is equity crowdfunding for you? equity crowdfunding for start-ups

“TO EQUITY OR NOT TO EQUITY”

Equity Crowdfunding for Startups

by Alixe CormickVenture Law Corporation

Greater Saskatoon Chamber of Commerce and NCFA Canada – May 28, 2014 – Leading the Way: Saskatchewan’s Emerging Equity Crowdfunding Environment

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 be not 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.

28/05/2014 Venture Law Corporation #AlixeCormick 2

Outline of Discussion

• What is happening now in equity crowdfunding.• Understanding your business and investors• How to assess your outside capital raising potential.• How equity crowdfunding works.• Prior to Launching: Information gathering.• Preparing for an equity crowdfunding campaign:

• Business;• Team;• Network; and• Support Material.

• Reaching out to your existing network.• Increasing your network reach.• Equity crowdfunding live activities.• After the campaign.• Closing comments.


Equity & Debt Crowdfunding Portals


All Crowdfunding Portals(930)Donation &

Product Presale Crowdfunding

(675)

Equity Crowdfunding

(225)

Debt Crowdfunding

(30)

Early Stage Non-accredited

Investor(100)

Early Stage Accredited

Investor(75)

Later Stage Accredited

Investor(35)

Portals worldwide May 2014

European Seed And Early StageEquity Crowdfunding Portals

(May 14, 2014)

PortalHomeCountry

TotalRaised onPlatform

Number of

Offerings

Mean Offering

Size

Anaxago France $6,500,000 19 $342,105

CrowdCubeUnited Kingdom

$36,806,451 116 $317,297

Companisto Germany $6,990,295 30 $233,010

Invesdor Finland $2,262,000 11 $205,636

OurCrowd(1) Israel $45,000,000 37 $1,216,216

Seedmatch Germany $16,858,725 60 $280,979

SeedrsUnited Kingdom

$14,920,000 96 $155,417

SyndicateRoom(1

)

United Kingdom

$10,720,000 11 $974,545

Symbid Netherlands $5,699,331 36 $158,315

WiSeed France $10,137,231 36 $281,590


U.S. Accredited InvestorEquity Crowdfunding Portals

(May 14, 2014)

PortalMarketFocus

TotalRaised onPlatform

Number of

Offerings

Mean Offering

SizeCircleUp Consume

r $ 30,000,000 30 $342,105

Equity Net All $231,748,700 18,896 $12,264

Crowdfunder All $111,700,000 9,778 $11,423

Fundable All $114,000,000 651 $175,115

Microventures All $39,600,000 56 $707,143

Realty Mogul Realty $18,000,000 67 $268,657

Fundrise Realty $10,000,000 19 $526,315

Rock the Post All $30,698,452 62 ?


Canadian Equity Crowdfunding Portals Operating Now

(May 14, 2014)


Accredited Investor Portals

Offering Memorandum Portals

Venture Law Corporation #AlixeCormick 8

Proposed Equity Crowdfunding Specific Rules In Canada

28/05/2014

Proposed Equity Crowdfunding Rules In Canada


Start-Up Crowdfunding Exemption: (BC, SK, MB, QU, NB, and NS - SK version available now!)

• issuer may raise $150,000 in two separate offerings in 12 month period;

• investor has 12 month cap of $1,500 per issuer in 12 month period;

• issuer & investor both must reside in jurisdiction; • not available to reporting issuers or investment funds; • portal cannot be related to issuer of securities; and • portal is not required to be registered as a dealer but must file

notice and related forms 30 days in advance before commencing business.

Proposed Equity Crowdfunding Rules In Canada


Integrated Crowdfunding Exemption: (SK, MB, ON, QU, NB, and NS)

• issuer may raise $1,500,000 in 12 month period; • investor has 12 month cap of $2,500 per issuer and max of

$10,000 under exemption in 12 month period; • issuer & investor both must reside in jurisdiction;• not available to reporting issuers, investment funds, real estate

issuers, or issuers with an unstated business;• portal cannot be related to issuer of securities; and• portal must be registered as a restricted funding portal and

cannot be an exempt market dealer or investment dealer.

Current Rules Issuers Can Use When Equity Crowdfunding in

CanadaAccredited Investor Exemption: (Available in every province & territory in Canada)

• no limit on how much an issuer may raise ; • available to all issuers regardless of business sector or residency;• no investment cap on investors; • Investor must meet income, financial asset or net asset test:

– annual income of $200,000 individually or $300,000 with spouse; or– net financial assets of $1 million+ excluding home; or – net assets of $5 million+.

