@VIAlliance #VISummit

Crowdfunding versus Pitching Angels: What Route to

Finding Investors is Right for You?

by Alixe Cormick Angel Investor; Member of: Kieretsu Forum, Vancouver Angel Technology Forum (Vantec), and

various advisory boards; and a corporate securities lawyer

October 27, 2016

Disclaimer

• Information purposes only: The materials and information contained in this presentation are intended to provide information (not advice) about equity crowdfunding and related matters. You should not act on this information presented without first consulting with an attorney.

• No Attorney-Client Relationship Created: This information on this presentation is not intended to create, and receipt of it does not constitute, an attorney-client relationship having been created by us with you or anyone else. Do not send us confidential information until you speak with us and receive our authorization to send that information to us. The act of talking to us informally or sending an email to us will not create an attorney-client relationship. If you are not currently a client of Venture Law Corporation, your email will not be considered privileged and may be disclosed to other persons. We promise, however, to keep your name confidential unless you tell us otherwise when talking to any regulators or third parties about securities law matters.

• No Warranties: The information provided in this presentation is provided “as is”. We make no warranties, representations, or claims of any kind concerning the information presented is complete. We are not responsible for any errors or omissions in the content of this presentation or for damages arising from the use of the information provided under any circumstances.

@VIAlliance @AlixeCormick #VISummit

@AlixeCormick #VISummit

Outline of Discussion

• First Step: Where Do You Fit in Eco-System?

• Second Step: Getting Your Business Investor

Ready

• Third Step: Create a Solid Capital Raising Plan

• Fourth Step: Putting the Finance Pieces Together

• Fifth Step: Understanding the Investment Process

@VIAlliance

First Step: Where Do You Fit in Eco-System? Category/Sector/Stage/Need

• Category: Life style, limited or high growth?

• Sector: Service, industrial, resource, tech, or?

• Stage: Concept, start-up, growth, established,

expansion, mature, exit or winding down?

• Need: How much and for what purpose?

@AlixeCormick #VISummit

@VIAlliance

First Step: Where Do You Fit in Eco-System? Outside Capital Rounds: High Growth

Round Amount Purpose Pre-$ Valuation

$ Sources % of Business

Pre-Seed

$25,000 to

$300,000

Build & test

MVP/Proof of

Concept/R&D

$100,000 to

$1M

Bootstrap/FFB/

Crowdfunding/Gov

Grants

5% to 25%

Seed $300,000 to

$1M

Beta Test/Launch

Product/Proof of

Product Solution Fit

$1M to $3M Angels/Crowdfunding/

Seed VCs/Co-

investment funds

10% to 50%

Super Seed $1M to $2M Working Business

Model/ Proof of

Product Market

Fit/Product Traction

$3M to 10M Angels/Seed

VCs/Crowdfunding/

Strategic Investors

10% to 50%

Series A $2M to $30M Scale customer

acquisition and

revenue

$10M to

100M

VCs/Family Offices/

Crowdfunding/Instit-

utional/ Strategic

Investors/AltFin

Platforms

20% to 50%

@AlixeCormick #VISummit

@VIAlliance

First Step: Where Do You Fit in Eco-System? Outside Capital: Everyone

• Government Grants and Credits: Gov. of Canada -

Concierge Services [Non-dilutive capital]

• Bank Financing: Line of credit [BDC, Community

Futures]

• Debt & Equity Financing: Loans to preferred shares

• Fintech: Marketplace lenders, crowdfunding portals,

factoring operators

Angels: everyone who is seeking yield

@AlixeCormick #VISummit

@VIAlliance

First Step: Where Do You Fit in Eco-System? Outside Capital: Growth

• Government Grants and Credits: Gov. of Canada -

Concierge Services

• Angel Investors: Preferred Shares, SAFEs & KISS’s

• Venture Capitalists: Preferred Shares

• Fintech: Marketplace Lenders, and Crowdfunding

Portals

@AlixeCormick #VISummit

@VIAlliance

First Step: Where Do You Fit in Eco-System?

How Much and For What Purpose?

