Equity crowdfunding, also known as Regulation Crowdfunding or Reg CF, allows companies to publicly raise up to $1 million from non-accredited investors. It expands the potential investor pool beyond accredited investors. Companies must use a FINRA-approved funding portal and meet SEC requirements including financial disclosures, Form C filings, and annual reports. Investors are limited in how much they can invest based on their income and net worth. Funding portals facilitate the investments but cannot provide advice or recommendations. While equity crowdfunding opens new financing opportunities, companies need to consider implementation challenges and expenses of the process.

1. Equity Crowdfunding
aka
Regulation Crowdfunding
aka
Reg CF Crowdfunding
Overview

2. Presenter Bio
• Casey Barach
• BS, JD, MBA
• SVP, Tri-ED
• Director, KIN@NKY
• UpTech Accelerator Program, Founder
• UpTech Fund I & II, Founder
• Kentucky Angel Tax Credit, Author
• Equity Backed Entrepreneur

3. JOBS Act
Timeline
April 5, 2012
Jumpstart Our
Business Startups Act
(JOBS Act)
September 23, 2013
General Solicitation
(Title II)
June 19, 2015
Reg A+ (Title IV)
January 29, 2016
Reg CF (Title III)
May 16, 2016
Reg CF (Title III)
Launches

4. Overview of “Crowdfunding”
Rewards Crowdfunding Equity Funding
Equity
Crowdfunding
Platforms Kickstarter AngelList, SeedInvest Funding Portals
Who Can Play? Everyone Accredited Investors Only “Everyone”
Regulatory? None Reg D Reg CF
What Are You Buying? Prototype of Product Securities / Ownership Securities / Ownership
Also – Lending based; Intrastate; Royalty; Hybrids

5. Equity Crowdfunding
Highlights
 “Low cost” mass market fundraising option
 Allows a company to publicly fundraise up to $1M
 Expands the pool of potential investors
 Limits investor investment amounts
 SEC Requirements – Forms, Financials, Advertising, Annual Reports

6. Impact - Why do you care?

7. Impact - Why do you care?
Two Reasons:
New means of raising capital
Expands the pool of potential investors

8. U.S. Investor Population
Accredited Investor World*
8%
*estimated

9. U.S. Investor Population
Equity Crowdfunding Investor World*
*estimated
76%

10. Equity Crowdfunding
Three Players
Funding
Portal*
*Online Broker-Dealers or Funding Portals
InvestorCompany

11. Equity Crowdfunding
Investors
•Self Accreditation – Income, Net Worth &
Investments to Date
•Resales restricted for one year
•Investment amount limits

12. Equity Crowdfunding
Investor Investment Limits
Determine Annual Income and Net Worth*
If either- $100,000 or less
Greater of $2,000 or 5% of
the lesser
If both – over $100,000
10% of lesser
*same definition as Reg D

13. Investor Investment Limits
Investor
Annual
Income
Investor
Net
Worth
Lesser Calculation
12 Month
Investment
Limit
$30,000 $105,000 $30,000 Greater of $2,000 or 5% of $30,000 ($1,500) $2,000
$150,000 $80,000 $80,000 Greater of $2,000 or 5% of $80,000 ($4,000) $4,000
$150,000 $100,000 $100,000 10% of $100,000 ($10,000) $10,000
$200,000 $900,000 $200,000 10% of $200,000 ($20,000) $20,000
$1,200,000 $2,000,000 $1,200,000
10% of $1,200,000($120,000),
subject to $100,000 cap
$100,000
Self Accreditation by Investor
Income, Net Worth & Investments Amounts

14. Equity Crowdfunding
Three Players
Funding
Portal*
InvestorCompany
*Online Broker-Dealers or Funding Portals

15. Equity Crowdfunding
Company
• Limit - $1M in rolling 12 months
• Must use a FINRA approved funding portal (one at a time)
• Only US entities
• Business Plan required
• SEC Form C
• Business Name
• Financials (2 Years)
• Offering Information
• Following FINRA approval, 21 days (cooling off period)
• Ongoing Annual Report, includes financial reporting
• Advertising limits - factual

16. Equity Crowdfunding
Company Financial Disclosure Requirements
Raising $100K or Less
Raising $100K to $500K
Raising $500K to $1M

17. Raising $100K or Less
The company must provide financial statements
certified by the executive officer of the issuer to
be true and complete in all material respects.

18. Raising $100K to $500K
The company must provide financial
statements reviewed by a public accountant
that is independent of the issuer.

19. Raising $500K to $1M
The company must provide audited financial
statements from a public accountant.
However, the SEC has provided a limited one-
time exclusion from the audit requirements
for first Reg CF offering.

20. Equity Crowdfunding
Three Players
Funding
Portal*
InvestorCompany
*Online Broker-Dealers or Funding Portals

21. Equity Crowdfunding
Funding Portals
• Must be FINRA registered and approved
• Services offered will range from basic to added services
• May be a foreign entity
• May receive cash and/or equity as compensation
• Must provide investors with educational materials
• Must provide communication channels for discussions about offerings on the portal
• May not offer investment advice or make recommendations

22. Expense Estimates
$100,000
Or Less
$100,000 to
$500,000
$500,000 to
$1,000,000
Fees paid to the Funding Portal $2,500 – $7,500 $15,000 - $30,000 $37,500 – $56,250
Preparation and filing of Form C for each
offering and related compliance costs
$2,500 $2,500 - $5,000 $5,000 - $20,000
Preparation and filing of annual report on
Form C-AR and related compliance cost
$1,667 $1,667 – $3,333 $3,333 - $13,333
Review or audit of financial statements Not Required $1,500 - $18,000 $2,500 - $30,000
Average $5,000 - $10,000 $19,000 - $53,000 $45,000 - $106,250

23. Potential Issues
Implementation dates
Expenses
Legal
Accounting
Portal & Portal Services
No pooling of LLCs
 Portal requirements
 Future financing impact

24. Thank You
Casey Barach
casey@nkyinnovation.org