This document summarizes the key points of a presentation on equity crowdfunding regulations. It discusses the various types of crowdfunding and their securities regulations status. It then outlines the requirements and regulations for public equity crowdfunding under the JOBS Act, including investment limits, required use of funding portals, and disclosure requirements. It also summarizes the new rules around private placements, including the addition of Rule 506(c) which allows general solicitation and advertising when selling to accredited investors.
Is Equity Crowdfunding Right For Your Early-Stage Company?
Get your questions answered at this workshop on the structure, rules and regulations around engaging in Equity Crowdfunding. A year on since the May 2016 SEC Equity Crowdfunding New SEC Guidelines there is a new wave of opportunity for investing - now ANYONE from the accredited investor to your grandma can invest in the next big thing, but what does this really mean for your early stage company? Is this actually an alternative to raising traditional rounds of funding?
Questions answered include:
WHY should I care about regulation crowdfunding?
WHO can engage in regulation crowdfunding?
WHAT is regulation crowdfunding?
WHERE can regulation crowdfunding happen?
WHEN can I engage in regulation crowdfunding?
IS regulation crowdfunding right for me?
Since early 2013 there has been increasing calls for North American regulators to democratize the way the public can access and purchase private equity deals via the Internet in a manner available in other parts of the world. In December 2013, Saskatchewan became the first Canadian province to adopt equity crowdfunding and this was followed by seven other provinces proposing equity crowdfunding models. These proposals open up new means for entrepreneurs to raise capital from the general public but also introduce new requirements for a). Issuers who wish to raise capital, b). Public investors and c). Portals that post the offerings. This seminar will provide a view of the challenges ahead and what an entrepreneur can do to run a successful campaign.
EPIP and Public Allies partnered for the third webinar in a four-part webinar series: "the future of funding social change", with two NYU Law and Social Enterprise Fellows. Our presenters led us through an exploration of crowdfunding, discussing at length what this new tool means for the future of funding, philanthropy and social change and how it can be used to make an impact. In "Crowdfunding 101", these two social enterprise experts elaborated on the nuts and bolts of the process, examined how impending legal changes may take effect, and explored the potential consequences for funders, governments, fundraising and the social sector as a whole.
Speakers:
• Robert Esposito, Law and Social Enterprise Fellow, NYU
• Shawn Pelsinger, Law and Social Enterprise Fellow, NYU
Is Equity Crowdfunding Right For Your Early-Stage Company?
Get your questions answered at this workshop on the structure, rules and regulations around engaging in Equity Crowdfunding. A year on since the May 2016 SEC Equity Crowdfunding New SEC Guidelines there is a new wave of opportunity for investing - now ANYONE from the accredited investor to your grandma can invest in the next big thing, but what does this really mean for your early stage company? Is this actually an alternative to raising traditional rounds of funding?
Questions answered include:
WHY should I care about regulation crowdfunding?
WHO can engage in regulation crowdfunding?
WHAT is regulation crowdfunding?
WHERE can regulation crowdfunding happen?
WHEN can I engage in regulation crowdfunding?
IS regulation crowdfunding right for me?
Since early 2013 there has been increasing calls for North American regulators to democratize the way the public can access and purchase private equity deals via the Internet in a manner available in other parts of the world. In December 2013, Saskatchewan became the first Canadian province to adopt equity crowdfunding and this was followed by seven other provinces proposing equity crowdfunding models. These proposals open up new means for entrepreneurs to raise capital from the general public but also introduce new requirements for a). Issuers who wish to raise capital, b). Public investors and c). Portals that post the offerings. This seminar will provide a view of the challenges ahead and what an entrepreneur can do to run a successful campaign.
EPIP and Public Allies partnered for the third webinar in a four-part webinar series: "the future of funding social change", with two NYU Law and Social Enterprise Fellows. Our presenters led us through an exploration of crowdfunding, discussing at length what this new tool means for the future of funding, philanthropy and social change and how it can be used to make an impact. In "Crowdfunding 101", these two social enterprise experts elaborated on the nuts and bolts of the process, examined how impending legal changes may take effect, and explored the potential consequences for funders, governments, fundraising and the social sector as a whole.
Speakers:
• Robert Esposito, Law and Social Enterprise Fellow, NYU
• Shawn Pelsinger, Law and Social Enterprise Fellow, NYU
There has been much news coverage of Internet-based crowdfunding recently, including stories about entrepreneurs who have funded diverse projects through donation crowdfunding on popular sites, such as Kickstarter, as well as stories about the developing federal securities laws for investment crowdfunding. With large dedicated pools of alumni, universities and colleges may be particularly well positioned to take advantage of crowdfunding as a means of funding the development of inventions and innovations by their scientists. The securities laws with respect to investment crowdfunding are still evolving and will impact how broadly this trend will be adopted.
