The Backbone of Crowdfunding and the

Role of BanksThomas Coke, Esq.

My Expertise• Formerly with the State of Michigan Securities

Division as a securities product attorney• Served on the NASAA committee for small

business offerings• Worked with Small Business Development

Center in Kalamazoo• Established regional and national network in the

crowdfunding space• Lawyer with a detailed knowledge of

crowdfunding laws at the federal level and in other states

• Will focus in this talk on the anatomy and backbone of crowdfunding and the role of banks

Anatomy of Crowdfunding

• Payment Gateways• Websites/Portals• Document Management• Escrow Accounts/Funds Management

Payment Gateways

• How will investors purchase shares?– The act is silent on the issue– Need something easy to track and easy to use

• Credit Cards– Easy to use and set-up– High interchange fees– Chargeback issues– Traditionally credit isn’t allowed to purchase

securities• Wires– Fast– Very expensive in many cases

Payment Gateways II• Paper Checks

– Inexpensive– Provides a great deal of information– Requires some labor– Issues such as timing, security, difficulty in reading

• Electronic Checks– Can be easy to use– Provide a lot of data– Low cost– Easy to ingrate within a campaign– ACH can have issues, so look to alternatives– This is where VerifyValid fits in

Websites/Portals• Existing platforms

– Some platforms already exist and may be used• Use company site

– An issuer with an existing site could add and investment link or button on their home page

• Create a new site– A crowdfund issuer could create a simple page and make it

public to raise capital– VerifyValid offers their CheckItOut service, which is perfect for

this• Registration with Securities Division

– In the act it states a crowdfunding website will have to provide a letter of intent to the state and file a form

– A website will have to keep records, available upon request– If they stay up and running for twelve months they have to

notify the state again at the end of twelve months

Document Management• What an issuer needs

– Application (my sources tell me it will be similar to what is used in Georgia and Kansas, and I can provide those)

– Prospectus (very similar to a business plan)– More in depth and with risk factors mentioned– Keep updates on progress– Think about what an investor will want to see

• What a website needs– Records of the securities transactions– Updates on progress of offerings– Again, should be focused on the users of the site, both

issuers and investors– Records have to kept and available to the administrator

Escrow Accounts/Fund Management

• Where will you host your Escrow account– Consider community bank, regional bank or big

bank– Will you use this bank after your raise for your

business accounts?• If the goal is not reached how will funds be sent

back to investors?– Especially relevant for credit cards and wires– Who will administer this process?

• If the goal is reached how will the issuer access the funds– An issuer can’t handle the funds until they reach

their goal, so who administers the funds until then

The Role of Banks

• MBA Supports Crowdfunding• Crowdfunding is a great tool for

banks, especially community banks• Bank run Portals

MBA and Crowdfunding

• The Michigan Bankers Association is supportive of crowdfunding and what it can do for entrepreneurs

• The MBA views crowdfunding as a new way banks, especially community banks, can be a bigger asset to their communities

• There are many possible intersections of banks and crowdfunding issuers and investors

Crowdfunding As A Tool For Banks

• Banks will have a new treasury management tool for existing small and medium business customers– Existing SMB’s will likely have audited financials to raise

$2million– Great way to help an SMB improve their capital position

through equity not debt• Attracting new SMB customers

– Many of those crowdfunding will be new businesses– Natural way to attract accounts– Shows bank support for entrepreneurs

• Building loyalty with existing SMB customers– Boomer effect– Assisting the sale and continued operation of existing

SMBs

Bank Run Portals

• Banks may attach themselves to or even run portals

• Because escrow accounts are needed banks are in a great position to support and be involved with crowdfunding

• Bank support will help the success of crowdfunding

Thanks for your time

• I’ll look forward to your questions during Q&A

• Please feel free to contact me– thomas.coke@verifyvalid.com– (312) 320-1597– www.linkedin.com/in/thomascoke/–@cokethom