The California Securities Attorneys https://thecaliforniasecuritiesattorneys.com Articles and blogs on securities law Thu, 09 Feb 2017 20:03:51 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.3 Marketing Your Offering by Bruce E. Methven https://thecaliforniasecuritiesattorneys.com/2017/02/09/marketing-your-offering-by-bruce-e-methven/ https://thecaliforniasecuritiesattorneys.com/2017/02/09/marketing-your-offering-by-bruce-e-methven/#respond Thu, 09 Feb 2017 20:03:51 +0000 https://thecaliforniasecuritiesattorneys.com/?p=422 Continue reading ]]> The truth about marketing your securities offering is that you have to find investors yourself. Venture capital firms invest in only a tiny percentage of the companies that approach them. Groups that involve angel investors may work, but there is still lots of competition. Also, some angel groups seem to exist more for making money from companies presenting than actually getting the companies funded. It is very rare to find a stockbroker who will handle a startup or a relatively small offering. Finders – those who find investors for a commission but are not licensed securities brokers – are prohibited where there are investors from more than one state. California (and some other states) allow finders for single-state offerings but California restricts this to accredited investors.

So far equity crowdfunding, when it works, produces a slew of very small investors (average investment about $800); they take a huge amount of ongoing administrative time. Other offering types are generally better.

There are sites with investor bases that allow access for a fee. Prices range dramatically and it’s not clear the high-priced sites have better investor bases. Paying for one can’t hurt but there’s no guarantee it will work. Companies should try to find a site that has had success with other companies in the same field or same type, as then it’s clear that some of their investors are interested in those types of offerings. Investors tend to invest in what they know.

Real estate funds of course should contact people the principals have met or worked with before on real-estate matters.

Ideally, companies seeking money should begin a marketing campaign several months before starting the offering.

Companies making private offerings can talk about their offerings with people they reasonably believe meet the investor requirements for the type of offering they are making. Companies making private offerings can also communicate publicly about the company and what it does, but cannot say anything about past, present or future offerings. They can, though, allow people to complete an investor questionnaire and then, if the person qualifies, talk about the offering. This can be done on web and social media sites if extreme care is taken. (An attorney should be consulted.)

All companies should try to make contact with people in the field who have contacts and see if they can be persuaded to be advisors, evangelists or board members. The most effective way to connect with an investor is through a mutual acquaintance that the investor trusts.

Companies should seriously consider contacting current and potential vendors and customers. If they see they might get business from the company or the company has a product or service they could use, they may decide to invest.

In terms of social media, a company should start a web site and pages on Facebook and LinkedIn at least two to three months prior to the offering if possible. One key is to tell an effective story about the company. If this can be tied to a cause or passion, all the better. The company should also make blog posts regularly, participate in forums in its field, and prepare a video if at all possible. In some cases Twitter may be effective. The idea is to build a fan base that can lead to investors. Although other sources should be approached as well, companies should spend time on people in or with an interest in their field. They won’t need the same education and are likely to see the advantages of the product or service better than others.

Marketers can be hired to help with this, but it’s important to be very clear on exactly what they will be doing and what their charges are.

For companies raising money, the important thing is to recognize that finding investors will take a lot of time and energy. If it were easy, everyone would be an entrepreneur.

Bruce E. Methven *****************************************

Ebook

My eBook “Raising Money – Legally” is available at Amazon.

(To see the table of contents, click on the image of the book and then scroll down.)

There are “free Kindle reading apps” for many devices online.

More Articles Online and Sign-up for Newsletter For more information on securities laws, head to Background on the Securities Laws at www.thecaliforniasecuritiesattorneys.com

There is also a box there to sign up for the newsletter; there is no cost for that and you can unsubscribe at any time.

Disclaimer and Distribution

The foregoing content constitutes general information only and should not be relied upon as legal advice.

