[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
  FINANCING AMERICA'S SMALL BUSINESSES: INNOVATIVE IDEAS FOR RAISING 

                                CAPITAL
=======================================================================


                                HEARING

                               before the

       SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS

                             UNITED STATES

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                              JUNE 6, 2013

                               __________

                               [GRAPHIC] [TIFF OMITTED] 
                               

            Small Business Committee Document Number 113-021

              Available via the GPO Website: www.fdsys.gov





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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. David Schewikert............................................     1
Hon. Yvette Clarke...............................................     2

                               WITNESSES

Ms. Michelle Sullivan, Senior Director of Corporate 
  Communications and External Affairs, Boston Beer Company, 
  Boston, MA.....................................................     3
Mr. Alejandro Cremades, Founder and CEO, RockThePost, New York, 
  NY.............................................................     5
Mr. Benjamin Miller, Co-Founder, Fundrise, Washington, DC........     7
Ms. Danae Ringelmann, Co-Founder, Indiegogo, San Francisco, CA...     9

                                APPENDIX

Prepared Statements:
    Ms. Michelle Sullivan, Senior Director of Corporate 
      Communications and External Affairs, Boston Beer Company, 
      Boston, MA.................................................    26
    Mr. Alejandro Cremades, Founder and CEO, RockThePost, New 
      York, NY...................................................    29
    Mr. Benjamin Miller, Co-Founder, Fundrise, Washington, DC....    31
    Ms. Danae Ringelmann, Co-Founder, Indiegogo, San Francisco, 
      CA.........................................................    34
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


  FINANCING AMERICA'S SMALL BUSINESSES: INNOVATIVE IDEAS FOR RAISING 
                                CAPITAL

                              ----------                              


                         THURSDAY, JUNE 6, 2013

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Investigations, Oversight and 
                                       Regulations,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. David Schweikert 
[chairman of the subcommittee] presiding.
    Present: Representatives Schweikert, Chabot, Clarke, and 
Chu.
    Chairman SCHWEIKERT. All right. Let us convene this 
oversight hearing of small business.
    The Committee members will all have opening statements, and 
I ask them to submit them for the record.
    I would like to take a moment and explain the timing 
lights, just so as we are going along, green, you are fine. 
Yellow means talk faster. Red, please stop. We will actually be 
handing out five minutes of testimony time and then we will 
actually just engage in discussions.
    As typical, I have my written opening statement but want to 
say just for expediency, there is probably no hearing I have 
looked forward more to than this one. Having met three of you, 
having read all of your successes and your bios, you are an 
interesting group. I believe you are doing really special 
things for our economic future and the economy. Where does 
technology take us and give us opportunities to actually, give 
everyone that fighting chance to be able to participate in 
taking a risk but also receiving the rewards for that risk. 
Each of you have carved out sort of special, unique spots out 
there.
    As you are doing your testimony, and as we are also 
engaging in the questions, it is not only telling your story 
but share with us where government has done things that work, 
but also where our regulatory environment, and those of us in 
Congress either did not understand or we have created blocks--
statutorily, regulatorily--on where you think you could take 
sort of this egalitarian access to capital. Because that is 
what this is really about. It is really about helping that 
small business, those sort of small entrepreneurs that want to 
move and grow, and provide jobs and help all of us in this 
society and economy.
    Ranking Member Clarke.
    Ms. CLARKE. Thank you, Mr. Chairman. And I thank all of our 
witnesses for being here today. I think you have really set the 
tone for today's hearing.
    For the past two years, our nation's economy has 
experienced positive and steady private sector job growth, 
adding about 4.8 million jobs during that time. However, these 
gains have not been enough to overcome our nation's above 
average unemployment, which currently stands at 7.5 percent 
minority unemployment for African Americans and Latinos, while 
retreating remains at 13.2 percent and 9.2 percent, 
respectively. So while we are moving in a positive direction, 
we still face challenges in fully putting America back to work.
    Creating nearly two-thirds of all new jobs, our small 
businesses must remain front and center to our recovery. For 
our national economy to experience a more robust recovery, our 
entrepreneurs and small businesses must play their traditional 
job-creating role, and for that they must have access to 
capital.
    Four years after the financial crisis effectively froze the 
credit markets, entrepreneurs and small businesses are still 
facing challenges acquiring funding through traditional 
avenues. Increasingly, entrepreneurs are turning to 
crowdfunding and other innovative funding methods to finance 
their ventures. These include using the Internet to reach 
accredited investors, creating peer-to-peer lending platforms, 
and applying old lending models and new ways to address the 
issue. Congress passed the Jumpstart our Business Startups, or 
JOBS Act, in 2012, to overhaul SEC restrictions on crowdfunding 
and small, public stock offerings. Once the SEC publishes its 
final rules, this law has the potential to unlock an untapped 
network of millions of investors to small businesses and 
entrepreneurs seeking capital.
    The SEC has faced challenges in the past, balancing 
capital-raising needs of small businesses with the need to 
protect investors with limited wealth and financial market 
knowledge. They are now in a difficult position of creating the 
framework for a new finance regime that has the potential to be 
easily exploited without proper oversight and regulation. It is 
important that the SEC work quickly, though not hastily, to 
finalize crowdfunding rules. Rushing to publish rules could 
overexpose investors or lead to an unworkable system that shuns 
market participants.
    In today's hearing, we will discuss the new and innovative 
ways small businesses are raising capital and how 
implementation of the JOBS Act will affect lending to and 
investment in our job creators. While the outcome remains 
uncertain, we must remember that it is virtually important that 
the SEC strike the appropriate balance between investor 
protection and producing a functional system that provides the 
capital for small businesses.
    So I look forward to all of your testimony here today, and 
I thank you for your insights. And I yield back, Mr. Chairman.
    Chairman SCHWEIKERT. Thank you, Ranking Member Clarke.
    I was going to ask Mr. Chabot to introduce Ms. Sullivan.
    Mr. CHABOT. Thank you very much, Mr. Chairman. I appreciate 
that.
    Today, I am honored to introduce Michelle Sullivan, who is 
the senior director of Communications and External Affairs at 
the Boston Beer Company. Now, I do not represent Boston; I 
represent Cincinnati, but the Boston Beer Company is actually 
in Cincinnati. I know it is a little confusing. Ms. Sullivan is 
here to discuss the brewery's signature philanthropic effort, 
and that is Samuel Adams Brewing the American Dream. She worked 
hand-in-hand with Sam Adams's founder, Jim Koch to engineer 
this innovative approach to small business lending and 
development. As her testimony this morning demonstrates, their 
program really does work.
    The city of Cincinnati has a rich history of craft 
breweries dating back to the pre-prohibition era. In the mid-
`90s, the Boston Beer Company moved to Cincinnati and breathed 
life into one of those breweries which still operates today; 
very successfully I might add. A craft beer renaissance is 
taking place in hometowns like mine back in Cincinnati, but 
really all over America. And we have entrepreneurs, such as Jim 
Koch, to thank for that. And with his innovative approach to 
microlending, Jim continues to give back to all of our 
communities.
    Ms. Sullivan, I thank you for participating in this 
hearing, and as we have discussed, and as you have seen, we 
actually have a Sam Adams barrel top hanging in our office, and 
on there it indicates the distance between our Washington 
office and the brewery back in Cincinnati.
    I have actually got another hearing, a Judiciary hearing, 
which has just started also and I have to go over there, so if 
I could, Mr. Chairman, I am going to go ahead and ask my 
question now which you can take later on to answer. But it is 
not every day that we hear about the unique effort that your 
company has made, so I would just like if you could at some 
point, discuss what was the inspiration behind the Sam Adams 
Brewing for American program.
    And again, I thank you very much for your testimony here 
this morning. And Adam Scheidler from my office is here. We 
will get your transcript and read that, as well as your answer 
to the question.
    Thank you to the other members of the panel for being here 
as well. Thank you, Mr. Chairman.
    Chairman SCHWEIKERT. Thank you, Mr. Chabot.
    Ms. Sullivan, five minutes.

 STATEMENTS OF MICHELLE SULLIVAN, SENIOR DIRECTOR OF CORPORATE 
  COMMUNICATIONS, BOSTON BEER COMPANY; ALEJANDRO CREMADES, CO-
    FOUNDER AND CEO, ROCK THE POST; BEN MILLER, CO-FOUNDER, 
       FUNDRISE; DANAE RINGELMANN, CO-FOUNDER, INDIEGOGO.

                 STATEMENT OF MICHELLE SULLIVAN

    Ms. SULLIVAN. Thank you very much for your kind words, 
Congressman Chabot.
    Chairman Schweikert, Ranking Member Clarke, and other 
members of the Committee, thank you so much for inviting me 
here this morning to discuss Samuel Adams Brewing the American 
Dream on behalf of our founder, Jim Koch.
    My name is Michelle Sullivan. As the congressman said, and 
as senior director of Corporate Communications and External 
Affairs, I am charged, with Jim, for the implementation of this 
innovative program. I am pleased to be here to discuss that 
innovative way in which we assist small businesses by affording 
them access to capital and knowledge to start or grow their 
businesses.
    In 1984, when Jim Koch started the Boston Beer Company, the 
odds were stacked against him. Flavorful, high-quality craft 
beer, like Jim's, were virtually unheard of by anyone--beer 
drinkers, beer distributors, beer retainers, and certainly not 
bank lenders. After brewing the first batch of beer in his 
kitchen, he named it after one of his favorite revolutionary 
war patriots, Samuel Adams. And after trying to obtain a bank 
loan from numerous banks, he quickly realized the reality of 
starting a small business went far beyond having a great 
product--namely a lack of access to capital and the right 
network of business contacts could prevent a small business 
from succeeding despite the quality of its product.
    Jim began selling his beer bar-to-bar himself in Boston, 
having had to start his own distribution company in addition to 
his brewery because all of the wholesalers in Boston turned him 
down for the opportunity to carry Samuel Adams. He scraped 
together the funding for his brewery by risking everything 
personally, taking out a second mortgage, and by raising money 
from family and friends.
    The beer industry has undergone profound changes since 
those days in the `80s. America's big three breweries--
Anheuser-Busch, Miller, and Coors--have been acquired or merged 
into foreign conglomerates, and indeed, Miller and Coors have 
merged their operations in the U.S. So this leaves the brewery 
that Jim started in his kitchen, Samuel Adams, as one of the 
nation's largest American-owned breweries today. But after 
nearly 30 years of significant growth, we still only account 
for just under one percent of the entire beer industry, and the 
two largest players account for over 80 percent. So in the beer 
industry, it is still very much a David and Goliath world; that 
said, we are proud to continue to lead America's brewing 
community, comprised of more than 2,400 other small brewers in 
all 50 states, not only in brewing outstanding products and 
creating jobs but also in our unconventional path to corporate 
citizenship.
    In 2008, working with a team of employees led by Jim 
himself, we created Samuel Adams Brewing the American Dream. 
The program has two major components. We host a variety of 
mentoring and coaching events for low- and moderate-income 
entrepreneurs, and through our nonprofit partner, Accion, we 
fund microloans ranging from as little as $500 up to $25,000. 
Our program serves business owners in the food and beverage 
industries, including craft brewers, the very industry where we 
compete and sell in, and the one where we are most able to give 
the small business owners meaningful nuts-and-bolts advice, 
guidance, and introductions.
    Microloans are a critical component of the program. As you 
know, there is a serious lack of funding available today to 
small businesses. It is equally as important to educate 
inexperienced business owners in the areas of sales, graphic 
design, purchasing, marketing, hiring, distribution, and other 
aspects of business that can make the difference between 
success and failure. And we know it works because we have a 97 
percent payment rate on our microloans. As of today, we have 
disbursed 234 loans totaling over $2 million; have hosted 45 
events nationwide that have attracted more than 3,000 
attendees. More than 300 of our Samuel Adams employees have 
participated in these events as coaches and mentors, and we 
have saved or created more than 1,400 jobs. So in an odd twist, 
we have actually created more jobs outside of the Boston Beer 
Company than inside, and we are proud of that.
    When Jim started Boston Beer, he was armed with a great 
product, the financial backing of family and friends, and a 
passion to succeed. What he did not have, and the reason he 
feels so strongly about Brewing the American Dream, were 
mentors. Jim did not have a network of established business 
owners whose expertise he could call on. Through this program 
he makes what he needed that was not available to him available 
to others; namely funding, nuts-and-bolts advice, and access to 
mentors. Working with these small business owners is an honor. 
We are convinced that well-supported small businesses are 
poised to grow and thrive. They are the engine for future 
economic growth. They are a source of innovation. They will 
create jobs. They will be the household names of the next 
generation. And like Jim Koch, they will realize their American 
dream.
    I want to thank the Subcommittee for allowing me this 
chance to discuss Samuel Adams Brewing the American Dream, and 
please let me know if you believe our program can be beneficial 
in your district.
    Thank you again, and I am pleased to answer any questions 
that the Committee may have.
    Chairman SCHWEIKERT. Thank you, Ms. Sullivan.
    Ms. Clarke.
    Ms. CLARKE. Thank you, Mr. Chairman.
    I have the distinct honor and privilege of introducing Mr. 
Alejandro Cremades. He is co-founder and CEO of Rock the Post, 
one of the leading investment crowdfunding platforms for 
startups in the United States.
    After one year of development, his team was able to launch 
the platform to the public on November 23, 2011. In less than a 
year, the platform was already mentioned by Time Magazine as 
one of the best crowdfunding platforms in the world, as one of 
the top 10 digital tools for entrepreneurs by Forbes, and as 
one of the hottest startups to watch by Business Insider. Prior 
to Rock the Post, Mr. Cremades worked as a lawyer at King and 
Spaulding, where he was involved in one of the biggest 
investment arbitration cases in history. Mr. Cremades guest 
lectures on crowdfunding and entrepreneurship at NYU Stern 
Business School and at the Wharton Business School. And I want 
to thank you for being here today and we look forward to your 
testimony.
    Chairman SCHWEIKERT. Thank you, Ranking Member Clarke.
    Five minutes. And help us. Let us get our pronunciation of 
your last name proper. How should we be saying it?
    Mr. CREMADES. It is Cremades. Either way is fine. I am used 
to it. It is okay.

