Notes of Note from John F. Ince

Archive for November, 2011

House Passes Crowdfunding Bill: FAQ’s for Entrepreneurs | WALKER CORPORATE LAW GROUP, PLLC

What Does the New Crowdfunding Bill Do?

If the crowdfunding bill becomes law, all of the foregoing prohibitions and requirements will be lifted, and a startup will be permitted to sell securities via crowdfunding sites like Kickstarter and/or social networking sites like Twitter or Facebook so long as the company (and its intermediary, if applicable) complies with the bill, including these key provisions:

The company may only raise a maximum of $1 million (or $2 million if the company provides potential investors with audited financial statements);

Each investor is limited to investing an amount equal to the lesser of (i) $10,000 or (ii) 10% of his or her annual income; and

The issuer or the intermediary, if applicable, must take a number of steps to limit the risk to investors, including (i) warning them of the speculative nature of the investment and the limitations on resale, (ii) requiring them to answer questions demonstrating their understanding of the risks, and (iii) providing notice to the SEC of the offering, including certain prescribed information.


Are There Any Downsides to Crowdfunding for Startups?

Yes, there are several significant downsides that startups should be aware of:

First, startups must understand that minority stockholders have certain key rights under State law, including voting rights, the right to inspect the company’s books and records, the right to bring a derivative claim on behalf of the company and certain protections against oppression by the controlling stockholders.  Indeed, the more stockholders a startup has, the greater the likelihood that a disgruntled stockholder will cause problems, including filing lawsuits.

Second, having hundreds of stockholders is an administrative nightmare and will be time-consuming and costly.  Presumably, each stockholder will be required to execute a subscription agreement and/or stockholders’ agreement to address key issues such as transfer restrictions, rights of first refusal, drag-along rights, etc.  There will also be administrative issues relating to voting and stock transfer issues.

Third, startups will likely have difficulty raising funds from VC’s and other sophisticated investors if they have hundreds of unsophisticated stockholders.  Needless to say, few sophisticated investors will want to sit on the Board of Directors of such a company due to the risks of lawsuits relating to director liability, and D&O insurance rates will presumably sky-rocket for these companies.


What’s Next?

The bill now moves to the U.S. Senate, which hopefully will quickly pass a similar bill.  The White House supports the bill, so upon reconciliation, it will be signed into law, whereupon the SEC will be required to promulgate applicable rules within 90 days.

via House Passes Crowdfunding Bill: FAQ’s for Entrepreneurs | WALKER CORPORATE LAW GROUP, PLLC.

eBay and PayPal discover huge rise in mobile payments over holiday period | TabTimes

eBay and PayPal discover that mobile payments rose six-fold across select websites on Thanksgiving, Black Friday and Cyber Monday.

PayPal shopping specialist Claudia Lombana revealed PayPal’s news in a company blog, in which she stated that there were six-fold mobile payment increases for smartphones and tablets for both Black Friday and Cyber Monday.

Lombana said that between 1pm and 2pm PST was the busiest mobile shopping hour on Black Friday, and added that the global mobile payment volume on the day itself was up by 148% compared to an average Friday.

PayPal, a division of e-commerce giant eBay, saw a four-fold (371%) increase in the number of customers shopping through mobile on Black Friday, when compared to last year and shoppers in New York, Houston, Miami, Los Angeles and Chicago made the most mobile purchases.

It was a similar story with Cyber Monday, with mobile sales having increased by 514% year-on-year by just 11am PST. As of this time, PayPal had seen a 6% increase in global mobile payment volume, compared to the same time period on Black Friday.

eBay’s PayPal payment service also enjoyed a strong surge in mobile payments, with the service’s global mobile payment volume rising by 511% YoY on Thanksgiving.

eBay reported a 350% increase in the number of customers shopping through PayPal mobile and, like PayPal, found New York to be in first position for number of purchased items and dollar volume. The other top cities included Los Angeles, Chicago, Casa Grande (Arizona), Houston and Miami.

The e-commerce company said shoppers in the US purchased nearly two and a half times as many items via eBay Mobile this Black Friday compared to 2010, and revealed that its iPad 2 sale ($50 off a white 16GB model) resulted in around four sales every minute. The most searched items on were iPod Touch, iPad and iPhone 4S.

via eBay and PayPal discover huge rise in mobile payments over holiday period | TabTimes.

