CrowdfundingA New Way of Fueling Businesses

Shane FleenorChief Legal Officer / Founder

shane@fundinglaunchpad.com857.998.1830

PersonalEast Coast Refugee; Moved to Denver from NYC in January 2012. Skier, backpacker, music fan, connoisseur of craft beer and nice whiskey. Bought 3 bikes since moving to Colorado.

Professional• Co-founder Funding Launchpad• Practiced corporate/transactional/securities law at large

New York law firms for five years

March 28, 2013

Is Crowdfunding New?

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Types of Crowdfunding

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Donation

Types of Crowdfunding

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Reward

Types of Kickstarter Projects

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Image Credit:Kickstarter blog

Crowdfunding Benefits

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Types of Crowdfunding

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Micro-Finance

Types of Crowdfunding

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Investment

1933 and 1934

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The Spark

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Image Credit:Gplus.com

The Legal Issue

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What Was the Problem with the PBR Deal?

In general, a company (a.k.a. an “issuer”) can’t sell securities (e.g. stock, debt) to the public, unless that company has either:

a) registered its securities offering with the SEC (an expensive, time consuming process – think IPO), or

b) Has an exemption from registration that it can rely on.

The PBR guys were selling unregistered securities in Buy a Beer Company LLC without an exemption!

Types of Crowdfunding

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Investment

• $1M per 12 month period

• Per-investor limit depends on income/net worth-ranges from $2000 to $100k-across all deals annually!

• Must use an intermediary

• No registration needed

• Can also raise via other means

HR3606 – JOBS Act Title III

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• Stock or debt-based offerings

• Robust disclosures required

• Investor education requirements

• Background check on issuers

• Must hit target for funds to transfer

• Requires audited financials if >$500k; or reviewed financials if >$100k

• Rules will come out…???

HR3606 Title III

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• Lifts General Solicitation Ban on Reg D Rule 506 Offerings

* “Accredited Crowdfunding”

• Unlimited Raise/Investment Amount

• ALL Investors Must be Accredited (self-cert no longer adequate)

• Same disclosure as for present private offerings (PPM, Term Sheet)

• Final rules expected late spring/early summer 2013

HR3606 Title II

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• As an aside, we are diving into the Reg D 506 business

• Will soon announce partnership with a broker-dealer; founders will become FINRA-registered reps of the BD

• “Grofolio” will be the name of this platform; Funding Launchpad reserved for perks crowdfunding

• This rebrand is important -- FINRA is very concerned about investor confusion that could result from platforms that combine perks and investment crowdfunding

• Shows just how highly regulated this industry will be

Clarification/Shameless Plug

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When Can I Crowdfund?

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• Donation or Rewards-based offering – Today

• “Accredited Crowdfunding” – Next few months

• Title III Investment Crowdfunding – Spring 2014?

• Crowdfunding via Registered Offering – Today*• $1M+ total per 12-month period (varies by type)• General solicitation OK• Non-accredited investors OK

* But don’t get too excited…

Types of DPOs

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• SCOR• 45 states; multi-state review• $1m per 12 months• Designed for small businesses

• Other Intrastate Offerings• Nearly all states; generally registered, a few are exemptions• Limits vary; $1m is common

• Reg A• Federal; $5m limit (soon $50m)

• S-1 (“Going public” but not using an underwriter)

Crowdfunding a SCOR

18Disclaimer: Funding Launchpad is not offering to sell these securities

Crowdfunding a SCOR

19Disclaimer: Funding Launchpad is not offering to sell these securities

Fraud Concern?

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Costs and Concerns

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• Time & energy - raising money is serious business!

• Must put a lot of information out in public

• Takes money to make money - costs associated with any model of raising money

• Messy cap table for follow-on investments

• Dealing with hundreds of investors

Crowdfunding Benefits

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• Great brand exposure (especially now!)

• Market validation

• Turn customers into evangelists for your brand

• Feedback from potential investors

• Find teammates, partners, clients…

• Ongoing “smart money” support from investors

So Where Does That Leave Us?

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• Unfortunately, raising money will continue to be a time-consuming task; crowdfunding isn’t magic.

• But entrepreneurs have been handed an exciting new set of fundraising tools, and ordinary investors will soon be free to participate in a broader slice of the capital markets than ever before.

• Remember: its still a securities offering, subject to heavy regulation and maddenly complex laws. Get a lawyer.

• The new laws aren’t ideal; the rules won’t be either. But it’s a step in the right direction -- its progress. “Revolution” is a lofty term, but the fact is these are some of the biggest changes to the fundraising landscape since the Great Depression.

• Its an exciting time to be an emerging business!

CrowdfundingA New Way of Fueling Businesses

Shane FleenorChief Legal Officer / Founder

shane@fundinglaunchpad.com857.998.1830

March 28, 2013

Thanks!

Questions? Comments?