Investment Tips for the Tech Industry

The tech industry has had its share of investment darlings – Google, Instagram, or Tumblr for example – that net big returns for investors. But those big wins aren’t the norm. More often it’s the case that investors in tech startups don’t ever see a return. Here are a few tips to help make sure your portfolio is balanced, minimizing loss risk and maximizing the potential for big returns.

1. Stick to What You Know
Successful angel investors will be the first to tell you they’re no different from anyone else. They read the same financials; have access to the same data. What may be different is that they tend to stick to what they know. If the majority of their business experience is in the telecom industry, they will tend to invest in telecom startups. The further afield from your area of expertise, the greater the risk of diminished returns.

2. Portfolio Approach
Instead of putting all, or even half, of your investment eggs in one basket, consider spreading your capital and investing in at least 15 tech startups. Regardless of how persuasive the pitch is, think about investing the same amount in each startup. This way you are limiting your exposure, increasing your chances of having an investment winner in your portfolio, and you’re better able to weather the likely potential that several of your investments will not pay a return.

3. Patience
In addition to the risky nature of tech startups, the maturity timeframe is long, averaging about eight years. Be ready to wait, and watch, and don’t expect a quick result.  It can get pretty discouraging at times.  Many companies face several crisis events before they make it big.  Hang in there.

4. The Ten Percent Rule
Some believe that the reporting from the tech sector is slanted to the positive side of reality, often giving a false impression of startup success. In addition to very carefully assessing the risks in each potential investment opportunity, limit your tech startup investment to no more than 10 percent of your available investment capital. And, be prepared to lose it.

The stories like Google’s acquisition of YouTube or Facebook’s purchase of Instagram, are examples of just how big and successful it is possible for a tech startup to get. For every Twitter-type success story, there are hundreds and hundreds of broken hearts and empty bank accounts. Take just a few steps back, and a balanced, conservative approach, to make sure yours isn’t one of them.

Missing out on some great fun and possible good returns.  Join the party by getting verified as an accredited investor and invest in some deals.

SEC Advised to Modernize Rule 147

Intra-state crowdfunding rules may be about to get an overhaul. Intra-state crowdfunding is crowdfunding where all activities – promotion, offer, and sale – happen within a single state.

The increasing number of states enacting their own state-based crowdfunding provisions and the changing nature of business and capital raising, have prompted the Securities and Exchange Commission’s Advisory Committee on Small and Emerging Companies to recommend that the SEC modernize Rule 147.

What is Rule 147
Rule 147 finds its orgins with Section 3(a)(11) of the Securities Act of 1933.  Section 3(a)(11) is often referred to as the intrastate exemption and is one of the tools that can be used by small companies raising relatively small amounts of money that would like to avoid having the pay the often-hefty fees related to registering with the Securities and Exchange Commission.  Rule 147 is essentially a safe harbor provided by the SEC’s in order to give more certainty as to the parameters of Section 3(a)(11).

Who Qualifies
Companies must meet the following criteria and some others in order to qualify for an exemption under Rule 147:

• The securities offering is in the same state in which the company is incorporated and the principal office is located in that state
• At least 80 percent of the company’s revenue must come from business activity in the state in which it is incorporated, at least 80% of the compay’s assets must be in that state, and at least 80% of the capital raised must be used in that state
• Securities are only sold to residents of the same state  

The Catch
The requirement that both the offering and the sale must be restricted to intra-state is the problem. Crowdfunding anticipates the use of the internet, which makes it difficult for a company to truly crowdfund while taking advantage of the Rule 147 exemption.  At the time Rule 147 was created, the implications of the Internet weren’t considered.

The Fix
The Advisory Committee recommended that the SEC modernize Rule 147. Although there was not specific guidance as to what exactly the SEC should modernize, the committee addressed a few concepts.  For example, one idea was to revise Rule 147 to remove the current violation for “offering” securities outside of the company’s home state, while retaining the requirement that the “sale” of said securities remain intra-state.

Whether the SEC itself accepts the Advisory Committee’s recommendation, and if so, what exactly the modernization will entail, remains to be seen.

