Are You An Accredited Investor?

When the Jumpstart Our Business Startups (JOBS) Act was signed into law on April 5, 2012, the goal was to revitalize the US economy by supporting small businesses. With the implementation of Title II, the ban against general solicitation was lifted, allowing companies to advertise that they are raising capital and to sell their securities — but only to accredited investors.

So who is an accredited investor? The US Securities and Exchange Commission (SEC) defines an accredited investor as someone who has:

• A net worth (individual or with a spouse) of at least $1,000,000 (excluding primary residence).
• Annual income over the past two years be at least $200,000 (individual) or $300,000 (combined with spouse), with reasonable expectation to continue earning that amount or greater.

The reasoning behind these strict guidelines is to protect the general public who may not understand all the risks associated with investing in early stage ventures. An investment in a startup is highly illiquid, which means that it is not something you can just turn around and sell in a couple of months or a year. It is also very risky. The average startup takes about 7 years to mature and for investors to receive returns, and there is always a chance the company won’t even be around that long.

Legislators feel that those who have a higher net worth or annual income are more likely to understand the risk involved, or at least have enough financial stability to not face financial hardship if a startup goes under and they lose their investment.

The SEC estimates that at least 8.7 million or 7.4% of all U.S. households qualify as accredited investors. According to a 2013 report by the Center for Venture Research, there are approximately 298,800 active angel investors. This number is up 11.4% from 2012, but still less than 4% of all qualified investors. According to the same report, the total amount of angel investments in 2013 hit $24.8 billion, an 8.3% increase from 2012. This highlights exactly why the JOBS Act was passed: to democratize investing in startups and allow more people the opportunity to participate.

Typically a startup will raise a friends and family round (less than $500K) to help get the business off the ground, and then seek a more formal seed round (around $1M) to continue growing it. However, not every company has developed its business to a point where it becomes attractive to professional (angel) and institutional (VC/PE) investors yet.

These types of investors see hundreds of deals a day, and are looking for major home run hits to make up for their less successful deals. The average investor, however, does not need 50x returns — though that would be nice!

Not only is this type of investing a way to get involved in the exciting industry of startups, but it is an opportunity to directly contribute to a promising young companies growth. While investing in startups present tremendous risks, with your help and support, anything is possible.

If you are an accredited investor you can sign up here to learn more about upcoming investment deals on GenYrator.

CROWDFUNDING 101: The Basics of Crowdfunding

By now, most people have heard the term “crowdfunding”. But what is crowdfunding exactly? Crowdfunding is a method of pooling together smaller sums of money from a larger pool of people to fund or finance a project, person, cause, or business. Crowdfunding websites utilize the Internet to connect those who are trying to raise money with those who are willing to contribute. By accepting contributions from a bigger pool of individuals, people can raise larger sums of money than they would otherwise be able to access from a smaller group of people. Online platforms have made it possible for individuals to raise capital from a community of virtual strangers, which is referred to as “the crowd.”

“Crowdfunding” as a general term can refer to a broad range of activities. The basic premise has been applied in various ways to cater to different needs, purposes, and industries. For a better understanding of the growing crowdfunding space, it is important to know the different types of crowdfunding. What differentiates each type of crowdfunding is what members of the crowd receive in exchange for contributing to the project or campaign.

TYPES OF CROWDFUNDING

Rewards-Based Crowdfunding – With rewards-based crowdfunding, those that contribute money are offered a reward or incentive from the project initiator. Often times there are different levels/tiers of rewards based on how much money a person contributes to the campaign. e.g. Kickstarter and Indiegogo

Debt-based Crowdfunding/P2P Lending – This form of crowdfunding allows individual borrowers to borrow money from the crowd. Contributions are a loan that will eventually be paid back by the borrower with interest. This form of microfinance is often referred to as peer-to-peer lending, and essentially works the same way as a loan from the bank. e.g. LendingClub and Prosper

Donation-based Crowdfunding – In donation-based crowdfunding, crowd contributions are donations and those that contribute money do not get anything in return. Donations can be made to established and well-known large charitable organizations, small local causes, or even individuals looking to raise money for personal reasons. e.g. Fundable and Watsi

Equity-based Crowdfunding/Crowd Investing – With equity-based crowdfunding, crowd contributions are actually investments. Individuals can buy and sell securities of private companies. In return for a monetary contribution, individuals receive an equity stake in the company. e.g. GenYrator

 BENEFITS OF CROWDFUNDING

There are several benefits to crowdfunding, a few of which are discussed below.

