Category Archives: Krowdster

Crowdfunding- The Good, The Bad & The (really) Ugly

By Shane Liddell is the CEO and chief Crowdfundologist at Smart Crowdfunding LLC,. Crowdfund Beat Guest post,

Part 3 –The (really) Ugly

Introduction

In Part 1 I covered all of the good things that we have seen as crowdfunding continuously gathers momentum across the world. The future looks bright indeed!

In Part 2 I wrote of changes within the industry, especially within rewards based crowdfunding – the competition which makes it so much harder for the small guys and the Indiegogo platform now giving preferential treatment to corporates, allowing them “…to pay for special placement on Indiegogo’s site, making them more discoverable than other campaigns”. I also explained that although campaign creators are often labelled as scammers when they fail to deliver on their promises, in many cases this is not true at all.

Here in Part 3, we delve into the dark world of extortion, blackmail and a whole host of other not so nice behavior. I’ll cover some real scams where the campaign creator’s intention from the very beginning was to steal people’s money, in some cases, with the crowdfunding platforms help too!

Part 3-The (REALLY) UGLY

Extortion and Blackmail

Ethan Hunt – Micro Phone

During our very early days of offering crowdfunding campaign marketing services, we were engaged by a Mr. Ethan Hunt who had just launched his Micro Phone campaign on the Indiegogo platform. Ethan and I shared a few phone calls as his campaign began to gather momentum and I specifically remember being on a call with him one day, while the money was rolling in, and each refresh of his campaign page showed more and more backers claiming the rewards on offer. Times were good and there was an element of excitement in his voice (and mine too). Who wouldn’t be excited to see such fantastic traction?

Around 4 weeks later, with almost $50,000 raised, Ethan reached out to me to say he’d been contacted by a guy named Michael Gabrill who claimed that he had some negative information about Ethan and that if he did not pay him $10,000 he would release this information to the public through various media channels. Ethan forwarded me the email communications so I could see for myself.

Low and behold, there it was in black and white.

My advice to Ethan at the time was to just ignore this guy, as I was sure that Gabrill was just a typical opportunist money grabber and was probably seeking attention too. Ethan wrote back to him, refusing to pay a single cent but what happened next surprised us both – Garbrill began contacting various media including Pando and even went so far as to create a webpage slandering Ethan and his Micro Phone project.

The story continued and in Ethan’s own words at the time:

“Did Michael Gabrill attempt to extort money from us? Yes, he did, this is fact he has admitted to doing it here and on one of the many webpages he has set up in an attempt to cover his actions and his motives, claiming it was a test to see if we would incriminate ourselves. Incriminate us for what? Running a successful and legitimate campaign? Or refusing to pay him money not to do what he has done, something he threaten(ed) to do if we did not pay him.

What did Michael Gabrill do exactly? Well, he approached me the day after our campaign reached 100% funding which means in laymans terms when our campaign had received enough contributions for our campaign to be successful and for us to receive payment of the funds at the end of the campaign.

It took more than 30 days to reach our goal and our campaign to be fully funded. During this time, Michael Gabrill sat back and waited until there was enough motivation for us as campaign owners to if he could build enough fear of loss by the thought of him getting our campaign closed down to pay him money for his silence.

Why if Michael Gabrill if he really believed the campaign was fraudulent did he not immediately report it? Simple up until the campaign is 100% there would be no motivation for campaign owners to pay him a penny. This was never about him believing there was an issue with the campaign it was about his motivation to gain financially from a successful campaign. Something, we are sure he has done many times before.

Why do we think he has done this before? He waited until we were 100% funded, he claimed he could shut us down, he claimed that we had no intention of delivering anything to contributors and were going to steal their money and he wanted his cut or he was going to have us arrested for fraud.

Michael Gabrill’s only motivation was money, he sent me a link to his first webpage and told me if we paid him it would not go up. That webpage included photos of myself, details Michael Gabrill had obtained from my eBay account (which could only have been accessed by an eBay employee) and he claimed I was a creep or in Australian terms a sex offender. When I refused to pay him and reported him, he had the webpage active in less than 10 minutes. Only an extortionist would have a pre built webpage ready to go to force his victims into paying him to remove it.

Is our campaign is legitimate? Yes it is, we have registered businesses in Hong Kong and Australia, neither Mike or I have ever been investigated for fraud and we have both been successfully running business in Australia, Hong Kong and China for more than 25 years.”

To end the story, Ethan initiated legal action and managed to have all the slandering webpages created by Gabrill removed and received a public apology from the man himself too. In turn, Indiegogo went on to ban Gabrill completely from their platform.

This turned into a very time consuming and costly endeavor for Ethan but unfortunately, there are many Gabrills lurking in the shadows and waiting to pounce.

 

Bob Rohner – RG Energy

Bob signed up with us a few months after Ethan but his story is a different one in that his crowdfunding campaign didn’t really do too well at all. We tried our best but the ‘crowd’ seemed to think that what Bob was attempting to do was nigh impossible.

However, during the third week of his campaign. Bob received an email from someone claiming to be the owner of RG Energy, a company based in Ohio. Bob’s business was registered in Iowa. They emailed Bob stating that because they were using their RG Energy’s company name, he would have to pay $10,000 (yes, coincidently the same amount as Ethan was asked for) in license or royalty fees. What??

After a little research, it turned out that this goon had registered a company by the same name in Ohio AFTER Bob had launched his crowdfunding campaign thinking he could get money out of him by playing this little game. This led Bob to get his legal team involved and the problem swiftly went away.

 

The Scammers – Very few real ones but they are out there!
Intentional scams are very rare. During my time in the industry I have seen no more than 3 or 4 which were clearly scams from the very beginning.
Many labelled as scams today are situations whereby the people involved set out with good intentions, only to find out that what they are attempting to do is either impossible or far costlier than they expected. Crowdfunding campaign first, homework afterwards rarely works.
Julien (Courteville) Buschor – Launching Multiple campaigns helped him steal almost $400,000

During July 2015, a campaign on the Indiegogo platform called Smart Tracker 2 (ST2) caught my attention for the simple reason that it had raised over $20,000 within the first 24 hours. Normally, campaigns that gain this kind of traction so quickly have done their homework and are fully prepared with social media assets before launch. In most cases, they have a substantial number of social media followers. However, when I looked at the Smart Tracker accounts I saw that they barely had any followers at all. In fact, at the time, their Facebook page showed only 149 ‘likes’ and their Twitter account a measly 19 followers. Maybe they’d done a fantastic job of building a targeted email database before launch, was a thought at the time. My suspicions were aroused though which lead me to delve a little deeper.

I returned to the ST2 campaign page and began to scroll through their backer list. As I scrolled down to the very first backer, and began searching through the list of names, low and behold, I began to see some of the same names appear as backer’s multiple times and eventually realized that 7 or more user accounts had contributed to the campaign many times over – a clear sign of self-funding taking place. This raised alarm bells and prompted further investigation.

What I discovered was a first for me. A look at the user account profile that created this this ST2 campaign showed that this was the 4th campaign launched since the beginning of the year by the very same person – Julien Scherer (whose real name turned out to be Julien Buschor) and now it was only July? Ding..ding..ding. The alarm bells grew louder!

