Monday, November 21, 2016

Marketing an Investment Crowdfunding Campaign in North Carolina - Webinar Coming Dec 5th

By Roy Morejon
www.commandpartners.com

In 2015, my agency ran an investment crowdfunding campaign for Digitzs, a new payment platform.

Digitzs is a groundbreaking, patent-pending platform and mobile app where merchants get paid next day and can choose their Visa or MasterCard fees (from 0 to 3 percent). The system caters to a trillion dollar marketplace: merchants in the middle who don't swipe cards or use shopping carts. Laura Wagner, founder of Digitzs, recognized that navigating the waters of a fast-growing and ever-changing equity crowdfunding space can be difficult, so she sought the expertise of our team.

Roy Morejon
We teamed up far in advance of the launch of Digitzs’ initial equity raise. The goal was twofold- Digitzs needed to garner support from investors, while also gaining name recognition to prove market viability.

Command Partners was able to offer a full range of services to help make the Digitzs campaign a success, including:

  • Developing a pitch deck used for investor and media outreach throughout the campaign
  • Managing Digitzs social media accounts
  • Handling investor outreach across multiple platforms and coordinating meetings between investors and the Digitzs team
  • Designing and developing landing pages for driving investor, media and general traffic
  • Writing scripts and storyboards for videos specific to investors and the media
  • Creating and distributing press releases to targeted media lists, pitching stories to journalists and securing media coverage
  • Designing web pages, branded headers, press inserts and other graphics

While working with us, Digitzs exceeded their investment goal and went on to get over $8M in commitments.

This was our first equity campaign, which was exciting in and of itself, but it was exciting for another reason: Digitzs marked the beginning of a new era of investment crowdfunding for Command Partners.
The Future of Investment Crowdfunding in NC
On May 16, 2016, the SEC allowed Title III of the JOBS Act to go into effect, making investment crowdfunding legal throughout the country by allowing non-accredited investors to invest in startups and small businesses. Shortly thereafter, on July 22, the NC PACES (Providing Access to Capital for Entrepreneurs and Small Business) Act, was signed into law by Governor Pat McCrory. Now that there are federal and state laws regulating investment crowdfunding, my agency can begin to work with new companies raising capital through investment crowdfunding across North Carolina.

Now is an exciting time for these new investment crowdfunding laws to take place. In 2015, funding from investors for North Carolina companies grew 122 percent, to $1.18B. Here in Charlotte, the startup climate keeps getting better. The Kauffman Index of Startup Activity ranked the Charlotte metro area as the 25th best place for startup activity, up from number 28 in 2014. The rate of new entrepreneurs is also up from 2014, at 0.29% compared to 0.26%. This makes sense given the vibrant startup community within Charlotte.

Consider HQ Charlotte, for example, formerly known as Packard Place. HQ Charlotte at Packard Place caters to entrepreneurs and startups, offering co-working spaces, suites and more within their 90,000 sq. ft. space in the heart of uptown. Additionally, Packard Place is home to six world-class accelerator programs that help launch new companies right here in Charlotte.

With so many great opportunities for startups in North Carolina and here in Charlotte, we’re looking forward to a bright future for investment crowdfunding. If you need help marketing an investment crowdfunding campaign, contact us today.

Learn from Industry Leaders...
A live webinar presented by StartEngine's CEO Ron Miller, Command Partners' CEO Roy Morejon and Smith Anderson Partner Benji Jones. This webinar will focus on the legal, marketing and platform components to raising capital through Regulation A+ and Regulation Crowdfunding, or as we like to call them, small and large Online Public Offerings (OPO).
Topics covered will include:  
  • What is an OPO?
  • What today's OPO landscape looks like - how this differs from rewards based "crowdfunding"? 
  • Regulation A+ and Regulation Crowdfunding - what they are and how they are different
  • How Elio Motors raised almost $17M in capital 
  • What needs to be done to market and promote a campaign - how and when can you market your deal?
  • What are the biggest legal and compliance issues to consider? 
...and more! This is a session you don't want to miss!

December 5, 2016  |  1:00 - 2:00 PM EST



Roy Morejon brings over 20 years experience in delivering integrated marketing services for B2B and B2C clients, helping transform companies by increasing online visibility and brand awareness through targeted digital marketing, corporate communications and data-driven search marketing campaigns. He is an expert at digital strategy, analytics, search engine marketing and crowdfunding. As a trusted advisor to dozens of global startups, Roy is a key player in the local Charlotte marketing community, serving as co-founder of the Digital Marketing Association, regional chair for the Business Marketing Association and founder of North Carolina Businesses for Social Responsibility.



