![]() provide Generally Accepted Accounting Principles (GAAP) financial statements for the two most recently completed fiscal years (or shorter period since inception). For issuers that intend to raise more than $100,000 by crowdfunding, the financial statements must be reviewed by a Certified Public Accountant (CPA). In some cases, issuers must provide audited financial statements. This is an added cost and administrative burden that doesn't exist in other exempt offerings. Fourth, issuers must file annual reports at the SEC for a period of time following the offering. Finally, we believe that many companies will be hesitant to admit a large number of unsophisticated investors as owners. Based on these disadvantages, we believe that Regulation CF will be unattractive to many companies seeking capital. available? companies seeking equity capital in excess of $500,000 will be best served by utilizing the exemption provided by Rule 506 of Regulation D. Under this rule, companies can raise an unlimited amount of funds from an unlimited number of accredited investors. In 2013, Rule 506 was amended to provide two different options for issuers. Under Rule 506(b), which has been used for decades, companies are prohibited from using advertising or general solicitation to seek investors. This means that an unrestricted website open to the public cannot be used to solicit investors. Recently, however, the SEC recognized an exception to this rule for online platforms limit offers and sales to investors who meet the accredited investor requirements and other suitability requirements. companies who desire to seek investors online, but who don't wish to comply with the verification requirements described below. Under new Rule 506(c), companies may utilize advertising and general solicitation including unrestricted, open offerings online if the company is willing to restrict all of its sales to accredited investors and is willing to comply with more burdensome requirements regarding the verification of each investor's status as an accredited investor. of potential investors without the burdens of the Regulation CF crowdfunding rules described above. online platforms utilized by companies seeking capital? of online platforms have sprung up to assist companies in raising capital online (again, as long as all investors are accredited). General equity crowdfunding platforms include Wealthforge, CircleUp, Crowdfunder, AngelList and Portfolia. In addition, a number of equity crowdfunding platforms focused on the real estate industry have emerged. Examples include Fundrise, RealtyShares, RealtyMogul, Prodigy Network and RealCrowd. Each of these platforms is different but each appears to require that investors be accredited and each appears to use a "cooling off period" after registration before investors of the platforms expressly state that the platform is not designed to comply with Regulation CF (also called Title III of the JOBS Act). Some of these sites act as a platform that matches issuers and potential investors. Others focus only on debt-like instruments such as senior secured loans, mezzanine loans and preferred equity. Finally, a number of the platforms pool funds from investors into a new LLC formed by the platform that in turn invests into a separate LLC or partnership that owns the property. We expect to see the continued development and growth of online platforms that match investors with companies seeking equity capital. However, we believe that platforms structured to comply with Rule 506 (instead of Regulation CF) will be more useful to established companies. came up with a tortured acronym for the Crowdfunding portion of the JOBS Act: "Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012." 3 The definition of "accredited investor" can be found at investor's total investment in all crowdfunding offerings over a 12 month period may not exceed 10 percent of the lesser of their annual income or net worth. For other investors, total investment may not exceed the greater of $2,000 or 5 percent of the lesser of their annual income or net worth. inc-080615-502.htm Rule 506(c) to ensure that the content contains no misstatements, omissions or other information that could lead to a claim under the anti-fraud provisions of federal and state securities laws. Companies that utilize a broker-dealer must also comply with applicable FINRA advertising guidelines. |