Is Equity Crowdfunding for You? Equity Crowdfunding for Start-ups


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Slides cover:
- what is happening now in equity crowdfunding;
- current and proposed rules in Canada for equity crowdfunding;
- how companies can assess their capital raising potential;
- how equity crowdfunding works; and
- how to prepare for a successful equity crowdfunding campaign.

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  • Australia ASOB - 179 companies funded average raise $526,000 – average number of investors 14
  • Rock the Post
    ayne Prive co-founder & COO - Cdn born

    Circle-Up - WAFU (Montreal, QU) - June 2013 - raised gross proceeds of approximately $230,000 through the issuance of Series A-2 Preferred Shares and/or Series A-3 Preferred Shares to a small number of “accredited investors.
  • Rock the Post
    ayne Prive co-founder & COO - Cdn born
  • Is Equity Crowdfunding for You? Equity Crowdfunding for Start-ups

    1. 1. “TO EQUITY OR NOT TO EQUITY” Equity Crowdfunding for Startups by Alixe Cormick Venture Law Corporation Greater Saskatoon Chamber of Commerce and NCFA Canada – May 28, 2014 – Leading the Way: Saskatchewan’s Emerging Equity Crowdfunding Environment
    2. 2. Disclaimer • Information purposes only: The materials and information contained in this presentation are intended to provide information (not advice) about equity crowdfunding and related matters. You should not act on this information presented without first consulting with an attorney. • No Attorney-Client Relationship Created: This information on this presentation is not intended to create, and receipt of it does not constitute, an attorney-client relationship having been created by us with you or anyone else. Do not send us confidential information until you speak with us and receive our authorization to send that information to us. The act of talking to us informally or sending an email to us will not create an attorney-client relationship. If you are not currently a client of Venture Law Corporation, your email will be not considered privileged and may be disclosed to other persons. We promise, however, to keep your name confidential unless you tell us otherwise when talking to any regulators or third parties about securities law matters. • No Warranties: The information provided in this presentation is provided “as is”. We make no warranties, representations, or claims of any kind concerning the information presented is complete. We are not responsible for any errors or omissions in the content of this presentation or for damages arising from the use of the information provided under any circumstances. 28/05/2014 Venture Law Corporation #AlixeCormick 2
    3. 3. Outline of Discussion • What is happening now in equity crowdfunding. • Understanding your business and investors • How to assess your outside capital raising potential. • How equity crowdfunding works. • Prior to Launching: Information gathering. • Preparing for an equity crowdfunding campaign: • Business; • Team; • Network; and • Support Material. • Reaching out to your existing network. • Increasing your network reach. • Equity crowdfunding live activities. • After the campaign. • Closing comments. 28/05/2014 Venture Law Corporation #AlixeCormick 3
    4. 4. Equity & Debt Crowdfunding Portals 28/05/2014 Venture Law Corporation #AlixeCormick 4 All Crowdfunding Portals (930)Donation & Product Presale Crowdfunding (675) Equity Crowdfunding (225) Debt Crowdfunding (30) Early Stage Non-accredited Investor (100) Early Stage Accredited Investor (75) Later Stage Accredited Investor (35) Portals worldwide May 2014
    5. 5. European Seed And Early Stage Equity Crowdfunding Portals (May 14, 2014) Portal Home Country Total Raised on Platform Number of Offerings Mean Offering Size Anaxago France $6,500,000 19 $342,105 CrowdCube United Kingdom $36,806,451 116 $317,297 Companisto Germany $6,990,295 30 $233,010 Invesdor Finland $2,262,000 11 $205,636 OurCrowd(1) Israel $45,000,000 37 $1,216,216 Seedmatch Germany $16,858,725 60 $280,979 Seedrs United Kingdom $14,920,000 96 $155,417 SyndicateRoom(1) United Kingdom $10,720,000 11 $974,545 Symbid Netherlands $5,699,331 36 $158,315 WiSeed France $10,137,231 36 $281,590 28/05/2014 Venture Law Corporation #AlixeCormick 5
    6. 6. U.S. Accredited Investor Equity Crowdfunding Portals (May 14, 2014) Portal Market Focus Total Raised on Platform Number of Offerings Mean Offering Size CircleUp Consumer $ 30,000,000 30 $342,105 Equity Net All $231,748,700 18,896 $12,264 Crowdfunder All $111,700,000 9,778 $11,423 Fundable All $114,000,000 651 $175,115 Microventures All $39,600,000 56 $707,143 Realty Mogul Realty $18,000,000 67 $268,657 Fundrise Realty $10,000,000 19 $526,315 Rock the Post All $30,698,452 62 ? 28/05/2014 Venture Law Corporation #AlixeCormick 6
    7. 7. Canadian Equity Crowdfunding Portals Operating Now (May 14, 2014) 28/05/2014 Venture Law Corporation #AlixeCormick 7 Accredited Investor Portals Offering Memorandum Portals
    8. 8. Venture Law Corporation #AlixeCormick 8 Proposed Equity Crowdfunding Specific Rules In Canada 28/05/2014
    9. 9. Proposed Equity Crowdfunding Rules In Canada 28/05/2014 Venture Law Corporation #AlixeCormick 9 Start-Up Crowdfunding Exemption: (BC, SK, MB, QU, NB, and NS - SK version available now!) • issuer may raise $150,000 in two separate offerings in 12 month period; • investor has 12 month cap of $1,500 per issuer in 12 month period; • issuer & investor both must reside in jurisdiction; • not available to reporting issuers or investment funds; • portal cannot be related to issuer of securities; and • portal is not required to be registered as a dealer but must file notice and related forms 30 days in advance before commencing business.
