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The Crowdfunding Handbook

Book Description

Ever wish your company could raise capital the Kickstarter® way? Equity crowdfunding is finally here, opening new funding avenues for small businesses and start-ups.

In April 2012, President Obama signed the Jumpstart Our Business Startups—or JOBS—Act into law. This groundbreaking legislation empowers privately-owned companies to raise capital from investors without going through the rigorous IPO and private placement processes. When the SEC hands down the last regulations, the floodgates will open and companies will be free to compete for funding.

Small business and legal expert Cliff Ennico has followed the equity crowdfunding story since its inception. Now, in The Crowdfunding Handbook, he explains the JOBS Act and translates the regulations into a clear set of do’s and don’ts for entrepreneurs and small-business owners looking to get in early—and do things right.

Need help pricing your securities? Pitching a project to the public? Choosing between funding platforms? Figuring out disclosure documents and reporting requirements?

This book delivers targeted answers—whether crowdfunding is your best bet, picking the right legal entity, selecting types of securities to offer, reaching the most promising investors, keeping crowds under control, and more.

IPOs are expensive, and venture capital nearly impossible to attract. Crowdfunding is changing the game for private companies . . . and this book will lead the way.

Table of Contents

  1. Cover
  2. Half title
  3. Title
  4. Limit of Liability / Disclaimer of Warranty
  5. Contents
  6. Introduction
  7. The Road Map: Where to Find Detailed Discussion of Regulation Crowdfunding
  8. Part 1 The Basics of Crowdfunding
    1. Chapter 1. What Is Crowdfunding?
      1. Taking the Friends-and-Family Offering to the Next Level
      2. The Different Types of Crowdfunding
      3. Who Should Be Reading This Book?
      4. Where This Book Will Take You
    2. Chapter 2. The Evolution of Crowdfunding
      1. The Friends-and-Family Offering
      2. Intermediate Steps: Microlending and Peer-to-Peer Lending
      3. The Social Media Revolution
      4. Kickstarter.com and Project Crowdfunding
      5. Angel Investor Social Media Websites
      6. Intrastate Crowdfunding Under State Law
      7. Social Media Crowdfunding (Title III Crowdfunding)
      8. A Brief Overview of Crowdfunding Under Title III of the JOBS Act and Regulation Crowdfunding
  9. Part 2 Launching a Successful Title III Crowdfunded Offering, Step by Step
    1. Chapter 3. Is Crowdfunding Right for Your Company?
      1. Crowdfunding Is Not for Everyone
      2. Is Your Company Right for Crowdfunding?
      3. Qualifying Under the JOBS Act and Regulation Crowdfunding
      4. Handling Your Crowd of Investors If the Offering Is Successful
    2. Chapter 4. Preparing Your Company for a Crowdfunded Offering
      1. Choose the Right Legal Entity
      2. Decide Where to Incorporate, or Consider Reincorporating Somewhere Else
      3. What Type of Security Will You Be Offering?
      4. Amend Your Articles of Incorporation to Create a Separate Class of Shares for Your Crowdfunded Offering
      5. Set Your Offering Amount and Determine the Dilution for Existing Investors
      6. Prepare a Term Sheet for the Offering
      7. Get Your Management Team and Initial Investors On Board
    3. Chapter 5. Launching Your Crowdfunded Offering
      1. Finding the Help You Need
      2. Preparing Your Disclosure Documents
      3. Finding the Right Funding Portal for Your Offering
      4. Setting the Offering Schedule and the Minimum/Maximum Amounts
    4. Chapter 6. Managing and Marketing Your Crowdfunded Offering
      1. Your Offering Announcement: Where It Should Go, Where It Can’t Go
      2. Advertising and Promoting Your Offering on the Funding Portal
      3. Advertising and Promoting Your Offering Elsewhere
      4. Can the Funding Portal Help You Advertise Your Offering?
      5. Updating or Changing Your Offering Documents Midoffering
      6. What If You Made a Mistake in Your Offering Documents?
      7. Closing Your Offering Early, or Quitting While You’re Ahead
      8. Filing Progress Reports with the SEC: Form C-U
    5. Chapter 7. After Your Successful Crowdfunded Offering Is Completed
      1. Getting Your Money from the Funding Portal
      2. Issuing Your Securities to Investors
      3. Complying with State Blue-Sky Laws
      4. Creating a Stock Transfer Ledger
      5. Updating Your Capitalization Table
      6. Filing Your Annual Reports and Holding Your Annual Shareholders Meeting
