How Can Crowdfunding Help Your Business

7/31/2019 How Can Crowdfunding Help Your Business

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How Can Crowdfunding Help

Your Business?

2012 Haelix Communications


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What is crowdfunding?

Raising capital from unaccredited

investors without registering securitieswith the SEC (i.e, going IPO).



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Unaccredited investor?

Unaccredited=poorNet worth of


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There are two types of crowdfunding:

Rewards-based

Philanthropy

Small item

GiftProduct

Equity-based (e.g., ?)

StockBond

Dividend



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Successful crowdfunding so far:

Kickstarter: Pebble Technology

Corporation (raised >$10M).

Prosper ($40M) and LendingClub ($170M):

P2P lending



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Why crowdfunding?

Because there have, up to now, been threefunding choices:

1. SEC registration

2. Accredited/institutional investors (venturecapitalists, angel investors, banks, etc.)

3. Debentures (work like personal loans)

Because current methods are either too time-consuming, expensive, involved or rare.



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How the JOBS Act enables

crowdfunding

The JOBS (Jumpstart Our BusinessStartups) Act provides a crowdfunding

exemption for businesses raising funds

from unaccredited investors.



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Crowdfunding is not yet SEC-

approved



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Crowdfunding and current securities law

Securities Act of 1933: Any offer to sell securities musteither be registered with the SEC or meet an exemption.Regulation D contains rules (504, 505 and 506) providingexemptions from the registration requirements. These ruleslimit the number of unaccredited investors.

Companies using Regulation D must file "Form D" after theyfirst sell their securities. Form D is a brief notice thatincludes the names and addresses of the companysexecutive officers and stock promoters, but contains littleother information about the company.

Rule 144a requires that some restricted securities (e.g.,employee stock plans) be offered only to qualifiedinstitutional buyers (QIBs), which are defined as managingat least $100 M in securities.

http://www.sec.gov/about/forms/formd.pdfhttp://www.sec.gov/about/forms/formd.pdf


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Rules, rules, rules

504: Up to $1 M to unlimited accreditedinvestors. Advertisement allowed.

505: Up to $5 M to unlimited accredited and

up to 35 unaccredited investors. No

advertisement allowed. Securities are

restricted for 2 years.

506: Unlimited capital, unlimited accredited

investors and 35 unaccredited but

sophisticated investors. No advertisement.

Securities are restricted for one year.



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The (slow) SEC approval in progress:

March 27, 2012: JOBS Act passed by Congress.

April 5, 2012: JOBS Act signed into law. SEChas 270 days to create rules.

August 29, 2012: SEC meets to proposeamended rules for Rules 506b (to make 506c)and 144a, regarding fundraising with

accredited investors. Advertisement allowedfor accredited investors.

October 18, 2012: 134 days left.



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Probable SEC guidelines $1M Annual Cap. The amount raised through accredited/unaccredited

investors in a 12-month period cannot exceed $1M.

Investor Limits. Investors with an annual income or net worth of more

than $100,000 can invest up to 10% of their annual income or net worth,

not to exceed $100,000. Individual limits are lower for investors with an

annual income or net worth


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Management Challenges. Crowdfunding creates a large pool ofunsophisticated investors. Companies can expect to spend additional

time and resources devoted to administration and shareholder

communication.

Future Implications. Having unaccredited or unsophisticated investors

may limit future venture capital and/or institutional investment.Corporate events will require some level of shareholder approval ,

costing time and money to announce and facilitate.

Added SEC Reporting. The company must still file basic information with

the SEC, including names of directors and officers and holders of more

than 20% of the company's shares, plus a description of the business andits financial condition.

Intermediary Costs. The company will be required to use an intermediary

as a "funding portal". Companies will need to prepare their operations

and pay intermediary fees.

Added entrepreneur responsibilities



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Crowdfunding: A double-edged sword?

KickStarter backlash: Pebble Technology Corporation

From Reuters: In early in August, the Massachusetts Securities Division charged

a Lowell, Massachusetts man for a crowdfunding scam, bilking 20 investors

who thought they were investing money in a gaming site of $153,396.



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Fundable


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Crowdfunder


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FundersClub


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EarlyShares


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Based on the SECs guidelines:

Intermediary funding portals must:Register as brokers/dealers with the SEC and FINRA

(Financial Industry Regulatory Authority).

Act as objective third parties between the investor and the

crowdfunding companies.

Not be compensated for recommending a given company to

an investor.

Not hold or manage investor funds/securities.



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http://blogs-images.forbes.com/work-in-progress/files/

2012/09/jobs-act-infographic-earnmba-fundable.jpeg

Additional resources: JOBS Act Infographic

Crowdfunding Update: What you Need to Know Today to

Raise Equity from the Crowdhttp://rocksolidfinance.com/crowdfunding_raise_equity_soon_with_jobs_ac/
http://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://rocksolidfinance.com/crowdfunding_raise_equity_soon_with_jobs_ac/http://rocksolidfinance.com/crowdfunding_raise_equity_soon_with_jobs_ac/http://rocksolidfinance.com/crowdfunding_raise_equity_soon_with_jobs_ac/http://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeghttp://blogs-images.forbes.com/work-in-progress/files/2012/09/jobs-act-infographic-earnmba-fundable.jpeg


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Small Business Advisory: Crowdfundinghttp://wdfi.org/fi/securities/whats_new.htm#CrowdFunding

How to Make Money Through Equity Crowdfunding

http://www.ivetriedthat.com/2012/07/09/how-to-make-money

-through-equity-crowdfunding/
http://wdfi.org/fi/securities/whats_new.htmhttp://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://www.ivetriedthat.com/2012/07/09/how-to-make-money-through-equity-crowdfunding/http://wdfi.org/fi/securities/whats_new.htmhttp://wdfi.org/fi/securities/whats_new.htmhttp://wdfi.org/fi/securities/whats_new.htm

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How Can Crowdfunding Help Your Business