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Are ICOs the Future of Startup Fundraising? Cryptocurrencies are Giving Founders a New Platform for Fundraising

Are ICOs the Future of Startup Fundraising? Cryptocurrencies are Giving Founders a New Platform for Fundraising

Cryptocurrencies are giving Founders a whole new platform for fundraising.

As a strategic business consultancy that offers Fractional CFO services to entrepreneurs and startups we get a lot of questions about raising capital.  While the general consensus among experts is to first raise traditional angel and seed rounds some founders are exploring the use of cryptocurrencies and/or ICOs (Initial Coin Offerings) vs. Series A or B rounds.  The rising popularity of cryptocurrency is allowing Founders and startups to get creative in their fundraising efforts.

What is Blockchain?

In a nutshell: “The basic concept of cryptocurrency is pretty simple… Rather than asking the public for investments of old-fashioned money, the inventor issues a new virtual currency tied to a specific product, each unit of which represents a defined share of future profits. Just like shares in an actual stock market, these coins or tokens can then be freely traded or collected, letting those who truly believe in a project build an actual financial stake in its success.”  (“How to Fund Your Startup with Cryptocurrency” — Catrinel Bartolomeu)

How does it work?

Some founders will attempt to raise capital through an initial coin offering which, in simple terms, is when a company wants to fund itself through cryptocurrency. People can “back” the ICO by contributing other cryptocurrencies such as Bitcoin or, more commonly, Ether (the name for Ethereum’s coins/tokens). It is basically a crowdfunding campaign that, instead of using platforms like Kickstarter, uses blockchain platforms.

Pros and Cons

While Blockchain technology and Social Enterprise are creating new options for Startup Fundraising, it’s important to look at the pros and cons of using ICOs vs. traditional fundraising methods.  Serhiy Kozlov (CEO and Founder of Romexsoft) does a great job highlighting some of the pros/cons of using ICOs to raise capital.  Below is a summary (full article can be found here):

BENEFITS

Traditional Funding Comes with Strings/IOC’s with Far Less.

A clear advantage for the founder. Initiating an ICO with a unique currency that can later convert to Bitcoin or Ether, takes a lot of regulation out of the mix.  Banks and traditional VC funding can may have tight contracts and legal responsibilities.

ICO Funding is Cheaper.

When the middleman fees and interest are cut out of the mix, getting funding is cheaper. There is also more freedom for the founder to set terms.

Flexibility for the Investor.

Investment returns on ICOs can be more accelerated than returns with traditional funding. Investors like this.

Flexibility for Startup Founders.

One great thing about ICO is that funding can come from a variety of currencies, both fiat and crypto. This may attract more investors than traditional funding which usually occurs in a single currency.

POTENTIAL DOWNSIDES

Lack of understanding regarding governmental rules and regulations, regarding investing and receiving investment capital.

There are legal risks involved in an entrepreneur seeking funding via an unregistered token, even when it goes through registered blockchain platforms, like Bitcoin and Ether. In the case of the U.S. SEC, for example, just incorporating outside of the U.S. will not grant ‘immunity.” As well, the SEC has recently established rules regarding equity investments in crowdfunding activities.

Over-Valuation. 

Some of the amounts being raised through ICOs are staggering. Early investors in Bitcoin and Ether are eager to invest more and more in new ventures, and founders are “tempted” by the easy money to raise far more than they actually need or would get via traditional financing.

Lack of Control and Protection. 

This, of course, is an investor’s not a startup’s problem. But it is a weakness that, if not “fixed”, may sour investors over time. Unethical or fraudulent “startups” really have little-to-no fiduciary responsibility to their investors. Smart Contracts, such as those through Ethereum are a start, but the promoter has ways to alter those arrangements.

It’s Too New. 

As mentioned earlier in this article, the concepts of Blockchain, cryptocurrency, and ICOs are still foreign to many investors, and certainly to individuals who have money to invest but see this cryptocurrency “stuff” as somehow fake money. It will take time for the entire concept to become mainstream and for weaknesses to be eliminated.

