The New Era of Investor Relations#JOBSAct

Doug Ellenoff is a partner at Ellenoff Grossman & Schole LLP. Mr. Ellenoff is a corporate and securities attorney with a specialty in business transactions and corporate financing. The firm is involved in various capital market initiatives, such as, crowdfunding (CrowdESQ.com), SPACs, PIPEs and Registered Direct offerings. He represents many venture capital investor groups and corporations involved in the capital formation process and provides counsel with regard to their respective ongoing regulatory compliance.

With respect to crowdfunding, he is actively engaged with clients (funding portals, broker-dealers, technology solution providers, software developers, investors and entrepreneurs), and has visited both the SEC and FINRA numerous times to discuss the proposed rules, and presented at a National Press Club event in 2013.

@douglasellenoffwww.egsllp.com

Douglas Ellenoff | Ellenoff, Grossman & Schole

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Joy Schoffler is the founder and principal of financial technology services public relations firm Leverage PR and is an active member within the crowdfunding industry. Joy sits on the board of the CF50, a global think tank for the emerging crowdfunding industry and the Crowdfunding Intermediary Regulatory Advocates (CFIRA) a national advocacy group for implementing JOBS Act policy. She is also a contributing author for the upcoming DealFlow Media, Wiley-published book, “Crowdfunding: The Definitive Guide to Raising Capital on the Internet” and regularly writes for a number of outlets. As principal of Leverage PR, Joy and her team regularly work with leaders within the crowdfunding, investment and fintech sectors.

Having a passion for startups, she recently launched CrowdBuilder.co, a PR and influencer engagement platform that helps crowdfunders and startups connect with media and influencers.

@joyschoffler@leverage_prwww.leverage-pr.com

Joy Schoffler | Leverage PR

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Judd Hollas is a pioneer in the field of crowdfunding with multiple patents granted for web-based capital marketplace systems. As founder and CEO of EquityNet, he leads the company's efforts to create and introduce innovative new products and services and is responsible for its strategic direction and fiscal and professional integrity. Prior to founding EquityNet in 2005, Judd served as division manager for Beta-Rubicon, Inc., a consulting firm specializing in technology assessment and business due diligence services. Judd has more than 20 years of experience as an independent technology analyst and investment manager in the private and public domains.

@equitynetwww.equitynet.com

Judd Hollas | EquityNet

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Judy Robinett served as the CEO and president of a publicly-traded biotech company for eight years. She now works with early-stage companies developing their business and funding strategies. Her experience ranges from management positions in large organizations, to serving Board of Directors, to authoring state legislation, and participating on the team defining performance criteria for the Malcolm Baldrige Award for Medical Excellence, for which she received an award from President Bill Clinton.

With her powerful network of senior executives, funding sources, and content experts, she helps companies identify the things that are often causing them to stall and brings together the various resources needed to put them on the right track for success. Whether their needs are a workable funding strategy, a focused company strategy, or technology resources, Ms. Robinett either fills the needs herself or calls on her team of internationally renowned experts to get the job done.

@judyrobinettwww.judyrobinett.com

Judy Robinett | Power Connecting and Startup Funding Expert

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Disclaimer of Liability

• The information which is being shared with you today seeks and may answer some questions of yours related to Title II and the developments which are being observed within the online funding platform industry, but is not intended as a comprehensive analysis of the topic or situations directly impacting you and any of your existing operations. In addition, this information should not be relied upon as legal advice– these are only general observations of ours. You are encouraged to speak with your own securities counsel. Your counsel may analyze the same facts and rules differently and come to dramatically different conclusions and recommendations for you

• Visit SEC.gov for more information

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What is Crowdfunding?

Types of Crowdfunding

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Donation or rewards-based crowdfunding is where contributions are exchanged for current or future of goods or services. Individuals or companies who launch campaigns may compensate contributors with the product they are developing or something like a t-shirt, a copy of whatever they’re building or even just a thank you.

Kickstarter and Indiegogo are the most popular donations-based crowdfunding platforms.

Source: Crowdfund InsiderThe Ultimate Crowdfunding Guide

Donation/Reward Based Crowdfunding

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Equity crowdfunding is where the exchange is company equity, or ownership, and not goods or services. The idea is very similar to how common stock is bought and sold on the stock market.

Equity crowdfunding cannot take place in the U.S. at scale right now. That isn’t to say it can’t take place at all. It can and does in the form of “Title II” crowdfunding. There are complex rules in current law that allow a company to sell stock to accredited investors under “Regulation D.”

Source: Crowdfund InsiderThe Ultimate Crowdfunding Guide

Equity Crowdfunding

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When a crowd lends money to an individual or company with the understanding that the loan will be repaid with interest. Can also be called “peer-to-peer lending.”

Companies also use debt crowdfunding to acquire capital from the crowd. As the individual or company pays back the debt accrued, subsequent rounds generally come at lower interest rates. Over time those seeking funding can acquire capital at rates much lower than traditional credit cards or other types of high-interest debt.

Source: Crowdfund InsiderThe Ultimate Crowdfunding Guide

Debt Crowdfunding

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• Hedges risk

• Can be used as a great marketing tool

• Provides market validation

• Showcase success

Non-Monetary Benefits of Crowdfunding

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JOBS Act Overview

Title II and III Crowdfunding—What’s the Difference?

