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
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