The Internet is Revolutionizing How Businesses Raise Funding

Transcription

1 The Internet is Revolutionizing How Businesses Raise Funding Securities offered through Localstake Marketplace, LLC. Member FINRA/SIPC. This is not an offer and when offered, securities are private placements under Regulation D or other securities laws and involve risks. Investment products are not FDIC insured, may lose value, and there is no bank guarantee. There is no guarantee of a return on your investment.

2 Disclosure I do not have a J.D. or Esq. after my name. Therefore, I am not an attorney and do not give legal advice. That is what you are for. I also don t have my CPA and don t give tax advice. So why am I even up here talking?

3 Regulation D Rule 506(c)

4 SEC Rule Change Original concept: Regulation D allows certain exemptions from SEC registration Existing Rule 506(b) exemption no dollar cap, but cannot advertise that you are raising money New provision 506(c) no more ban on general solicitation and advertising, but: o Heightened duty to assure only accredited investors participate o Self attestation of accreditation no longer permitted o Issuers must take reasonable steps to verify accreditation of investors In the first 6 months since Rule 506(c) became effective, it has been used in approx. 900 offerings raising over $10 billion in new capital

5 Reasonable Steps Under 506(c) SEC Rule has a list of 4 non-exclusive, non-mandatory verification methods: For current investors, the company obtains a written certification from the investor at the time of sale of securities. Company obtains a written representation from a 3 rd party (i.e. broker dealer, investment advisor, attorney or accountant) that such third party has taken reasonable steps to verify within the last 3 months. If using net income standard, company (i) reviews IRS forms (i.e., W-2's, 1040, etc.) for past 2 years and (ii) obtains written representation as to current year. If using net worth standard, company (i) reviews bank statements, brokerage statements, etc. dated within last 3 months and (ii) obtains written representation that all liabilities have been disclosed.

6 Tips and Good Practices Consider if the marketing will really help you Investor s ability to understand the offering Amount of capital need Potential investor base If you are going to use 506(c), market well Actually market Hire a marketing firm Get quality marketing collateral I saw them on TV I saw them on the web If you don t think you need 506(c), don t use it Accreditation verification is a potential issue Don t show investors everything Have a profile page and some type of expression of interest to learn more Keep your offering materials behind some type of gate or page I saw them on a billboard Investors just don t magically appear It s still going to take time to close investors

7 Intrastate Crowdfunding

8 New Intrastate Investment Crowdfunding Laws

9 Rule 147 and Intrastate Crowdfunding- For Issuers Company must be a resident and doing business within the state in which all offers and sales of securities are made. Resident: Company is deemed to be resident of the state in which (i) it is incorporated or organized, or (ii) its principal office is located. Doing Business Within: Company is deemed to be doing business within a state if: the company derived at least 80% of its gross revenues within such state; at least 80% of the company's assets are located within such state; the company intends to use and uses at least 80% of the net proceeds of the offering in connection with the operation of a business or of real property, the purchase of real property located in, or the rendering of services within such state; and the principal office of the company is located within such state.

10 Rule 147 and Intrastate Crowdfunding- For Issuers (Part 2) No restriction as to type of security that can be offered: can be equity, debt, revenue share Not restricted as to the type of industry the business has to be in Submit to state: Fee + Notice form + Information being provide to investors Submit to investors: Business plan/disclosure document Information on potential risks Escrow agreement (with bank located in and/or registered in state) During fundraise: offers and sales can only be made to residents After fundraise: reporting requirements every quarter to investors and state

11 Rule 147 and Intrastate Crowdfunding- For Investors Offers and sales of securities can be made only to persons resident within the state of which the company is a resident. Most state laws have investor limits for non-accredited investors (i.e. $5,000 or $10,000) Investor accreditation verification may also be required

12 Tips and Good Practices Choose your security wisely Do you really want 50, 100, or 200 equity investors? What is the cost to send out that many K-1s? Are you the right type of company? Life science company- no Brewery- yes Some states require you to use a portal and some states don t Some states like crowdfunding and others don t like crowdfunding This is new territory and there is some grey area

13 Benefits of Investment Crowdfunding for Businesses 1. Funding 2. Marketing 3. Customers

14 What to Consider if a Client is Looking to Facilitate an Online Fundraise

15 What To Consider When Selecting A Platform Not all platforms will be the right platform for your client s online capital raise. Below are a few important things your clients need to consider : Industry Focus- some platforms focus on certain industries (i.e. technology or consumer goods). Ask for examples of other companies in your industry who have raised capital on their site or who are currently raising capital on their site. Security Type- some platforms focus on certain securities (i.e. equity or debt). Make sure the security type your client is offering matches the site s focus. Services Provided- the types of services offered by platforms varies widely. Make sure that the services offered meet your clients needs. Example services including help with marketing, help finding investors, help putting together your offering materials, etc Fees- like the services offered, the fees also vary widely. Example fees include upfront registration fees, monthly subscription fees, success fees (i.e. % of funding raised). Regulatory Compliance- if needed, make sure the platform is appropriately registered (i.e. a broker dealer) and that their technology is built in so that you can compliantly raise capital under the securities law you and your client choose to follow.