Crowdfunding through Title II of the JOBS Act is an easy alternative but federal laws require verification of accredited investor status. Verification is fast, secure, and easy with VerifyInvestor.com.

6 Major Startup IP Mistakes

Intellectual property, or IP, is commonly misunderstood and underestimated. Anything that is a “creation of the mind” might qualify as IP. See if you can find yourself in these 5 major IP mistakes many startups make.

1. Under-estimating the Value of Knowledge to Launch the Startup

Literature, music, and scientific discovery are examples of IP, as are designs, symbols, words and phrases, industrial design, and trade secrets. So if you’ve got a great, unique idea that’s worth starting a new business venture over, it’s almost certain you’ve got IP that is worth protecting.

2. Overestimating the Value of IP

IP is well, just IP. Unless someone applies the IP to real life scenarios, the true value of the IP is never realized. Ideas are cheap; but execution is not. To achieve success, figure out a way to leverage your IP and turn it into a real company. When you show the ability to capitalize on your IP, that’s when you’ll be worth a lot.

3. Failing to pursue provisional patents early enough

If you’ve chosen a name, designed a logo, built a website and prepared product packaging, you may already be too late. You need to file patents, register and secure trademarks (yes, even to your startup’s name) before you are too visible to the public. Patents, in particular, must be filed before your product launch.

4. Not asking for help, or asking the wrong people

It’s understandable to want to give in to the temptation to save money by handling protection of your IP on your own. Resist. That is short-term thinking that could cost you everything in the long run. At the very least, consult with a lawyer specializing in IP so you get a thorough understanding of your startup’s IP landscape.

5. Not considering how geographic locations can impact IP

Patents and trademarks filed in the U.S. will only protect you in the U.S. If you have any international exposure at all, consider whether there are other global jurisdictions in which it will also make sense for you to file.

6. Believing handshakes will protect your IP

A wink and a nod are not enough. Rely on formal confidentiality agreements to protect your trade secrets. And don’t underestimate the importance of having everyone sign before you share any information. Yes, even the software coder you’re hiring overseas.

Understanding that your IP is a valuable asset is a great first step. It’s never too early to start the work of identifying exactly what IP you have. Then, with professional support, developing a strategy on its protection may make the difference between startup and star. 

A solid IP strategy can add value to your startup, especially in the eyes of potential investors. For more information on how to verify that your investors are accredited investors, go to VerifyInvestor.com.

The 10 Startup Tips No One Tells You

Getting a startup off the ground is an all-consuming affair. With all the advice out there around building your business plan, defining your market, and raising money, there are a few tips you don’t hear often enough. Here is our top ten list.

1. It’s Way Harder than You Think
It’s the reason only 1 in 4 startups succeed. Success is not born purely of doing everything right, at the right time.

2. Ideas ≠Easy Execution
A great idea is just that: an idea. The most creative and original idea in the world isn’t worth anything if it can’t be implemented relatively painlessly.

3. More is Not Always Better
There’s value in focusing on a few products and features while you establish your startup’s viability and market. It’s tempting, particularly in the tech world, to get dazzled by a dizzying array of potential features that are oh-so-cool. But there is a big risk they will dilute your real value.

4. Design Matters
Investing in the design elements of your startup is never a waste. Your logo, brand guide, web presence and the look of your product and features are all critically important. Functionality isn’t enough. Period.

5. Teamwork Trumps Talent, Every Time
Your brilliant team members with their long impressive CVs and huge contact lists aren’t going to save you if your team can’t get along. The ability to work together, in harmony, is far more important than brilliance.

6. Cultivate Empathy, Torpedo Ego
Okay, it’s impossible to completely get rid of ego. But not keeping it in check can be fatal to your startup. To help ward off an ego torpedo, focus instead on cultivating empathy.  Concentrate hard on listening. Listen to your customers, potential customers, and your competitors, and be ready to let them challenge what your ego tells you is right.

7. Track Organic Traction Above All Else
Organic growth is the measure of whether there really is a demand for your product or service. Spend on marketing to build your brand exposure, of course, but at a certain point, there should be a level of excitement and natural, organic demand growth.