Upon further investigation I discovered that Mr Buschor first launched a campaign called Last Crime in January 2015 raising over $7,000 and claiming:

“Last Crime was made with cutting edge technology that can easily analyze data, provide facial recognition, perform phone and email scanning and much more”

A month later yet another campaign had launched by the name of Innovative Swiss Teeth Whitening Machine raising over $ 60,000 and with a tagline of “Swiss White Teeth, the most advanced swiss teeth whitening light with color screen and USB interface

A few short weeks later the Smart Tracker campaign launched and managed to raise just over $18,000. And finally, the ST2 campaign as initially mentioned above.

The answer to the question – How had the Smart Tracker 2 campaign managed to raise over $20,000 so quickly? –  was now fairly obvious as it was clear that Mr Buschor had rolled funds from his other campaigns into this new one.

Armed with this information, we reached out to Mr Buschor using a private email address and began a lengthy exchange of emails over the following few days. Initially he was panicked and changed user names on the campaigns listed above and sometimes became aggressive in his defense, but he did begin to accept that we knew his game. We threatened to report his campaign to Indiegogo and eventually, he did confirm that he had self-funded the ST2 campaign and his defense was made with a claim of “I’ve done nothing wrong as it’s legal so Indiegogo won’t cancel our campaign”

Mr Buschor self-funded his ST2 campaign to the tune of over $20,000, using money collected from previous campaigns to create a sense of popularity in the eyes of the public. No doubt in my mind that we were seeing a real con man in action!

As my marketing agency, Smart Crowdfunding is listed as a ‘Partner’ on Indiegogo itself, I reached out directly to their Trust and Safety division armed with all of the evidence needed to show that Mr Buschor had been scamming the public. I was certain they would listen, or at least reach out to me for more details. Nope. I received a canned email response saying very little except that they would investigate the matter. Did I hear back from them after this? Nope.

Of even more concern was that the ST2 campaign continued and on July 12th was promoted through the Indiegogo newsletter to a huge database of millions of people. Funding continued to ramp up and eventually the campaign raised more than $300,000.

Was it really a scam you may ask? Absolutely! The comments page on the ST2 campaign tells the whole shameful story!

As for Mr Buschor, he was resident in Switzerland and made local news for all of the wrong reasons as seen HERE

 

BioRing- The Amazing Ring That Made $460,000 Disappear

Now, this one had scam written all over it from the very beginning. However, even some notable Crowdfunding Marketing agencies were taken for a ride in the process too.

During mid-January 2016, we (Smart Crowdfunding) received an email inquiry from a Daniel Johnson asking about our services. After a few back and forth emails with our team, this lead to a Skype call booked for the 20th January. For some reason, they had to reschedule and we rebooked a time for 9am on 27th January, this time with a James Lee.

The call went ahead as planned, and James told me all about BioRing and that they were going to launch a crowdfunding campaign to raise the funds to manufacture the product and get it out there into the market. I explained our campaign development and marketing process, and the need to build an audience prior to launching. James asked if we would work on a percentage only basis to which I replied “No” and then went on to explain that without any validation testing we do not know if his product is a good fit for crowdfunding. Upon concluding the call I did say that I would email through our fee structure and the call ended.

My thoughts at the time were that what they were trying to do was nearly impossible, so a few days later I emailed again stating that after careful consideration I could not help them as I felt their product was impossible to develop.

We did not hear from either Daniel or James again.

The BioRing campaign eventually launched in June 2016 and did rack up over $700,000 in funding.

Fortunately, at least some of the backers were refunded, as Indiegogo did not release any of the InDemand money to the campaign owners. The total amount ‘stolen’ is now showing at $424,664 as of today’s date.

Now, that’s a lot of money and has, in effect, added to a community of backers claiming to never back another Indiegogo campaign again as can be clearly seen on the comments section of the BioRing campaign page. There are many other campaigns with such negative comments.

These disgruntled backers have a right to be pissed and there are hundreds of thousands of them who have supported other campaigns that are disgusted with the treatment they receive from Indiegogo themselves.

You can read more about this scam in this excellent investigative article from Sara Morrison here

The ironic thing with BioRing is that the marketing agencies involved – Funded Today (FT), Herscu and Goldsilver (H&G) and Command Partners (CP) – were up in arms when they didn’t get paid after the campaign concluded, having raised over $700,000. It surprises me that none of them thought that this campaign was nothing but a scam from the very beginning, considering FT were taking a 25% cut of funds raised, H&G a 10% cut and I assume CP a minimum 10%….so, a minimum of 45% off the top! Add to this the 5% Indiegogo platform fee and payment processing fees of around 3.5% meaning that BioRing were giving away more than 50% of the backer’s money!

A screenshot of the BioRing campaign team captured prior to the campaign been flagged as fraudulent. Since then all associated team members removed themselves from the campaign, most likely out of embarrassment. 


First Crowdfunding portal to be expelled from FINRA

By   Crowdfund Beat Guest post,

On November 2, 2016, FINRA terminated the FINRA registration for UFP, LLC (“UFP”), making UFP the first crowdfunding portal to be expelled from FINRA.   UFP ran an online funding portal, uFundingPortal.com, where it acted as an intermediary in debt and equity crowdfunding offerings conducted in reliance on SEC Regulation Crowdfunding rules.  FINRA’s investigation into UFP alleged that from May through September 2016, UFP violated various SEC Regulation Crowdfunding rules and FINRA Funding Portal Rules. As a result of FINRA’s investigation, UFP pulled its website and submitted a Letter of Acceptance, Waiver and Consent (the “AWC”) in order to settle these alleged rule violations with FINRA.  The AWC is available at: http://disciplinaryactions.finra.org/Search/ViewDocument/67004.

Finra-Building-Logo007-Article-201509021417

FINRA alleged that UFP violated Rule 301(a) and Rule 301(c)(2) under SEC Regulation Crowdfunding.  Rule 301(a) requires funding-portal intermediaries like UFP to have a reasonable basis for believing that issuers using its crowdfunding portal comply with applicable regulatory requirements, and Rule 301(c)(2) requires that access to funding portals be denied to issuers that present the potential for fraud or otherwise raise investor protection concerns. FINRA found UFP to be in violation of Rule 301(a) because 16 of the issuers on UFP’s portal had failed to file certain requisite disclosures with the SEC and, in each case, UFP had reviewed these issuers’ SEC filings and therefore had reason to know that these filings were incomplete.

In addition, FINRA found UFP to be in violation of Rule 301(c)(2) by failing to deny access to its portal when it had a reasonable basis to believe these issuers and/or their offerings presented the potential for fraud. For example, FINRA found that these 16 issuers all had impracticable business models and oversimplified and unrealistic financial forecasts; 13 of these issuers disclosed identical amounts for their funding targets, maximum funding requests, price per share of stock, number of shares to be sold, total number of shares and equity valuation; three of these issuers had identical language in the “Risk Factors” sections of their websites; and two issuers listed identical officers and directors even though they had vastly different business plans.  Additionally, UFP had reason to know that four of these issuers either had officers or directors who owed back taxes or had not filed an annual tax return for 2015.   FINRA also alleged that UFP violated Funding Portal Rule 200(c)(3), which prohibits funding portals from including any issuer communication on its website that it knows or has reason to know contains any untrue statement of material fact or is otherwise false or misleading.

source http://www.mofojumpstarter.com/2016/12/16/finra-action-against-crowdfunding-platform/

FINRA Action Against Crowdfunding Platform

REPORT: Equity Crowdfunding – Risks and liabilities as the industry matures

 

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BY Ronald Kleverlaan Crowdfunding strategy, CrowdfundingHub, advisor European Commission, co-founder European Crowdfunding Network

Within the rapidly-expanding alternative finance industry, equity crowdfunding is emerging as a popular method of growth finance. Equity crowdfunding is a mechanism by which a broad group of investors can fund start-up companies and small businesses in return for equity.