• portal relationship to issuer of securities to be managed; and• portal must be registered as an exempt market dealer, investment

dealer or restricted dealer.


Current Rules Issuers Can Use When Equity Crowdfunding in

CanadaOffering Memorandum Exemption: (Available in every province & territory in Canada, but ON. ON considering)

• no limit on how much an issuer may raise;

• available to all issuers regardless of business sector or residency;

• offering memorandum and financial statements required;

• AB, SK, MB, QU, PEI, NU, YK or NWT residents if investing $10,000+ must be an eligible investor based on: annual income ($75,000 individually or

$125,000 with spouse); or net assets ($400,000); or a close friend, family or business associate; or have obtained advice from an eligible adviser on suitability;

• portal relationship to issuer of securities to be managed; and

• portal must be registered as an exempt market dealer, investment dealer or restricted dealer.


How to Assess Your Outside Capital Raising Potential

Assess your readiness to raise capital in general:• Do you have a solid business plan in place?• Are your financial statements in good shape?• Are you ready to give up a certain amount of control?• Do you have a team of directors, officers, consultants who are supportive and

can help with raising capital?

Assess your business:• Life cycle stage and industry of your company?• Funds for consumption or production in business?• How fast is your company growing? Is it scalabe?• Is your business and value proposition one easily understood?• Is milestone your raising money for attractive to investors?• Is there a n attractive exit/win for investors?

Tip: Campaigns with business plans raise 50% more .


How to Assess Your Outside Capital Raising Potential

Assess your team:• Do you have a team who are capable, committed and credible?• Is your team 100% into you raising capital and willing participants?• Is there a compelling spokesperson on your team?

Assess your network:• Do you have friends and family who will support your business?• How large is your social network offline?• Are you active and have a network on Facebook, Twitter, LinkIn, Google+,

etc.?• Is there a natural community of interest for your business?

Tips: (1) Crowdfunding campaigns with teams raise 80% more money. (2) Most campaigns that meet their funding goal raise about 30% or more of their funds from

their immediate network.


How Equity Crowdfunding Works

Equity Crowdfunding Timeline(Weeks)

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 day to 90 days


Tip: Campaigns launched on a Monday or Tuesday raise 14% more in first week than campaigns launched on other days of the week.

How Equity Crowdfunding Works


Note: The crowd helps businesses differently than Angel or VC investors, but the significance of that help should not be discounted.

Money Help Limited Dilution

Company Friendly Terms

Basis of Future Rounds

Speed/Cost

Cash Loan Y N Y N N ?

Common Stock Y N N N N ?

Convertible Debt Y Y ? ? Y Y

Preferred Stock Y Y ? ? Y N

Government Grants Y ? Y Y N N

Goal Analysis of Accessing Money Remains Unchanged

Information Gathering

Due diligence on your business• Put all material documents together in one place.• Review key documents for any changes necessary before launching campaign.• Obtain CVs from each insider and have them complete a questionnaire.

Portal investigation• Identify and study successful crowdfunding campaigns of competitors or

companies in related industry or location.• Review various equity crowdfunding portal requirements/models.

Campaign Support• Identify team , confirm commitment and assign various roles.• Make lists of immediate and tertiary network.• Identify media which may be helpful to your campaign.• Collect images and other material to be used as part of campaign.


Preparing for an Equity Crowdfunding Campaign

Business investor, legal, and financial readiness

• Complete a due diligence review of your business and correct any legacy issues not compatible with raising capital or crowdfunding.

• Decide what interest you are selling in your business.• Update or prepare:

– Business plan;– Financial statements;– Business Summary;– Elevator pitch; – Pitch Deck;– Term Sheet;– Offering documents (OM, limited partnership agreement, subscription

agreement , etc.)

• Review website and social media for securities law non-compliance issues.


Preparing for an Equity Crowdfunding Campaign

Team readiness • Organize team.• Identify outside affiliates, boosters and alliances and onboard them.• Train team regarding their role and your expectations.

Network Readiness• Categorize each member of network for outreach before and during

crowdfunding campaign..• Plan in-person, phone , and email contact with close network.• Consider value of Hootsuite, Constant Contact etc. for campaign.

Tip: If you don't know who is funding you on day one do not launch!


Preparing for an equity crowdfunding campaign

Prepare support material• Design reward and recognition program.

– Tip: Successful non-equity campaigns offer 5 to 8 perks and raise 145% more than campaigns who do not offer perks.

