index [] · appbackr, 61 appsfunder, 61 australian small scale offerings board (assob), 53, 77 b...

243

Index

AAccredited investors, 216America Invents Act (AIA),

102–103Antitrust laws, 198Appbackr, 61AppsFunder, 61Australian Small Scale Offerings

Board (ASSOB), 53, 77

BBackers, communicating

with. See Investors, communicating with

Bandwagoning, 65Bankruptcy and reorganization laws,

197–198Barnett, Chance, 19–20, 21, 28Blass, David W., 69–70Blue sky laws, 5, 150BrewDog, 61Broker-dealers, 69–71Building and loan

associations, 4Business associations, crowdfunding

interests in, 177–193choice of entity, 191–193entities, principal forms of,

178–191corporations, 179–180,

188–191

limited liability companies (LLCs), 179–180, 186–188

limited liability partnerships (LLPs), 179–180, 183–184

limited partnerships (LPs), 179–180, 184–186

partnerships, 179–180, 181–183

law, nature of, 178Business brokers, 159–161

CC corporations, 191Camillo, Chris, 136Canonical, 67Charity/donation crowdfunding,

39–40, 56–57Chen, Perry, 9CircleUp, 54Coffee Joulies, 23Communication skills, 19–20Companies Act 1867, 201–202Contracts, 193–197

issues in crowdfunding, 196–197law, nature of, 194–196

binding nature, 195defenses to contract

formation, 195elements of contract, 194–195enforceability, 195–196

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COPYRIG

HTED M

ATERIAL

244 Index

Copyrights, 103–105crowdfunding risks, 104–105

Corporations, 179–180, 188–191, 193

CraftFund, 61Crowd Supply, 22Crowd wisdom, pitfalls of, 65Crowdbrewed, 61CrowdCheck, 78Crowdcube, 52, 77, 206–207CROWDFUND Act, 171–176Crowdfunding

alternatives to, 145–161credit unions, 157entity, choice of, 148–149factoring, 158finance, basic types of,

145–148finders and business brokers,

159–161initial public offerings

(IPOs), 155leasing, 158–159letters of credit, 159On Deck Capital, 158owner financing, 159peer-to-peer lending, 157–158private placements and

Regulation D, 150–155securities laws, overview of,

149–150Small Business Administration

loans, 156trade credit, 157traditional banks, 157

campaign, business planning in preparation for, 83–96

basic information, 85budgeting, projections, and

forecasting, 94–96

description of business, 85–88description of financial

condition, 88–89disclosure document, writing,

84–85pricing securities and

understanding capital structure, 90–93

reviewed vs. audited financial statements, 93–94

use of proceeds and offering amount, 89–90

history of, 3–14building and loan

associations, 4disappearance of, 5–6modern era, 9–14Regulation D, Sarbanes-Oxley,

and regulatory reform, 6–8Statue of Liberty, 4

laws based on global jurisdiction, 199–211

crowdfunding in Europe, 203–206

Europe, emergence of equity investing in, 200–201

European platforms, 206–211investing regulations, 201–203

legal aspects of, and U.S. law, 165–198

basic legal issues, 197–198contracts, 193–197interests in business

associations, 177–193looking ahead, 209–211securities regulation, 166–177

social media, 15–30finding a solution, 21–26fundamentals of

crowdfunding, 18–21

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Index 245

preparing for crowd investing, 26–28

quality entrepreneurs and ideas, 16–18

transformed environment, 28–30

statistical view of, 31–45crowdfunding models,

35–42market outlook, 42–45marketplace, 32–35

Crowdfunding for Dummies (Neiss), 19–20

Crowdfunding models, 35–42donation-based, 39–40equity-based, 41–42financial vs. nonfinancial

return, 38–39lending-based, 40, 41rewards-based, 40, 41

Crowdfunding Regulatory Intermediary Advocates, 11

Crowdfunding world map, 33–35Crowdsourced feedback, 64

managing, 65–66Crowdtilt, 57

DDebt-based crowdfunding, 54–55Demo days, 219Dodd-Frank Act, 117, 118The Doom that Came to Atlantic

City, 76Doriot, George, xiiiDragon Innovation, 59Due diligence, xiDunning-Kruger effect, 65The Dynamics of Crowdfunding:

