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Beyond the Crowd: The Whole JOBS Act Implications for Entrepreneurs and Investors
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Beyond the Crowd: The Whole JOBS Act Implications for Entrepreneurs and Investors

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The JOBS Act is here, and now investors, entrepreneurs, and the rest of the startup community have to figure out what this means. There are a lot of unanswered questions and a lot more to the JOBS Act …

The JOBS Act is here, and now investors, entrepreneurs, and the rest of the startup community have to figure out what this means. There are a lot of unanswered questions and a lot more to the JOBS Act than just crowdfunding. With some of these new regulations, it’s important for both investors and entrepreneurs to understand how the new law affects what they do, say, and present and how it could impact future investments (both positive and negative).
Topics addressed:
Solicitation – what is it? What does it mean, and why does this matter to me?
Crowdfunding – is this going to change the world?
What do the new state level rules mean?
Hear from an angel, entrepreneur, and Boston’s experts on the law about how the JOBS Act is affecting the funding landscape – both long and short term.

Published in: Business

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    • 1. Nutter McClennen & Fish LLP Attorneys at Law Fundraising with Angels Impact of the JOBS Act and New Advertising/Solicitation Rules August 12, 2014 Jeremy Halpern Partner, Nutter McClennen & Fish LLP Thomas V. Powers Associate, Nutter McClennen & Fish LLP
    • 2. › Nutter McClennen & Fish LLP - Partner; Director of Biz Dev, ECG • Top 10 Boston law firm • Represent clients in technology, hardware, software, mobile, medtech health IT, biotechnology, cleantech CPG, consumer electronics › MassVentures – Director & Investment Committee Member • TheVenture Arm of the Commonwealth: providing seed and early stage venture funding to high growth technology startups › Angel Investor – Private investor in multiple technology and consumer products companies › The Capital Network – Director; Past Executive Chairman • Providing education, resources and community to high growth entrepreneurs and angel investors as they navigate the early stage capital process › Previously: Co-Founder/VP Biz Dev MobileTek Corporation › UC Berkeley, B.A. (Go Bears!); UCLA School of Law, J.D.; Admitted to practice, CA and MA 2 Jeremy Halpern Biography
    • 3. 3 ThomasV. Powers Biography ThomasV. Powers is an associate in the Business Department at Nutter McClennen & Fish LLP and is a member of the firm’s Banking and Financial Services and Emerging Companies practice groups. He works with a broad range of institutional and early-stage clients on corporate law matters, including entity formation, corporate governance, equity financings, securities laws and mergers and acquisitions. Thomas gained previous legal experience working as an intern in the Boston office of the U.S. Securities and Exchange Commission and as a judicial intern for the Honorable Robert J. Kane of the Massachusetts Superior Court. During law school, Thomas served as an articles editor for the Review of Banking & Financial Law. Thomas has written extensively on JOBS Act implementation, including issues relating to private placements under Rule 506(c) and the impact of proposed crowdfunding rules on issuers and financial intermediaries. He has participated in previousTCN events on JOBS Act implications for startups. Education Boston University School of Law, J.D. cum laude The Catholic University of America, B.A. magna cum laude Bar Admissions Massachusetts New York
    • 4. Nutter’s Emerging Companies Group 4 As a full service firm with a dedicated team of lawyers in the Emerging Companies Group, Nutter supports ventures across the innovation economy: • Biomedical Devices • Biotechnology • Pharmaceuticals • Life sciences • Software • Hardware • Information Technology • Cleantech • Mobile • Consumer Products • Analytics • New Media • Robotics We provide entrepreneurs with the full spectrum of support that they need to build their businesses and realize their visions: • Entity Formation • Founders Agreements • Financing Strategy and Key Introductions • Angel & Venture Capital • Debt Financing • Private Equity • Initial Public Offerings • Private Placements • Strategic Partnering • Mergers & Acquisitions • Employment support • Equity Compensation • Tax Strategy • Litigation • Licensing • Distribution • Manufacturing • Supply Agreements • Electronic Commerce • Patent and Trademark Strategy & Prosecution
    • 5. Fundraising with Angels Impact of the JOBS Act and New Advertising/Solicitation Rules • Overview of U.S. Securities Law  Regulatory Scheme for Startups  What is a “Security”?  Registration or Exemption  Liability • Fundraising with Angels  Private Placements under Rules 506(b)/(c)  Pros and Cons of Rule 506(b) vs. Rule 506(c)Offerings  What is General Solicitation? • Rule 506: Rules of the Road 5
