spectrum crowdfunding: developing & executing a viable strategy (all speaker slides)
TRANSCRIPT
Jonathan LibbyManager, Austin IBM Innovation Center
Mark Roderick, Esq. Attorney at Law, Flaster Greenberg
www.flastergreenberg.com Go Flaster.
Presented by:
Mark S. Roderick, Esq.
New Jersey | Cherry Hill Linwood
Pennsylvania | Philadelphia
New York | Manhattan Pleasantville
Delaware | Wilmington
Crowdfunding 2014The Legal and Business Landscape
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What is Crowdfunding?
• “Donation-based or rewards-based Crowdfunding” like Kickstarter and Indiegogo, where donors receive a t-shirt or other item of limited value
• “Equity Crowdfunding,” where investor receives stock or other security
• What all kinds of Crowdfunding have in common: Raising money using the Internet
www.flastergreenberg.com Go Flaster.
Flavors of Equity Crowdfunding
• JOBS Act Title II
• JOBS Act Title III
• Rule 504
• Old Regulation A
• New Regulation A+
• See Crowdfunding Cheat Sheet:
www.flastergreenberg.com/assets/htmldocuments/Crowdfunding%20Cheat%20Sheet_Roderick.pdf
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Background and Significance of Crowdfunding
• Traditional ways for entrepreneurs to raise money• Friends and family• Your own Rolodex• Brokers, accountants, lawyers,
investment bankers, unlicensed “Finders”
• Enter the Internet• Connecting vast pools of
capital to businesses needing capital
• Hugely disruptive
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Overview of Title II Crowdfunding
• Rule 506 of Regulation D
• Allows General Solicitation and Advertising
• Accredited Investors Only
• New Exemption for Portals
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Overview of Title III Crowdfunding
• Sales to Anybody
• $1 Million During 12 Months
• Limits On Amount Invested
• Sold Only Through Portals
• Lots and Lots of Regulation
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Overview of Regulation A+ Crowdfunding
• Sales to Anybody
• $50 Million During 12 Months
• Limit on Investment – 10% of Income or Net Worth
• Federal Filing with SEC
• No State Registration
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Role of Portals in Title II Crowdfunding
• Portals Not Required – Companies May List Themselves
• No Registration or Regulation of Portals
• New Exemption from Broker/Dealer Registration
• No-Action Letters in March 2013
• Broker/Dealer Registration
• Spectrum of Possible Activities
• Relationship Between Portal and Company
• Relationship Between Portal and Investor
• Market Segmentation
• Title II Portals as Traditional Broker
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Role of Portals in Title III Crowdfunding
• Portal Required to Act as Mini-SEC
• Extremely Cumbersome Obligations
• See partial list at: http://crowdfundattny.com/2013/11/11/its-easy-to-be-a-
title-iii-crowdfunding-portal/
• No Ability to Differentiate Among Companies
• Relationship Between Portal and Company
• Relationship Between Portal and Investor
www.flastergreenberg.com Go Flaster.
Crowdfunding and Broker-Dealers
• JOBS Act Exemption
• 2013 No-Action Letters
• Compensation Arrangements Typical Today
• General Broker-Dealer Rules
• Movement of Industry Toward Broker-Dealer Relationships
• Broker-Dealer “Plug-Ins”
www.flastergreenberg.com Go Flaster.
Crowdfunding Market Today
• Hundreds of Title II Portals
• 90% Real Estate
• Pure Equity, Pure Debt, Hybrids
• Segmentation of Market Verticals
• Individual Deal Model
• Large Players Getting Into Market
• Trickle of Money
• White Label Sites
• Third Party “Plug-Ins” For Everything
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State Crowdfunding Initiatives
• SEC Rule 147 As Federal Basis for State Initiatives
• Growing Number of States
• Different Approaches By Different States
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Texas Crowdfunding Rule
Administrative Proposal, Not A Statute
Not Yet Effective – Voting At End of October 2014
Restrictive Proposal
– Similar to Federal Title III– Portals Not Allowed To Have Interest in Issuer
I’ve Drafted A Legislative Proposal
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Crowdfunding Opportunities
• Raising Money on Someone Else’s Portal
• Crowdfunding as Investor Relations/Management Platform
• Crowdfunding to Expand Existing Capital Base
• Becoming a Crowdfunding Portal
• Providing A Third-Party Service
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Future of Crowdfunding
• Continuation of Title II
• Advent of Title III and Title IV
• Large Volume of Capital Flow
• Pooled Asset Funds
• Growing Role of Institutional Money
• Will Crowdfunding Change Wall Street, Or Will Wall Street Change Crowdfunding?
www.flastergreenberg.com Go Flaster.