In collaboration with UK insurance company AIG, the researchers of CrowdfundingHub worked together with leading European experts from SyndicateRoom, Seedrs, AIG, CrowdCube, Invesdor, Twintangibles and Legal Alternative to create a state-of-the-art overview of the Equity Crowdfunding industry.

Summary of report

Introduction: The rise and rise of equity crowdfunding

Overview of the growth of the equity crowdfunding industry globally and in Europa.

Chapter 1: Latest developments in equity crowdfunding

Secondary markets, business angels and equity crowdfunding, growth in deal sizes, serial crowdfunding and DIY crowdfunding campaigns.

Chapter 2: Striking the right regulatory balance

Investor protection versus access to finance for companies. Do regulations help or hinder the growth of the equity crowdfunding industry? What will be the impact of Brexit on the equity crowdfunding industry.

Chapter 3: Tackling investor protection

Direct shareholder versus nominee structure, due diligence and cross-border considerations

Chapter 4: Mind the gap: Risks and liabilities associated with crowdfunding platforms

Risks and liabilities associated with crowdfunding platforms, insurance as mechanism for sustainable growth of platforms and fraud risk case studies.

Download free report:

The full report can be downloaded here: Equity Crowdfunding – Considering potential risks and liabilities as the industry grows and matures.

Busted!  SEC Targets Reg A+ Marijuana Company, Med-X, in Administrative Proceeding.

By Samuel S. Guzik, CrowdFundBeat special guest editor,  Guzik & Associate

The Regulation A+ industry was buzzing this week – not with excitement, but with a healthy dose of trepidation.  One of the first, high (no pun intended) profile Regulation A+ offerings, launched in November 2015, after a seemingly successful “Testing the Waters” campaign, was for a company called Med-X, a startup formed to participate in the newly burgeoning marijuana industry – the so called “Green Rush.”

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But this month’s headline for Med-X was a bit more sanguine, enough to counteract even the most potent dosage of THC:  “REGULATION A EXEMPTION OF MED-X, INC. TEMPORARILY SUSPENDED.”  The story that followed was not the kind of publicity any company is looking for – especially when it is in the throes of raising money under Reg A+. Actually, it was not a story. Rather, it was an Administrative Order issued by the SEC on September 16, 2016, temporarily suspending the exemption of Med-X under Regulation A+.

Why? Well, it seems that this company failed to notice, or at least heed, the requirement that Reg A+ issuers file periodic informational reports as a condition of maintaining their status as Reg A+ issues. The basic requirement calls for a company, at the least, to file a semi-annual and annual report with the SEC following the “qualification” of the offering.  Seems that Med-X failed to file its annual report, which would include audited financial statements, when due back in the Spring of 2016.

Some have speculated that the SEC was targeting a disfavored industry – marijuana. I doubt it. The SEC  has approved the registered sale of other companies in this industry long before Regulation A+ was adopted.

Others have speculated that this action reflects an uneven hand towards Regulation A+ issuers. After all, this type of swift action is rare for fully reporting companies which are delinquent in their filings. One more time: I think not.

The Staff at the SEC has been remarkably supportive of the rollout of Regulation A+, as measured anecdotally in terms of the efficiency in which it has been processing the review of Regulation A+ offerings.

Rather, I think back to one of the more notable sound bytes I coined in a Webinar back in April 2015: “Regulation A+ is not your daughter’s Kickstarter campaign.”  Raising capital from outside investors is serious, heavily regulated business.  And as indicated by some of the early Regulation A+ participants, the level of sophistication of the management of some of these issuers has hardly met the bar required to file and prosecute a Regulation A+ offering.

Yes, Regulation A+ is a little more complex than the pipedream: filling out a form, waiting for SEC approval, and then crowdfunding your way to $50 million.  Apart from detailed disclosure rules, including audited financial statements, and the always difficult task of raising capital – especially for early stage companies – there is an ongoing SEC reporting requirement. Yes, the requirement is lighter than a fully reporting public company, to be sure, but enough to quickly overload an early stage company, with limited financial and human resources.

So if nothing else, this is one SEC enforcement action can be expected to inject a dose of reality into the Regulation A+ capital raising process.  As our President might say, “A Teachable Moment.”

samuel guzik

Samuel S. Guzik has more than 35 years of experience as a corporate and securities attorney and business advisor in private practice in New York and Los Angeles, including as an associate at Willkie Farr and Gallagher, a major New York based international law firm, a partner at the law firm of Ervin, Cohen and Jessup, in Los Angeles, and in the firm he founded in 1993, Guzik & Associates.

Mr. Guzik has represented public and privately held companies and entrepreneurs on a broad range of business and financing transactions, both public and private. Mr. Guzik has also successfully represented clients in federal securities litigation and SEC enforcement proceedings. Guzik has represented businesses in a diverse range of industries, including digital media, apparel, health care and numerous high technology based businesses.
Guzik is a recognized authority and thought leader on matters relating to the JOBS Act of 2012 and the ongoing SEC rulemaking, including Regulation D Rule 506 private placements, Regulation A+, and investment crowdfunding. He has been consulted by Congressional members, state legislators and the U.S. Small Business Administration Office of Advocacy on matters relating to the JOBS Act and state securities matters.

Guzik & Associates

1875 Century Park East, Suite 700

Los Angeles, CA 90067

Telephone: 310-914-8600

www.guziklaw.com

www.corporatesecuritieslawyerblog.com

@SamuelGuzik1

 

Evaluating Crowdfunding for Architectural Projects

By Rachael Everly, Crowdfund Beat guest contributor,

Crowdfunding is often described as a practice to start off online investment campaign by popular people and generate funds or finances for specific related projects. This practice can leverage entrepreneurs, tech enthusiasts or businessmen who can spur some community support and start a petition to motivate people for investing some small dollar contributions. But can it help architects?

How is Crowdfunding Relevant with Architecture?

Crowdfunding can be applied to a range of investment opportunities provided for a viable project, services or the idea of a physical structure which can present itself as a worthwhile investment option for the people. People like to invest for something which is sustainable and worthwhile. Crowdfunding can fund construction projects if the role of the architect is clearly defined to present investment models and communication digital tools to encourage more and more people for investing. The investment can only be leveraged if architects work with local communities and develop and implement creative design ideas to help the community as a single unit and create both short and long term goals.

The people would only invest for something of value which would help them in the long run and would serve the community such as an urban skyscraper, a pedestrian bridge, a religious structure or any improvement construction plan to renovate or restore any old cultural heritage building. People are willing to invest on improvement projects by making small contributions to help develop their community.

The Real Story

Colombia’s 66 story skyscraper BD Bacatá Downtown is crowd funded through small contributions from local investors and people. The fundraising drive is executed through various crowdfunding campaigns while catering interests of the local community in owning a percentage of the overall project. All crowdfunding investment helped to build the huge skyscraper by using heavy machinery and equipment as the planned skyscraper will comprise of 66 stories, 216 meters high above the city of Bogota.

