VLAB crowdfundingThere was standing room only at June 19th 2012, “Crowdfunding: Disrupting Traditional Funding Models”panel hosted by MIT/Stanford Venture Lab (VLAB). The event was held on the Stanford campus at the Li Ka Shing Center for Learning and Knowledge.The talk centered around the passage of the federal crowdfunding legislation as part of the JOBS Act, and its implications.

Agreeing to Disagree

Berg Hall, StanfordThe panel was moderated by the founder of, Carl Esposti and featured players with  unique perspectives associated with the field. The main points of distinction between panelists had to do with the benefit (or proposed detriment) that is to come part and parcel with the new crowdfunding legislation. And while each panelist had significant experience and perspective on the topic, the opinions clashed on key points, making it all the more interesting to listen in on.
The evening also included a video message from Senator Scott Brown who introduced the crowdfunding legislation as a way to fund innovation. He noted that the SEC is reviewing the legislation and is accepting comments at
Below are some main points raised by the speakers.


Moderator: Carl Esposti, Founder at <<@crowdsourcing_>>

Mr. Esposti gave a little background on his experience in crowdfunding, which he began exploring 4 years ago. He entered the field to determine the ‘why’ of why bets are placed on whether companies succeed and to dive deeper into determining if crowdfunding companies would eventually lead to job creation. Since his entry into crowdfunding he noted that crowdfunding has taken on larger platforms and payment systems. conducted a survey which found a growth in the number of crowdfunding platforms from 450+ as of April 2012 to a projected 500+ by the end of 2012. He noted that the steep expansion of platforms is partially attributable to the ‘low cost of admission’ since there is often not much required in the way of setting up a crowdfunding platform.

He highlighted the U.S. as home to the greatest number of crowdfunding platforms, but noted that Europe is on the heels, and there are increasing efforts in Britain, Brazil, Netherlands, Australia, India, and China.

A key point Mr. Esposti set forth is the impetus behind crowdfunding as a way to support and grow entrepreneurship. He stated that crowdfunding is largely grounded in our desires for social experiences, to be part of something bigger than ourselves.

4 Types of Crowdfunding Platforms

Mr. Esposti outlined four distinct types of crowdfunding platforms, and noted that over $1.5 billion have been raised through all four types, and that reward-based platforms are the fastest growing ones.
  • equity-based crowdfunding (incl. revenue + profit-sharing)
  • reward-based crowdfunding
  • lending-based crowdfunding
  • donation-based crowdfunding

Panelist: Slava Rubin, CEO & Co-Founder at Indiegogo <<@gogoslava>>

Mr. Rubin started his talk on a very personal note, sharing the story of his father’s passing when he was only 15 years old. Ten years later Rubin decided to start a charity for cancer and used online platforms but noted that the process, in his words, “sucked”. He launched Indiegogo on January 17th, 2008 as an alternative to existing crowdfunding platforms.
He talked about how crowdfunding is not a new concept, noting that a version of it was used to raise funds for the base of the Statue of Liberty.  He shifted into explaining the concept of Indiegogo, namely   to be a global crowdfunding platform where anyone can raise funds for anything. In 2009 Indiegogo was open to all, and today hosts 70K campaigns, in 200+ countries, with millions of dollars raised, and a contribution happening every 55 seconds.
Mr. Rubin underscored that Indiegogo is a “no judgment platform” that does not filter the kinds of campaigns created. He noted that successful campaigns have had good pitches, have been proactive, and have been able to find an audience that cares about the campaign.
He also spent a few minutes dispelling myths related to starting a company:
  1. startup myth: there’s a right time to start a company—Rubin said there’s not. His team started in 2008, he noted that perseverance is a key trait for startup success.
  2. startup myth: you need a lot of initial funding to start—Rubin said Indiegogo bootstrapped for a long time.
  3. startup myth: you need a business plan—Rubin dismissed this myth saying, instead, that you need a 1 pager with your idea
  4. startup myth: it’s all about the idea—Rubin stated that while ideas are interesting, its actually about the expectation created from the idea.