Determinants of Success and Failure (Mollick), 17, 28

EElevation Dock, 22Ellenoff, Doug,

127–128Enron, 7–8, 12Enterprise Investment Scheme

(EIS), 52Entrepreneurship, shift in, 29Equity crowdfunding, ix–xiv,

41–42, 51–54Espinal, Carlos, xiiEurope

crowdfunding in, 203–206emergence of equity investing in,

200–201investing regulations,

201–203looking ahead, 209–211platforms, 206–211

France, 208Germany, 208Italy, 209Netherlands, 207–208United Kingdom,

206–207

FFactoring, 158Finance, basic

types of, 145–148convertible securities,

147–148debt, 145–146equity, 146–147

common stock, 147preferred stock, 147partnership and limited

liability company interests, 147

options and warrants, 148

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246 Index

Financial Conduct Authority, 55

Financial crisis of 2008, 12Finders (private placement brokers),

159–161France, crowdfunding platforms

in, 208Fraud

in investment crowdfunding, 77–78

in noninvestment crowdfunding, 73–77

defining, 73–74examples of, 75–76protection from, 76–77risks of, 74–75

“Free-rider problem,” 31Freedom of Information Act (FOIA)

Machine, 67–68FundersClub, 53–54Funding Circle, 55Fundly, 57, 72Fundrazr, 72

GGeneral solicitation, 215German Exchange Act of

1896, 202Germany, crowdfunding platforms

in, 208Goos, Craig, 129Grandma Pearl, 29Great Depression, 12Gridiron Thunder, 66Groupthink, 65

HHandibot, 76Hanks, Sara, 127–128Happy Canes, 29

Horlick, Nicola, 60“How to Run a Successful

Campaign on Kickstarter” (Hayes), 22

Howey test, 169, 183, 186HWTrek, 59

IiLobby, 72Illusory superiority, 65Indiegogo, 47, 48, 49–51, 59–60,

64, 72, 121terms of service, 74

Initial public offerings (IPOs), 155Instagrad, 61Intellectual property, protecting,

97–110, 197copyrights, 103–105

crowdfunding risks, 104–105

importance of, 98–99patents, 99–103

America Invents Act (AIA), 102–103

fundamentals of, 100–101provisional patent application,

101–102portfolio management,

109–110trade secret protection,

107–109crowdfunding risks, 108–109

trademarks, 105–107crowdfunding risks,

106–107Investment crowdfunding,

51–55debt-based crowdfunding,

54–55equity crowdfunding, 51–54

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Index 247

Investor options, 111–125bringing on investors, 112–114

benefit, 112–113drawbacks, 113–114

capital spectrum, 122–125debt, 124equity, 124–125revenue sharing, 123

general obligations to investors, 115–118

nonaccredited vs. accredited investors, 117–118

regulatory obligations, 115–117

investor education obligations, 118–120

maximizing investor participation, 120–122

Investors, communicating with, 127–143

crowd communications checklist, 141–143

resources, 143investor relations, 137–141

changes in, 141choosing investors,

137–138consistent communication,

139–140pitches, 138–139strategy, 140–141

issuer’s dilemma, 129–134crowd building, value of,

130–131digital presence,

building, 132influencers, connecting with,

132–133target list, building,

133–134

reconnecting with prospective investors and backers, 134–137

offline networking, 135–136process, benefit of, 136–137social media, 134–135

Italy, crowdfunding platforms in, 209

JJackson, Dave, 23JOBS Act, 10–11, 12, 15–16, 27,

83–84, 88, 150, 216, 217consequences of, 174–177requirements for financial

statements, 93requirements for valuing a

company, 90, 92Title II, 11, 13, 15–16, 116–118,

127, 152, 216Title III, 11, 13, 15, 115–120,

127, 130, 169–170Joint Stock Companies

Act 1844, 201

KKansas Act, 202Kickstarter, 9–10, 12, 16, 47, 48,

49–51, 59, 64, 66, 68, 72, 75–76

change in project guidelines, 73–74

Kiva, 9, 12, 55, 56Kobe Red Beef Jerky, 75–76Krasfur, Andy, 68

L“Last mile problem,” 13Leasing, 158–159Lending Club, ix, 158

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248 Index

Letters of credit, 159Limited liability companies (LLCs),

77, 147, 148–149, 179–180, 186–188, 192–193

Limited liability partnerships (LLPs), 179–180, 183–184, 192

Limited partnerships (LPs), 179–180, 184–186, 192

MMadoff, Bernie, 7Malkin, Pearl, 29Market dynamics, current,

47–80broker-dealers, 69–71charity/donation crowdfunding,

56–57crowdfunding as a political tool,

71–73fraud

in investment crowdfunding, 77–78

in noninvestment crowdfunding, 73–77

investment crowdfunding, 51–55

debt-based crowdfunding, 54–55

equity crowdfunding, 51––54

niche crowdfunding platforms, 57–62

alternative energy, 58apps, 61beer, 61book publishing, 61concerts/events, 60education, 61–62film, 59–60

hardware, 58–59real estate, 57–58

rewards-based crowdfunding, 49–51

market testing with, 62–68Massolution report (2013),

16, 32C-STEP methodology, 32

Merit reviews, 171Migicovsky, Eric, 23MogoTXT, 66Mollick, Ethan, 17, 28,

122, 131

NNeiss, Sherwood, 19–20Netherlands, crowdfunding

platforms in, 207–208NeuYear, 24Niche crowdfunding platforms,

57–62alternative energy, 58apps, 61beer, 61book publishing, 61concerts/events, 60education, 61–62film, 59–60hardware, 58–59real estate, 57–58

