Whether You Are One of the 188 Million New Non-Accredited Investors or a Small Startup or Existing Business that Wants to Learn More about Issuing a Title III or Title IV Reg. A+ Equity Crowdfunding Campaign You Should Read through All of the Information Below
By Robert Hoskins
Austin, Texas (May 2, 2016) – The best way to educate yourself on the Title III investment/investing marketplace is to perform a thorough competitive analysis on all of the Top Equity Crowdfunding Sites and/or the Top Reg. A+ Equity Crowdfunding Sites in the United States, the United Kingdom and Israel, which is where most of the top crowdfunding platforms are based.
A Crowdfunding Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms
Our Top 100 Crowdfunding Lists are based on website traffic, which should be a first step in determining how many eyes are being delivered by every site. This will highlight how many crowdfunding campaigns are being launched as well as how many investors are visiting the equity crowdfunding site on a monthly basis.
There has been a great deal of content generated that covers that the Title III Equity Crowdfunding rules that will begin on May 16, 2016 so I will skip repeating the basic information. Up until the past 12-months not much has been written about how to evaluate the up an coming Title III equity crowdfunding deals.
So the purpose of this article is provide lots or relevant documentation that has been written by leading university legal departments and law firms that will soon be guiding investors and issuers through the process of issuing Title III and Title IV Reg. A+ equity crowdfunding securities.
Great Equity Crowdfunding Research Articles:
1. The Coming ‘Transformation’ in Private Capital Markets – This article provides a really good overview of the equity crowdfunding industry to date.
2. Duke Law School – The Social Network and the Crowdfund Act: Zuckerberg, Saverin, and Venture Capitalists’ Dilution of the Crowd – This provides really good a good overview of how to avoid stock holder dilution and making sure that early stockholders are included fair and justly in every exit strategy. It also provides examples of how Zuckerberg diluted one of his business partners right out of the Facebook fortune.
TABLE OF CONTENTS
- CROWDFUNDING OVERVIEW
A. The Five Models of Crowdfunding
B. Examples of Crowdfunding
C. The Transformative Power of Crowdfunding
- POLITICAL INFLUENCES
A. Securities-Law Prohibitions on Crowdfunding
B. Democratic Push for Crowdfunding
C. Crowdfunding under the JOBS Act
- THEORETICAL TENSIONS
A. Paternalistic Impulses: The Rule 504 Lesson
B. Securities Regulation: Disclosure vs. Merit Review
- VENTURE CAPITALIST ELITES AND THE MASSES
A. Vertical and Horizontal Risks
B. Downside and Upside Risks
1. Financing Rounds, Exits, and Protecting Crowdfunders
a. Price-Based Anti-Dilution Protection
b. Shares-Based Anti-Dilution Protection
c. Tag-Along Rights
d. Preemptive Rights
5. QUALITATIVE PROTECTIONS FOR CROWDFUNDERS
A. Contractual Provisions
B. Venture Capital–Deal-Terms Disclosure Table
C. Congressional and Regulatory Action
3. Harvard Business Law Review – Equity Crowdfunding: The Real and the Illusory Exemption – This document has a good section that discusses investment syndicates and why novice investors should follow lead angel investors until they get the hang of assessing crowdfunding securities risk.
TABLE OF CONTENTS INTRODUCTION
A. An introduction to crowdfunding
B. The rationale for a new exemption
C. The legislative history of the retail crowdfunding exemption
D. The quiet compromise
II. TWO CROWDFUNDING EXEMPTIONS COMPARED
A. Affordability in small offerings
B. Access to potential investors
C. Investor protection
D. Summary and implications
III. AN INCENTIVES-BASED THEORY OF INVESTOR PROTECTION
A. The public theory and retail crowdfunding
B. The private theory and accredited crowdfunding
C. A theory to describe the spectrum
IV. ASSESSING POTENTIAL SEC ACTION
A. Pooled investments managed by a lead investor
B. Public company regulation
D. Liquidity risk
E. Integration and aggregation
F. Substantial compliance
G. The accredited investor definition
A. Strengthen accredited investor bargaining power
B. Encourage retail investors to piggyback
C. Harmonize the resale and substantial compliance rules
D. Generate empirical data and conduct a special study
4. David M. Freedman and Matthew R. Nutting – Equity Crowdfunding for Investors: A Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms, which I have not read, but the following paragraph descriptions definitely look worth reading while learning the the Title III equity crowdfunding securities investment process.