You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:

Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710 Phone: (510) 649-4019; Fax: (510) 649-4024 www.TheCaliforniaSecuritiesAttorneys.com CaliforniaSecuritiesAttorneys[at]gmail.com Copyright 2017 Bruce E. Methven, All Rights Reserved

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Report on Crowdfunding by Bruce E. Methven https://thecaliforniasecuritiesattorneys.com/2016/10/28/report-on-crowdfunding-by-bruce-e-methven/ https://thecaliforniasecuritiesattorneys.com/2016/10/28/report-on-crowdfunding-by-bruce-e-methven/#respond Fri, 28 Oct 2016 22:20:02 +0000 https://thecaliforniasecuritiesattorneys.com/?p=419 Continue reading ]]> Crowdfunding via approved internet portals became available in May of this year. So far companies have been averaging about $800 per investor and may have hundreds of investors. That’s a lot of small investors to deal with. Many companies have listed $100 as the minimum investment amount, although at least one company has set a minimum investment of $2,000.

Presumably most of the companies are providing periodic reports and directing questions to their website rather than providing much in the way of individual contacts with investors. One hopes the offerors are including formulas where they can buy out these investors, as VC’s and other large investors who may invest later do not like large numbers of small investors.

If an offeror doesn’t meet its financial target by its chosen deadline, all the money has to be returned. For that reason, although up to $1 million can be raised, most offerors have been setting low total offering amounts, with a median of about $55,000 (though there are offers with targets of $200,000 to $500,000). Setting a low target amount is wise. Many of the offerors say they will accept over-subscriptions totaling amounts that are much larger, with some allowing total subscriptions of up to $1,000,000. Many of the companies hitting their targets so far have actually raised about four times as much money as their target amounts. Most offerors seem to be using a deadline for raising their target amount of 90 days to six months.

In order to minimize their potential liabilities, most crowdfunding portals seem to be requiring that offerors have their own securities-law attorney reviewing the offering and related documents. (We provide this sort of review.)

Portal commissions and terms vary widely and seem to change frequently. Companies looking for a portal should be sure to comparison shop several portals and determine their current fees. Some portals are associated with separate escrow companies that have their own fees, so this should be checked.

Lastly, the portals generally seem fairly overwhelmed – roughly four new companies a week are starting a portal crowdfunding offering – so companies that are interested in crowdfunding should start the process as soon as possible as it takes a number of weeks to be listed.

Bruce
*****************************************

Ebook
My eBook “Raising Money – Legally” is available at Amazon.
(To see the table of contents, click on the image of the book and then scroll down.)
There are “free Kindle reading apps” for many devices online.

More Articles Online and Sign-up for Newsletter
For more information on securities laws, head to Background on the Securities Laws at
www.thecaliforniasecuritiesattorneys.com
There is also a box there to sign up for the newsletter; there is no cost for that and you can unsubscribe at any time.

Disclaimer and Distribution
The foregoing content constitutes general information only and should not be relied upon as legal advice.
You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:

Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
Phone: (510) 649-4019; Fax: (510) 649-4024
www.TheCaliforniaSecuritiesAttorneys.com
CaliforniaSecuritiesAttorneys[at]gmail.com
Copyright 2016 Bruce E. Methven, All Rights Reserved.

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Running Another Offering With a Crowdfunding Offer by Bruce E. Methven https://thecaliforniasecuritiesattorneys.com/2016/05/13/running-another-offering-with-a-crowdfunding-offer-by-bruce-e-methven/ https://thecaliforniasecuritiesattorneys.com/2016/05/13/running-another-offering-with-a-crowdfunding-offer-by-bruce-e-methven/#respond Fri, 13 May 2016 19:33:56 +0000 https://thecaliforniasecuritiesattorneys.com/?p=416 Continue reading ]]> This is part of a series on crowdfunding; this part covers running another offer simultaneously with a crowdfunding offer.

Again, true crowdfunding — offerings of stock, LLC units and promissory notes — becomes available on May 16, 2016. Sales of the securities must be conducted through an intermediary/portal approved by the SEC and FINRA and an issuer can use only one intermediary.

Unlike most other offerings, crowdfunding can be used simultaneously with another offering. This is useful if the company plans on raising more than $1 million in 12 months (which is the limit for crowdfunding). It is also useful if the company believes it can raise some money outside of crowdfunding and wants to avoid paying the intermediary’s commission on that money. (Another approach some companies may employ is to use a crowdfunding offering to raise the money for a larger offering, which can be done without the usual six-month waiting period between offerings.)

