All posts tagged general solicitation

Crowdfunding : Key Decisions and Strategies

Crowdfunding  Key Decisions and Strategies.jpgCrowdfunding has become a reality in Washington State. This is a great opportunity for startups and entrepreneurs to finally get the funding they need to move forward with the support of many small contributors. But there are still strict SEC and State rules that must be abided by. That’s where a solid strategy comes in.

Join us to hear first hand from the experts regarding the key decisions you need to make and strategies you need to adopt to Crowdfund your next venture. The evening will start with 1 hour of networking for entrepreneurs, investors, advisors and the startup community, followed by 90 minutes of discussion and Q and A.

Panelists

  • Representative Cyrus Habib, 48th Legislative District
  • Burt Hamner, Founder and CEO Hydrobee
  • Casey Dilloway, Co-Founder Community Sourced Capital
  • Michael Luni Libes, Serial Entrepreneur and Founder Fledge Accelerator
  • Stephen McDonald, Attorney, Ryan, Swanson and Cleveland PLLC
  • Joe Wallin, Partner, Davis Wright Tremaine

Register Here

Date:      Wednesday, April 16th, 2014

Time:      5:30pm – 8pm

Where:      WeWork South Lake Union, 500 Yale Avenue North, Seattle, 98109

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Angels Descend on D.C.

angel investmentThe Angel Capital Association is hosting its annual summit two weeks from now in Washington, D.C. If you are interested at all in angel investing, I think this will be a great conference to attend.

(Disclosure: I am on the ACA’s Public Policy Advisory Council)

The folks at the ACA have been critical in helping positively influence public policy on angel investing in the last several years.

Just to give you one example that you may or may not recall, but the first iteration of Dodd-Frank would have re-set the “accredited investor” financial thresholds for inflation going all the way back to the 80’s. That proposal, if it had been enacted, would have wiped out literally 3/4ths of all angel investors. The second iteration of Dodd-Frank was worse—it would have required all Rule 506 offerings to first be submitted to the SEC for 120 days for review, and if the SEC didn’t review then states would have been given the chance to review before offerings could go forward.

But for the involvement of the ACA, and folks like Dan Rosen and Senator Maria Cantwell, these things could have happened. Being involved is important. The upcoming ACA summit will be a great way to get started, if you are looking for a way.

Now is a critical time for angel investing in America. The SEC is currently evaluating a number of different issues that will have a dramatic impact on angel investing, such as:

  • The definition of “accredited investor.” It is possible that the SEC will propose to modify this definition to “define out of the game” a huge swath of the population that currently qualifies as accredited. See the ACA’s letter to the SEC.
  • The proposed Regulation D and Form D rules, that will require advance filings of Forms D and onerous consequences to companies if they file to advance file before they “generally solicit” their offerings.

(If you want to see the former Chair of the ACA, Catherine Mott in action, read the transcript of this SEC open meeting in which she questioned the SEC on whether demo days constituted “general solicitation.”) 

Policy makers need the input of people who are active in the early stage company ecosystem.

“We are hosting this meeting in Washington, D.C. for a reason,” ACA’s Chair David Verill said. “The Securities and Exchange Commission is not only assessing the underlying definition of who can be an accredited investor, but is also reviewing significant rules around the JOBS Act involving general solicitation and online crowdfunding platforms. Now more than ever is the time to join with angel colleagues to learn about, to shape, and to nurture this powerful economic engine.”

2014 ACA Summit

Angel Impact: Entrepreneurial and Economic Success

March 26th – 28th

Review the Agenda

If you plan to attend, please let me know and I can try to connect you to friends who will be there.

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Crowdfunding v. SCOR

Crowdfunding v SCORThe word is now out – Title III equity crowdfunding under the JOBS Act is not going to work very well.  The problem?  It is going to be way too expensive.  Estimates to do an equity raise pursuant to Title III range between $140,000-$250,000 for a million dollar raise.

See these two posts on this topic:

Crowdsourcing a Title III Crowdfunding Cost Model

“Death by Expense” of Crowdfunding?

This is simply too steep for it to make any sense except for companies that have a business purpose other than just raising money to do such an offering (e.g., encouraging patronage by turning patrons into stockholders as well).

But here is something interesting to consider.  Years ago state and federal securities regulators constructed something called a Small Company Offering Registration, or a SCOR. If you read the description of a SCOR offering on the Washington State Department of Financial Institution’s website (see here: http://www.dfi.wa.gov/sd/scor.htm), you will notice something somewhat remarkable: it looks even better than a Title III equity crowdfunding.  Let me show you how they compare.

 Title III CrowdfundingSCOR (“Small Company Offering Registration”)
Fund raise limit$1M during any 12 months$1M during any 12 months
Required to use an intermediary?Yes (and look for a fee of about 8-10% of the gross proceeds to be paid to the intermediary).No.
Advertisement allowed?Yes, but subject to limitations.Yes. But there are no specific advertising limitations as there are in the draft crowdfunding regulations.
Investor limitationsYes; individual investor caps.No.  “Investors are not limited as to number or type, nor is there any restriction on the amount that may be sold to any one person.” See the following link: http://www.dfi.wa.gov/sd/scor.htm
Requirement of audited financials?Yes, if raising more than $500,000.No, if you only raise money from Washington residents.
Geographic availabilityNot limited to specific states in which the issuer has gone through the registration process.The geographic availability of a SCOR offering is limited to the states in which a company has gone through the registration process.

Will the SCOR come back into popularity now that Title III equity crowdfunding has not turned out as crowdfunding advocates had hoped? It is possible. It will be fun to watch and see. But let’s be honest – there are problems with SCOR offerings, which is the reason they are not very popular. What problems am I referring to? In general just the complexity of an offering that requires you to either register securities with state securities regulators (like a SCOR offering), or go through a difficult and burdensome process (like that described in Title III of the JOBS Act).

The truth is—Congress needs to revisit the crowdfunding provisions of the JOBS Act and simplify those provisions substantially. I am afraid Title III crowdfunding is going to go the way of SCOR—it will be scarcely used, and ultimately forgotten.

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