Spectrum Crowdfunding: Developing & Executing a Viable Strategy (all speaker slides)
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The document provides an overview of crowdfunding, including types such as donation-based, rewards-based, and equity crowdfunding. It discusses legal frameworks established by the JOBS Act, detailing regulations for different types of crowdfunding, roles of portals, and the current market landscape. Additionally, it outlines best practices for running a crowdfunding campaign and highlights opportunities and challenges for entrepreneurs in this space.
Spectrum Crowdfunding: Developing & Executing a Viable Strategy (all speaker slides)
- 9. Jonathan Libby Manager, Austin IBM Innovation Center
- 10. Mark Roderick, Esq. Attorney at Law, Flaster Greenberg
- 11. Crowdfunding 2014 The Legal and Business Landscape Presented by: Mark S. Roderick, Esq. New Jersey | Cherry Hill Linwood Pennsylvania | Philadelphia New York | Manhattan Pleasantville Delaware | Wilmington www.flastergreenberg.com Go Flaster.
- 12. 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.
- 13. 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 www.flastergreenberg.com Go Flaster.
- 14. 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 www.flastergreenberg.com Go Flaster.
- 15. Overview of Title II Crowdfunding • Rule 506 of Regulation D • Allows General Solicitation and Advertising • Accredited Investors Only • New Exemption for Portals www.flastergreenberg.com Go Flaster.
- 16. 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 www.flastergreenberg.com Go Flaster.
- 17. 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 www.flastergreenberg.com Go Flaster.
- 18. 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 www.flastergreenberg.com Go Flaster.
- 19. 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.
- 20. 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.
- 21. 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 www.flastergreenberg.com Go Flaster.
- 22. State Crowdfunding Initiatives • SEC Rule 147 As Federal Basis for State Initiatives • Growing Number of States • Different Approaches By Different States www.flastergreenberg.com Go Flaster.
- 23. 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 www.flastergreenberg.com Go Flaster.
- 24. 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 www.flastergreenberg.com Go Flaster.
- 25. 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.
- 26. Questions? Mark Roderick, Esq. 856.661.2265 mark.roderick@flastergreenberg.com www.crowdfundattny.com @CrowdfundAttny www.flastergreenberg.com Go Flaster.
- 27. Crowdfunding Sites Fundrise fundrise.com Realty Mogul realtymogul.com Patch of Land patchofland.com FundersClub fundersclub.com Poliwogg poliwogg.com RealtyShares realtyshares.com OurCrowd ourcrowd.com RealCrowd realcrowd.com Lending Club lendingclub.com www.flastergreenberg.com Go Flaster.
- 28. Hall Martin Director, Texas Entrepreneur Network
- 29. The Rewards Model Best Execution Practices Hall T. Martin Texas Entrepreneur Network, Director
- 30. Agenda Elements of a crowdfunding campaign The Pitch video Campaign planning Q&A txenetworks.com
- 31. 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
- 32. Crowdfunding campaign Pitch Video Description Biography Funds Target and Timeline Updates txenetworks.com
- 33. 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 txenetworks.com
- 34. 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 txenetworks.com
- 35. 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 required txenetworks.com
- 36. Biography 50 to 100 word description of yourself Demonstrate your capability and experience Align your digital footprint txenetworks.com
- 37. 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
- 38. Updates Identify updates to share with the investors Create a sense a momentum Demonstrate traction txenetworks.com
- 39. Campaign Planning Pre-Campaign— start 2 months before launch Campaign—30 day campaign Post-Campaign—1 month follow up work txenetworks.com
- 40. 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 txenetworks.com
- 41. Post-Campaign follow up Fulfill the promises made Remember to thank those who supported you txenetworks.com
- 42. 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 txenetworks.com
- 43. 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
- 44. 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
- 45. 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 txenetworks.com
- 46. 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 txenetworks.com
- 47. 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 txenetworks.com
- 48. 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
- 49. To learn more about fund raising checkout txenetworks.com and sign up for your Fundability Score txenetworks.com
- 50. David Lowe Founder, Uberpong
- 52. Chris Brown, Esq. Brown Law Firm
- 53. Texas Equity Crowdfunding Christopher T. Brown Attorney at Law, PLLC Austin, Texas www.brownlawatx.com SPECTRUM Sep. 30, 2014
- 54. Source: Wall Street Journal, May 21, 2014 http://blogs.wsj.com/venturecapital/2014/05/21/liveoak-venture-partners-closes-first-fund-to-boost-investments-in-texas/
- 56. 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.
- 57. “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.” –Naval Ravikant, Co-Founder, AngelList
- 58. 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”
- 59. 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
- 60. Federal Crowdfunding Exemption Subject to SEC rulemaking
- 61. 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
- 62. 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
- 63. 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
- 64. 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
- 65. Source: SEC (via VentureBeat) http://venturebeat.com/2014/01/02/it-might-cost-you-39k-to-crowdfund-100k-under-the-secs-new-rules/
- 66. 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?
- 67. Steve Soos Founder, ProtoIPO
- 68. Bill Clark Founder, MicroVentures, Inc.
- 76. Nathan Roach, Esq. Founder, HiveEquity
- 80. Watch for Announcements: October – Go To Market Strategies November – Fall SBIR / STTR Conference
- 81. CONTACT US