A Real OG
Sherwood “Woodie” Neiss is on a short list of those who deserve serious credit for leading Congress to pass and getting then-President Barack Obama to sign the 2012 JOBS Act. He’s earned the title of Real OG in the investment crowdfunding world.
Now a principal at Crowdfund Capital Advisors and a partner in Crowd Capital Ventures, he’s continuing to grow and advocate for the industry he had such a pivotal hand in creating.
Woodie shared some stories about the work of getting the legislation passed. First, he recalls how the legislation came to have a provision prohibiting the sale of crowdfunded securities for twelve months even though there is no market.
I remember sitting in Senator Bennett's office working with one of his staffers on how we prevent pumping and dumping. We didn't have that in there.
And I, being an entrepreneur, having had that background of starting a business, funding it and exiting it, I really looked at him. I was like, “listen, these are long-term investments. Let's just put a 12 month holding period on it.”
He's like “12 months.” And we wrote that down.
So people all the time are like, “Well, where did the 12 months come from?” And, you know, I hear other people talking about it while the— “The regulators put it in there.”
And I was like, “No, literally, it was a meeting that I was having with Andy Greene in Senator Bennett’s office. And we were like, “How do we prevent pumping and dumping?” And that's how we did it.
He also shared the story of brokering the final compromise that got the bill passed.
We were the the the pawns. We actually were going through Congress, and we were entrepreneurs. We're not lobbyists. Not even close to it. We're not lawyers. So we don't even understand the legal frameworks under which these bills are turned into laws.
But we understood that Washington operates by people sharing information, not even information that they'll share within their own parties. So we found ourselves as being this intermediary between Democrats, between Republicans, between Democrats and Republicans, between the House and the Senate.
It was fascinating that people got to know us. They trusted us with the information that we were essentially bartering.
And I think that's why we were able to come up with—I don't know if—you probably don't remember, but—probably nobody remembers because I was there with Jason [Best], and the bill was stalled, and we realized that we needed to come up with a compromise between the Democrats and the Republicans.
So, we just wrote the compromise. We sat down with the three bills that were in the Senate, and we said, “Well, what are the best of both worlds, and what are they trying to accomplish?”
We merged that together, and we went back to all three of the senators that were pushing this forward; there were two Democrats and one Republican at the time. We presented this as the commonsense compromise to investment crowdfunding.
And they're like, “Well, the other party's on board?” And we just said, “Yes.” And that is what became the final framework that was in the law.
Many people take credit for the passage of the JOBS Act. Woodie is undoubtedly one who deserves recognition.
Woodie will speak at SuperCrowd22, providing additional data and context for understanding the practice of raising money and investing via investment crowdfunding. Superpowers for Good readers can register for the virtual conference on September 15 and 16 for half price with the code super50.
Register for SuperCrowd22!
‘We Have a 100% Complete Data Set.’
Since the Rose Garden signing ceremony in April of 2012, Woodie and his partners, including Jason Best, have developed a unique data set. They have tracked every transaction completed under the JOBS Act framework.
Spooled up well before transactions legitimately using the framework began, Crowdfund Capital Advisors has a detailed record of every transaction. Every single one. “We have a 100% complete data set.”
Perhaps nothing puts a point on this so precisely as Woodie’s humble brag, “We provide reports that the SEC purchases from us, ‘The State of the Industry.’”
Let’s look at a few highlights Woodie shared.
“There have been 5,000 companies across all 50 states that have gone out to raise money online, mainly from their customers,” Woodie says. “But you can do it from your social network, your fans and your followers as well. These are not only startups, but they are revenue-generating businesses.”
“There have been over one and a half million investors that have invested in these. They’ve put $1.3 billion into these startups,” he says. (If he were sitting over my shoulder now, he’d say the number has risen to $1.4 billion since we recorded this interview last month.)
Crowdfunding isn’t just about making investors and entrepreneurs wealthy. “These startups and small businesses have supported over 220,000 jobs,” Woodie says.
Entrepreneurs and investors across the country, not just in New York and Silicon Valley, are participating. Companies based in 5,500 cities have successfully issued securities under the new rules.
“The success rate when it comes to investment crowdfunding is 66.82 percent right now,” Woodie says. “So, that means 66 percent of all the companies out there are successful in the round.”
“If you go to VC, your chance of getting that capital is about 2 percent,” he says by contrast. “So, why waste your time and energy and money when you can go online and have a higher chance of success with your community, your customers, your crowd?”
“I want to be clear, there’s a ton of risk in this. Many of these companies will fail over time,” Woodie says. “There are good ones in there, and they will succeed. These people that invest in them early will have phenomenal returns.”
“The average valuations have crept up over time. In the beginning, it was close to between $5 and $10 million,” Woodie says. “Right now, it’s about $16.7 [million].”
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Positive Results for Women and Minorities
“Women and minorities are some of the biggest beneficiaries, and they actually have a higher success rate than the overall industry average,” Woodie says.
Measuring the difference is more challenging than it might seem at first blush. “You have a lot of offerings that are put together by women and minority founders,” he says. “It could be just a woman on the founding team. It could be all women. It could be a minority on the founding team. It could be all minorities. It could be all minority women. There’s a whole blend of how these offerings look in terms of their management teams.”
Woodie points out that “at least 50 percent of the offerings now have at least one woman or minority on the founding team.”
“The women and minority offerings just seem to do better because their community looks like them and invests in them because they believe in them and they understand the challenges that they face as entrepreneurs in the capital markets,” he says.
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Great to hear behind-the-scenes stories about passage of the JOBS Act. Also, remarkable stat that "at least 50 percent of the offerings now have at least one woman or minority on the founding team” as it stands in stark contrast to the rate at which women and minorities are funded by VCs which hovers in the low single digits! Thanks Sherwood Neiss for your continued contributions to the #crowdfunding industry.
It is wonderful to see what is happening now. When the law passed, many expected things to move much more quickly than they did but few would be disappointed with where we are today.