Crowdcheck Blog

Some folks, especially traditional securities lawyers, have recently been startled by flashy ads on the TV and radio for offerings of securities, specifically Regulation A securities in start-ups. We’ve had a number of calls, and there have even been some newspaper articles, asking “They can’t do that, can they?” They can. This is not the stuffy old traditional IPO world. This is Reg A, dudes and dudettes, where the rules are different and any start-up company that can afford it (ha!) can make sizzling ads that send potential investors rushing to buy their shares. Provided they comply with two simple rules (and watch the timing because the rules change once the…

There’s a right way to do everything, even failing to file with the SEC. We experienced this recently, when one of our Regulation A clients was unable to make its annual 1-K filing covering the year 2016. We’d been watching their progress carefully, and so a few days before this year’s filing deadline of May 1, we picked up the phone and asked the regulators about the best way to handle the situation and to position ourselves to get back into compliance as soon as possible. First rule of holes: when you are in one, stop digging. In the Regulation A context, this means not making any offers or sales of securities when you don’t have an exemption from SEC…

So, one year ago today, Regulation CF went into effect. Small companies can make offerings up to $1 million (recently increased to $1.07 million) and roughly 325 companies have made Reg CF offerings so far. Roughly 80 companies have filed Form C-U to notify the SEC of the conclusion of their offering (they can also use Form C-U to report progress of the deal, so the raw numbers need refining). Another 50 or so companies have taken advantage of the fact that the SEC tells us that multiple closings are permitted once a company reaches its target offering amount, and so have received funds but have ongoing offerings. We’re talking about modest success so far.…

Since Regulation CF went live in May 2016, there have been approximately 280 companies that have made offerings made in reliance on it. Of these, only 51 or so have filed a Form C-U to show they have met their target offering amount and closed. It might be argued that this approximately 20% success rate itself indicates that there is no limitless pot of money awaiting companies who make it through the Form C disclosure process. However, it is early days yet, and many potential investors do not even know of Reg CF’s existence. Many companies are still in the offering process. It may also be the case that the crowd is showing discrimination – maybe some of the…

If you raise capital online, you're probably a New Economy, Internet 4.0 type of company, right? Leverage the cloud, move fast, break rules (not securities rules), create synergies, it's all about the hustle. Right? Maybe. Some of you new era companies should be huddling in your hoodies for shame, 'cos some of you have distinctly old school bylaws when it somes to stock certificates. Yes, stock certificates. Those bits of paper with incomprehensible things written on them that say who owns shares in your company. Some of you still have bylaws that say that paper stock certificates MUST be issued. And you are engaging great new transfer agents who do everything…

  We live in a world without borders. Securities laws, however, have clearly-defined jurisdictional limits, many of them inconsistent across countries. We live in a world where information wants to be free. Securities laws, however, have very clear ideas about how where information is allowed to go and who is responsible for it. This is all becoming evident in the area of securities crowdfunding. I’ve come across a couple of issues recently which underline the need for a clear, comprehensible, cross-jurisdictional agreement as to whose laws will apply to what transactions and when people should be allowed to invest in an offering being made in another country.…

With one week to go we are hearing that a number of companies are realizing their financial statements are not going to be reviewed in time by their accountants. But they really want to launch on May 16! So they are planning to file on Form C for amounts less than $100,000 and "certifying" the financials, with a view to filing an amendment later. Think about this carefully before you do it. The financial statements (for any level of raise) are required to be prepared in accordance with Generally Accepted Accounting Principles (GAAP), reflecting all the requirements of GAAP with respect to revenue recognition, capitalization or expensing, and all that other…

Four weeks out from Regulation CF's go-live date, and journalists, researchers, bloggers and anyone with access to the internet (including my cat) are asking small companies to comment on their plans to raise money under Regulation CF ("Title III"). Please quit. Y'all are getting CrowdCheck's clients into trouble. For the third time in the last couple of days, I've seen an article or blog post in which a company that we are working with is asked to comment about their plans to raise money under Reg CF. These companies, being (a) super-enthused about crowdfunding and the ability to give their friends and fans the ability to share in any future success and (b)…

We're 4 weeks out from Regulation CF (Title III of the JOBS Act) going live. This is exciting, right? Are you going to be one of the first companies filing a Form C? If you haven't got your financial statements sorted out yet, you probably aren't. Any company looking to raise more than $100,000 must have their financial statements reviewed by a CPA. You'll need a balance sheet, profit and loss statement and cashflow statement covering 2014 and 2015 (or a shorter period if you haven't existed that long) and they have to comply with Generally Accepted Accounting Principles (GAAP). GAAP requires that your financial statements be prepared on an accrual, not a cash…

Hey, remember when Oprah gave away all those cars and all the lucky recipients got a car with accompanying tax bill? We could have something like that in crowdfunding too. For companies seeking crowdfunding, it's natural that they will seek to market their offering to the people who love their product or service. And a company's crowd is going to be super-happy not just to get the shares, but also more of the company's product or service. A company producing zombie movies can give away tickets to the next premiere. A candy company can give away calorific goodies. And that's great, but in this regulated world we have to consider the tax and accounting…