![]() Rules to Raise Capital and whether there is a way to raise capital online via crowdfunding. Below is a summary of the current state of equity crowdfunding, its limitations and other potential options. many contexts and has many meanings depending on the source. For example, many companies have raised money through crowdfunding sites like Kickstarter and Indiegogo. This type as "cash for love" and the contributor typically receives something tangible in return for the donation. In 2015, watchmaker Pebble raised $20.3 million from 78,471 backers for its new smart watch and in 2014 the Coolest Cooler raised a total of $13.2 million from 62,642 backers for its high tech cooler. No equity or securities are issued to backers in this type of crowdfunding and such campaigns are generally not subject to federal and state securities laws. However, companies that raise money online from investors in exchange for equity, securities or debt are subject to federal and state securities laws. Historically these laws have prohibited the type of activities that constitute equity crowdfunding. crowdfunding law permitting equity crowdfunding? passed the CROWDFUND Act back in April 2012 as part of the Jumpstart our Business Startups (JOBS) Act. up companies to raise capital in small amounts from numerous investors through an online platform. The Act wasn't effective immediately and directed the Securities and Exchange Commission (SEC) to adopt regulations implementing the Act within 270 days. Finally, in October 2015 more than three years after Congress passed the Act the SEC adopted Regulation CF implementing the crowdfunding rules. equity crowdfunding? crowdfunding is that it allows companies to raise capital from investors who are not "accredited" as defined by Rule 506 of Regulation D. have been limited to raising capital from investors who had sufficient net worth or income to meet the accredited investor definition. This significantly lowers the number of potential investors. Under the new equity crowdfunding rules, any individual may invest subject to certain limitations on the total amount invested by such investor in all crowdfunding investments. publish and distribute notices containing basic information regarding the issuer and the offering across multiple online platforms. Although the company cannot engage in traditional advertising strategies to reach investors, the new rules provide a method to reach a large number of potential investors online. equity crowdfunding? disadvantages. First "blank check" companies formed for unspecified purposes or to purchase another company cannot utilize the new crowdfunding exemption. In particular, this will prevent many real estate funds from using crowdfunding. Second, the total amount sold to investors in any 12 month period cannot exceed $1 million. This small maximum offering amount will be insufficient for many offerings other as an outside general counsel, he provides practical solutions to legal issues by working with company management to understand and implement their business strategy. He regularly assists companies in connection with the structuring and documentation of private securities offerings. 4501 Highwoods Parkway, Suite 210 Richmond, Virginia 23060 804.346.5954 Fax goodmanallen.com |