Saturday, August 6, 2016

FAQs About the New North Carolina Crowdfunding Law, the NC PACES Act

By Jim Verdonik

I am part of  the NC PACES Act team that provided advice to the State of North Carolina about enacting our new state crowdfunding law called the NC PACES Act. Below is a link to some FAQs I wrote that summarize the resulting North Carolina crowdfunding statute that was enacted in July 2016.
Jim Verdonik

There have also been some proposed changes to SEC Rule 147 which are important to allow more businesses to use state Crowdfunding laws, and these are also summarized in the post.

Click here to see my NC PACES Act FAQs post on my blog.


Jim is an attorney with Ward and Smith PA. You can reach Jim at JFV@WardandSmith.com.

Also check out his business related videos at www.YouTube.com/eLearnSuccess

Jim writes a column about business and law for American Business Journals.

You can purchase his book Crowdfunding Opportunities and Challenges at Amazon.


Friday, July 22, 2016

Governor Signs North Carolina Investment Crowdfunding Bill

By Mark Easley Sr.

The NC PACES Act, “Providing Access to Capital for Entrepreneurs and Small Business”, was signed into law today by Governor Pat McCrory. The bill passed both the NC Senate and NC House by unanimous votes during the short session, and North Carolina now joins over 30 other states that have passed similar laws. The NC PACES Act enables a new way to finance startups and small businesses in our state known as investment crowdfunding.

Kevin Herrington, Mark Easley, Benji Jones, Gov. McCrory, Secretary Skvarla, Senator Barringer
at the signing of the NC PACES Act investment crowdfunding bill.

The creation and passage of the NC PACES Act investment crowdfunding exemption was a team effort by the General Assembly, the NC Secretary of State Securities Division, the NC Commerce Department, the Governor’s office, and our North Carolina startup community and small business supporters. The bill was originally co-authored by former Representative Tom Murry, and the now retired head of the Securities Division David Massey, and was at the time known as the NC JOBS Act. This exemption became a model piece of legislation that was used as the basis for many of the crowdfunding exemptions passed in other states. Many thanks are due to Tom and David for creating this groundbreaking securities law concept which is now helping to finance small businesses and create jobs all over the country. The bill was then brought to the Senate with some enhancements by chief sponsor Senator Tamara Barringer, and became known as the NC PACES Act. We are grateful to Senator Barringer for her hard work and advocacy for the bill.

We would also like to thank all of those in the executive branch who supported and advocated for the bill, including Governor McCrory, Lieutenant Governor Forest, Secretary of State Marshall, Commerce Secretary Skvarla, and their staffs including Mike Arnold, Kevin Harrington, Ashley Jones, John Hardin, and all those who contributed to the effort.

On the legislative side we would like to thank the other chief sponsors of the bill including Senator Gunn and Senator Hise, and Representative Shepard and Representative Hastings and their staffs. In addition, NC Congressman Patrick McHenry, who created the federal JOBS Act, also supported our efforts.

The North Carolina startup and small business communities are supporters of the bill. We would like to thank the following supporters:

Joan Siefert-Rose – CEO of CED and staff
Larry Robbins – Founder and partner at Wyrick Robbins
Joseph Nixon – NC Biotech Center
Bill Warner – Entredot Small Business Accelerator
Jim Roberts - Wilmington startup community leader
Dan Roselli - Charlotte startup community leader
Chris Heivly and Dave Neal – Startup Factory
Jason Widen – HQ Raleigh
Adam Kline – American Underground
John Austin – Groundwork Labs
Lister Delgado – IdeaFund Partners
Wade Fulghum and Lewis Sheets – NC State Entrepreneurship Initiative
Brooks Raiford – NC Technology Association
John Demers – Film and TV production community leader
The NC Chamber

We would also like to thank the local press that provided balanced coverage of the bill and its importance to North Carolina small business over the last several legislative sessions: Rick Smith of WRALTechwire, Laura Baverman of exitevent.com, Lauren Ohnesorge of Triangle Business Journal, and Mark Binker of WRAL.

Last but not least, I want to send very special thanks to our small but dedicated NC PACES Act team that voluntarily worked hard to make this happen, and to give back to the community and state. None of this could have happened without the dedication and hard work of this team:

Benji Jones – Partner at Smith Anderson
Jim Verdonik – Partner at Ward and Smith
Brooks Malone – Partner at Hughes Pittman Gupton CPAs
Steve Reaser – Small businessman
Nick Bhargava – Co-founder of real estate crowdfunding site Groundfloor
Mital M. Patel – Attorney at Wyrick Robbins

When we work as a team, good things happen. Thanks to all for your efforts.

Best regards,
Mark Easley Sr.
NC PACES Act Team leader,
Startup and small business advisor, and crowdfunding advocate

Additional coverage including video of today's signing ceremony:



Signing Event Video on YouTube
Secretary of State Announcement Newsletter




Friday, July 8, 2016

Press Coverage of the Passage of the NC PACES Act

The passage of the NC PACES Act investment crowdfunding exemption bill has been in the news in our local press in the Triangle. The Governor is expected to sign the bill shortly.