PeerRealty - World Crowdfunding Conference PresentationPeerRealty
PeerRealty CEO Jordan Fishfeld addressed attendees of the World Crowdfunding Conference in Guiyang, China on October 25, 2015. With over 8,000 attendees, the World Crowdfunding Conference is the largest crowdfunding conference on the planet. This is the presentation he gave regarding the U.S. crowdfunding market and PeerRealty's real estate crowdfunding platform.
PeerRealty - The Midwest's Premier Real Estate Crowdfunding PlatformPeerRealty
PeerRealty is the Midwest's premier real estate crowdfunding platform. At PeerRealty we believe that no investment portfolio can be truly diversified without a solid real estate component and we are proud to offer an efficient means to gain that diversification.
In 2013, the ban on general solicitation of accredited investors was lifted, causing the largest change to securities laws in decades. While everyone from startups to hedge funds will enjoy new liberties in investor marketing and outreach campaigns, it’s critical that the new rules are followed to a T, eliminating the chance for exemption rescission.
Presentation at the Vaughan, Ontario, Canada Business Series with Panelists: Jim Turner, VP of Ontario Securities Commission, Christopher Charlesworth and Hivewire, Adam Spence, SVX
Crowdfunding - Asset Classes and Crowd Driven ModelsGrow VC Group
Presentation held at CrowdFuture in Rome, October 27 2012. Markus talks about trends in modern finance, the emergence and background for crowdfunding, and the manifestation of macro trends such as the demand for democracy and efficiency in the world of finance. The discussion also touches on current trends and a future outlook on crowd driven investment models.
Securities Crowdfunding for Intermediaries (Series: Crowdfunding)Financial Poise
This webinar addresses crowdfunding portals and intermediaries. This episode begins with a basic overview of the various methods of crowdfunding, from donation and rewards based, to intra-state equity, debt, and finally securities based crowdfunding under Titles II, III and IV of the JOBS Act. Once those differences are understood, the webinar focuses on the need for intermediaries, the role that they can and sometimes must play, followed by a discussion on how the market has matured and where we see the market going in the online capital space. This webinar also discusses the risks and future of these intermediaries with the advent of the ICO and token distribution events.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/securities-crowdfunding-for-intermediaries-2021/
Billfolda Equity Crowdfunding Presentation to Melbourne Angels Matthew Pinter
A presentation by Matthew Pinter CEO of Billfolda Equity Crowdfunding at Melbourne Angels luncheon in Richmond Victoria. The presentation highlights key aspects of the Australian Equity Crowdfunding regime as they apply to Angel Investors, touching on proprietary crowdfunding amendments and the various market participants, including Billfolda.
Markus talked about trends in modern finance, the emergence and background for crowdfunding, and the manifestation of macro trends such as the demand for democracy and efficiency in the world of finance. The discussion also touched on current trends and a future outlook on crowd driven investment models.
Crowdfunding: Use the Power and Reach of the Internet to fund your startupZachary Strebeck
Powerpoint Presentation given at the Santa Clarita Startup Meetup Group on Nov. 18, 2013. Covers three crowdfunding methods, their pros and cons, and a look forward.
"Crowdfunding for solar: model and implications for Thailand," presented by Sarinee Achavanuntakul at Chulalongkorn University, 31 July, 2013. Part of Thailand's Solar PV Roadmap Initiative - Economics/Finance Working Group #1:
Innovative Business Models and Financing Options for Distributed Solar Systems
Crack the Crowd, Title 3 Crowdfunding & JOBS Act OverviewDan Baird
An overview of crowdfunding, the JOBS act, Title II and Title III. What this latest legislation means, and how small businesses can use it to raise capital.
Crowdfunding - A disruptive financial innovation - Implication for the Caribbean. A look at crowdfunding for the Caribbean and the implication for securities law
Funding 101 for Tech Entrepreneurs & StartupsRoger Royse
Roger Royse, founder of the Royse Law Firm, discusses the various options available to entrepreneurs when it comes to funding their startup.
Topics include:
1) What are the best funding options for entrepreneurs to scale their business?
2) When should entrepreneurs pursue external funding?
3) How do entrepreneurs choose the right investor?
4) What alternative sources of funding are available?
5) How and why should a founder stage their funding rounds?
6) When should a founder think about exiting?
7) How can advisors help with the funding process?
Small businesses in North Carolina will soon be permitted to raise up to $2 million from average investors with certain limits. This is the result of legislation passed by the North Carolina General Assembly in July 2016. Businesses that use the “Invest N.C. exemption” can utilize the Internet to organize such a fundraiser. However, firms must follow certain regulations, including requirements on how much can be raised from each investor, what kind of financial information must be disclosed, and periodic reporting requirements to keep investors informed. The N.C. Securities Division will oversee administration of the crowdfunding exemption.This seminar is planned as an overview of investment crowdfunding for businesses that may want to utilize this option. The speaker will cover the following:
-a regulatory overview and how crowdfunding fits within securities laws
-the legal do’s and don’ts of a crowdfunding offering
-the marketing aspects
-what you can say and how to reach investors
-utilizing a web site intermediary – picking one and connecting with investors.