If the offering company wants to use a simultaneous private offering it may well choose a traditional federal Rule 506b private offering. That allows an unlimited amount of money to be raised; there can be an unlimited number of accredited investors and up to 35 non-accredited but sophisticated investors; investors can be from any state. Because a traditional Rule 506b offering is a private offering, a company pairing this with a crowdfunding offer has to be careful that it does not use the public advertising for the crowdfunding to attract investors to the private offering; this is an SEC requirement. As a practical matter that means keeping track of whether a potential investor learned first of the crowdfunding offer or the Rule 506b offer. If a potential investor first learned of the crowdfunding offering, that investor would be limited to investing through the crowdfunding intermediary and would count toward the $1 million crowdfunding limit.

Another alternative would be for the offering company to make a simultaneous (or subsequent) PUBLIC offering, either a single-state qualification by permit offering or a nationwide Reg. A+ Tier 2 offering (or possibly a nationwide S-1 offering, although that is more complicated). While these types of offerings require prior registration with the state or the SEC, they allow full public advertising, have few or no restrictions on investors and allow more money to be raised than the $1 million limit for a crowdfunding offering.

In any case, with a bit of planning a company can make both a crowdfunding offering and another offering simultaneously.

Bruce
*****************************************

Ebook
My eBook “Raising Money – Legally” is available at Amazon.
(To see the table of contents, click on the image of the book and then scroll down.)
There are “free Kindle reading apps” for many devices online.

More Articles Online and Sign-up for Newsletter
For more information on securities laws, head to Background on the Securities Laws at
www.thecaliforniasecuritiesattorneys.com
There is also a box there to sign up for the newsletter; there is no cost for that and you can unsubscribe at any time.

Disclaimer and Distribution
The foregoing content constitutes general information only and should not be relied upon as legal advice.
You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:

Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
Phone: (510) 649-4019; Fax: (510) 649-4024
www.TheCaliforniaSecuritiesAttorneys.com
CaliforniaSecuritiesAttorneys[at]gmail.com
Copyright 2016 Bruce E. Methven, All Rights Reserved.

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Advertising a Crowdfunding Offer by Bruce E. Methven https://thecaliforniasecuritiesattorneys.com/2016/05/06/advertising-a-crowdfunding-offer-by-bruce-e-methven/ https://thecaliforniasecuritiesattorneys.com/2016/05/06/advertising-a-crowdfunding-offer-by-bruce-e-methven/#respond Fri, 06 May 2016 21:12:46 +0000 https://thecaliforniasecuritiesattorneys.com/?p=413 Continue reading ]]> This is part of a series on crowdfunding; this part covers how crowdfunding offers may be advertised.

True crowdfunding — offerings of stock, LLC units and promissory notes — becomes available on May 16, 2016. Sales of the securities must be conducted through an intermediary/portal approved by the SEC and FINRA and an issuer can use only one intermediary.

The intermediary cannot solicit purchases of an issuer’s securities, although the intermediary can advertise its site, and its site should contain a great deal of information about the issuer’s offering.

On the other hand, the issuer can directly advertise its offering by way of a relatively brief “tombstone” ad that directs potential investors to its selected intermediary. (The crowdfunding investments themselves must be handled by the intermediary.)

In other words, while an issuer cannot sell directly to potential investors, the issuer can advertise its offering in a form similar to a limited “tombstone” ad that directs potential purchasers to the intermediary the issuer is using. The information allowed is the following:
(1) A statement that the issuer is conducting an offering, the name of the intermediary through which the offering is being conducted and a link directing the investor to the intermediary’s platform;
(2) The terms of the offering; and
(3) Factual information about the legal identity and business location of the issuer, limited to the name of the issuer of the security, the address, phone number and website of the issuer, the e-mail address of a representative of the issuer and a brief description of the business of the issuer.

The issuer can provide the “tombstone” advertisement in any manner, including on its web site and on social media. Persons acting on behalf of the issuer (marketers, etc.) must comply with the same restrictions as the issuer. Companies may want to consider hiring a third party to help them distribute the tombstone ad.

The issuer can also provide additional information about the offering if 1) it is done through communication channels provided by the intermediary on the intermediary’s platform and 2) the issuer identifies itself as the issuer in all communications by the issuer or by others on behalf of the issuer.

Bruce

*****************************************

Ebook
My eBook “Raising Money – Legally” is available at Amazon.
(To see the table of contents, click on the image of the book and then scroll down.)
There are “free Kindle reading apps” for many devices online.