Connecting Supply and Demand – One of the best things about the Internet is the ability to connect people in ways never before possible. Crowdfunding utilizes the Internet in this way to connect people who need money with people who are willing to help. This ability to connect people is the foundation of what makes crowdfunding so valuable to individuals and society as a whole. People who need funding can now access new sources of capital and are no longer limited by traditional avenues of financial institutions or their own personal networks. Even though an individual may not be wealthy enough to contribute large amounts of money on their own, many individuals giving just a little can quickly add up to become a large sum.

Encourages Entrepreneurship – Crowdfunding opens up a whole new way for people to access capital to pursue their ideas and passions. By breaking down barriers and making it easier for people to get funding for a new project or business, crowdfunding is paving the way for a shift in culture to better support entrepreneurship. Starting a business has always been an attractive option for people and now because of crowdfunding, it is also more attainable. Financial institutions and traditional sources of capital have proven inadequate in providing sufficient capital to help the formation of new businesses. Crowdfunding is filling that void to keep entrepreneurship thriving. Private citizens now have the opportunity to directly contribute to the economy by donating and investing in new businesses. These new business will continue to grow, create jobs, and put money into the economy.

Idea Validation/Product-Market Fit – Another benefit of crowdfunding is the “natural selection” aspect of it. Project initiators can use the response to their campaign to gauge interest from the general public and see how much support exists for their idea. The “crowd” response to a campaign can act as valuable feedback and validation for ideas, products, and projects. Crowdfunding gives people a chance to put their money where their mouth is and contribute funds towards causes they believe in or projects they support and want to make a reality. If a project or product has “stickiness,” meaning it is something that people are interested in, the campaign will achieve the “crowd effect” and go viral — which is the ultimate goal of any crowdfunding project.

Feeling Invested/Personal Interest/Stake – Contributors to a campaign are also supporters who each have a personal interest in seeing a project succeed. In this way, crowdfunding expands the pool of people that have a personal connection and interest in a certain project or business. This not only provides moral support for a project initiator but can also bring benefits and help a project beyond the initial monetary contribution. Instead of just having contributors, investors, or customers, the crowd creates stakeholders. Members of the crowd can help in various ways, such as providing support on social media, sharing it with their networks, or being a loyal customer or patron.

Crowdsourcing/Crowd Wisdom – As outlined above, crowdfunding makes it possible to engage a much wider array of people through the Internet. The ability to engage, ask questions, and receive feedback from “the crowd” can prove equally as valuable as any monetary contribution. It is important for people who run crowdfunding campaigns to understand this idea, and take advantage of the opportunity to interact with their audience.

That’s it for Crowdfunding 101! Stay tuned for more informative posts that delve deeper into the equity crowdfunding industry.

Do you have questions about crowdfunding? Post them in the comments section.

 

9 Things We Are Thankful For

The month of November brings us all a lot to appreciate – the changing of seasons, watching the leaves turn from a bright green to a range of beautiful autumn shades (okay maybe not so much in sunny Los Angeles but still), and Thanksgiving, one of our favorite holidays. This time of year is always a great reminder of all that we have to be thankful for.

Following the wise words of W. Clement Stone – “If you are really thankful, what do you do? You share.”, the GenYrator team would like to share some of the many things we are thankful for:

