Category Archives: Crowdfunding Articles

ENCOURAGING LOCAL INVESTMENT IN CROWDFUNDING

Crowdfunding provides deep pools of capital to entrepreneurs and makes high-quality investments available to individuals for the first time. Those things are great, transformative.

But Crowdfunding achieves its greatest potential at the local level, where communities invest in themselves. An entrepreneur needs capital to start a local business. Her customers are her neighbors. They help design her business to respond to their needs, and they invest in her business to share in the financial rewards and to improve their own neighborhood. There’s a lot more going on there than finance.

I once served on a panel with David Paterson, the former Governor of New York. Governor Paterson spoke about the usefulness of Crowdfunding for community development and community redevelopment, and now works as the Director of Community for iFunding, one of the leading portals.

I have spoken with and represent others thinking along the same lines, putting local money back into local economies.

We should think about ways to encourage localized Crowdfunding investment. When we’re talking about revising Title III, or crafting better state Crowdfunding laws, we should include community development folks in the conversation. They’re going to have better ideas than I have, but I can think of one small step in the right direction.

Why not provide some economic incentive? For example, suppose State X allows a $5,000 maximum investment from non-accredited investors. Why not raise that limit to $7,500 or $10,000 if the project is in the same county as the investor?

That works for two reasons. One, it encourages investing locally. Two, the investor is likely to know more about the project in his neighborhood than he knows about a project on the other side of the state, so he can make a more informed decision. For that matter, as a consumer he might be in a position to help the project after it’s built.

It’s a small step. Crowdfunding is global, but it works even better when it’s local.

Questions? Contact Mark Roderick at Flaster/Greenberg PC.

CHOOSING AND PROTECTING A NAME FOR YOUR CROWDFUNDING BUSINESS

Names matter, even for a local business, but they matter a great deal for a Crowdfunding business, where your customers know you only from a distance.

Generally speaking you can choose three kinds of names:

  • A name that describes what you do, e.g., Real Estate Crowdfunding Portal, LLC.
  • A name with no inherent meaning, e.g., Xeta, LLC.
  • A name somewhere in between, e.g., Lifelong Investments, LLC.

Each category has advantages and disadvantages:

  • A name that describes what you do…well, it describes what you do. When a consumer sees the name she knows what you’re selling. On the other hand, a name that describes what you do is often not very memorable.
  • The strongest names are those that start out with no inherent meaning. Amazon, Starbucks, E-Bay. When consumers think of Amazon they think about the gigantic online retailer, nothing else. The name is worth a billion dollars! On the other hand, Amazon had to spend more than a billion marketing dollars to give meaning to a name that otherwise belonged to a river.
  • A name somewhere in between is somewhere in between. It might be sexier than a name that is merely descriptive and require a lot less marketing fuel than a name with no meaning, but with the associated disadvantages as well.

In the Crowdfunding industry to date, most portals have chosen the more descriptive over the more powerful. Poliwogg is an exception. Fundrise might be another.

With two well-known Crowdfunding companies – Crowdentials and VerifyInvestors – we see two different approaches to choosing a name. And we can’t say for certain whether one is better than the other. That will depend on what each company does with its name.

Having chosen a name, how do you protect it?

To start with, a business acquires “common law” rights to a name merely by using it, without filing anything with the government and without involving lawyers. If another real estate Crowdfunding portal tried to use the Fundrise name today they couldn’t do it, even if the Miller brothers had never done anything to protect their name (they have).

Contrary to common belief, merely registering a company name with the state by forming a corporation or other entity provides no real protection. State filings are simply a matter of bureaucracy – the state wants to make sure that no two names are confusingly similar on its own records.

For the best protection, however, the business owner should obtain a Federal trademark from the U.S. Patent and Trademark Office. A Federal registration provides important benefits, including:

  • The registration constitutes “constructive notice” to all later users in all locations.
  • The registration permits the owner to get an injunction against a trademark infringer and sue for damages, including profits, costs, treble damages and attorneys fees.
  • The registration can strengthen the value of the name as a corporate asset.
  • The registration demonstrates your right to use the name to the owners of other websites, such as Google, Facebook, and Twitter, which are often called on to “officiate” disputes over names.

The trademark application process normally takes about a year, assuming no significant problems. Once granted, a trademark registration can last forever if continuously used and renewed.

NOTE: Not every name can be trademarked. A name like “Real Estate Crowdfunding Portal,” which merely describes the product or service, probably cannot be registered by itself. But it might be registered with a distinctive logo.

Finally, don’t forget to acquire the domain name.

Questions? Contact Mark Roderick at Flaster/Greenberg PC.

MARC ANDREESSEN ON THE FUTURE OF TITLE II CROWDFUNDING PORTALS (SORT OF)

On the Technology page of yesterday’s New York Times, Nick Bilton reports on an interview with famed tech guru Marc Andreessen.

Mr. Bilton asks Mr. Andreesen, can other cities compete with Silicon Valley?

“In Mr. Andreessen’s view, there shouldn’t be 50 Silicon Valleys. Instead, there should be 50 different kinds of Silicon Valley. For example, there could be Biotech Valley, a Stem Cell Valley, a   3-D Printing Valley or a Drone Valley.”

A different “Valley,” each specializing in a different vertical, with its own ecosystem of entrepreneurs, favorite tweetinvestors, and experts. I believe Title II Crowdfunding portals, now in their infancy, will develop in exactly the same way.

Carve out a niche vertical. Attract investors looking to place bets on the top companies in that vertical. Find the companies. Create the ecosystem.

Mr. Andreessen was talking about real cities, not virtual cities. But in my opinion the point is exactly the same.

 

LEGAL FOCUS ON CROWDFUNDING

Lawyer Monthly magazine has been following Crowdfunding developments, along with the
business community and media. The attached interview highlights a couple of hot button points, including the benefits and common legal implications of Crowdfunding. Click here to read more.

legal focus on crowdfunding

Questions? Contact Mark Roderick.

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