Panelist: Ryan Caldbeck, CEO & Founder, CircleUp <<@CircleUp>>

Ryan Caldbeck recently founded CircleUp as a platform to present investment opportunities to investors. He explained that investors visit the site, read about various new companies, invest in them, wire funds over, and become an owner in the company.

Mr. Caldbeck expressed his skepticism about the new federal crowdfunding legislation which opens investment to non-accredited investors in addition to accredited investors (the current rule). He is concerned that venture capital (VC) firms will just make a decision to pass on companies seeking crowdfunding.

Panelist: Daniel Zimmermann, Partner, WilmerHale <<@WilmerHale>>

Mr. Zimmerman is a partner at WilmerHale, a corporate law firm with offices in a dozen cities across the globe. His specializes in corporate and transactional law. Regarding the new crowdfunding legislation, he said it would be interesting to see what specifics the SEC arrives at with regards to implementation and compliance.

He provided a background explanation of the crowdfunding legislation stating the JOBS Act laid groundwork for the bill. Mr. Zimmerman mentioned that where existing crowdfunding efforts and platforms are aimed at simplifying the raising of capital through loans and donation, there is a possibility that the new legislation may complicate the process.

Panelist: Don Ross, Managing Director/Founder and Board Member, HealthTech Capital and Sand Hill Angels <<@Sandhillangels>>

Don Ross provided a venture capital perspective to the conversation. In addition to being the Founder and Managing Director of HealthTech Capital, a funding group made of private investors supporting startups at the intersection of healthcare and technology, Mr. Ross is also a Board Director of Sand Hill Angels. Sand Hill Angels is a consortium of successful Silicon Valley tech professionals who are dedicated to supporting formation and growth of startup companies.

Mr. Ross stated that rewards-based crowdfunding has generally been ‘totally embraced’ by the VC community and noted that equity-based crowdfunding models may have hidden ‘landmines’ and issues, especially with regards to the how the new crowdfunding legislation may be implemented. He pointed to messy capital tables, liability issues, and requirements for public disclosure of business plans (eliminating the ‘stealth mode’ advantage most startups aim for) as issues that could become further complicated by legislative requirements.

He also stated that allowing non-acredited investors could raise accountability issues, increase responsibilities of entrepreneurs, and may even create situations ripe for abject fraud.

(B)enefit Corporation West Coast Forum

On April 27, 2012 San Francisco University and B Lab hosted the (B)enefit Corporations West Coast Forum. It was a day of seminars, talks, and networking intended to connect academia with social entrepreneurs, and to provide an overview of the benefit corporation movement.

One of the interesting panel discussions featured three social entrepreneurs who actively pursue triple bottom line results in their companies. It was moderated by San Francisco-based B Lab Director of Business Development, Dermot Hikisch.

Here is a rundown of the speakers and a few of their key points.

Mike Hannigan, President of Give Something Back

Give Something Back (GSB) is the largest business to business office supplier in California, and has been running for around 20 years. What makes the business socially entrepreneurial is that the company pays competitive wages, but invests 100% of its profits to community non-profits.

Hannigan reiterated that the community was the key stakeholder in his company, which is a registered B corporation. (Note: a point of confusion is b corporation v. benefit corporation. They aren’t the same thing! Learn about the differences here). He noted that when the company was launched two decades ago, it represented a new and novel way of doing businesses, but that he is noticing more and more new companies being started with social mission in mind.

Benefit corporation symposium 3He also underscored the concept that his business has been successful because, at its core, it has a strong business model and can beat out its competition. In fulfilling the company’s vision to support the community and environment, employees receive competitive wages and full health benefits.

Hannigan outlined the democratic process the company engages in to decide on where to redistribute profits within the community. GSB polls their 10,000+ customers and clients to decide on the causes and organizations to support.

Kirsten Saenz Tobey, Founder and CEO of Revolution Foods

If the audience wasn’t already wowed by the history, and operations of Give Something Back—Kirsten Saenz Toby’s story about how and why she started Revolution Foods surely inspired the room.

Tobey started the company six years ago after to change the way kids eat at school and with the vision of fundamentally changing the relationship between food and kids.