WRAL Techwire has a post on NC Secretary of State Praises Crowdfunding Bill, and another one on NC's Crowdfunding Law: What it means, an Attorney's View.

Triangle Business Journal reports NC PACES is Headed to the Governor's Desk.

The News and Observer has a post on NC Crowdfunding Law would provide a new way for companies to raise capital.


Wednesday, June 29, 2016

We Made It! NC PACES Act to Become Law

By Benji Jones

The NC PACES Act: “Providing Access to Capital for Entrepreneurs and Small Business” has been passed by the NC House by a vote of 114 to 0, the NC Senate by a vote of 49 to 0, and is now headed to Governor McCrory for his signature.  After 3.5 years in the making, intrastate investment crowdfunding is finally coming to North Carolina!  
 
Senator Tamara Barringer
Senator Tamara Barringer, co-sponsor of the bill, states: “The NC PACES Act has passed the North Carolina House and Senate unanimously, paving the way for small businesses to raise much needed capital, providing jobs and opportunities for North Carolinians.”

What does this mean? 

A North Carolina business will be able to raise up to $1 million in any 12-month period (or up to $2 million with audited or reviewed financial statements) from investors who are North Carolina residents.  There are no wealth or income limitations on who can invest; however, investors who are not “accredited” may only invest $5,000 in a particular venture in any 12-month period.

Companies will be permitted to promote the offering publicly, after filing a notice (as well as substantive disclosures) with the Securities Division of the North Carolina Secretary of State.  A fee of $150 will also be charged.  Companies are required to communicate in writing the business plan, financials, use of funds, and risks of the offering. Investors are required to certify in writing at the time of sale that they understand the risks of purchasing unregistered securities and that they may lose their entire investment.

Companies may (but are not required to) use a professional crowdfunding intermediary that meets the requirements established by NC PACES and related rules.  They are required to establish an escrow to hold funds prior to closing.

Benji Jones
Companies that issue securities under NC PACES will be obligated to provide quarterly reports to investors discussing management compensation, operating results, and financial condition, etc.

When can we start?

Companies can start gathering materials, preparing disclosures, and consulting advisors now.  However, you will not be able to formally pursue investors under NC PACES until the Securities Division of the North Carolina Secretary of State’s office adopts specific rules to implement the provisions of the Act.  The Secretary of State’s office has played a critical role in formulating this exemption and, although the law gives it a 12-month period to act, hopefully, it will give implementation of these rules highest priority. 

There are some details to iron out so stay tuned here for more updates.   

The content contained on this blog does not provide, and should not be relied upon as, legal advice. It does not convey an offer to represent you or an attorney-client relationship. All uses of the content contained in this blog, other than for personal use, are prohibited.

Benji Jones is a partner at the Smith Anderson law firm with extensive experience in representing companies in exempt and non-exempt securities offerings.  Feel free to reach out directly to the author with questions or comments.



Monday, June 27, 2016

NC PACES Act Passes NC House by a Vote of 114 to 0

SB481, which includes the NC PACES Act crowdfunding exemption as Part I, was passed by the NC House by a vote of 114 to 0 tonight. The bill has been referred back to the Senate for final approval of a new and unrelated Part III to the bill called ‘Prohibit Cities from Charging Fees for Utility Use of Right-Of-Way’ which was tacked on by the House. Please click on the Track Progress of S481 to the right for the status of the bill and to view the latest version of the bill known as Edition 5.






Thursday, June 23, 2016

NC PACES Act Passes Second Reading on NC House Floor by a vote of 99 to 1

SB481, which includes the NC PACES Act crowdfunding exemption as Part I, was fast tracked to the NC House floor and passed second reading by a vote of 99 to 1 today. The bill has been put on the NC House calendar for final vote on Monday 6/27. Yesterday the NC House finance committee attached a new and unrelated Part III to the bill called ‘Prohibit Cities from Charging Fees for Utility Use of Right-Of-Way’. Please click on the Track Progress of S481 to the right for the status of the bill and to view the latest version of the bill known as Edition 4.




Monday, June 20, 2016

NC PACES Act Passes NC Senate by a Vote of 48 to 0

Tonight the NC Senate passed SB481 which includes the NC PACES Act crowdfunding exemption as Part I of the bill. The bill passed the second and third reading by a vote of 48 to 0, and was sent on to the House by Special Message. This is a significant step forward for the bill, which enables a new way of raising capital for North Carolina startups and small businesses using investment crowdfunding. Senator Barringer and Senator Gunn spoke on behalf of the bill.