For more information on fundraising, our Founder/CEO, Tyler Jensen has created several eBooks on the topic.  We invite you to browse our website to request free downloads.

5 Reasons Why You Can’t Afford Not to Hire a CFO for your Business

5 Reasons Why You Can’t Afford Not to Hire a CFO for your Business

In most cases it takes a very large payroll and budget to staff a full-time CFO however; today, more and more small and mid-sized business owners are capitalizing on the extensive education and training that a part-time CFO brings to the table. For this reason, we are seeing an uptick in the number of business owners that are turning to part-time CFOs and Strategic Business Consultants to get high-level financial guidance and consultancy without cutting a big paycheck.

In this month’s post, we are highlighting some of the many benefits you will receive through partnering with a part-time CFO and/or Strategic Business Consultant:

Potential to increase cash flow

A CFO has the expertise and ability to uncover problems and provide practical solutions in a way that is constructive and educational. They will also handle your day to day finance and accounting issues giving you back perhaps your most valuable asset — time.

Clarity and the ability to make better business decisions

A CFO knows how to thoroughly evaluate financial data so you can make smart business decisions. They provide a holistic approach to assessing your business including monetization strategies and business models, target markets and competitive differentiation, management team and personnel plan, sales and marketing communication strategies, and more.

Help when you need to raise capital

A CFO can help you calculate how much capital you may need in order to grow your business AND then strategize with you on how to get it. Additionally, they have an intimate knowledge of the capitalization timeline, who invests at the various stages, and what investors need to see at each stage.

A strategic partnership

A Fractional CFO is more than just a consultant…he or she is your strategic partner. Part-time and contracted CFOs wear many hats and are often times multi-talented; therefore, bringing with them a broad range of experience.

Flexibility

A Fractional CFO is an outsourced consultant so the business owner has the flexibility to increase or decrease the CFO’s hours based on the needs of the company.

Still not convinced? Here are a few questions you may want to ask yourself:

  • Can you afford to hire a part-time CFO?
  • Have I been successful in raising capital?
  • Am I growing at the rate I want to be?

If you are unsure on how to answer any of these questions we invite you to contact us for a free consultation. With over 10 years of industry experience, The Startup Garage and our Founder/CEO Tyler Jensen, are proud to be recognized as a boutique consultancy that has helped hundreds of Founders raise capital through proven startup strategy consulting services including preparation of Business Plans/Investor Documents and Fractional CFO/Accounting Services.

Contact us or call (858) 876-4597 for a free consultation.

More information: Business Plan Writer vs. Business Plan Strategic Consultant

 

The Startup Garage at Hera Venture Summit 2017

The Startup Garage at Hera Venture Summit 2017

The Startup Garage had the opportunity to be a partner of the Hera Venture Summit for the 2nd year in a row. This annual event, hosted by Hera Hub, Hera Labs, and Hera Fund, brings together experts from both sides of the investment table to share best practices, provide learning opportunities and foster networking. The theme of this year’s event was “Building Bridges” – with the intent to focus on building bridges between female founders and funders in the greater CaliBaja region.

This year’s opening keynote was given by Vicki Saunders (http://www.vickisaunders.com), Founder of SheEO. SheEO is a leader in global innovation in the female entrepreneur marketplace whose model serves to finance, support and celebrate female entrepreneurs. SheEO operates in cohorts where women pool funds together, which are then loaned out at low interest to 5 women-led Ventures selected by Activators. Activators range from corporate executives, successful entrepreneurs, women leaders, students, mothers, daughters, etc. ranging in age from 14-92 making for quite a unique community (https://sheeo.world).

Other Keynote speakers included:

  • Andrea Guendelman, CEO BeVisible LatinX — Creating a Collaborative Community for LatinX
  • Elissa Freiha, Co-Founder, WOMENA (female angel group in UAE) — A Womentum in Mena
  • Lisa Odenweller, Founder Beaming — Be your BEAMING Self

The summit also included an expo hall with many wonderful businesses and refreshments, several panel discussions and an interactive Fast Pitch, Fast Due Diligence & Fast Funding session.

As part of the event programming, TSG provided the following Top 8 Success Tips for Entrepreneurs:

Startups take time. Create a plan that avoids too much false or unnecessary urgency.

