What is Equity Crowdfunding and Should it Matter to You?

WHAT IS EQUITY CROWDFUNDING AND SHOULD IT MATTER TO YOU?

Part of the ALTERNATIVE INVESTMENT BASIC SERIES 2015 Series

Premier Date: July 9 , 2015


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MEET THE FACULTY

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MODERATOR:Christopher Cahill, Lowis & Gellen, LLP


PANELISTS:Benjamin Alexander, Greenberg Glusker Fields Claman & Machtinger LLPSara Hanks, CrowdCheckHeather Schwarz-Lopes, EarlyShares.com

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Practical and entertaining education for business owners and executives, Accredited Investors, and their

legal and financial advisors.

For more information, visit www.financialpoisewebinars.com

DISCLAIMER:

THE MATERIAL IN THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY. IT SHOULD NOT BE CONSIDERED LEGAL ADVICE. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE WHAT

MAY BE BEST FOR YOUR INDIVIDUAL NEEDS

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http://www.financialpoise.com/

ABOUT THIS SERIES

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The personal investment landscape in the United States is undergoing the greatest transformation since the popularization of the mutual fund. The JOBS Act of 2012 lifted the ban that previously prevented private placements from being advertised. At this point, millions of accredited investors are only beginning to understand that there are investment options available to them that they never before considered. This webinar series was created for those millions of Americans who meet the federal government’s definition of “accredited investor,” to help them decide if some of their investment dollars should be allocated away from stocks, bonds, mutual funds, and the like and into the asset class that is commonly referred to as “alternatives,” which includes PE, VC, hedge funds, private placements, and hard assets (things like gold, land, comic books, and much else). Like all Financial Poise webinars, each episode in the series is designed to be viewed independently of the other episodes: think sitcom rather than soap opera.

ABOUT THIS EPISODE

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Crowdfunding is a term used to describe raising money through the Internet. It has been for several years to help fund such things as artistic endeavors, typically through small individual contributions from a large number of people. It has not, however, generally been used as a means to offer and sell securities. This is changing because Titles II, III and IV of the JOBS Act established the foundation for a regulatory structure that will permit businesses to use crowdfunding to sell securities. Attend this webinar to learn all about equity crowdfunding.

EPISODES IN THIS SERIES

EPISODE #1 Are you an Accredited Investor, and if you are, so what? 5/7/15

EPISODE #2 What is the JOBS Act and Why Should You Care? 6/4/15

EPISODE #3 What is Equity Crowdfunding and Should it Matter to You? 7/9/15

EPISODE #4 Angel Groups vs. 506(b) Platforms 8/6/15

EPISODE #5 The Nuts & Bolts of Investing in a VC Fund 9/10/15

EPISODE #6 The Nuts & Bolts of Investing in Pre-IPO Shares 10/8/15

EPISODE #7 The Nuts & Bolts of Investing in a PE Fund 10/29/15

EPISODE #8 The Nuts & Bolts of Hedge Fund 11/12/15

EPISODE #9 Basic Investment Principles- from Asset Allocation to Z Scores 12/3/15

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(Dates below are premier dates; all webinars also on demand)


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What is equity crowdfunding?


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• Large numbers of investors make small investments in small business or start-up over the internet-Is the internet an essential component?

• Expands family and friends investment stage-Traditional progression of early-stage funding- Early-stage funding today

• Different from donation/rewards crowdfunding-Different laws- Different motivations

• The role of the crowd• Is this new?

CroCwdfunding under JOBS Act

• Pre JOBS Act landscape• Title III of JOBS Act authorized crowdfunding: Section 4(a)(6)

of Securities Act of 1933 will permit offerings not registered with SEC that meet specified conditions; SEC published Proposed Rules in 2013

In the meantime, focus turned to Title II of the JOBS Act and “accredited crowdfunding”

And Title IV of the JOBS Act and “registered crowdfunding”

Crowdfunding under JOBS Act


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The current sThtaThetThe e of online offerings

• Already legal: Rule 506 accredited offerings- Rule 506(b)- Rule 506(c)

• Legal as of today: offerings to everyone under Regulation A• Not yet legal: offerings to everyone under Regulation CF• Legal in some states: intrastate crowdfunding• Slow development . . . Why?