Questions?
Mark Roderick, Esq.
856.661.2265
www.crowdfundattny.com
@CrowdfundAttny
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Crowdfunding Sites
Fundrisefundrise.com
Realty Mogulrealtymogul.com
Patch of Landpatchofland.com
FundersClubfundersclub.com
Poliwoggpoliwogg.com
RealtySharesrealtyshares.com
OurCrowdourcrowd.com
RealCrowdrealcrowd.com
Lending Clublendingclub.com
Hall MartinDirector, Texas Entrepreneur Network
The Rewards ModelBest Execution Practices
Hall T. MartinTexas Entrepreneur Network, Director
Agenda
Elements of a crowdfunding campaign
The Pitch video
Campaign planning
Q&A
txenetworks.com
How does it work?
1. Choose a crowdfunding site based on your project
2. Submit your application
3. Prepare your campaign
4. Launch your campaign
5. Promote your deal to your network
6. Respond to questions and feedback
7. Raise your funds
Remember: You are running a campaign
Crowdfunding campaign
Pitch Video
Description
Biography
Funds Target and Timeline
Updates
txenetworks.com
Why make a pitch video?
Backers want you to tell them what you are doing
2x the click-thru rate for deals with videos
Objective
• Tell them what you are doing in less than a minute
• Demonstrate the credibility of the team
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What to put in the video?
Show yourself
Show the product/concept so people get it
Talk about how much you are raising and how the
funds will be used
Close with a Call to Action
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Description
5 word tag line
250 word description of the deal including
What it does
Why it is important
How you will accomplish it
What is unique about it
How much funding is requiredtxenetworks.com
Biography
50 to 100 word description of yourself
Demonstrate your capability and experience
Align your digital footprint
txenetworks.com
Fund Raise Target & Timeline
Raise 20% of your funds target before you launch
Set a campaign that lasts 30, 45,or 60 days
Consider breaking the campaign into smaller mini-
campaigns
txenetworks.com
Updates
Identify updates to share with the investors
Create a sense a momentum
Demonstrate traction
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Campaign Planning
Pre-Campaign— start 2 months before launch
Campaign—30 day campaign
Post-Campaign—1 month follow up work
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Pre-Campaign
Prepare your materials
Create Pitch Video, 250 word description, etc
Setup blog/Facebook/LinkedIn/Twitter pages
Prepare your network
Identify core & secondary network contacts
Setup a mailing schedule (every 3 days a new mailing)
Identify broader media targets for PR
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Post-Campaign follow up
Fulfill the promises made
Remember to thank those who supported you
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Running the Campaign
It’s a full-time Job
Follow up promptly on emails about the campaign
Monitor the campaign mailings
Adjust the product, pitch, and program based on
feedback
“No battle plan survives first contact with the
enemy.” -- Eisenhower
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Selecting the Right Portal
1. Consider the Sector – Consumer, Crafts, Arts, etc
2. Consider the Cost – Front-end, Back-end
3. Consider the Support
4. Consider your own website
txenetworks.com
Five most common mistakes
1. Not making the pitch compelling enough
You need a great team doing something great
Mediocre projects don’t attract much attention
txenetworks.com
Five most common mistakes
2. Not promoting the raise
Engage your network to start
Leverage your social network to expand
Develop and run a broader PR campaign
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Five most common mistakes
3. Not demonstrating a detailed plan
You need to show how the funds will be used
The plan needs to look realistic and achievable
Vague or fuzzy plans do not get funded
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Five most common mistakes
4. Not asking for realistic amounts of funding
You need to raise enough funding to accomplish
the project
Asking for too much or too little will kill the
raise
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Five most common mistakes
5. Not responding to questions nor asking for
feedback
Respond to questions quickly and with
competence
Start a dialog and then build a relationship with
the investor
txenetworks.com
To learn more about fund raising checkout
txenetworks.com
and sign up for your
Fundability Score
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David LoweFounder, Uberpong
Chris Brown, Esq.Brown Law Firm
Texas Equity Crowdfunding
Christopher T. BrownAttorney at Law, PLLC
Austin, Texas
www.brownlawatx.com
SPECTRUM
Sep. 30, 2014
http://blogs.wsj.com/venturecapital/2014/05/21/liveoak-venture-partners-closes-first-fund-to-boost-investments-in-texas/
Source: Wall Street Journal, May 21, 2014
Private Placement Law 101
• Securities Act of 1933—must
register deals with SEC
• Exemption for deals “not involving a
public offering”
• Regulation D safe harbor, Rule
506—concept of “accredited
investor,” minimal disclosure
requirements
• Before JOBS Act, equity
crowdfunding impeded by limitations
on sales to non-accredited investors,
ban on general solicitation, and
broker-dealer requirements.
