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Title II of the JOBS Act, Accredited Crowdfunding (MLCO42E)
Is JOBS Act Going to Change the Crowdfunding Landscape and Be a Major Help to the Economy?
The 2012 spring saw passing the JOBS (Jump Start Our Business Start Ups) Act which would drastically change the crowdfunding market landscape. The spotlight on crowdfunding has substantially increased due to the addition of equity as a potential option to the space. The big question is why majority of the crowdfunding sites don’t offer equity as an option yet? The US Securities Exchange Commission (SEC), as per the instructions of congress, is monitoring the new changes before the Act can start with equity crowdfunding. The SEC will also be creating a structure where new allowances will be safeguarded so that the general public feels safe while it is investing.
The topic of this webinar by expert speaker Joseph W. Bartlett is Title II of the JOBS Act, “Jump Start Our Business Start Ups,” which opens the gates for emerging growth companies (ranging from the quite small to in fact the very large and routinely abbreviated as Emerging Growth Companies (EGCs) to raise capital in private placements which, contrary to ninety-odd years of securities regulation in this country, are able to pitch investors with materials posted on the internet. The technical term is lifting the ban on “general solicitation” and “general advertising” in SEC Regulation D. Title II amounts to a 180 degree makeover of the channels available for raising private capital, as long as all investors meet the standards prescribed in Regulation D, Rule 501 of the Securities Act of 1933 to be “accredited”. The main constraint is the requirement of “reasonable steps to verify” that each investor is in fact accredited and the issue can be analyzed in details.
Assuming that the investors are accredited, there are pending regulations which, sooner or later, will be imposed on the process, including filing forms both at the close of (as is now the practice) but also in advance of the fundraising process. One prominent aspect is the presentation of the emerging growth companies pitch materials through platforms such as FundersClub and AngelList. How successful is this navigation process for EGCs? Why undertake the Title II process in the first place? Is it more trouble than it’s worth?
Coincident with Title II is the increased emphasis on requiring persons and firms receiving transaction-related compensation (for assistance in placing securities) to undergo the extremely burdensome registration requirements under the Securities and Exchange Act as broker-dealers and joining FINRA. These will be examined in the session, along with some of the more creative solutions for unregistered finders who otherwise are breaking the law.
On the continuing problem of finders who may, often unknowingly and in fact illegally, be securing compensation for locating capital for EGCs, Joseph will be referencing his articles on the subject which date back many years. He will also providing a link to the Buzz of the Week on VC Experts, identifying by date and topic of the analyses that he suggests the audience should know.
Title II is here to stay. The volume is picking up although it’s not yet where the sponsors would like it to wind up. It is critical for emerging growth companies and their advisors, founders, friends and family and angel investors to grasp the pluses and minuses of Title II and make an informed decision whether to initiate what’s come to be known as a Rule 506(c) offering. The decision may be made to stay old fashioned under Rule 506(b) (no solicitation on the web); but it cannot be made intelligently unless the participants are able to evaluate the pros and cons of Rule 506(c).
Participants will be directed to the no-action letters (the petition and the response) which the SEC has published in connection with the “platforms” established by AngelList and FundersClub. These statements by the SEC form the basis for the organization and launch of vehicles which Joseph refers to as Hybrid Venture Funds. And for those of you who are interested in that model, you will get links to Jopseph’s writings and direct attention to both the AngelList and FundersClub web sites for more data and guidance.
Understand why it is important to unbundle the use of the term “crowdfunding” which is often loosely and mistakenly applied to processes which are quite different, both legally and economically.
First, awards based crowdfunding has been in effect for a number of years courtesy of portals such as Kickstarter and Indiegogo. No securities are involved.
Next, Title II, labeled accredited crowdfunding, will be discussed.
And lastly, Title III – the purest example of crowdfunding in that any investor can participate. Title III regulations are not yet final and they are likely to impose considerable constraints.
Additional talking points include:
An invitation for entrepreneurs and their advisers seeking funding to visit the web site of the Angel Capital Association and view the Angel Networks which are members of that association;
As mentioned above, the no-action letters in the AngelList and FundersClub matters; plus references and access to legal opinions which are published on the web and cover much of the territory under discussion will also be provided.
Who Should Attend
Any entrepreneur contemplating or in the process of founding an EGC and raising capital
Attorneys advising the founders on the pluses and minuses of Rule 506(b) versus 506(c)
Investors, angels for example, who understand that access to quality deal flow is the principal contributing factor to successful investment results
Financial advisors, brokers and investment bankers, many of which are adjusting their deliverables so as to function as service providers to EGCs under Title II
Accountants responsible for EGC financials
Ask a question at the Q&A session following the live event and get advice unique to your situation, directly from our expert speaker.
Joseph W. Bartlett, Special Counsel in the Corporate, Securities and Financial Institutions practice in the New York Office of McCarter & English, LLP, is a recognized pioneer of the national private equity and venture capital bar. Mr. Bartlett contributed to the original models for private equi...
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