How to Make a Successful Crowdfunding Campaign – Video

Here is a video link to Dun & Bradstreet’s hangout session from January 22, featuring Jeffrey Bekiares. This session features insights into what makes a successful crowdfunding campaign–including rewards and equity based. Jeff’s perspective focuses equity crowdfunding and crafting the right approach to a winning campaign. Equity crowdfunding is similar to rewards in many ways, in that it takes preparation, sharp A/V elements, crowd identification and a solid outreach plan to succeed. It also differs, however in important ways. Specifically, equity crowdfunding requires legal compliance strategies and a longer lead time. Access the video to learn more.

 

 

If you are interested in more detail related to your situation it is best to speak with an attorney.

Jeffrey Bekiares is a securities lawyer with over 8+ years of experience, and is co-founder at both Founders Legal and SparkMarket. He can be reached at [email protected]

jeff

Source: Smartup Legal

Making a Successful Equity Crowdfunding Campaign in 2015 – Tips

As businesses prepare for fundraising 2015, more and more will wade into the pool of equity crowdfunding. For small and emerging businesses, equity crowdfunding offers the attractive prospect of raising risk capital and growing a loyal customer base. But it is also a difficult process to navigate. Below we discuss three critical elements of this process for businesses to address.

Behind the Page

Construction of a successful equity crowdfunding campaign takes hard work, dedication and time. As the old maxim goes: preparation, preparation, preparation! We recommend that companies prepare for an equity crowdfunding campaign at least 3 months prior to the online launch of the company’s crowdfunding page. This time generally includes:

  • Identifying your crowd (from a user/customer base analysis),
  •  Preparing your channels strategy for reaching that audience (traditional media, social media, events, etc.),
  • Producing your critical elements (pitch video, audio, slides), and
  • Securing your legal footing (remember, equity crowdfunding is much more legally complicated than a traditional rewards/donation based campaign).
  • The foregoing work takes place “behind the page”. The ultimate supporters of the campaign may never actually see all the work that goes behind the page, but they may never see the campaign at all without it.
On the Page

The list of operative equity crowdfunding sites is likely to continue expanding in 2015. (See Equity Crowdfunding Sites). Currently, only accredited investor (SEC Rule 506(c)) and intrastate only platforms are operational. However, this list is itself expanding, and the list of successes is growing. Companies should choose a platform they are comfortable with according to its user profile and the ease of use.

Once a platform is selected, companies should use all of the time they need to build an elegant, functional and informative page. The video should be kept to 3 minutes (maximum) and include a clear collaborative call to action. Ease of use is key. The more complicated the pitch is “on the page”, the more likely the company is to lose potential supporters.

Beyond the Page

Companies may fail to reach their goal in an equity crowdfunding campaign for any number of reasons. Often these reasons relate a failure by the company to think “beyond the page”. Companies tend to follow belief that crowdfunding is an online-only phenomenon. This is a fallacy. The page only creates an organization space and channel; not a substantive connection.

To supplement the material on their crowdfunding page, companies should also plan as much outreach as possible (and as legally permissible) outside of their crowdfunding page to reach their target audience. This outreach should include some combination of the following elements:

  • Digital Marketing;
  • E-mail Marketing;
  • Launch Party;
  • Public and Private Events; and
  • Investor Meet-ups.

By engaging in as many contact points as possible “beyond the page”, companies increase the likelihood that they will reach their target audience and, in turn, the funding goals for their campaign.

It should be noted, however, that many of the foregoing strategies have securities laws implications that are unique to the equity crowdfunding space. It is therefore important to abide by all such laws and consult an experienced professional prior to the launch of any campaign.

If you are interested in more detail related to your situation it is best to speak with an attorney.

Jeffrey Bekiares is a securities lawyer with over 8+ years of experience, and is co-founder at both Founders Legal and SparkMarket. He can be reached at [email protected]

jeff

Source: Smartup Legal

2 Tips on How to Market Your Equity Crowdfunding Campaign

A business thinking through the best way to sell a successful equity crowdfunding campaign should remember these two important points:

