Crowdcheck Blog
Insights and information for online capital formation
The buyout of Oculus VR has renewed interest in the possibilities of securities crowdfunding. The tricky part of recreating the crowdfunding success of Oculus VR is to generate the same excitement as a rewards campaign within the bounds of a serious securities offering. In our previous post, CrowdCheck noted some of the issues that can arise when undertaking a combined securities and donation/rewards crowdfunding campaign. This post will look at a slightly different transaction that accomplishes a similar end: providing donation/rewards crowdfunding style perks as dividends, which some commentators have floated as an option for companies with limited cash.…
This entry is filed under Crowdfunding, SEC, Section 4(a)(6), Securities Law, Blog
The Facebook acquisition of Oculus VR has brought a lot of attention to crowdfunding campaigns by early stage companies. Some of that attention has not been positive; even resulting in death threats to the Oculus VR founders and their families. Much of the more constructive criticism is based around the question of whether the 9,522 Kickstarter backers, who contributed $2,437,429 to Oculus VR, should be entitled to something as a result of such a large acquisition.
Clearly, the Kickstarter campaign was donation/rewards style crowdfunding. The backers received everything they were going to get as a result of their contribution. They did not acquire any…
This entry is filed under Crowdfunding, Section 4(a)(6), Securities Law, Blog
I don't understand the reaction to Facebook buying Oculus by opinion writers. Much of it seems to misrepresent either what was expected to happen or the cause of what happened. For example, Joel Johnson, an early backer of Oculus on Kickstarter and writer for ValleyWag is disappointed his contribution enabled Oculus to obtain venture funding, leading ultimately to the Facebook acquisition. Then there are writers like Barry Ritholtz, who for some reason expresses an opinion that securities crowdfunding under the JOBS Act is to blame for the scam inflicted by Oculus onto its Kickstarter backers. The first reaction seems a bit naive. The second comes off…
This entry is filed under Crowdfunding, Disclosure, Due Diligence, Section 4(a)(6), Blog
With the amount of attention that intrastate crowdfunding has been getting lately, we thought it would be important to highlight the key requirements, limitations, and conditions of those various state statutes and rules. You can find our summary chart here.
This entry is filed under Crowdfunding, SEC, Securities Law, Blog
In recent months, individual states have been jumping on board the crowdfunding bandwagon by revising their securities laws to make it simpler for companies in their states to raise capital from individual investors over the internet. These are laudable efforts and will help small companies legally raise funds from outside investors.
As other commentators and analysts have described, these intrastate crowdfunding exemptions have limited filing requirements with state governments and utilize the Section 3(a)(11) exemption from federal registration of the offerings under the Securities Act. From the standpoint of the companies issuing securities, this seems…
This entry is filed under Crowdfunding, SEC, Section 4(a)(6), Securities Law, Blog
In our previous installments of our "Getting ready for seeking investment" series, we have talked about having the right corporate form, proper incorporation and remaining in good standing, and holding and documenting board meetings. The next step in order to be ready for investors is knowing how you are going to keep track of your ownership.
Keeping track of its ownership is an essential activity for any company. At each stage of growth, your company records should keep pace as well. Importantly, your shareholders and investors have rights that you need to make certain are honored. This task can become more difficult if shares are issued without…
This entry is filed under Due Diligence, SEC, Securities Law, Blog
SEC Chair Mary Jo White is bringing the New York cop-on-the-beat attitude to the SEC's enforcement of securities law violation. In a speech before the Securities Enforcement Forum on October 9, 2013, Chair White indicated that on her watch, the SEC will pursue enforcement in a manner not unlike that of New York City in the 1990s. New York law enforcement in that era implemented its "broken windows" strategy — no infraction was too small to be uncovered and punished because an environment of disorder encourages more serious crimes to flourish.
Chair White wants the SEC to undertake a similar strategy to achieve its mission of investor protection. According to…
This entry is filed under Fraud, SEC, Securities Law, Blog
Well, maybe. The SEC doesn't like bad actors in securities offerings. Since finalizing its Disqualification of Felon and Other "Bad Actors" from Rule 506 Offerings, the SEC has copied and pasted (with a few differences) the same disqualification terms into its proposed rules for securities crowdfunding and proposed amendments to Regulation A.
As a reminder, the disqualification works like this: an offering is disqualified from relying on Rule 506, Section 4(a)(6), or Regulation A if the issuer or any other covered person in the offering has a relevant criminal conviction, regulatory or court order, or other enumerated event. Great, you say, liars get caught…
This entry is filed under Bad Actor, Disclosure, Fraud, Offering materials, Rule 506(c), SEC, Section 4(a)(6), Blog
For those who are not interested in reading a long, complicated, legal-centric analysis of the impact of defective securities offerings and crowdfunding, here is the summary:
Securities offerings that aren’t done properly have to be undone; fixing them is a process that is expensive, time consuming, difficult to do correctly under state law, and exposes a company to fraud liability. You can avoid having to undo an offering by doing your crowdfunding offering (or any offering) correctly in the first place.
Ok, now let me explain.
As CrowdCheck regularly emphasizes to anyone who will listen to us, selling securities is serious business. Not only do you have to…
This entry is filed under Crowdfunding, Disclosure, Offering materials, Section 4(a)(6), Securities Law, Blog
Every major action your company takes—amending the articles of incorporation, hiring company officers, authorizing the issuance of securities, entering significant contracts, etc.—requires approval by your board of directors. Every state requires a corporation to have a board of directors: some may require multiple directors; some require that there be at least one director. The rules vary a bit here from state to state, so it is important to learn your state's specific requirements.
In an early stage company, is it highly likely that your executive officers will also be the directors of the company. It is fine that the officers and directors be the same…
This entry is filed under Crowdfunding, Disclosure, Due Diligence, Offering materials, Rule 506(b), Rule 506(c), Securities Law, Blog