Having a false sense of urgency can keep us from putting our energy into the right things at the right time. It’s true – success doesn’t just happen – it requires careful, detailed planning and action. Be sure to enlist the help of business plans, checklists and project management platforms, to prioritize and stick with daily, weekly, monthly, and annual goals.

Don’t focus too much on the product/service. Balance your focus.

All too often entrepreneurs become so excited over their product or service that they get lost in their own enthusiasm. The core of the business might be the problem the product solves; but it’s imperative to give equal weight to other key comments of the business like, the team, the marketing strategy, and the business model and customer feedback.

There is plenty of investor money out there for companies who reach the milestones investors care about. Know what investors care about and focus on that.

Remember as an entrepreneur your perspective and mindset, often times differs from that of an investor. There are a few key things that you will need to show and/or achieve in order to get them to sign over the check.

– Business Plan

– Personal Investment

– Capital and Milestone Timeline

– Market Validation

– Prior Success

Founders are the biggest problem for most startups. Get out of your own way.

We call this “the founder’s dilemma”, and it’s a big one. Founders don’t let go easily. Surrendering control, delegating tasks, and learning to be a leader rather than a micro-manager can take time. Recognize the dilemma and start delegating tasks early on (even if it feels uncomfortable).

A healthy founder leads to a healthy startup.

Founders are the core of the business. Inspiration, motivation and success start with you and then ripple out to the organization at large. Your business is your responsibility – treat it with care by caring for your health and wellbeing. To be efficient and firing at a high caliber it’s essential to embrace a healthy physical routine and check in with your mental state. Moderation is key — working non-stop leads to startup burnout.

Know your exit strategy.

Knowing your end game makes every decision easier. Having clarity on your exit plan — whether it’s not exiting, Merger & Acquisition, or IPO — affects how you run your business day to day.

Planning is critical.

The lifecycle of you startup depends upon planning, documenting, and communicating even the most mundane tasks.

Take on the student role and always be learning.

The smartest founders are the ones that don’t know all of the answers. Being a lifetime learner evokes greater innovation and creativity. Knowledge is power and will help increase awareness of the world around you.

 

Top 4 Reasons Why The Right Financial Consultant is Crucial

Top 4 Reasons Why The Right Financial Consultant is Crucial

As an entrepreneur, you should be maximizing your time on two key aspects of your company: your product/service and your customers. It is always reassuring knowing someone is simply a call away to help you with the financial aspects of your business. We’ve provided our top 4 reasons why having the right financial consultant is crucial in today’s competitive market.

1.The right Financial Consultant will help you develop a feasible 5-year growth model. Entrepreneurs tend to be optimistic about the future, and rightfully so since their business model is based on a brighter future and higher demand for their product/service. A financial consultant develops a full expense analysis of your company, along with a sustainable growth projections based on historical and market data.

2.They develop main KPIs and milestones tied to measurable goals. When developing a financial model, it is vital to make your assumption as simple and concise as possible. One minor miscalculation can lead to unrealistic growth and deem your projections erroneous. Expert financial consultants will create a financial model with the least amount of assumptions possible, driven by your company’s key performance indicators. Additionally, given their research and expertise, they will ensure proper execution of milestones are tied to measurable goals as the company grows.

3.Identify potential investor red flags. Financial consultants can quickly and effectively assess account classifications, asset and expense treatment in order to identify potential investor red flags. In doing so, the entrepreneur can be confident of all allocations and treatment of financial figures when discussing them with potential investors.

4.Help assess the right amount of capital and timing. Funding miscalculations can and often do hinder the optimal growth of a business. The best financial consultant ensures proper capital flow aligns with the demand from business. They are able to independently assess the size of various funding phases necessary to maintain the company at a certain growth rate.

At the end of the day, an excellent financial consultant will provide you with peace of mind. This allows you to invest time in the heart of your business and pass off the financial aspects of your business to a professional. Just as in your business, the return on investment on an expert financial consultant will prove beneficial as it continues to grow and will pay dividends indefinitely.

