September 29, 2012
I serve as state spokesperson on The JOBS ACT and Crowdfunding for StartupCalifornia a unit of the White House initiated Startup America Partnership. My speech on the human implications of crowdfunding may be found here http://startupcal.org/?page_id=734. I have given over 30 speeches thus far around the state on the subject. I am a strong believer that The JOBS ACT will create millions of new jobs in short order.
I am an inventor with 20 patented products for treating heart and cardiovascular disease. As an entrepreneur I have brought a number of these inventions to market leadership = stent grafts, stem cell heart treatment, cardiovascular balloon catheters, pacemaker that recruits stem cells and heart valves. These inventions have treated more than 180,000 patients in over 62 countries. Most of my experience in capital raising has been associated with building these companies which employ more than 4000 people today.
I got involved with helping to reduce the cost and complexity of small firms raising capital with the formation of The Entrepreneurship Party www.entrepreneurshipparty.com a public policy institute in 2006. This was an spin out of the The University of Florida Center for Entrepreneurship and Innovation where I have served as board member since 2000.
Our firm Leonhardt Ventures and our affiliated angel network have raised and put to work over $140 million in over 20 startups since our founding in the 1990's. The cost of raising capital has been a constant obstacle to further job growth for all of our companies. Bioheart, Inc. our largest holding was forced to go public in 2008 after reaching more than 500 private shareholders. We needed $7 million to finish our clinical trials and succeeded in raising $6.5 million. We were the only biotech IPO in the USA that entire tough year. At the end of the IPO I asked our controller Angel Rodriguez to bring to my office the final tabulation of costs to undertake the IPO. That number was $4.8 million We learned later that the average cost of an IPO was $2.3 million. Our higher costs related to the many delays due to the market volatility of that year. Most of the $4.8 million went to legal fees to deal with regulations and to reduce risk of litigation. Accounting costs were the 2nd highest burden. We had to complete 3 years of audits twice after Grant Thornton dropped out and would not transfer their files to the new accounting firm. The only reason Grant Thornton dropped out was that our cash reserves were running low with the many delays.
The cost and complexity of raising capital is most burdensome on women, minorities, youth and people like me that were the children of blue collar mid or lower income families. When I first went to raise capital for my first cardiovascular balloon catheter invention in the 1980's I was told I could only sell to accredited investors with over $1 million in assets and could not advertise. I was told that I needed to have a substantial pre-existing relationship with these millionaires in order to offer them my stock. I needed $1 million in capital to open my planned U.S. manufacturing plant and to get my product through the FDA approval process. My mother was a seamtress and my father a printing press mechanic, in our neighborhood we did not know a single person that qualified as an accredited investor. With the exemption for 35 non-accredited investors I raised $1000 from each of them, which was a daunting task. To raise that $35,000 cost me about $20,000 in legal and preparation fees. The net $15,000 I ended up left me $985,000 short of my capital needs. I ended up having to take the long route of earning the money, bootstrapping and saving over 10 years to be able to open that manufacturing plant and to get through the FDA. My dreams were delayed by 10 years and many lives and jobs were lost during that time due to the defects in the old way of raising capital.
Our company last week sponsored the California Women's Conference. There we highlighted that women own up to 48% of private American businesses today and yet access less than 5% of our nations's private capital. Minorities and youth access less than 1% of our capital. Children of blue collar and poor families also under 5%. The old rules of raising capital were stacked in the favor of grey haired white guys in golf country clubs. A woman raising a family and running her business from her smartphone was not position to have a substantial pre-existing relationship with golf country club millionaires. There is no reason, other than that old capital raising rules were defective, that men should be grabbing 95% of all available private capital and women less than 5%.
Technology that allows women to run businesses on the go has created the boom whereby women are opening up businesses at at rate twice as fast a men. What has been missing is the ability to use those same technological advances to raise capital. Now with this law the imbalance of women's access to capital will be greatly improved.
Leonhardt Ventures www.leonhardtventures.com is a fund and angel network that not only finances businesses but nurtures them. We created Cal-X Stars Business Accelerator www.calxstars.com to nurture companies following the Dolphin Tank model innovated by Amy Millman of Springboard Enterprises in Washington D.C. In fact we are sponsoring all the Dolphin Tank Panels in California which included the one last week in Long Beach.
Cal-X Stars Business Accelerator has aligned with a number of emerging crowdfunding portals including www.Crowdfunder.com based in Los Angeles and EquityNet www.equitynet.com based in Tulsa, to provide advice and direction as well as collaboration.
One of our startups we are nurturing is The California Stock Xchange (note not Exchange until registration is complete) www.calstockexchange.com which plans to be a listing service for DPOs in California first and is in the process of preparing application to register with the SEC to be a full fledged stock exchange (with limited liquidity = sell orders may take up to 90 days to fill, no day trading, no short trading, only social good mission companies with an emphasis on local investing). Right now Cal-X is a movement for change and and is tied to the Cal-X Stars Business Accelerator. We are in dialogue with the ASSOB Exchange in Australia, New Connect Market in Poland = Warsaw Stock Exchange, London AIM and the TSX Toronto Venture Exchange about forming a 5 way partnership. In baseball terms Cal-X hopes to be a Triple A minor league exchange with limited liquidity feeding the major league exchange of NASDAQ and NYSE with high quality firms that have been vetted.
