Crowdcheck Blog
Insights and information for online capital formation
Startup investors all hope for a great “exit.” Most startups, of course, will never get to that point, but for the successful ones, the principal ways that investors get repaid for their faith in a high-growth early stage company is an eventual IPO, hopefully at a price much higher than the price they paid, or through the acquisition of the startup by another company.
It can take a very, very long time for a startup to get to the point of an IPO. We aren’t aware of a company crowdfunded under Regulation CF having done an IPO yet. Mergers and acquisitions are a much more likely option for an exit for a company that raised funds in a Regulation CF offering.
We’ve…
This entry is filed under Capital Raising, Crowdfunding, Investing, Regulation, Regulation A, Section 4(a)(6), Securities Law
Reg A and Reg CF have been around for a few years now and we are finding that some of our clients, especially those that have made multiple offerings, are getting to the point where they need to consider the implications of Section 12(g) of the Securities Exchange Act, which requires companies to become registered with the SEC when they meet certain asset and investor number thresholds.
Let’s start with the requirements of Section 12(g). It says that if, on the last day of its fiscal year, an issuer has assets of $10 million and a class of equity securities held of record by either 2,000 persons or 500 persons who are not accredited investors, it has to…
This entry is filed under Capital Raising, Crowdfunding, Crowdfunding Conditions, Disclosure, Regulation A, Section 4(a)(6)
A while back, one of our favorite start-up clients called me and asked me to speak to a potential investor. Paul Efron, a resident of Arizona, wanted to invest in the company's Regulation A offering. However, when he went onto the company’s website to invest, his subscription was rejected. The company was accepting subscriptions from investors in every state but Arizona and Nebraska.
Why Arizona and Nebraska, asked Paul?
The reason was that while federal law and most states’ laws say that a company selling its own securities is exempt from broker-dealer registration, that’s not the case in a handful of states. These states say that if a company isn’t using a…
This entry is filed under Capital Raising, Crowdfunding, Regulation, Regulation A, Securities Law, State Law
For some reason, this issue has been coming up a lot lately. Our usual response to the question “Can non-US issuers make a Reg A or Reg CF offering?” is to point to the rules:
Rule 251(b)(1) says Reg A can only be used by “an entity organized under the laws of the United States or Canada, or any State, Province, Territory or possession thereof, or the District of Columbia, with its principal place of business in the United States or Canada.”
Reg CF Rule 100(b) says Reg CF may not be used by any issuer that “is not organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.”
Slightly different formulations…
This entry is filed under Capital Raising, Crowdfunding Conditions, Financial Statements, Regulation A, Section 4(a)(6), Securities Law, Types of Offerings
I have long (oh so long) been one of those urging the SEC to give some clarity with respect to the status of “finders.” See here for the latest piece.
Early-stage companies raising funds very often reach out to a guy who knows some guys who have money and have invested in startups in the past. If the first guy wants to be compensated by reference to the amount of money his contacts are able to invest, he may well have violated the broker registration requirements of the Securities Exchange Act of 1934. And it’s not only him who needs to be worried; if a startup raises funds through someone who should have been registered as a broker and wasn’t, their sales of…
This entry is filed under Capital Raising, Federal Law, Regulation, Regulation A, Rule 506(b), Rule 506(c), Securities Law
And by that I mean the geographic location of your place of business, if you have one. The pandemic has accelerated the existing trend of people working remotely and running their businesses from pretty much anywhere.
Crash any Zoom call these days. Josh appears to be calling in from a desert island but it’s a greenscreen behind him hiding the litterbox in his basement. Shireen is sitting on the deck of a house in what appears to be the Mountain West, although we thought she lived in SoHo. Emily is desperately trying to hide the fact that she is yawning because it’s late in Italy and she hasn’t told anyone that she moved there in March. And Amit . . . get that…
This entry is filed under Crowdfunding, Crowdfunding Conditions, Federal Law, Regulation A, Securities Law
Lawyers and finance peeps who practiced around the turn of the millennium will recall many of the issues that were raised by the misbehavior of investment banks’ research departments. I-bank analysts would take company executives golfing and, somewhere round the fourth hole, would ask “So, Executive, how is the distribution channel for the next quarter looking? If I said four thousand units a month, would I be off-base?” If the executive gave any answer other than “No comment and is that your ball in the sand?” then the company could be held to have “entangled” itself in the research report that resulted, and be responsible for any misleading statements in it.[…
This entry is filed under Capital Raising, Crowdfunding, Disclosure, Disclosure, Liability, Regulation A, Section 4(a)(6), Securities Law
This isn’t specifically commentary on crowdfunding, but some thoughts on some of the issues that the broader economy is facing. I was pleased to see this article in the NYT highlighting the challenges parents are facing. Parents and people who work with parents (and that’s pretty much everyone in the working world) do not care so much about whether the bars are open, or whether they can get their nails done as what to do with the %&**&!! kids.
In general, the move to online working from home has been comparatively easy on CrowdCheck. We have always been a distributed workforce (I have employees I’ve never actually met in person) and we’ve been able to…
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While Regulation A and Regulation CF have been effective tools for early stage companies to raise funds from investors across the country, secondary trading in those securities can often be a challenge, in part due to state-by-state securities regulations – often referred to as “Blue Sky” laws – that restrict which stocks brokers can discuss with their retail clients. This applies even to securities traded on new “alternative trading systems” or ATSs. To help companies meet these Blue Sky requirements and reach a potentially larger group of investors, CrowdCheck has launched TradeCheck, which includes a partnership with the Mergent Manual to allow private…
This entry is filed under Capital Raising, Crowdfunding, Regulation A, Section 4(a)(6), Securities Law, State Law
This is the third in a series of blog posts on the topic of the SEC’s proposed changes to the exempt offering matrix.
Below are earlier posts:
SEC exempt offerings: process
SEC exempt offerings proposal: no relief from offering circular delivery requirements
Well, CrowdCheck finally got our comment letter on the proposals filed. It took the SEC a while to post it; was it the Monty Python reference or the “Mean Girls” quote that threw them off, I wonder?
There are a lot of things to like in the proposals and some things that we found problematic or too complicated. If our comment letter is too long (it’s only 31 pages), here are the highlights:
While our…
This entry is filed under Capital Raising, Crowdfunding, Crowdfunding Conditions, Disclosure, Disclosure, Federal Law, Regulation, Regulation A, Rule 506(c), Section 4(a)(6), Securities Law