Nondisclosure agreement (NDA), 98

OObama presidential campaign

(2008), 71Offline networking, 135–136On Deck Capital, 158Opena, 24Owner financing, 159

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Index 249

PPartnerships, 147, 149, 179–180,

181–183, 192Patents, 99–103

America Invents Act (AIA), 102–103

fundamentals of, 100–101provisional patent application,

101–102Pave, 62Pebble smartwatch, 22, 23, 58Peer-to-peer lending, 157–158Peters, Chris, 24Petrillo, Dave, 23Phillips, Jesse, 25–26Picatic, 60Pozible, 48Pretail campaigns, 50, 62–64

examples, 66–68Freedom of Information Act

(FOIA) Machine, 67–68Spira Running Shoes, 68Ubuntu Edge, 67

Prodigy Network, 57–58Prosper, 54–55, 158PubSlush, 61Pulitzer, Joseph, 48

QQueremos, 60

RRamos Alarm Clock, 24–25Regulation A/A+, 154–155Regulation D, 6–8, 12, 150–155,

213–226crowdfunding, 154event, structuring, 218–226

with both 506(b) and 506(c) companies, 223

for companies relying on Rule 506(c) and using general solicitation, 222

for companies relying solely on Rule 506(b), 221–222

506(c)-only events, 220closed pitch events, 220–221company application

process, 220demo days, 219proposed SEC rulesseries, 224

key securities law concepts, 215–218

accredited investors, 216general solicitation, 215JOBS Act, 216Rule 506(b), 216–217Rule 506(c), 217–218

Rule 506with general solicitation,

152–154without general solicitation,

152Rewards-based crowdfunding, 40,

41, 49–51fraud, examples of, 74–75

the Doom that Came to Atlantic City, 76

Handibot, 76Kobe Red Beef Jerky, 75–76

Ringelmann, Danae, 121RocketHub, 48, 64, 68RockThePost, 54, 71Rubin, Slava, 47Rule 506

with general solicitation, 152–154

without general solicitation, 152

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250 Index

Rule 506(b), 216–217, 223–224Rule 506(c), 54, 128–129, 214,

217–218, 223–224

SS corporations, 149, 191Sammut, Paul, 24–25Sarbanes-Oxley Act of 2002

(SOX), 8, 12Securities Act of 1933, 5–6, 118,

150, 170, 174Securities Exchange Act of 1934,

5–6, 12, 118, 173, 174, 176

Securities and Exchange Commission

creation of, 5–6, 12delayed approval for equity

crowdfunding, 53Regulation D, 6–8, 12Rule 506(c), 54, 128–129, 214,

217–218Title II (JOBS Act), 11, 13,

15–16, 116–118, 127, 152, 216

Title III (JOBS Act), 11, 13, 15, 115–120, 127, 130, 169–170

Securities laws, 149–150, 166–177blue sky laws, 150crowdfunding and crowdfund

investing, 168–170securities, 169–170types of, 168–169

federal, 149–150implications, 170–177

JOBS Act and its consequences, 174–177

legal status of crowdfunding intermediaries, 172–173

registration of offer and sale of securities, 170–172

registration as public company, 173–174

nature of, 166–168preemption, 150

Seed Enterprise Investment Scheme (SEIS), 52

Seed&Spark, 60SeedInvest, 54Seedrs, 52, 122, 207Seeds.nl, 208Shopstarter, 22Small Business Administration

loans, 156Social capital, 20–21Social Web, 10Sole proprietorships, 192Somolend, 54Spira Running Shoes, 68Stainless Games, 62Startup Exemption Framework,

10–11SunFunder, 58Symbid, 207–208

TTarget list, building, 133–134Title II (JOBS Act), 11, 13, 15–16,

116–118, 127, 152, 216Title III (JOBS Act), 11, 13,

15, 115–120, 127, 130, 169–170

Traction, xiiiTrade secret protection, 107–109

crowdfunding risks, 108–109Trademarks, 105–107

crowdfunding risks, 106–107Tsai, Eddie, 23–24TsaiClip, 23–24

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Index 251

UUbuntu Edge, 67Uniform Trade Secrets Act (UTSA),

107–108United Kingdom, crowdfunding

platforms in, 206–207

WWard, Rob, 24Watsi, 56

Web 2.0, 10Web 3.0, 10–11WeDemand, 60Windcentrale, 58WiSeed, 208WorldCom,

8, 12

ZZopa, 55

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