  1. Focus on your network. While the relatively new ability to advertise a local public offering to everyday investors (see Invest Georgia Exemption Guide) significantly expands a startup’s traditional investor pool, the reality is that the vast majority of funds raised comes from a business’s pre-existing network.   In fact, recent reports show that only 6% of funds raised through equity crowdfunding come from strangers.  While this percentage is expected to increase as this market matures, for now, a business considering an equity crowdfunding fundraise will get more bang for its buck if it cultivates the relationships it already has – rather than expensive advertising campaigns designed to attract potentially new investors.
  1. It takes longer to attract investors in an investment offering than Kickstarter backers. Based on my own experience helping companies close investment crowdfunding offerings and my observations of the industry and consumer behavior, converting an investor takes significantly longer than converting a backer in a rewards crowdfunding context.  This distinction shouldn’t come as a surprise, since the Kickstarter mentality functions on novelty or consumer appeal, which is driven by the desire for instant gratification, while investing creates a more long-term relationship – often governed by complex terms that take folks a while to comprehend.  Nevertheless, it warrants pointing out to businesses who come to an equity crowdfunding transaction with the false confidence created by a successful Kickstarter raise.  If your strategy is to close a deal in 30 days, or to generate traction by immediately moving the funding needle, be mindful of the fact that an investment transaction is a different animal – even if it has the word “crowdfunding” after it.

 

If you are interested in more detail related to your situation it is best to speak with an attorney.

Megan K. Johnson is a business lawyer with over 7 years of experience. She helped champion securities crowdfunding at the local level and worked with the first company to successfully close an equity crowdfunding involving everyday investors. She is a partner at Founders Legal and can be reached at [email protected]

megan

Source: Smartup Legal

Equity Crowdfunding in 2015

It’s a good time for small and emerging businesses to think about what the landscape for capital raising will look for the rest of 2015. The traditional channels will likely be unchanged: bank loans (if you can get them), angel investors (if you are a tech company based in San Francisco), or venture capital (if you invented a perpetual motion machine). For the remainder of the 99% of small and medium sized enterprises that don’t check one of the boxes above, what other options might emerge in 2015?

Equity (or, more broadly, securities) based crowdfunding will likely emerge in 2015 as a go-to choice for small and emerging businesses to raise capital. Unlike traditional “rewards” or “donation” based crowdfunding, equity crowdfunding is structured for businesses to sell interests (securities) in the enterprise itself to the crowd at large through a mini-public offering. At the end of a successful offering, the business has raised the capital it needs to start-up or expand, and the public now owns an interest in the fortunes (or failures) of that business going forward. Although equity crowdfunding already exists in the United States, it has been underused, and undervalued (for an example of an intrastate crowdfunding exemption, see Georgia’s here: Invest Georgia Exemption). We expect 2015 to be a breakout year as awareness and marketplace acceptance expands more rapidly.

The Trends

Why do we see this happening in 2015? Well, for many businesses (start-up or growth stage), equity crowdfunding may be their only source of access to capital. This includes a massive amount of SMEs in the United States who are either too young, or too industry or geographically challenged to attract capital from other sources, but who nevertheless have a great idea and a loyal customer or affinity base.

Furthermore, the regulatory trend is toward expansion and permissiveness of crowdfunding. In 2012, it was only permitted in two States (Georgia and Kansas). In early 2015, the list of States which have enacted (or have considered) intrastate crowdfunding exemptions will be upwards of 15 (including, now, Texas), and is growing geometrically (see NASAA’s excellent resource center here: Intrastate Crowdfunding Resources. That means that businesses in these States can use equity crowdfunding now, they do not have to wait on federal rules under the JOBS Act from the SEC that are now years late. Eventually, when the SEC does release final rules under the JOBS Act, national equity crowdfunding will be legal and available as well. This trend will continue ahead.

The Benefits

The benefits to SMEs wishing to conduct an equity crowdfunding are numerous, and include the following:

  • Access to capital that might be otherwise unavailable.
  • The Company drives the terms of the capital raise.
  • Engagement of customer/affinity base on a going forward basis.
  • Low or zero cost to rewards fulfillment following completion of the campaign.
The Drawbacks

SMEs wishing to conduct an equity crowdfunding should, of course, consider the limitations of such a campaign as well, including the following:

  • Currently, only legal in certain States, and not on a national/interstate basis (yet).
  • Low maximum raise thresholds (generally $1M).
  • Requires legal compliance structuring (unlike rewards/donation based crowdfunding).
  • Backers will own a security in the company following completion of the campaign.
The Takeaway

Equity crowdfunding—like other methods of capital raising—can be challenging and time consuming. However, for those SME’s with a natural customer or affinity group that they can tap into for support, equity crowdfunding will likely be the cheapest and easiest source of capital that they can access, and will offer the collateral benefits associated with completing a successful crowdfund.

