A Very Crowded Trade

Kanye :The editors of the Sunday New York Post made Business Page history on April 24 by harnessing the combined star power of Ed Zwirn and Kanye West to dominate the weekend business news cycle.

By Ed Zwirn

Entrepreneurs across the country will soon have to dream a little bigger.

US regulators will soon allow them to compete with more established players — like hip-hop star Kanye West — for crowdsourced investors.

Starting May 16, the Securities and Exchange Commission will roll out a program — mandated by 2012’s Jumpstart Our Business Startups Act — that will allow private companies to use crowdfunding to sell securities.

Under the program, companies not registered to sell stocks will be able to raise up to $1 million over a 12-month period for their initial public offerings.

Individual investors with less than $100,000 of net worth will be allowed to invest up to $2,000 in these companies via authorized funding portals under the new rules.

Wealthier individuals will be able to pony up 10 percent of their annual income or net worth.

The specific funding sites will be ID’d in May.

SeedInvest, a New York company that has raised venture capital cash for more than 60 startups since it was founded in 2013, says it plans to come out of the gate with 10 crowdfunding offerings, which it estimates will create an average of 10 jobs for each company raising the money.

And although crowdfunders are prohibited from releasing details of their offerings until May 16, SeedInvest Chief Executive Ryan Feit gave The Post a look behind the screen, saying that two New York City companies will be attempting to raise between $250,000 and $1 million via SeedInvest.

One is a hair extension manufacturer with a direct-to-consumer business model. Another, a fitnesswear provider, previously conducted a successful Kickstarter campaign that allowed those who donated money to place early orders for their products.

“This change is really groundbreaking,” says Feit of the new rules. “This is ideal for startups that are too early to raise money through more traditional venture capital.”

Not everyone is as optimistic about the soon-to-launch SEC program.

Alejandro Cremades, who heads up Onevest, another New York-based funding setup, says he has no plans to peddle stock under the new regs.

“There is definitely going to be some hype about this, but this hype may evaporate once investors see the quality of companies under this and realize that they are desperate for funding,” he says.

Jacob Zamansky, a New York securities litigation lawyer, thinks investors should be wary of the new offerings.

Zamansky predicts the crowdfunding offerings will be “high octane, high risk” and that they “should be very rarely sold to retail investors.”

“I expect brokers will make great-sounding sales pitches” but there will be plenty of potential for fraudulent abuse of the new rules.

Plus there will be lots of competition.

Earlier this year, Kanye West took to crowdfunding site GoFundMe to raise cash to erase his alleged $53 million in debt.

West has raised $7,297 so far.


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About Ed Zwirn

Ed Zwirn is a journalist/editorial professional with a focus on financial trends and practices. He lives out in the woods in Bethel, NY, not far from where the Woodstock Music and Arts Festival was held in 1969. As a financial writer, his work has appeared in The Wall Street Journal, The New York Post, CFO Magazine and news services including Dow Jones Newswires and Informa Global Markets. Ed also spent three years in Ukraine, where he ran an English-language news service. He now divides his time between his freelance journalism, song and poetry writing, and barbequing and lawn-mowing on his 2.5 acre property.