    10. 10. Proposed Equity Crowdfunding Rules In Canada 28/05/2014 Venture Law Corporation #AlixeCormick 10 Integrated Crowdfunding Exemption: (SK, MB, ON, QU, NB, and NS) • issuer may raise $1,500,000 in 12 month period; • investor has 12 month cap of $2,500 per issuer and max of $10,000 under exemption in 12 month period; • issuer & investor both must reside in jurisdiction; • not available to reporting issuers, investment funds, real estate issuers, or issuers with an unstated business; • portal cannot be related to issuer of securities; and • portal must be registered as a restricted funding portal and cannot be an exempt market dealer or investment dealer.
    11. 11. Current Rules Issuers Can Use When Equity Crowdfunding in Canada Accredited Investor Exemption: (Available in every province & territory in Canada) • no limit on how much an issuer may raise ; • available to all issuers regardless of business sector or residency; • no investment cap on investors; • Investor must meet income, financial asset or net asset test: – annual income of $200,000 individually or $300,000 with spouse; or – net financial assets of $1 million+ excluding home; or – net assets of $5 million+. • portal relationship to issuer of securities to be managed; and • portal must be registered as an exempt market dealer, investment dealer or restricted dealer. 28/05/2014 Venture Law Corporation #AlixeCormick 11
    12. 12. Current Rules Issuers Can Use When Equity Crowdfunding in Canada Offering Memorandum Exemption: (Available in every province & territory in Canada, but ON. ON considering) • no limit on how much an issuer may raise; • available to all issuers regardless of business sector or residency; • offering memorandum and financial statements required; • AB, SK, MB, QU, PEI, NU, YK or NWT residents if investing $10,000+ must be an eligible investor based on: annual income ($75,000 individually or $125,000 with spouse); or net assets ($400,000); or a close friend, family or business associate; or have obtained advice from an eligible adviser on suitability; • portal relationship to issuer of securities to be managed; and • portal must be registered as an exempt market dealer, investment dealer or restricted dealer. 28/05/2014 Venture Law Corporation #AlixeCormick 12
    13. 13. How to Assess Your Outside Capital Raising Potential Assess your readiness to raise capital in general: • Do you have a solid business plan in place? • Are your financial statements in good shape? • Are you ready to give up a certain amount of control? • Do you have a team of directors, officers, consultants who are supportive and can help with raising capital? Assess your business: • Life cycle stage and industry of your company? • Funds for consumption or production in business? • How fast is your company growing? Is it scalabe? • Is your business and value proposition one easily understood? • Is milestone your raising money for attractive to investors? • Is there a n attractive exit/win for investors? Tip: Campaigns with business plans raise 50% more . 28/05/2014 Venture Law Corporation #AlixeCormick 13
    14. 14. How to Assess Your Outside Capital Raising Potential Assess your team: • Do you have a team who are capable, committed and credible? • Is your team 100% into you raising capital and willing participants? • Is there a compelling spokesperson on your team? Assess your network: • Do you have friends and family who will support your business? • How large is your social network offline? • Are you active and have a network on Facebook, Twitter, LinkIn, Google+, etc.? • Is there a natural community of interest for your business? Tips: (1) Crowdfunding campaigns with teams raise 80% more money. (2) Most campaigns that meet their funding goal raise about 30% or more of their funds from their immediate network. 28/05/2014 Venture Law Corporation #AlixeCormick 14
    15. 15. How Equity Crowdfunding Works Equity Crowdfunding Timeline (Weeks) 1 2 3 4 5 6 7 8 9 10 11 12 Information Gathering Preparation Apply to Funding Portal Identify & Work Your Network for Support Contact Media and Work Social Campaign Campaign Live on Funding Portal - 1 day to 90 days 28/05/2014 Venture Law Corporation #AlixeCormick 15 Tip: Campaigns launched on a Monday or Tuesday raise 14% more in first week than campaigns launched on other days of the week.