Unlike a simple rewards based crowdfund (like on Kickstarter or Indiegogo), equity crowdfunding involves the offering and sales of securities. Accordingly, any business that is considering conducting an equity crowdfunding campaign should consult a qualified securities attorney to make sure that the necessary compliance boxes are checked in advance. Finally, all the hallmarks of a great crowdfunding campaign should be assembled (video, copy, images, disclosure documents, etc.), and a strategic plan for execution should be formed. After that, it’s up to the crowd!

If you are interested in more detail related to your situation it is best to speak with an attorney.

Jeffrey Bekiares is a securities lawyer with over 8+ years of experience, and is co-founder at both Founders Legal and SparkMarket. He can be reached at [email protected]

jeff

 

Source: Smartup Legal

Georgia Intrastate Crowdfunding and How It Helps Pitching

Now, in Georgia and a growing number of states, so long as a company is planning to keep a securities offering local (with all investors –both accredited and non-accredited – coming from the same state in which the company is formed), a company can freely pitch an investment offering to anyone, as long as the members in the audience certify their state of residency (such as filling out a sign-in sheet prior to or at the beginning of the pitch event). With only residency to vet, an intrastate offering is the least administratively taxing while offering companies the largest investor pool to choose from. A major win for any company in an intrastate friendly state.

One quick word of caution – the federal and local laws addressed above are complex and require strict adherence. In each case, there are basic filing prerequisites, among other things, that must be followed before a company can legally participate in a public pitch event under any of the mechanisms addressed above. Please use SmartUp’s free consultation tool for more information. We can help you assemble a securities offering best suited to fit your company’s needs.

If you are interested in more detail related to your situation it is best to speak with an attorney.

Megan K. Johnson is a business lawyer with over 7 years of experience. She helped champion securities crowdfunding at the local level and worked with the first company to successfully close an equity crowdfunding involving everyday investors. She is a partner at Founders Legal and can be reached at [email protected]

megan

Source: Smartup Legal

Federal Changes That Make It Easier to Pitch Your Startup

In the last few years, two important shifts have happened in the local and national securities space that make it easier for companies to take part in pitch events without fear. The one that has garnered the most attention operates at the federal level. The JOBS Act, passed on April 5, 2012, has now made it legal for young companies without a stable of rich uncles to advertise a securities offering to any high-net worth individual, so long as the company verifies that all the investors in the round are actually accredited.

JOBS Act: What Does This Mean for Pitch Events?

Now, if a company accepts the added administrative burden of verifying investor eligibility (and limiting the offering to only accredited investors), it can pitch an investment offering to anyone, including the general public. However, only high net-worth individuals are permitted to invest – even if interested investors are in the room who do not meet the accredited standards.

But What About Everyone Else?

At the local level, some states are relaxing the general solicitation ban even further to permit companies to advertise an investment offering to the general public – and more importantly – to actually sell securities to the 97% of the public who are not considered high net-worth individuals. Currently, 14 states (and growing) have updated securities regulations to allow the middle class to invest in local companies. Georgia is one of them. Startups and small businesses in these states have an unprecedented opportunity to both advertise their funding needs and actually garner investors, now that the investor pool has expanded to include all investors, regardless of income.

For more information on rules in Georgia read: Georgia Intrastate Crowdfunding

If you are interested in more detail related to your situation it is best to speak with an attorney.

Megan K. Johnson is a business lawyer with over 7 years of experience. She helped champion securities crowdfunding at the local level and worked with the first company to successfully close an equity crowdfunding involving everyday investors. She is a partner at Founders Legal and can be reached at [email protected]

megan

Source: Smartup Legal

Where Can You Pitch Your Idea and in Front of Whom?

For almost 100 years, companies seeking investors have had to be very careful not to “advertise” an offering – or else risk attracting the ire of federal regulators. To be specific, federal law requires all sales of securities to be either registered with the SEC (aka, “publicly traded” like Apple or Facebook) or else qualify for an exemption from registration. The exemption most commonly invoked by young companies is Rule 506 under Regulation D, which allows a company to raise an unlimited amount of money from high net-worth individuals, so long as the company refrains from engaging in “general solicitation.”

What is a high net-worth individual?

A high net-worth individual – also known as an “angel” or “accredited” investor – makes at least $200,000 in annual income or has at least $1 million in net worth (not including primary residence). Basically, these folks range in the top 3-5% of the American public, and (until very recently) they have been the only class of investor eligible to invest in young companies. However, because of the ban on general solicitation, an entrepreneur essentially had to have a pre-existing network of rich uncles in order to make an offering of securities under Rule 506 because of tight restrictions around what could be said to the public about a securities offering.

