Want to use InvestNextDoor, or another returns-based crowd-funded money-raise? You'll need to issue a "security" to do so. Get the essentials here! Pt. 2 in our Securities series.

1. Presented by: Tabitha Creighton, CEO and Co-founder
How to issue a security – the essentials
Pt.2 in the Securities Primer Series

2. As a reminder…
• A security is…a legal interest in some element of the
business that has potential future value for the purchaser
that can be sold in some form
• Examples: note, stock, treasury stock, security future,
security-based swap, bond, debenture, evidence of
indebtedness, certificate of interest
(Taken from the Securities Act of 1933)

3. Private vs. Public Companies
• All businesses begin as “private”
– Private businesses are ones which DO NOT have a class of
securities that is registered with the Securities and Exchange
Commission which are widely held or traded on a national
securities exchange.
• They become public when they issue a class of securities
that are registered for wide holding or trading on a
national securities exchange.

4. Who can issue a security?
• Businesses can issue any type of security which is
relevant to their structure and purpose
• Examples:
– A sole proprietorship could issue a debt security but not sell
shares
– A government could issue treasury bills but not sell warrants for
future equity
– A corporation could sell shares but not issue currency

5. How does a company issue a security?
1. Decides what kind of security to offer
2. Decides to issue publicly or privately
3. Creates required documentation and filings
4. Issues security and raises funds

6. What kind of security?
• Leaving aside more complex security types, there are two
basic categories
– Debt
• Borrow money and commit to repay with interest
• There are varieties of debt: e.g. Debentures, Bonds, Promissory Notes
– Equity
• Sell portions of the company (typically shares, could be partnership
interest)

7. Debt vs. Equity….which to choose?
Business Considerations
• Structure of business
• Shared business ownership
• Impact of debt repayments on
cash-flow
• Cost of issuing shares,
debentures, promissory note or
bond
• Appeal to potential investors
Considerations for Investor Appeal
• Type of return (regular cash-flows
vs. single pay-out)
• Liquidity of investment (how easy to
re-sell)
• Amount of participation in business
• Investment goals
• Risk tolerance
• Securitization
• No single answer
• Considerations for businesses and appeal for investors include:

8. Public or Private issue?
• Public issues are:
– VERY costly (+$1M)
– Highly regulated
– Only for very large capital raises (generally hundreds of millions of
dollars or more)
• Private issues are:
– Less visible to potential investors*
– Much less costly
– Less regulated
– Suitable for smaller capital raises

9. More about Private Issues
• Private issues are straight-forward
– Most can be done using a type of Regulatory exemption offered
by the Securities and Exchange Commission
– This is GOOD because it reduces the amount of paperwork and
regulatory filing required for the business
– MOST private issues though, mean you raise money privately
• (e.g. you can’t advertise for investors)

10. But what about “crowd-funding”?
• The Jumpstart Our Business Start-Ups Act (JOBS Act)
enabled the SEC to amend their rules on privately issued
securities
• A NEW exemption (commonly known as 506c) was
introduced allowing “public solicitation” of private
securities
• IF your investors will be ACCREDITED

11. A little about Accredited Investors
• (Either a person or business)
• If a person then broadly speaking, s/he must earn $200k+
for the last two years and expect to earn as much this
year OR)
• Be part of a household that has earned $300k+ in that
same time period OR
• Be part of household with a net worth greater than $1M
(excluding their house)

12. More about the Private Issue regulatory exemptions
Exemption Type* 505 506b 506c
Must File Form D Yes Yes Yes
Allows companies to
decide what
information to give
to accredited
investors.
No No No
Restricted Securities Yes Yes Yes
General Solicitation No No Yes
Accredited Investors Unlimited Unlimited Unlimited
Non-accredited
Investors
Up to 35 Up to 35 None
Requires non-
accredited investor
"sophistication"
No Yes n/a
Limit (per 12 months) $5 million None None
There are many other types
of exemptions. 506b
exemptions account for
99% of all private exempt
security issues today. We
show the 505 and 506c
exemptions for
comparative purposes.

13. What kind of information must be provided to investors?
• At a minimum, an audited Balance Sheet
• Realistically, you’ll want to provide as much comparative
financial information as you can
– Financial statements, and that includes Statement of Cash Flow
– Financial ratios (e.g. A/R Turnover, Debt Service Ratio, Debt/Equity
Ratio)
– Purpose of investment and plan for use
– Collateral or personal guarantees (although this can become
complex, so again, check with your accountant and lawyer)

14. One essential thing you’ll need to do…
• Make SURE you get your CIK number
– The process isn’t hard, but it does take a couple of days to get
your number
• You’ll need it to do your Form D filing

15. What does a business have to file?
• Federal level
– Form D via an online form on the SEC website
– You can see a sample here:
https://www.sec.gov/about/forms/formd.pdf
• State level
– Each state has their own filings and fees
– You need to file in each state from which you have an investor

16. What happens next?
• You find investors
– (either through your direct connections, or IF (and only if) you’re
using the 506c exemption) you can use general solicitation)
– InvestNextDoor can help you with either a private or public
solicitation <shameless plug>
• Once you complete your offering, then you receive your
investment
• Don’t forget to meet your investor commitments! (issue
stock, repay debt)

17. Still have questions?
• You can…
– Ask you lawyer or accountant if they pertain to your specific
situation
– Reach out to me for general questions (I’ll redirect you if I can
answer them) – tabithacreighton@investnextdoor.com or
@tabcreighton
– Stay tuned for the next in our series on private securities!

18. And remember…
Issue local, invest local, and prosper more!
www.investnextdoor.com