA) disclosure procedures. These legal controls on the use of classified government information are just as stringent as legal controls on the use of inside information from public companies.
The best deep dives highlight the uselessness of any and all so-called privileged information in making financial decisions. Everything relevant to a public company's performance is found in its published financial statements. The superior analyst ignores management spin in conference calls. The classic ratios of fundamental analysis reveal everything. The intelligence community's experience also offers another valid analogy. Somewhere between 80-85% of actionable intelligence is available through open sources. Collection is as easy as parsing a Google Search result.
Warren Buffett ranks among history's best money managers precisely because he bases all of his decisions on the study of publicly available information. He pals around with America's top CEOs and could probably find out anything he wants about what goes on behind closed doors. He doesn't need to poke behind the curtains because he can't use any of that information in his investment decisions anyway. Knowing how to read financial statements, industry reports, and government statistics is always good enough for Mr. Buffett. It's good enough for me too.
The SEC enforces its rules against insider trading. Regulators take the misuse of material, nonpublic information very seriously. Harvard Law School's 2014 article "Hedge Funds and Material Nonpublic Information" covers the case law establishing liability for various parties in a tipping chain. Huge legal fees at best, and prison time at worst, await any financial titan who trades on some tidbit the public can't discover. I want very much to catch some negligent hedge fund misusing information so I can turn them in to the SEC for prosecution and collect a bounty. I attend San Francisco's tech and finance conferences with just such an intention. Call me the financial bounty hunter.
Any US government intelligence analyst who has ever held a security clearance and handled classified information can draw analogies between their responsibilities and those of a Wall Street analyst. Intelligence professionals cannot discuss their classified work in public. Only very privileged insiders at higher levels of the government can make policy using classified information. Policy actions for classified information must adhere to FedRAMP security protocols and Freedom of Information Act (FOIA) disclosure procedures. These legal controls on the use of classified government information are just as stringent as legal controls on the use of inside information from public companies.
The best deep dives highlight the uselessness of any and all so-called privileged information in making financial decisions. Everything relevant to a public company's performance is found in its published financial statements. The superior analyst ignores management spin in conference calls. The classic ratios of fundamental analysis reveal everything. The intelligence community's experience also offers another valid analogy. Somewhere between 80-85% of actionable intelligence is available through open sources. Collection is as easy as parsing a Google Search result.
Warren Buffett ranks among history's best money managers precisely because he bases all of his decisions on the study of publicly available information. He pals around with America's top CEOs and could probably find out anything he wants about what goes on behind closed doors. He doesn't need to poke behind the curtains because he can't use any of that information in his investment decisions anyway. Knowing how to read financial statements, industry reports, and government statistics is always good enough for Mr. Buffett. It's good enough for me too.
The SEC enforces its rules against insider trading. Regulators take the misuse of material, nonpublic information very seriously. Harvard Law School's 2014 article "Hedge Funds and Material Nonpublic Information" covers the case law establishing liability for various parties in a tipping chain. Huge legal fees at best, and prison time at worst, await any financial titan who trades on some tidbit the public can't discover. I want very much to catch some negligent hedge fund misusing information so I can turn them in to the SEC for prosecution and collect a bounty. I attend San Francisco's tech and finance conferences with just such an intention. Call me the financial bounty hunter.
Monday, May 04, 2015
Financial Sarcasm Roundup for 05/04/15
In some parallel universe, sarcasm does not exist. I would hate to live there. My universe's sarcasm calibration makes life way more interesting.
Warren Buffett cautions against a minimum wage increase. Every once in a while he spouts some common sense like the small business owner he used to be. The guy may not be going soft after all in his old age. He's a step ahead of the federal policymakers who don't read their own CBO and CRS reports showing clear relationships between a higher minimum wage and lower job growth.
Greek bond trading volume just went down a big hole. No one in their right mind wants to buy Greek bonds while the Tsipras government must go hat in hand to Brussels. Hedge funds still buying this junk are insane. The dumbest private investors hope debt relief will hit the troika's Greek bond holdings first. Good luck with that plan, idiots. The troika has every right to throw private investors under the bus when the time comes.
The SEC is dragging its heels in paying whistleblower rewards. That figures. The SEC couldn't catch Bernie Madoff and other fraudsters, so they spite the ones who do catch them by showing passive-aggressive behavior with payouts. I can think of a couple of local phonies I'd like to nail if it would get me some of that payout money. Waiting years for a claim would cramp my style. That's what they mean by "close enough for government work" when the check clears three years late.
Another bunch of smarty-pants studies show how men and women approach investing differently. It looks like women have a leg up by choosing target date funds and making fewer changes to their assets over time. I always like it when women get a leg up, especially when that leg is over my shoulder. Have confidence in yourselves, ladies, and you'll get rich faster than men. I look forward to seeing more rich babes in San Francisco who will buy me dinner.
Sarcasm is a freebie, just like romantic dinners from those rich babes. The Alfidi Capital philosophy incorporates as much free stuff as possible.
Warren Buffett cautions against a minimum wage increase. Every once in a while he spouts some common sense like the small business owner he used to be. The guy may not be going soft after all in his old age. He's a step ahead of the federal policymakers who don't read their own CBO and CRS reports showing clear relationships between a higher minimum wage and lower job growth.
Greek bond trading volume just went down a big hole. No one in their right mind wants to buy Greek bonds while the Tsipras government must go hat in hand to Brussels. Hedge funds still buying this junk are insane. The dumbest private investors hope debt relief will hit the troika's Greek bond holdings first. Good luck with that plan, idiots. The troika has every right to throw private investors under the bus when the time comes.
The SEC is dragging its heels in paying whistleblower rewards. That figures. The SEC couldn't catch Bernie Madoff and other fraudsters, so they spite the ones who do catch them by showing passive-aggressive behavior with payouts. I can think of a couple of local phonies I'd like to nail if it would get me some of that payout money. Waiting years for a claim would cramp my style. That's what they mean by "close enough for government work" when the check clears three years late.
Another bunch of smarty-pants studies show how men and women approach investing differently. It looks like women have a leg up by choosing target date funds and making fewer changes to their assets over time. I always like it when women get a leg up, especially when that leg is over my shoulder. Have confidence in yourselves, ladies, and you'll get rich faster than men. I look forward to seeing more rich babes in San Francisco who will buy me dinner.
Sarcasm is a freebie, just like romantic dinners from those rich babes. The Alfidi Capital philosophy incorporates as much free stuff as possible.
Monday, February 24, 2014
Financial Sarcasm Roundup for 02/24/14
I can't imagine a life without sarcasm. Maybe other people can manage that but I can't relate to them. I don't write for the inattentive or unimaginative parts of the human race. This blog of mine isn't their cup of tea.