      7. Making Sure Your Company Doesn’t Get Too Big
  10. Part 3 Communicating with your Crowd
    1. Chapter 8. Keeping Your Crowd Under Control
      1. Coping with Your New Partners
      2. Developing a Shareholder Communication Program
      3. Dealing with Time Vampires, Mata Haris, and Know-It-Alls
      4. When You Have to Change Your Business Plan
      5. When It’s Time to Throw in the Towel
      6. When the Revolution Has Begun
    2. Chapter 9. Going Back for Seconds: Launching Multiple Crowdfunded Offerings
      1. Can You Launch Other Offerings at the Same Time as Your Crowdfunded Offering?
      2. The “Upstairs-Downstairs” Offering
      3. Can You Launch Another Crowdfunded Offering Right After You Complete Your First One?
      4. Some Things to Consider When Launching a Follow-Up Offering
  11. Part 4 Considerations for Investing in a Crowdfunded Offering or Setting up a Funding Portal
    1. Chapter 10. Should You Invest in a Crowdfunded Offering?
      1. Why Are You Investing in a Crowdfunded Company?
      2. Can You Legally Invest in a Title III Crowdfunded Offering?
      3. Are You an Accredited Investor?
      4. What Is Your Tolerance for Risk?
      5. Calculating Your Investment Limit Under Title III
      6. Can You Lie About Being Legally Able to Invest?
      7. Participating in a Crowdfunded Offering
      8. Bringing in Other Investors
      9. Selling Your Crowdfunded Securities
      10. Getting Involved in Your Crowdfunded Company
      11. When Can You Write Off Your Worthless Investment in a Crowdfunded Company on Your Taxes?
    2. Chapter 11. Should You Set Up a Funding Portal?
      1. It May Be Too Late for the Early Money
      2. Picking a Crowdfunding Niche
      3. Setting Up a Funding Portal
      4. The Portal’s Obligations to Vet Issuers
      5. The Portal’s Obligations to Investors
      6. The Portal’s Obligations to the SEC
      7. The Portal’s Obligations to Market and Grow Its Business
      8. The Portal’s Obligations in Managing Offerings
      9. The Portal’s Liability for Mistakes
      10. How a Funding Portal Makes Money
      11. Using Crowdfunding to Raise Money for a Funding Portal
  12. Part 5 Background Essentials: Crowdfunding History, Law, and Regulations
    1. Chapter 12. Federal Regulation of Private Offerings of Securities Prior to the JOBS Act
      1. Early 1900s: The States Get the Ball Rolling with Blue-Sky Laws
      2. 1933: The Federal Government Wades into the Securities Markets
      3. 1964: The SEC Adopts Regulation A
      4. 1970: The SEC Adopts Rule 146 for Private Placements
      5. 1982: The SEC Adopts Regulation D, Adding More Exemptions
      6. 1996: The National Securities Markets Improvement Act
      7. 2012: The Jumpstart Our Business Startups Act
    2. Chapter 13. The JOBS Act and Regulation Crowdfunding Rules
      1. Title I: The IPO On-Ramp
      2. Title II: Private Placements and New Rule 506(c)
      3. Title III: Crowdfunded Offerings of Securities
      4. Title IV: Expanded Availability of Regulation A
      5. Title V: Changes to Definition of “Public Company” in the Securities and Exchange Act of 1934
      6. Title VI: Special Provisions for Banks and Bank Holding Companies
    3. AFTERWORD: What the Author Really Thinks of Crowdfunding
      1. First, the Bad News
      2. Now for the Good News
      3. And for Some Even Better News
      4. The Longer-Term Picture
    4. ACKNOWLEDGMENTS
    5. APPENDIX 1: SEC Form C
    6. APPENDIX 2: Optional Question-and-Answer Format Version of SEC Form C
    7. APPENDIX 3: Amended and Restated Certificate of Incorporation Creating Classes of Voting and Nonvoting Common Stock and Convertible Preferred Stock [Delaware form]
    8. APPENDIX 4: Provision of LLC Operating Agreement Creating Classes of Voting and Nonvoting Membership Interest, with Nonvoting Preferred Interests
    9. APPENDIX 5: Some Rights of Shareholders Under State Corporation Laws
    10. APPENDIX 6: Term Sheet for Crowdfunded Offering of Debt Securities
    11. APPENDIX 7: Term Sheet for Crowdfunded Offering of Series B (Nonvoting) Preferred Shares in Corporation
    12. APPENDIX 8: Term Sheet for Crowdfunded Offering of Class B (Nonvoting) Membership Interests in a Limited Liability Company
    13. APPENDIX 9: Sample Risk-Factors Section of a Crowdfunded Offering Statement
    14. APPENDIX 10: Sample Accredited Investor Questionnaire
  13. Suggestions for Further Reading
  14. Index
  15. About the Author
  16. Free Sample Chapter from Fail Fast or Win Big by Bernhard Schroeder
  17. About Amacom
  18. Copyright