Wednesday, June 15, 2016

NC General Assembly Moves Ahead with Intrastate Crowdfunding Bill in Short Session

By Benji Jones

Today the NC Senate Finance Committee considered SB481, the NC PACES Act: “Providing Access to Capital for Entrepreneurs and Small Business” and passed it by unanimous voice vote. The bill now moves on to a full vote on the NC Senate floor. The bill has broad bi-partisan support, and if passed by the full Senate will be sent to the NC House for consideration during the short session. 
Benji Jones

The bill, as now proposed, has two parts. Part I is the NC PACES crowdfunding exemption, which includes minor technical changes designed to enable it to stay current with changes in federal laws recently proposed by the Securities and Exchange Commission (the SEC). Part II is unrelated to the NC PACES exemption, and is called the "Public Disclosure of Written Determinations made by the Department of Revenue". This part requires the DOR to publish redacted versions of written determinations letters sent in response to taxpayer requests for clarification of tax regulation and laws. This provides greater transparency and more information to taxpayers who may need similar clarifications. 

NC PACES offers small businesses a new path to raise capital – one that historically has not been available due to federal regulations that limit the use of general advertising and that prohibit ordinary investors from participating in private offerings.  Congress addressed this issue with the 2012 JOBS Act, making private offerings more available to all types of investors and to all types of companies. 

In my mind, the more options to access capital we give companies – within a balanced regulatory structure – the better.  However, there is no one-size-fits-all solution.  Different types of companies need to be able to access capital in different ways.  The small business, the local mom-and-pop shop – these are the companies that are being left behind by the federal JOBS Act, which is simply too complicated, too burdensome, too expensive and (right now) too novel to really fit well for the pizzeria that needs a new wood burning stove or the baker who wants to open or expand a storefront business. 

This is why we need NC PACES – to provide another option, a local path for our North Carolina small businesses to reach North Carolina investors. 

NC PACES permits local companies to use advertising to approach local investors without regard to wealth or income limitations.  While working in conjunction with federal exemptions, the bill otherwise eliminates the burden of compliance with expensive, time-consuming and confusing rules imposed by federal crowdfunding under Title III of the JOBS Act.  Under NC PACES our companies can raise up to $1 million every 12 months (or $2 million with audited or reviewed financials) from their friends, family, customers or clients that are North Carolina residents.  This is twice the amount permitted under federal rules.  North Carolina businesses can use a third-party website to help them conduct the offering, but, again unlike federal regulations, they are not required to do so.  Although they must file disclosure materials for review by the North Carolina Securities Division and will continue to be subject to liability under federal law and North Carolina statutes, no filings with the SEC are required.   

NC PACES offers a simpler, local solution for small businesses in need of capital.  A local company will be able to reach local investors to attempt to access the critical funding they need to succeed and to grow.  Only with NC PACES can they look to their neighbors for this support, without going to Wall Street, Silicon Valley or Washington, DC.

Close to 40 other states have adopted or are
considering similar
local crowdfunding legislation.

NC PACES is the chance for Main Street, NC
to claim its place on the investment crowdfunding map.

So, if you believe this is a good thing, contact your State Senator or Member of the House of Representatives today and encourage them to pass SB481 as soon as possible! 


The content contained on this blog does not provide, and should not be relied upon as, legal advice. It does not convey an offer to represent you or an attorney-client relationship. All uses of the content contained in this blog, other than for personal use, are prohibited.

Benji Jones is a partner at the Smith Anderson law firm with extensive experience in representing companies in exempt and non-exempt securities offerings.  Feel free to reach out directly to the author with questions or comments.


Sunday, June 12, 2016

Intrastate Crowdfunding is a Good Option

Attorney Anthony Zeoli of Chicago explains why intrastate crowdfunding is a good but sometimes overlooked option for startups and small businesses that are raising capital. He also compares recent Federal Title III crowdfunding rules with the intrastate exemptions such as the one in Illinois that he helped create.

Intrastate Crowdfunding: The Often Overlooked Option
By Anthony Zeoli
Anthony Zeoli
With the Federal Title III rules recently becoming effective, there is certainly a lot of excitement surrounding national level “retail” crowdfunding to non-accredited investors. That’s obviously great news for the industry, but it’s important to remember that the majority of the states currently have some form of “intrastate” retail crowdfunding laws already in effect; many of which offer significantly more favorable terms to issuers and investors than the federal rules. Moreover, the number of states passing these laws, and their use, continues to grow making them viable capital options for many companies.
State of the States and Title III: 
You may not know it but currently thirty (30) states have enacted Intrastate crowdfunding exemptions (or have enacted amendments to their existing blue sky laws to permit some type of Intrastate crowdfunding) and another eight (8) states are in various stages of enacting/considering such legislation.  Just like the highly anticipated Title III rules, each of the state laws allows for crowdfunding to non-accredited investors. That being said, the laws of each state are somewhat unique and a discussion of the nuances between the various state laws would literally take all day. Luckily for those that might be interested I maintain, what I believe to be, the definitive comparative matrix of current Intrastate crowdfunding laws.
Read the complete post on Anthony's blog.