The SEC is studying whether changing the tick size of trades will improve liquidity for small cap companies. Tick sizes are a non-issue. Changing a trading increment doesn't add liquidity; only attracting more participants to a market adds liquidity. I can't believe the SEC hasn't figured this out. I need to lower my expectations even further. These people must have nothing better to do. Oh wait, I know, they could prosecute all of those financial executives who falsified mortgage documentation prior to the 2008 crisis. They could also go after Libor and currency traders who colluded to fix the market. Nah, that's not as rewarding as changing tick sizes.
Deutsche Bank thinks the Australian dollar is headed for a price collapse. Well, that's just great, since I'm using that currency to hedge the US dollar. Actually I don't care much for what Deutsche Bank thinks. Their derivative exposures to European markets are so bad that they could easily collapse themselves before the Australian dollar hits bottom. A cheaper Aussie dollar just means I'll buy more FXA. I can't say the same about any European banks.
The NAR notes that existing home sales are at 18-month lows. The real estate sales pros never let facts get in the way of their sales pitch. It's always a great time to buy a house, even in their mushy heads. I don't expect them to connect the decline in home sales with the Fed's reduced commitment to purchase mortgage-backed securities. The math on higher real interest rates is inevitably a negative for people who borrow to buy a house. Note further that I've said "house" and not "home." People who missed out on the flipping craze ten years ago jumped back in, and I'm pretty sure it will end the same way. Private equity shops borrowing to buy existing homes in all-cash offers are going to get flushed.
I've got a pretty busy week ahead with a few meetings and social events. This gives me several audiences to entertain, live and in person, with my sarcasm. I expect attractive women to swoon with every sarcastic financial utterance I generate in San Francisco.
The SEC is studying whether changing the tick size of trades will improve liquidity for small cap companies. Tick sizes are a non-issue. Changing a trading increment doesn't add liquidity; only attracting more participants to a market adds liquidity. I can't believe the SEC hasn't figured this out. I need to lower my expectations even further. These people must have nothing better to do. Oh wait, I know, they could prosecute all of those financial executives who falsified mortgage documentation prior to the 2008 crisis. They could also go after Libor and currency traders who colluded to fix the market. Nah, that's not as rewarding as changing tick sizes.
Deutsche Bank thinks the Australian dollar is headed for a price collapse. Well, that's just great, since I'm using that currency to hedge the US dollar. Actually I don't care much for what Deutsche Bank thinks. Their derivative exposures to European markets are so bad that they could easily collapse themselves before the Australian dollar hits bottom. A cheaper Aussie dollar just means I'll buy more FXA. I can't say the same about any European banks.
The NAR notes that existing home sales are at 18-month lows. The real estate sales pros never let facts get in the way of their sales pitch. It's always a great time to buy a house, even in their mushy heads. I don't expect them to connect the decline in home sales with the Fed's reduced commitment to purchase mortgage-backed securities. The math on higher real interest rates is inevitably a negative for people who borrow to buy a house. Note further that I've said "house" and not "home." People who missed out on the flipping craze ten years ago jumped back in, and I'm pretty sure it will end the same way. Private equity shops borrowing to buy existing homes in all-cash offers are going to get flushed.
I've got a pretty busy week ahead with a few meetings and social events. This gives me several audiences to entertain, live and in person, with my sarcasm. I expect attractive women to swoon with every sarcastic financial utterance I generate in San Francisco.
Sunday, February 16, 2014
Top Challenges Facing Crowdfunding In 2014
Crowdfunding is here to stay. We can thank a nimble small business lobby and some hardworking people in Congress and the SEC for getting the ball rolling. Okay, maybe more private groups than just the small business lobby work hard, because it sure takes a long time for the policy framework to accommodate reality. Here's my rundown of where policy needs more work right now.
The SEC must finalize Reg A+. This proposed regulation allows a hybrid public/private securities offering beneath a specified cap. I think this helps get around the difficulties small companies will face if they present pitches at public events. Offering the securities under Reg A+ will alleviate some of the heartburn investors like me feel at pitchfests when a startup shows ignorance of offering circulars and blue sky requirements.
Reduce market barriers to SPOs. I'm painting with a broad brush here because there isn't just one fix. OECD Corporate Governance Working Paper No. 10 addresses the decline in IPOs on US exchanges. Venture-backed startups with large addressable markets have no problem going IPO once they've crossed the chasm to market adoption. They know there will be a large demand for aftermarket trading. There is little such aftermarket for those small companies that go IPO under the gradations of the JOBS Act and its supporting regulations like Reg A+. I do not agree with some analysts who think the decimalization of tick size is deterring IPOs. I like decimalization because it makes prices less sticky in the market and allows for more accurate price discovery. My preferred solution is to allow companies that go IPO to continue to issue secondary shares under the JOBS Act. I see resource companies presenting PIPEs all the time. Tech companies should be able to do that with an SPO that works the same way as a direct public offering (DPO). Crowdfunding portals associated with FINRA broker-dealers can easily handle DPO and SPO volume, and can develop aftermarkets that encourage more IPOs. Portals like SecondMarket are already out in front.
Stick with the changes to Reg D. The investor community has had enough time to adjust to the SEC's repeal of the ban on advertising and general solicitation of Reg D offerings. Some critics still haven't made the adjustment. Tough luck. There shouldn't be any going back now and the SEC should stick to its guns.
Bring policy innovation to Canada. Our friends in the Great White North should share in the new era of blessings that crowdfunding brings to investing. Canada already has a robust reporting regime that allows for nuanced classifications of mineral and energy deposits. This allows young companies to report results that can help them raise capital. It's time the capital raising regime caught up to the mineral classification regime. Canada's Venture Capital Markets Association (VCMA) is trying to move that country in the right direction.
Simplify restricted stock rules. Rule 144 still contains minefields for investors holding restricted stock. I believe the SEC should simply the processes available for owners to remove the "restricted" legend from a stock. If I could wave a magic wand, I would eliminate the one year minimum that shell companies must wait after filing Form 10. I also see no reason why the SEC requires an attorney's opinion prior to lifting a Rule 144 restrictive legend. I do not expect the SEC to move on these matters until it is done wrangling with more pressing JOBS Act rules.
Publicize "reasonable steps" and "bad actor" provisions. The startup community is still woefully unprepared to take the SEC's "reasonable steps" to verify an investor's accredited status. They may also not know that getting involved with "bad actors" can destroy their ability to raise capital if the SEC discovers such a relationship and imposes a sanction. The SEC could make it easier by publishing description of those two concepts in big, bold letters on its JOBS Act pages. I don't expect that to happen, so these subjects will remain lucrative practice areas for law firms that pitch services to startups.