8. The Power of the Pitch
You won’t need a presentation in the same way as you used to, but you still need to have a good “pitch” that you can pull out when you need it. The quality, including design and user experience, of your pitch will tell potential investors that you know what you’re doing. They should be able to visualize your startup as a successful entity with your pitch alone.

9. Prepare for a Pivot
You set off planning to deliver product “A”. But what happens when demand for product “A” never takes off, levels off, or tanks much earlier than you anticipated.  Instead of going down with the original idea, be prepared to modify your business.  A pivot doesn’t have to be a complete change in your business, so you won’t necessarily lose all the hard work you put into developing product “A”.  Don’t be afraid to pivot if you have to; many great companies are doing things that are different than what they originally set out to do.

10. Opportunity’s Knock is Often Unexpected
Getting a startup off the ground takes everything you’ve got – all of your focus, energy, creativity and talent. Still, you need to make sure you’ve got the intellectual room to recognize an opportunity that might come from left field.  The Hall of Business Fame (if there was one) is populated with entrepreneurs who took advantage of an opportunity that presented itself when they least expected it. Just be careful not to spread yourself too thin chasing every opportunity.

When you’re ready to start your search for verified accredited investors, we can help. Learn more about us at VerifyInvestor.com.

Trends Affecting Real Estate and Other Investments in 2015

According to PWC’s 2015 U.S. CEO Survey, CEO’s believe more opportunities exist today for their companies than was the case three short years ago.  The survey also suggests that CEOs outside the U.S. are looking to the U.S. more than any other market for their growth in 2015.

What are those CEOs – domestic and international – seeing? Let’s take a look at some of the trends that we expect to shape the 2015 investment year.

18-Hour Cities

Urbanization is a trend affecting everything from housing (condos, anyone?) to public infrastructure. If you’re 40 or over you likely remember that cities used to be places that buzzed with life from 9 to 5 and then quieted down as all the workers slipped back to their bedroom communities for dinner with the family. Today, more of those workers live within walking distance of their workplaces, and voila, we’re seeing the transformation of downtown cores with investments in retail, dining, housing and urban cores that suddenly boast high quality of life well past 5pm.

Mover Over Boomers, Here Come the Millennial

Boomers will still have a significant impact on investments and real estate development for about twenty years, but there’s a new cohort about to take over the lead demographic role in economic definition. As baby boomers die off, the millennial cohort is poised to become the largest living demographic cohort. This is the group, aged 18 to 34 in 2015, which will shape the economy the most in the next 20 – 40 years. Less affluent than their boomer parents, millennial will rent longer, postpone homeownership, and thus affect the real estate and development industries.

Disruptive Technology

Technological disruptions - Uber, crowdfunding and e-commerce are all examples – are increasingly viewed as an “adaptation challenge” and much less an “event” to be feared. New business environments and tools create and respond to new user demand as technology continues to push for changes in, among other things, real estate locations and usage of space.

Event Risk the New Normal

Geopolitical risks, natural disasters and global unrest are on the minds of most domestic investors, and as such, according to PwC, international investors (those international CEOs we referenced above) will likely be key to 2015 investment volume.

Housing Back to “Supply and Demand” Fundamentals
It appears the bubble and collapse are truly in the rearview mirror of the residential real estate industry, and consumer confidence in this sector is on the rise.

Expand your investment portfolio with confidence as an accredited investor. At VerifyInvestor.com, we help you self-verify confidentially, quickly, and cost-effectively.

Crowdfunding Sites for Startups

If you haven't yet tapped into the crowdfunding craze to help you raise money for your startup, it might be time. There are a few basics to understand before you decide which crowdfunding platform is the best for you to look for investors.

Equity and Reward

Rewards-based crowdfunding is the longest-running model, and involves the advance purchase of products and experiences or donations. In this model, funders aren't really “investors”, as they do not become “shareholders” in the traditional sense. Instead, they receive rewards for their advance purchase or donation. Equity crowdfunding is newer, enabled by Title II of the JOBS Act (and Title III, but that isn't yet effective), which now permits entrepreneurs to advertise publicly about their investment opportunity and investors to become shareholders and buy in online. The type of project or business idea that you have will dictate which type of crowdfunding campaign you launch, but here are some crowdfunding sites you need to know.