                STATEMENT OF ALEJANDRO CREMADES

    Mr. CREMADES. Thank you so much for the kind introduction, 
Mr. Chairman, and other members here present today. I am 
particularly interested in sharing my thoughts and experience 
with regard to the difference that crowdfunding is already 
having at its early stage on small businesses in the United 
States and the positive impact that services, like Rock the 
Post, provide.
    According to a Kauffman report, new firms add an average of 
three million jobs in their first year, while other companies 
lose one million jobs annually. Unfortunately, 65 percent of 
the new firms go out of business within the first four years, 
due mainly to lack of access to capital. Traditional methods of 
financing are very limited. Out of six million businesses that 
launch every year in the U.S., only 400 of them get venture 
capital money. The rest rely on angel investors, which 
represent less than one percent of the U.S. population, or 
friends and family. With equity crowdfunding offered via 
services like Rock the Post, startups are able to gain exposure 
in front of thousands of investors; obviously, right now, 
accredited investors. In the offering world, startups take on 
average eight months to close a seed round. Via Rock the Post, 
startups and small businesses fundraise their round between 60 
or 90 days with minimum road show instructions. Success 
stories, like Villy Custom Bicycles, a Shark Tank-backed 
company with high-profile investors, like Mark Cuban and 
Barbara Corcoran, raised their funding goal in just two weeks 
alone on our platform; Musicx.fm, a little over a month.
    Rock the Post's crowdfunding platform not only helps 
entrepreneurs to gain access to funding, but also reduces the 
fundraising time significantly, which allows them to focus on 
growing their business, which is the most critical factor for 
the bottom-line. However, we are operating under a lot of 
restrictions, which makes it challenging to truly innovate and 
pioneer this new industry. The general public solicitation rule 
is the most difficult challenge to overcome.
    Secondly, the fact that only accredited investors are 
allowed to make investments is also a big obstacle. Even though 
the law allows up to 34 unaccredited investors per offering, we 
feel that the amount of disclosures required to comply with 
this exemption kills the attractiveness for platforms like Rock 
the Post to be able to get involved. Not to mention, the burden 
entrepreneurs are faced with in providing additional disclosure 
materials. Allowing nonaccredited investors to partake in 
private offerings will open the door to over 300 million 
Americans in comparison to the seven million accredited people 
that have access to use Rock the Post today as investors.
    With that being said, I believe that we are far behind, and 
every day that passes by without the JOBS Act being implemented 
is another day that startups need to fight for survival. 
Pandora, the online radio, for example, of which I am sure many 
of you have heard, was rejected over 300 times from financial 
institutions, and thank God they did not give up on their 
business.
    I invite you all present in this room here today to create 
a unified voice in order to reduce the delay of the JOBS Act 
implementation. There are many cases like Pandora out there, 
and unfortunately, many of them end up giving up in the 
process.
    Thank you all for listening, and I will be more than happy 
to answer any questions that the members might have.
    Chairman SCHWEIKERT. I truly appreciate that opening 
statement.
    Ben Miller is cofounder of Fundrise, a real estate-based 
development company based right here in the Washington, D.C. 
area. Ben co-founded Fundrise, with his brother Daniel, as a 
way to involve members of the community in real estate 
development. In addition to being cofounder of Fundrise, Ben 
also serves as managing partner of Westmill Capital and 
president of Western Development Corporation. And you went to 
University of Pennsylvania.
    Ben, five minutes.

                    STATEMENT OF BEN MILLER

    Mr. MILLER. So I deeply appreciate the opportunity given to 
me.
    My name is Ben Miller, and I cofounded a company called 
Fundrise. And what Fundrise does is crowdfunds real equity into 
real estate. And so we are actually, technically, equity 
crowdfunding today 10 blocks from here on Eighth Street NE. So 
any resident in Washington, D.C.--you can be accredited or 
unaccredited--can invest at $100 a share online through 
Fundrise right now.
    And so I think the reason I was invited is that we are 
actually crowdfunding. We are doing it now. We have a good 
sense of what it means and what it took to do it in the current 
regulatory environment. And obviously, there were some 
challenges, so I will quickly tell sort of how we did it and 
what we learned.
    So briefly, my background is real estate development. I 
built a lot of large scale, multi-hundred million dollar 
properties in the D.C. Metro area, such as Gallery Place at 7th 
and H. But the problem is institutional capital does not 
understand emerging neighborhoods. I have Mass Mutual, 
Cornerstone, Angelo Gordon, AFL-CIO as our equity partners, but 
if you look at Brooklyn, Bushwick, L.A. Arts District, 8th 
Street NE, all across the country these emerging neighborhoods 
really do not get the attention of institutional capital, even 
though that is really where the growth is, especially from the 
millennial generation.
    And so we decided to raise money from people instead of 
institutional capital, and sort of reconnect this disconnect in 
real estate. To do that, that was very challenging. We actually 
ended up hiring former deputy director of the SEC to help us 
navigate through the SEC and local regulators to figure out how 
do you equity crowdfund with the existing regulations? We did 
that using something called Regulation A. I think we were one 
of only two or three people last year who cleared the SEC using 
Regulation A, and we raised $350,000 from 175 people. And it 
took us about three months to do that online. We have an 
offering live today. I think we had $250,000 in a few days on 
the next public offering, so you can see how quickly once you 
start doing it people want to do it, and I watched family and 
friends and wives start to do follow-on investments from the 
first offering.
    So the offering took us nine months to get through the SEC. 
It cost us far and above $100,000, and the final offering was 
hundreds of pages and actually weighed 12 pounds. And we have 
done multiple Regulation A offerings now, and so I have a good 
sense of what it is. And I would sort of say that I was lucky 
to have good local regulators in Washington, D.C. and Virginia, 
because the process was very ad hoc. They were really looking 
at me. This was a novel idea, selling shares of a real estate 
property had never really been done online before, and so I was 
lucky that I worked with them, but if I had not had the depth 
of resources and the staying power, I do not think that would 
have been possible for most small businesses, most community 
development organizations.
    And so I would say that sort of the basic takeaway is that 
you can invest in a Japanese manufacturing company today, but 
you cannot really invest in your own community. Short of this 
is no feasible way other than what I am doing for communities 
to invest in themselves. And I have seen we are now operating--
we are in L.A. We are in New York, actually, working with Third 
Ward in Brooklyn. Quasi Foundation just gave us a grant to 
launch in Detroit. So we are seeing a lot of communities 
wanting to reinvest in building their own communities, not 
looking for some outside sort of Wall Street capital to solve 
their problems.
    But I would say it seems like two big takeaways from doing 
this are, one, that I understand that there need to be 
safeguards for investor protections, but I found personally 
putting offerings out there publicly, generally soliciting 
because we filed with the SEC and letting anybody invest, the 
public was a very tough critic. I had hundreds of questions 
from the SEC, and I got thousands of questions from the public. 
And I have real estate analysts from the largest companies in 
the country invested in our deals, underwriting them, asking us 
questions. And so I found personally the public was 
sophisticated. There was not willy-nilly, you know, funding of 
investments online. They were really asking tough questions and 
wanted to understand what they were investing in.
    And the second really big takeaway I found was the SEC and 
the local regulators really were not designed to do what I did. 
This idea of small capital formation is not their primary 
mandate. They did not have the staffing I think in the funding 
to really do that, and I think we should, if possible, maybe 
the private sector and public sector come together and look at 
funding and institutional supports that could make maybe that 
possible or better fund institutional, let us say, 
institutional staffing that small business administration maybe 
would normally do for our sector.
    Thank you.
    Chairman SCHWEIKERT. Thanks, Mr. Miller.
    Our last witness is Ms. Ringelmann. She is the co-founder 
of a crowdfunding portal, Indiegogo. Through Indiegogo, 
businesses, individuals, and small organizations are able to 
fund or raise funds through donation-based crowdfunding. Prior 
to co-founding Indiegogo in 2007, Ms. Ringelmann worked in 
finance as a securities analyst with Cowen and Company. Danae--
--
    Ms. RINGELMANN. Danae.
    Chairman SCHWEIKERT. I always get this wrong.
    Ms. RINGELMANN. Danae.
    Chairman SCHWEIKERT. Danae.
    Ms. RINGELMANN. No problem. It rhymes with Renee.
    Chairman SCHWEIKERT. Rhymes with?
    Ms. RINGELMANN. Renee.
    Chairman SCHWEIKERT. Okay. Danae holds an MBA from the Haas 
School of Business and a B.A. from the University of North 
Carolina. I will disclose she also runs one of my favorite 
sites.