Clarification on Edgar filings. The SEC requires publicly traded companies to file their financial statements on Edgar. Startups who migrate entirely to capital raising via crowdfunding portals will IMHO become de facto publicly traded companies. I do not know whether this means they will have to file on Edgar. The SEC should get ahead of this now and issue some regulatory guidance. It shouldn't have to wait until investors start suing small companies for not publishing on Edgar if they are supposed to be exempt.
The SEC has a small business guide and IMHO it should clarify the topics I discussed above. Crowdfunding is the latest policy innovation that follows naturally from the success of the Small Corporate Offering Registration (SCOR) regime. The NASAA guidelines on SCOR are far simpler than anything the SEC has put in place for the JOBS Act. It would be nice if everything in finance were so simple.
The SEC must finalize Reg A+. This proposed regulation allows a hybrid public/private securities offering beneath a specified cap. I think this helps get around the difficulties small companies will face if they present pitches at public events. Offering the securities under Reg A+ will alleviate some of the heartburn investors like me feel at pitchfests when a startup shows ignorance of offering circulars and blue sky requirements.
Reduce market barriers to SPOs. I'm painting with a broad brush here because there isn't just one fix. OECD Corporate Governance Working Paper No. 10 addresses the decline in IPOs on US exchanges. Venture-backed startups with large addressable markets have no problem going IPO once they've crossed the chasm to market adoption. They know there will be a large demand for aftermarket trading. There is little such aftermarket for those small companies that go IPO under the gradations of the JOBS Act and its supporting regulations like Reg A+. I do not agree with some analysts who think the decimalization of tick size is deterring IPOs. I like decimalization because it makes prices less sticky in the market and allows for more accurate price discovery. My preferred solution is to allow companies that go IPO to continue to issue secondary shares under the JOBS Act. I see resource companies presenting PIPEs all the time. Tech companies should be able to do that with an SPO that works the same way as a direct public offering (DPO). Crowdfunding portals associated with FINRA broker-dealers can easily handle DPO and SPO volume, and can develop aftermarkets that encourage more IPOs. Portals like SecondMarket are already out in front.
Stick with the changes to Reg D. The investor community has had enough time to adjust to the SEC's repeal of the ban on advertising and general solicitation of Reg D offerings. Some critics still haven't made the adjustment. Tough luck. There shouldn't be any going back now and the SEC should stick to its guns.
Bring policy innovation to Canada. Our friends in the Great White North should share in the new era of blessings that crowdfunding brings to investing. Canada already has a robust reporting regime that allows for nuanced classifications of mineral and energy deposits. This allows young companies to report results that can help them raise capital. It's time the capital raising regime caught up to the mineral classification regime. Canada's Venture Capital Markets Association (VCMA) is trying to move that country in the right direction.
Simplify restricted stock rules. Rule 144 still contains minefields for investors holding restricted stock. I believe the SEC should simply the processes available for owners to remove the "restricted" legend from a stock. If I could wave a magic wand, I would eliminate the one year minimum that shell companies must wait after filing Form 10. I also see no reason why the SEC requires an attorney's opinion prior to lifting a Rule 144 restrictive legend. I do not expect the SEC to move on these matters until it is done wrangling with more pressing JOBS Act rules.
Publicize "reasonable steps" and "bad actor" provisions. The startup community is still woefully unprepared to take the SEC's "reasonable steps" to verify an investor's accredited status. They may also not know that getting involved with "bad actors" can destroy their ability to raise capital if the SEC discovers such a relationship and imposes a sanction. The SEC could make it easier by publishing description of those two concepts in big, bold letters on its JOBS Act pages. I don't expect that to happen, so these subjects will remain lucrative practice areas for law firms that pitch services to startups.
Clarification on Edgar filings. The SEC requires publicly traded companies to file their financial statements on Edgar. Startups who migrate entirely to capital raising via crowdfunding portals will IMHO become de facto publicly traded companies. I do not know whether this means they will have to file on Edgar. The SEC should get ahead of this now and issue some regulatory guidance. It shouldn't have to wait until investors start suing small companies for not publishing on Edgar if they are supposed to be exempt.
The SEC has a small business guide and IMHO it should clarify the topics I discussed above. Crowdfunding is the latest policy innovation that follows naturally from the success of the Small Corporate Offering Registration (SCOR) regime. The NASAA guidelines on SCOR are far simpler than anything the SEC has put in place for the JOBS Act. It would be nice if everything in finance were so simple.
Monday, February 10, 2014
Financial Sarcasm Roundup for 02/10/14
It's time once again for sarcasm but I think I'll leave out the LOLcats. Putting those images together is a lot of work and it may not be worth my time if it prevents me from writing more articles. I may revisit the concept in the future.
Here comes another empty threat of a US Treasury default. We've all heard this alarmism before. A default isn't going to happen as long as the US can roll its short term debt to pay interest, and it can do so as long as the Fed is buying Treasuries. The only threat to this dysfunctional status quo is a spike in real interest rates that crashes the assets on the Fed's balance sheet. Lawmakers' decreased willingness to risk brinksmanship reveal the precariousness of this untenable situation.
The PBOC is telling us to get used to volatility in the yuan money market interest rate. Really? Gee, ya don't say. My last few sarcasm roundups have dealt with the likelihood that the PBOC is losing control of China's own yield curve. The first possible WMP default deadline came and went without incident, but future problems are unavoidable. This is a preview of what will happen in the US when our own central bank is unable to contain interest rates.
Wages are not moving up, and neither is hiring. The macroeconomic reason is simple but largely unreported. Real unemployment is much higher than the official BLS figure. This slack labor market is known to hiring managers who receive thousands of resumes for a handful of job vacancies. High-income earners are doing just fine while health care mandates are about to hollow out middle class employment. Everyone below the top 1% should prepare to get a lot poorer.
The SEC is cracking down on financial advisers who make bold claims in social media. I'm not an adviser, so any claims I make at Alfidi Capital about my tremendous genius or charisma fall outside the SEC's jurisdiction. I do not guarantee or promise anything at all, although I try my very best to ridicule stupidity. I do not sell any products or do anything for clients. Advisers who claim they can guarantee any investment result deserve scrutiny, and a lot of advisers don't deserve to be in business at all.
If you miss the LOLcats, I don't ever want to hear about it.
Here comes another empty threat of a US Treasury default. We've all heard this alarmism before. A default isn't going to happen as long as the US can roll its short term debt to pay interest, and it can do so as long as the Fed is buying Treasuries. The only threat to this dysfunctional status quo is a spike in real interest rates that crashes the assets on the Fed's balance sheet. Lawmakers' decreased willingness to risk brinksmanship reveal the precariousness of this untenable situation.
The PBOC is telling us to get used to volatility in the yuan money market interest rate. Really? Gee, ya don't say. My last few sarcasm roundups have dealt with the likelihood that the PBOC is losing control of China's own yield curve. The first possible WMP default deadline came and went without incident, but future problems are unavoidable. This is a preview of what will happen in the US when our own central bank is unable to contain interest rates.