Kickstarter

By far one of the most well-known rewards-based crowdfunding sites, Kickstarter has been around since 2009 and has helped project owners raise more than $1 billion.

Indiegogo

Indiegogo is another rewards-based site but has a higher international profile than Kickstarter, and they are open to working with almost any type of project.

SeedInvest

A premier crowdfunding site focusing primarily on startups, SeedInvest is an investment, not a rewards based, crowdfunding platform. It’s not easy to get on. All startup investment opportunities are vetted by their investment team and must adhere to strict requirements -- only 2% of applying companies are accepted and made available for investment. What does that mean? It’s annoying to go through their process, but once you’re through, investors know that you’ve been pre-vetted.

Crowdfunder

Don’t want to go through extensive due diligence before listing your offering? Try one of the portals that believes that everyone should have an opportunity to list their deal. Crowdfunder is another investment crowdfunding platform and arguably boasts one of the fastest growing networks of investors. It has helped more than 22,000 companies raise more than $197 million.

EarlyShares

EarlyShares focuses on equity funding for small businesses in the U.S. “Rigorous selection criteria” are used to carefully review every investment opportunity and assess its return potential and viability. They don't accept just anyone – only 5 per cent of those applying are accepted on EarlyShares.

Fundable

Offering both rewards-based and equity-based crowdfunding campaigns for small businesses, Fundable also provides a series of guides to assist entrepreneurs who are starting and growing their companies.

EquityNet

Launched in 2005, EquityNet has been used by thousands of investors, incubators, entrepreneurs, and even government entities to raise money for privately-held businesses. Planning is a big focus at EquityNet, with tools that help entrepreneurs plan their campaigns and investors plan their opportunity assessment.

Crowdfunding, where you're generally solicit investors, requires businesses to verify that their investors are accredited investors. There's no better way to do this than VerifyInvestor.com, where we make it easy to verify accredited investor status.

Regulation A+: Investment Choices ↑, or Investor Protection ↓?

The Securities and Exchange Commission (SEC) anticipates stronger investor protections and more investor choice will result from its adoption of final rules for an updated and expanded Regulation A, as required by Title IV of the Jumpstart Our Business Startups (JOBS) Act.

$50 Million in 12-month Period
Smaller companies will soon be able to publicly sell and offer up to $50 million in securities in a 12-month timeframe, subject to disclosure, eligibility, and reporting requirements of course. The SEC believes this is a “workable path” to easing the process of raising capital that smaller companies may welcome, while still protecting investors.

State Regulators Unhappy
State securities regulators, and NASAA, the association that represents them, claim the rule strips investors of the important protections afforded by state securities regulators under so-called “Blue Sky Laws.” Their criticism springs from the new rule's “pre-emption” provision, which allows offerings to bypass state securities law qualification and review by state regulators. The SEC attempted to address this concern by limiting to pre-emption to “Tier 2” offerings as described below.

Two Tiers of Offerings
Regulation A+, as the new rules are often called, provides for two tiers of offerings:

• Tier 1: securities offerings up to $20 million in a 12-month timeframe, with not more than $6 million worth of offers from affiliates of the issuer that are selling security-holders.
• Tier 2: securities offerings up to $50 million in a 12-month timeframe, with not more than $15 million worth of offers from affiliates of the issuer that are selling security-holders.

Basic requirements for disclosure and issuer eligibility, as exist under the current provisions of Regulation A, apply to both tiers. However, Tier 2 offerings must include audited financial statements, and companies making Tier 2 offerings will have to file semiannual and annual reports with the SEC after the offering. For either tier the company must file an offering circular with the SEC for review and qualification, and companies proceeding under either tier may submit their draft offering circulars for non-public review by SEC staff before filing. Companies may still use solicitation materials after they've filed their electronic offering statement.

Pre-emption of state securities laws is available only for Tier 2 offerings. Companies offering $20 million or less in securities that seek to bypass state Blue Sky Laws may elect to make a Tier 2 offering.