What is general solicitation?

The type of activity covered by “general solicitation” – and therefore forbidden by companies relying on Rule 506 – includes the following:

• Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and

• Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

In short, because young companies have not been permitted to broadcast news of a securities offering (even to “high net-worth individuals”), the safe course until very recently was to limit a young company’s investor base to friends and family, or to those with whom the entrepreneur has a pre-existing relationship.

How Did Companies Pitch Without Violating the Ban on General Solicitation?

Although entrepreneurs (and angel groups) have not always followed the letter of the law, the safest route for a pitch event involving members of the general public was a “demo day” – or a product focused presentation that omits any reference to a capital raise, funding need, investment opportunity, etc. This means no business plans, financial projections, growth rates, etc.

The only time an investor could truly pitch an investment opportunity was in a room of exclusively accredited investors that were previously known to the entrepreneur or event organizer.

 

If you are interested in more detail related to your situation it is best to speak with an attorney.

Megan K. Johnson is a business lawyer with over 7 years of experience. She helped champion securities crowdfunding at the local level and worked with the first company to successfully close an equity crowdfunding involving everyday investors. She is a partner at Founders Legal and can be reached at [email protected]

megan

Source: Smartup Legal

Equity Crowdfunding and SEC Rules

THE RISE OF “QUASI-PUBLIC OFFERINGS” REFLECTIONS FROM THE NASAA CONFERENCE

As I prepare to deliver remarks at the NASAA Corporation Finance Training Conference in St. Louis this weekend, it has provided a cause for reflection on over three years marking the rise of what I would term as “quasi-public offerings”. Trends in corporation finance laws at both the State and Federal levels have been loosening the regulatory grip on small and emerging business capital formation, and, in the process re-making over 80+ years of venerable securities laws. The rise of “quasi-public offerings” is a big part of this story.

What is a “Quasi-Public Offering”

A long accepted trope in the securities laws industry is that an offering of securities must be either “public” in that it is a transaction registered with the proper regulatory authorities (State and Federal, for a typical interstate offering), or “private” in that it is an unregistered offering that is only open to select persons, who, generally, have a prior existing relationship with the company issuing securities.

But the ever increasing costs of conducting a public-offering, coupled with the meteoric rise in the popularity of crowdfunding as an aspect of a holistic capital formation plan have led to a chorus of voices, at all levels, calling for a more sensible and affordable route to public capital raising. The responses to these calls have been variable by State, and also at the Federal level. What is emerging, however, are regulatory seems in the legal fabric that are allowing businesses (primarily small and medium sized enterprises) to raise capital from the broader public without registering the transaction, provided that certain important regulatory safeguards are abided. Collectively, these emerging exemptions are what I have termed as “quasi-public offerings”. These channels have taken on various forms, including the following discussed below.

Intrastate Crowdfunding

In 2011, with little fanfare, few spectators, and essentially no press concern, the securities administrator in the State of Kansas quietly enacted a new exemption from the registration requirements for public offerings of securities within its borders. The “Invest Kansas Exemption” (IKE), as originally enacted, permitted capital raises in Kansas of up to $1,000,000 by means of general solicitation (to both accredited and non-accredited investors) without registration and with minimal regulatory compliance features. Whether the administrator knew it at the time or not, Kansas had, in effect passed the United States’ very first securities based  “crowdfunding” exemption.

Today, over three years later, fully 14 State jurisdictions have adopted some form of intrastate crowdfunding (by legislative or regulatory means), meaning small public capital raises involving only business and only investors from that specific State. This trend of expansion is continuing apace. Why? Because State regulators are becoming increasingly comfortable that these types of small “quasi-public offerings” can be a safe and effective manner for capital starved businesses to build important community based organizations that can establish and thrive without the necessity for scarce outside capital. I expect this trend to accelerate.1

Accredited Investor Crowdfunding – Rule 506(c)

In late 2013, the Securities and Exchange Commission put in force the first major set of “quasi-public offering” regulations on the Federal level—those relating to the new Rule 506(c) registration exemption (See 17 CFR 230.506(c)). The new Rule 506(c) permits offers to be made on an interstate basis to everyone, provided that the ultimate purchaser base is restricted to “accredited investors” only. This new Rule essentially establishes “accredited investor” crowdfunding, and creates a “quasi-public offering”, albeit with an ultimately restrictive purchaser base.