It easily gathered interests from the people for their community welfare and each citizen had a collective goal and shared regional interest to work together to help architects construct this skyscraper. Crowdfunding for such architectural project can take time for additional research and analysis and help people to understand potential opportunities and implication for the development of such projects through innovative financing mechanisms.

Another project in the making is the ‘I make Rotterdam’ project in the Netherlands. It is how crowdfunding helped the architectural designers to fund for a constructional development to help the community to alleviate pedestrian traffic. All the investors will have their names enlisted across visible planks so that everyone would know who helped in the making of this constructional marvel. Crowdfunding thus can motivate and encourage people to make worthwhile investments and help their community for a noble cause.

 

iDisclose Partners With Republic on Its Title III Crowdfunding

Crowdfund Beat News,

iDisclose Provides Republic Users With a Low Cost Legal Solution to Comply With Title III Crowdfunding Regulations

Republic-Featured-Image

NEW YORK, NY–(Marketwired – July 18, 2016) – iDisclose announced today that it is proud to be a part of Republic’s Title III crowdfunding launch. The AngelList spinoff and funding portal officially launched today with iDisclose as its exclusive Form C service provider. Each Republic issuer is provided with access to the iDisclose application to prepare their Form C at a fraction of the time and cost of using a traditional lawyer or law firm. Using a series of adaptive questions, similar to TurboTax TM, iDisclose helps entrepreneurs prepare their own first draft of the Form C, the legal document which is required by each issuer in order to launch a crowdfunding campaign. After a quick review by the company’s attorney (or iDisclose partner attorney), the entrepreneur can simply file the final document directly from the iDisclose application with the Securities and Exchange Commission.
Republic CEO Ken Nguyen stated that “This partnership has been instrumental for us, making Form C preparation far more manageable for our issuers. iDisclose also represents the type of startups we want to see on our platform: innovative, diverse and mission-driven.”

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“We are so excited about what Republic is doing and our relationship with them. Republic’s mission really gets to the core of what iDisclose is trying to do, which is assist small businesses, who have historically lacked access, receive the capital they deserve. We are a small part of that, by taking the legal costs out of the process,” said iDisclose CEO Georgia Quinn.

 

Republic is a platform for startups to connect with investors from Main Street to Wall Street and boasts a team of AngelList and Uber alumni to provide hands-on advice to entrepreneurs on the execution, risks and rewards of running a successful equity crowdfunding campaign. Through its engagement with women and minority founded businesses and partnerships with industry influencers (such as Naval Ravikant and Jason Calacanis), social advocates diversifying tech (Shiza Shahid of The Malala Fund, Shaherose Charania of Women 2.0 and Ramona Ortega of Latin Startup Alliance) and crowdfunding experts (Katherine Krug and Georgia Quinn), it has created a unique support network for founders and investors alike.
iDisclose puts the job of disclosure back into the hands of the entrepreneur, eliminating the inefficiencies of the traditional method, reducing substantial time to comply with the rules and saving thousands of dollars. Rather than provide un-contextualized information about a business to a lawyer, and then relying on the lawyer to prepare the first draft, the entrepreneur responds to an online dialogue to draw out the relevant disclosure issues and the platform organizes the information into a legal document. Throughout the entire process, the entrepreneur is able to collaborate with his or her own team and attorney as needed, and to send their attorney their document drafts for final review and sign-off.

Idisclose : Crowdfunding New Legal Platform also generates a Red Flag report of key issues that must be addressed, which can also be shared with an attorney for further advice and counsel. In addition, the platform creates a list of Risks Factors that are seamlessly organized within the document for easy review by investors.

 

 

iDisclose helps:

Businesses: The platform allows you to create your own legal documents at a reduced time and cost.
Investors: iDisclose provides fulsome disclosure in an easy to evaluate format.
Fundraising Platforms: iDisclose allows platforms to offer a value-added service to their users and standardizes the disclosure format across the entire platform.
Lawyers: It eliminates much of the drafting drudgery required with the disclosure process, and allows lawyers to focus on the true aspects of being a lawyer (offering real legal counsel, guidance and reviews).
iDisclose was developed by Douglas Ellenoff and Georgia Quinn of Ellenoff, Grossman & Schole, who are both award-winning, NY-based corporate attorneys and globally-recognized figures in the alternative finance space. Having both facilitated hundreds of corporate financings over the course of their careers, the founders harness a deep understanding of the disclosure process, as well as the issues businesses face when raising capital.

 

CONTACT INFORMATION

Communications and publicity by issuers prior to and during a “Regulation CF” offering

By Sara Hanks , CrowdFundBeat  Sr.contributing Guest Editor  CEO/Founder, CrowdCheck, Inc.

The idea behind crowdfunding is that the crowd — family, friends and fans of a small or startup company, even if they are not rich or experienced investors — can now invest in that company’s securities. For a traditionally risk-averse area of law, that’s a pretty revolutionary concept!

In order to make this leap, Congress wanted to ensure that all potential investors had access to the same information. The solution that Congress came up in the JOBS Act with was that there had to be one centralized place that an investor could access that information — the website of the funding portal or broker-dealer that hosts the crowdfunding offering (going forward we will refer to both of these as “platforms”).

This means (with the exception of some very limited exceptions that we’ll describe below) most communications about the offering can ONLY be found on the platform. On the platform, the company can use any form of communication it likes, and can give as much information as it likes (so long as it’s not misleading). Remember that the platforms are required to have a communication channel (basically a chat or Q&A function) — a place where you can (though you must identify yourself) discuss the offering with investors and potential investors. That gives you the ability to control much of your message.

So with that background in mind, we wanted to go through what you can and cannot do as far as communications prior to and during the offering. Unfortunately, there are a lot of limitations. Securities law is a very highly regulated area and this is not like doing a Kickstarter campaign. Also, bear in mind this is a changing regulatory environment. We put together this guide based on existing law, the SEC’s interpretations that it put out on May 13, and numerous conversations with the SEC Staff. As the industry develops, the Staff’s positions may evolve.

We do understand that the restrictions are in many cases counter-intuitive and don’t reflect the way people communicate these days. The problems derive from the wording of the statute as passed by Congress. The JOBS Act crowdfunding provisions are pretty stringent with respect to publicity; the SEC has “interpreted” those provisions as much as possible to give startups and small businesses more flexibility.

What you can say before you launch your offering

Before the point at which you file your Form C with the SEC, you can’t make any “offers” of securities, either publicly or privately. Remember that the SEC interprets the term “offer” very broadly. So no meetings with potential investors, or giving out any information on forums which offer “sneak peeks” or “first looks” at your offering. No public announcements about the offering. And especially no discussions at a conference or a demo day about your intentions to do a crowdfunding offering. Any communication made prior to filing the Form C may be construed as an unregistered offer of securities made in violation of Section 5 of the Securities Act — a “Bad Act” that will prevent you from being able to use Regulation CF, Rule 506, or Regulation A in the future.

Prior to publicly filing the Form C, you are limited to communications that don’t mention the offering at all (regardless of whether you mention any specific terms of the offering or not), and which don’t “condition the market” for the offering. “Conditioning the market” is any activity that raises public interest in your company, and could include suddenly heightened levels of advertising, although regular product and service information or advertising (see discussion below) is ok. This means no “coming soon” and no hints or winks.

Normal advertising of your product or service is permitted as the SEC knows you have a business to run. However, if just before the offering all of sudden you produce five times the amount of advertising that you had previously done, the SEC might wonder whether you were doing this to stir up interest in investing in your company. If you plan to change your marketing around the time of your offering (or if you are launching your company at the same time as your CF offering, which often happens), it would be prudent to discuss this with your counsel so that you can confirm that your advertising is consistent with the SEC’s rules.