As under the original regulation, an offering under Regulation A+ is considered a “public offering,” which means that securities purchased by non-affiliates will be freely tradable.

A Little Background on Regulation A
When a company sells or offers securities to potential investors, the Securities Act of 1933 requires the offer and sale be registered, or exempted from such registration. Regulation A has, since about 1936, been an exemption allowing up to $5 million in unregistered public offerings in any 12-month period.

While considered an exemption from registration, Regulation A has always had a “qualification” procedure involving submission to the SEC of a prescribed form of offering document, which is very much like the registration process. For that reason it has been thought of as “short form registration.” Because of those requirements as well as the low dollar ceiling and need to conform with state securities laws, Regulation A offerings have been quite rare in recent decades. Exemptions available for private offerings under the Securities Act have had much fewer regulatory requirements.

By greatly increasing the size of offerings permitted, allowing a bypass of state regulations and keeping regulatory requirements less onerous than full registration, the SEC staff believes that the adoption of Regulation A+ is an important step on the road to making it easier for smaller companies to raise capital.

VerifyInvestor.com offers simple, confidential and reliable processes that protect investors' confidential information while confirming them as accredited investors for companies raising private placement capital under Rule 506(c). Visit Verifyinvestor.com for more information.

Is Your Company Eligible for Registration Exemption Under Regulation A+?

Under the Securities and Exchange Commission's (SEC)'s newly-adopted final rules for an updated and expanded Regulation A (called Regulation A+), as required by Title IV of the Jumpstart our Business Startups (JOBS) Act, private companies will be permitted to make exempt public offerings of up to $50 million within any 12-month period. But not every company will be eligible for the exemption. Here's a brief look at who is eligible.

Location Eligibility

Exemption from registration will be limited to United States and Canadian companies. The issuer must be organized and have its principal place of business in either country. No other foreign companies will be eligible for exemption under Regulation A+.

Companies Ineligible

Regulation A+ exemptions would not be available to:

• Investment companies (including "business development companies")
• Companies that are already SEC reporting companies
• So-called "blank check" companies that don't have a business plan, or whose plan is simply to merge with or acquire another as-yet-identified company
• Certain companies issuing interests in mineral rights, gas, or oil
• Any company that has been subject to any order from the SEC under Section 12(j) of the Exchange Act (revoking registration for public trading) within the last 5 years
• Any company that has not, for the preceding two years, filed reports as required by the rules
• Any company that is disqualified as a "bad actor" because of past actions by the company or its controlling persons.

New Filing Requirements

As before, all offerings under Regulation A must be made through a Form 1-A offering statement filed with the SEC. Regulation A+ eliminates the possibility of automatic qualification and requires SEC staff review and formal notice of qualification for all offering statements. As before, a company can "test the waters" by soliciting indications of interest in the securities before qualification of the offering.

New Tier Structure

Regulation A+ establishes two new "tiers" of offerings. Tier 1 covers securities offerings up to $20 million, up from $5 million, within any 12 month period, and retains many of the pre-existing requirements from Regulation A. Tier 2 now allows offerings up to $50 million a 12-month period. Under Tier 2, however, companies must adhere to more rigorous reporting requirements.

Since the 1930s, Regulation A has provided rules under which a company could publicly offer and sell a limited amount of securities to potential investors and be exempt from the process of registering the offer. The use of this exemption under Regulation has been diminishing as other Securities Act exemptions have become available or companies simply chose to register their offers. In adopting Regulation A+ the SEC seeks to revive Regulation A as a middle path - for companies that are eligible - that provides advantages over private offerings without the full cost and burdens of registration.

Reg A+ a bit too much for you? Take a look at Rule 506(c) which lets you generally solicit investors so long as you verify that actual investors are accredited investors. At VerifyInvestor.com, we have developed confidential, reliable and simple processes to make it easy for you to comply with federal laws. Visit VerifyInvestor.com or call us at 818-925-6701.

Is Crowdfunding for You? If So, Which Type?

