Fundraising · Investors

How would you go about finding information on the new Micro Investing rules?

Walter Jr. Creative Director, Visual Storyteller, Video Editor, Post Supervisor, Documentarian

May 5th, 2015

On May 1st the rules in the US were changed for Micro Investing allowing individuals to own a small part of a company in a crowdfunding type of scenario instead of getting a trinket. We're considering this for our seed round. Any advice on where to look for good information on how to properly set up the funding round so we're set up properly? We're probably looking at $200 investments on up.

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James Dailey Senior Associate at Modulor LLC

May 5th, 2015

Yes, this is a fairly major change --> http://www.sec.gov/news/pressrelease/2015-49.html
"The new rules update and expand Regulation A, an existing exemption from registration for smaller issuers of securities.  The rules are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act." 

Essentially, SEC rules for accredited investors under Regulation A+ is what has changed as I understand it. Under the new tier 2 regs you (as in investor) can invest up to 10% of your annual income or net worth. This is potentially a huge change given that prior to this your minimum annual income was $250k to be accredited. In some States, like WA, our regulations already permit this so the SEC rule making was the final thing.  Most other States have yet to change their regs.  

James Dailey Senior Associate at Modulor LLC

May 5th, 2015

@micheal - in general I agree, all things are easier when you're a larger company and have a network of people you can call upon to help with these things.  Specifically, for the startup..., I don't know... I would assume that (soon) new companies would emerge to help make that process of the audit and the offering circular a little more streamlined and affordable... and perhaps be on a contingent basis.  I'm sure that the SEC is going to watch this very carefully given the potential for abuse. They spent about four(?) years coming up with the rules.  

So... this is not something I would encourage a new entrepreneur to try right off the bat, but it is a new route for an exit and a powerful way to link to true crowdfunding. (Which I guess you must know pretty well given your business!).   

Cheers

Rob G

May 6th, 2015

... move to WA state:   
http://www.crowdfundinsider.com/2014/05/37645-inside-view-washington-state-equity-crowdfunding-law/

http://www.dfi.wa.gov/small-business/crowdfunding .   

Still the wild west - the state dept of financial institutions just published their rules in the past few months so not much history yet.  Still not as straight forward as it should be, but much better than current and previous federal regs.  Still a limit on advertising that you are raising $$ - must be limited to residents of WA.  We still need a platform/portal (like kickstarter or Idiegogo).  But the good news:  can raise from non-accredited as well as accredited investors, can raise up to $1,000,000/yr, audited financials not required. 


Paul O'Brien

May 6th, 2015

Michael, I'm generalizing a bit and alluding to all the regulations that others are discussing: Reg A+, State based securities regulations, etc. For example, about a month ago, the State of Texas passed securities regulations allowing equity crowdfunding in Texas. I don't know all the regulations so don't quote me but essentially those changes mean that any Texas based investor (I believe) can contribute up to $5000 to a Texas based business.   That announcement was hailed throughout Texas in the same way that Walter started this discussion: That equity crowdfunding is now possible!

That headline was false and misleading.

All I was added to the discussion is that equity based crowdfunding has long been possible; it's not new. It's not new in Texas. It's not new for startups. It has changed in Texas for startups in that more investors can now participate at <$5000.  Not unlike Rob's input of something similar in Washington.   But, MicroVentures has funded over 110 startups, all with crowdsourced, equity based investment. 

What's changing is how that can happen. We've been doing it for years because we are a registered Broker-Dealer and can structure asset classes and facilitate transactions for Accredited Investors. The reason I said the regulations are changing to serve Walter's scenario ("$200 investments on up") is that is indeed what is happening. In States, investors can often participate with smaller dollar amounts and by way of different circumstances. With Reg A+, as I understand it, startups are able to raise more capital this way, from a greater number of investors. Thus... it's possible that there are ways Walter could get investors on board for as little as $200 (they couldn't through us, MicroVentures doesn't serve that model; but that doesn't mean the changing regulations aren't making it possible: such as if he is in Texas).

by the by, FounderDating doesn't support the @ tag in the way we'd expect. You linked to a twitter profile. I'm @seobrien on twitter. I don't think you can tag someone here.

Michael Brill Technology startup exec focused on AI-driven products

May 6th, 2015

#Paul, yeah the @ is force of habit.

State-level offerings and clearly all the trends are in the right direction. All I was saying was that Walter should not set his expectations that he's going to be able to crowdfund equity in his current seed-level startup. Even if he moves to Washington, I think he still has problems due to restriction on general solicitation (on the internet). 

BTW, congrats on your success!!


Walter Jr. Creative Director, Visual Storyteller, Video Editor, Post Supervisor, Documentarian

May 6th, 2015

Thanks for the input on this discussion and Paul it's funny because I filled out a form on Micro Ventures just a few days ago.   I found your company while I was researching the concept and saw that you guys have been doing that for a while.  

Thanks again everyone.

Walter

Michael Brill Technology startup exec focused on AI-driven products

May 5th, 2015

Walter, I assume you're talking about Reg A+ offerings which is the only way you'll be able to raise money from non-accredited investors as a non-public company. (It's June 19, not May 1... not that it really matters).

Here's an overview for you: http://www.forbes.com/sites/mraneri/2015/05/04/considering-the-new-ipo-lite-breaking-down-the-stages-of-an-sec-reg-a-offering/.

I think you'll see that it's not appropriate for where you are. It's for later stage companies and has quite onerous reporting requirements (you'll need to do a seed round just to pay for the docs do a Reg A+ offering!).

Back to square one.




Walter Jr. Creative Director, Visual Storyteller, Video Editor, Post Supervisor, Documentarian

May 5th, 2015

Hmmm, that does not sound like it, but I'll have to go back to my sources and ask.  It sounded like it was a much simpler option and certainly did not go up to $50 million.   It was taking the crowd-fund model and applying that to actual ownership of a company much as a "normal investor" would get.

It's not a "backers" vs "investors" situation.  The "backers" in the sense of that article would get equity in the company.  A very small amount, but they get equity.   

Michael Brill Technology startup exec focused on AI-driven products

May 5th, 2015

Dunno... again, I'm assuming you're talking about reaching non-accredited investors. If Title III of the JOBS Act is ever passed (don't hold your breath) then that is more like the model you're describing.

Right now there is no reasonable way for you to raise money from non-accredited investors.

Michael Brill Technology startup exec focused on AI-driven products

May 5th, 2015

@James, it definitely has the potential to have a significant impact on how companies raise money... but not seed financing. Getting audited financials (not hard for a startup I guess), preparing the offering circular ($30K-$50K for lawyers) and ongoing SEC reporting is not for early stage companies.