She outlined her company’s founding value with simplicity: food should be real. Tobey and her team found ways to replace processed foods (with numerous additives and preservatives, high salt content, and too many grams of sugar) with healthy, nourishing alternatives. And they found ways to mass produce and deliver these healthy meals to local schools on a daily basis.

Tobey also spoke about honoring and respecting the workforce, and shared that in addition to providing full health benefits, her business model makes each employee part-owner of the company.

As they say, the proof is in the pudding, or in this case maybe in the fruit and yogurt parfait. The company has grown fast, very fast. Revolution Foods has gone from preparing and delivering 500 meals per day in 2006 to 120,000 meals per day in 2011. And, it is expanding to eight different regions across the country.

Revolution Foods certified as a b corporation (not the same as a benefit corporation) in 2011. Tobey spoke about the certification process, saying that it was valuable in outlining a roadmap for how her company wanted to grow, expand, and operate. She mentioned that as a social entrepreneur, she has often found it her role to educate potential investors about what b corporations are and what the triple bottom line entails.

In answering an audience question about the future of Revolution Foods, she didn’t rule out an exit strategy such as an intial public offering (IPO) or acquisition by a larger company.

Vincent Siciliano, President and CEO of New Resource Bank

Turning to a banking state of mind, the third panelist Vincent Siciliano of New Resource Bank opened his presentation by asking if we knew where our money “spends the night.” He spoke about his company’s goal of ensuring that every dollar of depositor’s funding is invested in building a sustainable community.

Founded in 2006, New Resource Bank has aimed to bring new resources and create new opportunities for sustainable business. Siciliano mentioned that the bank became a certified B Corporation in 2010.

He expanded on the ways his bank evaluates impact for its stakeholders, mentioning a client sustainability assessment that identifies learners, achievers, leaders, and champions in sustainability. New Resource Bank actively practices slow banking because it does not consciously seek an exit strategy, but instead focuses on long term growth and reach, franchising, and creating lasting economic impact in communities.

Answering questions from the audience, Siciliano mentioned foundations as an emerging source of funding social entrepreneurs, in addition to VC funding and crowd sourced funding. For example, Kellogg Foundation became an equity investor in Revolution Foods.

When asked about the academic community’s role in the (b)enefit corporation movement, Siciliano reiterated the need for impact metrics to support data-driven decision-making.

After the passage of benefit corporation legislation in big-hitter states such as California and New York, you may wonder what’s been happening with the policy momentum.Well, the quick update is that it has been forging ahead to new regions and new states.

Lousiana and Illinois, One Step Away

Eric Trojian, Director of B Lab Policy, announced today via social media that benefit corporation legislation passed in both Illinois and Louisiana. As with the other states, this means that it is now bound to the governors of those states for final signing and admission into state law.

You can learn more about the policy and law surrounding benefit corporation legislation on and find out the state-by-state breakdown.

Moving Forward in North Carolina Too

Trojian also provided a status update on benefit corporation legislation in North Carolina. There, the bill has passed the House Commerce Committee, with its next stop being the House floor. If it passes vote there, it is on track for approval from the governor.

Stay tuned for more developments on the newly minted benefit corporation law in LA and IL!

A Look at Past Legislation

Here are a few links to help put the legislation process in context:

Carolyn Kaster / Associated Press / April 6, 2012, credit:
Carolyn Kaster / Associated Press / April 6, 2012, credit:

On Thursday (4/5/12) President Obama signed into law groundbreaking crowdfunding legislation that would open up investment to start-ups to anyone—not just accredited investors.

The bill reached his desk after passing with an overwhelming majority in the U.S. Senate in late March.

The news is huge and Jenny Kassan–President of Community Ventures and Co-Founder of Sustainable Economies Law Center (SELC) had this to say in a recent HuffingtonPost article, “The legislation is remarkable, as it (rightly) reverses more than 90 years of restrictions on raising capital at the grass-roots level.”

Kassan advised student volunteers of SELC when they filed a petition with the Securities and Exchange Commission in 2010 requesting an exemption to the archaic rules that allowed only accredited investors to invest in start-up ventures.

The organization’s perseverance and momentum as key politicians from both sides of the spectrum rallied behind federal legislation changing the existing law.