                 STATEMENT OF DANAE RINGELMANN

    Ms. RINGELMANN. Thanks. Well, I am happy to be here, 
everybody. Thanks for having me.
    Yes, my name is Danae Ringelmann. I am one of the founders 
of Indiegogo. We are the largest and global perks-based 
crowdfunding platform. We do not limit our platform to any 
geography or industry, so we are in every country of the world 
and every industry. So everybody from the arts, like filmmakers 
and musicians, to charities and nonprofits can use Indiegogo, 
to entrepreneurs and small businesses, which is why I am here 
today. We are also distributing millions of dollars every 
single week now to campaign owners across the world, so it is 
working.
    I am talking here today though about Indiegogo's 
meritocratic approach to crowdfunding and perks-based 
crowdfunding, as well as what we think the benefits, the larger 
benefits beyond money are to both small businesses here in 
America, as well as the greater economy.
    But first, as a way of background, I wanted to introduce 
myself and talk about how I came to this. I actually met my co-
founders back in 2006. We came together before the word 
``crowdfunding'' even existed in our vernacular out of a mutual 
frustration for how unfair and inefficient fundraising was. I, 
myself, am the daughter of two small business owners, who 
struggled for 30 years to keep their business going and get a 
loan, and not once could they actually get a loan despite 
growth. Why? They did not know the right people. They did not 
have the right connections. So when I graduated from college, I 
went into finance to understand how this world actually worked, 
and I actually met failure myself. I started working with some 
theater producers and filmmakers on the side, trying to help 
them raise money the old fashioned way, and I had this 
culminating moment where I failed in security investment for a 
theater production despite audience engagement and response and 
enthusiasm for this production to get off the ground. And it 
was in that moment that I realized that the people who wanted 
this play to come to life the most, which were the actors and 
the audience, did not actually have the power to make it 
happen. They were relying on a third-party gatekeeper who had 
different interests.
    So at that moment I said, all right, here is my new life. I 
am going to quit finance and I am going to go back to business 
school and start a company that was going to democratize 
financing. And that is where I met my co-founders, Eric and 
Salva, who themselves had faced frustrating challenges with 
fundraising--Salva for raising money for cancer research and 
Eric for the arts--and together we started and created 
Indiegogo, which is now empowering millions of people across 
the world to fund what matters to them.
    So specifically, with perks-based crowdfunding it is a 
little different. The way it works is you create a campaign 
page on our site. You set a funding target. You set a funding 
goal, a funding deadline, you put up a video, and then you 
share it with everybody that you know. The reason why 
crowdfunding is different than online fundraising though is 
that Indiegogo offers extra amplification through social media 
integration, as well as through our go-go factor promotion, to 
allow you to reach more audiences beyond your inner circle--to 
your second and third order friends, as well as strangers. I 
can talk a little bit more about go-go factor a little bit 
later.
    So you might wonder, well, why are people funding if they 
cannot get equity, if they cannot invest, if they are just 
getting a perk? And our research has actually found that there 
are four reasons that people fund. We call them the four Ps.
    People. People want to support the people or team behind a 
project.
    Their passion. They want to support the passion or project 
itself.
    The third reason is participation. They want to be part of 
something bigger than themselves.
    And the fourth reason is the perk. And we find that 
typically, people fund for a dynamic number of reasons, so a 
cross section of the four at any given time.
    For example, I recently funded a campaign for an app called 
``Not Buying It.'' It is an app where you can take a picture of 
a piece of sexist media out in the world and upload it to 
Twitter. And if everyone is uploading it, it creates pressure 
for the advertisers to change their media. The reason I funded 
it is for all four reasons. I supported the project owner, 
Jennifer Sebold Newsome. I supported the project. I supported 
the movement to stop the objectification of women, their sexism 
in the media, as well as I wanted the perk itself.
    So a lot of people think crowdfunding is about just money--
it is a new and alternative form of financing--but there is 
actually a lot more to it than that, and there are people who 
actually use crowdfunding not just for the money but for the 
other benefits. Specifically, for small businesses, there are 
four benefits. There is market validation. There is risk 
mitigation. There is customer feedback. And there is confidence 
building that happens. With market validation, what is 
happening is that people are voting with their dollar, and so 
it is a far better indicator of interest than any focus group 
or Facebook like button could do. With risk mitigation, a lot 
of product designers and entrepreneurs are using crowd-funding 
as a way to mitigate the risk of overproduction or 
underproduction of their first run of product, because what 
they are doing is they are offering their perk in exchange for 
funding, and therefore, they fund and make the exact amount of 
product that they need to do to get off the ground.
    The third reason is customer feedback. We had a campaign 
owner by the name of Sonny Vu, who had created an activity 
tracker and he had actually raised money from venture but he 
still used crowdfunding as a way to get off the ground because 
he wanted to become smarter faster. He used the crowdfunding as 
a way to test his pricing and his messaging and his actual 
features and learned that people wanted a certain color of his 
device more than another color and they were willing to pay 
actually more for it all through the crowdfunding campaign.
    The third reason is--or the fourth reason is confidence. 
One of my favorite reasons I think that people use 
crowdfunding, and a great example of this is Karen, who started 
a bakery business called Free Bread. It was her first business. 
She lacked the confidence to get going, and so she created a 
campaign to raise $10,000 to launch her bakery business. And 
she knew that if she failed she would be back in the same place 
that she was before because it was always a dream of hers to 
start this business. And within a few weeks she had the money, 
and she sent us a note saying, you know, when this started to 
happen, I started to raise the money, my life actually started 
to change. So there are lots of reasons.
    On the economy side, and the greater kind of financial 
industry side, there are also benefits. The first is 
meritocracy. Like the other panelist said, when every day ideas 
go unborn, every day ideas die because they are 
undercapitalized, because of the lack of efficient access to 
capital. And so crowdfunding is making it efficient and thereby 
creating this incubation platform for traditional investors to 
actually discover product and businesses based on their own 
true merit. And so that is what I think are the greater 
benefits. And I am happy to go further into that.
    The third benefit there is jobs, of course, and I will end 
there so that we have time for questions.
    Chairman SCHWEIKERT. Thanks, Danae. You had said you would 
probably go long.
    Ms. RINGELMANN. Yes, I did.
    Chairman SCHWEIKERT. As chairman, I am going to give myself 
five minutes, but--this is one of those moments where I could 
probably grab all of you for hours because this is an area I 
have great interest in.
    I am going to start with Mr. Miller. You and I have had the 
conversation, technically, you are not doing crowdfunding as we 
saw it in the JOBS Act. You are right now having to use the Reg 
A mechanics and do SEC filings, and you can also only take 
nonaccredited investors within the jurisdiction, so within the 
state or D.C. area, that have been given approval. Tell me how 
much paperwork goes with these filings. Tell me what 
limitations you are having to operate under right now.
    Mr. MILLER. So there is a lot of paperwork. I mean, the 
good news is that we have now done it a number of times and we 
are focused on real estate, so we have--I mean, real estate as 
a product has a lot of similarity to building my building--a 
lot of the same risk factors. I mean, I know that a normal 
public company, like Facebook, it took them three months to go 
public, and I know it took us nine, and we raised, I think, 
$350,000 in this time. Now, we are raising another $325,000 for 
another property, and I think most public companies raise 
billions. So I feel like there is an asymmetry there that the 
JOBS Act can help address.
    The paperwork is actually less of a challenge in terms of I 
think that there is just--I do not think that there is anybody 
inside the SEC who really has the mandate for regulation A. I 
mean, it was really underused and I am going to bet you that 
that same sort of problem will happen when you start seeing 
potentially thousands of other small issuers raising money. And 
so that is going to require staffing up an organizational 
focus, and a lot of times I will have a comment in from the 
SEC. The comment will be, you know, something pretty small, 
something about maybe what does this footnote mean on the 
account? And it will take weeks; weeks, really, to hear back 
about a footnote in an audit statement.
    Chairman SCHWEIKERT. How many pages of paperwork were in 
your first filing?
    Mr. MILLER. Something like 350 pages. A lot. But you go 
back and forth. I mean, ultimately, a file, it is really an 
integrative process so it was a lot of disclosure.
    Chairman SCHWEIKERT. Okay. Mr. Cremades, you, in your 
testimony, or in your opening statement, were actually having 
the discussion of a couple things. One, right now you can only 
have accredited investors participate. So it is only a small 
fraction of our nation's population. How different do you think 
your world would look if we actually had the JOBS Act, the SEC 
rule sets done, where unaccredited could start to participate? 
What difference do you think that makes in how you would run 
your shop?
    Mr. CREMADES. That would make a huge difference because 
right now we are restricted just to a certain amount of people 
in the U.S. and our platform is kind of like closed doors, you 
cannot really have access to any offering or any terms on any 
offering unless you are an accredited investor. Once the JOBS 
Act is implemented, then we have the possibility of being able, 
you know, especially when the general solicitation rule is 
revised, we have the possibility of converting Facebook likes 
or Tweet shares into investors really, you know. And instead of 
having really that limitation towards seven million people 
really, we can access over 300 million Americans. And there are 
going to be different levels of investors. Obviously, you have 
the high-net-worth individuals, which are considered angel 
investors today, people that are making over $200,000 on salary 
or have one million in assets or that are making with their 
spouse 300,000 combined, but then you are going to have the 
other two different types of investors which is one, the one 
that is making over $100,000. The JOBS Act establishes a 
limitation there of 10 percent, where they can invest only 10 
percent of their income, so it is not like, you know, like in 
the casinos, for example, here in the U.S., people are spending 
45 billion without any type of limitation. So also, the other 
different type of investor that we are going to have is the one 
that is making under $100,000, and that the profile of investor 
is going to have a limitation of five percent of their income. 
So it is a huge impact what is going to happen when the JOBS 
Act is implemented.
    Chairman SCHWEIKERT. Okay, Danae, just off the side of this 
we have had a conversation. I have tried to share this actually 
very publicly that I believe what we have done in the way we 
have written our rules is we have sort of split our society. We 
often hear the discussion of the haves and the have nots, but 
in many ways we have done that with our financial rules. We 
heard the comments earlier, that, 118 million Americans--or 318 
million Americans and only seven million can actually invest 
with you right now. We treat the other 300 million of our 
brothers and sisters as sort of a second class citizen in their 
ability to participate. I know there is often fear of if we 
move to an equity-based crowdfunding. But at Indiegogo you have 
built fraud detection technology into your platform. Can you 
share some of that with us?
    Ms. RINGELMANN. Yeah. So when we started Indiegogo, it was 
very important to us to stay true to our mission, which is to 
empower people to fund what matters to them. And in order to do 
that we needed to be open and not curate, so we do not just 
pick and choose people to be on our site. We do not pick and 
choose who we promote. That is all done meritocratically. So 
everyone has an equal chance of success. So with that though, 
when you are an open site, you are open to people potentially 
taking advantage of the site in a way that it was not intended. 
And so we have been aware of that since day one, and over the 
last five years we have pioneered and innovated around that 
risk specifically. I actually remember the day when I was 
trying to look for any regulation that existed to follow, and 
there actually was not anything out there. I did not fit into 
any specific box, and so I said, well, let me just pull from 
best practices of adjacent industries and let us go at it.
    And so what we ended up doing was really trying to 
understand where fraud could come from, and over the last five 
years we have built a system to fight that. So we really fight 
fraud in three ways. The first is easy. It is the natural 
dynamics of crowdfunding are a natural deterrent to fraud in 
and of itself because when you are raising money from a lot of 
people, you need to convince a lot of people to give you money. 
And we know successful campaigns start with the people that 
they know first. The early funders in are always the people 
that know you the best, and then through crowdfunding you can 
amplify it beyond that to strangers. So just the natural way 
that crowdfunding happens is a great way to prevent people from 
going onto the site and trying to raise a bunch of money for 
something that does not really exist.
    The second way is our fraud systems that we have built. We 
have built proprietary fraud detection and trust and safety 
systems that is constantly learning and evolving because we are 
applying machine learning and all kinds of the latest in data 
science to get smarter, faster. I would probably say that one 
day our system will probably be better than any, and it is 
better right now than any manual process.
    And then the third is we just follow other platforms, like 
eBay and PayPal and we use a community policing site--excuse 
me, a community and policing approach where people can flag 
campaigns if they look suspicious. But that is three layers on 
top of each other that have kept our fraud rates far below one 
percent, and it has enabled us to keep this an open platform 
and really provide a meritocratic place so that we are not 
judging and picking and choosing who has the right to raise 
money, but the world does.
    Chairman SCHWEIKERT. And I want to touch on that one bit 
and then I have one quick question for Ms. Sullivan, and then I 
will pass to Ms. Clarke.
    Less than one percent?
    Ms. RINGELMANN. Far less.
    Chairman SCHWEIKERT. That somewhat surprised me when I came 
across it because you allow almost anyone. I mean, I think you 
have something up right now to save a horse and to fund a 
bakery, I have to buy an ad. I mean, you have everything from 
business ideas to social ideas to, you know, save a large 
animal.
    Ms. RINGELMANN. Yeah, we just had--and because of 
everything going on in Turkey just three days ago, three 
Turkish Americans were so bothered by what is going on they put 
up an Indiegogo campaign because they could get started right 
away, and they have raised almost $100,000 in just the last 
three days to buy an ad in the New York Times to help change 
the conversation about what is happening in Turkey.
    Chairman SCHWEIKERT. Which surprised me because, from the 
mechanics of it.
    Ms. RINGELMANN. It is democracy.
    Chairman SCHWEIKERT. Well, you are so egalitarian. And I 
can put up literally everything, but yet you seem to have very, 
very little bad actors.
    Ms. RINGELMANN. Because we pull it down ASAP. Like, right 
away. It is all automated and systematized. So we catch stuff 
faster than a human being can do because we are a data driven, 
Silicon Valley type of startup where we rely on data and 
analysis and machine learning to catch all that stuff. And we 
are going to continue to evolve there. We are going to continue 
to innovate there.
    And I guess the point that is probably worth mentioning is 
that we did that not because we had any law to follow or any 
regulation that we had to abide by. I was, in fact, looking for 
those when we were just starting six years ago, but because, 
again, we were creating a new industry, we did not fall into 
any boxes. But the reason we did it though is because we wanted 
to stay in business. You know, we wanted to have a safe and 
clean site for our customers because we knew that the 99.9 
percent of people who were coming to our site to use it in the 
way that it was intended would not want to come to our site if 
they saw or had fraudulent activity. Plus, we did not want to 
lose money because if there is fraud on our site, we pay for 
it, not our customers.
    Chairman SCHWEIKERT. Thank you, Danae.
    Ms. Sullivan, now, you are sort of the unique one here in 
what you are doing because in many ways you are actually a 
small entrepreneur microlender. Help us understand a little bit 
