The Crowdfunding Platform presents

Equity Crowdfunding Comes of Age: The New Rules

for Raising Capital

Joanna Schwartz, CEO of EarlyShares.com Doug Ellenoff, Partner at Ellenoff Grossman & Schole LLP

§  The information which is being shared with you today seeks and may answer some questions of yours related to Title II and the developments which are being observed within the online funding platform industry, but is not intended as a comprehensive analysis of the topic or situations directly impacting you and any of your existing operations. In addition, this information should not be relied upon as legal advice– these are only general observations of ours. You are encouraged to speak with your own securities counsel. Your counsel may analyze the same facts and rules differently and come to dramatically different conclusions and recommendations for you.

§  Visit www.SEC.gov §  This information is supplied from sources we believe to be reliable but we

cannot guarantee its accuracy.

§  This presentation is made solely for the interest of the participants on this call and should in no way be relied upon or construed as legal advice. For specific information on particular factual situations, an opinion of your legal counsel should be sought.

Disclaimer of Liability

Speakers

Joanna Schwartz CEO, EarlyShares

Douglas S.Ellenoff, ESQ

Ellenoff, Grossman & Schole

§  EG&S has been one of the most active IPO law firms in the US for the last 5 years (top 20 in 2012 and 4th in 2011) §  #1 Broker-Dealer counsel for PIPEs and Registered Directs §  #1 world wide for SPACs and SPACquisitions. §  We represent 50 public companies.

§  Heavily involved in crowdfunding. The Firm has sponsored conferences, webinars and has been invited to speak at different events on the topic. 

§  Douglas S. Ellenoff has met with the SEC several times to discuss many aspects of the proposed new law, how the industry currently operates and how both the SEC and FINRA will register and regulate funding portals and the crowdfunding activity to be conducted. 

§  The Firm is actively engaged with clients (funding portals, broker-dealers, technology solution providers, software developers, investors and entrepreneurs).   In cooperation with the industry trade association, the Firm is discussing what level of regulatory review and monitoring is appropriate by the SEC and FINRA in balancing the interests of the program with investor protection.

EG&S and Crowdfunding

Today’s Webinar

§ JOBS Act- The Basics

§ Changes in effect NOW

§ Proposed Rules in the FUTURE

§ Working with EarlyShares

99.7% US !rms classi!ed as Small Business

64%

New private sector jobs created by Small Business

49.2% Private sector employed by Small Business

Small Businesses drive the US Economy

Why the JOBS Act?

1.39% Chance of securing

angel funding

0.25%

Chance of securing VC funding

(17%)

Decline in small business lending

(44%)

Reduction in % allocated to small

business loans

Why the JOBS Act?

$33 Trillion

Investable Personal Savings

Sources: www.thecrowdcafe.com & Kickstarter, Deloitte Report Jan 2013, Massolution, CF Industry Report, Forbes, Inc., FDIC

Title III- Equity Crowdfunding §  Implementation pending !nal rules from SEC

§ Opens door to unaccredited investors

§  Small businesses can raise up to $1million per year

§  Raises through Broker-Dealer or online funding portal

JOBS Act –The Basics- Title III

Title II- Lifts the Ban on General Solicitation §  Effective now- Companies can advertise capital raises

§ Working under securities exemption- Reg. D, Rule 506(c) §  Only Accredited investors can participate- must verify

§  Bad Actors disquali!ed from participating §  Additional rules being evaluated- SEC comment period

JOBS Act –The Basics- Title II

§  General Solicitation under 506(c) §  An issuer may still choose to conduct a private offering in

reliance on Rule 506(b) without using general solicitation §  All purchasers of securities must be accredited investors §  Under 506(c) burden of investor veri!cation shifts to issuer –

must take reasonable steps to verify §  The anti-fraud rules continue to apply

Private Placement General Solicitation

Methods that may be used to satisfy the veri!cation requirement include: §  A review of IRS forms for the two most recent years and a written

representation regarding the individual’s expectation of attaining the necessary income level for the current year;

§  A review of bank statements, brokerage statements, tax assessments, etc. to assess assets, and a consumer report or credit report from at least one consumer reporting agency to assess liabilities;

§  A written con!rmation from a registered broker-dealer, RIA, CPA, etc.

§  For existing investors (pre-506(c) effective date), a certi!cation

Reasonable Steps to Verify

§  Market participants, especially registered broker-dealers,

should consider applicable FINRA rules, including, for example

FINRA Rule 5123 and Rule 2210 (communications rule)

§  There are already a number of third-party providers that have

indicated that they intend to offer investor veri!cation services

§  Third-party providers of veri!cation type services should

consider closely the regulations relating to handling personal

identifying information

Third Party Veri!cation

§ Prohibits issuers, underwriters, placement agents,

directors, of!cers, and shareholders of the issuer, from

participating in exempt securities offerings, if they

have been convicted of, or are subject to court or

administrative sanctions for, securities fraud or other

violations of speci!ed laws.

Bad Actor Disquali!cation

Under review and comment- not yet in effect §  Advance For D !ling 15 days before sale

§  Closing Form D !ling 30 days after sale complete

§  All General Solicitation materials to contain Legends

§  Submission to SEC of all General Solicitation materials

§  Severe penalty for breach- 1 year ban on fundraising

EarlyShares submitted letter of comment & recommendations to the SEC. Available at www.earlyshares.com

Additional PROPOSED Rules

Simplifying the Complexity…

EarlyShares Guides Issuers & Investors through the process

§  Due Diligence

§  Regulatory Filings

§  Investor Veri!cation

§  Offering Docs

§  Marketing, Social Tools, Reach

§  Investor Relations

*We do not replace legal counsel and do not offer legal advice. All participants are encouraged to seek representation speci!c to their capital raising activities.

Issuer Process Overview §  Submit initial application

§  Screened by EarlyShares

§  EarlyShares Account Manager assigned

§  3rd Party Due Diligence

§  Prepare Legal Deal Docs, consult attorney

§  Prepare Live Offering Page- set permissions

§  Invite Investors

§  Campaign goes Live!

Investor Process Overview §  Register & Complete Investor Accreditation Process

§  Request Access to Con!dential Offers

§  Complete your own due diligence

§  Select "Invest" and begin the investment process

§  Complete "Commitment" page including your investment amount & personal details

§  E-Sign Deal Documents

§  Accreditation status veri!cation by 3rd Party

§  Investment Con!rmation

What to Expect on EarlyShares §  Capital raises full spectrum

§  Direct and Fund investments

§  Variety of industries- unique opportunities

§  New partnerships

§  Equity and Reward combination campaigns

§  Regulatory updates

§  Education sessions

Thanks for tuning in.

If you have questions please contact us at info@earlyshares.com

Follow us at

@EarlyShares

@EarlySharesCEO

@DouglasEllenoff