Crowdfunding platforms helped individuals and companies around the world raise $16.2 billion in 2014, according to research firm Massolution. Crowdfunding likely grew out of microfinance, or microlending, which has been around for centuries as a way to help people climb out of poverty. The first microlending website appeared in 2005, the first US peer-to-peer lending site in 2006, and in 2009, Kickstarter launched as a new way to fund creative projects.

Projects now range from social causes to app development, and everything in between. The JOBS Act has declared that crowdfunding should be an option for businesses in the U.S. You’re not alone if you are wondering if there’s a type of crowdfunding that might help you raise much-needed capital for your business.

Equity Investment
Equity crowdfunding, as the name suggests, allows investors a share of equity in exchange for their investment. While the JOBS Act has opened the door to equity crowdfunding, the SEC hasn’t yet walked through it, and its corresponding rules aren’t expected to be adopted until late 2015. Once that happens, small or emerging businesses will be able to raise up to $1 million in capital from the general public via crowdfunding platforms, without triggering other federal securities laws.

Royalty Based
Also tied up in the wait for SEC regulations, royalty-based crowdfunding provides investors with an opportunity to earn a percentage of future revenue. For entrepreneurs, this can be attractive because they don’t have to give up equity; for investors, it is attractive because they could earn back more than their original investment.

Reward Based
Under this model, entrepreneurs pre-sell a service or product without incurring debt or giving away equity. Typically used to fund the launch of a new offering, reward-based crowdfunding has been used to help fund things like software development, cool new apps, inventions, and scientific research.

Debt Based
Also sometimes called peer-to-peer lending, this type of crowdfunding is easier and less costly than a bank loan for many entrepreneurs. It’s also easier for an investor to buy into because there is a promised repayment with a small return. This type of platform is suitable for those with an established customer base and stable cash flow, which will ensure you’re able to make the debt repayments.

Donation crowdfunding projects are used for political campaigns, charities, or social causes - rarely for entrepreneurial endeavors.

Debt Crowdfunding Explained

Debt crowdfunding offers an opportunity for small businesses, including startups, to explore peer-to-peer loans without jumping through the hoops required for possible bank financing (often only to be turned down) that also come with high interest rates.  

How to Qualify
There are wealthy investors willing to offer loans at interest rates below what a bank would charge.  In some cases, they’ll make private loans that the bankers wouldn’t make.  There are still qualifications you’ll have to meet, however. You will still need to demonstrate creditworthiness, though the threshold will differ from the banks and will vary platform to platform, and creditworthiness isn’t the only factor at play in obtaining debt crowdfunding.  

Investors
There is some evidence to suggest that investors actually prefer debt-based crowdfunding to other platforms, with a recent survey showing more than 75 per cent of the funds invested going to debt-based crowdfunding sites. These numbers indicate that investors like the certainty of having their initial outlay repaid, with interest representing a small return.

How It Works
There are many lending portals up and running in North America, and they all have different processes and requirements. Expect some common elements, of course, and be ready to outline the purpose of the funds you’re looking for and how much, your credit profile and financial situation. Beyond that, there’s a lot of variety, so do your research on which ones best suit your circumstances, and then ensure you meet the portal’s specific required criteria before you start submitting your application.  Generally, you present your case for a loan online and investors decide whether they want to invest.

Promotion
Social presence is still a key factor in debt-crowdfunding, so promotion is still important. Market research will help you identify which channels you should focus on in order to attract attention from the right investors and/or consumers, if that applies.

Debt Crowdfunding History
Early forms of debt crowdfunding include microlending and microfinance, which have been around for a long time typically as a way to lend small amounts to low-income individuals that can help raise them out of poverty.  In the last decade, thanks to the Internet, debt crowdfunding has gained considerable widespread traction. The first microlending website, kiva.org, appeared in 2005. In 2006, Prosper.com was the first to launch a peer-to-peer lending site in the U.S.  LendingClub.com followed shortly thereafter in 2007, and this alternative funding method continues to gain in popularity.

Future
Ever since the passage of the JOBS Act, lending portals and crowdfunding sites have exploded in popularity.  It seem as if there are a few new sites popping up each week.  It’s an exciting world out there and investors are funding deals.  So what are you waiting for?  Get your deal listed!