crowdfunding with nicole moss

Law & Order: Crowdfunding

April 30, 2013

Nicole Moss(617) 816-8220nmoss@campbellriggs.com

Disclaimer

The information presented herein and the surrounding discussion are provided for educational or informational purposes only. The information presented herein is not necessarily applicable to any particular situation herein or discussed in the course of this presentation. By providing this information and engaging in discussion, no legal advice is provided hereby and no attorney client relationship or privilege is being established. Every business and every issue is unique and legal questions or issues should be directed to your attorney.

Historical Overview

• First Public Stock Issued 1602 Dutch East India Company (VOC)•1933 Act• Regulates Issuances (Unless Exempt )• Not a “public offering”• Accredited Investors, Affiliates

•1934 Act• Regulates Securities Trading

Accredited Investors

• >$1M Net Worth (excluding house)• >$200k/yr Salary• Last 2 Years & This Year• >$300k w/ Spouse•Officers, Directors of Company

Historical Overview

• SOX (2002), Dodd-Frank (2010)• Consumer Protection• Disclosures, Reporting• JOBS Act (2012): Crowdfunding

What is Crowdfunding

Umbrella term including:•Microfunding•P2P Lending•P2P Investing for Non-Cash Returns•P2P Donations•P2P Investing for Equity/Debt Returns

(but not for everyone just yet)

Microfunding

• Small grants (no strings)•Usually $, can be in-kind• Startup focused (not non-profit)• See: The Awesome Foundation

P2P Lending/Microlending

• Startups can borrow from startup-friendly lenders• Individuals can lend/invest• For now, just AIs and F&F• Soon anyone can lend• See SoMoLend, Prosper, Mosaic

P2P Non-Profit Campaigns

•Host campaigns for multiple causes•Raise funds, awareness, other

projects•Not all 501(c)(3)• Startups only if cause-based

P2P Rewards-Based Investing

P2P Rewards-Based Investing

P2P Rewards-Based Investing

How it Works

•Create a Campaign Page•Determine Goal Amount, Length,

Rewards•Provide Description, Video• Launch & Advertise

(OK for non-securities)

•Pay Funding Portal

How it Works

How it Works

Costs of Campaigns

CF Portal Fee for Successful Campaign

Fee for Campaign That Falls Short

Processing Fees

Indiegogo 4% 9% 3%Kickstarter 5% N/A 3-6%

(Amazon)RocketHub 4% 8% 4%

Success Story: Misfit Wearables

Success Story: Misfit Wearables

• Sought Market Validation (& $$)• Sought Market Feedback•Pre-Sold Products•Drove Early Adoption•Obtained Non-

Dilutive Funding

Takeaway: Deliver Product

Takeaway: Disclose Risks

Takeaway: Be Truthful

Legal Perspective

•Non-Dilutive Funding•Non-securities: Fewer Disclosures• IP Protection Concerns•BUT• Legal Obligation to Deliver (?)•No Fraud

P2P Equity/Debt Investing

• Involves Sale of Securities•Now Only for Accredited Investors• JOBS Act: Open to All Investors

with BIG limitations

JOBS Act 2012

•Provides Restrictions & Requirements• Issuers• Investors•Portals

Issuer Restrictions

•Must be US-based entity•Raise up to $1M/Year•Registration w/ SEC•Use Qualified Crowdfunding Portal•Make Disclosures•No Advertising

Issuer Requirements

• Set Funding Goal• Set Dates of Fundraise•Price the Offering•Provide Regular Updates•Ongoing Reporting Compliance

Investor Restrictions

Investor Net Worth/ Salary

Investment Restriction

Maximum Investment

<$40k $2k/year $2k<$100k 5% $5k>$100k 5% $100,000k

… & Hold the Investment for at Least One Year

Portal Restrictions

• Subject to SEC Rules•No Advertising/Promotion•No Compensation Based on Funding

(Internally, Externally)•No Investment Advising•No Conflicts

Portal Requirements

•Qualify Issuers (background checks)•Qualify Investors•Protect Privacy•Provide Diligence; Reporting to SEC,

Investors• Educate Investors; Allow Cancel

Commitments•Reduce Fraud

Concerns

• Fraud• Privacy• Protection of IP• Shareholders: Cast of Thousands•Disenchantment

Concerns: Unmet Expectations

•ROI Takes a While•High ROI is Elusive•NOT Your Way Right Away•ROI Analysis: Are Rewards Better?

What’s Now … What’s Next

•Determine Mode of Campaign• Rewards, Equity, Debt-based•Create Campaign/Apply to AI Portals•Get Legal Help if You Need to…• Create Company• Allocate/Issue Equity• Protect/Assign IP• Review Investment Documents

Law & Order: Crowdfunding

Q&A