VanFUNDING 2016: Cross border and international crowdfinance (Raising capital in the U.S.)
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Transcript of VanFUNDING 2016: Cross border and international crowdfinance (Raising capital in the U.S.)
NCFACanada.org #VanFunding
Cross-Border and International Crowdfinance: Raising Capital in the United States
October 18, 2016
By: Alixe Cormick
Disclaimer
• Information purposes only: The materials and information contained in this presentation are intended to provide information (not advice) about equity crowdfunding and related matters. You should not act on this information presented without first consulting with an attorney.
• No Attorney-Client Relationship Created: This information on this presentation is not intended to create, and receipt of it does not constitute, an attorney-client relationship having been created by us with you or anyone else. Do not send us confidential information until you speak with us and receive our authorization to send that information to us. The act of talking to us informally or sending an email to us will not create an attorney-client relationship. If you are not currently a client of Venture Law Corporation, your email will not be considered privileged and may be disclosed to other persons. We promise, however, to keep your name confidential unless you tell us otherwise when talking to any regulators or third parties about securities law matters.
• No Warranties: The information provided in this presentation is provided “as is”. We make no warranties, representations, or claims of any kind concerning the information presented is complete. We are not responsible for any errors or omissions in the content of this presentation or for damages arising from the use of the information provided under any circumstances.
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Outline of Discussion
• U.S. Equivalent Exemptions Issuers Can Use When
Crowdfunding in the U.S.
• OM Exemption & Reg A+ Comparison
U.S. Equivalent Exemptions Issuers Can Use When Crowdfunding in the U.S.
Rule 506(c) Accredited Investor Exemption • Advertising allowed as of September 23, 2013 under U.S. accredited investor
exemption;
• All purchasers in the offering must be accredited investors,
• The issuer takes reasonable steps to verify their accredited investor status,
and
• Certain other conditions in Regulation D are satisfied.
• An “accredited investor” includes a natural person who:
• earned income that exceeded $200,000 (or $300,000 together with a
spouse) in each of the prior two years, and reasonably expects the same
for the current year, or
• has a net worth over $1 million, either alone or together with a spouse
(excluding the value of the person’s primary residence).
• Not available to “bad actors”.
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U.S. Equivalent Exemptions Issuers Can Use When Crowdfunding in the U.S.
Regulation A+ Exemption • New option for Canadian issuers who are not reporting issuers with the
U.S. Securities and Exchange Commission;
• Issuers can raise up to US$ 50M in 12 month period with a document
that looks like an offering memorandum;
• Whose eligible to use Regulation A: • Must be organized and have principal place of business, in U.S. or Canada;
• Must not be a reporting issuer under the 1934 Act;
• Must not be an investment company or blank check company;
• Must not be issuing fractional undivided interests in oil and gas rights, or a similar
interest in other mineral rights;
• Must not have its securities suspended or revoked under the 1934 Act;
• Must not be disqualified under the “bad actor” disqualification rules; and
• Must have filed all Reg. A+ exempt distribution reports during the past two years.
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U.S. Equivalent Exemptions Issuers Can Use When Crowdfunding in the U.S.
Regulation A+ Exemption (continued)
• Issuer can chose Tier 1 or Tier 2 regardless of amount to be raised;
• Tier 2 pre-empts state blue sky review (similar to Rule 506);
• Key disclosure document is “offering statement” on Form 1-A which
SEC must clear before offering;
• Form 1-A is a cross between a Canadian offering memorandum and S-
1 registration statement/prospectus;
• Tier 1 – reviewed unaudited financial statements (US GAAP or IFRS);
• Tier 2 - audited financial statements for last two full fiscal years, audited
under PCAOB standards (US GAAP or IFRS); and
• No integration with Regulation S offerings outside U.S.
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U.S. Equivalent Exemptions Issuers Can Use When Crowdfunding in the U.S.
Regulation A+ Advantages • Unlimited sales to non-accredited investors resident in U.S.;
• Ability to “test the water” before spending money preparing and filing
U.S. Offering documents;
• Blue sky exemption from state securities law;
• Can issue equity, debt or convertible debt;
• Continuous offering possible;
• Can file with SEC on confidential basis;
• IFRS can be used to present financial statements;
• If you are using the OM exemption in Canada you have 80% of what
you need Regulation A+ offering;
• Canadian reporting issuers and private issuers can use Regulation A+.
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U.S. Equivalent Exemptions Issuers Can Use When Crowdfunding in the U.S.
Regulation A+ Testing the Water • Pre-Sale marketing campaign to determine if any interest in securities;
• Can conduct a Rule 506(c) offering concurrently to accredited investors;
• No requirement to use a portal or marketing company at this stage;
• Marketing material and form of marketing open (should review with
legal counsel);
• Disclaimers required;
• No sales or firm commitments to purchase allowed;
• Tier II only campaigns advised to “test the water”.