- Issuer reluctance- Investor reluctance: who would buy shares in unknown small companies over the internet?

The current state of online offerings


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JOBS Act/SEC changes to Regulation A

Creation of two “tiers”-- Tier 1: essentially old Regulation A

Reviewed by SEC and statesStates developed “coordinated review” process

-- Tier 2: streamlined mini-IPO (A+)Reviewed by SEC onlyAudited financialsOngoing reporting requirements

Conditional exemption from full registration State lawsuits

JOBS Act/SEC changes to Regulation A


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Is Regulation A “crowdfunding”?

Not all Regulation A offerings are crowdfunding, or even online

Ability to use internet, and especially for “testing the waters”

Large numbers of small investors (without triggering 12(g) registration requirements)

No crowd commentary function mandated


Is Regulation A “crowdfunding”?

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Eligible issuers and securities

Eligible issuers-- US or Canadian-- Non-SEC reporting-- No investment companies (no SPVs)-- No blank check companies

Eligible securities-- Debt/equity/warrants ok-- No asset-backed securities


Eligible issuers and securities

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Investors

For Tier 2:-- Accredited: no limit -- Non-accredited: limited to 10% of income or net worth

For Tier 1 no limit


Investors

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“Test the waters”

Before any filing, and up to qualification, can solicit interest-- Tier 2, no filing required-- Tier 1, no state preemption of offers, TTW will depend on state law and filing might be required

No mandated disclosure Other than warning that not binding Antifraud rules apply TTW materials filed as Exhibits; will be reviewed


“Test the waters”

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Disclosure requirements Basic identifying information about the company

Risk factors of the offering

The business and assets of the company

Any offering price considerations

Projected use of proceeds

Capitalization of the company

A description of the securities

The plan of distribution


Disclosure requirements

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Disclosure requirements

Identification and experience of officers and key personnel

Identification and experience of the directors

Identification of principal owners

Compensation to management and related party transactions

Legal actions in which the company is involved

Tax aspects of the investment

Management discussion and analysis


Disclosure requirements, cont.

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Financial disclosure

Two years’ financial statements Can be up to 9 months old Audited if Tier 2

Tier 1 advantage largely illusory; some states require audited financials

US GAAP


Financial disclosure

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Exhibits

Constitutive documents Underwriting and subscription

agreements Material contracts

Confidential treatment requests TTW materials


Exhibits

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SEC review process

File with SEC, receive comments Same process as full registration Can make offers through TTW materials (Tier 2

only, in practice) or Preliminary Offering CircularCan make sales after Offering Statement

qualifiedWhy Reg A may be useful for cannabis

companies


SEC review process

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MORE ABOUT THE FACULTY

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BENJAMIN ALEXANDER

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Benjamin Alexander is a corporate partner of Greenberg Glusker Fields Claman & Machtinger LLP and he represents start-up enterprises, venture-backed companies, family-owned businesses and publicly-traded companies in areas including corporate finance, mergers and acquisitions, licensing, e-commerce, securities compliance and corporate governance.

Benjamin's experience includes representing both issuers and underwriters on public offerings and private placements of securities, mergers, acquisitions, reverse mergers, IPOs, PIPEs, '33 Act registration statements, going private transaction, equity compensation plans, contested proxy solicitations, asset based lines of credit, sales of public companies, and '34 Act and blue sky compliance. His experience also includes counseling life science, medical technology, software, Internet and new media organizations on licensing, joint ventures and strategic alliances, as well as general corporate matters. He is admitted to practice law in California, Rhode Island, and Massachusetts.

Previously, as general counsel of a public company trading on the NASDAQ Global Market, Benjamin advised the company's management team in areas including corporate finance, corporate governance, SEC registrations and reporting, Sarbanes-Oxley compliance, employment law, litigation management, intellectual property law, licensing and contracting.

Before entering the legal profession, Benjamin worked as a systems engineer, specializing in digital circuit design, programming and systems integration.