More Articles Online and Sign-up for Newsletter
For more information on securities laws, head to Background on the Securities Laws at
www.thecaliforniasecuritiesattorneys.com
There is also a box there to sign up for the newsletter; there is no cost for that and you can unsubscribe at any time.

Disclaimer and Distribution
The foregoing content constitutes general information only and should not be relied upon as legal advice.
You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:

Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
Phone: (510) 649-4019; Fax: (510) 649-4024
www.TheCaliforniaSecuritiesAttorneys.com
CaliforniaSecuritiesAttorneys[at]gmail.com
Copyright 2016 Bruce E. Methven, All Rights Reserved.

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Early “Advertising” for Crowdfunding by Bruce E. Methven https://thecaliforniasecuritiesattorneys.com/2016/04/26/early-advertising-for-crowdfunding-by-bruce-e-methven/ https://thecaliforniasecuritiesattorneys.com/2016/04/26/early-advertising-for-crowdfunding-by-bruce-e-methven/#respond Tue, 26 Apr 2016 17:45:38 +0000 https://thecaliforniasecuritiesattorneys.com/?p=408 Continue reading ]]> This is part two of what is now a four-part series on crowdfunding; this part covers using a test-the-waters approach to get advertising out now for an upcoming crowdfunding offer.

Publicly advertised crowdfunding that allows the sale of stock, LLC units, promissory notes, etc. begins May 16 of this year. Advertising a crowdfunding offer cannot begin until then.

SEC Reg. A+, though, allows a company or fund to “test the waters” for interest by potential investors in a proposed offering. A “test the waters” proposal can be publicly circulated now without endangering a proposed crowdfunding offering if care is taken.

More specifically, a company can publicly advertise a proposed offering and ask potential investors whether they might be interested in investing. The proposal can be placed on a website, social-media site, emailed, etc. The proposal can ask those who might be interested to send an email or text or “like” a social-media page. Then starting May 16 communications can be sent to those potential investors giving them the crowdfunding tombstone ad and directing them to the crowdfunding portal/intermediary that the company has signed up with.

Note that the SEC has stated that it would have a problem with a company using a “test the waters” proposal to direct investors into a subsequent private offering (like a traditional Rule 506b offering). There is no warning, though, about subsequent publicly advertised offerings like a crowdfunding offering.

There are restrictions on the information that can be provided, though. The “test the waters” communication must be limited to factual business information. The regulations say that this means information about the issuer, its business, financial condition, products, and services. The regulations specifically forbid such things as predictions, projections, forecasts or opinions with respect to the value of the company or its stock.

Also, the communication must bear a disclaimer stating that: (1) no money or other consideration is being solicited, and if sent, will not be accepted; (2) no sales will be made or commitments to purchase accepted until the offering statement is qualified; and (3) a prospective purchaser’s indication of interest is non-binding.

If the company follows these rules, it can publicly advertise its proposed offering.

Still, it is strongly recommended that a company or fund have an attorney review its test-the-waters proposal before releasing the proposal publicly. As is generally the case with securities law, it is often easy to cross over the line between what is allowed and what is not.

Regards,
Bruce
*****************************************

Ebook
My eBook “Raising Money – Legally” is available at Amazon.
(To see the table of contents, click on the image of the book and then scroll down.)
There are “free Kindle reading apps” for many devices online.

More Articles Online and Sign-up for Newsletter
For more information on securities laws, head to Background on the Securities Laws at
www.thecaliforniasecuritiesattorneys.com
There is also a box there to sign up for the newsletter; there is no cost for that and you can unsubscribe at any time.

Disclaimer and Distribution
The foregoing content constitutes general information only and should not be relied upon as legal advice.
You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:

Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
Phone: (510) 649-4019; Fax: (510) 649-4024
www.TheCaliforniaSecuritiesAttorneys.com
CaliforniaSecuritiesAttorneys[at]gmail.com
Copyright 2016 Bruce E. Methven, All Rights Reserved.