    • 6. Overview of U.S. Securities Law Regulatory Scheme for Startups • Regulators: – U.S. Securities & ExchangeCommission – State RegulatoryAgencies • Securities Laws: – Federal Law (Primary) • Securities Act of 1933 • Securities ExchangeAct of 1934 – SEC Rules and Regulations – State Securities Laws • Scope of Regulation: Companies that offer and sell “securities” 6
    • 7. Federal securities law defines the term “security” very broadly to include, among many other things: – Stock (including Options andWarrants) – Convertible Debt – Membership Interests/Profit Sharing 7 Overview of U.S. Securities Law What is a "Security"?
    • 8. • A Company that is offering or selling securities must either: 1. Register those Securities with the SEC (i.e. engage in an Initial Public Offering (IPO)); or 2. Find a Registration Exemption • Most Frequent: Rule 506 of Regulation D 8 Overview of U.S. Securities Law Registration or Exemption
    • 9. Failure to Register or Find an Exemption: Civil Liability (a)SEC  Entitled to: – Disgorgement of proceeds – Civil penalties – Prejudgment interest (b)Investors  Entitled to: – Rescission of transaction – Payment for any losses associated with the transaction 9 Overview of U.S. Securities Law Liability
    • 10. 10 Fundraising with Angels Private Placements Under Rules 506(b)/(c) Rule 506 of Regulation D – Two Exemptions: 1. Rule 506(b): Pre-JOBS Act Exemption (a)No limit on maximum offering amount (b)General solicitation and advertising prohibited (c)Permits sales to unlimited number of accredited investors and up to 35 non-accredited investors • “Accredited Investor” includes: 1) Individuals with $1 million net worth or $200,000 annual income 2) Private Equity,Venture Capital, andAngel Firms • Self-certification permitted
    • 11. 11 2. Rule 506(c): JOBS Act-Created Exemption (a) No limit on maximum offering amount (b)General solicitation and advertising permitted (c) Permits sales to accredited investors only (unlimited number) and issuer must take reasonable steps to verify each purchaser’s accredited investor status • “Principles-based” method of verification – look to facts and circumstances • Non-Exclusive Safe Harbors for Natural Persons: o Reviewing copies of IRS forms that report income; oObtaining written confirmation of accredited investor status from a licensed broker, investment adviser, accountant or attorney • Self-certification not permitted (unless investor participated in previous 506(b)/(c) offering) Fundraising with Angels Private Placements Under Rules 506(b)/(c)
    • 12. 12 Fundraising with Angels Pros and Cons of Rule 506(b) vs. 506(c) Offerings Rule 506(b) Rule 506(c) Pros Cons Pros Cons Self-Certification of Accredited Investors No general solicitation or advertising General solicitation and advertising permitted Reasonable verification burden on issuer; no self- certification Angel investors may be more comfortable with 506(b) (e.g., no reasonable verification requirement) Reasonable verification burden may chill investment by angel groups and other private investors Can sell to non-accredited investors (but: significant additional disclosure requirements) Proposed SEC rules may require additional hoops (e.g., pre-use disclosure of ads to SEC; Form D pre-filing) Can change from 506(b) to 506(c) offering Generally cannot change from 506(c) to 506(b) offering Section 4(a)(2) fallback exemption available No Section 4(a)(2) fallback exemption No sales to non-accredited investors
    • 13. 13 Fundraising with Angels What is General Solicitation? What is “General Solicitation”? Congress and the SEC have not defined general solicitation. Less Likely More Likely Unknown Offering to individual investors with whom you have a substantive pre-existing relationship Television, radio, print media or social media advertisements Demo Days, pitch events and venture fairs Meeting individual investors through personal introductions Blast emails to distribution lists regarding offering Crowdfunding websites and fundraising-oriented social networks (e.g., Angellist, WeFunder, Gust) Offering to close friends and family Discussing offering with press/bloggers
    • 14. 14 Rule 506: Rules of the Road Key Initial Considerations: • Who are my existing investors? • When was my last offering and on which exemption did I rely? • Will the angel groups I am targeting invest in issuers that conduct a Rule 506(c) offering? • Have I participated in any activities in the past six months that might constitute an advertisement of my securities offering or a general solicitation to potential investors? Do: • Keep track of Company marketing activities • Determine whether angel groups will invest in Rule 506(c) raises • Stay up-to-date on rule changes to Rule 506(b) and (c) offerings Do Not: • Advertise your offering or generally solicit investors without first speaking to a qualified securities lawyer • Advertise your offering or generally solicit investors unless you are certain about conducting a Rule 506(c) (there is no going back to 506(b))
    • 15. 15 Elizabeth Morrow, Yoga by Numbers @Yoga_By_Numbers Mandie Holmes, Launch Angels @Launch_Angels Jeremy Halpern, Nutter McClennen & Fish @StartupBoston @TCNupdate #tcnLIVE

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