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OM EXEMPTION & REGULATION A COMPARISON
Offering Memorandum
Exemption
Tier 1 - Raise up to US$ 20M Tier 2 - Raise up to US$ 50M
12 Month Maximum
Offering Amount:
Unlimited $20 Million $50 Million
Eligible Issuers: AB, SK, ON, QU, NB, NS: Not
available to investment funds
(AB, NS, SK exceptions: non-
redeemable funds & reporting
issuer mutual funds).
U.S. & CDN non-SEC reporting
issuers. Not available to
investment companies; blank
check companies; issuers of
fractional undivided interests in oil,
gas, or other mineral rights; private
funds; or bad actors.
U.S. & Cdn non-SEC reporting
issuers. Not available to
investment companies; blank
check companies; issuers of
fractional undivided interests in oil,
gas, or other mineral rights; private
funds; or bad actors.
Eligible Securities: AB, SK, ON, QU, NB, NS:
Cannot sell securitized products,
specified derivatives and
structured finance products.
Cannot asset-backed securities. Cannot asset-backed securities.
State Blue Sky
Laws:
N/A Must pass a state coordinated
review.
Pre-empts state blue sky laws.
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OM EXEMPTION & REGULATION A COMPARISON #2
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Offering Memorandum
Exemption
Tier 1 - Raise up to US$ 20M Tier 2 - Raise up to US$ 50M
Document
Requirements:
Audited financial statements and
Offering Memorandum in required
form. No pre-qualification by
regulator.
Review financial statements and
Offering Statement/Circular in
required form. Must be pre-qualified
by SEC.
Audited financial statements and
Offering Statement/Circular in
required form. Must be pre-qualified
by SEC.
Post-Filing
Requirements:
File exempt distribution report and
OM (10 days post).
AB, SK, QU, NB, NS: indefinite
continuous disclosure: (1) annual
audited financial statements; (2)
annual use of proceeds; (3)current
report(NB, NS, ON); and (4)
deemed market participant in ON
and NB.
Form 1-Z Exit Report and Consent
to Process (30 days post). State
exempt distribution reports and
filing fees.
Form 1-Z Exit Report and Consent
to Process (30 days post). State
exempt distribution reports and
filing fees.
Required filings for one year if less
than 300 registered Shrs otherwise
indefinite: (1) Form 1-K Annual
Report; (2) Form 1-SA Semi-
Annual Report; (3) Form 1-U
Current Report
OM EXEMPTION & REGULATION A COMPARISON #3
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Offering Memorandum
Exemption
Tier 1 - Raise up to US$ 20M Tier 2 - Raise up to US$ 50M
Eligible Investors: BC, NFL: Anyone
AB, SK, ON, QU, NB, NS, MB,
PEI, NU, YK, NWT: Anyone but
cap of $10,000 on investment
unless FFBA, accredited investor
or eligible investor.
AB, SK, ON, QU, NB, NS:
eligible investor cap of $30,000
or $100,000 12 month total if
suitability advice obtained.
Anyone Anyone
Non-accredited investor limit at
10% of income/net worth per year.
Solicitation and
Advertising
May advertise over internet, TV,
print or in person. General
solicitation including on social
media permitted.
May advertise over internet, TV,
print or in person. General
solicitation including on social
media permitted.
May advertise over internet, TV,
print or in person. General
solicitation including on social
media permitted.
Thank-you and Good-Luck
Email: [email protected]
Website: www.ncfacanada.org Twitter: @NCFACanada
Venture Law Corporation 618-688 West Hastings Street
Vancouver, BC V6B 1P1 Phone: 604-659-9188
Fax: 604-659-9178 Email: [email protected]
Website: www.venturelawcorp.com Blog: www.AlixeCormick.com
Twitter: @AlixeCormick Google+: AlixeCormick
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Resources
Canadian Amended Offering Memorandum Exemption
• Multilateral CSA Notice of Amendments to National Instrument 45-106 - Prospectus Exemptions Relating To The Offering Memorandum Exemption
• Changes to Companion Policy 45-106CP Prospectus Exemptions (Jan 7, 2016)
• Amendments to NI 45-106 Prospectus Exemptions
• National Instrument 45-106 Prospectus Exemptions
• Companion Policy to National Policy Instrument 45-106 Prospectus Exemptions
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Resources
U.S. Securities Rules
• Regulation D – Rule 506(c) • Eliminating the Prohibition Against General Solicitation and
General Advertising in Rule 506 and Rule 144A Offerings;
• Small Entity Compliance Guide;
• Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings
• Regulation A+ • Amended Conformed Version of Regulation A as Amended
• SEC Title III Crowdfunding Final Rules • Crowdfunding Rule
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