Inside The 2016 Tech Coast Angels 10th Anniversary Quick Pitch Event

Inside The 2016 Tech Coast Angels 10th Anniversary Quick Pitch Event

It’s no secret, the Tech Coast Angels is one of the largest, if not THE largest angel investor group in the nation. “Consisting of experienced CEOs, senior executives, current and former entrepreneurs, venture capitalists and other professionals, members have invested over $180 million in more than 300 companies and have helped entrepreneurs attract more than $1.6 billion in additional capital rounds,” according to the TCA Website. Regional chapters include: Los Angeles, Orange County, San Diego, Central Coast, and the Inland Empire. Within those chapters, the San Diego John G. Watson TCA Quick Pitch Competition celebrates its ten year anniversary this year.

“The Quick Pitch Competition is one of the most recognized angel investor events in the nation, showcasing talented entrepreneurs who each have two minutes to pitch their business to an expert panel of judges and large audience of investors, business executives and community leaders,” states Qualcomm Ventures. Finalists this year showcased San Diego’s entrepreneurial diversity, showcasing companies in various industries, including life sciences, consumer products, and tech industries.

This year the event was conducted a little differently, instead of the winner being selected by the judges, the audience of 500 were privileged enough to name the 2016 Quick Pitch winner. Another incentive for entrepreneurs was the doubling of last year’s cash prize to $30,000, although the top three winners would have to divide up the cash prize. The ten judges were therefore considered coaches and provided insight and feedback to the top ten savvy startup competitors. The winners were announced following an evening of meet and greet with TCA members, quick pitch finalists, and thought leaders within the San Diego startup community. As one can imagine, these entrepreneurs were eager to hear the results, but they were able to enjoy themselves throughout the entire event.

In The Hot Seat [The Feedback]

With a panel of the top players in the San Diego Startup Community serving as coaches during the TCA Quick Pitch event, there was extensive feedback provided to each presenter. Following each two-minute pitch, judges were given three-minutes to provide constructive thoughts or ask questions to each presenter.

Top 5 Points of Feedback From the Coaches

Credibility – Highlight key experiences and certifications that make you and your team a credible player in your target space.

Traction, Traction, Traction – Clearly present metrics and data points that show how your company is gaining traction.

Customer Acquisition Cost – this is a key metric all investors are interested in. Lifetime value (LTV) is also a key metric in rationalizing your CAC by quantifying your ability to monetize customers.

Optimization – If you are allotted a specific time period, use every second as effectively as possible. Two minutes is short – asking the audience questions, spending too much time on basic company information is not a meaningful use of your time
Growth Potential – Make sure you clearly communicate current revenue as well as the big picture in Year 5; investors want profitable, scalable companies to invest in.

Mark Your Calendars

The Startup Garage is a proud sponsor of the annual TCA Quick Pitch event. For San Diego entrepreneurs, these events not only bring entrepreneurs and major Angel investing groups in the country together, but they provide an open environment to collaborate, learn, and strengthen our startup community. With the increasing number of innovative startups being created every year, these events keeps everyone up to date on ongoing trends and resources. If you are a company looking for funding, please visit the TCA website and check out their application criteria.

At TSG, we believe that entrepreneurs change the world and push the boundaries of innovation, especially when they collaborate. San Diego is an expanding ecosystem of business owners and thought leaders from all walks of life. Be sure to mark your calendars for future events similar to the TCA Quick Pitch event as they bring a multifaceted perspective on industry trends and provide insight into what it means to be an entrepreneur in a time where innovation is ever evolving.

TSG’s Highlights from the Connection Innovation Report: San Diego

TSG’s Highlights from the Connection Innovation Report: San Diego

CONNECT, a San Diego non-profit helping to create and scale innovation companies, assists entrepreneurs by providing resources that allow them to grow their business. Since 2005, they have measured the growth in economic innovation in San Diego. We highlighted the key findings of the report to showcase the advancement of San Diego’s entrepreneurial growth. We recommend that all San Diego entrepreneurs read the full Connect Innovation Report to stay up to date with startup trends and growth insight of the community!