SF City Officials, Community Voices Discuss Municipal Banking Alternatives

Supervisor Avalos opened the proceedings by discussing his ambitions to create a public city bank in San Francisco, citing the recent efforts of 14 states around the U.S. To introduce legislation on creating such institutions, as well as the success of the only public bank in the nation, the Bank of North Dakota. Public banking advocates point to BND has having helped the state achieve a nationwide low in unemployment (3.2%) and the only budget surplus in the country, all during a significant recession. BND reported a seventh consecutive year of record-breaking growth in April of this year, tallying profits over $60 billion, about half of which goes into the state’s general fund each year. Avalos referenced the worldwide Occupy movement as evidence of growing dissatisfaction with large financial institutions, and indicated that it was time for San Francisco to let its banking choices accurately reflect its values.

via BeyondChron: San Francisco’s Alternative Online Daily News » Avalos, City Officials, Community Voices Discuss Municipal Banking Alternatives.

NFC Mobile Payments Gain Momentum With New Partnership, Standards – Mobile and Wireless – News & Reviews –

Near-field communication gained traction recently as more companies announced new programs and partnerships to enable users to make payments using mobile devices.Rate This Article:Poor Best E-mail  Print PDF VersionCompanies are exploring near-field communication technology to spur mobile payments using smartphones. While mainstream adoption is still years away, several recent announcements show that the idea is gaining traction despite lingering security concerns.Research in Motion partnered with Spanish telecommunications giant Telefonica to roll out a pilot program that would allow employees to make electronic payments and gain physical access to their workplace using their BlackBerry smartphones, RIM announced Nov. 23. Under the pilot, the 350 Telefonica employees will also get automatic account balances and transaction confirmations directly from their banks after making a payment.The process is similar to other contactless payments in the market, such as MasterCards PayPass, where consumers just wave their credit card in front of the reader. Startups such as Square are also rolling out services that would allow smartphones to accept payments.”We are getting ever closer to the point where our customers will be able to take the contents of their wallets and put them on their mobiles,” said Matthew Key, CEO of Telefonica Digital.Just last week, Google announced it will phase out the Google Checkout payment platform in favor of the new Google Wallet, a U.S.-only payment service, it launched in September. With the Google Wallet application, users launch the application on their smartphones to activate the near-field communication NFC antenna and wave the phone near a payment sensor. The application wirelessly debits funds from linked credit cards. It can also be used for online purchases.

via NFC Mobile Payments Gain Momentum With New Partnership, Standards – Mobile and Wireless – News & Reviews –

Cutting Out the Banker Middleman: Don Tapscott

In the wake of the 2008 global financial crisis, we need to rethink and redesign many organizations and institutions that have previously served us well but are now beginning to falter. Fortunately, the Internet lets us do this. It slashes collaboration costs and makes possible completely new models of combining people, skills, knowledge and capital for economic and social development. Around the world, individuals and groups are working together, developing new businesses based on peer-to-peer P2P collaborative networks.The financial services industry has always been the antithesis of P2P collaboration. Hierarchy is deeply entrenched in this industry, for good reasons such as security, auditing, and regulatory compliance. But we are now seeing the rise of three types of P2P activities in this sector.First, financial services companies are moving beyond electronic mail, document management and other primitive technologies to new collaborative software suites like Jive and Moxie Software Spaces, which encourage P2P collaboration within corporate boundaries.Second, financial services companies themselves are beginning to act as peers, and are collaborating rather than treating one another as superiors or subordinates in the supply chain. This is good. The industry needs a new modus operandi, where all of the key players including banks, insurers, investment brokers, rating agencies and regulators embrace principles of transparency, integrity, collaboration and sharing of information. For example, banks should open up financial modeling and make pertinent assumptions and data transparent to all interested parties. Among other things, such P2P collaborations could enable banks to value the trillions of dollars in toxic assets that are weighing down their balance sheets.But the third and most interesting of P2P innovations in financial services is the growing number of lenders and borrowers connecting directly via the Internet and avoiding the cost and frustration of dealing with banks altogether. The goal is to benefit both the lender and the borrower. For example, if one person is now receiving one percent interest on a savings account and another is paying 29 percent on a credit card, a mutually-agreed 10 percent rate is a match made in heaven, giving the lender a tenfold increase in return while affording the borrower a chance to begin paying down the principal. Typical P2P borrowers want to consolidate debts and pay off credit cards.

via Don Tapscott: Cutting Out the Banker Middleman.

via Don Tapscott: Cutting Out the Banker Middleman.

via Don Tapscott: Cutting Out the Banker Middleman.