crowdfunding the jobs act - cfa institute event... · 2015-07-16 · crowdfunding crowdsourcing...
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Crowdfunding&
the JOBS ActJeff Lambert – Lambert, Edwards & Jeff Lambert – Lambert, Edwards &
AssociatesPhil Blanchard – DWH
Co-Founders and Principals of RelayFund.com
JOBS Act• Legislation first introduced by House in Dec. 2011
• Goal was to create jobs through less restrictive capital formation
• Bipartisan support; opposition primarily from SEC and U.S. exchanges
• President Obama signed JOBS (Jumpstart Our Business Startups) Act on April 5, 2012
• Phased SEC rulemaking and implementation
� July 2012
� Jan. 2013
JOBS Act Overview• Creates a new class of companies called “Emerging Growth Company (EGC)”
• A company with less than $1 billion in revenues before going public. EGC status lasts until it has $1 billion in revenues or 5 years passes from going public
• EGCs are exempt from Sarbanes-Oxley Section 404(b) which mandates engaging an outside auditing firm to opine as to the adequacy of internal financial controls
• EGC’s are exempt from the new “say on pay” rules requiring a non-binding vote on executive compensation
• EGC’s only have to deliver 2 years of audited financial statements for an IPO instead of the 3 years many would be required to deliver now
• EGCs can conduct an IPO with research reports coming out immediately before and after • EGCs can conduct an IPO with research reports coming out immediately before and after during the previously dubbed “quiet periods.”
• Ends the ban on general solicitation or advertising in Regulation D Rule 506 offerings, if all the purchasers in the offering are accredited investors.
• Authorizes “crowdfunding” allowing new access to internet and social media funding sources for some small companies.
• Initiates changes to SEC Regulation A to allow a “mini” public offering with a downsized offering circular approved by the SEC.
• Raises the limit in a Reg A offering to $50 million, but does require audited financial statements
• Reg A offering would also be exempt from state securities or “blue sky law” if it is sold to “qualified purchasers.”
JOBS Act Highlights
• Streamlines process for small companies to raise capital
• Creates “IPO on ramp”
Relaxed rules for small IPOs
• Solve biggest startup/growth challenge• Bring private equity to the masses
Equity crowdfundingcrowdfunding
• Better defines “Safe Harbor” for marketing to high net worth individuals
• Allows “general marketing” more capital access
Solicitation for RegD Offerings
• Allows broader shareholder base withoutcost/complexity of being public
Raises Shareholder # to Stay Private
Evolution of
Crowdfunding
Crowdsourcing Funding Crowdfunding
Crowdfunding 1.0 (Circa 2009) Crowdfunding 2.0 (Circa 2012)Crowdfunding 1.0 (Circa 2009) • Money (contributions) raised online
to fund charities, projects or for pre-selling products or services
Crowdfunding 2.0 (Circa 2012)• Capital (debt and equity) raised
through online platforms or portals that connects entrepreneurs and small businesses with investors
• Private equity for the masses
Crowdfunding: Rules for
Companies • May raise up to $1 million annually in any 12-month
period
• Must conduct the transaction through an intermediary or registered “funding portal”
• May not advertise individuals deals; can only direct • May not advertise individuals deals; can only direct prospects to the funding portal
• Individual investor limits
Crowdfunding Investor
Criteria Complex Income Caps
Income or Net Worth Max Capital
Commitment
$40,000 or less $2,000
$40,000 to $100,000 5%
= or › $100,000 10% up to $100,000
max
*Income measured on trailing 12 months
Funding Portals &
RelayFund• Register with the SEC
• Register with State regulatory organizations
• Educate and quiz prospective investors
• Perform background checks on each officer, director and ›20% shareholder
• Ensure no investor exceeds annual investment limit
• Protect privacy of investor information • Protect privacy of investor information
• Must not release proceeds until target met, subject to investor right to cancel
• Prohibit officers, directors and partners from having an interest in listed issuers
Crowdfunding: The
Potential Proven: Kickstarter Facilitated $100M in Crowdfunding 1.0 (giving)
$500M raised internationally in equity crowdfunding
Timely: Convergence of social networking and constrained capital
Wall Street and SEC/Regulatory backlash shifts power to the masses
Momentum: Broad support – bipartisan, SMB, entrepreneurs, everyday Americans
Job creator
Tech + Capital Markets
Many beneficiaries – lawyers, accountants, software, insurance
Everybody can play.
Crowdfunding: Challenges
& Solutions
Challenges• Death by a thousand cuts regulation
• Flood of new sites and inevitable shakeout
• Failed offers/investments
• Fraud• Fraud
Solutions
• Trade Group lobbying to match legislative intent with rulemaking
• Robust due diligence and presentation tools
• True social network to transform users into resources
RelayFund.comAmerica’s Crowdfunding Capital • The first equity-based crowdfunding portal started in Michigan
and one of the first in the nation
• Linking small investors with SMBs and startups under the provisions of the new federal JOBS (Jumpstart Our Business Startups) Act.
• Founded by financial advisory and investment banking firm Hartwick Capital(now DWH) and investor relations/PR firm Lambert, Edwards & AssociatesLambert, Edwards & Associates
• Capital raise from HNW individuals and family offices/institutions
• Go live in 1Q 2013 in line with crowdfunding rule making completion
• Goal:
• connect everyday Americans with private equity
• be a pioneer in the democratization of the capital markets
• top 5 crowdfunding sites in U.S. – “America’s CrowdfundingCapital”
Crowdfunding&
the JOBS ActJeff Lambert – Lambert, Edwards & Jeff Lambert – Lambert, Edwards &
AssociatesPhil Blanchard – DWH
Co-Founders and Principals of RelayFund.com
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