Genuine conversations with friends or family about what you are planning to do and getting their help and input on your offering and how to structure it, are ok, even if those people invest later. You can’t be pitching to them as investors though.

What you can say after you launch

After you launch your offering by filing your Form C with the SEC, there are only two types of communication permitted outside the platform:

  • Communications that don’t mention the “terms of the offering”; and
  • Communications that just contain “tombstone” information.

Communications that don’t mention the terms of the offering

We are calling these “non-terms” communications in this memo, although you can also think of them as “soft” communications. “Terms” in this context are the following:

  • The amount of securities offered;
  • The nature of the securities (i.e., whether they are debt or equity, common or preferred, etc.);
  • The price of the securities; and
  • The closing date of the offering period.

There are two types of communication that fall into the non-terms category.

First, regular communications and advertising. You can still continue to run your business as normal and there is nothing wrong with creating press releases, advertisements, newsletters and other publicity to help grow your business. If those communications don’t mention any of the terms of the offering, they are permitted. Once you’ve filed your Form C, you don’t need to worry about “conditioning the market.” You can ramp up your advertising and communications program as much as you like so long as they are genuine business advertising (e.g., typical business advertising would not mention financial performance).

Second, and more interestingly, offering-related communications that don’t mention the terms of the offering. You can talk about the offering as long as you don’t mention the TERMS of the offering. Yes, we realize that sounds weird but it’s the way the statute (the JOBS Act) was drafted. Rather than restricting the discussion of the “offering,” which is what traditional securities lawyers would have expected, the statute restricts discussion of “terms,” and the SEC defined “terms” to mean only those four things discussed above. This means you can make any kind of communication or advertising in which you say you are doing an offering (although not WHAT you are offering; that would be a “term”) and include all sort of soft information about the company’s mission statement and what it will use the money for and how the CEO’s grandma’s work ethic inspired her drive and ambition.

You can link to the platform’s website from such communications. But be careful about linking to any other site that contains the terms of the offering. A link (in the mind of the SEC) is an indirect communication of the terms. So linking to something that contains terms could mean that a non-terms communication becomes a tombstone communication that doesn’t comply with the tombstone rules. This applies to third-party created content as well. If a third-party journalist has written an article about how great your company is and includes terms of the offering, linking to that article is an implicit endorsement of the article and could become a statement of the company that doesn’t comply with the tombstone rules.

Whether you are identifying a “term” of the offering can be pretty subtle. While “We are making an offering so that all our fans can be co-owners,” might indirectly include a term because it’s hinting that you are offering equity, it’s probably ok. Try to avoid hints as to what you are offering, and just drive investors to the intermediary’s site to find out more.
Even though non-terms communications can effectively include any information (other than terms) that you like, bear in mind that they are subject, like all communications, to the securities anti fraud rules. So even though you are technically permitted to say that you anticipate launching your “Uber for Ferrets” in November in a non-terms communication, if you don’t have a reasonable basis for saying that, you are in trouble for making a misleading statement.

Tombstone communications

A tombstone is really what it sounds like — just the facts — and a very limited set of facts at that. Think of these communications as “hard” factual information.

The specific rules under Regulation CF allow for “notices” limited to the following:

  • A statement that the issuer is conducting an offering pursuant to Section 4(a)(6) of the Securities Act;
  • The name of the intermediary through which the offering is being conducted and a link directing the potential investor to the intermediary’s platform;
  • The terms of the offering (the amount of securities offered, the nature of the securities, the price of the securities and the closing date of the offering period); and
  • Factual information about the legal identity and business location of the issuer, limited to the name of the issuer of the security, the address, phone number and website of the issuer, the e-mail address of a representative of the issuer and a brief description of the business of the issuer.

These are the outer limits of what you can say. You don’t have to include all or any of the terms: “Company X has an equity crowdfunding campaign on Super Portal — Go to www.SuperPortal.com/CompanyX to find out more.” The platform’s address is compulsory.

“Brief description of the business of the issuer” does mean brief. The rule that applies when companies are doing Initial Public Offerings (IPOs) (which is the only guidance we have in this area) lets those companies describe their general business, principal products or services, and the industry segment (e.g., for manufacturing companies, the general type of manufacturing, the principal products or classes of products and the segments in which the company conducts business). The brief description does not allow for inclusion of details about how the product works or the overall addressable market for it, and certainly not any customer endorsements.

“Limited time and availability”-type statements may be acceptable as part of the “terms of the offering.” For example, the company might state that the offering is “only” open until the termination date, or explain that the amount of securities available is limited to the oversubscription amount.

A few “context” or filler words might be acceptable in a tombstone notice, depending on that context. For example, the company might state that it is “pleased” to be making an offering under the newly-adopted Regulation Crowdfunding, or even refer to the fact that this is a “historic” event. Such additional wording will generally be a matter of judgement. “Check out our offering on [link]” or “Check out progress of our offering on [link]” are OK. “Our offering is making great progress on [link]” is not. Words that imply growth, success or progress (whether referring to the company or the offering) are always problematic. If you want to use a lot of additional context information, that information can be put in a “non-terms” communication that goes out at the same time and through the same means as a tombstone communication.

The only links that can be included on a tombstone communication are links to the platform. No links to reviews of the offering on Stratifund, Crowdability or Early Investing. No links to any press stories on Crowdfund Insider or CrowdFundBeat. No links to the company’s website. The implicit endorsement principle applies here just as with non-terms communications, meaning that anything you link to becomes a communication by the company.

An important point with respect to tombstone notices is that while content is severely limited, medium is not. Thus, notices containing tombstone information can be posted on social media, published in newspapers, broadcast on TV, slotted into Google Ads, etc. Craft breweries might wish to publish notices on their beer coasters, and donut shops might wish to have specially printed napkins.

What constitutes a “notice”

It is important to note that (until we hear otherwise from the SEC) the “notice” is supposed to be a standalone communication. It can’t be attached to or embedded in other communications. That means you cannot include it on your website (as all the information on your website will probably be deemed to be part of the “notice” and it will likely fail the tombstone rule) and you cannot include it in announcements about new products — again, it will fail the tombstone rule.

We have listed some examples of permissible communications in Exhibit A.

Websites
It’s a bad idea to include ANY information about the terms of the offering on your website. However, some issuers have found a clever solution: you can create a landing page that sits in front of your regular website. The landing page can include the tombstone information and two options: either investors can continue to your company’s regular webpage OR they can go to the platform to find out more about the offering on the platform. We have attached sample text for landing pages on Exhibit A.

“Invest now” buttons

Under the SEC’s current interpretations as we understand them, having an “invest now” button on your website with a link to the platform hosting your offering is fine although you should not mention any terms of the offering on your website unless your ENTIRE website complies with the tombstone rule. Most of them don’t.

Social Media

As we mention above, the medium of communication is not limited at all, even for tombstone communications. Companies can use social media to draw attention to their offerings as soon as they have filed their Form C with the SEC. Social media are subject to the same restrictions as any other communications: either don’t mention the offering terms at all or limit content to the tombstone information.