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CHRISTOPHER CAHILL

Mr. Cahill is counsel with Lowis & Gellen LLP, in Chicago, Illinois. He guides secured lenders, creditors, debtors, creditors’ committees, potential purchasers and others through bankruptcy cases, out-of-court workouts, assignments for the benefit of creditors, and receiverships. Mr. Cahill has substantial mega-case experience at national law firms representing very large debtors, and has counseled and litigated on behalf of manufacturers and secured lenders in large and middle-market cases.

Mr. Cahill also publishes frequently and speaks regularly on commercial insolvency issues. He is an executive editor of Commercial Bankruptcy Litigation, 2d Edition (Jonathan P. Friedland, Elizabeth Vandesteeg & Christopher M. Cahill eds., 2015) and is the host of Accredited Investor Markets Radio, a weekly broadcast for investors, on accreditedinvestormarkets.com.


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http://www.accreditedinvestormarkets.com/aimkts-radio/


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SARA HANKS


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Sara Hanks, co-founder and CEO of CrowdCheck, is an attorney with over 30 years of experience in the corporate and securities field. CrowdCheck provides due diligence and compliance services for online alternative securities offerings. Its services help entrepreneurs and project sponsors through the disclosure and due diligence process, give investors the information they need to make an informed investment decision and avoid fraud and help intermediaries avoid liability.

Sara’s prior position was General Counsel of the bipartisan Congressional Oversight Panel, the overseer of the Troubled Asset Relief Program (TARP). Prior to that, Sara spent many years as a partner of Clifford Chance, one of the world’s largest law firms. While at Clifford Chance, she advised on capital markets transactions and corporate matters for companies throughout the world. Sara began her career with the London law firm Norton Rose. She later joined the Securities and Exchange Commission and as Chief of the Office of International Corporate Finance led the team drafting regulations that put into place a new generation of rules governing the capital-raising process.

Sara received her law degree from Oxford University and is a member of the New York and DC bars and a Solicitor of the Supreme Court of England and Wales. She serves on the SEC’s Advisory Council on Small and Emerging Companies. She holds a Series 65 securities license as a registered investment advisor. Sara is an aunt. Army wife, skier, cyclist, gardener and animal lover.


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JORDAN FISHFELD

Jordan Fishfeld is the founder and Chief Executive Officer of PeerRealty. He focuses his time on the development of strategic partnerships with investors, sponsors, and developers, while ensuring all deals are strong and viable. With over 8 years of investing, development and sales experience in the real estate industry, Jordan understands the benefits of strong and tangible assets.Prior to founding PeerRealty, Jordan worked as a finance attorney for Katten Muchin Rosenman, LLP, where he assisted on more than $1 billion worth of syndicated loan transactions. Before graduate school, Jordan worked as a law clerk for a New York based real estate firm, representing lenders for properties valued at over $45 million.

Jordan holds Bachelor of Arts in Political Science and Bachelor of Science in Business Administration degrees from the University of Florida. Jordan also received Master of Business Administration and Juris Doctorate degrees from the University of Miami, where he graduated Magna Cum Laude.


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To be published in June 2015.More information at http://www.ec4i.com

(Image reproduced with permission of John Wiley & Sons)

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The JOBS Act & the accredited investor: What every accredited investor should

know before investing in alternative assets

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The ChamberWise™ Education Consortium is a resource for Chambers of Commerce to provide its members with valuable member benefits by offering relevant business education webinars; and generate revenue for the Chamber as well.

27©2015

Visit www.chamberwise.org


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About Financial Poise™

DailyDAC, LLC, d/b/a Financial Poise™ provides continuing education to business owners and executives, investors, and their respective trusted advisors. Its

websites, webinars, and books provide Plain English, sometimes entertaining, explanations about legal, financial, and other subjects of interest to these

audiences.

©2015


IMPORTANT NOTE:THE MATERIAL IN THIS PRESENTATION IS FOR

GENERAL EDUCATIONAL PURPOSES ONLY. IT SHOULD NOT BE CONSIDERED LEGAL,

INVESTMENT, FINANCIAL, OR ANY OTHER TYPE OF ADVICE ON WHICH YOU SHOULD RELY.

YOU SHOULD CONSULT WITH AN APPROPRIATE PROFESSIONAL ADVISOR TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

29©2015


What is Equity Crowdfunding and Should it Matter to You?

Education

Transcript of What is Equity Crowdfunding and Should it Matter to You?