An Overview of Equity Crowdfunding and Private Offerings

I recently presented an overview of equity crowdfunding and private offerings to the New Jersey Economic Development Authority’s Commercialization Center for Innovative Technologies.

I discussed basic securities law and the many options available to businesses to raise funds.

If you would like a copy of my Powerpoint “slides,” please fill out the fields below.

— Alan N. Walter

Booyah! SEC Issues Final Crowdfunding Rules

64Px - 011CrowdfundingAt long last, the SEC has adopted final rules to allow companies to sell securities through equity crowdfunding. If all goes as expected, the rules will go into effect on January 29, 2016.

The highlights:

  •  A company could raise up to $1 million is a 12-month period.
  • Individual investors with annual income or net worth under $100,000 could invest the greater of $2,000 or 5 percent of the lesser of their annual income or net worth.
  • Individual investors with both annual income and net worth over $100,000 could invest 10 percent of the lesser of their annual income or net worth.
  • The maximum amount an investor can acquire over a 12-month period is $100,000.
  • Securities purchased via crowdfunding would need to be held for a year.
  • Funding portals would need to register with the SEC and become a member of a national securities association.
  • Crowdfunding companies must disclose certain information to investors, the SEC, funding portals and other facilitating intermediaries.

I’ll post more after a full review of the final rule.

— Alan N. Walter

Equity Crowdfunding Delayed to January 2016

64Px - 011CrowdfundingLet’s see if I have this right:

The JOBS Act became law in April 2012. Included as Title III of the Act was equity crowdfunding, a way for small and medium-sized to 64Px - 011raise money quicker and cheaper than traditional methods. A need that Congress desired to have satisfied in a timely manner.

Congress gave the SEC nine months to implement Title III equity crowdfunding.

Time passed.

Eighteen months after the JOBS Act was enacted, in October 2013, the SEC proposed rules for crowdfunding. The deadline for gathering comments from the public would have expired in February 2014.

More time passed.

The SEC has now scheduled its final stage for crowdfunding rules for October 2015. Presumably, implementation would follow about three months thereafter in January 2016, only three years after the law required.

Now, it may be that we shouldn’t take the SEC seriously, that it has simply given itself wiggle room. We’ll see.

As more time passes.

– Alan N. Walter

Raising Money Under Title II of the JOBS Act

Until recently, new companies wishing to raise money – that had exhausted their 173px-Man-and-woman-icon-alt.svgsources from friends and family and had no access to angel or venture capitalists – needed to rely on the SEC’s Regulation A or D, regulations promulgated under the federal Securities Act of 1933. Nothing wrong with that, except that offerings under Regs A and D need to satisfy a whole slew of conditions, some of which are expensive and some of which are just plain annoying.

Congress recognized the limitation in offering possibilities and passed the JOBS Act two years ago as a means of expanding the universe of options. The rules and regulations needed to effectuate the Act are (ever so) slowly being adopted.

While we’re waiting for the SEC to issue final regulations for equity crowdfunding, Title III under the JOBS Act, and for Reg A+, a liberalization of Reg A, there are other possibilities. Companies may want to consider raising funds under Title II of the JOBS Act. Compared to traditional Reg D and Reg A offerings, Title II or Rule 506(c) offers a streamlined and cheaper method of raising money.

What’s good about Rule 506(c)?

Read moreRaising Money Under Title II of the JOBS Act

Equity Crowdfunding: Best Recent Articles

Here’s the best of the recent articles on equity crowdfunding:Crowdfunding64Px - 011

Meet 7 Angel Investors Who Love Crowdfunding – Forbes
Fri, 02 May 2014

Crowdfunding is an incredible tool for entrepreneurs seeking capital at any stage of their business. Startup businesses can validate their idea through a rewards crowdfund, giving them great traction …

Read more …

24Px - 011Online Solar Marketplace Raises $1M In Equity Crowdfunding – Forbes
Thu, 01 May 2014

Let’s just say solar power social entrepreneur David Levine owes a big “thank you” to the Jumpstart Our Business Startups Act (JOBS). Passed in 2012, it allows start …

Read more …

24Px - 011Why Fraudsters Won’t Sink Equity Crowdfunding – Entrepreneur
Tue, 22 Apr 2014

To those who fear that opening up equity crowdfunding to unaccredited investors will result in rampant fraud, some experts in the space say: Don’t underestimate the crowd….

Read more …

 

— Alan N. Walter

Invest in next Facebook…for a few bucks – CNNMoney
Mon, 14 Apr 2014

The formal name for this is equity crowdfunding, and the process has already begun for “accredited” investors. Right now, the SEC defines an “accredited” investor as someone who makes more than …

Read more …

24Px - 0115 Things To Know Before Starting An Equity Crowdfund – Forbes
Mon, 28 Apr 2014

Unlike the rewards-only crowdfunding offered by sites like Kickstarter, equity crowdfunding allows companies to exchange a percent of ownership in exchange for funding. Equity crowdfunding is …

Read more …

24Px - 011Frustration Rises Over Crowdfunding Rules – Wall Street Journal

Thu, 01 May 2014

One big problem, critics say, is that it will be difficult for entrepreneurs to tap their social networks to raise money to buy equipment, add staff or upgrade to a new of …

Read more …

Crowdfunding: Five More Good Articles from the Web

64Px - 011CrowdfundingThe best recent offerings on crowdfunding:

Crowdfunding Health Innovation: Disruptive Companies And Funders Meet To Change Health Delivery – Forbes
Mon, 24 Feb 2014 12:50:22 GMT

They have faith that raising capital online post-JOBS Act will flourish, and that crowdfunding and secondary markets is the fastest way to create smarter clinical trials, personalized medicine and allow private companies to go public.