16 Example Platforms* *Localstake does not endorse or recommend any of these platforms.

17 Tips When Raising Funding Online (Using a Law That Allows General Marketing)

18 Fundraise Tips Pre-Fundraise Select a platform that is right for your company and fundraise Get together quality offering documents (i.e. find a good attorney) Keep your offering documents and terms simple Create an engaging video and get quality pictures to post on the platform Get together a list of potential investors who you are going to contact Brainstorm ways you are going to market your fundraise (i.e. bloggers, industry associations, social media, events, etc ) Create a week-by-week plan for the fundraise that includes when you will launch, when and who you will contact, when you will host events, when you will followup, etc During Fundraise When inviting, try to make invites as personal as possible Don t invite everyone at once invite in waves and try to get some initial momentum (i.e. get money invested right away) Interact with interested investors- by setting up virtual or in-person meets Investors get busy be persistent and follow-up

19 Revenue Share

20 How Does a Revenue Share Work? In exchange for an upfront investment from investors (i.e. $150,000), the business pays investors a small percentage (i.e. 5%) of its gross revenues each monthly until the investor achieves a predetermined return (typically 1.5x or 2x what they invested). Once the investor receives their predetermined return, the revenue share is considered paid back in full. % $ Revenue Share Percentage: 5%. Maximum Return: 2.0 times your original investment. Example: If you invest $10,000, you will receive payments from the Company until you are paid $20,000. Timing for Return of Investment: Based on the company s financial forecasts, it is projected that investors will receive their maximum return in approximately 5 years.

21 Disclosures

22 Disclosures Securities offered through Localstake Marketplace, LLC. Member FINRA/SIPC. Securities offered are private placements. Investment products are not FDIC insured, may lose value, and there is no bank guarantee. There is no guarantee of a return on your investment. The JOBS Act has not yet been implemented. Localstake Marketplace LLC relies on the safe harbor pursuant to Regulation D for all securities offerings. This is neither an offer to sell nor a solicitation of an offer to buy. An offering is made only by the providing of offering materials over the localstake.com marketplace platform. A copy of the current offering materials must be made available to you in the connection of an offering and should be read in order to understand fully the implications and risks of an offering. The offering materials describe the various risks and conflicts of interest relating to an investment in the specific offering and to its operations. You should read the offering materials carefully to determine whether an investment is suitable for you in light of, among other things, your financial situation, need for liquidity, tax situation, risk tolerance and your other investments. The past performance of any investment is not necessarily indicative of future results. You should only commit risk capital to an investment which means money that you can lose. Private placement investments are not for everyone and entail risks that are different from more traditional investments. You should obtain investment and tax advice from your advisers before deciding to invest. Localstake Marketplace, LLC nor any of its affiliates, including its parent, Localstake LLC, provide investment, legal, or tax advisory and do not make investment recommendations. This presentation is not a recommendation nor a solicitation for an order. There is not enough information contained in this presentation in which to make an investment decision and any information contained in this presentation should not be used as a basis for making an investment decision.

23 Disclosures (Cont ) All investments on Localstake are private placements. When considering private placement investments you need to be informed of the various risks including: You are investing in speculative securities and your investment may lose value. The private placements you are investing in on Localstake are usually small businesses and may be early-stage businesses that are looking to launch a product or service. Many times, they do not have a proven track record. You need to be prepared to bear the economic risk of any investment that you make in private placements. Your investment may be illiquid. By investing in private placements you are required to hold on to the security for at least one year before you can sell it. At that time, there might not be an investor that is interested in your security so you might not be able to sell. There is no secondary market for these securities. For equity or other securities with no termination date, there is increased illiquidity risk. Required payments are not guaranteed. By investing in private placements relating to loans or revenue sharing securities, companies are required to make payments on a recurring basis. These payments may not be received due to financial or other difficulties experienced by the company. Investors must be prepared to bear the risk of not receiving their expected payments. Equity securities often do not come with required payments. Private businesses are not required to report on their financial status quarterly like public companies. The businesses that we place on the website have agreed by contract with Localstake to update their investors with how the company is performing on a quarterly basis, but there is no guarantee that they will. Localstake will NOT be policing these businesses to ensure they are providing updates. Private businesses are not subject to the same regulatory requirements as a public company. When a company goes public they are required to disclose specific information in a 10K and they must adhere to the Sarbanes-Oxley Act. Private businesses are not required to meet these restrictions. Private placements may involve complex tax structures. Private placements can involve complex tax structures in different types of corporate entities. Since the tax consequences of an investment in private placements may not be the same for all investments or for all investors, prospective investors are encouraged to consult their own tax advisors with specific reference to their own tax situations, including the application and effect of federal, state, local, and foreign tax laws and possible changes in such laws. Private placements often charge high fees. It is important to review the transaction fees outlined in the offering materials before investing.