It is time for North Carolina to pass the NC PACES Act S481 and enable this new way of financing startups and small businesses as 30 other states have already done.


Thursday, May 19, 2016

Why Are State Crowdfunding Laws Still Useful Now That Federal Crowdfunding Has Arrived?

May 16th, 2016 was a notable day for the investment crowdfunding community. After 4 long years, the SEC finally allowed Title III of the Federal Jobs Act, called 'Regulation Crowdfunding', to go into effect. This is the section of the Federal Jobs Act that allows non-accredited retail investors to invest in startups and small businesses. Now, for the first time since 1933, everyone can invest in securities issued by private companies within the limits defined by Title III and the SEC regulations about it.

So why do we still need State laws and regulations about intrastate investment crowdfunding exemptions like the NC PACES Act? Crowdfunding expert and securities attorney Jim Verdonik makes the case.


Why Are State Crowdfunding Laws Still Useful After Federal Crowdfunding? 

By Jim Verdonik

The SEC's Regulation Crowdfunding became effective on May 16, 2016.  Unaccredited investors can now invest in offerings on investment platforms.  There are now four new Federal Crowdfunding exemptions that allow you to advertise offerings.
Jim Verdonik

Having so many new Federal capital-raising alternatives raises the question:  Do we still need state crowdfunding laws?

Let's answer that question from three perspectives:

• Investors

• Securities regulators

• Businesses Raising Capital

People and Communities are the Biggest Reason for State Crowdfunding

State Crowdfunding laws are needed for reasons that have little to do with technical legal rules.

• People like the idea of investing in their neighbors' businesses.

• People like reinvesting in their own communities.

This should come as no surprise.  People like to buy fresh locally grown fruits and vegetables.  People like to drink local craft beers.  People like to root for their local high school or college team even though professional athletes are bigger, faster and stronger.  People like local live concerts by musicians who don't have a national audience.

Collectively, we call these things our local culture.  Laws that make it difficult to create a healthy local culture are bad, but that is what securities laws have been doing for decades.  Securities laws divert money away from local communities to international money centers.

State Crowdfunding laws that legalize platforms that are limited to local businesses simply help investors find the local investment opportunities they want.

State Crowdfunding laws are the equivalent of state run farmers markets.  They bring together local buyers and sellers in an identified safe place.

Isn't it foolish for state government to get in the way of people building and investing in their local communities?

Why should it be easier to invest in a business that is halfway around the world than one that is in the next town?

Market Opportunity for States to Get Back Into the Game

State securities regulators have been underutilized for the past two decades, because most securities offerings use Federal exemptions that preempt state laws that require offerings to be reviewed by state securities administrators.

The old state regulatory system is so antiquated that people almost always choose to avoid it, if they can.

The surprising thing about state Crowdfunding laws is that the biggest proponents of state Crowdfunding laws should be people who want to increase state regulation of securities offerings, because state Crowdfunding offerings are reviewed by state securities regulators before businesses can sell securities.

Why would anyone think that regulators reviewing securities offerings would put investors at risk?

Of course, modern state securities regulation requires both carrots and sticks.  The old saying is that: "You can lead a horse to water, but you can't make it drink."

That's the way securities modern laws work.  You have to have carrots to entice businesses to use the state system.  These carrots primarily involve offering alternatives to some of the imperfections of the Federal Crowdfunding laws we discussed below.

Imperfections of Federal Laws for Businesses Raising Capital

If the four new Federal Crowdfunding laws were perfect, then most business would refuse to enter the state crowdfunding system.

But who ever heard of a perfect law?

Each of the Federal Crowdfunding laws lacks some attributes that are useful to some types of issuers:

• Rule 506(c) does not allow sales to non-accredited investors.

• SEC rules and review processes for both Tier 1 and Tier 2 Regulation A offerings are both expensive and time consuming.

•  Tier 2 of Regulation A and Regulation Crowdfunding impose ongoing reporting requirements on issuers that are expensive and may harm their ability to compete by making public information their competitors can use against them.

• Tier 1 of Regulation A does not pre-empt state registration laws.

• Regulation Crowdfunding allows you to raise only $1 million per year.

• Regulation A and Regulation Crowdfunding have expensive financial statements requirements beyond the normal securities rules about disclosing material facts.

Virtues of State Crowdfunding laws

Luckily, we have a Federal system of government where the states have the power to experiment with new laws.  State Crowdfunding laws are imperfect, but they offer some advantages to some businesses:

• Allow unaccredited investors to invest, unlike SEC Rule 506 (c).