–Naval Ravikant, Co-Founder, AngelList
“It ended up being a giant dog's breakfast of different bills combined together, and then some
genius, probably some congressional staffer, said ‘How are we gonna get this thing to pass? Oh—
let’s say it has something to do with jobs. Jumpstarting Our Business Startups! JOBS, JOBS!’ And
then, what congressperson can vote against something called the JOBS Act? It was a miracle.”
JOBS Act—April 2012
• Liberalized restrictions on use of
“general solicitation” in
traditional private offerings to
accredited investors under Reg
D
• Created new exemption for
crowdfunding offerings through
SEC-registered portals
• Updated Reg A offering
exemption
• Liberalized IPO rules for
“Emerging Growth Companies”
Title III
“Capital Raising Online While
Deterring Fraud and Unethical
Non-Disclosure Act of 2012”
SEC Proposed Crowdfunding Rules
Oct. 23, 2013
• JOBS Act Title III: SEC Proposed Rules, Oct. 23, 2013
• Offerings of $1 million or less via SEC-registered portal
• Investments limited based on income/net worth
• If income/net worth < $100k, greater of $2k or 5% of net worth
• If income/net worth > $100k, 10% of net worth
• Disclosure document with SEC
• Must include audited financials for offerings > $500k
• No general solicitation
Federal Crowdfunding Exemption
Subject to SEC rulemaking
Intrastate Equity Crowdfunding
• “Blue Sky” laws—state regulation of securities offerings
• 12 states adopted equity crowdfunding rules as of August
2014, and 12 more considering
• Texas State Securities Board (Commissioner John Morgan)
proposed rules May 2014—final rules expected October 2014
Texas Equity Crowdfunding
• Permits offerings of up to $1 million to Texas investors via registered Texas
crowdfunding portal
• Non-accredited investors capped at $5k investment per deal
• Available only to Texas entities
• 80% Texas—revenues, assets, proceeds
• Must have a defined business plan
• Disclosure document to include certified financial statements
• File with Securities Board, available to Bd and investors 21 days before first sale
• Funds held in escrow with bank until target met
• No general solicitation
Texas Equity Crowdfunding Disclosure Requirements
• Business plan
• History
• Management and owners
• Use of proceeds
• Description of securities and capitalization
• Certified financial statements
• Litigation
• Risk factors and mandatory investor warnings & legends
Texas Crowdfunding Portal
• Must be Texas entity exclusively focused on intrastate sales of securities in
Texas
• Must register with Texas Securities Board
• Must complete background checks on issuers and confirm no reasonable
basis to believe a deal is fraudulent
• Can’t offer investment advice or take equity in issuer
• Can’t operate secondary securities market
• Must verify Texas residency of investors
• Various other substantive duties, filing and record keeping requirements,
prohibitions
Source: SEC (via VentureBeat)
http://venturebeat.com/2014/01/02/it-might-cost-you-39k-to-crowdfund-100k-under-the-secs-new-rules/
Questions
• How workable is the new exemption? How does it compare
to the alternatives?
• What kind of deals best suited for Texas equity
crowdfunding?
• What kind of deal structures?
• What kind of investors?
• What will fee structures and other costs likely be?
• What gotchas are lurking? Will it impact your exit strategy?
Steve SoosFounder, ProtoIPO
Bill ClarkFounder, MicroVentures, Inc.
Nathan Roach, Esq.Founder, HiveEquity
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