There has been much news coverage of Internet-based crowdfunding recently, including stories about entrepreneurs who have funded diverse projects through donation crowdfunding on popular sites, such as Kickstarter, as well as stories about the developing federal securities laws for investment crowdfunding. With large dedicated pools of alumni, universities and colleges may be particularly well positioned to take advantage of crowdfunding as a means of funding the development of inventions and innovations by their scientists. The securities laws with respect to investment crowdfunding are still evolving and will impact how broadly this trend will be adopted.
PeerRealty - World Crowdfunding Conference PresentationPeerRealty
PeerRealty CEO Jordan Fishfeld addressed attendees of the World Crowdfunding Conference in Guiyang, China on October 25, 2015. With over 8,000 attendees, the World Crowdfunding Conference is the largest crowdfunding conference on the planet. This is the presentation he gave regarding the U.S. crowdfunding market and PeerRealty's real estate crowdfunding platform.
PeerRealty - The Midwest's Premier Real Estate Crowdfunding PlatformPeerRealty
PeerRealty is the Midwest's premier real estate crowdfunding platform. At PeerRealty we believe that no investment portfolio can be truly diversified without a solid real estate component and we are proud to offer an efficient means to gain that diversification.
In 2013, the ban on general solicitation of accredited investors was lifted, causing the largest change to securities laws in decades. While everyone from startups to hedge funds will enjoy new liberties in investor marketing and outreach campaigns, it’s critical that the new rules are followed to a T, eliminating the chance for exemption rescission.
Presentation at the Vaughan, Ontario, Canada Business Series with Panelists: Jim Turner, VP of Ontario Securities Commission, Christopher Charlesworth and Hivewire, Adam Spence, SVX
Crowdfunding - Asset Classes and Crowd Driven ModelsGrow VC Group
Presentation held at CrowdFuture in Rome, October 27 2012. Markus talks about trends in modern finance, the emergence and background for crowdfunding, and the manifestation of macro trends such as the demand for democracy and efficiency in the world of finance. The discussion also touches on current trends and a future outlook on crowd driven investment models.
Securities Crowdfunding for Intermediaries (Series: Crowdfunding)Financial Poise
This webinar addresses crowdfunding portals and intermediaries. This episode begins with a basic overview of the various methods of crowdfunding, from donation and rewards based, to intra-state equity, debt, and finally securities based crowdfunding under Titles II, III and IV of the JOBS Act. Once those differences are understood, the webinar focuses on the need for intermediaries, the role that they can and sometimes must play, followed by a discussion on how the market has matured and where we see the market going in the online capital space. This webinar also discusses the risks and future of these intermediaries with the advent of the ICO and token distribution events.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/securities-crowdfunding-for-intermediaries-2021/
Billfolda Equity Crowdfunding Presentation to Melbourne Angels Matthew Pinter
A presentation by Matthew Pinter CEO of Billfolda Equity Crowdfunding at Melbourne Angels luncheon in Richmond Victoria. The presentation highlights key aspects of the Australian Equity Crowdfunding regime as they apply to Angel Investors, touching on proprietary crowdfunding amendments and the various market participants, including Billfolda.
Markus talked about trends in modern finance, the emergence and background for crowdfunding, and the manifestation of macro trends such as the demand for democracy and efficiency in the world of finance. The discussion also touched on current trends and a future outlook on crowd driven investment models.
Crowdfunding: Use the Power and Reach of the Internet to fund your startupZachary Strebeck
Powerpoint Presentation given at the Santa Clarita Startup Meetup Group on Nov. 18, 2013. Covers three crowdfunding methods, their pros and cons, and a look forward.
"Crowdfunding for solar: model and implications for Thailand," presented by Sarinee Achavanuntakul at Chulalongkorn University, 31 July, 2013. Part of Thailand's Solar PV Roadmap Initiative - Economics/Finance Working Group #1:
Innovative Business Models and Financing Options for Distributed Solar Systems
Crack the Crowd, Title 3 Crowdfunding & JOBS Act OverviewDan Baird
An overview of crowdfunding, the JOBS act, Title II and Title III. What this latest legislation means, and how small businesses can use it to raise capital.
Crowdfunding - A disruptive financial innovation - Implication for the Caribbean. A look at crowdfunding for the Caribbean and the implication for securities law
Funding 101 for Tech Entrepreneurs & StartupsRoger Royse
Roger Royse, founder of the Royse Law Firm, discusses the various options available to entrepreneurs when it comes to funding their startup.
Topics include:
1) What are the best funding options for entrepreneurs to scale their business?
2) When should entrepreneurs pursue external funding?
3) How do entrepreneurs choose the right investor?
4) What alternative sources of funding are available?
5) How and why should a founder stage their funding rounds?
