Crowdfunding with Nicole Moss

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Nicole Moss is an attorney with the law firm of Campbell & Riggs, P.C., where she focuses on taking startup companies from inception to liquidity, as well as other corporate matters including mergers and acquisitions and private securities transactions. Previous experience includes: serving as General Counsel to a small investment fund in Houston; advising private equity and venture capital clients in fund formation and M&A activities as an attorney in the Boston office of Weil, Gotshal & Manges LLP; and serving as marketing and programs manager at the Massachusetts Institute of Technology Entrepreneurship Center. Prior to that, Nicole founded and ran BluePrint, a provider of non-core services to startups in and around Boston and also recruited founding team and advisory board members for startups at Cambridge Incubator. Nicole is a guest lecturer for the Wolff Center for Entrepreneurship at the University of Houston. She is licensed in Texas and Massachusetts.

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Crowdfunding with Nicole Moss

  1. 1. Law & Order:CrowdfundingApril 30, 2013Nicole Moss(617) 816-8220nmoss@campbellriggs.com
  2. 2. DisclaimerThe information presented herein and the surroundingdiscussion are provided for educational or informationalpurposes only. The information presented herein is notnecessarily applicable to any particular situation herein ordiscussed in the course of this presentation. By providing thisinformation and engaging in discussion, no legal advice isprovided hereby and no attorney client relationship or privilegeis being established. Every business and every issue is uniqueand legal questions or issues should be directed to yourattorney.
  3. 3. Historical Overview•First Public Stock Issued 1602Dutch East India Company (VOC)•1933 Act• Regulates Issuances (Unless Exempt )• Not a “public offering”• Accredited Investors, Affiliates•1934 Act• Regulates Securities Trading
  4. 4. Accredited Investors•>$1M Net Worth (excluding house)•>$200k/yr Salary• Last 2 Years & This Year• >$300k w/ Spouse•Officers, Directors of Company
  5. 5. Historical Overview•SOX (2002), Dodd-Frank (2010)• Consumer Protection• Disclosures, Reporting•JOBS Act (2012): Crowdfunding
  6. 6. What is CrowdfundingUmbrella term including:•Microfunding•P2P Lending•P2P Investing for Non-Cash Returns•P2P Donations•P2P Investing for Equity/Debt Returns(but not for everyone just yet)
  7. 7. Microfunding•Small grants (no strings)•Usually $, can be in-kind•Startup focused (not non-profit)•See: The Awesome Foundation
  8. 8. P2P Lending/Microlending•Startups can borrow from startup-friendly lenders•Individuals can lend/invest• For now, just AIs and F&F• Soon anyone can lend•See SoMoLend, Prosper, Mosaic
  9. 9. P2P Non-Profit Campaigns•Host campaigns for multiple causes•Raise funds, awareness, otherprojects•Not all 501(c)(3)•Startups only if cause-based
  10. 10. P2P Rewards-Based Investing
  11. 11. P2P Rewards-Based Investing
  12. 12. P2P Rewards-Based Investing
  13. 13. How it Works•Create a Campaign Page•Determine Goal Amount, Length,Rewards•Provide Description, Video•Launch & Advertise(OK for non-securities)•Pay Funding Portal
  14. 14. How it Works
  15. 15. How it Works
  16. 16. Costs of CampaignsCF Portal Fee forSuccessfulCampaignFee forCampaignThat FallsShortProcessingFeesIndiegogo 4% 9% 3%Kickstarter 5% N/A 3-6%(Amazon)RocketHub 4% 8% 4%
  17. 17. Success Story: Misfit Wearables
  18. 18. Success Story: Misfit Wearables•Sought Market Validation (& $$)•Sought Market Feedback•Pre-Sold Products•Drove Early Adoption•Obtained Non-Dilutive Funding
  19. 19. Takeaway: Deliver Product
  20. 20. Takeaway: Disclose Risks
  21. 21. Takeaway: Be Truthful
  22. 22. Legal Perspective•Non-Dilutive Funding•Non-securities: Fewer Disclosures•IP Protection Concerns•BUT• Legal Obligation to Deliver (?)• No Fraud
  23. 23. P2P Equity/Debt Investing•Involves Sale of Securities•Now Only for Accredited Investors•JOBS Act: Open to All Investorswith BIG limitations
  24. 24. JOBS Act 2012•Provides Restrictions & Requirements• Issuers• Investors• Portals
  25. 25. Issuer Restrictions•Must be US-based entity•Raise up to $1M/Year•Registration w/ SEC•Use Qualified Crowdfunding Portal•Make Disclosures•No Advertising
  26. 26. Issuer Requirements•Set Funding Goal•Set Dates of Fundraise•Price the Offering•Provide Regular Updates•Ongoing Reporting Compliance
  27. 27. Investor RestrictionsInvestor NetWorth/ SalaryInvestmentRestrictionMaximumInvestment<$40k $2k/year $2k<$100k 5% $5k>$100k 5% $100,000k… & Hold the Investment for at Least One Year
  28. 28. Portal Restrictions•Subject to SEC Rules•No Advertising/Promotion•No Compensation Based on Funding(Internally, Externally)•No Investment Advising•No Conflicts
  29. 29. Portal Requirements•Qualify Issuers (background checks)•Qualify Investors•Protect Privacy•Provide Diligence; Reporting to SEC,Investors•Educate Investors; Allow CancelCommitments•Reduce Fraud
  30. 30. Concerns• Fraud• Privacy• Protection of IP• Shareholders: Cast of Thousands• Disenchantment
  31. 31. Concerns: Unmet Expectations•ROI Takes a While•High ROI is Elusive•NOT Your Way Right Away•ROI Analysis: Are Rewards Better?
  32. 32. What’s Now … What’s Next•Determine Mode of Campaign• Rewards, Equity, Debt-based•Create Campaign/Apply to AI Portals•Get Legal Help if You Need to…• Create Company• Allocate/Issue Equity• Protect/Assign IP• Review Investment Documents
  33. 33. Law & Order:CrowdfundingQ&A

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