crowdfunding: use the power and reach of the internet to fund your startup
DESCRIPTION
Powerpoint Presentation given at the Santa Clarita Startup Meetup Group on Nov. 18, 2013. Covers three crowdfunding methods, their pros and cons, and a look forward.TRANSCRIPT
CrowdfundingUsing the power and reach of the Internet to raise money for your startup
Presentation Overview
• Introduction
• Securities and Crowdfunding
• Three ways to crowdfund your business
• Wrap-up
• Questions
Traditional Fundraising Models
• “Bootstrapping”
• Public Offerings
• Private Offerings
Securities Law
What is a security?
Securities Law
Raising money under the U.S. Securities laws:
Offering must be either:
• Registered; or
• Meet an exemption
The JOBS Act
• Passed April 5, 2012
• Aimed at helping to make fundraising easier for startups
The JOBS Act
• Title IIo Removed ban on general
solicitation
• Title IIIo Enabled crowdfunding
under the securities laws
• Emerging Growth Companies
• Higher Reg A Fundraising Limit
Crowdfunding
What is “crowdfunding”?
Crowdfunding
Three Methods of Crowdfunding
• Kickstartero $746 million (successful)o 5.2 million pledgeso 51,000 projects fundedo 44% success rate
• IndieGoGoo about of Kickstarter⅙o 34% success rate
Contribution Crowdfunding
Contribution Crowdfunding
Pros and Cons
What are the costs?
Contribution Crowdfunding
Who will this benefit?
Contribution Crowdfunding
506(c) Private Placements
What is a “Private Placement”?
506(c) Private Placements
Pros and Cons
506(c) Private Placements
• Requirementso Accredited Investorso “Reasonable Steps” to
verify
506(c) Private Placements
• Accredited Investorso Individuals who have an
annual income of over $200,000 (or $300,000 with spouse)
o Individuals who have a net worth, excluding primary residence, of over $1,000,000
o Institutional Investors
506(c) Private Placements
• “Reasonable Steps”o Review of tax formso Review of assets and
liabilitieso Agent takes reasonable
steps to verify
New Form D Proposals
• One year disqualification
• Must file Form D in advance
• Must file a “closing amendment” after raise
• Must file all solicitation materials with SEC
506(c) Private Placements
Who will this benefit?
Equity Crowdfunding
Pros and Cons
Equity Crowdfunding
• Proposed Requirementso Maximum of $1 milliono Limits on investment by
each individualo Mandatory disclosures to
the SECo Use of specified
crowdfunding platforms
Equity Crowdfunding
• Form C Disclosureso Directors and Officerso 20% equity holderso Planned use of proceedso Offering targeto Business plano Financial conditiono Price of securities
Equity Crowdfunding
• Potential Issueso Advertising restrictionso Restricted shareso Liquidity exit strategyo Lack of shareholder
coordinationo Lack of investor
sophisticationo Valuation volatility
The Timeline Going Forward
• Sept. 23, 2013o General solicitation ban lifted
• Oct. 23, 2013o Crowdfunding rules proposed
• Nov. 4, 2013o Comments due for Form D changes
• Feb. 3, 2014o Comments due for Crowdfunding proposal
Takeaways
• Pros and cons of the different crowdfunding methods - use what works for you
• Use professionals - don’t go it alone
• Get involved - take advantage of the SEC commenting process
Questions?