6) When should a founder think about exiting?
7) How can advisors help with the funding process?
Small businesses in North Carolina will soon be permitted to raise up to $2 million from average investors with certain limits. This is the result of legislation passed by the North Carolina General Assembly in July 2016. Businesses that use the “Invest N.C. exemption” can utilize the Internet to organize such a fundraiser. However, firms must follow certain regulations, including requirements on how much can be raised from each investor, what kind of financial information must be disclosed, and periodic reporting requirements to keep investors informed. The N.C. Securities Division will oversee administration of the crowdfunding exemption.This seminar is planned as an overview of investment crowdfunding for businesses that may want to utilize this option. The speaker will cover the following:
-a regulatory overview and how crowdfunding fits within securities laws
-the legal do’s and don’ts of a crowdfunding offering
-the marketing aspects
-what you can say and how to reach investors
-utilizing a web site intermediary – picking one and connecting with investors.
Startup Basics: Legal, Business, and Financing StrategiesRoger Royse
Visit our website rroyselaw.com for more resources on developing successful startups. Royse Law Firm has extensive experience helping startups in the Silicon Valley become successful by setting them on the right track from the beginning.
Startup Basics: Legal, Business, and Financing StrategiesRoger Royse
Launching a startup - or starting a business - is challenging and is fraught with pitfalls.
Roger Royse, the founder of Royse Law Firm, will discus the basics of building a successful business and how to what mistakes to avoid. Roger will discuss:
1) How should entrepreneurs structure their business?
2) How should founders divide equity?
3) What’s the difference between a contractor and an employee?
4) How does a startup get funded?
5) What is an ICO?
6) How does an entrepreneur successfully negotiate with a VC?
7) How viable is crowdfunding in 2019?
8) How should entrepreneurs protect their intellectual property?
and more!
Crowdfunding crypto - ic os march 12 2018Roger Royse
Block chain, bitcoin and other cryptocurrencies, and ICOs have dominated recent headlines. While excitement continues to grow around this rapidly expanding space, there still seems to be a lot of unanswered questions. Roger Royse, founder of the Royse Law Firm, discusses the legal issues that may determine the future of these emerging technologies.
Crowdfunding, Cryptocurrency, and ICO's 2018Roger Royse
Block chain, bitcoin and other cryptocurrencies, and ICOs have dominated recent headlines. While excitement continues to grow around this rapidly expanding space, there still seems to be a lot of unanswered questions. Roger Royse, founder of the Royse Law Firm, discusses the legal issues that may determine the future of these emerging technologies.
Crowdfinance -101 (Series: Crypto, Crowdfunding & Other Crazy Concepts)Financial Poise
What is the “crowd” in Crowdfinance? What does the crowd thus buy and by what means and modes? And why should the crowd do this rather than put its money to work otherwise? What are the old (and continuing) modes for marketing and selling private securities? What is it like to purchase private securities from on-line portals? How are risks of fraud and mistake allocated there? Do on-line portals help get the rest of us in on unicorns in utero? How are equity securities purchased by the crowd turned into money? Is there a secondary market for private securities? Should ICOs be understood as crowdfinance by other means?
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/crowdfinance-101-2021/
Crowdfunding and Other Innovative Private Fundraising Optionsideatoipo
Raising money for your startup via traditional channels can be a challenge. The advent of crowdfunding and other innovative private funding options for entrepreneurs has democratized the fundraising landscape.
The private fundraising environment has dramatically changed in recent years as a result of new technologies, laws and business models. In addition to traditional private placements, the private fundraising marketplace now includes internet portals, publicly solicited accredited-only financings and crowdsourced investment funds.
The speaker will discuss new sources of private financing and the consequent business and legal issues including:
•Non-solicited private placements of securities under Rule 506(b) of Regulation D;
•Publicly solicited accredited-only offerings of securities under Rule 506(c) of Regulation D;
•Regulation of investment advisers and broker- dealers;
•Reg CF and Reg A+ crowdfinancing
• Conducting an ICO (Initial Coin Offering).
and more!
CROWDFUNDING 2022 - Crowdfunding from the Start-Up's Perspective Financial Poise
How can businesses use the tools created by the JOBS Act to access capital? This webinar compares raising money online to traditional methods of capital raising. It also compares each of the different titles available under the JOBS Act. Finally, we discuss and compare the differences between security based crowdfunding and rewards based crowdfunding, exploring those instances where such a method would make sense.
Part of the webinar series: Crowdfunding 2022
See more at https://www.financialpoise.com/webinars/
Decoding Title III - EarlyShares Crowdcheck webinar nov. 5. 13EarlyShares
Equity crowdfunding is almost here. What does it mean for you?
The SEC took a huge step forward towards equity crowdfunding on October 23 when it released proposed rules for Title III of the JOBS Act. But the complex 500+ page proposal isn’t exactly light reading.
In this EarlyShares webinar, we take the mystery out of Title III.