San Diego Created 405 New Innovation Startups in 2015

Over 1,600 new jobs were created in San Diego by just innovation startups alone. The various industries include: Software (255), Life Sciences (82), Communication, Computer & Electronics (50), Aerospace, Navigation and Marine Tech (8), Environmental Technology (7) and Recreational Goods (3).

Ranked First in California For New Innovation Life Sciences Startups Created in 2015

According to the report, over 3,700 new tech and life sciences companies have been created between 2005-2015. San Diego also ranked second in the number of communications technology, recreational goods manufacturing and environmental technology startups in 2015.

Innovation Economy Grows To An All-Time High

2015 proved to be a historic year for innovation economy, creating nearly 149,440 high-paying jobs. That’s 11% of total employment in San Diego County with the city of Carlsbad arriving at number one, having the most new innovation startups created, a total of 63. Downtown San Diego (54) and Sorrento Valley (52) weren’t far behind.

Top Ten U.S. Metros for Startup Activity and Growth Entrepreneurship

San Diego ranked 7th using the Kauffman Index of Growth and Entrepreneurship, which gives equal weight to the rate of new entrepreneurs, opportunity share of new entrepreneurs, and startup density of a region.

VC Funding in Software Sector Surged in 2015

Invested in 28 deals, the total venture capital funding for the software sector was $240 million in 2015. This is an increase of 150% from 2014.

Mergers & Acquisition (M&A) Closed More Than $31 billion in Technology and Life Sciences Where a San Diego Company Was Either a Target or Buyer

The M&A area is dominated by life sciences companies. Medical devices sector accounted for 12 deals totaling $15.4 billion. This is almost half of all M&A deal value for San Diego’s innovation economy.

Research Grants

More than $1.29 billion in various grants were awarded to San Diego research institutes and companies. This ranks San Diego county 2nd in California behind Los Angeles County for NIH and NSF grant funding received in 2015.

We encourage all of the startup savvy founders in San Diego to read the full report on the CONNECT website.

The continuous growth and increasing number of startups in San Diego, calls for the need of a support structure and foundation crucial for success. TSG serves as an invaluable source of information into the startup environment, and in particular, the San Diego startup community. We take pride in providing critical information, tailored business plans and financial projections that propel companies forward to sustainable growth. Please continue to follow up with us on social media and reach out to us with your startup questions and inquiries of your business or idea!

6 Reasons You’ll Want To Attend This Year’s USD Legacy Entrepreneurship Conference

6 Reasons You’ll Want To Attend This Year’s USD Legacy Entrepreneurship Conference

On Thursday Oct 6 2016 The University of San Diego School of Business Administration and the Center for Peace and Commerce proudly present the annual USD Legacy Entrepreneurship Conference.

Here are some of TSG’s reasons why you’ll want to attend this annual event.

1. There is no cost to attend. It’s a very valuable and completely FREE event open to the community. You won’t find one like it! Space is limited and you’ll want to reserve your seat sooner than later. Sign up early to reserve your seat. Soak in as much insight as you can. Take advantage of this major local resource into the world of entrepreneurship, interaction and collaboration. In three hours you’ll hear from a diverse panel of thought leaders in the community.

2.The Financial Times recently ranked USD’s School of Business Administration’s MBA Program Number Three in the World for Entrepreneurship.
The esteemed ranking is based on criteria included the percentage of graduates who created their own company, the percentage of companies still operating at the end of 2014, whether it was their main source of income and how the school and the alumni network helped set things up.

3. The purpose of this USD event is to empower change makers through entrepreneurship.
The event is purposefully created to evolve and sustain a community of aspiring as well as seasoned entrepreneurs/business owners. Ultimately, bringing together students, alumni, investors and entrepreneurs for an interactive evening of coaching and collaboration. This event coincides with a larger perspective of what it means to be an entrepreneur and a strengthened sense of community.

4. Any entrepreneur, whether aspiring or seasoned, can benefit from attending the conference.
The USD Legacy Entrepreneurship Conference is one of the biggest events at USD for entrepreneurs. It is an incredible opportunity for anyone who has been inspired to be an entrepreneur to get the “real” behind the scenes stories from some of San Diego’s top entrepreneurs.