on that same sort of discussion of, how do you maintain your 
repayment rates? Because in many ways when they repay, you have 
the opportunity to invest in the next little business and 
growing concern. I mean, how have you built that model to keep 
it going?
    Ms. SULLIVAN. Yes, that is a great question, Mr. Chairman.
    I think there are two components to that. One is certainly 
in the screening process, and Accion as our partner, over 
decades of microlending, they have developed a successful 
system of screening potential applicants. For those who have 
the credit score, the drive, the passion, to really succeed in 
their business, one of the facets that is unique to what we do 
is that unlike a bank, if a person with a great idea and a real 
drive and passion to succeed in starting or growing a small 
business is not qualified for a loan at that point, we will 
work with them through Accion to help the entrepreneur actually 
become loan ready. So unlike a bank, you are not told yes or 
no; you are told not yet. And we are able to actually help 
those folks who are really dedicated and willing to stay with 
the process, stick with it until they are able to get their 
loan. So there is a very robust screening process in the 
beginning that Accion has piloted. Some of that does involve 
intangibles, you know, like the person's character and how much 
drive and motivation they have, which we find is actually quite 
helpful in looking at a business. A small business is not just 
what can be found on the paper. It really is the person, the 
entrepreneur who is behind it that in many ways is going to 
cause it to succeed or fail. So we do have a robust upfront 
process, but I would say even more importantly and unique to 
that is the coaching and mentoring that we offer. As many 
entrepreneurs would tell you, the day that they receive their 
funding, they look at themselves in the mirror and they think 
now what. So for us to be able to work with those folk who have 
a wonderful idea, a great product, but are not expert in the 
other aspects of running a business, such as sales, for 
example, you could have a wonderful product, but if you are 
unable to convince a retailer to sell that product to 
customers, then you are not going to succeed. So we work with 
them hand-in-hand and in any aspects of coaching or mentoring 
that the business owner needs to succeed by pairing them up 
with Samuel Adams employees who have that expertise.
    So if you are in Brooklyn, and we have several 
beneficiaries in Brooklyn, and you would like to work with one 
of our sales folks in New York City to coach and mentor you as 
to how to sell your product to retailers in New York City, we 
make that available to them, and we have found that it has 
worked. I mean, we have been able to partner with many of the 
entrepreneurs in selling their products into the smallest of 
the small neighborhood grocery stores, all the way up to 
wonderful chains, like Kroger and Whole Foods, for example. So 
they may have a wonderful product, a great idea, the drive and 
the passion, but what we give them are some of the skills, such 
as selling, or hiring, or procuring ingredients, things that 
are very difficult sometimes to attain on your own.
    Chairman SCHWEIKERT. Thank you.
    Ms. Clarke.
    Ms. CLARKE. Thank you, Mr. Chairman. This panel has really 
provided some fascinating information in today's hearing. I 
just wanted to sort of go down because each has such a unique 
way of going about providing these opportunities and start with 
Mr. Cremades.
    It has been estimated that only three percent of accredited 
investors are investing in startups and small businesses. In 
your opinion, is the lack of participation the result of 
current SEC regulations, the inherent risk of startups, or 
something else entirely?
    Mr. CREMADES. With all due respect, I would like to argue 
that the point from 2011 to 2012, the angel investors in number 
increased 59 percent from 200,000 to 318,000. And also, I would 
like to say that the amount that has been invested has also 
increased 43 percent. As a matter of fact, it went from being a 
$15 billion market, really angel investors investing in 
startups, it went all the way up to 22.1 billion in one year 
alone. And in addition to that, I would like to say that 
people, especially investors, are disappointed with the returns 
that they are seeing on the public markets really investing in 
startups. Obviously, it is risky, but especially these 
individuals that are high-net-worth individuals, for them just 
really putting eight percent of their portfolio into these 
types of investments, it really is not that much. I think that 
not only you are investing in a company, but also you are being 
part of something. And that is the most important part of this.
    So back to your point, I would like to say that the times 
are changing. I think that people are slowly getting educated 
at the same time, and the industry is definitely growing from 
every perspective.
    Ms. CLARKE. And just as a quick follow-up to that, do you 
believe that it is important that new regulation and policy be 
driven by the practical application of what your investors are 
doing? Because this is sort of unchartered territory, which is 
why you are, I think, running into the obstacles that you see. 
We are trying to fit your model into existing frameworks that 
really are not applicable. What would you say from your vantage 
point would be a good approach to I guess unleashing and 
creating the space for the development of the model that you 
have established?
    Mr. CREMADES. So for us we do not rely on what is going to 
happen with the JOBS Act or on what the SEC is going to come 
out with, if they are going to have special vetting mechanisms 
that are going to apply for the crowdfunding industry and the 
platforms, the funding portals that are going to be operating. 
We do strongly believe that platforms, especially now at this 
point, they should all take reasonable measures and also 
responsibility and accountability for developing the 
appropriate systems so that they can provide the best services 
for the angel investors and also for the startups that in the 
end really somehow contribute to that investor protection.
    So as a matter of fact, on Rock the Post, and it was funny 
that we touched on this point earlier, we also do have identity 
verification systems and social proof mechanisms that help to 
conduct the due diligence better between the entrepreneur and 
the investor, and we do backgrounds on every single individual. 
So I do believe, back to your point, that it is important for 
the platforms to take accountability and not to rely on the 
public institutions.
    Ms. CLARKE. Thank you very much for your response.
    Mr. Miller, investing in a small business can be very 
risky. Even the most sophisticated investors occasionally make 
bad decisions, losing their investments in the process. Easing 
SEC regulation and reporting requirements for crowdfunding 
securities as required under the JOBS Act will therefore expose 
tens of thousands of investors to increased risk. In your 
opinion, how can the SEC adequately inform ordinary investors 
of the risks while not burdening small businesses and 
restricting access?
    Mr. MILLER. So what surprised me and what we have been 
doing is what a lot of large companies, in real estate, at 
least, have started doing what we are doing. We are using 
Fundrise. We are working with Four City, which is a $11.6 
billion company. Based in D.C., you see most of the major real 
estate companies now starting to do this, and the reason they 
are interested is that they want the public as a partner. There 
is enormous value, social value having the public get 
activated, be part of building their neighborhood, and helping 
you make better decisions, you get better data. When you go to 
community meetings, when you go through the entitlement 
process, when you go get maybe a liquor license, you have a 
more representative support for that project, and so I think 
that the idea that crowdfunding is only going to be small 
businesses that are risky is actually a misnomer. I have 
actually seen a huge diversity of players interested in using 
this kind of new tool, this sort of new innovation that makes 
it possible to create sort of an equity in who is building your 
city, who is investing in it, sort of who owns your 
environment. And so what I have seen also, and I think 
everybody here is talking about this, you know, it is our 
lifeblood to make sure that there is quality offerings on the 
platform. I mean, it is a disaster for there to be fraud or 
even failure just from normal entrepreneurial processes. So, 
you know, everybody is focused, anybody who is building a 
platform and investing millions of dollars is going to be 
focused on that, and I think has a deeper expertise, for 
example, in real estate or underwriting breweries, for example, 
then maybe the regulators do.
    Ms. CLARKE. Just a follow-up to you, can you elaborate on 
the challenges that you have faced with traditional capital 
with regards to these emerging neighborhoods that you are 
applying your technologies to?
    Mr. MILLER. Yeah. I mean, I take a perfect example. There 
is a developer in L.A. He bought a 450,000 square foot project 
in downtown L.A., and the institutional capital partners said 
downtown L.A., we do not want to invest there. It is tired. It 
is really not the future. And he could not raise capital from 
normal places and basically ended up raising it from a hedge 
fund. His cost of capital was double, triple really what it 
should have been. And so this problem--and I am giving an 
example of this is a problem not that institutional capital is 
making with small businesses and making with large businesses. 
They just do not always understand the dynamics of growth in 
neighborhoods. Usually, they are not local, and so to them 
Bushwick looks the same as Williamsburg. They are like, oh, 
that is like the same. Right, but if you live there it is a 
joke. Right? So I just see that crowdfunding is really a way--
over time you will see that there is a partnership between the 
institutional capital and the crowd. I am already seeing it 
with big companies coming together, and that is how you will 
see sort of a new sense of why is this like there is decent 
underwriting and security. Well, because there are 
institutional players involved. It is not an either or. It is 
really going to be about both.
    Ms. CLARKE. And then Ms. Sullivan, I wanted to ask about 
this program. Your program is quite unique. I am familiar with 
Accion, of course, being from New York, but a larger business, 
a company like yours in collaboration is a model that we have 
not seen heretofore. A larger business providing smaller ones 
in the same industry with professional coaching as well as 
opening doors to lending opportunities is quite unique. How has 
the program been received by the food and beverage industry? 
And has there been interest in replicating the model elsewhere?
    Ms. SULLIVAN. That is an interesting question.
    I do not think the answer is yes yet. I wish that were 
true. We would say that the notion of funding those in your 
industry, you know, other food and beverage companies, is 
really where we can add the most value. I think sometimes folks 
will look at them as potential competitors, but from our 
perspective, our sector, the craft brewing industry is only six 
percent of all beer sales in the U.S., so we believe that there 
is room for many other small brewers to come in and join us as 
a small brewer. There is still so much potential growth. We 
welcome others to the table.
    I do not believe that really this notion of bricks-and-
mortar businesses like ours funding others in their space has 
caught on to a great extent. I am aware that Tory Burch, who is 
a fashion designer, who designs clothes, has been funding other 
sort of upstart clothing designers. She actually partners with 
Accion as well. To my knowledge, we are really the only two 
manufacturers who are funding other manufacturers in their same 
space. I would make the case that that is a missed opportunity 
because we are much better able to provide what I believe to be 
one of the more critical components of the program--the 
coaching and mentoring--to people who face the same challenges 
that we face currently or have faced in the past. You know, 
from my ability to coach somebody in the real estate industry, 
for example, is much decreased versus what I can talk to 
another beverage manufacturer about. So I would say that there 
is a competitive notion that keeps others perhaps from funding 
or mentoring upstarts. But I also believe there is a huge 
opportunity there.
    Ms. CLARKE. Thank you. Mr. Chairman, I yield back.
    Chairman SCHWEIKERT. Thank you, Ms. Clarke.
    Ms. Chu.
    Ms. CHU. Mr. Cremades, can you describe the process both 
small businesses and potential investors must go through in 
order to access crowdfunded capital through Rock the Post or 
similar portals? What are the terms or obligations that must be 
met either as a small business or as an investor?
    Mr. CREMADES. That is a very good question. Right now we 
are operating via Regulation D, Rule 506, and we do this in 
compliance with a broker-dealer. And the name of the broker-
dealer is called Bendigo Securities. And this firm was founded 
by the former CEO and CFO of E*TRADE Financial. So essentially, 
what we do is we aggregate the issuers and also the investors, 
and then they get to do what they do best, which is the backend 
compliance of the transaction itself. So essentially for the 
compliance, there is a lot of paperwork that needs to be done 
before putting an offering on the site. On average, we 
received--last month I believe we received over 1,300 startups, 
and unfortunately, since the due diligence is quite heavy on 
every single one of them, it takes normally on average between 
two to three weeks to make sure that we can drill down on the 
terms and also the structure of the company. We cannot take all 
of them, so it is hard for us really in that sense.
    Basically, the process is that we receive the application 
from the company. Once we receive the application, then we 
focus on the team and the market. And if we are able to see a 
compelling story or potentially something attractive, then we 
would pass along the application to our investment committee. 
Our investment committee is comprised by four individuals. They 
have over 30 years of experience in the financial service base. 
They are all professional angel investors, and they also have 
over $2.5 billion in acquisitions under their belt, so they are 
the ones who really take care of the other backend type of the 
transaction. It is conducted essentially by Bendigo. So once 
everything is met and all the criteria is in place, then we 
will go ahead and host the offering on our site and 
automatically, it becomes available to the accredited investors 
that are registered on Rock the Post. So that is essentially 
the process.
    Ms. CHU. And once the SEC issues its regulations, is this 
going to change the investing process?
    Mr. CREMADES. Well, obviously, there is going to be a lot 
of disclosures that are going to have to be done with the JOBS 
Act. I believe many of you have taken a look at what Title II 
and Title III really introduce, and there are some heavy 
obstacles. Like, for example, if you are raising over $500,000, 
you need to do an audit report of your financials. I think that 
for being a startup that is quite unacceptable because it is 
over $50,000 potentially that you are going to have to pay on 
that. So I think there are many things in the JOBS Act that 
need to be sharpened up a little bit further because I think 
that even though the regulators did a fantastic job in putting 
that out there, I think that they need to really be a little 
bit grounded and establish friendlier terms to companies that 
have been in business for a very short period of time.
    Ms. CHU. And what type of small businesses seek investments 
through your service, and what kind of investors are providing 
funding? And are there certain communities that are benefitting 
more from crowdfunding?
    Mr. CREMADES. So we focus on high growth companies. So it 
is essentially tech-based, the health care, hardware, and also 
consumer. So those are the type of verticals that we cover. 
Essentially, we try to focus on businesses that are going to be 
able to potentially have a liquidity event in a timeframe of 
five years so that the investors can get their money back. That 
is kind of like the end that we are going for with Rock the 
Post.
    Ms. CHU. Okay. And for anybody on the panel, how do your 
companies reach out to small businesses that are not as 
technologically savvy or equipped? How are you able to get 
those, I mean, what are you able to offer the investors in 
return for the contribution of funds?
    Ms. SULLIVAN. In terms of getting the word out about Samuel 
Adams Brewing the American Dream, we find that the old 
fashioned way works very well. We actually have teams of 
volunteers, both Sam Adams employees and Accion employees who 
do what we call block walking. And they will go from business 
to business in given communities and spread the word about the 
program. We also spend a lot of time letting traditional 
investors, such as community banks, know about the program. So 
when they are unable to fulfill a funding request for an 
applicant, they are able to give them an alternative and let 
them know about our program. And we also work with local 
governments. So we find that many of our applicants hear about 
the program through a mayor's Office of Economic Development, 
for example. So we pursue a variety of means, including going 
out into the communities and looking directly for entrepreneurs 
and going through other gatekeepers, for example, like the 
banks, to get the word out.
    We do still find that there is difficulty in getting the 
word out. One of the challenges we have on the program is 
actually letting folks know when they are turned down by a bank 
that there are other means of financing out there, so we also 
do call on social media and the traditional media to help us 
build awareness of the program. We have more money to loan than 
qualified applicants. So we are looking for qualified 