Joanna Schwartz, CEO of EarlyShares, and Sara Hanks, CEO of CrowdCheck, walk you through the SEC’s proposal to highlight the benefits, concerns, and liabilities raised by the rules – as well as the questions that remain.
Bitcoin, Block chain, Cryptocurrency, and ICO's: A Legal PerspectiveRoger Royse
A full overview of topics surrounding the emerging cryptocurrency Industry. Topics include blockchain use, crowdfunding, ICO's taxation, and federal regulations
Similar to Brian Korn - Equity Crowdfunding Legal Aspect (20)
Find out how to launch crowdfunding campaigns for animals and pet products, 4 types of animal crowdfunding projects, best crowdfunding platforms for pet fundraising, and why bloggers should get involved.
The latest data about the use of technology including virtual and augmented reality in health care and other industries. Current state of the industry and future trends.
More than half of Kickstarter campaigns fail to reach their crowdfunding goal. The presentation examines the reasons for that and suggest the steps to be taken to improve your chances to succeed.
Crowdfunding site Kickstarter has raised over $1 Billion for thousands of crowd funding campaigns. Crowdfund Productions has created the infographics to illustrate Kickstarter data about success rate and amounts of money raised by categories as well as 10 steps to run a successful crowdfunding campaign.
Rewards, Debt (P2P and P2B Lending) and Equity Crowdfunding. Fundraising options for entrepreneurs based on cash flow, funding goal, timing, development stage, etc.
The presentation at Aspen Investment Forum (www.AspenInvestmentForum.com) on January 6th, 2014 about a partnership between one of the largest equity crowdfunding platforms in Europe, OurCrowd and GE.
Kickstarter and its alternatives (other crowdfunding platforms and DIY crowd ...Crowdfund Productions, LLC
Kickstarter is the most famous crowdfunding platform. But it is not the best option for everyone. The presentation delivered in August 2013 discussed different options for people and businesses looking to crowd fund their projects. How to chose the right platform, should you DIY, what to look for and how this choice can influence the result of your campaign.
Free or inexpensive tools to make your Kickstarter, Indiegogo or any other crowdfunding campaign efficient and more predictable. The slides were prepared for my presentation in Denver in June, 2013.
1. Equity Crowdfunding Legal Landscape:
What’s Allowed and What’s Not
Midwest Crowdfunding
Chicago, Illinois
Brian Korn
November 15, 2013
2. Agenda
• Equity Crowdfunding –
What is it? How does it
compare to other
crowdfunding?
• Legal status of equity
crowdfunding
• SEC Proposed Rules
• New Private Placement
Rules
• Bad Actor
Disqualification
4. JOBS Act Overview
“To increase American job creation and economic growth by improving access to
the public capital markets for emerging growth companies.”
• Crowdfunding – online fundraising…but there’s a catch
• Regulation A+ - from $5mm to $50 mm
• Private Placement Reforms
− General Solicitation relaxed – effective Sept. 23
− Enhanced verification of Accredited Investors if Soliciting
•
•
•
•
•
•
“Go Public” Shareholder Thresholds Increased
IPO On-Ramp and Emerging Growth Companies
Relaxation on Research Restrictions
Decimalization – move to $.09 tick increments?
Prospective Issuer Outreach
Signed into law April 5, 2012
5. Crowdfunding background
• Comprises Title III of the JOBS Act
•
•
•
•
•
•
•
•
•
Capital
Raising
Online
While
Deterring
Fraud and
Unethical
NonDisclosure
• Originated from two perceived
needs:
− that smaller retail investors did not
have access to early stage investment
opportunities
− that start-up companies did not have
adequate access to available capital,
particularly online capital raising
• Adds exemption from SEC
registration for crowdfunding
transactions in the form of new
Section 4(6) of the Securities Act
6. Backdrop: Current Crowdfunding
Landscape – Five* Varieties
Type
Equity to
Accredited
Investors
Equity to the
Public
Peer-to-Peer
Lending
*Advertised Private
Placements/Title II
Examples
Kickstarter,
Indiegogo,
Rockethub,
Youcaring
FundersClub,
AngelList, Ourcrowd
???
Lending Club,
Prosper, Zopa (UK)
Private Placements
using advertising and
general solicitation
Securities Reg
Status
Not sales of
“securities”
Sales of securities
to accredited
investors
Sales of
securities to the
general public
Registered
borrower-payment
dependent notes
Exempt private
placements under Rule
506(c)
Regulation
State-level
antifraud only;
not SECregulated
SEC-regulated, noaction letters protect
website solicitations
from being public
offerings
Extensive SEC
regulation;
currently illegal
until SEC rules
are finalized
SEC-registered
securities, not really
crowdfunding;
banking regulations,
not legal in several
states
Extensive SEC
regulation and
proposed regulation;
enhanced investor
verification
Bad Actor
Disqualification
6
Rewards/
DonationBased
Not applicable
Applies for all
issuers and for the
crowdfunding sites
themselves
Not applicable
under JOBS Act,
but SEC has said
it will apply
Not applicable
Yes
7. Public Equity Crowdfunding
Information Regarding the Use of the Crowdfunding Exemption in the JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act
requires the Commission to adopt rules to implement a new exemption that will allow
crowdfunding. Until then, we are reminding issuers that any offers or sales of securities
purporting to rely on the crowdfunding exemption would be unlawful under the federal securities
laws.