    16. 16. How Equity Crowdfunding Works 28/05/2014 Venture Law Corporation #AlixeCormick 16 Note: The crowd helps businesses differently than Angel or VC investors, but the significance of that help should not be discounted. Money Help Limited Dilution Company Friendly Terms Basis of Future Rounds Speed/ Cost Cash Loan Y N Y N N ? Common Stock Y N N N N ? Convertible Debt Y Y ? ? Y Y Preferred Stock Y Y ? ? Y N Government Grants Y ? Y Y N N Goal Analysis of Accessing Money Remains Unchanged
    17. 17. Information Gathering Due diligence on your business • Put all material documents together in one place. • Review key documents for any changes necessary before launching campaign. • Obtain CVs from each insider and have them complete a questionnaire. Portal investigation • Identify and study successful crowdfunding campaigns of competitors or companies in related industry or location. • Review various equity crowdfunding portal requirements/models. Campaign Support • Identify team , confirm commitment and assign various roles. • Make lists of immediate and tertiary network. • Identify media which may be helpful to your campaign. • Collect images and other material to be used as part of campaign. 28/05/2014 Venture Law Corporation #AlixeCormick 17
    18. 18. Preparing for an Equity Crowdfunding Campaign Business investor, legal, and financial readiness • Complete a due diligence review of your business and correct any legacy issues not compatible with raising capital or crowdfunding. • Decide what interest you are selling in your business. • Update or prepare: – Business plan; – Financial statements; – Business Summary; – Elevator pitch; – Pitch Deck; – Term Sheet; – Offering documents (OM, limited partnership agreement, subscription agreement , etc.) • Review website and social media for securities law non- compliance issues. 28/05/2014 Venture Law Corporation #AlixeCormick 18
    19. 19. Preparing for an Equity Crowdfunding Campaign Team readiness • Organize team. • Identify outside affiliates, boosters and alliances and onboard them. • Train team regarding their role and your expectations. Network Readiness • Categorize each member of network for outreach before and during crowdfunding campaign.. • Plan in-person, phone , and email contact with close network. • Consider value of Hootsuite, Constant Contact etc. for campaign. Tip: If you don't know who is funding you on day one do not launch! 28/05/2014 Venture Law Corporation #AlixeCormick 19
    20. 20. Preparing for an equity crowdfunding campaign Prepare support material • Design reward and recognition program. – Tip: Successful non-equity campaigns offer 5 to 8 perks and raise 145% more than campaigns who do not offer perks. • Draft email messages, Tweets, and posts. – All of this should be scripted before hand and reviewed by legal counsel. – Email to immediate circle should b e personalized or it will have no impact. – Tip: Email is #1 tool, then Facebook #2 and Twitter #3 - Average contribution through email is 20% higher than contributions through other sources. Campaigns that send out at least 3 or more updates raise about 239% more than campaigns that do not send out updates. • Design landing page(s) and funnel pages. – Tip: Images result in 80% more money. People invest in people. 28/05/2014 Venture Law Corporation #AlixeCormick 20
    21. 21. Preparing for an equity crowdfunding campaign Prepare support material • Draft media articles and press release(s). – These should be short factual and clear. – The Start-Up Exemption prohibits discussing an offering beyond pointing to a funding portal. – Tip: Securities laws in Canada prohibit making a listing representation, or offering a guarantee of profit, among other things. • Produce videos. You need a series not just one! – Don’t make a commercial. Show passion and enthusiasm for business. Tell a story and engage investors in your vision. – Better to have 5-8 videos 2:59 minutes long than one video 15 minutes long. – Pitch deck provides natural topic breaks. Include a video on risks to keep it balanced. – Tip: Campaigns with pitch videos raise 115% more money. Campaigns posting 1 to 5 video updates a week raise 218% more. 28/05/2014 Venture Law Corporation #AlixeCormick 21
    22. 22. Preparing for an equity crowdfunding campaign Apply to Funding Portal • If you followed the suggestions and tips in this presentation you should have everything you need to apply to the portal of your choice. • Complete application well in advance of campaign to ensure any background checks and reviews are completed and you are ready to launch on your target date. Obtain CUSIP # from CUSIP Private Market Services Consider and plan a launch party • This does not need to be a high cost affair and may even be a Google+ hang-out event. • Purpose is to meet people in person and create excitement for the business of the company. 28/05/2014 Venture Law Corporation #AlixeCormick 22