• Business Build Target: Work from where you want to

be in 5+ years

• Milestone Financing: Easier to raise capital, track

progress & raise more capital

• Land Mines: Raising to replace debt, pay large

salaries, fund litigation, or other non-building purpose

@AlixeCormick #VISummit

@VIAlliance

First Step: Where Do You Fit in Eco-System?

How Much and For What Purpose?

• Create a Cap Table: Link to Excel Example

• Summary of Cap Table - Post Series-A

@AlixeCormick #VISummit

@VIAlliance

Second Step: Getting Your Business Investor Ready

• Due Diligence Review:

– Amend any item not compatible with raising capital or

crowdfunding

– Review website and social media for securities law non-

compliance issues

• Gather Key Documents: Key to smooth legal,

accounting and investment review process

• Put Together Team: Marketing, legal, accounting and

boosters

@AlixeCormick #VISummit

@VIAlliance

Second Step: Getting Your Business Investor Ready

• Update or Prepare:

– Term Sheet

– Elevator pitch

– Pitch Deck

– Business Summary

– Business plan

– Financial statements

– Offering documents (OM, limited partnership agreement,

subscription agreement , etc.)

@AlixeCormick #VISummit

@VIAlliance

Second Step: Getting Your Business Investor Ready

• Team Readiness: Assign roles

• Network Readiness: Prepare a spreadsheet of potential

investors

• Prepare Support Material if Crowdfunding:

– Draft email messages, Tweets, and posts

– Design reward and recognition program

– Design landing page(s) and funnel pages

– Draft media articles and press release(s)

– Produce videos. You need a series not just one!

@AlixeCormick

#VISummit @VIAlliance

Third Step: Create a Solid Capital

Raising Plan

• Determine what you are going to offer and how

• Determine your key milestones or inflection points that will impact your value

• What is the minimum amount you need to get to each point

• What non-dilutive sources of capital are available to you at each stage?

• Identify what you want to offer investors

@AlixeCormick #VISummit

@VIAlliance

Third Step: Create a Solid Capital

Raising Plan

• Make a list of contacts that can help

• Old school versus new school capital raises

• Identify potential investors or credible market

intermediaries

• Sample, track, learn, and improve what you are doing to

raise capital

• Keep all doors open

@AlixeCormick #VISummit

@VIAlliance

Fourth Step: Putting the Finance Pieces Together Finding Investors

• Friends and family

• Angel investor networks

• Free or almost free angel investor forums

• Pay to play angel investor forums

• Online accredited investor portals

• Individual angel investors and venture capital firms

• Introductions from professional advisors and others

• Identification through research

• Signaling angel investors and venture capital firms

• Third-party finders

@AlixeCormick #VISummit

@VIAlliance

Fourth Step: Putting the Finance Pieces Together Finding Investors

• Method 1:

• Well connected angel/VC assists with introductions

• Commitments

• Downstream intros and more commitments

• Method 2:

• Credible market intermediary streamlines process

@AlixeCormick #VISummit

@VIAlliance

Fourth Step: Putting the Finance Pieces Together

Start-Up Crowdfunding Portals

@AlixeCormick #VISummit

AB, BC, SK, MB, QU, NB, NS

BC, SK, MB, QU, NB, NS

BC, QU, NS, NB

QU, NB, NS QU, NB, NS

BC AB, BC, SK, MB, NB, NS

@VIAlliance

BC, NB

Fourth Step: Putting the Finance Pieces Together AI & OM Crowdfunding Platforms

@AlixeCormick #VISummit

ON AB, BC, MB, ON, QU AB, BC, ON, QU AB, BC, SK, MB, ON

ON ? AB, BC, ON

AB, BC, SK, MB, ON, QU, NB, NS ON AB, BC, SK, MB, ON, QU, NB, NS, PEI, NFL

AB, BC, ON, QU AB, BC, ON, QU

@VIAlliance

Fourth Step: Putting the Finance Pieces Together Securities Law Exemptions

@AlixeCormick #VISummit

@VIAlliance

Securities Exemption

Relied On

Jurisdictions Max Raise

Private Issuer Exemption BC, AB, SK, MB, ON, QU, NB, NS,

NFL, PEI, NU, YK, NWT

Unlimited. Only 50 investors allowed.