applicants. We have capital right now that we would like to 
have out to these businesses but nobody has applied for it.
    Ms. RINGELMANN. We use classic marketing tactics from 
online social media to speaking at events to giving workshops 
and webinars in education about what crowdfunding is all about, 
but one thing I should mention is that at Indiegogo we are very 
excited about equity crowdfunding. We do not offer it right 
now, but as we look at it and assess it and figure out how we 
can actually do it and offer it in a safe way, we would be 
looking to maintain our ethos of being an open and democratic 
and meritocratic platform. So unlike other platforms, we 
probably would not want to have a gatekeeper involved. We would 
not want to have a team of people deciding which people have 
the right to raise money or which do not because inherent in 
that is bias. And that is where you run into things like we had 
a campaign that raised over 110,000 pounds in London for a 
project called The Cat Cafe. This is a cafe where you go and 
you have coffee and you hang out with cats. I met a banker who 
said, ``That is the craziest idea I have ever heard. I would 
never loan to that business.'' And I said, ``Well, 110,000 
pounds worth of funding just went into it from the people 
because they clearly want it.'' And so because of that he said, 
``Wow, I am clearly wrong. I missed that opportunity.''
    And so when you have a system that is reliant on 
gatekeepers, individuals picking and choosing projects, you 
inherently have bias. So that is why it is also not surprising 
that on Indiegogo, or sadly in the venture world, only three to 
eight percent of all venture-backed businesses have a woman on 
their executive team. If you go to small business, 40 percent 
of small businesses are run by women in America, which is a 
much better number. If you go on Indiegogo, 47 percent of all 
successful campaigns are run by women. That is the power of 
meritocracy and democracy.
    And so if you require us, for example, if the regulations 
were to come out and you require us to have a person sitting 
there reading applications, that inherently would be against 
what we believe in. And so we did not know that when we got 
started, but in being able to innovate and being in a 
regulatory environment that allowed us to innovate, we were 
actually able to come up with a system that is far more fair 
and far more efficient.
    Mr. CREMADES. So I would like to--can I add something?
    Ms. CHU. Yes.
    Mr. CREMADES. I agree. I think that obviously having a 
gatekeeper is not the best way to democratize the access to 
fundraising, but of course, for us as a platform, we want to 
keep the business open. And if we would not have that 
gatekeeper, then the SEC would come after us and then we would 
be in trouble. Obviously, once the job site is implemented, we 
hope that we can explore other ways in which we could have the 
platform up and running and basically provide the same 
opportunities to everyone because that is the main reason why 
we decided to put this platform in place when we founded the 
company in 2010, but obviously right now, to be in compliance 
we need to have a gatekeeper so that we make sure that 
everything is kosher once it hits the platform.
    Ms. CHU. Okay, thank you. I yield back.
    Chairman SCHWEIKERT. Thank you, Ms. Chu.
    And actually, you had a perfect question because there 
actually--I am going to yield myself a couple moments here. Let 
us consider this the lightning round.
    That has actually been one of the discussions, is maybe if 
I am the public and I have a couple thousand dollars but I want 
to put it into a business, maybe I look for a platform that 
puts up an opinion or has a gatekeeper, or the others, 
something much more egalitarian where it happens to be my area 
of interest or my geographic or neighborhood I know. As we move 
towards hopefully having the SEC--sorry, I do not mean to be 
sarcastic--I have faith the SEC will get us our rule set and we 
at least understand the box we are operating under, and if 
those of us as members of Congress need to sort of do a JOBS 
Act 2.0 to fix any things where either from our drafting or 
their rule sets to make it work. If I come to you tomorrow and 
say we have equity crowdfunding as you believe it is coming, 
what changes? What are you as Indiegogo about to do different? 
If I go onto the site, will it look different? Will my 
mechanics be different? What am I going to see that comes 
different once you can actually legally do equity crowdfunding?
    Ms. RINGELMANN. Well, the moment it becomes legal, that is 
when we actually start to get to work and we start 
experimenting. So you will not see anything new, different, 
because everything that we think customers might want, whether 
it is certain information that they would want back in terms of 
reporting, our rating systems, all of that, that is all 
hypothesis. And so as an entrepreneur, it is my job to put on 
the lien startup hat and not make any assumptions; just come up 
with hypotheses and then go prove it. So what we would probably 
end up doing is try to replicate our approach to crowdfunding, 
perks-based crowdfunding with equity in a very manual fashion 
with maybe a few customers here and there and really dig into 
those experiences and learn what both the campaign owners need 
in terms of help, support, education, features, product 
enhancement, whatever that may be, as well as what funders 
would need. I think it is very easy, and this is the hardest 
part about setting regulation, is that this industry does not 
yet exist, and the regulators are tasked with coming up with a 
regulation on how to control it, but clearly the risk is too 
much regulation will completely stifle innovation and not allow 
customers to actually--for us to actually explore what this new 
equity crowdfunding experience is supposed to be. So nothing 
would actually change for us. It would just be far more 
experiments and learning so that we could actually come out 
with something a little bit later.
    Chairman SCHWEIKERT. Thanks, Danae.
    Mr. Miller, the same question. You and I had also had the 
discussion of would you even move to equity crowdfunding as it 
is in the JOBS Act if that regulatorily, mechanically would 
benefit you, or are you staying with the model you have 
developed now?
    Mr. MILLER. I mean, assuming that the regulations are 
manageable, we definitely would embrace it because one of the 
challenges is we get people from all over the country, and I 
was talking to a developer yesterday. He is in, I do not know, 
Kansas, and I never heard of him and it turns out he owns 24 
million square feet of real estate. And so it is just striking 
how, at least in real estate, it is very, very local. In every 
local market, if you understand your local market, and you are 
really not going to understand the next one, so if we could 
actually open it up tomorrow and have really what would be an 
open platform--where people in neighborhoods actually are 
saying, yes, this guy has got a great reputation. We want to 
make this happen. We can push this--we would not have to be 
having to figure out this sort of top-down approach that really 
is difficult in a scaling environment. We have just so many 
people, so much interest, and if we could basically, as I said, 
I have lots of real estate experts, real estate analysts. 
Actually, a huge part of our user base is real estate people. 
And so making them a partner and figuring out who should get 
the resources, the limited resources we have to actually get 
into the depth of underwriting real estate deals. So I would 
actually have an open process in the beginning and at some 
point dwindle down when I see enormous support for something 
locally.
    Chairman SCHWEIKERT. Mr. Cremades, same question. If you 
had the JOBS Act at the crowdfunding portion, the rule sets 
through the SEC, and I am an unaccredited investor but I know 
and like one of the companies, I mean, how do I now interface 
with you? How does your platform now change because you are 
right now designed actually you have both a gatekeeper model 
and a model that only allows, let us face it, accredited, 
wealthier investors right now?
    Mr. CREMADES. Yes. So I think right now it is really hard 
to know what the regulations are going to be looking like. I 
think that there are many assumptions that are out there, but I 
do strongly believe that too much investor protection--and I am 
a big fan of investor protection--would kill the attractiveness 
of the industry for platforms like us to switch to the funding 
portal perspective rather than being operational via the 
Regulation D, Rule 506. What I do feel, and I am particularly 
very excited about, is the possibility of adding social media, 
blending social media with platforms like ours because it is 
definitely going to be able not only to give more exposure to 
these ventures, but also to provide much more transparency. 
Because I think that is the beauty of social media, is that it 
is that process of being able to crowdsource a due diligence 
process with a vast amount of people. So I am very excited 
about that.
    Chairman SCHWEIKERT. Bless you. You hit one of my personal 
fixations, and that is sunshine information from lots of 
different sources is the ultimate regulator because many of us 
here, we turn to the SEC and think they are going to know 
everything and that is impossible. And that is how we have some 
of the small and huge frauds with highly regulated entities. 
How do they get away with it? Well, there is not enough 
information in a central place where we as the public, we as 
even the regulators can actually see it. Our discussions about 
affiliated blogs. I am sorry, does anyone else do this where 
you go to the consumer reports of the blog and the first thing 
you do is you look for the negative report and you start from 
there and go backwards?
    Ms. RINGELMANN. Yeah. I mean, I was speaking to the former 
head of risk at PayPal and they said the best thing that has 
ever come along for risk management in the financial industry 
is social media because it is identity management. It is track 
record management. When people have a social footprint on the 
web, you have a ton of information you can look to to assess 
risk. And all of that information goes into all of our fraud 
algorithms. So that is why I think bringing social medial 
together with investing is incredibly powerful. We did it with 
perk-based funding, and I think that is honestly why we have 
been so successful in keeping the site clean and safe.
    Chairman SCHWEIKERT. All right. Ms. Sullivan, just as one 
aside, are you ready to have a relationship with Indiegogo to 
actually raise some social entrepreneur money for some of your 
small startups? I see a love connection.
    Ms. RINGELMANN. We do have dare companies in Indiegogo.
    Chairman SCHWEIKERT. Well, I mean, mostly you are 
microlending.
    Ms. SULLIVAN. Correct.
    Chairman SCHWEIKERT. But your loans range from--what is 
your smallest to what is the biggest you have seen?
    Ms. SULLIVAN. Five hundred dollars up to $25,000.
    Chairman SCHWEIKERT. So once I got my 25,000, I started 
going. Could you imagine a future where you might actually move 
them on to you need the next tier of capital to actually really 
start to grow?
    Ms. SULLIVAN. Yes. We actually find that with our small 
business owners, some of them do come back and apply. We have 
had folks who have taken a second loan and a third loan, which 
they are certainly eligible for. We actually have found many 
times that the capital that we are able to grant them has 
allowed them to grow and create a track record that then makes 
them qualified for traditional lenders. So many of the 
entrepreneurs that we funded five, four, three years ago, have 
had enough success using that capital. They have been able to 
then qualify to get bank loans, which they previously had not 
been qualified for. But I would love to talk more about that. I 
think the notion of getting consumers--we have involved 
consumers in our program as donors to the loan fund, but you 
are way more expert in doing that than we are, so I would love 
to entertain those conversations.
    Ms. RINGELMANN. Well, with your form of lending and with 
crowdfunding, what is really incredible--I did not get too much 
into this in the testimony, but the market validation that 
comes from people voting with their dollar is incredible. A 
great example of this is we had a campaign owner who was 
raising money or had developed a light called the gravity 
light, which is this really innovative light where you raise it 
up for 30 seconds and that creates 30 minutes of light. It is a 
great solution for the developing world where kerosene is the 
go-to lighting source, which is dangerous and expensive. And so 
this entrepreneur was really excited about this design. He 
spent weeks calling venture capital, big banks, trying to get 
them to take interest and give him some startup capital, and 
none of them would return his phone call. So he then went onto 
Indiegogo, raised $400,000 by pre-offering lights in exchange 
for, you know, $10, $20, $50. Guess who would not stop calling 
him? All those venture capitalists that originally would never 
return his phone call because clearly the fact that he was able 
to raise that much money from the crowd is validation that 
there is market interest. And so he gained the confidence, he 
gained the customer feedback, he gained the validation that he 
is onto something. And actually, it gave him power now in the 
situation with the traditional investors. The reason why the 
traditional investors are not complaining about it though is 
that their investment how has been completely de-risked. You 
know, the big job of traditional investors, whether they are 
VCs or banks or foundations investing in nonprofits, or even 
government and labels and studios trying to find the next 
artist, they have two big jobs. One is one of gambler, 
essentially. Try to pick the right idea or person or 
entrepreneur to back. And then the second job is to amplify 
them. So if they are lucky enough to roll the dice and get 
lucky with one, then they come in and put more money in and 
grow them.
    So what crowdfunding is doing is creating this incubation 
platform, almost like a farm league for the major leagues if 
you want to think about that, where the majors are traditional 
investors, where the cream rises to the top, not based on a 
lucky connection but truly based on how hard the campaign owner 
is working and how much the audience and community cares, which 
is we think the only two factors that should matter. And they 
rise to the top and then get discovered by the more traditional 
financiers who could then not roll the dice on them; they have 
proven themselves, but come in and just focus on their 
amplification job. And so that is why I think crowdfunding and 
these creative alternative forms of financing, it is truly 
American. It is really empowering people to go after their 
dreams and have control over themselves and their own futures 
and not really and hope that some third-party gatekeeper will 
say you are good.
    Chairman SCHWEIKERT. Ms. Clarke.
    Ms. CLARKE. Mr. Chairman, I really do not have any further 
questions but just to say to our panelists today that you have 
kind of renewed my faith in the capacity of our nation to sort 
of remake itself from a capitalist standpoint. So much of what 
we experience here in Washington is from the macro perspective 
and that has not been a fun ride recently. But what you are 
doing is remaking this in a way in which it is much more 
democratic. I would be interested in seeing how each of your 
endeavors is translated into future generations; how other 
young people see this as a new discipline and buy into it 
because, of course, the predominant model is the traditional 
model and many communities do not have access to that. Having 
the platforms that you all have makes it much more available, 
and I hope that we can see some new schools of financing 
thought come from it. And I wish you all well in your future 
endeavors. Thank you. I yield back.
    Chairman SCHWEIKERT. Thank you, Ranking Member Clarke.
    As we get ready to shut this Subcommittee hearing down, 
look, I have grown to become an absolute believer by literally 
the end of this decade, for small business and maybe even mid-
size business, the way we find investors, the way we capitalize 
our organizations is going to look different. And much of this 
is embracing the technology around us and the ability to 
capture information as that sunlight. As that refiner of 
concept and also eliminator of fraud because so often what 
happens here, in my experience in the last previous two years 
in financial services and here, is our terror of fraud, the 
terror of someone losing money in a deal means we take a huge 
portion of our society and our population and say you do not 
get to participate in receiving a rate of return, even though 
you desperately need that rate of return to have a future, 
because we are terrified that someone might lose money. That 
ability to take risk is also the ability to grow. It is the 
ability to have a future in our society and for all 
populations. So what you are doing is incredibly important to 
us.
    I am going to ask you if you have ideas or you come across 
information or you even hear rumor coming out of the SEC, let 
us know, because this Subcommittee and I think the Committee in 
general are watching very closely, hoping that the SEC puts out 
a fair, rational, workable rule set. For a lot of us it has 
been a lot of time over the last couple of years trying to put 
together those elements of the JOBS Act. So I have faith this 
is not the last time I am going to see the four of you, and 
this has been very interesting.
    And with that I will ask for unanimous consent, which I 
guess that means just you and I, that members have five 
legislative days to submit statements, supporting materials 
from the records. With that also may come some questions being 
extended out to each of you, and if you have the ability to, 
with the chaos of your lives, to send us back a response, that 
is truly appreciated.
    And without objection, so ordered. This hearing is now 
adjourned. Thanks.
    [Whereupon, at 12:41 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X


