It’s been over four years since the JOBS Act was signed by President Obama and finally, starting on May 16, 2016, companies are raising money under the federal crowdfunding exemption that the JOBS Act created (Title III of the JOBS Act).
Here are some things to know to help you decide whether it’s right for you!
Fun Fact! What does the CROWDFUND Act stand for?
Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act.
Do I have to have a U.S. company?
Yes, only U.S. companies can take advantage of the crowdfunding exemption.
How much can I raise?
You can raise up to $1 million in any one year period.
Do I have to use an online platform?
Yes. You can only raise money under the Crowdfunding Exemption by posting your offering on an online platform that has been licensed by the Securities and Exchange Commission. In fact, communications with potential investors must take place through the platform (there are very limited things you can say about your offering outside of the platform). Here is a list of the current platforms: https://www.finra.org/about/funding-portals-we-regulate (there may be some others that are Broker-Dealers as well – this is a list of the ones that are not Broker-Dealers).
What is the per-investor cap?
(i) If either the investor’s annual income or net worth is less than $100,000, the greater of $2,000 or 5% of the lesser of the investor’s annual income or net worth; or
(ii) If both the investor’s annual income and net worth are equal to or more than $100,000, 10% of the lesser of the investor’s annual income or net worth, not to exceed $100,000.
Note that this is a cap on what an investor can invest in all crowdfunding campaigns in a year.
How am I supposed to know if an investor is within the per year cap?
You can rely on the efforts of the crowdfunding intermediary to ensure that the aggregate amount of securities purchased by an investor will not cause the investor to exceed the limits, provided that you don’t know that the investor has exceeded the investor limits or would exceed the investor limits as a result of purchasing securities in your offering.
Are state level filings required?
Only the state of your principal place of business and the state where more than 50% of your investment comes from can require a notice filing and a fee. Not many states are requiring anything at this time.
Can I be raising in a different way at the same time?
Yes! Unlike many other capital raising strategies, you are allowed to raise money under the crowdfunding exemption at the same time that you are raising money in another way, such as through a different kind of direct public offering or an offering to all accredited investors under Rule 506(c).
What can I offer?
Even though some people call this “equity crowdfunding,” you can offer any type of security – you don’t have to offer equity.
What filings are required?
When you set up your offering on a platform, you have to provide detailed information about your company and your offering.
If you’re raising $100,000 or less, you have to provide tax returns. You also have to provide financials that are prepared in accordance with Generally Accepted Accounting Principles – most companies don’t have GAAP compliant financials and it can be expensive to get these done.
If you’re raising more than $100,000 you have to provide financials reviewed by a CPA. Reviewed financials can cost several thousand dollars.
After the first time you raise money under Title III, you have to provide audited financials if you’re raising more than $500,000.
You also have to file an annual report (including your financials) which is required to be posted on your web site. You have to continue to post your annual report for as long as you have investors that invested under Title III (there are some exceptions that allow you to stop reporting sooner than that).
Can people who buy securities in my offering re-sell them to someone else?
Yes, but not before one year after the initial purchase.
What are some examples of successful campaigns?
Here are some that I’m following:
Farm from a Box
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