Crowdfunding
What is investment crowdfunding?
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Large numbers of investors make small
investments in small business or start-up
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Expands family and friends investment stage
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Debt/equity/other classes
Traditional progression of early-stage funding
Early-stage funding today
How different from non-profit crowdfunding
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Different laws
Different motivations
Impetus for regulatory change
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Small business lending dried up
Unemployment still high
Lobbying of Congress for solutions
Concerns about fraud
The regulatory context
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Public offers and sales of securities must be
registered with Securities and Exchange Commission
Entities that bring buyers and sellers of securities
together are “brokers” (or exchanges)
Rules also cover recommendations with respect to
securities
The JOBS Act of 2012
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New exemption from registration for investment
crowdfunding
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Under $1 million
Investors limited as to total amount of crowdfunding
investment per year
Investment must be made through registered
intermediary
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“Funding portal”
Broker
Disclosure requirements apply
SEC has to draft rules
Advantages of crowdfunding
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Seed money to get company to next stage
Patient money
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Different expectations of profitability, timing, and
control
Debt/equity/preferred shares
Don’t need to have connections or be located in
tech hubs or in “hot” industries
Considerations
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Disclosure requirements, including financial
Ongoing obligations
Dilution
Valuation
Impact on institutional funding
Secondary market
Managing large numbers of shareholders
Costs