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• An issuer may still choose to conduct a private offering in reliance on Rule 506(b) without using general solicitation

• The issuer must take reasonable steps to verify that the purchasers of the securities are accredited investors if it elects to generally solicit

• What is general solicitation and how it’s a departure from 506(b)

• All purchasers of securities must be accredited investors, either because they come within one of the enumerated categories of persons that qualify as accredited investors or the issuer reasonably believes that they qualify as accredited investors, at the time of the sale of the securities

• The anti-fraud rules continue to apply•

Title II--Generally Solicited Private Placements

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Conceptual Framework of Novel Crowdfunding Law—Title III

• Any investor, including non-accredited, may invest online in any available crowdfunding investment opportunity, so long as it is proportionate to how much they make or are worth

• The concept of limiting investor’s risk exposure, based upon income and net worth, isn’t typically found in private placement or public offering statutes– by convention broker-dealers impose such standards to reduce investor risk and their own liability exposure based upon “suitability standards” only. Title III is unique in this regard

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Title III (NOT YET LEGAL!)

• Imposes caps for non-accredited investors:• $2,000 for those individuals making less than $40,000 per annum• 5% of income from $40,000 up to $100,000• 10% of income above $100,000 • $100,000 per twelve month rolling period cap on individuals

• Issuers limited to $1,000,000 per twelve month rolling period

• Non-accredited investors broader access investing in exempt offerings of private placements so long as appropriate and equally novel investor protection mechanisms are implemented

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• On September 23, 2013, the SEC voted unanimously to pass proposed rules for Title II crowdfunding--lifting the 80-year-old ban on general solicitation.

• October 23rd, 2013 the SEC released proposed rules for Title III crowdfunding—aka unaccredited investor crowdfunding

• Comment period for Title III proposed rules ended February 3rd

Regulatory Update

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U.S. Equity Crowdfunding Activity

Characteristics of Businesses Using Equity Crowdfunding

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Geographic Location

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Capital Seeking

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Previous Year Revenue

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Projected Time Profitability

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Industry Sectors

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Navigating The Changing Landscape

The Impact of General Solicitation

#JOBSActSource: SEC.gov

General Solicitation

“General solicitation” is the act of publicly advertising or making public statements regarding the sale of a securities offering.

Examples include but are not limited to:

• Advertisements published in newspapers, magazines, TV, and other public websites

• Communications during seminars or other events • The use of an unrestricted, and therefore publicly available, website • Social media posts and email blasts

#JOBSActSource: SEC.gov

Title II – Accredited crowdfunding

• Has no restrictions on the type of general solicitations that may be made or the media that may be employed to made such solicitations. This means that a company raising funds via accredited crowdfunding (an “issuer”) is free to use facebook, twitter, linkedin, youtube and any other medium to advertise, describe and generate buzz about the offering.

• However, there are certain considerations that an issuer must be aware of and precautions that it must take.

#JOBSActSource: SEC.gov

No Bad Actors

“Bad actor” disqualification requirements prohibit issuers and others, such as underwriters, placement agents, directors, officers, and shareholders of the issuer, from participating in exempt securities offerings, if they have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws

The rule includes the following categories of disqualifying events

• Criminal convictions; Court injunctions and restraining orders

• Final orders of certain state regulators (such as securities, banking, and insurance) and federal regulators

• Commission disciplinary orders relating to brokers, dealers, municipal securities dealers, investment advisers, and investment companies and their associated persons

• Certain Commission cease-and-desist orders

• Suspension or expulsion from membership in, or suspension or barring from association with a member of, a securities self-regulatory organization (“SRO”)

• Commission stop orders and orders suspending a Regulation A exemption

• U.S. Postal Service false representation orders

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Reasonable Steps

• Underpinning the verification process, the SEC will take a principles-based approach to the investor accreditation process

• The SEC has indicated that reasonable efforts to verify investor status may differ depending on the facts and circumstances

• The nature of the purchaser

• The nature and amount of information about the purchaser

• The nature of the offering

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Misrepresentations—Antifraud Rules Still Apply!

A through review of all information regarding the offering should be done to ensure it is accurate and not misleading.

Be extra careful with sales and marketing efforts before and during a raise!

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The issuer will be liable for any material misstatements it makes in connection with the offering!

Marketing Your Offering –New Rules Apply!

• All advertisements or promotional statements made, for which compensation is received, must include disclosure of such compensation, the type and amount of

• This includes social media likes, retweets, etc. –major implications for 3rd party marketers

• Compensation could take the form of cash, debt or equity interests (including options) in the issuer and other non-cash compensation

#JOBSActSource: SEC.gov

Be Careful with Social Media

• Maintain a clear communication policy regarding the promotion of their crowdfunding offering

• Actively manage social media campaigns• Have legal review all social media posts and strategies before

campaign• Monitor social media daily• Be careful of misstatements and omissions on social

• Report compensation of promoters in advertising/ marketing

#JOBSActSource: SEC.gov

The Funding Ecosystem

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Finding and Securing Investment

The Funding Ecosystem

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters, Center for Venture Research

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Who Gives?

“Most of my discoveries are made through Twitter.”

- Matt Haugly

Backed 84 campaigns.

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Bring Your Own Crowd

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Building Your Crowd

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How to Build a Crowd for Your Crowdfunding Campaign

Network Building

“Go out there and get connected.”

- Guy Kawasaki

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Keys to Success

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• Build your crowd • Segment your database • Prepare your network • Build your digital profile• Make sure your team is ready

• A, B, and C investors

• Remember the 80 / 20 rule

• Spend 80% of your time

with the 20% most likely to invest

Segment your database

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• Accomplishments• Client list• Associations• Media coverage• Following• Speaking engagements • Online profile

• Website or blog• Social media profiles• Quality of search results

Own Your Industry—Build Thought Leadership

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• Have a good idea• Have reputable co-founders• Be legally licensed• Create an executive summary• Have a business plan• Have realistic financial

projections• Create an offering document• Have a reasonable valuation

Crowdfunding is Pitching Investors

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@douglasellenoff@equitynet@judyrobinett@joyschoffler

Questions?

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A Copy of the slides can be found atwww.crowdbuilder.co/blog

Thank You!