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True Crowdfunding Begins May 16 by Bruce E. Methven https://thecaliforniasecuritiesattorneys.com/2016/04/08/true-crowdfunding-begins-may-16-by-bruce-e-methven/ https://thecaliforniasecuritiesattorneys.com/2016/04/08/true-crowdfunding-begins-may-16-by-bruce-e-methven/#respond Fri, 08 Apr 2016 23:03:17 +0000 https://thecaliforniasecuritiesattorneys.com/?p=398 Continue reading ]]> True crowdfunding — offerings of stock, LLC units and promissory notes — becomes available on May 16, 2016. 

All sales must be made through an Internet intermediary/portal approved by SEC and FINRA.  An issuing company can use only one intermediary.  An issuer can raise up to $1 million in each 12-month period through crowdfunding but it can have a separate, different offering as well, such as a Rule 506, Reg. A+, S-1 offering, etc.

There will be a large number of crowdfunding sites available including, among many others, (and just in alphabetical order) AngelList, Crowdfunder, EquityNet, FlashFunders, Fundable, GoFundMe, IndieGogo, KickStarter, MicroVentures, OneVest, RocketHub, SeedInvest and WeFunder.

This three-part series will cover 1) choosing an intermediary, 2) advertising the offering, and 3) making other offerings simultaneously with the crowdfunding offering.

The intermediary can advertise itself and present sample offerings as part of that advertising.  In choosing an intermediary one question to ask is whether (or to what extent) the intermediary will include your offering as part of its advertising.  Another question is how the intermediary will be advertising itself.  A third question is how large and what kind of an investor base the intermediary has and what marketing it will be doing to its base. 

In choosing a crowdfunding intermediary, another consideration is how much it charging, when and to whom.  It looks like most of the intermediaries will not be charging upfront money, but will simply take percentages of the money raised.  Several apparently will charge a higher percentage if a minimum amount is not raised.  Also, some seem to be charging the investor rather than — or in addition to — the company (which may mean that the investor receives less stock for his/her money than would otherwise be the case).  Further, some intermediaries seem to have a processing fee in addition to a percentage based on the money raised. 

Because it’s possible for a company to have a non-crowdfunding offering running simultaneously, it’s important to make sure that the intermediary will only receive a percentage on the money that passes through it, and not on money that is received from any non-crowdfunding offering.

Some crowdfunding sites require that the company have a “lead investor” before the portal will post the offering, so be sure to ask about that.

Bruce E. Methven

*****************************************

Ebook

My eBook “Raising Money – Legally” is available at Amazon.

(To see the table of contents, click on the image of the book and then scroll down.)

There are “free Kindle reading apps” for many devices online.

 

More Articles Online and Sign-up for Newsletter
For more information on securities laws, head to Background on the Securities Laws at

www.thecaliforniasecuritiesattorneys.com

There is also a box there to sign up for the newsletter; there is no cost for that and you can unsubscribe at any time. 

Disclaimer and Distribution

The foregoing content constitutes general information only and should not be relied upon as legal advice.

You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:

 

Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
Phone: (510) 649-4019; Fax: (510) 649-4024
www.TheCaliforniaSecuritiesAttorneys.com
CaliforniaSecuritiesAttorneys[at]gmail.com
Copyright 2016 Bruce E. Methven, All Rights Reserved.

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SEC Approves New Ways to Raise Money with Reg. A. by Bruce E. Methven https://thecaliforniasecuritiesattorneys.com/2015/04/08/sec-approves-new-ways-to-raise-money-with-reg-a-by-bruce-e-methven/ https://thecaliforniasecuritiesattorneys.com/2015/04/08/sec-approves-new-ways-to-raise-money-with-reg-a-by-bruce-e-methven/#respond Wed, 08 Apr 2015 16:45:48 +0000 https://thecaliforniasecuritiesattorneys.com/?p=395 Continue reading ]]>  

In a victory for companies seeking to raise money with full public advertising and low investor requirements, the SEC just released its final rules on Reg. A+ offerings.  The rules will go into effect 60 days after they are published in the Federal Register.  That will likely be early June.  (The SEC is not expected to issue final rules for crowdfunding under the JOBS Act until October of this year.) 

The new rules give companies two approaches.   Tier 1 covers offerings of up to $20 million and Tier 2 covers offerings from $20 million to $50 million (plus smaller offerings if the company elects to use the Tier 2 approach).