•
Deadline for SEC rulemaking was due December 31, 2012
8. Issuers Not Eligible to Crowdfund
• Non-US companies
• Public reporting companies (only required filers are
excluded, not “voluntary filers”)
• Investment companies, including companies excluded
from the definition of Investment Company by 3(b) or
3(c) of the Investment Company Act of 1940, including:
− Mutual Funds
− Private Equity Funds
− Asset Management Vehicles
− Business Development Companies
9. Crowdfunding vs. Other Exemptions
Feature
Public Crowdfunding
Regulation A+
Regulation D Rule 506 (4(a)(2))
Maximum Total Raised
$1 million per 12 month period
$50 million per 12 month
period
Unlimited
Number of Investors
Investor Disclosure
Required, must be filed with
SEC
Unlimited accredited investors; up to 35
non-accredited investors unless
soliciting
Unrestricted
Unrestricted
Restricted by income/net worth
Unrestricted
Investment Per Investor
Unlimited but subject to
maximum total raised
Required, must be filed
with SEC
Not required if all accredited investors;
Form D filing proposed
Intermediary Required
Yes – broker/dealer or funding
portal
Yes, at least annually, possibly
more frequently
No
Subject to ongoing SEC
reporting following raise
No
Yes; at least audited
financials filed annually
No
10. Crowdfunding vs. Other Exemptions
Feature
Crowdfunding
Regulation A+
Regulation D Rule 506 (4(a)(2))
Disclosure Liability
Yes, full disclosure liability with
a knowledge exception
Yes, full disclosure liability
with a knowledge
exception
Only anti-fraud liability
No
Yes, for public companies most can sell
under Rule 144 after six months
Shares restricted
Yes, for one year
State Filing
Advertising and general
solicitation
Possibly, depends on future
rules by state
Not allowed
No, if securities sold are
listed on a national
securities exchange or if
sold only to “qualified
investors”
Usually no if only offering to accredited
investors
Allowed
Allowed if sales are made only to
accredited investors and issuer takes
reasonable steps to verify accredited
status
Can public cos., foreign
issuers, investment companies
and exempt inv. companies
issue
No
Yes
Yes
11. Crowdfunding Requirements
• Investment limitations (per trailing 12 month period)
− Company: Can receive up to $1 million
− Investor:
• Less than $100K: greater of $2,000 or 5% of annual income
or net worth
• $100K or more: 10% of annual income or net worth
• Must be conducted through broker or “funding portal”
• Must file with the SEC and provide to broker/funding
portal and investors extensive disclosure, including tax
returns ($100K or less), reviewed financial statements
($100K-$500K) or audited financial statement
(>$500K)
12. Crowdfunding Requirements
• Must not advertise except to direct investors to
broker/portal
• Must not pay promoters except as SEC allows
• Must file annual or more frequent reports with the SEC
• Prospectus liability for disclosures with knowledge out
• 1 year holding period on shares sold except to issuer,
accredited investor, family member or through
registered offering
• Crowdfunded shares do not count towards the 2,000
shareholder rule to force a company public, but see
above re SEC reporting
13. Funding Portals
• Created by Crowdfunding rules
• Must be used as “publicity intermediary” in all
crowdfunding transactions
• Exempt from broker-dealer regulation, but must
register with FINRA; FINRA can only enforce and
examine rules specifically written for funding portals
• Prohibited from:
− Offering investment advice or recommendations
− Soliciting purchases, sales or offers to buy the securities
− Compensating employees based on sales
− Holding, managing or possessing investor funds or
securities
14. More Funding Portal Requirements
•
Register with the SEC and any applicable SRO
•
Provide disclosures related to risks and other investor education materials as the SEC shall
require
− Must ensure that each investor reviews investor education materials
− Obtain investor representation that he or she understands:
• that entire investment is at risk
• that investing in start-ups and emerging companies is risky
• that crowdfunding investments are illiquid
•
Must obtain background check on officers, directors and 20% or greater shareholders
•
File with SEC and distribute disclosure materials at lest 21 days prior to first sale date
•
Ensure offering proceeds are only provided to issuer when raise has met target; allow investors
to cancel orders
•
Make efforts to ensure no investor exceeds individual crowdfunding cap across all transactions
•
Protect investor privacy
•
Not compensate promoters, finders or lead generators who direct investors to the portal
•
Not work with issuers where a portal officer, director or partner has a financial interest
16. New Structure of Rule 506
• Rule 506 now has two alternatives: (b) and (c)
