Spectrum Crowdfunding: Developing & Executing a Viable Strategy (all speaker slides)

Jonathan LibbyManager, Austin IBM Innovation Center

Mark Roderick, Esq. Attorney at Law, Flaster Greenberg

www.flastergreenberg.com Go Flaster.

Presented by:

Mark S. Roderick, Esq.

New Jersey | Cherry Hill Linwood

Pennsylvania | Philadelphia

New York | Manhattan Pleasantville

Delaware | Wilmington

Crowdfunding 2014The Legal and Business Landscape


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


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


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


Overview of Title II Crowdfunding

• Rule 506 of Regulation D

• Allows General Solicitation and Advertising

• Accredited Investors Only

• New Exemption for Portals


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


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


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


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


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”


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


State Crowdfunding Initiatives

• SEC Rule 147 As Federal Basis for State Initiatives

• Growing Number of States

• Different Approaches By Different States


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


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


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?


Questions?

Mark Roderick, Esq.

856.661.2265

[email protected]

www.crowdfundattny.com

@CrowdfundAttny


Crowdfunding Sites

Fundrisefundrise.com

Realty Mogulrealtymogul.com

Patch of Landpatchofland.com

FundersClubfundersclub.com

Poliwoggpoliwogg.com

RealtySharesrealtyshares.com

OurCrowdourcrowd.com

RealCrowdrealcrowd.com

Lending Clublendingclub.com

Hall MartinDirector, Texas Entrepreneur Network

The Rewards ModelBest Execution Practices

Hall T. MartinTexas Entrepreneur Network, Director

Agenda

Elements of a crowdfunding campaign

The Pitch video

Campaign planning

Q&A

txenetworks.com

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

Crowdfunding campaign

Pitch Video

Description

Biography

Funds Target and Timeline

Updates

txenetworks.com

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

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

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 requiredtxenetworks.com

Biography

50 to 100 word description of yourself

Demonstrate your capability and experience

Align your digital footprint

txenetworks.com

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

Updates

Identify updates to share with the investors

Create a sense a momentum

Demonstrate traction

txenetworks.com

Campaign Planning

Pre-Campaign— start 2 months before launch

Campaign—30 day campaign

Post-Campaign—1 month follow up work

txenetworks.com

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

Post-Campaign follow up

Fulfill the promises made

Remember to thank those who supported you

txenetworks.com

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

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

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


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


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


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


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

To learn more about fund raising checkout

txenetworks.com

and sign up for your

Fundability Score

txenetworks.com

David LoweFounder, Uberpong

Chris Brown, Esq.Brown Law Firm

Texas Equity Crowdfunding

Christopher T. BrownAttorney at Law, PLLC

Austin, Texas

www.brownlawatx.com

SPECTRUM

Sep. 30, 2014

http://www.brownlawatx.com

http://blogs.wsj.com/venturecapital/2014/05/21/liveoak-venture-partners-closes-first-fund-to-boost-investments-in-texas/

Source: Wall Street Journal, May 21, 2014

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.

–Naval Ravikant, Co-Founder, AngelList

“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.”

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”

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

Federal Crowdfunding Exemption

Subject to SEC rulemaking

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

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

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

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

Source: SEC (via VentureBeat)

http://venturebeat.com/2014/01/02/it-might-cost-you-39k-to-crowdfund-100k-under-the-secs-new-rules/

http://venturebeat.com/2014/01/02/it-might-cost-you-39k-to-crowdfund-100k-under-the-secs-new-rules/

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?

Steve SoosFounder, ProtoIPO

Bill ClarkFounder, MicroVentures, Inc.

Nathan Roach, Esq.Founder, HiveEquity

Watch for Announcements:

October – Go To Market Strategies

November – Fall SBIR / STTR

Conference

CONTACT US

Spectrum Crowdfunding: Developing & Executing a Viable Strategy (all speaker slides)

Business

Transcript of Spectrum Crowdfunding: Developing & Executing a Viable Strategy (all speaker slides)