• Are much cheaper to comply with than SEC Regulation A.

• Allow businesses to raise more than $1 million, unlike Regulation Crowdfunding.

• Allow businesses to make greater sales efforts outside a technology platform to attract investors to their offering, unlike Regulation Crowdfunding.

• Have greater flexibility than Regulation A or Regulation Crowdfunding for businesses to give investors the types of financial statements that smaller businesses actually prepare to use to run the businesses.

In summary, most businesses will use the Federal Crowdfunding exemptions, but there are good reasons to add state Crowdfunding to the list of capital-raising choices.


Jim is an attorney with Ward and Smith PA.  You can reach him at  JFV@WardandSmith.com
Check him out at www.YouTube.com/eLearnSuccess
Jim writes a column about business and law for American Business Journals http://www.bizjournals.com/triangle/search?q=%22Jim+Verdonik%22&%20title=

You can purchase Jim's book 'Crowdfunding Opportunities and Challenges' at http://www.amazon.com/Crowdfunding-Opportunities-Challenges-Jim-Verdonik/dp/1483442802 



Friday, May 13, 2016

NC Crowdfunding Exemption Filed as Part 1 of Larger Bill in NC Senate and NC House

A new comprehensive economic development bill has been filed this week in the NC Senate and in the NC House. The bill, called the 'Prosperity and Economic Opportunity for all North Carolina Act', includes the language of last year's NC PACES Act investment crowdfunding exemption as Part 1 of a larger 14 part bill. Senate Bill S826 and House Bill H1090 include a variety of economic development and incentive programs for North Carolina business. Please use the links on the right to track the progress of these bills in both chambers and to see drafts of the bills.

Over 30 other states have already passed an intrastate crowdfunding exemption. It is time for North Carolina to act and enable this new way to finance our small businesses and startups, and create more jobs in our state.




Friday, May 6, 2016

Crowdfunding: Closing the Capital Raising Gender Gap without Really Trying

By: Jim Verdonik

I've always been fascinated by the unintended consequences of tools.  Toolmakers often start out trying to achieve a specific goal, but when people start using the tool they sometimes find that its useful for many other purposes.

Crowdfunding illustrates this point.  Designed as a capital-raising tool, we are just beginning to see some of the many socio-economic effects.
Jim Verdonik

In researching my book Crowdfunding Opportunities and Challenges (Thompson Reuters), I found early statistics showing that Crowdfunding makes it easier for women entrepreneurs to raise money.

 Early statistics were startling.  Women led businesses get:
•4% of SBA loans
•7% of venture capital investments
•34% of online capital

The Crowdfunding success rate of 52% for women was higher than the 39% success rate for men.  Women were also getting higher valuations.  But the men also benefitted. Crowdfunding success rates and valuations are higher for both men and women compared to traditional capital-raising.  So, Crowdfunding is a rare win-win solution. I note these Crowdfunding statistics were based on only one large Crowdfunding platform – CircleUp.  But even assuming the statistics are not representative of all platforms, something startling seems to be going on in the Crowdfunding world.

Crowdfunding's designers probably didn't know they were unleashing a force that could close the capital-raising gender gap, but that may be just one of the  big unintended consequences.

So, what's going on Online?  Why is this happening?

One thing is that CircleUp attracts a lot of consumer products entrepreneurs and investors.  It has very few technology plays dominated by engineers and Silicon Valley nerds.  Maybe Crowdfunding is like the investor version of Home Shopping Network.  Will Home Shopping Network seize the opportunity to become an investment marketplace too?

Successful Crowdfunding offerings use videos and social media to generate investor interest.  Seeing the actual product and how consumers use it is probably a better selling tool than trying to describe a new software product or medical device.

Each investor in Crowdfunding deals usually invests a smaller amount per investor than traditional capital raising deals.  The Crowd seems to love giving small amounts to women entrepreneurs.  The beauty of Crowdfunding is that small amounts from lots of people can create big wads of cash for entrepreneurs.

It will be interesting to see whether the same holds true for minority entrepreneurs. Wouldn't it be amazing if one of the unintended consequences of this new Crowdfunding tool achieved what all the conferences, articles and laws that focus on closing the gender gap couldn't to?  Just think of all the time and money spent going in the wrong direction.  When you are lost in the forest, having a good sense of direction matters more than having good intentions.

This raises a question:  Why has it taken so long for Crowdfunding to come?  Neither the technology nor the business model is really new.  Crowdfunding is just selling something on the Internet.  People have been doing that for decades.  Why didn't we close the gender gap twenty years ago?
The answer, of course, is that securities laws made Crowdfunding illegal until recently.  So, we have the strange situation that the same Government that promotes gender equality made it illegal to use a tool that may outperform all Government programs designed to create equality.