Preface: The New Angel Investors
In 1977, Mike Markkula became the first angel investor in Apple Computer. His $80,000 stake in Apple grew into about $200 million when the company went public three years later. Few opportunities can generate personal wealth as profoundly as being a founder or early investor in a startup that achieves that sort of grand success. Before 2012, however, angel investing was strictly limited to wealthy and extremely well connected people. Thanks to Title III of the JOBS Act of 2012, tens of millions of average investors will, for the first time in several decades, have an opportunity to invest in growing startups and early-stage companies via equity crowdfunding portals. This book covers not only Title III crowdfunding, but Regulation D offering platforms and intrastate securities exemptions (in at least 18 states) as well.
Chapter 1: The Foundations of Online Crowdfunding
Internet crowdfunding gained traction around 2003, starting with rewards-based platforms like ArtistShare, Kickstarter, and Indiegogo. They were followed by donation-based platforms like GoFundMe. Securities (debt- and equity-based) offering platforms launched around 2011 in the United States. Equity offering platforms were still open to accredited investors only, however. The JOBS (Jumpstart Our Business Startups) Act of 2012 legalized a new form of equity crowdfunding for all investors regardless of income or net worth. This chapter clarifies the differences between the various kinds of crowdfunding and provides lessons for investors about risk, reward, fraud prevention, and the wisdom of the crowd.
Chapter 2: Equity Offerings under Reg. D
Starting in 2011 in the United States, startups and early-stage companies began offering securities to accredited investors through Web-based offering platforms, under Rule 506 of Regulation D. Issuers could raise an unlimited amount of equity capital via Reg D platforms. Title II of the JOBS Act of 2012 lifted the ban on general solicitation for offerings made under new Rule 506(c). We profile two pioneers in Reg D offering platforms: MicroVentures (focusing on tech startups) and CircleUp (focusing on earlystage consumer products and retail companies).
Chapter 3: Equity Crowdfunding for All Investors
Title III of the JOBS Act of 2012 created a legal framework for equity crowdfunding, whereby all investors (not just wealthy “accredited” investors) can buy securities issued by startups and early-stage companies. The regulations limit the amount of money investors can invest in equity crowdfunding offerings each year, based on their income and/or net worth.
Chapter 4: Intrastate Crowdfunding, Non-accredited Investors
At least a dozen states got a jumpstart on equity crowdfunding, using the “intrastate exemption” to initiate regulatory frameworks for in-state equity crowdfunding. Georgia was the first U.S. state in which an equity crowdfunding portal successfully funded a startup with participation of non-accredited investors.
Chapter 5: Deal Flow
What kinds of companies will offer equity shares on Title III crowdfunding portals? Will they really have high growth potential and be worth investing in? Will there be a big enough supply of offerings to meet the demand of tens of millions of new angel investors? In this chapter we forecast what kinds of companies— in terms of industry, development stage, growth potential, and other characteristics—will represent the most attractive Title III deals for all (including non-accredited) investors.
Chapter 6: Angel Investors
In depth, we discuss the benefits, returns, costs, and risks of investing in startups and early-stage companies via equity crowdfunding. The possibility of earning spectacular return on investment (even if not very likely) is one attraction of angel investing. We discuss how the emergence of equity crowdfunding creates a new class of angel investors, with some of the same motives and benefits as traditional angels but some new ones, too—especially social benefits.
Chapter 7: How to Navigate through Title III Offerings
This chapter offers a glimpse behind the scenes of equity crowdfunding portals—how they are regulated, the difference between “funding portals” and broker-dealer platforms, how they decide whether to approve or reject issuers’ applications, how investors communicate with each other, and using an investor dashboard.