    23. 23. Reaching Out to Your Existing Network People invest in people and things they know • Meet face to face with people who can give you big money prior to launching your campaign. • Phone anyone you and your team consider to be a close personal friend or business associate prior to launching your campaign. • Email to all acquaintances who have given you an email. • Discussion should be limited to updating them on you and your business and not the fact you plan on raising money. • If your own family and close friends are not on board when your campaign is launched no one else will invest – lack of credibility. Tip: Cultivation of relationships offers a reoccurring patron of your project. Over the life of making that relationship it may be worth $10-100,000+ or more to you. 28/05/2014 Venture Law Corporation #AlixeCormick 23
    24. 24. Increasing Your Network Reach Amplify your reach to get full benefit of equity crowdfunding • The purpose of social media is not to reach the people you know, love and are close to you it is to extend beyond those people. • Increase your engagement with all social media platforms months before starting a funding campaign. • Number of posts should increase up to launch date of campaign. Posts should be daily during campaign. • Look for and follow businesses and people who may be interested in what you are doing. • Emphasize your business, products, services, vision of you and your business . Do not talk about your need for money or campaign plans. • Reach out to traditional and online media prior and during campaign. 28/05/2014 Venture Law Corporation #AlixeCormick 24
    25. 25. Equity Crowdfunding Live Activities Social Media • Engage your social media audience daily. Don’t forget to continue to post on your non-capital raising interests. • Emphasize your business and not campaign. Portal Website • Roll out various updates, videos and other materials regularly to keep campaign fresh. • Send a personal (vs. portal) thank-you to anyone who invests. – Tip: 62 % of campaigns that reach their goal have repeat funders. Don’t Ignore Your Network • Now that campaign is live you should be pointing everyone in your network to the funding portal landing page for your campaign. 28/05/2014 Venture Law Corporation #AlixeCormick 25
    26. 26. After the Campaign Share Register • Transfer agents in U.S. an d Canada providing services to private market. • Investors depending on securities instrument sold may be holding directly or through an intermediary. • Use electronic shares and send confirmation to each shareholder. Investor Portal on Your Website or 3rd Party Website • Inexpensive to create a secured portal for investors only. • Portal should include regular financial and other updates. Corporate statute may allow posting on portal as delivery of AGM materials. Don’t Ignore Your Investors • Provide a personal thank-you to each and every investor. • If investor was to receive a perk as well as securities make sure each perk is delivered. 28/05/2014 Venture Law Corporation #AlixeCormick 26
    27. 27. Closing Remarks Keep Track of Your Actions • Considering using BaseCamp or a similar program to log all your actions. • Track commitments from the pre-sale stage to final investment. • Follow-up with everyone at each stage of the campaign. The campaign is top of mind to you and not your potential investors. Treat Investors with Respect • Investors are not just money. They are potential customers, boosters and allies in making your business a success. Support Equity Crowdfunding Proposals Being Considered • If you are interested in the: – start-up crowdfunding exemption; – Integrated crowdfunding exemption; or – Proposed changes to the offering memorandum exemption, Send a letter in support . 28/05/2014 Venture Law Corporation #AlixeCormick 27
    28. 28. Resources Start-Up Document Templates • Founders Workbench: • NVCA's Model Legal Documents: • Seed Series: • Orrick’s Start-Up Form: s/startup/forms_index.asp Term Sheet Generator • WSGR Term Sheet Generator: e/termsheet.htm • Orrick’s Term Sheet Generators: Sample documents while instructive and prepared with helpful annotation are not a substitute for legal advice. You are strongly encouraged to discuss the suitability of any and all documents with your legal counsel prior to use. 28/05/2014 Venture Law Corporation #AlixeCormick 28
    29. 29. Resources Useful Calculators • EquityNet Startup Risk Calculator: Estimates business risk . Relies on real-world data gathered from over 500,000 businesses from across North America to create estimate/suggestions. • Valuation Calculators: – EquityNet Valuation Calculator: tools/startup-valuation-calculator.aspx – Venture Choice Valuation Calculator: – Cayenne Consulting Valuation Calculator: – Endeavour Term Sheet Value Calculator: • Crowdfund CPA – Crowdfunding Audit/Review Cost Calculator - 28/05/2014 Venture Law Corporation #AlixeCormick 29
    30. 30. Thank-you Thank you to David Nguyen for his research assistance and to each attendee for participating in this seminar. Venture Law Corporation 618-688 West Hastings Street Vancouver, BC V6B 1P1 Phone: 604-659-9188 Fax: 604-659-9178 Email: Website: Blog: Twitter: #AlixeCormick Google+: AlixeCormick 28/05/2014 Venture Law Corporation #AlixeCormick 30