This brings us to my home state - North Carolina.  More than 30 states have legalized Crowdfunding, but North Carolina is still sitting on the sidelines watching.  It's time to pass the NC PACES ACT that will legalize state Crowdfunding in North Carolina.

Bob Dylan said: "Get out of the way if you can’t lend a hand."  That's a good motto for Government to live by every day.
Ronald Reagan said:  "Mr. Gorbachev tear down that wall."
The times won’t be changing if we don't tear down the walls Government builds.
If two very different leaders like Dylan and Reagan both agree, then why does North Carolina still have a legal wall between entrepreneurs and investors?  

Mother's  Day is a few days away.  So, for Mother's  Day 2016, how about giving the Mothers of North Carolina what they really need:  Crowdfunding to grow their businesses.  Your Mom would be so proud of you if you do.  Who knew your Mom would turn out to be such a free market Libertarian?

About Jim Verdonik:

Jim is an attorney with Ward and Smith PA.   You can reach him at  JFV@WardandSmith.com
Check him out at www.YouTube.com/eLearnSuccess
Jim writes a column about business and law for American Business Journals http://www.bizjournals.com/triangle/search?q=%22Jim+Verdonik%22&%20title=

You can purchase Jim's book Crowdfunding Opportunities and Challenges at http://www.amazon.com/Crowdfunding-Opportunities-Challenges-Jim-Verdonik/dp/1483442802  

See the post on Jim's blog here.

(this article is based on Jim's article that was first published by Triangle Business Journal on May 5, 2016)


Thursday, April 21, 2016

Investment Crowdfunding is a Proven Success

Since the passage of the Federal JOBS Act, the industry has shown that these new exemptions are a great way to finance startups, small businesses, and real estate among others. This new financial industry is up and running strong, and it is time for North Carolina to join in by passing the NC PACES Act.

Nick Bhargava
Nick Bhargava, who was part of the original NC JOBS/PACES Act team, discusses some of the success stories in a new post in CFO Magazine. Nick writes:

"As an early advocate for the JOBS Act, I firmly believe it has largely been a success. The purpose of the JOBS Act, signed into law April 5, 2012, is to promote capital formation for small businesses, IPO-ready companies, and everything in-between.
There are seven titles in the Act. Though rarely attended to, Title II which allows general offer and solicitation for private placements, and Title IV, which increases the size and flexibility of Regulation A offerings, are, in fact, the most impactful provisions of the JOBS Act."

Click here for Nick's full post.

We need the NC PACES Act to enable North Carolina investors to safely invest in North Carolina small businesses and startups. NC PACES is compatible with and complimentary to the Federal JOBS Act, and will allow even more NC businesses to grow and create jobs. Please contact your NC State Representative and State Senator and let them know you support NC PACES.




Wednesday, April 13, 2016

Comparing Intrastate Investment Crowdfunding Versus Federal Investment Crowdfunding

Illinois attorney Anthony Zeoli, who is the chief architect of the Illinois intrastate crowdfunding exemption, has posted an interesting analysis comparing the various types of investment crowdfunding options available because of new Federal regulations and the JOBS Act, versus the intrastate exemptions created in Illinois and in many other states. Anthony says:

Anthony Zeoli

"One of the questions I get asked most often is “how does the new Illinois crowdfunding exemption compare to the available Federal level crowdfunding options?” I love getting this question as it gives me a chance to really show why the new Illinois crowdfunding exemption is such a workable option. However, given the many subtle nuances between the various options it’s often hard for people to visualize exactly where the similarities and differences really are. To make this visualization easier, I decided to create a handy-dandy comparative summary chart …. wasn’t that nice of me?"

Please click here to see Anthony's full post and download the excellent comparative chart he created.

The NC PACES Act will provide North Carolina small businesses with the option to raise equity and debt financing using a very similar intrastate investment crowdfunding exemption.


Wednesday, March 16, 2016

Five Myths of Investment Crowdfunding - Part 2

Benji's Blog - By Benji T. Jones

This is part 2 of a 2 part post on the five myths of investment crowdfunding. Part 1 is here.