• Draft email messages, Tweets, and posts.– All of this should be scripted before hand and reviewed by legal counsel.– Email to immediate circle should b e personalized or it will have no impact.– Tip: Email is #1 tool, then Facebook #2 and Twitter #3 - Average contribution

through email is 20% higher than contributions through other sources. Campaigns that send out at least 3 or more updates raise about 239% more than campaigns that do not send out updates.

• Design landing page(s) and funnel pages.– Tip: Images result in 80% more money. People invest in people.



Prepare support material• Draft media articles and press release(s).

– These should be short factual and clear. – The Start-Up Exemption prohibits discussing an offering beyond pointing to a

funding portal.– Tip: Securities laws in Canada prohibit making a listing representation, or

offering a guarantee of profit, among other things.

• Produce videos. You need a series not just one!– Don’t make a commercial. Show passion and enthusiasm for business. Tell a

story and engage investors in your vision.– Better to have 5-8 videos 2:59 minutes long than one video 15 minutes long.– Pitch deck provides natural topic breaks. Include a video on risks to keep it

balanced.– Tip: Campaigns with pitch videos raise 115% more money. Campaigns

posting 1 to 5 video updates a week raise 218% more.



Apply to Funding Portal• If you followed the suggestions and tips in this presentation you should

have everything you need to apply to the portal of your choice.• Complete application well in advance of campaign to ensure any

background checks and reviews are completed and you are ready to launch on your target date.

Obtain CUSIP # from CUSIP Private Market Services

Consider and plan a launch party• This does not need to be a high cost affair and may even be a Google+

hang-out event.• Purpose is to meet people in person and create excitement for the

business of the company.


Reaching Out to Your Existing Network

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.


Increasing Your Network Reach

Amplify your reach to get full benefit of equity crowdfunding

• The purpose of social media is not to reach the people you know, love and are close to you it is to extend beyond those people.

• Increase your engagement with all social media platforms months before starting a funding campaign.

• Number of posts should increase up to launch date of campaign. Posts should be daily during campaign.

• Look for and follow businesses and people who may be interested in what you are doing.

• Emphasize your business, products, services, vision of you and your business . Do not talk about your need for money or campaign plans.

• Reach out to traditional and online media prior and during campaign.


Equity Crowdfunding Live Activities

Social Media• Engage your social media audience daily. Don’t forget to continue

to post on your non-capital raising interests.• Emphasize your business and not campaign.

Portal Website• Roll out various updates, videos and other materials regularly to

keep campaign fresh.• Send a personal (vs. portal) thank-you to anyone who invests.

– Tip: 62 % of campaigns that reach their goal have repeat funders.

Don’t Ignore Your Network• Now that campaign is live you should be pointing everyone in your

network to the funding portal landing page for your campaign.


After the Campaign

Share Register• Transfer agents in U.S. an d Canada providing services to private market.• Investors depending on securities instrument sold may be holding directly

or through an intermediary.• Use electronic shares and send confirmation to each shareholder.

Investor Portal on Your Website or 3rd Party Website• Inexpensive to create a secured portal for investors only.• Portal should include regular financial and other updates. Corporate

statute may allow posting on portal as delivery of AGM materials.

Don’t Ignore Your Investors• Provide a personal thank-you to each and every investor.• If investor was to receive a perk as well as securities make sure each perk

is delivered.


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.

Support Equity Crowdfunding Proposals Being Considered• If you are interested in the:

– start-up crowdfunding exemption;– Integrated crowdfunding exemption; or– Proposed changes to the offering memorandum exemption,

Send a letter in support .


ResourcesStart-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.


http://www.foundersworkbench.com/

http://www.nvca.org/

http://www.seriesseed.com/





https://tsc.orrick.com/

ResourcesUseful 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


https://www.equitynet.com/crowdfunding-tools/startup-risk-calculator.aspx

https://www.equitynet.com/crowdfunding-tools/startup-valuation-calculator.aspx

https://www.equitynet.com/crowdfunding-tools/startup-valuation-calculator.aspx

http://www.venturechoice.com/calculators.htm

http://www.caycon.com/valuation.php

http://www.endeavor.org/blog/term-sheet-calculator/

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

Thank-you

Thank you to David Nguyen for his research assistance and to each attendee for participating in this seminar.

Venture Law Corporation618-688 West Hastings Street

Vancouver, BC V6B 1P1Phone: 604-659-9188

Fax: 604-659-9178Email: [email protected]

Website: www.venturelawcorp.comBlog: www.AlixeCormick.com

Twitter: #AlixeCormickGoogle+: AlixeCormick


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