Read more …

24Px - 011Equity-based crowdfunding: Will the US overtake the UK? – Crowdfund Insider
Thu, 27 Feb 2014 00:31:20 GMT

For many, equity-based crowdfunding is the final stage of crowdfunding’s evolution. The United Kingdom was an early adopter of equity …

Read more …

24Px - 011The 3 Most Common Crowdfunding Concerns – Daily Reckoning
Mon, 10 Feb 2014 22:10:46 GMT

3Can I really make money with equity crowdfunding? I mean, does this even make sense for someone like me? I’m not a ‘professional’ investor.” We’ve been getting this question a lot lately.

Read more …

Start-up advice: How to raise money through equity crowdfunding (seven tips) – Washington Post
Tue, 11 Feb 2014 17:17:15 GMT

My company was among the first to take advantage of the new laws, and thinking back on our experience, there are some lessons I learned in trying to raise funds through this new equity crowdfunding process.

Read more …

24Px - 011Crowdfunding comes up short: Why the final part of the JOBS Act will never work – GigaOM
Wed, 19 Feb 2014 13:06:26 GMT

Concerns like these led the Consumer Federation of America, in the recent comment period, to demand that the SEC impose more oversight of websites that aspire to be the Kickstarters of equity-crowdfunding.

Read more …

 

 

 

— Alan N. Walter

Compilation of Current Crowdfunding Articles: My Picks

Why Crowdfunding Websites Work – Forbes
Tue, 04 Feb 2014 20:18:52 GMT

The past few years have seen an explosion in crowdfunded companies and as a result, both rewards crowdfunding sites and equity crowdfunding sites have grown in popularity as well. There’s now a crowdfunding site …

Read more …24Px - 011Where Does Crowdfunding Go From Here? Experts Explain – Forbes
Sun, 02 Feb 2014 00:37:46 GMT

2013 was a banner year for crowdfunding as we saw the world grow increasingly comfortable voting with their dollar to fund what matters to them. At Indiegogo, the number of campaigns …

Read more … 24Px - 011One Country Has Been Doing Equity Crowdfunding for 8 Years – VentureBeat
Wed, 22 Jan 2014 18:17:48 GMT

One country has been doing equity crowdfunding for 8 years. Even before crowdfunding became a global phenomenon on the rise, investors in Australia had already been funding startups through equity investments that work …

Read more …

24Px - 011In Crowdfunding, Who is Responsible for Preventing Fraud? – Entrepreneur
Wed, 05 Feb 2014 14:58:49 GMT

Who is responsible in the case that an investor loses his or her money to a fraudster in equity crowdfunding? That is the question that is at the root of much of the debate …

Read more …

24Px - 011Is Equity Crowdfunding the Next Channel Capital Source? – TechTarget
Thu, 06 Feb 2014 16:22:35 GMT

Kirill Bensonoff, founder of ComputerSupport.com, is investigating a nontraditional source of capital as his IT services company gears up for expansion: crowdfunding. Bensonoff plans to …

Read more …24Px - 011

 

Securities 101: Introduction to Crowdfunding

64Px - 011Crowdfunding– Alan N. Walter –

This post is a primer on crowdfunding for entrepreneurs and other people who are not securities lawyers.

Securities

I’ll start by talking a bit about securities and then about equity and non-equity offerings. Bear with me; we’ll get to crowdfunding.

What is a security? The most common types of securities are stocks, bonds and notes. However, just about any instrument representing a share or interest in a company will be a security.

Securities are regulated by federal and state law. The primary federal laws regulating the registration and sale of securities are the Securities Act of 1933 and the Securities Exchange Act of 1934. The primary state laws regulating securities, known as blue sky laws, are variations of the Uniform Securities Act, a model statue created by the National Conference of Commissioners on Uniform State Laws.

Registration and Exemption

Securities must be registered to be sold, unless there is an exemption for the security or for the sale.

Read moreSecurities 101: Introduction to Crowdfunding

SEC’s Proposed Crowdfunding Rules: An Overview

64Px - 011Crowdfunding— Alan N. Walter —

The Securities and Exchange Commission (SEC) has finally proposed rules under the JOBS Act to allow companies to sell securities through the vehicle of crowdfunding. Comments on the proposed rules can be submitted in writing or on the SEC site through February 3, 2014.

I present for your edification (and enjoyment?) an overview (and partial cribbing) of the 585 page proposal. Needless to say, this writeup will, by necessity, not reflect all of the nuances of the proposed rules.

Crowdfunding

Crowdfunding is a source of capital that allows an individual or entity to raise funds through small individual contributions from a large number of people. Individuals interested in the crowdfunding campaign can share information about the project, cause, idea or business with each other and decide whether to fund the campaign based on the collective wisdom of the crowd.

A number of sites, such as Kickstarter and Indiegogo, currently allow funds to be raised through crowdfunding. In return for contributions, these sites give donors tokens of esteem, but not any equity in the project that funds are being raised for.

The federal JOBS Act, and the proposed rules under the Act, would change that. It would allow equity to be raised and securities to be sold through crowdfunding.

Click through below to see some of the details of the proposed rules.

Read moreSEC’s Proposed Crowdfunding Rules: An Overview