Emails

“Blast” emails that go out to everyone on your mailing list are subject to the same rules as social media: either don’t mention the offering terms at all or limit content to the tombstone information. Personalized emails to people you know will probably not be deemed to be advertising the terms of the offering, so you can send them, but be careful you don’t give your friends any more information than is on the platform — remember the rule about giving everyone access to the same information.

Images

Images are permitted in tombstone communications. However, these images also have to fit within the “tombstone” parameters. So brevity is required. Publishing a few pictures that show what the company does and how it does it is fine. An online coffee table book with hundreds of moodily-lit photos, not so much. Also, a picture tells a thousand words and those words better not be misleading. So use images only of real products actually currently produced by the company (or in planning, so long as you clearly indicate that), actual employees hard at work, genuine work space, etc. No cash registers, or images of dollar bills or graphics showing (or implying) increase in revenues or stock price. And don’t use images you don’t have the right to use! (Also, we never thought we’d need to say this, but don’t use the SEC’s logo anywhere on your notice, or anywhere else.)

While the “brevity” requirement doesn’t apply to non-terms communications, the rules about images not being misleading do.

Videos

Videos are permitted. You could have the CEO saying the tombstone information, together with video images of the company’s operations, but as with images in general, the video must comport with the tombstone rules. So “Gone with the Wind” length opuses will not work under the tombstone rule, although they are fine with non-terms communications.

Updates and communications to alert investors that important information is available on the platform

Updates can and should be found on the platform. You can use communications that don’t mention the terms of the offering, to drive readers to the platform’s site to learn about updates and things like webinars hosted on the platform. They may include links to the platform. Updates that include information as to the progress of the offering are permitted as “non-terms” communications, but please be careful about wording. “We have raised 25% of our target on SuperPortal” is ok, while “We have raised 25% of our $1 million target” is not.

Press releases

Yes, they are permitted, but they can’t contain very much. Press releases are also laden with potential pitfalls, as we discuss below. Press releases that mention the offering terms are limited to the same “tombstone” content restrictions that apply to all notices. Companies may say that they are pleased (or even thrilled) to announce that they are making a crowdfunding offering but the usual quotes from company officers can’t be included (unless those quotes are along the lines of “ I am thrilled that Company will be making a crowdfunding offering,” or “Company is a software-as-a-service provider with offices in six states”). The “about the company” section in press releases is subject to the same restrictions and if the press release is put together by a PR outfit, watch out for any non-permitted language in the “about the PR outfit” section of the press release (nothing like “Publicity Hound Agency is happy to help companies seeking crowdfunding from everyday investors who now have the opportunity to invest in the next Facebook”).
You could also issue non-terms press releases that state you are doing an offering (and you can identify or link to the platform) but doesn’t include terms and still include all the soft info, including quotes, mission statements and deep backgrounds. It’s likely, though, that journalists would call asking “So what are you offering, then?” and if you answer, you are going to make your non-terms communication into communication that fails the tombstone rule.

Press interviews and articles

Interviews with the media can be thorny because participation with a journalist makes the resulting article a communication of the company. In fact, the SEC Staff have stated that they don’t see how interviews can easily be conducted, because even if the company personnel stick to the tombstone information (which would make for a pretty weird interview), the journalist could add non-tombstone information later, which would result in the article being a notice that didn’t comply with the tombstone rule.

The same thing could happen with interviews where the company tries to keep the interview on a non-terms basis. The company personnel could refrain from mentioning any terms (again, it’s going to be pretty odd saying, “Yes, we are making an offering of securities but I can’t say what we are offering”), but the first thing the journalist is going to do is get the detailed terms from the company’s campaign page on the platform’s site, and again the result is that the article becomes a non-complying notice.

These rules apply to all articles that the company “participates in.” This means that if you (or your publicists) tell the press, “Hey, take a look at the Company X crowdfunding campaign” any resulting article is probably going to result in a violation of the rules. By you.

Links to press articles are subject to all the same rules discussed in this memo. If you link to an article, you are adopting and incorporating all the information in that article. If the article mentions the terms of the offering then you can’t link to it from a non-terms communication (such as your website) and if it includes soft non-terms information, then you can’t link to it from a tombstone communication. And if it includes misleading statements, you are now making those statements.

Remember that prior to the launch of the offering you should not be talking about your campaign with the press (or publicly with anyone else). If you are asked about whether you are doing a campaign prior to launch you should respond with either a “no comment” or “you know companies aren’t allowed to discuss these matters.” No winking (either real or emoji-style.)

Press articles that the company did not participate in

In general, if you (or your publicists) didn’t participate in or suggest to a journalist that he or she write an article, it’s not your problem. You aren’t required to monitor the media or correct mistakes. However, if you were to circulate an article (or place it or a link to it on your website), then that would be subject to the rules we discuss in this memo. You can’t do indirectly what you can’t do directly.

Also, if you add (or link to) press coverage to your campaign page on the platform’s site, you are now adopting that content, so it had better not be misleading.

Demo days

Demo days and industry conferences are subject to many of the same constraints that apply to press interviews. In theory, you could limit your remarks to a statement that you are raising funds through crowdfunding, but in reality people are going to ask what you are selling. You could say “I can’t talk about that; go to SuperPortal.com,” but that would lead to more follow-up questions. And following the tombstone rules means you can’t say too much about your product, which rather undermines the whole purpose of a demo day.

“Ask Me Anythings”

The only place you can do an “Ask Me Anything” (AMA) that references the terms of the offering is on the platform where your offering is hosted. You can’t do AMAs on Reddit. Unless you limit the AMA to non-terms communications or tombstone information. In which case, people aren’t going to be able to ask you “anything.”

Product and service advertising

As we mentioned above, once you’ve filed your Form C, ordinary advertising or other communications (such as putting out an informational newsletter) can continue and can even be ramped up. Most advertising by its nature would constitute non-terms communication, so it couldn’t include references to the terms of the offering. So don’t include information about your offering in your supermarket mailer coupons.

What about side by side communications?

You are doubtless wondering whether you could do a non-terms Tweet and follow it immediately with a tombstone Tweet. It appears, at least for the moment, that this works. There is the possibility that if you tried to put a non-terms advertisement right next to a tombstone advertisement in print media or online, the SEC might view them collectively as one single (non-complying) “notice”. It is unclear how much time or space would need to separate communications to avoid this problem, or even whether it is a problem.

“Can I still talk to my friends?”

Yes, you can still talk to your friends face to face at the pub (we are talking real friends, not Facebook friends, here) and even tell them that you are doing a crowdfunding offering, even before you file with the SEC. You aren’t limited to the tombstone information (man, would that be a weird conversation). After you’ve launched the offering, you can ask your friends to help spread the word (that’s the point of social media) but please do not pay them, even in beer or donuts, because that would make them paid “stock touts.” Don’t ask them to make favorable comments on the platform’s chat board either, unless they say on the chat board that they are doing so because you asked them to. If they are journalists, don’t ask them to write a favorable piece about your offering.

“What if people email me personally with questions?”

Best practice would be to respond “That’s a great question, Freddie. I’ve answered it here on the SuperPortal chat site [link]”. Remember the Congressional intent of having all investors have access to the same information.

Links

As we’ve seen from the discussion above, you can’t link from a communication that does comply with the rule you are trying to comply with to something that doesn’t. So for example, you can’t link from a Tweet that doesn’t mention the offering terms to something that does and you can’t link from a tombstone communication to anything other than the platform’s website.

Emoji

Emoji are subject to antifraud provisions in exactly the same way as text or images are. The current limited range of emoji and their inability to do nuance means that the chance of emoji being misleading is heightened. Seriously people, you need to use your words.