− 506(b) is the traditional rule
• no general solicitation or advertising permitted
• offers and sales must be to either accredited or financially
sophisticated investors
• up to 35 non-accredited investors permitted
• information requirements for non-accredited investors
• unlimited accredited investors permitted
• unlimited dollar amount of offering
− 506(c) is the new rule
• general solicitation or advertising is permitted
• sales must be to accredited investors only
• unlimited accredited investors permitted
• unlimited dollar amount of offering
16
17. Can Advertising Be Private?
• Historically, Regulation D’s prohibition against general
advertising/solicitation generally restricted funds and issuers
from utilizing any kind of article, advertisement, seminar,
meeting or notice to promote their Rule 506 offering
• Under the JOBS Act amendments, private fund advisers may
now publicly advertise their funds, discuss funds in interviews
and informal investor settings, conduct capital raising
meetings, etc.
− No limitation to “friends and family”; no more pre-existing
arrangements required
− The risk of “foot faults” (where too much information about a
private fund is unintentionally disclosed) should largely be
eliminated
17
18. Advertising (cont.)
• The lifting of the solicitation restrictions can be of special
benefit to emerging or growing funds that lack name
recognition
• Solicitations, advertisements and similar communications will
remain subject to the anti-fraud provisions of the Advisers Act,
which include prohibitions against the use of testimonials,
past specific recommendations, and restrictions on the
presentation of performance data
• Web sites no longer need to be “password protected,” but
they still must be truthful and not misleading
•
18
19. Advertising (cont.)
• One practical advantage of the lifting of the solicitation
restrictions is the ability to get a group of investors in a room
and just talk to them about a fund offering
• Another practical advantage is the ability to cross-market with
fund managers in unrelated sectors or strategies to gain
exposure to new sources of investors
• The ability to speak freely about fund offerings in informal
settings may be the most significant near-term advantage of
new Rule 506(c)
19
20. Investments Still Effectively Limited to
Accredited Investors
•
•
New Rule 506(c) requires that the issuer take “reasonable steps” to
verify that the investor fits within an accredited investor category
•
The SEC suggested several “non-exclusive and non-mandatory”
methods by which an issuer may meet the requirement to “take
reasonable steps” to verify that a purchaser is accredited – unless
the issuer has actual knowledge that the investor is not an
accredited investor
•
Funds are still limited to 100 investors in 3(c)(1) funds
•
Funds with performance fees or allocations must still only sell to
persons meeting the “qualified client” requirements
•
20
The fund or issuer must be satisfied that purchasers (regardless of
to whom a private fund is advertised) are at least accredited
investors
Funds relying on Section 3(c)(7) must still only be sold to qualified
purchasers
21. Verification of Accredited Status
• The proposed new rules require the issuer to take
“reasonable steps to verify” that the purchasers of the
securities are accredited investors, considering the following
factors:
− nature of purchaser / category of accredited investor
− amount and type of information issuer has concerning the
purchaser
− nature of offering
• manner in which purchaser was solicited
• term of the offering
• minimum investment amount, if any
21
22. Accredited Investors: Natural Persons
• Natural persons meeting (or reasonably believed to meet)
the following requirements are “accredited investors”:
− Net Worth Test: individual net worth, or joint net worth with
spouse, exceeds $1 million, excluding net equity in primary
residence
− Income Test: individual income in excess of $200,000 in each of
the two most recent years, or joint income with spouse in excess of
$300,000 in each of those years, with a reasonable expectation of
reaching the same income level in the current year
− Insider Status: Director, executive officer or general partner of the
issuer, or director, executive officer or general partner of a general
partner of the issuer
22
23. Verification Methods
• Publicly available information in governmental filings, such
as:
− registration of the investor with the SEC as a broker-dealer,
investment company or business development company
− public company proxy statement listing the investor as an executive
officer or director, along with compensation information
− Form 990 tax return for a 501(c)(3) organization investor verifying
at least $5 million in total assets
• Reasonable documentation
− verification of an investor’s status as an accredited investor by a
third party, such as a broker-dealer, attorney or accountant
− copy of investor’s individual tax returns, Forms W-2, Forms 1099, or
pay stubs demonstrating satisfaction of “income test”
− specific publicly available information about the average
compensation earned at the investor’s workplace by persons at the
level of the investor’s seniority
23
24. Verification Methods (Cont’d)
• How the investor was solicited
− Open web site solicitation, accompanied by a mere “check-thebox” affirmation of accredited status, is insufficient
− Database of pre-screened accredited investors created and
maintained by a reasonably reliable third party, such as a
registered broker-dealer, is sufficient
• Terms of the offering
− High minimum investment (i.e. $1 million for an individual), not
financed by the issuer or a third party, can provide reasonable
evidence of accredited status
24
25. Possible Consequences of
Self-Verification
• If you choose to gather tax return information or forms, you
now must have a way to safeguard the most confidential of
information; it also makes you a potential third-party record
keeper
• This is very different from subscription information, which is
self-provided
• Some funds and issuers may turn to third-party verification
services
25
28. History of Bad Actor Disqualification
• Mandated by Section 926 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010
− Requires the SEC to adopt rules that disqualify securities offerings
involving certain “felons and other bad actors” from reliance on
Rule 506 of Regulation D
− Rules must be substantially similar to Securities Act Rule 262,
which contains disqualifications for Regulation A offerings (up to
$5 million; soon-to-be up to $50 million under Section 401 of
JOBS Act)
• SEC proposed rules on May 25, 2011; approved on July 10,
2013; effective on September 23, 2013
28
29. New Rule 506(d) of Securities Act
•
To whom does disqualification apply?
