Tag: financing (Page 1 of 2)

Funding Portal Rules for Regulation Crowdfunding a/k/a Equity Crowdfunding

Geefunding_crowdfundingThe JOBS Act from way back in 2012, set forth the Crowdfunding exemption to the securities laws, and required that any Funding Portal that engaged in Crowdfunding registered with the SEC and became a member of FINRA.  In late 2015, the SEC came out with the Regulation Crowdfunding Final Rules and forms to permit companies to offer and sell securities through Crowdfunding and to regulate the intermediaries which can sell the crowdfunded securities.  The latest Funding Portal rules have been finalized by the SEC and FINRA.

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SEC Adopts Final Rules Amending Regulation A @ Paper This Deal

On March 25, 2015, the SEC adopted final rules amending Regulation A, referred to now as Regulation A+. These amendments were required by Congress via Title IV of the JOBS Act which was passed some time ago. (we are all still waiting for the Regulation Crowdfunding rules to be finalized).

The general rule is that when a company offers or sells a security, the security must either be registered or an exemption from registration must be relied upon.  Regulation A has been on the books for a long long time and has been relied on very little.

Now the SEC has a tough job, its tasked with allowing companies to raise money via offerings of securities but on the other hand it needs to ensure that fraud does not run rampant. These two goals don’t have to be mutually exclusive, but the SEC has generally focused on the latter of the two at the expense of the first. 

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Use your Retirement Plan to Fund your Startup @ Paper this Deal

First of all, I won’t advise anyone to withdraw their 401(k) funds early as the tax hit the IRS enacts is insane.  If you are thinking about doing that, please don’t, or at least don’t do so until you’ve spoken to your accountant.

This post will, however, detail how to use your qualified retirement plan or IRA to start a new, or buy an existing, business.  This name given to the process I’ll discuss is rollovers as business startups (“ROBS”).  The main gist is that an individual’s current retirement plan is rolled over into a newly established 401(k) plan sponsored by a startup company and then used to purchase the startup company’s stock.  The ROBS arrangement allows income taxes and penalties (see IRC Section 72(t))to be avoided because it is a rollover from one qualified plan to another.

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Ten Tips for Pitching your Startup to Investors @ Paper this Deal

I volunteer at a couple of small business incubators and programs.  I was sitting in on a mock pitch last week and giving some pointers on how the entrepreneur could polish their pitchdeck and overall presentation. I figured I’d put these up so people can take a look.  The below are offered to any startup looking to raise money:

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Securities Laws as applied to Virtual and Online Items @ Paper this Deal

There’s been a lot of discussion about whether online or virtual accounts can be deemed securities under the U.S. federal securities law.  The most well known at the moment is Bitcoin.

A case was just decided where the court found that Bitcoin was a currency.  Based on that fact, and that the protaganist in the case was offering a money making scheme (you put in money, wait and make more money off Bitcoin), the scheme was subject to the securities laws.   We’ll have to parse out the holding.  The court did not hold that the Bitcoin itself is a security, but rather that Bitcoins are a type of currency – because they can be converted into currency (which I’m not sure I agree with – any commodity, product or item can somehow be converted to currency – and the distinction between selling and converting seems like a big deal). Here’s the link to the case, its actually rather short and sparse on legal analysis for one that makes such huge leaps in legal doctrine as applied to a concept which the court is probably not overly familiar with.  The old adage that bad facts make bad law seems to be the culprit again, as the scheme the guy in Texas was attempting to pull off was not something a judge would let him off on.

I’m pretty sure this isn’t the last we’ve heard of the SEC v. Bitcoin debate.  Mark it up as SEC 1, Bitcoin 0 so far, unfortunately.

I’ll give a breakdown of the securities laws and how they could be, and have been, applied to virtual goods, online items, and currency, including Bitcoin (which I’m not conceding is technically a currency).

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Thoughts on the Twitter IPO @ Paper this Deal

Last Thursday September 12, 2013, Twitter, from its official account, tweeted the following:

TwitterTwitter         @twitter

We’ve confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.

14,577 RETWEETS 3,357 FAVORITES

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Intrastate Securities Offering Exemption @ Paper this Deal

I wanted to blog on some of the lesser known and relied on securities exemptions.  In certain situations they can be very helpful.  One of these is the federal Intrastate Securities Offering Exemption.  Simply, if you offer and sell in one state and one state only, and some other factors are met, the issuer is exempt from the federal registration requirement.  Blue sky laws will still apply but some states have limited offering exemptions or other exemptions the issuer can rely on.

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SEC allows general solicitation and advertising in Rule 506 offerings @ Paper this Deal

Yesterday, July 10th, under the provisions of the JOBS Act the SEC passed its Final Rules which amended Rule 506 and Rule 144A to lift the ban on general solicitation and advertising in offering and selling securities in a Rule 506 sale as long as all purchasers of the securities are accredited investors.

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Series A Participating Preferred Stock and Term Sheet Terms @ Paper this Deal

If your startup just got a term sheet from an investor saying that they want to invest in your company and want to receive participating preferred stock with all of these other rights, you may be a bit overwhelmed.  First off, congratulations on the proposed investment.  Next, I’ll explain what all of those terms on the term sheet mean in this post starting with the participation component of participating preferred shares.

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The JOBS Act contained many provisions which were aimed at making the capital raising process easier, simpler and quicker from a host of angles.  Many things promised in the JOBS Act will not come to fruition until the SEC promulgates the regulations on the specific topic.  Some of these are equity crowdfunding, and the ability for issuers to use general solicitation in Rule 506 offerings.

One of the things contained in the JOBS Act which went into effect immediately, was an exemption for broker-dealer registration for persons or entities acting as brokers in certain 506 offerings.  The SEC just confirmed this in a recent FAQ available here.  I’ll give a quick overview below.

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