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

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.

16 Replies

Michael Brill
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Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
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 Biscardi, Jr.
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Creative Director, Visual Storyteller, Video Editor, Post Supervisor, Documentarian
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
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Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
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.
James Dailey
2
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James Dailey Entrepreneur
Senior Associate at Modulor LLC
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.
Michael Brill
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Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
@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.
James Dailey
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James Dailey Entrepreneur
Senior Associate at Modulor LLC
@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
Paul O'Brien
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Paul O'Brien Entrepreneur • Advisor
Tech Economic Development and VC CMO
Just a point of clarification as the media coverage of this news has been pretty unsophisticated. "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." That has been possible for years; what's changing is the ease with which it can happen, how much can be raised, by how many, and with how minimal a contribution.

Do a Google search for "Equity Crowdfunding" and you'll find many platforms which have been serving startups with crowdfunded venture capital for years. That said, since you are thinking/seeking investors at $200 and up, the newer regulations certainly serve you as the older platforms typically aggregate accredited investors and support later stage rounds.

Full disclosure: I work for one of them. We publish quite a bit of information about equity crowdfunding and how it works here.
Michael Brill
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Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
Hi @Paul. Could you clarify:

"the newer regulations certainly serve you"

AFAIK, there are no new US regulations that make it easier for a seed-level startup to raise money from unaccredited investors. I could be missing something?


Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
... 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.


Leo Lam, PhD
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Leo Lam, PhD Advisor
Product development executive, serial entrepreneur and Angel Investor
I am glad that someone brought up Washington State. We are pretty much at the forefront of pushing for crowd funding legislation.

One of the major pushers is Joe Wallin, a prominent business attorney here in Seattle. He has posted multiple times about the Federal rules and also the WA legislation.

His writing can be found on the Startup Law Blogand his own blog. I highly recommend that you read through those posts. It's quite a complex issue that would require more than a post/response here. My company is fully crowd-funded, and it has been a great ride. Hope this helps.
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