1. JOBS Act – this revolutionary legislation makes what we do possible! It has opened up the ability for entrepreneurs and investors to connect in ways that were never before possible. We are grateful to all the supporters and proponents of the JOBS Act and the culture of entrepreneurship that comes with it.  We look forward to seeing how the JOBS Act will positively affect business in 2015.
2. Entrepreneurs – they are the lifeblood of a truly innovative society. Entrepreneurs amaze us with their creativity and forward thinking everyday. It is so important to support ideas of talented Generation Y entrepreneurs. Thank you so much to all those who solve problems and make our everyday world a better place with new products, technologies, and services.
3. True Angel Investors – their support and belief in the startup ecosystem is crucial to business and innovation. Angel investors provide startups with not only capital, but also additional support through mentorship and guidance to make these companies successful. Our gratitude and respect goes out everyday to these individuals that provide entrepreneurs the means to help make their ideas and dreams a reality.
4. Mentors and Advisors – we lean on mentors and advisors all the time. They provide us with support and encouragement when needed most. Everyone has a piece of knowledge they can share that can impact a young business. Being a mentor or advisor is a great way to support young entrepreneurs. Thank you to all those that take the time and energy to share their experiences and knowledges with others.
5. Silicon Beach – we are so fortunate to live and work in an area with a thriving startup and tech community. We are surrounded by brilliant ideas and entrepreneurial support that inspires us. Plus, we really enjoy attending events and networking with people who are as excited about entrepreneurship as we are. We are very grateful for all the hardworking individuals creating, supporting, and building this growing startup community in Los Angeles.
6. Podcasts – working in LA means having to endure long drives on famous (for their traffic) freeways like the 405, 10 and 101. On our long drives to the office, podcasts keep us entertained! We have been following a couple exceptional podcasts including StartUp and Serial. They also provide us with some fun office conversations. A big thanks to these podcasts for making those long drives a nice time of the day we can look forward to.
7. Colleagues – working with people you like is so important. We are thankful for our team who work so hard to further the mission of GenYrator, and have fun while doing it.
8. Wins – a win is a win; small successes add up and get us closer to our goals. We are grateful for every step we take big or small and encourage you to do the same. Celebrate every win big or small!
9. Friends & Family – we wouldn’t be able to do any of this without the love and support of our family and friends. We appreciate everything they have done to help us achieve our goals.

Taking the time to reflect and voice our gratitude is a refreshing experience and a great reminder of how much wonderfulness is in the world.  We wish you all a very Happy Thanksgiving! We want to hear from you – what are you thankful for?

 

Following Your Gut

From NYC to LA, From Fashion to Startup

After seven years living on the East Coast, including two years in Philadelphia earning my Wharton MBA and five years working in NYC in the fashion industry (and the most brutal winter I can recall), I knew it was time to close that chapter of my life and begin a new one. Six months of deep digging and introspection later, my gut told me that Los Angeles is where I belong. And that was it. When you know, you know. So I settled my affairs, bought a one-way ticket from JFK to LAX and returned to gorgeous, sunny Los Angeles, where I grew up and where I have deep roots, this past spring.

When it came to my next professional move, I only had three criteria: (1) a consumer-facing company in (2) a growing industry where I would (3) work alongside smart people. Initially after my relocation, I was gunning for a corporate job at a movie studio. But the closer I got, the less it felt right. Again, it seemed my gut was telling me to go a different direction.

Prior to my moving back, I had heard about the “Silicon Beach” scene. I knew of friends working in that space and met many more over the next few months. The more I learned, the more intrigued I became. So I pivoted from the corporate track and dove head-first into the world of startups.

Given my background, I naturally connected first with fashion startups. To get my feet wet, I worked on a short-term sales and marketing consulting project for a young contemporary designer. This experience then led to a freelance content development project with a digital media conglomerate. While I enjoyed the project-based work, I really wanted to work for one start-up, full-time.

And that was when I met Sean Nasiri, one of GenYrator’s co-founders, during a USC Marshall School of Business alumni networking lunch. Truth be told, on a whim I attended the lunch, not to network but simply to spend time with the event organizer, a friend I hadn’t seen in months. It wasn’t until I was saying goodbye to my friend at the end of lunch that I met Sean. We immediately connected and set up a call for the following week. We spoke a few days later, had coffee a week after meeting. It seemed that GenYrator ticked off the criteria I was looking for (and then some) and that there was a natural alignment between the company’s needs (current and anticipated) and my personality, skills and experience. By the following week, I was working full-time at GenYrator.

How Sean and I met and how I came to join GenYrator is nothing if not serendipitous. But I didn’t decide to join the team based on coincidence alone. I always follow my gut, and this time, it was giving me the green light.

By Amy Q. Lan