I had a chance to talk to Jenny about the legislation and her role in the new law in November 2011 and was impressed with her knowledge of the history of the law surrounding crowd sourced investment and her knowledge and familiarity with the bills.

It’s an exciting place to be for social entrepreneurs…with great potential ahead.

I had the pleasure and unique opportunity to co-write a guest post for TriplePundit with David Jaber, a Principal at inNative–a full-service consultancy assisting companies and organizations meet their environmental and sustainability goals.

Below are a few excerpts. You can read the entire post here.
What is a third party standard used in Benefit corporations?
Baked into the Benefit corporation (in each of the seven states which have passed the new legal structure) is a commitment to transparency. This includes the requirement that they publish an annual benefit report that assesses performance against a third party standard.
In this context, a third party standard is litmus test by which a company’s social and environmental impact is defined, reported, and assessed. The third party standard is an independent standard that vows to be comprehensive, independent, and credible – in addition to being transparent.
A look at three third party standards:
  • B Corporation – B Lab, the organization behind the B Corp standard, has proven a champion of third party business standards and state legislation.  Their Impact Assessment questionnaire provides the framework, and responses are then weighted to determine whether or not a company has the capacity and ability to be become certified as a B Corp
  • ULE 880 – This manufacturer standard has a rigorous 1000-point scoring system and looks comprehensively across company governance and the web of relationships between suppliers, customers, employees, and the natural world.  The prerequisites approach is reminiscent of LEED rating systems, and should feel comfortable to those who have worked with green building certification.  For the service sector, the ULE 881 standard is said to be underway. TriplePundit reviewed the standard in it’s infancy.
  • GreenSeal – Less known than its product standards is the fact that GreenSeal has a standard for product manufacturers themselves.  ‘GS-C1′ features a Bronze/Silver/Gold certfication structure and clear requirements for policies and actions across an array of CSR issues.  It puts teeth behind a GRI-like framework.
brooklyn bridge sign, new yorkThis just in, the 2 houses of the New York state legislature (House and Assembly) passed benefit corporation legislation with a final vote of 892 ayes and 62 nays at midnight on December 12, 2011.

New York Passes Benefit Corporation Legislation
This makes New York the 7th state to pass benefit corporation legislation (read about the other six states here). This continues the momentum of the benefit corporation movement which most recently saw the passage of similar legislation in California in October 2011. As the third most populous state in the country, New York’s passage of the bill with strong bi-partisan support underscores the shift in the way consumers, companies, the legislatures envision the future and potential of business to do well by doing good.

Benefit corporations create a new corporate form of business, one which is for-profit while also creating a material positive impact on society and the environment. It is a more holistic approach to business—seeing business as part of a broader ecosystem.
While traditional corporations seek to maximize shareholder profit, benefit corporations shift the focus to maximization of stakeholder benefit. Stakeholders, in this context, include environment, society, as well as shareholders.
Comments and Quotes on Passage of Benefit Corporations in New York
B Lab has released a few quotes of those who worked closely in the passage of this legislation, including these:
“Political leaders like Speaker Silver, and Senators Squadron and Larkin understand that New York needs to attract businesses whose core purpose is to create more high quality jobs and to improve the quality of life in communities across the state,” said Andrew Kassoy, co founder of B Lab, the nonprofit organization that drafted the model legislation. “The benefit corporation bill will unlock billions of dollars in impact investment capital and enable entrepreneurs across the state to start businesses that solve some of society’s greatest challenges.”
“Benefit corporations will mean New York is open for business in an important new way. Benefit corporations will unlock billions of dollars in new investments in New York while empowering companies to do well and do good,” said Senator Squadron. “By offering this opportunity to entrepreneurs and investors, New York will bring new businesses into the state, new investors into the market and a new socially-minded approach for our entrepreneurs.”
“The passage of benefit corporation legislation is an important and much needed step forward to grow our New York state economy and create more jobs which can also provide greater social and environmental benefit,” says David Levine, co-founder of the American Sustainable Business Council whose members’ organizations represent over 100,000 businesses. “At a time when the country is looking for solutions to build the economy, New York is helping to lead the way with an innovative and sustainable business strategy.”
In Innov8Social’s earlier post, “What is Crowdfunding”, we talked about the concept of raising funds through smaller investments or donations as a capital-raising option for a start-up or social enterprise—and limitations to crowdfunding investment due to securities laws.