Wages are not moving up, and neither is hiring. The macroeconomic reason is simple but largely unreported. Real unemployment is much higher than the official BLS figure. This slack labor market is known to hiring managers who receive thousands of resumes for a handful of job vacancies. High-income earners are doing just fine while health care mandates are about to hollow out middle class employment. Everyone below the top 1% should prepare to get a lot poorer.
The SEC is cracking down on financial advisers who make bold claims in social media. I'm not an adviser, so any claims I make at Alfidi Capital about my tremendous genius or charisma fall outside the SEC's jurisdiction. I do not guarantee or promise anything at all, although I try my very best to ridicule stupidity. I do not sell any products or do anything for clients. Advisers who claim they can guarantee any investment result deserve scrutiny, and a lot of advisers don't deserve to be in business at all.
If you miss the LOLcats, I don't ever want to hear about it.
Thursday, January 02, 2014
Non-Financial Companies Should Not Operate Crowdfunding Portals
I attended a holiday party last month where one of the nameless wheeler-dealer types in attendance bragged that his technology company was planning to launch a crowdfunding portal. His logic was that developers using his startup's tech could help build their ecosystem by attracting investment partners. He shrugged his shoulders when I told him that FINRA regulates portals and will probably mandate more formal affiliations. I was really put off by his nonchalance. Needless to say, he never followed up with me but eagerly took business cards from suckers in attendance.
That conversation left me wondering whether it is appropriate for a non-financial company to own and operate a crowdfunding portal independent of a broker-dealer. I totally understand the need for technology companies to develop ecosystems of partners and developers. That's what enables app stores' success. The difference is that app stores merely display retail products and don't raise investment capital. An app store is not a fundraising platform for companies offering ownership of their future revenue.
FINRA is still soliciting interim funding forms from portals. These animals called "crowdfunding portals" still don't have the SEC's equivalent of a zoological classification. That allows everyone and their cousin to create their own platforms from white-label technology providers like Launcht with no regulatory supervision. The first lawsuit from a disgruntled investor who invested through an unregistered crowdfunding portal run by a non-financial company will ruin the operations of every other portal that didn't seek FINRA registration or brokerage affiliation. The portals that don't take those steps may be ignorant of the auditing and recordkeeping requirements that come with fiduciary duties for investors.
I almost phrased the title of this article as a question: Should non-financial companies operate crowdfunding portals? I decided that I had to come down firmly on the "no" side of that question because that's the only way I can think of to protect investors from predators running baloney portals. It's the Wild West out in crowdfunding land and these tumbleweed towns called portals really need a sheriff. The SEC proposed a 585-page crowdfunding regulation last October and it is still not finalized. Portal operators need to read the fine print of this soft law starting right now. It currently exempts portals from registering as brokers and allows them to collect "success fees" instead of brokerage commissions. I don't know what the final regulation will say but there's a lot of minutiae buried in those 585 pages that will trip up anyone not paying attention.
The freewheeling dude I met was with a tech startup that does not have the internal risk management and recordkeeping architecture common to financial service providers. Anyone who thinks companies making software and hardware can run their own portals is in for a rude awakening when financial regulation compliance smacks their company hard.
That conversation left me wondering whether it is appropriate for a non-financial company to own and operate a crowdfunding portal independent of a broker-dealer. I totally understand the need for technology companies to develop ecosystems of partners and developers. That's what enables app stores' success. The difference is that app stores merely display retail products and don't raise investment capital. An app store is not a fundraising platform for companies offering ownership of their future revenue.
FINRA is still soliciting interim funding forms from portals. These animals called "crowdfunding portals" still don't have the SEC's equivalent of a zoological classification. That allows everyone and their cousin to create their own platforms from white-label technology providers like Launcht with no regulatory supervision. The first lawsuit from a disgruntled investor who invested through an unregistered crowdfunding portal run by a non-financial company will ruin the operations of every other portal that didn't seek FINRA registration or brokerage affiliation. The portals that don't take those steps may be ignorant of the auditing and recordkeeping requirements that come with fiduciary duties for investors.
I almost phrased the title of this article as a question: Should non-financial companies operate crowdfunding portals? I decided that I had to come down firmly on the "no" side of that question because that's the only way I can think of to protect investors from predators running baloney portals. It's the Wild West out in crowdfunding land and these tumbleweed towns called portals really need a sheriff. The SEC proposed a 585-page crowdfunding regulation last October and it is still not finalized. Portal operators need to read the fine print of this soft law starting right now. It currently exempts portals from registering as brokers and allows them to collect "success fees" instead of brokerage commissions. I don't know what the final regulation will say but there's a lot of minutiae buried in those 585 pages that will trip up anyone not paying attention.
The freewheeling dude I met was with a tech startup that does not have the internal risk management and recordkeeping architecture common to financial service providers. Anyone who thinks companies making software and hardware can run their own portals is in for a rude awakening when financial regulation compliance smacks their company hard.
Sunday, October 20, 2013
Alfidi Capital Heard Roger Royse at Idea to IPO's Current State of Crowdfuning
I'm always checking out startup action in Silicon Valley. The JOBS Act of 2012 was supposed to make that easier. Performing due diligence online is one thing but actually closing an investment round is quite another. The Idea to IPO Meetup group presented Roger Royse of Royse Law Firm last week down at Menlo College to give us all a rundown of the current state of crowdfunding.
The JOBS Act was intended to further democratize the venture investment playing field so that securities laws could catch up to technology. Roger mentioned that the cost of fundraising has dropped in recent years and technology has expanded the types of offerings available. He's published some good info on crowdfunding at his Royse University site. The complications for startups raising money through crowdfunding portals can be tricky if those portals are open to any investors other than venture capital funds or angel groups.
The JOBS Act was supposed to make venture investing easier for individual investors but the SEC's rule changes so far are intended to apply to accredited investors. Roger mentioned that Title III of the JOBS Act for retail investors does not yet have the force of law because the SEC has not yet finalized regulations.
Roger noted that venture capital firms have already begun stigmatizing crowdfunded companies as being otherwise unfundable. Crowdfunded companies may find themselves in a "market for lemons" if they cannot obtain a subsequent funding round, forcing them to focus on an exit strategy. I've heard VCs on public panels mention crowdfunding as marginally useful in extending the life of a startup that could fail prematurely, but that is probably a minority opinion.
Companies can advertise on crowdfunding portals for accredited investors now that the SEC has lifted the general solicitation prohibition. The challenge for startups is that the SEC's rules are still in a state of flux and FINRA is still working on certifying crowdfunding portals that comply with the rules. The SEC may be considering easing some investor verification requirements. Roger thinks this environment is why startups need to get more conservative and refrain from discussing their financial status until the SEC finalizes more rules. Pitchfests in front of investor panels may be considered a general solicitation.