Additionally I have signed a contract to host the planned TV Show Crowdfund here in Los Angeles being produced by Go Go Luckey which is awaiting final SEC rules to ensure compliance. This is similar to the current hit TV Show in England "Be Your Own Boss".
I serve as an Executive Council advisor to CfPA the Crowdfunding Portal Association. I am on a task force along with Crowdsourcing.org helping to create a series of investor education videos to properly inform crowdfunding investors of the risks faced in investing in startups with suggestions on how to reduce risk. We also helped sponsor the upcoming Crowdfunding Bootcamp for educating issuers and investors.
I am an independent candidate for Governor of California for 2014 and have published on my blog many times about crowdfunding. Here is a link to the most read essay The Enormous Implications of Crowdfunding http://howardleonhardt.nationbuilder.com/howardleonhardt/the_enormous_implications_of_crowdfunding
October 9th to 11th I am a California delegate to the Conscious Capitalism Summit in Austin, Texas. I am presenting to this group The California Stock Xchange movement as well as the Mission Markets (see below) company scoring system for social good.
Here are our recommendations to the SEC on Crowdfunding and post Crowdfunding small cap markets....
1. Business plan analysis scoring systems (standardized) like the one provided by www.equitynet.com should not be considered endorsing or promoting a stock on a portal if published on an issuers profile.
See sample report here https://www.equitynet.com/media/pdf/EquityNet-Software-Enterprise-Analysis-Sample-(eSecure-Systems,-LLC).pdf
2. Business accelerators that nurture companies should be able to have equity stakes in companies posted on crowdfunding portals where they also have an equity stake. In order for crowdfunding to succeed and to minimize risk to investors business nurturing systems need to be incentivized. This is a win win for all.
3. We believe in posting an endorsing investor profile, with experience in the field in question, alongside a company's profile on crowdfunding portals.
4. We believe all crowdfunding portals should use fraud detection software as we plan to use which is available from Emerging Firms, Inc. of San Diego.
5. We believe the SEC should quickly approve the application submitted by The California Stock Xchange to provide an intermediate liquidity step between being private with no liquidity and being on NASDAQ or NYSE with full liquidity. 90 days for executing sell orders, giving the company a fair chance to find a buyer at a stabilized price. Right now small lightly trading firms on OTC and NASDAQ are ruined because a few panic sellers sell to quick at too low of a price and drag everyone else, not willing to sell at a low price, down with them. This is a major defect in the current markets that needs to be fixed. Could you imagine if a house seller in your neighborhood panic sold their house in one day at 20% of real value and you were then forced against your will to drop your house price 80% as well? This is how it works not with lightly traded stocks on NASDAQ. This has to change.
6. We believe brokers and dealers allowable commissions on trades (the margins) must be raised as suggested by David Weild of Grant Thornton and CMA Partners.
7. We believe that crowdfunding should go into full action Dec. 31st the final deadline date for implementation that congress mandated to the SEC without any delays. The American people are desperate for jobs and crowdfunding is poised to create millions of jobs. A review can be made every quarter or six months to determine if further changes are necessary.
8. Other scoring systems for social good and sustainability as those created by Mission Markets - see www.missionmarkets.com should be usable on crowdfunding portals to inform investors more completely about an issuer.
Howard J. Leonhardt
1531 6th Street, Unit 401
Santa Monica, CA 90401
Office 310 310 2534
Co-Leader, State Spokesperson The JOBS ACT and Crowdfunding
Startup California www.startupcalifornia.org
Founder, Chairman, CEO
Cal-X Stars Business Accelerator
Leonhardt's Launchpads Healthtech Incubaator Associated with University of Northern California Science Technology Innovation Center
Board Member - Advisor
University of Florida Center for Entrepreneurship and Innovation
The Entrepreneurship Party Public Policy Insitute
Which includes The California Stock Exchange initiative first proposed in 2006...
Founder, CTO, Chairman Scientific Advisory Board
Bioheart, Inc. www.bioheartinc.com
Founder, CTO, Chairman
MyoStim Pacers www.bioheartinc.com
Cell Therapy Foundation
Governor California 2014 Campaign
Founder, Chairman, CEO
Leonhardt Vineyards LLC
Founder, Chairman, CEO
Wine Country Baseball
Lucille's American Cafe's
Founder, Chairman CEO
Stem Cell Bra
Founder, Chairman CEO
Kindheart Lionheart Media Co.
Founder, Chairman CEO
Kinhdeart Lionheart Charitable Adventures
The Kindheart Lionheart Radio Show