That post also outlined the efforts to pass new legislation that would establish crowdfunding mechanisms to support small business, create jobs, and pave new pathways for innovation.
The House of Representatives took on crowdfunding in November

In November 2011, the House took on crowdfunding via the Entrepreneur Access to Capital Act (H.R. 2930) which passed 407-17. You can read the full post about the House’s bill and its key features here.

Now, it is the U.S. Senate’s turn
Last Friday, on December 2nd 2011, the United States Senate introduced its version of a crowdfunding initiative to the floor. Key features of the Senate bill include:
  • entrepreneurs could raise up to $1M from unlimited number of unaccredited investors (without registering with the Securities and Exchange Commission)
  • entrepreneurs seeking to raise capital through crowdfunding must do so through a website and must disclose risks to investors
  • entrepreneurs must incorporate as a business according the applicable state law and must file with the SEC
  • individual investors could invest up to $1000
Unlike the Senate Bill, the House bill enabled a $2M capital raise through crowdfunding. It also specified that individual investors could invest up to $10,000 (or 10% of their income).
The ultimate balancing act: supporting innovation and minimizing risk
While there has been bipartisan support for ushering in new securities provisions to encourage innovation, investment by unaccredited (i.e. non-wealthy) investors, and spur local job creation—there is also concern that we are moving to fast towards a future that can create new kinds of risk for new kinds of investors.

One group voicing their hesitation is the North American Securities Administrators Association. It fears that legislated crowdfunding measures could lead to speculative investment that could be risky to new or small-fund investors.

Read More:
As we discussed in the post “What is Crowdfunding?”, there is a new crowdfunding bill making its way through Capitol Hill that aims to establish an SEC exemption for small investments to provide early capital to small businesses and start-ups.A Quick Look at the Entrepreneur Access to Capital ActThe bill, titled the Entrepreneur Access to Capital Act (H.R. 2930) would let small businesses use crowdfunding mechanisms to:

  • sell unregistered securities up to a total of $2M; and
  • would let investors individually invest up to a total of $10K (or 10% of their income) using crowdfunding
The UpdateThis week has been a big one for SEC reform. As reported by, on November 2nd, 2011 the House passed Regulation A reform. Specifically the bill (Small Company Capital Formation Act) upped the amount of non-SEC registered stock that small companies could offer to the public from $5M to $50M.And on November 3rd, 2011 — the House made history by progressing the Entrepreneurship Access to Capital Act with its vote of 407-17.

What’s Next

The crowdfunding bill will make its way to the U.S. Senate for vote. If the overwhelming support in the House and President Obama’s endorsement of both bills are any prediction, it seems like SEC reform that could support social entrepreneurs may become law in the near future.

Quarter and PennyWhen you are contemplating how to fund a new social venture, the idea of reaching out to individuals to make small contributions may seem like a good option in addition to trying to secure funding from impact investing firms or established investors.If that describes your view on raising capital, you may already have a better idea of what crowdfunding is than you realize.

What is crowdfunding?


Crowdfunding is the process of raising capital through soliciting small contributions from a broad group of people.

As the arena grows, there are 2 main headlining flavors of crowdfunding:

1. Crowdfunding for Donations. A number of websites have successfully created a platform for crowdfunding on a donation basis. For example, KickStarter, IndieGoGo, RocketHub are established platforms allowing individuals to make donations to fund small projects. Similar new platforms in the space focus on niche areas such as making a donation for civic projects (CivicSponsor) or funding conscious media (LoudSauce).

2. Crowdfunding for Investment. Start-ups and small businesses may seek to raise capital using crowdfunding in addition to or in lieu of contacting investment firms or accredited investors. There are a number of laws surrounding such transactions and start-ups are advised to contact an attorney to make sure that there’s no breach in securities law.