I appreciated Roger's revelation that the SEC now considers a one-time placement fee for locating funding to be a transactional relationship requiring a registered broker. I used to hear stories from old finance hands about how they earned finder's fees for connecting deal flow to investment banks on a freelance basis. I had considered doing that myself for a while but I elected not to keep my securities licenses active once I launched into public commentary in 2008. I was very aware (during my financial advisor days) of the SEC's guidance on public commentary for those who maintained securities licenses and fiduciary relationships. Assuming a role as public commentator required me to surrender any and all means of maintaining fiduciary relationships or mediating transactions. There are ways to navigate conflicts of interest but I'd prefer to avoid conflicts entirely. I don't play games with my career or the law. All I do now is speak my mind and invest my own money, any way I like.
Roger's talk was awesome and he covered way more legal ground than I can summarize here. I spoke with him and some other entrepreneurs afterwards on the future usefulness of crowdfunding in such a complex regulatory environment. I now believe the main advantages of crowdfunding for startups are the reduction of friction in closing deals and the compressed time windows for feedback. Friction is lower on those portals that have broker/dealer affiliations, because accredited investors can theoretically complete a transaction online. Feedback times are shorter because a startup can now appear in front of the entire early-stage investor universe simultaneously instead of spending months getting on the meeting calendars of angel groups up and down California. The speed of feedback from investors, either positive or negative, will help startups pivot earlier if they combine it with feedback from their CustDev efforts. BTW, I'm still convinced that those portals showing early success in generating deal flow will become acquisition targets for major brokerages. They will be even more attractive if they add microfinance and P2P lending functions.
I'm already applying some of the insights Roger shared. I've been attending pitchfest and business plan competitions for years. I even pitched a tech startup idea myself as an undergrad at the University of Notre Dame in 1995. I didn't state any disclaimers back then and neither have any of the entrepreneurs I've heard since then. That is all going to have to change very quickly. I attended a pitchfest in San Francisco last Friday and noticed that the startups in attendance need to get legal advice, get their paperwork in order with the SEC, and start using legal disclaimers that investors like me will respect. They also need to be mindful of the FTC's privacy policy guidance if they handle customer data. Failure to do so can subject them to severe regulatory sanctions. I care as much about my own portfolio as entrepreneurs do about their startups, which is why early stage founders need to mitigate regulatory risk by keeping top advisers like Roger Royse in their hip pockets.
Full disclosure: I have received no compensation from Roger Royse, his corporate entities, or the Idea to IPO Meetup organizers for this article. This article, or anything else published under the auspices of Alfidi Capital, does not constitute legal or financial advice.
The JOBS Act was intended to further democratize the venture investment playing field so that securities laws could catch up to technology. Roger mentioned that the cost of fundraising has dropped in recent years and technology has expanded the types of offerings available. He's published some good info on crowdfunding at his Royse University site. The complications for startups raising money through crowdfunding portals can be tricky if those portals are open to any investors other than venture capital funds or angel groups.
The JOBS Act was supposed to make venture investing easier for individual investors but the SEC's rule changes so far are intended to apply to accredited investors. Roger mentioned that Title III of the JOBS Act for retail investors does not yet have the force of law because the SEC has not yet finalized regulations.
Roger noted that venture capital firms have already begun stigmatizing crowdfunded companies as being otherwise unfundable. Crowdfunded companies may find themselves in a "market for lemons" if they cannot obtain a subsequent funding round, forcing them to focus on an exit strategy. I've heard VCs on public panels mention crowdfunding as marginally useful in extending the life of a startup that could fail prematurely, but that is probably a minority opinion.
Companies can advertise on crowdfunding portals for accredited investors now that the SEC has lifted the general solicitation prohibition. The challenge for startups is that the SEC's rules are still in a state of flux and FINRA is still working on certifying crowdfunding portals that comply with the rules. The SEC may be considering easing some investor verification requirements. Roger thinks this environment is why startups need to get more conservative and refrain from discussing their financial status until the SEC finalizes more rules. Pitchfests in front of investor panels may be considered a general solicitation.
I appreciated Roger's revelation that the SEC now considers a one-time placement fee for locating funding to be a transactional relationship requiring a registered broker. I used to hear stories from old finance hands about how they earned finder's fees for connecting deal flow to investment banks on a freelance basis. I had considered doing that myself for a while but I elected not to keep my securities licenses active once I launched into public commentary in 2008. I was very aware (during my financial advisor days) of the SEC's guidance on public commentary for those who maintained securities licenses and fiduciary relationships. Assuming a role as public commentator required me to surrender any and all means of maintaining fiduciary relationships or mediating transactions. There are ways to navigate conflicts of interest but I'd prefer to avoid conflicts entirely. I don't play games with my career or the law. All I do now is speak my mind and invest my own money, any way I like.
Roger's talk was awesome and he covered way more legal ground than I can summarize here. I spoke with him and some other entrepreneurs afterwards on the future usefulness of crowdfunding in such a complex regulatory environment. I now believe the main advantages of crowdfunding for startups are the reduction of friction in closing deals and the compressed time windows for feedback. Friction is lower on those portals that have broker/dealer affiliations, because accredited investors can theoretically complete a transaction online. Feedback times are shorter because a startup can now appear in front of the entire early-stage investor universe simultaneously instead of spending months getting on the meeting calendars of angel groups up and down California. The speed of feedback from investors, either positive or negative, will help startups pivot earlier if they combine it with feedback from their CustDev efforts. BTW, I'm still convinced that those portals showing early success in generating deal flow will become acquisition targets for major brokerages. They will be even more attractive if they add microfinance and P2P lending functions.
I'm already applying some of the insights Roger shared. I've been attending pitchfest and business plan competitions for years. I even pitched a tech startup idea myself as an undergrad at the University of Notre Dame in 1995. I didn't state any disclaimers back then and neither have any of the entrepreneurs I've heard since then. That is all going to have to change very quickly. I attended a pitchfest in San Francisco last Friday and noticed that the startups in attendance need to get legal advice, get their paperwork in order with the SEC, and start using legal disclaimers that investors like me will respect. They also need to be mindful of the FTC's privacy policy guidance if they handle customer data. Failure to do so can subject them to severe regulatory sanctions. I care as much about my own portfolio as entrepreneurs do about their startups, which is why early stage founders need to mitigate regulatory risk by keeping top advisers like Roger Royse in their hip pockets.
Full disclosure: I have received no compensation from Roger Royse, his corporate entities, or the Idea to IPO Meetup organizers for this article. This article, or anything else published under the auspices of Alfidi Capital, does not constitute legal or financial advice.