Accredited Investor Exemption BC, AB, SK, MB, ON, QU, NB, NS,

NFL, PEI, NU, YK, NWT

Unlimited

Offering Memorandum Exemption BC, AB, SK, MB, ON, QU, NB, NS,

NFL, PEI, NU, YK, NWT

Unlimited

Offering Memorandum Light

Exemption

AB, SK, NB $500,000 12 month max

Start-up Crowdfunding Exemption BC, SK, MB, QU, NB, NS $250,000 per offering

$500,000 12 month max

Integrated Crowdfunding

Exemption

SK, MB, ON, QU, NB, NS $1,500,000 12 month max

Start-up Business Exemption AB $1,000,000 lifetime max

Fourth Step: Putting the Finance Pieces Together

Marketplace Lending Portals

@AlixeCormick #VISummit

Rates: 9.75% and up Rates: 6% and up

Rates: 10% and up

Receivable Financing

Rates: 9% and up

Rates: 15% and up

@VIAlliance

Note: There are also a number of Consumer Lending portals which allow

you to consolidate your credit card debt.

Fifth Step: Understanding the Investment

Process People invest in people and things they know

• Meet face to face with people who can give you big money prior to launching your campaign

• Phone anyone you and your team consider to be a close personal friend or business associate prior to launching your campaign

• Email to all acquaintances who have given you an email.

• Discussion should be limited to updating them on you and your business and not the fact you plan on raising money

• If your own family and close friends are not on board when your campaign is launched no one else will invest – lack of credibility

Tip: Cultivation of relationships offers a reoccurring patron of your project. Over the life of making that relationship it may

be worth $10-100,000+ or more to you.

@AlixeCormick #VISummit

@VIAlliance

Fifth Step: Understanding the Investment

Process Angel Investor Process

• Similar preparation steps to crowdfunding

• Long process

• Meet and greet first step

• All investment basics must be met

• Due diligence review

• Terms may be renegotiated

• Close in person

@AlixeCormick #VISummit

@VIAlliance

Fifth Step: Understanding the Investment Process

1 2 3 4 5 6 7 8 9 10 11 12

Information Gathering

Preparation

Apply to Funding Portal

Identify & Work Your Network for Support

Contact Media and Work Social

Campaign

Campaign Live on

Funding Portal 1 to 90

days

@AlixeCormick #VISummit

@VIAlliance

Crowdfunding Process

Closing Remarks

Keep Track of Your Actions • Considering using BaseCamp or a similar program to log all

your actions.

• Track commitments from the pre-sale stage to final investment.

• Follow-up with everyone at each stage of the campaign. The campaign is top of mind to you and not your potential investors.

Treat Investors with Respect • Investors are not just money. They are potential customers,

boosters and allies in making your business a success.

@AlixeCormick #VISummit

@VIAlliance

Thank-you and Good-Luck

Venture Law Corporation 618-688 West Hastings Street

Vancouver, BC V6B 1P1 Phone: 604-659-9188

Fax: 604-659-9178 Email: acormick@venturelawcorp.com

Website: www.venturelawcorp.com Blog: www.AlixeCormick.com

Twitter: @AlixeCormick Google+: AlixeCormick

@AlixeCormick #VISummit

@VIAlliance

Resources

Canadian Crowdfunding Specific Exemptions

Start-Up Crowdfunding Exemption

• BCI 45-535 Start-up Crowdfunding Registration and Prospectus Exemptions Form 1 - Start-Up Crowdfunding – Offering Document

• Form 2 - Start-Up Crowdfunding – Risk Acknowledgement

• Form 3 - Start-up Crowdfunding – Funding Portal Information Form

• Form 4 - Start-up Crowdfunding – Funding Portal Individual Information Form

• Form 5 - Start-up Crowdfunding - Report of Exempt Distribution (Form 5) (fillable form)