After the offering

These limitations only last until the offering is closed. Once that happens you are free to speak freely again, so long as you don’t make any misleading statements.

And what about platforms?

The rules for publicity by platforms are different, and also depend on whether the platform is a broker or a portal. We’ll be doing a separate memo for them.

CrowdCheck is not a law firm, the foregoing is not legal advice, and even more than usual, it is subject to change as regulatory positions evolve. Please contact your lawyer with respect to any of the matters discussed here.
©CrowdCheck, Inc. 2016

Exhibit A
Sample Tombstones:
 Company X, Inc.
[Company Logo]
Company X is a large widget company based in Anywhere, U.S.A. and incorporated on July 4, 1776. We make widgets and they come in red, white, and blue. Our widgets are designed to spread patriotic cheer.

We are selling common shares in our company at $17.76 a share. The minimum amount is $13,000 and the maximum amount is $50,000. The offering will remain open until July 4, 2017.

This offering is being made pursuant to Section 4(a)(6) of the Securities Act.

For additional information please visit:
https://www.SuperPortal.com/companyx

  • Freddy’s Ferret Food Company is making a Regulation CF Offering of Preferred Shares on FundCrowdFund.com. Freddy’s Ferret Food Company was incorporated in Delaware in 2006 and has its principal office in Los Angeles, California. Freddy’s Ferret Food Company makes ferret food out of its four manufacturing plants located in Trenton, New Jersey. Freddy’s Ferret Food is offering up to 500,000 shares of Preferred Stock at $2 a share and the offering will remain open until February 2, 2016. For more information on the offering please go to www.fundcrowdfund.com/freddysferretfoodcompany.

Sample “non-terms” communications

We are doing a crowdfunding offering! We are going to use the proceeds of our offering to Make America Great Again by selling a million extra large red hats and extra small red gloves with logos on them, and to bring jobs back to Big Bug Creek, Arizona. The more stuff we make, the greater our profits will be. We think we are poised for significant growth. Already we’ve received orders from 100,000 people in Cleveland. Invest in us TODAY, while you still can and Make Capitalism Great Again! [LINK TO PLATFORM].

  • Feel the “Burn”! We are making a crowdfunding offering on SuperPortal.com to raise funds to expand our hot sauce factory. Be a part of history. Small investors have been screwed for years. This is your chance to Stick it to the Man and buy securities in a business that has grown consistently for the last five years.

Sample Communications on Social Media:

Note all these communications will have a link to the platform.
Company Y has launched its Crowdfunding campaign, click here to find out more.
Interested in investing in Company Y? Click here.

Sample Landing Pages:
Come hither, come all.
Thanks to Regulation CF, now everyone can own a stake in our widget maker.
[Button] Invest in our Company
[Button] Continue to our Website

sarahanks

Sara Hanks, co-founder and CEO of CrowdCheck, is an attorney with over 30 years of experience in the corporate and securities field. Crowd Check provides due diligence and compliance services for online alternative securities offerings. Its services help entrepreneurs and project sponsors through the disclosure and due diligence process, give investors the information they need to make an informed investment decision and avoid fraud and help intermediaries avoid liability. Sara’s prior position was General Counsel of the bipartisan Congressional Oversight Panel, the overseer of the Troubled Asset Relief Program (TARP). Prior to that, Sara spent many years as a partner of Clifford Chance, one of the world’s largest law firms. While at Clifford Chance, she advised on capital markets transactions and corporate matters for companies throughout the world.Sara began her career with the London law firm Norton Rose. She later joined the Securities and Exchange Commission and as Chief of the Office of International Corporate Finance led the team drafting regulations that put into place a new generation of rules governing the capital-raising process. Sara received her law degree from Oxford University and is a member of the New York and DC bars and a Solicitor of the Supreme Court of England and Wales. She serves on the SEC’s Advisory Council on Small and Emerging Companies. She holds a Series 65 securities license as a registered investment advisor. Sara is an aunt, Army wife, skier, cyclist, gardener and animal lover.

 

Crowdfunding with Self Directed IRA?

REPORT: Is Marketplace lending A temporary phenomenon?

Crowdfund Beat Data Center:

Deloitte Report

MPLs are online platforms that enable investors to lend to retail and commercial borrowers. Unlike banks, MPLs do not take deposits or lend themselves; as such they do not take any risk onto their balance sheets. They make money from fees and commissions received from borrowers and lenders.

The rise of Marketplace lending has urged many commentators to highlight the potential disruption that such new business models may bring to traditional banking. Our research presents a different opinion and instead concludes that MPLs do not currently have the competitive advantage needed to threaten this traditional banking model. However, while they may not fully disrupt the model, we do expect them to be a continued presence within the ever evolving banking landscape.

Deloitte Uk Fs Marketplace Lending by CrowdFunding Beat

 

 

We believe there is significant consumer benefit to be had by supporting the development of an innovative MPL sector. Banks should therefore view MPLs as complementary to the core model, rather than as core competitors, and explore opportunities to enhance their overall customer propositions through collaboration.

As explored in Deloitte’s Banking disrupted and Payments disrupted reports, and Deloitte’s The Future of Financial Services report, produced in collaboration with the World Economic Forum, a combination of new technology and regulation is eroding many of the core competitive advantages that banks have over new market entrants. These structural threats have arrived at a time when interest rates are at historic lows, and seem likely to remain ‘lower for longer’. Combined with an increase in regulatory capital requirements, these changes are making the goal of generating returns above the cost of (more) capital a continuing challenge.

Source:
http://www2.deloitte.com/uk/en/pages/financial-services/articles/marketplace-lending.html

What’s Seed Equity CrowdFunding, known as “REG CF Title III”?

By Rod Turner  founder and CEO of Manhattan Street Capital, Crowdfund Beat  Guest Editor,

The SEC’s new Title III Equity CrowdFunding rules went into effect May 16th. These new rules expand Equity CrowdFunding to allow investors at all wealth levels to invest in startup companies. In June 2015, the SEC also enabled groundbreaking new rules called Regulation A+ which allow anyone to invest in startups and more established companies that need to raise up to $50 million.

The capital raising landscape is making its biggest shift in decades. We now have an online fund raising continuum that extends from startups raising seed capital of as little as $100k up through established companies raising up to $50 million per year.

equity-crowdfunding1-300x161

U.S. entrepreneurs have never had it so good. Let’s explore the new ecosystem and see what path suits your company best.

Seed Equity CrowdFunding, known as Title III: Startups raising $100k up to $1 mill in seed capital fit the newly expanded main street equity crowdfunding rules nicely. This means that main street investors (both accredited and non-accredited individuals) worldwide can now buy shares in your company. The smaller the capital raise, the less demanding the disclosure rules, with break points at $100k and $500k. We can expect many of the existing equity crowdfunding platforms to now expand to include main street investors.

Vetted financials are required in many cases, and there will be marketing costs to promote your offering to investors. These costs could range from as low as $10k to the $60k range. The marketing cost will vary greatly depending on who is doing the marketing and how well it is executed. It costs money to get the attention of investors. Marketing agencies cannot charge a percentage fee on capital raised. They have to charge for their services in cash. But the good news is that the cost of reaching main street investors is far lower than the cost of drawing in Accredited investors if your company appeals to consumers, which is critically important here.