Thursday, September 26, 2013
Alfidi Capital in Compliance With First Amendment in Social Media
I'll give my audience another reason why I don't give financial or investment recommendations to investors. Securities regulators take note of registered representatives' public statements and can use them to resolve complaints against reps. FINRA issued regulatory notice 10-06 to cover blogs and social networking sites with further guidance in regulatory notice 11-39. These notices ensure that registered reps do not make public statements that can be construed as investment recommendations lacking in suitability for an investor's specific situation.
These rules don't apply to me for several reasons, as I must enumerate below.
1. I am not a registered representative, securities firm, broker/dealer, RIA, or any such thing either as a human being or as my business entity Alfidi Capital. Read my AL-FAQ-DI and Legalistic Disclaimerism if you're confused.
2. I do not sell securities or investment products of any kind.
3. I do not originate or underwrite corporate finance transactions.
4. I do not maintain custody of client assets. I have no clients at all.
All I do is publish my opinions on financial topics and how those topics affect my own money. I can speak my mind on finance because the First Amendment protects freedom of speech. I use social media as much as possible to ensure the whole world has access to my genius. I have no interest at all in what anyone else on this planet does with their money. Anyone who does not understand this blog article is a stupid loser.
Monday, September 23, 2013
SEC Lifts Ban on General Solicitation to Turbo-Charge JOBS Act
Today the SEC lifted its ban on general solicitation. This is good news for startups who want to raise money under the JOBS Act if they can adhere to all of the required disclosures. Companies must now submit very detailed documentation of their fundraising to the SEC if they want to remain compliant. This is good news for securities attorneys and compliance consultants who will now be fully employed by startups requiring their services.
I tuned in to today's webinars from SeedInvest and Crowdfunder. The new implications of Reg D are massive. Investors need to know that merely claiming to have accredited status won't be sufficient to stay out of trouble. They need to document their income and net worth if they want to play with startups under the JOBS Act. Accredited investors could also have a third party (CPA, RIA, etc.) document their status. I'm still not clear on whether public events such as product demo launches, angel pitchfests, accelerator or incubator workshops, and business plan competitions will require presenting companies to file disclosures prior to appearing. I also wonder whether the SEC will pay a bounty for turning in "bad actors" who continue to abuse securities regulations. I would like to see these matters clarified on the SEC's JOBS Act page.
I am not at present an SEC-defined accredited investor, so I must of course adhere to SEC rules, FINRA rules, and crowdfunding portal rules to stay on the right side of the law. I have always had a clean record and I am going to keep it that way. BTW, this blog article does not in any way constitute legal or financial advice. Startups seeking legal counsel on raising capital need to talk to one of the overworked securities attorneys I've seen around Silicon Valley.
I tuned in to today's webinars from SeedInvest and Crowdfunder. The new implications of Reg D are massive. Investors need to know that merely claiming to have accredited status won't be sufficient to stay out of trouble. They need to document their income and net worth if they want to play with startups under the JOBS Act. Accredited investors could also have a third party (CPA, RIA, etc.) document their status. I'm still not clear on whether public events such as product demo launches, angel pitchfests, accelerator or incubator workshops, and business plan competitions will require presenting companies to file disclosures prior to appearing. I also wonder whether the SEC will pay a bounty for turning in "bad actors" who continue to abuse securities regulations. I would like to see these matters clarified on the SEC's JOBS Act page.
I am not at present an SEC-defined accredited investor, so I must of course adhere to SEC rules, FINRA rules, and crowdfunding portal rules to stay on the right side of the law. I have always had a clean record and I am going to keep it that way. BTW, this blog article does not in any way constitute legal or financial advice. Startups seeking legal counsel on raising capital need to talk to one of the overworked securities attorneys I've seen around Silicon Valley.
Monday, February 18, 2013
Financial Sarcasm Roundup for 02/18/13
The U.S. stock markets were closed today for President's Day. Why do finance professionals think they deserve the day off? It's not like they're federal workers. You know, maybe I should take that back. Plenty of their institutions got bailouts and partial government ownership to make them the moral equivalent of federal workers.
The G-20 says it is committed to market-determined exchange rates but I can't take them at their word. The major exporting countries are going to really start panicking once Japan's devaluation drives up the prices of their goods. I wonder which country will be first to break with this statement and devalue in kind. China? Europe? It won't be the U.S. as long as other currencies look relatively weak. The U.S. was the last to leave the gold standard in the 1930s and it prolonged our experience in the Great Depression. We'll probably be the last to leave the world's fiat currency regime this time around. Oh, BTW, the devaluation of other countries' currencies will also hurt U.S. exporters, pushing us further into recession.
The SEC wants to know who spiked the call spread options on Heinz from a Swiss bank account. Office betting pools in various investment banks' capital markets groups are probably buzzing over the identity of the traders who may have front-run the H.J. Heinz Co. buyout. This one's simple enough for a ten-year old to figure out but the SEC has to make a big show of trying to find the culprit. The Swiss account was named the "GS Account" for crying out loud. It's worth noting that Goldman Sachs was not an adviser to the Buffet-3G-Heinz transaction, but word could have leaked through insiders who use GS for wealth management. The presumption of innocence always applies, of course. This is America, by golly, not some crony kleptocracy where plutocrats wreck whole sectors at the public's expense.
Future retirees won't be getting squat thanks to their reliance on overpromised entitlement programs. I don't like the slant of the article against defined-contribution retirement accounts. Whatever good intentions went into the creation of Social Security and Medicare are about to disappear into a black hole as seniors move in with their children. Three generations under one roof was the American norm up until the 1950s or so and it will be again very soon.
Online gambling is about to make a comeback in the U.S. as states gradually change their laws. Expect objections from Donald Trump, Indian tribes, and organized crime's front organizations. We should welcome legalized gaming because there's no reason Las Vegas and Atlantic City should have all the fun. This is the ultimate in gamification and I hope California doesn't miss its chance to get out in front. I always wanted to figure out online poker but I have to wait for my state's lawmakers to figure it out first.
Here's a final note related to gambling and the law. A certain Stolen Valor dude is gambling that he can keep breaking the law. His luck is going to run out, as it does for all unethical gamblers.
The G-20 says it is committed to market-determined exchange rates but I can't take them at their word. The major exporting countries are going to really start panicking once Japan's devaluation drives up the prices of their goods. I wonder which country will be first to break with this statement and devalue in kind. China? Europe? It won't be the U.S. as long as other currencies look relatively weak. The U.S. was the last to leave the gold standard in the 1930s and it prolonged our experience in the Great Depression. We'll probably be the last to leave the world's fiat currency regime this time around. Oh, BTW, the devaluation of other countries' currencies will also hurt U.S. exporters, pushing us further into recession.