− Issuers, underwriters, placement agents and any other “compensated
solicitor”
− …and their directors, officers and significant shareholders, members or
beneficial owners of voting securities (20 percent of voting power)
− For pooled investment funds, the funds’ investment managers and their
principals and officers
• Includes GPs and managing members of funds, and their GPs and MM, and principals and
officers participating in the private placement
•
All officers?
− No, just executive officers and officers working on the transaction
− Point of contention for investment banks in the proposal
•
Timing of disqualifying acts?
− Only events after enactment
− But, disclosure is required
•
29
SEC confirms crowdfunding and Reg A+ will have their own bad
actor disqualifications
30. What are the Disqualifying Events?
Bad Act
Look-Back Period
Criminal convictions in connection with the sale of
securities or making false statements to the SEC
Issuers – 5 years
All others (including issuer executive officers and
directors) – 10 years
Court orders, judgments or decrees in connection
with the purchase or sale of securities or in
connection with the business of an underwriter,
broker, dealer, municipal securities dealer,
investment advisor
5 years
Final orders of certain regulators, including state
Longer of duration of final order or 10 years from
securities commissions, state banking authorities, final order based on violation of fraudulent,
state insurance commissions, federal banking
manipulative or deceptive conduct, if applicable
agencies or the National Credit Union Association,
which bar the person from:
association with an entity regulated by such
commission
engaging in the business of securities,
insurance or banking, or
engaging in saving association or credit union
activities
30
31. Disqualifying Events (cont.)
Bad Act
CFTC orders (bar or final orders) relating to
violations of any law or regulation that prohibits
fraudulent, manipulative or deceptive conduct
Look-Back Period
Longer of duration of final order or 10 years from
final order
SEC disciplinary orders under Sections 15(b) or
Duration of order
15B(c) of the Securities Exchange Act of 1934, as
amended (the Securities Exchange Act), or 201(e)
or (f) of the Investment Advisers Act of 1940, as
amended, that:
suspends or revokes such person’s
registration as a broker, dealer, municipal
securities dealer or investment adviser
limits such person’s activities function or
operations, or
bars person from association with any entity
or from participating in an offering of penny
stock
31
32. Disqualifying Events (cont.)
Bad Act
Look-Back Period
SEC orders prohibiting future violations of any
scienter-based anti-fraud provision, including
Sections 5 and 17(a) of the Securities Act, and
Sections 10(b) of the Securities Exchange Act
Suspension or expulsion from membership in or
bar from association with a member of a national
securities exchange or registered national
securities association (currently FINRA is the only
registered national securities association)
Duration of suspension or expulsion
Regulation A bad-actor stop-orders
5 years
U.S. Postal Service false representation orders
32
5 years from date of order
Longer of 5 years or duration of order
35. Brian Korn
•
•
Hands-on transaction execution and market expertise across
product categories, including equity capital markets, debt capital
markets, leveraged finance and private equity
•
Former in-house counsel at Barclays and Citigroup investment
banks
•
Specialist in IPOs, the JOBS Act and SEC compliance, as well as
early-stage fundraising, high yield debt and swaps/derivatives
•
Media Appearances: Fox Business Television, Bloomberg, NPR,
CCTV America
•
212.808.2754
kornb@pepperlaw.com
Corporate and Securities practice group, based in New York
Published or Quoted: Forbes, CNBC, MSNBC, New York Law
Journal, Law360, Philadelphia Inquirer, Pittsburgh Post-Gazette,
The Financier, Review of Securities & Commodities Regulation
•
Seasoned 16 year securities expert and frequent speaker: PLI,
NYC Bar faculty member; Speaker at national securities and
crowdfunding conferences
•
J.D. Northwestern University School of Law
− Northwestern Journal of International Law & Business
•
B.A. with Honors and Distinction, University of California, Berkeley
36. For more information, visit
www.pepperlaw.com.
Brian Korn, Esq.
(212) 808-2754
kornb@pepperlaw.com
Pepper Hamilton LLP
The New York Times Building
620 Eighth Avenue
New York, New York 10018