Both types of offerings must be approved by the SEC in advance.   In addition, Tier 1 offerings must be approved by each state where the company wants to have investors.   (More on this below.)  The major advantage of Tier 2 offerings is that they are exempt from state approval. 

Tier 2 offerings also have other restrictions and requirements, though.  Tier 2 issuers are required to include AUDITED financial statements in their offering documents.  Tier 1 issuers do not have to have their financials audited.  Tier 2 issuers also must file annual, semiannual, and quarterly reports with the SEC.  (These filings are still less onerous than the usual “reporting company” requirements.)  Tier 1 offerings require a filing when the offering ends, but no ongoing filings.  Still, a Tier 2 issuer can exit the reporting requirements any time after completing reporting for the fiscal year in which the offering was approved. 

Also, Tier 2 investors (but not Tier 1 investors) must either 1) be accredited or 2) invest no more than (a) 10% of the greater of annual income or net worth (for natural persons); or (b) 10% of the greater of annual revenue or net assets at fiscal year end (for non-natural persons).   Given that there is no limit on the number of investors, though, the 10% restrictions should not pose a significant barrier. 

As for Tier 1 offerings and state approval, the North American Securities Administrators Association (“NASAA”) now has a coordinated review plan for state clearance of Reg. A offerings.   A single application is submitted where the issuer indicates the states where the issuer wants to have investors.  One caution is that each state has its own Reg. A filing fees, which can range from $200 to $2,500.  For this reason, an issuer probably wants to limit the states it selects to those where it believes it has a good chance of getting investors. 

The application goes to the State of Washington.  It selects two examiners, one for merit (fairness) review and one for disclosure (completeness) review.  Within 10 business days after their selection, the examiners draft and circulate a comment letter to the selected states.  The states have 5 business days to submit additional comments.  If a state does not submit comments within that time, the lead examiners can assume the state has no comments.  The examiners then have 3 business days to make any revisions and send the comment letter to the issuer.  Once the issuer responds (with changes or challenges) the examiners must respond within 5 business days.   Of course, there can be several rounds of communications.  Once the two examiners approve the offering, the participating states agree to approve it as well. 

For many companies, the new Reg. A+ rules will compare favorably to Rule 506c offerings.  Although Rule 506c offerings allow full public advertising, only accredited investors are allowed – and they must provide some documentary evidence that they are accredited.   A number of companies have found that potential investors are very reluctant to provide that evidence, and that the requirement that all investors be accredited greatly limits the possibilities of raising money. 

Bruce E. Methven

*****************************************

Ebook

My eBook “Raising Money – Legally” is available at Amazon.

(To see the table of contents, click on the image of the book and then scroll down.)

There are “free Kindle reading apps” for many devices online.

 

More Articles Online
For more information on securities laws, head to Background on the Securities Laws:

www.thecaliforniasecuritiesattorneys.com

 

Disclaimer and Distribution

The foregoing content constitutes general information only and should not be relied upon as legal advice.
You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:

 
Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
Phone: (510) 649-4019; Fax: (510) 649-4024
www.TheCaliforniaSecuritiesAttorneys.com
CaliforniaSecuritiesAttorneys[at]gmail.com
Copyright 2015 Bruce E. Methven, All Rights Reserved.

 

 

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Crowdfunding Alternatives – S-1 and Single-State by Bruce E. Methven https://thecaliforniasecuritiesattorneys.com/2015/02/06/crowdfunding-alternatives-s-1-and-single-state-by-bruce-e-methven/ https://thecaliforniasecuritiesattorneys.com/2015/02/06/crowdfunding-alternatives-s-1-and-single-state-by-bruce-e-methven/#respond Fri, 06 Feb 2015 19:54:10 +0000 https://thecaliforniasecuritiesattorneys.com/?p=392 Continue reading ]]> In the last post, I noted that it looks like the earliest that crowdfunding and Reg. A+ offerings will be possible is January 2016.  The question is what companies or real-estate funds can do now if they want to raise investor money in a way that both allows full public advertising and does not require that the investors all be accredited (as the year-old Rule 506c offering does)? 

 

The practical choices are a federal S-1 offering, the current Reg. A offering (both of which have the option of getting the securities trading on the over-the-counter market) or a single-state qualification by permit.  These are all registrations, meaning that a securities regulator must approve the offering before it can be started.  There can be an unlimited number of investors with each of these.    