                     Testimony of Michelle Sullivan


Senior Director of Communications and External Affairs, The Boston Beer 
                                Company


                               Before the


                 United States House of Representatives


                   House Committee on Small Business


       Subcommittee on Investigations, Oversight and Regulations


                              June 6, 2013


    Chairman Schweikert, Ranking Member Clark and Members of 
the Subcommittee:

    On behalf of Jim Koch, the founder of The Boston Beer 
Company, I want to first thank you for the opportunity to 
testify today about our philanthropic program Samuel Adams 
Brewing the American Dream. My name is Michelle Sullivan, and 
as Senior Director of Corporate Communications and External 
Affairs for The Boston Beer Company, I am charged by Jim with 
the implementation of this important program, and I am pleased 
to be here to discuss the innovative way in which we assist 
small businesses by affording them access to capital and 
knowledge to start or grow their businesses.

    In 1984, when Jim Koch started The Boston Beer Company, the 
odds were stacked against him. Flavorful, high quality 
``craft'' beers like Jim's were virtually unheard of at the 
time by anyone--beer drinkers, beer distributors or beer 
retailers and certainly not bank lenders. After brewing the 
first batch of beer in his kitchen, he named it Samuel Adams 
Boston Lager after one of his favorite revolutionaries and, 
after trying to obtain a loan from numerous banks, he quickly 
realized the reality of starting a small business went far 
beyond having a great product. Namely, that a lack of access to 
capital and the right network of business contacts could 
actually prevent a small business from moving forward despite 
hose good its product is. Jim began selling his beer bar to 
bar, restaurant to restaurant and tavern to tavern in the 
Boston area himself. He had to start his own distribution 
company because the beer wholesalers in Boston all turned down 
the opportunity to carry his product. He scraped together the 
funding for his brewery by risking everything personally, 
taking out a second mortgage and by raising money from family 
and friends.

    Today, we are in the third decade of America's Craft Beer 
Revolution, and Boston Beer is proud to have been a catalyst 
for this movement. The beer industry has undergone profound 
changes since the 1980s. America's big three brewers, Anheuser-
Busch, Miller and Coors, have been acquired by or merged into 
foreign conglomerates and indeed Miller and Coors have merged 
their operations in the United States. This leaves Samuel Adams 
as one of our country's largest American owned breweries. But, 
after nearly 30 years of significant growth, we still only 
account for just over one percent of the American beer 
business, while the two largest beer companies account for over 
80%. In the beer industry, we still live in a David and Goliath 
world.

    That said, we are proud that we continue to lead America's 
brewing industry, comprised of more than 2,400 other small, 
quality-driven brewers in all 50 states, not only in creating 
an outstanding product, but also in our unconventional path to 
corporate citizenship.

    From our earliest days, before we could make monetary 
donations to charities, we had beer. And we happily supported 
hundreds of Boston-area charities by providing Samuel Adams for 
their fundraisers and auctions. It was a real benefit to those 
institutions to save on the cost of buying beer, and it helped 
us get our name out and our Samuel Adams into people's hands. 
This program continued, and in 2012, we donated thousands of 
cases of beer to 501 c-3 not-for-profit organizations.

    As The Boston Beer Company grew, however, we wanted to 
create a unique program that went beyond donating beer.

    That was Jim's challenge to me in 2007. Working with a team 
of employees, led by Jim himself, we created Samuel Adams 
Brewing the American Dream. The program has two major 
components: we host a variety of mentoring and coaching events 
for low and moderate income small business owners and, through 
our non-profit partner ACCION, we fund microloans ranging from 
as little as five hundred dollars up to twenty-five thousand 
dollars. Our program serves small businesses in the food, 
beverage and hospitality industry including other craft 
brewers, the very industry we compete and sell in, and the one 
where we are most able to give them meaningful nuts-and-bolts 
business advice, guidance and introductions.

    Microloans are a critical component to Brewing the American 
Dream as there is a serious lack of funding available today to 
small and very small businesses. It is equally as important to 
educate inexperienced business owners in the areas of sales, 
graphic design, purchasing, marketing, hiring, distribution and 
other facets of business that can make the difference between 
success and failure. Effectively, we want to ensure businesses 
that are part of Brewing the American Dream do not make the 
same mistakes that Jim and others starting small businesses 
before them have made.

    And we know it works, because we have a 97% repayment rate 
on the loans. As of today, we have disbursed 234 loans total 
over $2 million dollars and have hosted 45 events in 12 states 
that have attracted over 3,000 attendees. More than 300 of our 
employees have participated in these events as coaches or 
mentors. And, we have saved or created more than 1,400 jobs. 
So, in an odd twist, through Brewing the American Dream we have 
created more jobs outside of Boston Beer than inside. And we 
are proud of that.

    When Jim Koch started The Boston Beer Company back in 1984, 
he was armed with a great recipe, the financial backing of 
family and friends, and a passion to succeed. When he didn't 
have, and the reason he feels so strongly about Brewing the 
American Dream, were mentors. He didn't have a network of 
established business owners whose expertise he could call on. 
And through this program, he attempts to make funding, provide 
nuts and bolts business advice and access to mentors, all of 
the resources he didn't have, available to Brewing the American 
Dream small businesses owners.

    Working with these small business owners has been an honor 
and an education. Based on our experience, we are convinced 
that well-established and well-supported small businesses are 
particularly well-poised to grow and thrive. They are an engine 
for future economic growth. They are a source of innovation, 
and their passion is contagious. They will create jobs. They 
will be the household names of the next generation and like Jim 
Koch they will realize their American Dream.

    I want to thank the Subcommittee for allowing me this 
chance to discuss Samuel Adams Brewing the American Dream, and 
please let me know if you believe our program may be helpful in 
your district. Thank you again and I am pleased to answer any 
questions you might have.
[GRAPHIC] [TIFF OMITTED] 81421.002

    Mr. Chairman and other members of the Committee on Small 
Business.

    Thank you very much for the kind introduction and for 
having me here today. I am particularly interested in sharing 
my thoughts and experience with regard to the difference 
crowdfunding is already having, at this early stage, on small 
businesses in the US, and the positive impact that services 
like RockThePost provides.

    According to a Kauffman report, new firms add an average 3 
million jobs in their first year while older companies lose 1 
million jobs annually. Unfortunately, 65% of these new firms go 
out of business within the first 4 years due mainly to lack of 
access to financing.

    Traditional methods of financing are very limited. Out of 
the 6 million businesses that launch every year in the US, only 
400 of them get Venture Capital money at an early stage. The 
rest rely on angel investors, which represents less than 1% of 
the US population or friends and family.

    With equity crowdfunding offered via services like 
RockThePost, startups are able to gain exposure in front of 
thousands of investors. In the offline world, startups take on 
average 8 months to close a Seed round. Via RockThePost, 
startups and small businesses fundraise their round between 60 
or 90 days with minimal road show distractions. Success stories 
like Villy Custom Bicycles, a Shark Tank backed company with 
high profile investors like Mark Cuban and Barbara Corcoran, 
raised their funding goal in just two weeks on RockThePost or 
Musicx,fm in little over a month. RockThePost's crowdfunding 
platform not only helps entrepreneurs access funding, but 
reduces the fundraising time significantly, which allows them 
to focus on growing their business, which is the most critical 
for the bottom line.

    However, we are operating under a lot of restrictions, 
which makes it challenging to truly innovate and pioneer this 
new industry. The general public solicitation rule is the most 
difficult challenge to overcome. Secondly, the fact that only 
accredited investors are allowed to make investments is also a 
big obstacle. Even though the law allows up to 34 unaccredited 
investors per offering, we feel that the amount of disclosures 
required to comply with this exemption kills the attractiveness 
for a platform like RockThePost to get involved, not to mention 
the burden entrepreneurs are faced with in providing additional 
disclosure materials. Allowing non-accredited investors to 
partake in private offerings will open the door to over $400 
million Americans in comparison to the 7 million accredited 
people that are currently in the US.

    With that been said, I believe that we are far behind and 
every day that passes without the JOBS Act being implemented is 
another day that startups need to fight for survival. Pandora 
for example was rejected over 300 times from financial 
institutions and thank god they did not give up on their 
business. I invite you all, present in this room today, to 
create a unified voice in order to reduce the delay of the JOBS 
Act implementation. There are many cases like Pandora out 
there, and unfortunately many of them end up giving up in the 
process.
    Testimony to the Committee on Small Business Subcommittee 
on
    Investigations, Oversight, and Regulations
    ``Innovation and Micro Financing,'' June 6, 2013
    Benjamin Miller, Co-Founder of Fundrise

    Members of this esteemed House. I deeply appreciate the 
opportunity to share my experiences as a small business owner, 
a real estate entrepreneur, and a technology company executive. 
Let me spend a moment on my background so that you understand 
how I came to run Fundrise, one of the only companies in the 
country currently raising equity online from anybody and 
everybody in Washington DC and Virginia--from both accredited 
and unaccredited investors--prior to implementation of the JOBS 
Act. We are legally crowdfunding real investment today, through 
currently existing regulations, and have been for almost a 
year.