What current law says about crowdfunding for investment

Set up a website, create profiles for social ventures, set out terms of the small investments and returns, let individuals small amounts in social start-ups, and you’re set to crowdfund investment, right? Wrong.

The Securities and Exchange Commission (SEC) has strict rules around who can invest in small businesses and start-ups. On the whole, small private businesses seeking funding are required to register securities with state and federal governments—a process that can be pricey and time-consuming.

As a result, small private businesses tend to solicit “accredited investors”, wealthy investors, who can more easily invest in private start-ups. There a few ways to try to steer clear of compliance issues, as were outlined at the Green Business Academy.


Crowdfunding petition submitted to SEC

To facilitate crowdfunding for investment, a petition for rulemaking was submitted to the SEC in July 2010 (see petition PDF) by the Sustainable Economies Law Center. The petition sought to:

  • create new exemption for securities offerings up to $100,000, with a limit of $100 per investor
  • exempt securities offerings up to $100 from Section 5 registration and from the extensive requirements imposed on exempt private and small offerings

New crowdfunding law proposed, the Entrepreneur Access to Capital Act

The actual legislation created, titled H.R. 2930 and dubbed the “Entrepreneur Access to Capital Act” (see full text here) includes the following provisions:
  • creates new exemption for annual aggregate individual investments of up to lesser of: (1) $10,000; and (2) 10% of investor’s annual income.

Obama White House in Support

The Obama administration has expressed support for the Act in Statement of Administration Policy issued November 2nd 2011 (read official statement here):

“In the President’s September 8th Address to a Joint Session of Congress on jobs and the economy, he called for cutting away the red tape that prevents many rapidly growing startup companies from raising needed capital, including through a “crowdfunding” exemption from the requirement to register public securities offerings with the Securities and Exchange Commission.”

The legislation recently cleared The House Financial Services committee, and is due for a vote in the House floor later this week.

If you’ve been following Innov8Social, you will have noticed a number of posts on benefit corporations. They are a new legal structures passed by a handful of states that are hybrid forms of business—entities that are for-profit and which aim to benefit society and the environment.


And you will have seen posts about flexible purpose corporations. Unique to California, this new type of business lets companies define a ‘special purpose’ such as a charitable or public purpose.


But benefit corporations and flexible purpose corporations weren’t the first legal structures introduced for social enterprise.


The first was the L3C, which was made its debut in Vermont in 2008—two years before the first benefit corporation bill was passed in Maryland.

What is an L3C?

A low-profit, limited liability company (L3C) is a type of limited liability company (LLC) that defines a specific socially beneficial mission, like a non-profit does. But unlike a non-profit, it allows profits to be distributed to owners.


L3C’s retain the protection of traditional LLC’s, such as limitation of personal liability of owners. And, like LLC’s, the company is not taxed like a corporation—with taxes, instead, flowing to individual members.


The legislation required to enact L3C is an amendment to a state’s current LLC legislation, rather than a separate bill.

L3C’s Aim to Make it Easier for Foundations to Invest in For-Profit Ventures

One of the key reasons for the creation of the L3C was to simplify investment to social businesses by foundations. To invest in a for-profit enterprise, private foundations must invest in IRS sanctioned program-related investments (PRI’s).


L3C’s aim to to streamline the process of approving a for-profit as a PRI by virtue of the outlined purpose of an L3C as being to serve a charitable purpose (like non-profit). However, L3C’s must request approval from IRS to be considered a PRI.


Hurdles Faced by L3C’s

The Nonprofit Law blog outlines a few hurdles that L3C’s have faced. These include:

  • No federal recognition of L3C’s as PRI’s. L3C supporters had submitted proposals for ways in which L3C’s could be more easily ruled as a PRI. This would make L3C’s more of a favorable investment opportunity for private foundations. These proposals have not yet passed.
  • Some state opposition. There has been some opposition presented by committees within the American Bar Association with regards to elements of the L3C structure.

Read More:

L3C – Low-profit Limited Liability Company (Nonprofit Law Blog)
For L3C companies, profit isn’t the point (CNNMoney)
The ‘L3C’: The new double-hybrid entity (Philanthropy Journal)