 

The federal S-1 offering requires approval of the offering by the SEC before the offering can begin.  Once the offering – which can be for an unlimited amount — is approved, it may be sold to investors in every state and publicly advertised.  This approach has downsides, though:  The financials must be audited and the company becomes a reporting company, meaning that it must file quarterly and annual reports with the SEC, which costs time and money. 

 

On the other end of the spectrum, each state has its own qualification by permit process.  Again the offering must be pre-approved, this time by that state’s securities department.  There are low or no investor requirements and the offering can be publicly advertised – but it is limited to investors who reside in that state. 

 

The details vary from state to state.  For example, California has a qualification by permit process that has low investor standards, either (1) a minimum net worth of at least $75,000 and minimum gross income of $50,000 or (2) a minimum net worth of $150,000, although in either case net worth cannot include the principal residence, home furnishings or automobiles. California does have a maximum offering limit of $5 million to avoid a fairness review – although a fairness review is hardly the end of the world – but it also has additional rules for real-estate offerings. 

 

The third alternative is Reg. A.  That will be the subject of the next post. 

 

Bruce E. Methven

 

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Ebook

My eBook “Raising Money – Legally” is available at Amazon.

(To see the table of contents, click on the image of the book and then scroll down.)

There are “free Kindle reading apps” for many devices online.

 

More Articles Online
For more information on securities laws, head to Background on the Securities Laws:

www.thecaliforniasecuritiesattorneys.com

 

Disclaimer and Distribution

The foregoing content constitutes general information only and should not be relied upon as legal advice.
You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:

 
Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
Phone: (510) 649-4019; Fax: (510) 649-4024
www.TheCaliforniaSecuritiesAttorneys.com
CaliforniaSecuritiesAttorneys[at]gmail.com
Copyright 2014 Bruce E. Methven, All Rights Reserved.

 

 

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Crowdfunding Update – and What to Do for Now by Bruce E. Methven https://thecaliforniasecuritiesattorneys.com/2015/01/14/crowdfunding-update-and-what-to-do-for-now-by-bruce-e-methven/ https://thecaliforniasecuritiesattorneys.com/2015/01/14/crowdfunding-update-and-what-to-do-for-now-by-bruce-e-methven/#respond Wed, 14 Jan 2015 20:14:28 +0000 https://thecaliforniasecuritiesattorneys.com/?p=389 Continue reading ]]> If you missed it during the holidays, unfortunately the SEC has indicated that it will not issue its final rules for crowdfunding or for Reg. A+ offerings until October of 2015.  In addition, final regulations generally take effect 60 days after being officially published in the Federal Register.  That means the earliest that these types of offerings will be allowed is a year from now, in January 2016. 

 

“Crowdfunding” here means offerings where lower-level investors can purchase stock, LLC units or promissory notes.  This is different than what is touted currently as “crowdfunding.”  The current version is advance sales of goods (pay now, often at a discount, and receive the goods later when they’ve been manufactured) or promotional items or recognition for the money. 

 

In addition, the tea leaves indicate that the SEC is under immense pressure to NOT follow its preliminary Reg. A+ rule.  That preliminary rule would prevent the states from requiring that an offeror also obtain state approval of an offering in excess of $5 million even though the SEC has already approved it.  It’s possible that the recent Republican capture of the U.S. Senate might cause a different result, but that seems unlikely given that state regulators and specific Senators are vehemently opposed to the preliminary rule. 

 

In any case, the question for now is:  What can companies or funds do now to raise investor money that both allows full public advertising and does not require that the investors all be accredited (as the year-old Rule 506c offering does)? 

 

The practical choices are a federal S-1 offering or the current Reg. A offering – both of which can lead to the securities being traded on the over-the-counter market – or a single state qualification by permit.  These require some explanation and will be discussed in the next email/blog-post after this one. 

 

Companies that DON’T need full public advertising can make a traditional Rule 506b offering.  Basically a company can contact potential investors it reasonably believes to be accredited or sophisticated and any type of foreign investor about the offering.  A company can also post information on web sites and social-media sites about what the company does and about this type of investing.  (It cannot provide information about past, current or future offerings, though.)  Those sites can also ask viewers to respond to an investor questionnaire – and the company can provide information about the offering if the responder seems to be accredited or sophisticated (or foreign).  This should not be done without guidance from an attorney, though, as it’s easy to cross over into prohibited solicitation.  A subsequent email/blog-post will discuss this in more detail as well.   