Participants will have the opportunity to engage with those who have done it before and can share their own startup stories stories. Topics like, “What I would tell my 21 year old self” can save anyone wasted time, energy and money of trying to figure it out on their own. Making mistakes as an entrepreneur can be very expensive, and an event like ULEC allows people the opportunity to ask questions, get feedback, and gather lessons learned from top successful entrepreneurs.

“It is also a great opportunity to meet our current innovative students and the thriving USD startup community. Social entrepreneurs who are changing the world and want to share their stories will also be on the panels adding a “changemaker” perspective” says Regina Bernal, Entrepreneurship and Experiential Learning.

5. Have your entrepreneurial questions answered from game changing panelists! You’ll collaborate with panelists like Stephan Aarstol, Author of ‘The Five-Hour Workday’ in a fireside chat setting. You’ll want to be sure to invite your boss for this part! Have those entrepreneurial questions ready. Those questions that browsing through countless articles on the internet just don’t answer.

Confirmed Fireside Chat and Panelists

Fireside Chat— Stephan Aarstol, Founder CEO Tower Paddle Boards, Author ‘The Five-Hour Workday’

Concurrent Panels “If I started my Business Today” “What I would tell my 21 year-old-self”

Warren Lorenz, TechMeetsTrader

Andy Altman, GigTown

Jessica Kort, Lacy

Gina Champion-Caine, American National Investment

Stephanie McQuade, Lacy

Cara Cerutti Holmes, Smarter Garter

Jeffery Adler, Serial Entrepreneur

Neil Resiman, Tavistock Group

Sioma Waisburd, Whole e Nature

Cody Cross, GreekLink

Ana Bermudez, TAGit

6. The networking. The conference offers the time and space to expand your network in the community. Let’s be honest, networking events alone can be costly to your startup budget and events like these offer the space to expand your network and exude your own value to the community. Don’t be shy! You’ll get the most out of it by getting involved in the conversation, asking questions, and leaving with a few valuable connections that you can continue to grow with on your journey as an entrepreneur in San Diego. Don’t miss out on this incredible FREE opportunity from USD and San Diego’s entrepreneurial community. Stay connected and get involved. Sign up today!

MintShow featured at TechCrunch Disrupt SF!

MintShow featured at TechCrunch Disrupt SF!

There is nothing more rewarding than being truly connected with a client’s vision and passion.
MintShow is the first social network that helps people maintain an uplifted state of mind by providing a community that’s dedicated to positivity and inspiration.

The Startup Garage has had the pleasure of working with MintShow and the company’s inspiring leadership team.

MintShow CEO, Michael Parker, was interviewed at TechCrunch Disrupt SF to talk more about his vision and the beta launch of Mint Show. Check out his interview and get inspired! The MintShow app is also available for download on their site.

TechCrunch Disrupt is the world’s leading authority in debuting revolutionary startups, introducing game-changing technologies and discussing what’s top of mind for the tech industry’s key innovators.

5 Financial Tips For Startups from the 2016 Hera Venture Summit

5 Financial Tips For Startups from the 2016 Hera Venture Summit

The Startup Garage had the opportunity to be a partner of the 2016 Hera Venture Summit. The Hera Venture Summit, hosted by Hera Hub, Hera Labs, and Hera Fund, brought together experts from both sides of the investment table to share best practices, essential tips and lessons learned. The event focused on equipping and connecting female founders and female funders. The TSG team was able to meet and collaborate with so many passionate women founders, funders and advocates.

As part of the event programming, TSG provided the following top 5 financial tips for Startups.

1. Develop feasible 5-year growth projections. It is important to set realistic projections that align with your addressable market size and key growth drivers to create an attractive, yet realistic, investor story. This also includes ensuring expense assumptions support your growth, especially when it comes to personnel and marketing related expenses.

2. Identify the KPIs and measurable milestones that matter. Developing key performance indicators are essential for internal strategy to help measure progress and identify productivity opportunities to help grow a profitable business. You also want to ensure you are measuring the metrics investors care about.