• Start-up Crowdfunding - Purchasers Information (Schedule 1 to Form 5) (excel)

• Start-up Crowdfunding Guide for Investors

• Start-up Crowdfunding Guide for Businesses

• Start-Up Crowdfunding Guide Preparing an Offering Document

• Start-up Crowdfunding Guide for Funding Portals

• CSA Notice 45-317 Amendment to Start-Up Crowdfunding Exemption (Jan 25, 2016)

@AlixeCormick #VISummit

@VIAlliance

Resources

Canadian Crowdfunding Specific Exemptions National Instrument 45-108 - Crowdfunding

• Notice of Approval MI 45-108 Crowdfunding

• Annex A1 - Multilateral Instrument 45-108 Crowdfunding

• Annex A2 - Form 45-108F1 Crowdfunding Offering Document

• Annex A3 - Form 45-108F2 Risk Acknowledgement

• Annex A4 - Form 45-108F3 Confirmation of Investment Limits

• Annex A5 - Form 45-108F4 Notice of Specified Key Events

• Annex A6 - Form 45-108F5 Personal Information Form and Authorization to Collect, Use and Disclose Personal Information

• Annex A7 - Companion Policy 45-108CP Crowdfunding

• Annex B - Consequential Amendments to National instrument 45-102 Resale of Securities

@AlixeCormick #VISummit

@VIAlliance

Resources

Canadian Amended Offering Memorandum Exemption

• Multilateral CSA Notice of Amendments to National Instrument 45-106 - Prospectus Exemptions Relating To The Offering Memorandum Exemption

• Changes to Companion Policy 45-106CP Prospectus Exemptions (Jan 7, 2016)

• Amendments to NI 45-106 Prospectus Exemptions

• National Instrument 45-106 Prospectus Exemptions

• Companion Policy to National Policy Instrument 45-106 Prospectus Exemptions

@AlixeCormick #VISummit

@VIAlliance

Resources

U.S. Securities Rules

• Regulation D – Rule 506(c) • Eliminating the Prohibition Against General Solicitation and General

Advertising in Rule 506 and Rule 144A Offerings;

• Small Entity Compliance Guide;

• Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings

• Regulation A+ • Amended Conformed Version of Regulation A as Amended

• SEC Title III Crowdfunding Final Rules • Crowdfunding Rule

@AlixeCormick #VISummit

@VIAlliance

Resources

Start-Up Document Templates • Founders Workbench: www.foundersworkbench.com

• NVCA's Model Legal Documents: www.nvca.org

• Seed Series: www.seriesseed.com

• Orrick’s Start-Up Form: http://www.orrick.com/practices/corporate/emergingCompanies/startup/forms_index.asp

Term Sheet Generator • WSGR Term Sheet Generator:

http://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/termsheet.htm

• Orrick’s Term Sheet Generators: https://tsc.orrick.com/

Sample documents while instructive and prepared with helpful annotation are not a substitute for legal advice. You are strongly encouraged to discuss the suitability of any and all documents with your legal counsel prior to use.

@AlixeCormick #VISummit

@VIAlliance

Resources

Useful Calculators

• EquityNet Startup Risk Calculator: https://www.equitynet.com/crowdfunding-tools/startup-risk-calculator.aspx

Estimates business risk . Relies on real-world data gathered from over 500,000 businesses from

across North America to create estimate/suggestions.

• Valuation Calculators:

– EquityNet Valuation Calculator: https://www.equitynet.com/crowdfunding-tools/startup-

valuation-calculator.aspx

– Venture Choice Valuation Calculator: http://www.venturechoice.com/calculators.htm

– Cayenne Consulting Valuation Calculator: http://www.caycon.com/valuation.php

– Endeavour Term Sheet Value Calculator: http://www.endeavor.org/blog/term-sheet-calculator/

• Crowdfund CPA – Crowdfunding Audit/Review Cost Calculator -

http://crowdfundcpa.com/cost-estimate--calculator.html

@AlixeCormick

#VISummit @VIAlliance