Chapter 8: How to Invest, Part 1: Portfolio Strategy
A three- to five-year plan for building an equity crowdfunding portfolio Investing in private securities, including Title III offerings, is one way to diversify your investment portfolio. This chapter helps you decide what percentage of your portfolio assets should be devoted to “non-correlated” alternative assets like Title III offerings; identify your primary motives for investing in startups and early-stage companies so you can narrow down the kinds of offerings that you consider; create an equity crowdfunding budget, pinpointing the amount of money that you can invest each year over three to five years; and build a diversified equity crowdfunding portfolio.
Chapter 9: How to Invest, Part 2: Identify Suitable Offerings
How narrow down your choice of Title III offerings, based on your selection criteria—the first of which is identifying your social, personal, and/or financial motivation for investing in startups and early-stage companies.
Chapter 10: Equity Crowdfunding Securities
Title III equity offerings are predominantly C corporation stock, limited liability company membership units, and convertible debt. This chapter covers the fundamentals of each of those securities (including both common and preferred stock), and their advantages and drawbacks for both issuers and investors.
Chapter 11: Deal Terms
We provide concise explanations of the terms of private securities deals, in four categories: economic terms (like price per share, minimum investment, fully diluted valuation, etc.); control terms (protective provisions, veto power, etc.); terms relating to liquidity events and future financing (liquidation preferences, anti-dilution provisions); and other terms (conversion rights, dividends, redemption rights, right of first refusal, etc.).
Chapter 12: How to Invest, Part 3: Due Diligence
How to research an issuer’s management team, financial reports, revenue projections, business strategy, regulatory compliance, and other key indicators. You have the option of conducting due diligence independently, relying on a sophisticated “lead investor,” hiring a professional adviser, and/or collaborating with members of the crowd through on-platform discussions and Q&A forums.
Chapter 13: How to Invest, Part 4: Funding and Post-funding
We talk about the on-platform investment transaction, your rights and obligations as a shareholder, and how to monitor and manage your equity crowdfunding portfolio.
Chapter 14: Liquidity and Secondary Markets
Equity crowdfunding securities are relatively illiquid, especially in the first 12 months that you hold the investment. Secondary markets will probably develop over the next few years to provide liquidity to Title III securities. We look back at how secondary markets developed for accredited investors in the past 10 years, and project how they might develop for all investors in the near future.
5. Charting a New Revolution in Equity Crowdfunding: The Rise of State Crowdfunding Regimes in the Response to the Inadequacy of the Title III JOBS Act – Good analysis of intrastate crowdfunding exemptions.
6. The Next British Invasion is Securities Crowdfunding: How Issuing Non-Registered Securities through the Crowd Can Succeed in the United States – Good analysis of equity crowdfunding in the U.K.
7. Breaking New Ground: The Americas Alternative Finance Benchmarking Report – Research report on peer to peer lending, another form of alternative finance.
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Mr. Hoskins is a seasoned marketing veteran with a proven track record of helping entrepreneurs, startups, small businesses as well as Fortune 500 corporations launch successful marketing communications campaigns to gain market traction for a wide variety of products and services.
Hoskins is one of the crowdfunding industry’s foremost crowdfunding advocates and has amassed a huge social media following that is dedicated to supporting donation-, rewards- and equity-based crowdfunding campaigns. Due to the overwhelming demand from the general public for crowdfunding information, he empowers entrepreneurs with some of the internet’s most affordable ($20) online crowdfunding training classes, which provide insight to startups around the world on a 24 x 7 basis.
Hoskins adamantly believes that the crowdfunding industry will empower everyone in the United States to rediscover the possibility of living the American dream with a little hard work, a great business idea and the dedication to researching, planning and launching a well-thought-out crowdfunding campaign. He consults on a regular basis with crowdfunding campaign managers as well as crowdfunding sites, portals and platforms to deliver successful crowdfunding marketing campaigns.