3. Review your accounting books and identify potential investor red flags. It is critical that you have your books in order so they don’t create additional risk in the eyes of an advisor. Ensure your books have the correct account classifications and that assets and expenses reflect proper accounting treatment.

4. Ask for the right amount of capital at the right time. It is important to ensure that your financial projections reflect the requested capital investment and that the timing of request aligns with your needs.

5. Find the right investor match. When searching for potential investors, entrepreneurs are eager to hear a “yes” and receive investment capital. Conducting due diligence on your potential investor will help create an effective, sustainable relationship for both parties.

We are looking forward to what the 2017 Hera Venture Summit has in store. Mark your calendars and see you next year!
Stay tuned for for more Startup tips from our blog and newsletter and request a free consultation below if you are ready to talk to our team.

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Crowdfunding For Equity: Title III and Equity Crowd Funding 101

Business Plans and Crowdfunding

Crowdfunding For Equity: Title III and Equity Crowd Funding 101

What is Equity Crowdfunding?

Equity crowdfunding is on the rise after the signing of the Jumpstart Our Business Startups (JOBS) Act was signed by President Obama in April 2012.

Simply put, it is a type of crowdfunding that enables broad groups of investors to fund startup companies and small businesses in return for equity.

Three years after the JOBS Act was initially passed, Title IV (Regulation A+) went into effect, allowing larger companies to accept capital from both accredited investors (the wealthiest 2% of Americans) and non-accredited investors (the other 98% of Americans). This expanded when Title III (Regulation CF) was enacted in October 2015, which also allowed early stage companies to accept capital from both accredited and non-accredited investors.

More About Title III (Reg CF)

Title III allows startups and small businesses to raise up to $1M from the general public – an unprecedented way to raise capital. More specifically, investors who have less than $100,000 in both income and net worth may invest at least $2,000 per year, and as much as 5 percent of their income or net worth (whichever is less) per year.

Investors whose income or net worth is greater than $100,000 may invest up to 10 percent of their income or net worth (whichever is less) per year.

Thus, Title III gives companies that are historically underserved by the current capital markets an equal opportunity to equity financing.

On May 16th, Title III will officially go into effect.

Process

Choosing a Funding Portal

Under Title III, companies must use an online intermediary (either a broker-
dealer or crowdfunding portal registered with the SEC and FINRA), to facilitate a
fundraise. Experienced portals with a deep understanding of the regulations
surrounding Reg CF can help ensure that their campaigns are compliant with SEC rules.

Filing a Form C

Companies raising under Title III do not need to get SEC approval to initiate their
raise. They must, however, prepare a Form C and file it with the SEC 21 days prior to launching an offering. This form includes basic information about the company, its employees and the terms of the raise.

Disclosure Requirements – Financial Information

In addition to Form C, necessary financial information will depend on the size of
the intended investment needs:

 Under $100k – Internal financial statement review

 $100k-500k – CPA reviewed financial statements

 500k-1M – 3rd Party audited financial statements

 1st time crowdfunding issuers offering more than $500,000 would be permitted to provide reviewed, rather than audited, financial statements.

 Disclosure Requirements – Ongoing Reporting

Providing progress reports not only build trust with investors and keep them informed, but they’re also a very much required part of the disclosure requirements. Upon the successful closure of your campaign, you will be required to provide ongoing updates to your investors in the form of an annual report, which will include similar information that was included on the Form C.

In summary, what are the benefits and pitfalls of Title III?

Benefits:

 Title III can be an efficient way to quickly startups raise capital from the crowd

 More investors equate to more supporters in your startup

 Reporting requirements give founders and investors an opportunity to

Pitfalls:

 Current statutory disclosure obligations and costs are overly burdensome

 Legal and accounting fees may be higher than traditional capital-raising

 Title III does not include a “testing the waters” provision (like Reg A+ maintain a more open and transparent dialogue methods does) so that issuers can gauge interest before incurring burdensome filing and preparation costs

Remember, Regulation CF will become effective 180 days after the final rules are published in
the Federal Register on May 16, 2016.

If you have a question about your equity crowdfunding for your Startup or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!