The SEC wants to know who spiked the call spread options on Heinz from a Swiss bank account. Office betting pools in various investment banks' capital markets groups are probably buzzing over the identity of the traders who may have front-run the H.J. Heinz Co. buyout. This one's simple enough for a ten-year old to figure out but the SEC has to make a big show of trying to find the culprit. The Swiss account was named the "GS Account" for crying out loud. It's worth noting that Goldman Sachs was not an adviser to the Buffet-3G-Heinz transaction, but word could have leaked through insiders who use GS for wealth management. The presumption of innocence always applies, of course. This is America, by golly, not some crony kleptocracy where plutocrats wreck whole sectors at the public's expense.
Future retirees won't be getting squat thanks to their reliance on overpromised entitlement programs. I don't like the slant of the article against defined-contribution retirement accounts. Whatever good intentions went into the creation of Social Security and Medicare are about to disappear into a black hole as seniors move in with their children. Three generations under one roof was the American norm up until the 1950s or so and it will be again very soon.
Online gambling is about to make a comeback in the U.S. as states gradually change their laws. Expect objections from Donald Trump, Indian tribes, and organized crime's front organizations. We should welcome legalized gaming because there's no reason Las Vegas and Atlantic City should have all the fun. This is the ultimate in gamification and I hope California doesn't miss its chance to get out in front. I always wanted to figure out online poker but I have to wait for my state's lawmakers to figure it out first.
Here's a final note related to gambling and the law. A certain Stolen Valor dude is gambling that he can keep breaking the law. His luck is going to run out, as it does for all unethical gamblers.
Wednesday, February 13, 2013
SAC Deleted Emails Stymie SEC Probe
Leave it to some hedge fund managers to avoid accountability with technological accidents. SAC Capital Advisors automatically deleted emails that described transactions the SEC is probing for insider trading. Smart firms save all of their client and analyst emails. Not every hedge fund is that smart. SAC changed their record-keeping policy before the SEC launched its investigation, so it will be hard for the government to argue that lack of records was a mask for wrongdoing.
If the SEC has enough information to probe SAC's subsidiary and its portfolio manager without subpoenaing emails or recording phone calls, then I wonder what source they used if all they publicly reveal are hints and snippets. Did some disgruntled inside rival of the accused spill the beans in exchange for immunity?
If the SEC has enough information to probe SAC's subsidiary and its portfolio manager without subpoenaing emails or recording phone calls, then I wonder what source they used if all they publicly reveal are hints and snippets. Did some disgruntled inside rival of the accused spill the beans in exchange for immunity?
Friday, November 09, 2012
The Wonderful World of Crowdfunding
Crowdfunding is here to stay. This is the brand new way for startups to raise capital in small increments from many sources online. The National Crowdfunding Association has some basic information on this growing market. I'm pleased they're developing a certification credential for crowdfunding advisors and have programs for underrepresented business owners.
Crowdfunding is related to microfinance in that it funds small projects, but the difference is that a microfinanced transaction is sourced from a single institution like Grameen Bank. It also differs from peer-to-peer (P2P) lending, which enables loans from a single nonfinancial private lender to a private borrower through online portals that enable credit checks. I am intrigued by the possibility that some crowdfunding platforms may become so successful that they can expand their brand into a one-stop shop that includes microfinance and P2P lending.
I had the chance to hear from crowdfunding pioneers at last August's Money Show in San Francisco, and my interpretation of what they discussed is intended more for entrepreneurs than charities. The key element for entrepreneurs to consider is how much to raise. Raising more than a few million will probably have to go to angel investor clubs and then VCs, but startups that only need a million or two can use crowdfunding portals once they've exhausted the friends and family route.
Some crowdfunding portals use a pledge system for non-profit clients, so if a startup doesn't raise the full amount of its proposed total it must return the balance to donors. I have a hard time believing whether that would be viable for a for-profit startup, because investors would have to read the startup's prospectus online and understand they are contributing a legal form of consideration (a cash investment) in exchange for a security representing ownership.
The JOBS Act will be a tremendous enabler of crowdfunding by lowering barriers to raising capital that previously allowed only accredited investors to subscribe to an offering prospectus. The SEC is formulating rules for implementing the JOBS Act but they need to hurry it up before state regulators start issuing their own legal opinions. Once the SEC has its complete rules in place, the crowdfunding portals that adhere to them and attract investors stand a good chance of being acquired by broker-dealers.
I challenge the conventional wisdom that a secondary market isn't likely for securities sold in crowdfunding. Facebook's lengthy pre-IPO drama broke the mold on trading private shares in a secondary market. Crowdfunding a hot startup that later grows into a Facebook-type behemoth will force a secondary market into existence whether the SEC is ready for it or not. Mutual fund companies will see the value in crowdfunded shares on the secondary market, and they will probably launch actively managed funds that invest in first-round capital raises on crowdfunding platforms and shares available in the secondary market. I don't foresee an index fund or ETF ever developing for the crowdfunding sector because the potential universe of enterprises to track is simply too large to be worth pursuing.
Crowdfunding can test an idea (a tech startup, a film project, a non-profit fundraising campaign) to see if it has a catchy theme that will go viral. Reaching beyond friends and family for investors will IMHO require a social media campaign to get the word out.
Let's do a quick run-down of some crowdfunding platforms. IMHO the most successful platforms will allow potential investors to view a startup's full business plan, prospectus, and term sheet online without requiring them to sign a non-disclosure agreement (NDA).
Kiva is early name that merged microfinance with peer-to-peer lending.
Kickstarter is getting a lot of attention and credibility in Silicon Valley, and is a portal for film finance.
Indiegogo is making a name for itself in non-profit funding.
Health Tech Hatch focuses on raising capital for the biotech sector.
CircleUp enables consumer products startups to raise equity capital.
Invested.in adds CRM data mining and mobile apps to its portal (a smart value-adding move IMHO!)
Streetfunder is focused on equity raises.
Launcht has platforms for non-profits and social entrepreneurs.
Funding Launchpad enables offers that include a complex capital structure (equity, debt, and other options).
Crowdsourcing explains the whole phenomenon of mass-generated online content. I am convinced that crowdfunding can fund human-scale enterprises like makerspaces, biohacking laboratories, and permaculture installations that will enable resilient communities. This is the future of finance. Capital markets were originally intended to raise money for productive enterprises, but in recent years they have degenerated into massive gambling parlors that waste capital in high-speed trading. Crowdfunding and its related concepts will hit the reset button and return finance to its role as servant of product enterprise. This is the future of civilization.
Full disclosure: The author has no ownership interest in any of the crowdfunding platforms mentioned in this article, although he reserves the right to use any and all of them as an investor in enterprises and/or donor to causes.
Crowdfunding is related to microfinance in that it funds small projects, but the difference is that a microfinanced transaction is sourced from a single institution like Grameen Bank. It also differs from peer-to-peer (P2P) lending, which enables loans from a single nonfinancial private lender to a private borrower through online portals that enable credit checks. I am intrigued by the possibility that some crowdfunding platforms may become so successful that they can expand their brand into a one-stop shop that includes microfinance and P2P lending.