    Prior to starting Fundrise, I ran a real estate company. In 
that capacity, I have lead the acquisition and development of 
more than 2 million square feet of real estate property. We 
built some of the more iconic projects in Washington DC, such 
as Gallery Place on 7th and H Streets NW--a 750,000 square foot 
mixed-use development. As a real estate entrepreneur, I have 
partnered with some of the largest institutional investment 
companies in the country, such as Mass Mutual, Angelo Gordon, 
and the AFL-CIO. I understand what it means to raise debt and 
equity.

    After the 2008 financial crisis, I began to focus on real 
estate in emerging neighborhoods. Neighborhoods filled with new 
energy and growth driven by the millennial generation, and a 
reinvigorated desire from people of all ages to move into 
cities. When I went to my traditional capital partners, they 
didn't understand the dynamics of these neighborhoods--areas 
such as Washington's H Street NE, Cincinnati's Mason District, 
Brooklyn NY, or the L.A. Arts District. It was striking to me 
how little they understood local neighborhoods, where new 
growth is, as compared to traditional core downtown markets.

    I would speak to local people in the communities where I 
was building and they would get very excited about what we were 
doing. They understood why we were investing there. They cared 
deeply about the places we were changing. They wanted to 
participate in building their city too.

    So one day we asked ourselves, ``Why are we raising money 
from institutions that have no real relationship with the 
places in which we are investing? What if we raised money from 
the people who live there, who care, who get it?''

    So that's what we're doing. Which is why I am sitting here. 
We have been raising real investment, in increments as 
affordable as $100 per share, from the local public who live 
near our real estate projects. Anyone and everyone locally can 
invest--even if they are not accredited investors, as defined 
by the SEC. Hundreds of people have been investing hundreds of 
thousands of dollars through Fundrise, purchasing shares of 
their neighborhoods through our web platform.

    Since the JOBS Act did not exist when we started our 
endeavor, we had to work within the existing regulatory 
framework. Thanks to crackerjack attorneys--Marty Dunn and 
Bjorn Hall from O'Melveny Myers--we found a way, using 
Regulation A. Ultimately, our filings with the Securities and 
the Exchange Commission (SEC) totaled more than 350 pages, and 
eventually allowed us to sell equity online at $100 per share 
to the local public. Last year, I was one of only two or three 
people who have successfully cleared a filing under Regulation 
A.

    It was a serious undertaking. The first offering took nine 
months to get qualified by the SEC and registered with the 
District of Columbia and Virginia regulators. It was novel, and 
there were new issues we had to work through. Yet, we were 
fortunate. The local regulators understood that we were working 
to build local places and create a new capital source for local 
job growth.

    After doing multiple public offerings, raising millions of 
dollars online, and spending a lot of money, time, and effort 
to crowdfund equity online, here are my two big takeaways:

    1) It's difficult to build trust with the local public to 
invest in your company online. I have interacted with thousands 
of potential investors. People were skeptical at first. There 
is a fear among critics of the JOBS Act that the Internet will 
make it too easy to raise money, but I found that the public 
were even tougher critics of our investments. Anyone who has 
read a movie or restaurant review online knows the truth of 
that.

    There are a lot of experts out there. We have real estate 
analysts from the largest real estate companies in the city 
invested in our offerings. Even though they are not accredited 
investors, these men and women know their subject. And they are 
vocal. And put me through my paces. While it is absolutely 
prudent to crate safeguards against potential investor fraud, 
my firsthand experiences raising real investment online is that 
the public put us through just as much scrutiny as the SEC.

    2) The regulatory institutions today are not designed to 
manage small business raising capital from the public. I was 
lucky because I found a real partner with the local regulators. 
I have now done multiple local public offerings working with 
the SEC, and District of Columbia and Virginia regulators. I 
say I was fortunate because I found that in some other states, 
the regulators were far more resistant and wary. Therein lies 
the problem. On the state level, in many ways, it was an ad hoc 
process. While DC and Virginia were terrific, other states gave 
the impression that they cared less about creating new 
opportunities for small businesses to raise capital and create 
job growth.

    In terms of the Federal regulations, while I found the SEC 
extremely reasonable, it takes six to nine months to clear an 
offering for $300,000 under Regulation A. This waiting period 
creates high legal fees, an expense most small businesses 
cannot afford. The fact of the matter is the SEC is not funded 
to handle small offerings like mine. At times, I felt like no 
one in the SEC really owned my filing. The SEC is currently not 
built to manage and review small-scale issuances. Yet, we are 
about to see a sea change in the number of such issuances.

    Based on my experience, I would recommend that Congress 
fund a group designed to take responsibility for the filings of 
small, agile, job-creating companies. A venture fund or private 
equity company can review an offering in a matter of weeks, if 
not days. Could a well-funded department, housed at the SEC or 
Small Business Administration, do the same and help thousands 
of small businesses like mine raise capital while substantially 
mitigating concerns over investor protection? I believe so.

    Already, donation-based crowdfunding is approaching a $3 
billion per year industry.\1\ Once the SEC and FINRA implement 
the JOBS Act, we will almost certainly see even more tremendous 
flow of small-scale fundraising. As of today, however, there is 
no institutional body mandated with a special focus to manage 
and support this new industry. The Federal government has 
agencies to represent and engage with constituencies ranging 
from chicken farming to glacier research. The SEC's small 
business department is only a handful of people. Small business 
growth, innovation, and community development will be one of 
the greatest sources of jobs in our country in the next decade. 
Shouldn't we set up the type of institutional supports that 
crowdfunding deserves to help it succeed?
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    \1\ http://www.forbes.com/sites/ryancaldbeck/2012/12/11/
crowdfunding-predictions-for-2013/
[GRAPHIC] [TIFF OMITTED] 81421.001

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    Introduction

    My name is Danae Ringelmann, and I'm one of the founders of 
Indiegogo--the largest global crowdfunding platform in the 
world. We launched in January 2008, before the word 
``crowdfunding'' existed in our vernacular. Our mission is to 
provide an equal opportunity platform that empowers people to 
fund what matters to them--whatever that might be. Film, music, 
non-profits, small business, inventions, medical treatments, 
trips and more--all happen on Indiegogo every day. Today we 
distribute millions of dollars every week to campaign owners in 
every country of the world.

    Why I'm Here Today

    I'm here today because Andy Guggenheim asked me to share 
Indiegogo's story in pioneering what today is called perks-
based crowdfunding. I will also be sharing the benefits of 
crowdfunding specific to Indiegogo's inclusive and meritocratic 
approach and with a focus on small businesses in America. I 
will also talk about lessons learned and share a bit about how 
we've had to innovate and mitigate risk in order to create a 
whole new industry.

    As background, I was compelled to start a company that 
would democratize finance as I saw firsthand the impact of an 
inefficient and unfair financial system that needed to be 
fixed. I was a child of two small business owners who sweated 
it out for 30+ years. Not once, did they get a loan from the 
bank to expand, despite steady growth, loyal employees, and 
top-notch customer satisfaction. The reason they struggled was 
not for lack of performance, but lack of connections to 
gatekeepers. They were on their own, like most small business 
owners in America. When a bank rejected them that was it. There 
was nowhere else to turn except our own savings, own mortgage 
or worse, our credit cards.

    So after witnessing my parents hustle and overcome intense 
challenges (e.g. making payroll without laying off anyone after 
September 11), I went into finance to understand how money 
worked and flowed. It was while I was on Wall Street, however, 
that I began volunteering with filmmakers and theater producers 
on the side and experienced first hand the struggles of 
fundraising. Even I--someone who worked at a bank--failed at 
helping brilliant artists with proven audiences get off the 
ground, not for lack of heart and hustle, but rather lack of 
connections to financial gatekeepers. When I failed to secure 
investment for a theater production after staging a one-time 
show in front of an audience that loved it, I realized that the 
people who wanted the play to come to life the most--the 
audience and the actors--lacked the mechanism to make it happen 
themselves. Shortly thereafter, I quit finance and returned to 
business school at UC Berkeley to start a company that would 
democratize finance. It was there that I met my two co-founders 
Slava Rubin and Eric Schell who themselves had been struggling 
with fundraising. Together we created Indiegogo--now the oldest 
and largest perk-based global crowdfunding platform.

    What's Crowdfunding on Indiegogo

    Crowdfunding on Indiegogo is people-powered finance. it's 
individuals directly funding the ideas, businesses, artists, 
non-profits and causes they care about. There's no middle-man 
or traditional investor--like a bank or a VC, a media publisher 
or a studio, or even a grants-oriented foundation or government 
funding body. Crowdfunding is--simply--lots of people 
contributing a few dollars each to raise enough money together 
to push an idea or project forward.

    While this concept might not feel new, the reason the 
industry has a new name ``crowdfunding'' is because people-
powered finance has never been so efficient and effective as it 
is today.

    Through the integration of social media and incorporation 
of online payments--two irreversible shifts in online 
behavior--Indiegogo campaigns for funding spread to like-minded 
folks (both people you know and don't know) far faster than 
ever before. If traditional fundraising helped you raise money 
from the first degree of people you know, crowdfunding on 
Indiegogo helps you turn your first degree connections into 
havens, thereby allowing you to raise money from people 
interested in your project who are 2nd and 3rd degrees away.

    Landscape of Crowdfunding

    Within crowdfunding, there are a few models. There's 
donation and perks-based crowdfunding, like Indiegogo. In this 
case funders contribute money in exchange for perks--tangible 
or intangible goods and services of finite value. There is no 
investment made, no profit participation or upside.

    There is also securities based crowdfunding like peer-to-
peer lending, and equity crowdfunding for accredited investors 
only, and mainstream equity crowdfunding that will soon be 
permitted under the JOBS act. Today, I will focus on perks-
based funding as that is the model Indiegogo pioneered in 2008.

    How Indiegogo's Donation & Perks-Based Funding Works

    The way Indiegogo works is as follows:

    1. Create a Campaign

    A person or organization with a project or idea in need of 
funding goes to Indiegogo.com and creates a campaign page. On 
Indiegogo, there is no application process nor arbitrary 
vetting of ``quality'' as Indiegogo believes that every idea 
has the right to try to raise money. Only campaigns that are 
illegal or in violation of our Terms of Use are removed 
automatically and systematically.

    On the campaign page, the campaign owner:

           pitches their idea, team and impact (in both 
        a text and a recommended video).

           sets a funding target and deadline 
        (typically 30-40 days)

           outlines their use of funds.

           offers perks (optional), which can be 
        anything from a thank you note or twitter shout out to 
        a tangible item of finite value. A campaign for a 
        business that creates innovative coffee mugs, might 
        offer the coffee mug itself as a perk

           picks their funding framework, either:

                    ``Fixed:'' campaign owner receives money 
                only if they reach goal

                    ``Flexible:'' campaign owner receives money 
                whether or not they reach goal

    (It's worth noting that we encourage campaign owners to set 
a funding target that matches an amount they need to move their 
project forward. It does NOT need to be 100% of budget, as 
campaign owners can do multiple campaigns, or use their 
Indiegogo campaign to attract additional funding from other 
sources--more on that later.)

        2. Go Live.

    Once the Indiegogo campaign page is drafted, they can go 
live at any time. Once live, campaign owners share their 
campaign with their friends, family and followers via 
newsletters, social media and other outlets. For artists, 
followers are typically their fans. For businesses, it's their 
customers. For non-profits and causes, its people passionate 
about their cause. On Indiegogo we typically see that campaigns 
that reach their funding goals raise the first 30% of funds 
from people they know.

    Due to the social media integration embedded into the 
funding experience on Indiegogo, friends of friends begin to 
fund. (For example, when people fund, they are prompted to 
tweet or post to Facebook.) Thus 2nd and 3rd order funds begin 
to come in... leading eventually to ``stranger dollars.''

    Lastly, campaigns earn extra promotion and exposure on 
Indiegogo.com and our marketing channels as well. Indiegogo's 
proprietary algorithm--the gogofactor--determines the amount of 
added exposure. The gogofactor, similar to google's pagerank 
algorithm, is a measure of a campaign's activity and its 
community's responsiveness--i.e. two factors completely in the 
control of the campaign. Indiegogo's promotion, therefore, is 
completely meritocratic. Just as we don't decide who has the 
right to raise money, we also don't decide who we promote--the 
campaigns and their communities do. No other platform offers 
this meritocracy.