The initial slate of Title III Funding Portals are SI Portal (Seedinvest), IndieCrowdFunder, StartEngine, NextSeed, UFundingPortal, WeFunder, JumpStart Micro and CrowdBoarders. Many more funding platforms will likely soon be approved by FINRA, and this should be a busy field by the end of 2016. The most attractive Title III platforms will be those that have large scale and use their scale efficiently for Title III startups. IndieCrowdFunder would be my early favorite if they were broad in focus, but they are limiting their scope to Hollywood type companies.

Accredited Equity CrowdFunding:Startups raising $1mill to $4mill and up fit the existing style of equity crowdfunding platforms, raising capital from accredited (wealthy) investors.Think Fundable, CrowdFunder, Angellist, EquityNet as examples of this.

Reg A+: Successful mid stage companies, corporate spinouts (think management buyout) companies considering a reverse merger with a public shell, and select, low risk startups fit Reg A+ platforms. You can raise up to $50 mill per year using Reg A+. You could do your own offering, or you can use one of the funding platforms that exist today (examples include SeedInvest, StartEngine and, of course, ManhattanStreetCapital). Shares can be liquid immediately after the offering. It is also possible to take your company public using Reg A+.

In all forms of online fundraising/CrowdFunding:

  • You will need to make a compelling pitch for your business and the use of the capital, the market and why your company will survive competition in the long haul.
  • Be prepared for open disclosure. You have to be open and avoid hype in order to have a good chance of getting investor engagement and investment and to meet the SEC and FINRA requirements. Expect thousands of investors to be examining your every claim, your LinkedIn profile, and your career to date.
  • It will cost money to do the marketing of your offering. So you must spend money to raise money. As a rule of thumb, think in the range of 2 to 5% of capital raised must be spent to bring investors on board. Excellence in execution here is key. And for Title III and Reg A+, you will have more success if your company appeals to consumer investors – they cost less to reach and will more readily adopt the new models described here than accredited investors will.

Now is the time, and the opportunity has never been greater. We can expect tremendous evolution in the funding landscape as the result of the new expansion of online capital raising options for U.S. and Canadian entrepreneurs.

 

Rod-Turner-headshot-207x200

Rod Turner is the founder and CEO of Manhattan Street Capital, helping successful mid-stage and mature, low risk startups to raise the capital they need to scale faster under the newly-approved criteria of Regulation A+. Turner has played a key role in building six successful companies including Symantec/Norton, Ashton Tate, MicroPort, Knowledge Adventure, and ArtSlant, Inc. He is an accomplished investor who has built a Venture capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris, Ask, and eASIC.

 

 

New CrowdFunding Rules are a Game Changer

Joel Block

By  CEO at Bullseye Capital MarketPlace Partners, LLC , CrowdFund Beat Guest Post,

This was an historic week in the securities industry. Rules that have been in place for more than 80 years were smashed and replaced with new, modern rules that allow citizens from every walk of life to invest in start-up companies right on the Internet. In the past, private placements had to be kept private which effectively meant that you had to be a millionaire to get into a private placement and make any money.

game-changer
Nothing seems more un-American than having to be a millionaire to make money in the United States of America. But the final deployment of the new rules, as a result of the JOBS Act of 2012, with partial implementations in 2013, 2015 and now 2016, has modernized the old capital formation rules and is changing the landscape of fund raising – for the better.

It’s unclear if the new rules under Title III of the JOBS Act will have much impact on real estate. Allowing non-accredited investors into real estate deals that require a substantial amount of capital doesn’t seem like it’s going to make a very big difference in an overall capital raise. This is compounded by the limits on projects: deal sponsors are restricted to $1M per year and individual investors can only invest (generally) about $5,000 each. So, not much money is going to come from non-accredited investors on a deal-by-deal basis for real estate. But for early stage companies, these small amounts could be a game changer.

The new Title III rules were enough to cause celebration in the streets of Washington DC this week. Hundreds of entrepreneurs, lobbied for the bills that became the JOBS Act, and many of us have been educating the investing public about how all of these new rules work.

Our company has put together a consortium of professional syndicators, who are promoting deals to accredited investors. We already have 53 groups that have joined our company and have signed our Operating Agreement. Our website will be live this summer. We’ve procured relationships with two different broker/dealer (BD) firms. One BD will oversee the relationship with the investors. The other is charged with overseeing the promoters (who are refered to as “issuers”.

We are very serious about making CrowdFunding work. Investors want more choices and deal sponsors want more investors. It’s a win/win for everyone. And we are dedicated to educating the marketplace and sharing information about how these new rules can positively and safely affect investors from every walk of life.

We teach this material in-depth at the Syndication and Hedge Fund Symposium that we host twice a year. The next one will be held in late October 2016 in Las Vegas, Nevada. We hope you’ll join us.

We also hope that you’ll partake in the new capital raising opportunities that exist. And if you’re a professional sponsor please consider joining our CrowdFunding company. Please be in touch with me so that we can share more about how this works and what the opportunity is for you to join us and participate in the modern capital raising revolution.

CrowdEngine First to Offer Regulation CF Crowdfunding Software

Crowdfund Beat News Wire, 

Washington, D.C. – May 16, 2016 – CrowdEngine to demo it’s Compliance Engine™ features for the new Regulation Crowdfunding rules today at the Capital Washington D.C. for Members of the House, Senators, and 300 other well respected guests.  CrowdEngine’s compliance automation solution and white-label crowdfunding software allows entrepreneurs to launch funding portals in a fraction of the time than building from scratch to achieve lower costs, and better investor experiences.

CrowdEngine+Lockup2“We are proud to be the first to offer a solution for funding portals to offer securities under the new Regulation Crowdfunding rules.   Our secure, cloud-based compliance automation platform is trusted by companies around the world,” says Jim Borzilleri, President, “We’re making equity investing 100% digital, seamless, and compliant.”

 

 

By leveraging our equity crowdfunding software, our customers can:

  • Online Income and Net Worth Verification – Complete and sign your income and net worth verification online with automatic calculation of investment limits based on your answers.
  • Automated Tracking and Tagging of Associate Persons and Promoters – Require Disclosure upon registration and limit or tag what associated parties and promoters post on the Funding Portal.
  • Automatic Tracking of Prior Regulation CF Investments – Prior investments on the Funding Portal are tracked automatically.
  • Educational Materials – Edit our templated help content and offer robust educational content and link to it throughout the investment process and requiring affirmative consent.
  • New Q & A Message Board – Prospective investors can ask questions for Issuers to answer directly and the answers will be posted publicly, with associated parties unable to ask a question at all.

In addition to the specific Regulation Crowdfunding features above, CrowdEngine also offers online escrow, online payment, online document signing and offers a smooth online investing experience in addition to investor dashboards with document management and earnings reports for post-sale management.

Organizations interested in learning how CrowdEngine and DocuSign work together may find more information at http://www.crowdengine.com/

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Contact:

Jim Borzilleri

CrowdEngine

+1 (888) 645-7018 X 111

press@crowdengine.com

About CrowdEngine – CrowdEngine is a compliance automation solution that enables entrepreneurs to launch their own funding portals and support all offering types in the United States including Regulation Crowdfunding, Reg. D (b) and (c), Reg. A+, and Intrastate rules. CrowdEngine turnkey, fully brandable solutions increase speed to market, reduce costs, increase security and compliance, and delight customers across nearly every industry – from financial services, technology, real estate, non-profit and others.