I had the chance to hear from crowdfunding pioneers at last August's Money Show in San Francisco, and my interpretation of what they discussed is intended more for entrepreneurs than charities. The key element for entrepreneurs to consider is how much to raise. Raising more than a few million will probably have to go to angel investor clubs and then VCs, but startups that only need a million or two can use crowdfunding portals once they've exhausted the friends and family route.
Some crowdfunding portals use a pledge system for non-profit clients, so if a startup doesn't raise the full amount of its proposed total it must return the balance to donors. I have a hard time believing whether that would be viable for a for-profit startup, because investors would have to read the startup's prospectus online and understand they are contributing a legal form of consideration (a cash investment) in exchange for a security representing ownership.
The JOBS Act will be a tremendous enabler of crowdfunding by lowering barriers to raising capital that previously allowed only accredited investors to subscribe to an offering prospectus. The SEC is formulating rules for implementing the JOBS Act but they need to hurry it up before state regulators start issuing their own legal opinions. Once the SEC has its complete rules in place, the crowdfunding portals that adhere to them and attract investors stand a good chance of being acquired by broker-dealers.
I challenge the conventional wisdom that a secondary market isn't likely for securities sold in crowdfunding. Facebook's lengthy pre-IPO drama broke the mold on trading private shares in a secondary market. Crowdfunding a hot startup that later grows into a Facebook-type behemoth will force a secondary market into existence whether the SEC is ready for it or not. Mutual fund companies will see the value in crowdfunded shares on the secondary market, and they will probably launch actively managed funds that invest in first-round capital raises on crowdfunding platforms and shares available in the secondary market. I don't foresee an index fund or ETF ever developing for the crowdfunding sector because the potential universe of enterprises to track is simply too large to be worth pursuing.
Crowdfunding can test an idea (a tech startup, a film project, a non-profit fundraising campaign) to see if it has a catchy theme that will go viral. Reaching beyond friends and family for investors will IMHO require a social media campaign to get the word out.
Let's do a quick run-down of some crowdfunding platforms. IMHO the most successful platforms will allow potential investors to view a startup's full business plan, prospectus, and term sheet online without requiring them to sign a non-disclosure agreement (NDA).
Kiva is early name that merged microfinance with peer-to-peer lending.
Kickstarter is getting a lot of attention and credibility in Silicon Valley, and is a portal for film finance.
Indiegogo is making a name for itself in non-profit funding.
Health Tech Hatch focuses on raising capital for the biotech sector.
CircleUp enables consumer products startups to raise equity capital.
Invested.in adds CRM data mining and mobile apps to its portal (a smart value-adding move IMHO!)
Streetfunder is focused on equity raises.
Launcht has platforms for non-profits and social entrepreneurs.
Funding Launchpad enables offers that include a complex capital structure (equity, debt, and other options).
Crowdsourcing explains the whole phenomenon of mass-generated online content. I am convinced that crowdfunding can fund human-scale enterprises like makerspaces, biohacking laboratories, and permaculture installations that will enable resilient communities. This is the future of finance. Capital markets were originally intended to raise money for productive enterprises, but in recent years they have degenerated into massive gambling parlors that waste capital in high-speed trading. Crowdfunding and its related concepts will hit the reset button and return finance to its role as servant of product enterprise. This is the future of civilization.
Full disclosure: The author has no ownership interest in any of the crowdfunding platforms mentioned in this article, although he reserves the right to use any and all of them as an investor in enterprises and/or donor to causes.
Saturday, November 03, 2012
Wednesday, July 25, 2012
Why There Will Be No Serious Prosecution Of Libor Fraud
The latest brew-ha-ha in the news is the revelation that hot shots at TBTF banks colluded to suppress published rates for Libor. The nonsense you may hear about prosecutions is much ado about nothing. There will be no serious prosecutions of anyone above mid-level supervisor on a handful of trading desks. Those trading desks that are targeted will be those that are not central to the government's funding needs; i.e., Goldman Sachs and JPMorgan Chase are certainly exempt. Those few low-level traders that are indicted will be thrown under the bus by colleagues because they are not members of pedigreed families and did not join the proper social clubs at Ivy League schools. No senior bank executive will ever face jail time for collusion, price fixing, restraint of trade, or any other flavor of securities-related criminality.
You may be wondering how I can make this claim. It's simple. Read today's news that the Secretary of the Treasury knew of Barclays' participation in Libor fixing while he ran the New York Fed. Building a case for widespread, top-level collusion would require law enforcement agencies to subpoena the sitting Treasury Secretary (and perhaps his predecessor) and force him to testify against his peers in banking. That is not going to happen. No one with intimate ties to the Fed can be prosecuted for financial wrongdoing in plutocratic America. That would strike at the heart of the Fed's credibility, and the Fed is the one bedrock institution whose credibility cannot be in question as the U.S. economy heads into the second inning of Great Depression 2.0. It will need every ounce of trust it can finagle out of the markets to execute QE3 within the short window of opportunity presented by a severe equity market crash and foreign run on the dollar. I can question the Fed because I don't matter to our ruling elite.
Fed and Treasury officials have the equivalent of get-out-of-jail-free cards as long as the TBTF insolvency crisis goes without resolution. The same goes for senior executives at those banks; they are part of our country's ruling class and are therefore irreplaceable. After all, who would take their places in the local country club dining rooms if they could no longer attend caviar tastings due to incarceration? It certainly won't be you, dear reader.
You may be wondering how I can make this claim. It's simple. Read today's news that the Secretary of the Treasury knew of Barclays' participation in Libor fixing while he ran the New York Fed. Building a case for widespread, top-level collusion would require law enforcement agencies to subpoena the sitting Treasury Secretary (and perhaps his predecessor) and force him to testify against his peers in banking. That is not going to happen. No one with intimate ties to the Fed can be prosecuted for financial wrongdoing in plutocratic America. That would strike at the heart of the Fed's credibility, and the Fed is the one bedrock institution whose credibility cannot be in question as the U.S. economy heads into the second inning of Great Depression 2.0. It will need every ounce of trust it can finagle out of the markets to execute QE3 within the short window of opportunity presented by a severe equity market crash and foreign run on the dollar. I can question the Fed because I don't matter to our ruling elite.
Fed and Treasury officials have the equivalent of get-out-of-jail-free cards as long as the TBTF insolvency crisis goes without resolution. The same goes for senior executives at those banks; they are part of our country's ruling class and are therefore irreplaceable. After all, who would take their places in the local country club dining rooms if they could no longer attend caviar tastings due to incarceration? It certainly won't be you, dear reader.
Thursday, May 24, 2012
Tuesday, May 22, 2012
Friday, May 11, 2012
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