    As you can see, crowdfunding success on Indiegogo is 
earned. I call out the ``friends-first-strangers-later'' 
pattern of success simply to dispel any assumption one might 
have that crowdfunding is a field of dreams. People do not just 
post ideas, walk away and come back to find money in their 
account. If campaign owners build it, the proverbial ``they'' 
will NOT come. It takes work, akin to the work of grassroots 
and guerilla marketing tactics. This is an important 
fundraising dynamic to understand as it may inform your opinion 
on the risks of crowdfunding in general. More on that in a bit.

    Benefits of Indiegogo--It's not just about the money!

    Many people first hear about crowdfunding as a new and 
alternative form of finance. This is true. But what many people 
don't appreciate at first, are all the other benefits 
crowdfunding on Indiegogo brings to campaign owners, their 
funders, the entire financial ecosystem, and our economy.

    Benefits to Campaign Owners:

    For campaign owners market validation, risk mitigation, 
customer feedback and confidence are non-monetary benefits 
often great enough to drive small businesses to crowdfund even 
if they didn't need the money.

    1. Market validation: Crowdfunding on Indiegogo enables 
entrepreneurs raising money to test their market and prove 
demand. A vote with one's dollar before a product or service 
even exists is a far better indication of true interest than 
any focus group or ``facebook like'' button could ever provide.

    2. Risk Mitigation: Along with market validation, comes 
risk mitigation. In the case of Luminaid--a business started by 
Illinois-based Andrea Sreshta and Anna Stork that makes 
environmentally friendly, solar-powered lights for the 
developing world (as a safer alternative than kerosene)--
crowdfunding protected them from the risks of over-production 
and under-production.

    They used Indiegogo to raise $51,829 to fund their first-
run production. For a $25 contribution, a funder would be sent 
a light a few months later. Because the funding came in up 
front, and because the amount raised was tied to an exact 
count, it was impossible for the Luminaid entrepreneurs to 
``over-manufacture'' or ``under-manufacture'', thus mitigation 
production guesswork and risk.

    3. Customer Feedback: A crowdfunding campaign on Indiegogo 
enables entrepreneurs to gather direct feedback, both 
qualitative and quantitative. California-based Sonny Vu is a 
product designer who designed a product called the Misfit 
Shine--an activity tracking device that elegantly fits on your 
clothing. He and his team used Indiegogo to raise $846,675 to 
fund this first-run production. He actually had already raised 
venture capital funds, but he still used Indiegogo to get 
``smarter, faster'' on his product features, messaging, and 
pricing.

    Throughout his campaign he swapped perks in and out, and 
learned that his funders far preferred the black version of the 
Shine over the silver version, and were willing to pay $50 more 
for the black. He also discovered a new revenue stream--
necklace accessories--after his funders suggested he add 
necklaces as a perk. To his surprise, the necklaces were quite 
popular. Based on feedback from his funders, he discovered new 
revenue streams and gathered quality feedback on features, 
messaging and pricing. That's priceless information and data 
for a new business that hasn't even launched yet.

    4. Confidence: Perhaps my favorite non-monetary benefit of 
crowdfunding on Indiegogo for campaign owners, however, is the 
confidence a campaign owner builds. Karen Freer of Brooklyn, NW 
had always dreamed of opening a gluten-free bread company. But 
the idea of saving $10,500 to launch seemed almost impossible. 
So rather than wait and save, she launched an Indiegogo 
campaign and raised $10,771 from 95 funders. For $1, she gave 
folks a hug: For $10, a note. For $50, several rolls of bread. 
Within a matter of weeks, she had the funds to launch her 
business. She was beside herself. What was a dream, instantly 
became a reality. Here's what she shared with Indiegogo in a 
note to our Customer Happiness team:

    ``I'd like to tell you something. Once I began my Indiegogo 
campaign, I truly saw my life start changing. Indiegogo has 
given me the confidence in my first business venture--and with 
that a great feeling of hope for my future. That is a true 
gift'' - Karen, Free Bread.

    Benefits to Funders: Empowerment

    In addition to being a source of funding and a great way to 
validate a market, reduce risk, get feedback and gain 
confidence for campaigners, crowdfunding is turning funding 
from a ``transactional'' experience into a ``social and 
relationship-based'' experience.

    When people fund what matters to them, they're not just 
buying bread or activity trackers in advance, they're creating 
their own reality around them... often times for as little as 
the price of a cup of coffee. As a result, they're more engaged 
and empowered.

    A great example of this is the fastest growing political 
campaign on Indiegogo right now. Distraught by the way the 
government was handling the sit-ins in Turkey, three Turkish 
Americans felt compelled to take action. They started a 
campaign four days ago to raise $55,000 to purchase a full-page 
ad in the New York Times calling for democratic action and a 
new dialogue on Turkey. As of Wednesday, June 5th at 10 am, 
2,369 people from across the world had joined forces and funded 
this ad together, raising $93,290.

    Crowdfunding on Indiegogo, therefore, empowers. No longer 
do people have an excuse to complain about bad Hollywood 
movies, nor the lack of local coffee shops in their 
neighborhood. If they want to see good movies and have a local 
hang out with friends, they can fund them can get their friends 
and other like-minded folks to fund them too.

    Why People Fund if there's no Return or Profit Potential

    Indiegogo's research reveals that people on Indiegogo fund 
for 4 reasons. We call these reasons the 4 P's:

           People - they like the person or team 
        running the campaign.

           Passion - they are passionate about the idea 
        or project.

           Participation - they want to be part of 
        something bigger than themselves.

           Perks - they want the perk

    However, we have also found that there is a dynamic mix of 
motivations at play for any given contribution. For example, I 
recently funded an app called ``NotBuyingIt.'' It's an app for 
the phone where you can take a picture of a piece of public 
media that you deem sexist and/or belittling towards women. The 
app posts the image to twitter with a hashtag #notbuyingit. 
With enough tweets, the goal is to make the advertiser revisit 
and remove their sexist ad. This app campaign is being run by 
Jennifer Newsom, an activist whose film ``Miss Representation'' 
sparked a movement to eliminate sexist media in the public. I 
funded this campaign for all 4 reasons--I want to support 
Jennifer Newsom and this project. I want to be part of the 
movement, without having to quit my day job, and I want the app 
(i.e. the perk).

    Benefits to the Finance Industry and the Economy

    The macro benefits of crowdfunding on Indiegogo to the 
larger finance industry and the economy as a whole are also 
grand.

    1. Meritocracy. When people fund what matters to them, 
ideas that might once have gone unborn or remain 
undercapitalized due to lack of access to traditional 
gatekeepers, now have a chance. In London, a cat cafe recently 
raised 110,000 on Indiegogo to open. This cafe will be a place 
where people can get coffee and hang out with cats - or what 
some might call a very niche business. After sharing their 
crowdfunding success with a banker whose job it is to review 
loan applications for new businesses, the banker stated in 
shock ``I would've never thought a cat cafe would have a 
market. Had that application come across my desk, I probably 
would've said `no.' Clearly, I would've been wrong.''

    Because funding success is based on hard work and community 
or audience engagement, not based on winning over an arbitrary 
gatekeeper whose goals, beliefs and biases may be different, 
crowdfunding on Indiegogo is making finance fair and efficient, 
once and for all.

    2. Incubation Platform & New Role for Gatekeepers. 
Crowdfunding on Indiegogo is also fundamentally disrupting 
finance. Unlike disrupting technologies in other industries, 
which typically destroy the traditional industry, crowdfunding 
on Indiegogo is making the financial ecosystem stronger as it's 
providing an incubation platform for the worlds' ideas.

    Just as crowdfunding de-risks a business or venture for the 
entrepreneur starting it, its also de-risking any follow-on 
investment that comes from a traditional investor. For example, 
the designers of Gravity Light - another lighting product that 
creates energy by lifting it up - couldn't get a Venture fund 
to return their phone call when they needed to raise funds to 
prototype their product. So they turned to Indiegogo and raised 
$399,590 from the people. After the campaign, venture funds 
couldn't stop calling the team. They had proven to them his 
business was a good investment by proving demand through their 
Indiegogo crowdfunding campaign.

    3. Jobs. As a result of crowdfunding on Indiegogo, ideas 
and businesses that went previously unborn or under-capitalized 
due to lack of efficient access to funding will now have a 
chance to thrive on their own merit. As they grow, so will the 
jobs they create.

    Samantha started her gluten-free bakery business Emmy's 
Organics on a small business loan. She had one store in the 
first year. With the opportunity to distribute her product in a 
regional grocery store chain - a huge growth opportunity - just 
10 months into her venture, she needed to take on another loan 
to pay packaging changes (a requirement for distribution). 
Unable to secure a second $15,000 loan - as her bakery was 
deemed too young and high-risk - she didn't give up and throw 
away the distribution opportunity.

    Instead she turned to Indiegogo to raise $15,000 in three 
weeks. She offered macaroons as her perks. Her customers funded 
her, and brought in their friends as funders too. Within a 
month of her campaign, she had redone her packaging and started 
selling her product through the grocery store chain. This lead 
to further growth, and within the year she was distributing her 
product in 40 states across America. To keep up with 
production, she had to move into a new kitchen and hire over a 
dozen employees. Had Indiegogo not existed, she might still be 
selling baked goods out of her one store front, employing just 
herself and her partner.

    Indiegogo's Innovation around Risk

    With a mission to be an equal opportunity funding platform, 
it was important to us to take an inclusive and meritocratic 
approach to crowdfunding. As I mentioned above, this is why we 
do not curate. We want all ideas to have an equal chance of 
success - a principle this country was founded on.

    However, this inclusive approach also makes Indiegogo open 
to people wishing to use the platform in a way it was not 
intended - i.e. for fraud. Given that, Indiegogo has innovated 
on this front to keep the site clean and safe for the 99%+ 
users on the site who are using it for its intended purpose - 
to fund what matters to them.

    We've developed proprietary screening technology and Trust 
& Safety algorithms on our backend to automatically screen out 
bad behavior. In addition, we employ a community policing 
system similar to eBay or Paypal that adds another layer of 
surveillance. Finally, the dynamic of crowdfunding (raising a 
lot of funds from a lot of people a little at a time) is a 
natural deterrent of fraudulent activity as convincing a lot of 
people to fund an idea typically takes a track record, social 
media activity and hard work to get funding going. This is one 
reason why it's a good thing that successful campaigns 
typically have to raise the first 30% of funds from people in 
their inner circles, as I mentioned above.

    Future Innovation

    As the SEC reviews the rules for equity crowdfunding, which 
we're very excited about as equity crowdfunding is in-line with 
our mission to empower people to fund what matters to them, I 
like to share that one of the reasons Indiegogo was able to 
pioneer perks-based crowdfunding is because the regulatory 
environment allowed us to experiment and innovate.

    Since our launch in 2008, hundreds of platforms have 
followed, each with their own twist on crowdfunding. Clearly, a 
new market has been unlocked that might not have had overly 
burdensome regulations been in place.

    Often regulation is put in place to protect all parties. 
While too little regulation could lead to another 2008, too 
much regulation could also be damaging as it could stifle 
innovation. Regulation setting is a tough challenge; there's no 
question about that. What I hope regulators keep in mind, 
however, is that business pressures and business uncertainties 
are often better drivers of innovation and protection, than 
regulations.

    For example, Indiegogo developed proprietary screening 
systems and Trust & Safety algorithms to ward off fraud not 
because a law told us to, but rather because we wanted to stay 
in business. A safe site would attract more customers. An 
unsafe site would repel customers and lose us a lot of money.

    Indiegogo's Vision:

    At Indiegogo, we think crowdfunding is just in its infancy. 
Just as Twitter and Facebook democratized communication 
formenting the Arab Spring, we hope Indiegogo and crowdfunding 
will democratize funding. We imagine a world where funding the 
ideas and people around you is a daily habit, like commerce and 
social networking. Perhaps one day, people will even be able to 
control where their tax dollars go. After submitting one's 
taxes online, I see a day where the next pop-up screen says: 
``to which local, state and national efforts would you like 
your tax dollars to fund?'' A dropdown of options would be 
provided.

    Anyhow, while it seems we've innovated quite a bit to get 
perk-crowdfunding off the ground and help make equity 
crowdfunding an option, there's still quite a bit of innovation 
ahead. It's an incredibly exciting time to be an entrepreneur 
in this space as we're helping change finance for good, both 
permanently and for the better.

    In closing, it's probably worth pointing out that one of my 
co-founders Slava Rubin was an immigrant to this country, and 
my other co-founder Eric Schell is the son of a librarian. As 
the daughter of two hard-working small business owners, the 
three of us together struggled to get Indiegogo off the ground 
as we ourselves lacked the right connections to make it happen 
early on. I often think about how much quicker we might've been 
able to grow Indiegogo had we had Indiegogo to fund Indiegogo.

    Thank you.

                                 