 

Bruce E. Methven

 

*****************************************

 

Ebook

My eBook “Raising Money – Legally” is available at Amazon.

(To see the table of contents, click on the image of the book and then scroll down.)

There are “free Kindle reading apps” for many devices online.

 

More Articles Online
For more information on securities laws, head to Background on the Securities Laws:

www.thecaliforniasecuritiesattorneys.com

 

Disclaimer and Distribution

The foregoing content constitutes general information only and should not be relied upon as legal advice.
You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:

 
Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
Phone: (510) 649-4019; Fax: (510) 649-4024
www.TheCaliforniaSecuritiesAttorneys.com
CaliforniaSecuritiesAttorneys[at]gmail.com
Copyright 2014 Bruce E. Methven, All Rights Reserved.

 

 

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Amendments to Offerings by Bruce E. Methven https://thecaliforniasecuritiesattorneys.com/2013/12/03/amendments-to-offerings-by-bruce-e-methven/ https://thecaliforniasecuritiesattorneys.com/2013/12/03/amendments-to-offerings-by-bruce-e-methven/#respond Tue, 03 Dec 2013 17:32:30 +0000 https://thecaliforniasecuritiesattorneys.com/?p=377 Continue reading ]]> (As always, you may unsubscribe at any time by clicking Reply and putting “Unsubscribe” in the subject line.)

 What does a company do if it has started an offering and then finds that it needs to significantly alter the information provided to investors or change the terms of the offering?  Those changes call for action regarding two groups, the securities regulators and the investors. 

 With respect to the securities regulators, much depends on whether the offering is using registration or an exemption from registration.  Registrations require prior approval from a regulator and include things like a federal S-1 offering or a state qualification by permit.  Exemptions, for example a federal Rule 506 offering, do not require approval but do require that forms be filed with the regulator(s). 

 If the offering is registered, generally the amendment first must be presented to the securities regulator for approval. 

 If the offering is using an exemption from registration, frequently nothing needs to be done unless the change affects information on any forms that have been filed.  In that case an amended form needs to be submitted.  With a Rule 506 offering, for example, Form D must be filed with the SEC.  If the change to the offering requires changes in the prior information provided on Form D, an amended Form D must be filed.  No approval is needed from the regulator, though; all that has to be done is make the filing. 

 Investors are another matter.  If there are updates or material changes to an offering, the private placement memorandum (aka the offering circular or prospectus) should be amended or revised — at least for those who have not yet invested. 

 For those who have already invested, if there are changes that negatively affect a prior investor’s rights or there is information that should have been disclosed previously (versus new information), often the best approach is to make the new disclosures to the prior investors and give them an opportunity to withdraw their investment if they wish.  Assuming a prior investor wishes to stay despite the changes, something in writing signed by that investor should be obtained. 

 On the other hand, if the changes positively affect prior investors’ rights (or are neutral) and do not constitute information that was required to be disclosed originally (perhaps because those events had not yet taken place), there likely is no legal requirement that they be informed, much less that their additional consent be obtained.  Still, it is always good practice to keep investors current regarding developments with the offeror, so in most cases the changes are presented to the prior investors in the form of a letter or an email.   

 Bruce E. Methven

 *****************************************

 Ebook

My eBook “Raising Money – Legally” is available at Amazon.

(To see the table of contents, click on the image of the book and then scroll down.)

There are “free Kindle reading apps” for many devices online.

 More Articles Online

For more information on securities laws, head to Background on the Securities Laws:

www.thecaliforniasecuritiesattorneys.com

 Disclaimer and Distribution

The foregoing content constitutes general information only and should not be relied upon as legal advice.
You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:

 

Bruce E. Methven, 2232 Sixth Street Berkeley, CA 94710
Phone: (510) 649-4019; Fax: (510) 649-4024
www.TheCaliforniaSecuritiesAttorneys.com
CaliforniaSecuritiesAttorneys[at]gmail.com
Copyright 2013 Bruce E. Methven, All Rights Reserved.

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