“Equity Crowdfunding Dissected” was a crowdfunding panel hosted by Docracy.com on October 18, 2012. The three speakers are Bill Carleton (attorney), Larry Baker (Bolstr.com), and David Rose (Gust.com); three individuals involved in the crowdfunding movement.
Below are some brief notes, points, and topics from the hour-long discussion, which is shown in the video at the top of this page:
- What is actually considered “crowdfunding” ? There is currently a lot of confusion about the different models and what really constitutes crowdfunding. Collecting small amounts of money from large amounts of people is the broad and simplified definition. But it’s really much more complicated than that.
- Equity Crowdfunding versus Non-equity Crowdfunding
- The Jobs Act- what provisions are currently active and which are still under consideration ? Which provisions actually touch on “crowdfunding”?
– Title II: deals with changes to angel investing and accredited investing (this is what is already being implemented)
– Title III: this is the high-risk, non-registered offering to non-accredited, ordinary people … this is generally what is referred to as “Equity Crowdfunding.” This is the big deal that has the potential to open the process to everyone. - Another major issue is how future angel investors will view a company that has already raised a crowdfunding round … having many crowdfunders as owners could scare away future angels from making investments (Basically, how will Title II get along with Title III). The panel’s solution:
Instead of buying shares of stock, raise money from the crowd in a way that doesn’t affect long-term … It was mentioned that the rational way to do Title 3 equity crowdfunding that works with Title 2 is a crowdfunder will essentially invest money and receive a revenue-backed note, which give the investor a % of revenue until they reach a certain level or target. This allows crowdfunders to make a return on their investment and get their cash right away, and at the same time enable future angels to come in and buy them out. - Rule 504 versus Rule 506
- Online platforms versus angel platforms
- Liability for issuers and platforms. As a funding portal, you can’t give investment advice, can’t take a commission, and can’t compensate your employees based on the success of crowdfunding. But there will still be other creative ways to make money.
- Accredited versus Non-Accredited, what are the requirements and how will this status be verified … previously you could only take money from accrediteds … but the new version allows platforms to take money if you “reasonably believe” they are accredited, putting a heavy burden on the platform to verify investors. Example of potential problems with the legislation.
- Lifting of the ban on general solicitation to accommodate the digital/startup ecosystem
- Motivation for investing: Social assistance versus Profit
- What are the reporting requirements AFTER a company raises crowdfunding for equity
You can get more information about the panel and speakers on the event page by clicking here