Myth #3: Will Regulation Crowdfunding make all other paths redundant?  
Benji Jones
No.  There is no one-size-fits-all exemption.  Issuers may have many different objectives that impact which path is best.  Just look at the offering caps – companies can only raise $1 million per year under Regulation Crowdfunding.  That might be too low.  So companies may need to consider alternate paths to raise a larger amount of capital.  Local crowdfunding exemptions may provide access to a larger amount.  Currently, SB481 (NC PACES) would permit companies with reviewed or audited financials to raise up to $2 million in a 12-month period.  Regulation A increases those caps to as much as $50 million in a 12-month period; Rule 506 has no cap.  Despite the lower offering thresholds, some issuers may be drawn to the Regulation Crowdfunding or local crowdfunding statutes for the marketing bonus – harnessing the “crowd” to promote an enterprise can be an extremely powerful tool and added bonus for some issuers.  Alternatively, other companies will require more sophisticated investors, preferring to target only accredited investors through Rule 506 or structure a hybrid offering under Regulation A.  Regulation Crowdfunding simply opened up another avenue for companies to pursue capital, but it is unlikely to become a roadblock for pursuing other options.
Myth #4: Are all investors created equal?
Know your audience
Understand the costs and benefits associated with accepting money from investors who may lack experience in making investments in private companies (where securities have to be held for an indefinite period of time and there is no public market for secondary sales).  Their tolerance for risk or their expectation of how long they should have to wait before they are able to get a return on their investment may be different.  The value they may add to a business enterprise may not be the same as the “super wealthy” experienced investor.  Will your investors be easy to manage and communicate with or will they require extensive hand-holding?  It’s important to understand the pros and cons of taking an investment from anyone – before making the offer. 
Note also --- you may need to verify who is an Accredited Investor.
Rule 501 of Regulation D currently defines “accredited investor” to generally include: (1) banks and other large entities; (2) executive officers and directors of the issuer; and (3) high net worth individuals who have 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 who have a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence and any loans secured by the residence (up to the value of the residence)).
You cannot always check the box to confirm this status.  This is of particular importance in Rule 506(c) offerings (which involve general solicitation), when an issuer needs to “verify” that each purchaser is accredited.  There are services issuers can hire to do this, and there are principled approaches to undertaking the verification independently, but the SEC has indicated that just getting an investor to “check the box” isn’t one of them.
You will also need to stay abreast of changes in the accredited investor definition.  The SEC has been actively examining this definition (as required every four years pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act).  In December 2015, the Staff released a detailed report analyzing the current definition and making certain recommendations for modifying it.   The Staff’s recommendations touched on ways to adjust the financial threshold requirements (such as keeping the current thresholds but applying investment limits or creating new inflation-adjusted thresholds) and adding categories of accredited investors based on measures of sophistication not currently contemplated (such as a minimum investment threshold, professional credentials, etc.).  It will be important to monitor these changes and to be prepared to explain to clients how these changes might impact their choices.
Myth #5:  Can companies “go it alone”?  
Maybe.  In many instances an issuer is not allowed to conduct an offering without the use of a portal or intermediary.  Practically speaking, it also might not be prudent to try to conduct the offering without using one.   It just depends on what path or exemption will be used.  In a nutshell: an issuer must use a crowdfunding intermediary (either a registered funding portal or a registered broker-dealer) under Regulation Crowdfunding.  The same may be the case for local crowdfunding exemptions, but it will depend on the rules that apply to a particular jurisdiction.  Although companies are not required to use an intermediary for Regulation A offerings, they may want to engage some kind of listing platform or broker-dealer to help market the deal if they want to raise a significant amount of money (say over $10 million).  Accredited Investor offerings are kind of a hybrid.  Theoretically, companies could advertise their offerings independently under Rule 506(c), but many larger deals are conducted through platforms (AngelList, Equity Shares, Funders Club, CircleUp, etc.) that structure direct investments and syndicated investments in companies and facilitate verification when general solicitation is involved.
But remember . . . not all portals are created equal.
Companies (and their advisors) need to carefully diligence who to use to help with the offering.  Offering portals are potentially regulated as investment advisors and as broker-dealers.  They may also be structuring transactions in a way that implicates the Investment Company Act of 1940.  Portals will need to comply with specific regulations imposed upon their activities (like under Regulation Crowdfunding).  The overlapping nature of these regulations is complex, and it is important to find an operator that understands how these regulations impact what it can and cannot do as well as what it must do.  We are just now finding out who is registered as a funding portal – take a hard look at them.  Understand how platforms charge fees, whether they conduct diligence on offerings, whether they structure transactions or provide form documents.  Do they have experience in other forms of online offerings?  What is their track record?  Can they provide verification of accredited investors or are they simply a bulletin board service?  Are they a registered broker-dealer or working with one?  Read the fine print and the FAQs on the portal’s website. Look for the regulatory disclosures to assess how they operate (or if they even know that there are compliance issues to address).  Use the Internet to assess the reputation and success of different portals.  See what bloggers are saying about the landscape. 

Do the diligence before engaging a partner or commencing an offering and then work with your client to determine what best serves its needs.

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Benji Jones is a partner at the Smith Anderson law firm with extensive experience in representing companies in exempt and non-exempt securities offerings.  Feel free to reach out directly to the author with questions or comments.