With a year of data in the books, it is clear that this Rule is working. Use of the Rule is trending upward, and it is emerging as the quasi-public offering of first instance for companies looking for capital beyond what intrastate crowdfunding can provide, and, specifically, in fields (such as technology and e-commerce) in which accredited investors are well versed. The fact that this represents a shift from a focus on who is being offered securities, to who is being sold securities is an extremely important fact, and, in my view, the most significant philosophical addition that Rule 506(c) has made to the body of securities laws.2

Regulation A+

Regulation A+ is an extension of and expansion on an existing securities registration exemption called, you guessed it, “Regulation A”. Reg A permits offerings up to $5M, with scaled (reduced) disclosure requirements in the registration statement. Although Reg A has been around for a long period of time, it is underused and much maligned, primarily because the disclosure requirements are still time consuming and expensive, and, more importantly, it does not preempt State law review. As proposed by the SEC, however, Reg A+ would create a new “quasi-public offering” category for raises up to $50M, which would enjoy scaled disclosure and Federal preemption. It remains to be seen how the SEC will ultimately treat the definition of “qualified purchaser” in these offerings, and whether the Federal preemption issue will be satisfactorily resolved, but, nevertheless, many commentators believe that this Section of the JOBS Act of 2012 holds the most potential for meaningful securities offering reform.3

Follow the Trends; But Remain Cautious

I applaud the forward leaning regulators who are greeting some or all of these techniques with a welcoming—if prudently cautious—point of view. I believe that each of the foregoing has the potential to unlock capital for worthy businesses, and be done in a safe manner which protects the interests of the investing public.

Quasi-public offerings are, as discussed ever too briefly above, a new and evolving area of the securities laws. They hold the promise of broader and more cost effective access to capital for small and emerging enterprises. They are, however, also fraught with uncertainty, and a deceiving level of complexity. Any company consider conducting a capital raise—including using any of the techniques described above—should consult competent securities counsel prior to taking any action.

 

If you are interested in more detail related to your situation it is best to speak with an attorney.

Jeffrey Bekiares is a securities lawyer with over 8+ years of experience, and is co-founder at both Founders Legal and SparkMarket. He can be reached at [email protected]

jeff

1 For a summary of laws/regulations enacted as of July, 2014, see: http://www.crowdcheck.com/sites/default/files/Summary%20of%20Intrastate%20Crowdfunding%20Exemptions_0.pdf

2 For helpful and interesting statistic on the use of new Rule 506(c) after approximately 1 year, see: http://www.mofojumpstarter.com/2014/09/29/new-data-on-rule-506-offerings/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MoFoJumpstarter+%28MoFo+Jumpstarter%29

3 For a good, concise (but now somewhat dated) explanation of Reg A+ as proposed, see

http://blogs.law.harvard.edu/corpgov/2014/01/15/regulation-a-offerings-a-new-era-at-the-sec/

Source: Smartup Legal

4 Important Crowdfunding Facts about Your Patent Rights on Kickstarter

 Here’s 4 Things to know about your Patent Rights on Crowdfunding Platforms such as Kickstarter.

#4 is what most people DON’T know, #3 is the most important to know.

1.  First Come, First Serve:  The US patent system will only reward a Patent on an idea or invention to the first inventor who files a patent application.  If you aren’t the first to file, you risk losing your patent rights!

2.  The Clock is Ticking: If you don’t file a U.S. Patent Application within 12 months of the date you first disclose or offer your invention for sale to the public, you lose your patent rights!  Even if you wait just a single month, you risk losing your patent rights to someone who files a patent application before you do!

3.  File a Provisional Patent: It’s affordable and it’s the most essential piece of information you can take away from this letter.  A provisional application secures your priority date (your spot in line) to the patent rights while you raise funding through your crowdfunding campaign!  This helps ensure that no one will beat you the patent office.  Our platform (SmartUp) has made the provisional patenting process quick and easy for 100’s of crowdfunders across the nation

 4.  Put the Public on Notice:  If you don’t put the public on notice of your patent (or pending) rights, then you can’t collect any monetary reward from competitors who have infringed your patent rights under your radar!  To bring things to the digital era, recent changes to our patent laws allow for a Virtual Patent Marking.  Use the Patent Seal™ to meet the new virtual marking requirements for your crowd funding project.

If you are interested in more detail related to your situation it is best to speak with an attorney.

Yuri Eliezer heads the intellectual property practice group at Founders Legal. As an entrepreneur who saw the importance of early-stage patent protection, Yuri founded SmartUp®. Clients he has served include Microsoft, Cisco, Cox, AT&T, General Electric, the Georgia Institute of Technology, and Coca-Cola.

yuri

Source: Smartup Legal