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If you're exploring the idea of crowdfunding to raise capital for your venture, it means you have - or think you have - an original idea. Whether it is product, service or technology related, before you proceed further, you will want to ensure two things:
VerifyInvestor.com will be attending the Government-Business Forum on Small Business Capital Formation this year in Washington D.C. on November 19th, 2015 at the SEC Headquarters. Agenda.
Read MoreOur Infographic Featured on CrowdfundInsider. http://www.crowdfundinsider.com/2015/11/76983-regulation-a-explained-infographic/
The crowdfunding phenomenon is not going away. It’s not just an American phenomenon, either, with economies across the globe increasingly participating in the democratization of raising capital. Crowdfunding’s rise over just the last few years demonstrates its increasing strength and dominance in the world of fundraising and capital acquisition.
Read MoreYou hear the term "PPM" all the time. But what is it really? Below is a helpful infographic that explains what a PPM is. Our friends at iDisclose helped us create it, and it was published on CrowdFundBeat this morning.
It’s happened. Move over, venture capital; it is virtually every entrepreneur’s dream to make it big via a crowdfunding splash. Where dreams go, reality follows, and the crowdfunding industry is about to leave venture capital in the proverbial dust. Read More...
Read MoreThe Internet age has arrived to capital raising, and that has forever altered the way businesses raise awareness about their investment opportunities. Balancing the digital age of investing with investor protection and the needs of business community is a key focus for lawmakers and the good folks at the Securities and Exchange Commission.
Rules 506(b) and 502(c) of Regulation D
Currently, Rule 506(b) of Regulation D is the mechanism that allows issuers to conduct a securities offering without having to register the transaction with the SEC, as long as it isn’t a "public offering". This means selling mainly to "accredited investors" (and not more than 35 non-accredited investors). Private offerings using Rule 506(b) must also comply with Rule 502(c), which prohibits issuers from using general advertising or general solicitation to market their securities.
Unrestricted Websites
For those conducting Rule 506(b) offerings, in order to stay on the right side of the SEC rules, a publicly accessible website can profile general facts about your business but no information on the 506(b) securities offering. The types of information that will get you in trouble include predictions, projections, forecasts, valuation opinions, performance, and other information that may entice investor to invest in an offering. Unless you’re conducting a Rule 506(c) offering, unrestricted websites with any investment information on it are a bad idea.
Restricted Websites
Consider setting up a restricted-access website or area of your website that allows access only to accredited investors with whom you have a substantive relationship. This is an approach taken by firms like Citizen VC. Inc., who first work to establish a "relationship" with potential investors. Citizen VC sought clarification from the SEC that their approach would be seen as compliant. Here’s an excerpt from their letter to the SEC:
"In order to apply for membership, Citizen VC requires all prospective investors, as a first step, to complete a generic online "accredited investor" questionnaire. The satisfactory completion of the online questionnaire is, however, only the beginning of Citizen VC’s relationship building process."
The letter goes on to detail additional steps in Citizen VC’s "relationship building process" and to outline its own legal analysis of relevant sections of the Securities Act.
SEC Compliance & Disclosure Interpretation
The SEC published its response to Citizen VC on its No-Action, Interpretive and Exemptive Letterswebpage. In a nutshell, the SEC staff agreed that the approach outlined by Citizen VC in its August 2015 letter would not constitute general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D.
The SEC wants to ensure that there is a "pre-existing" relationship with accredited investors before they a) are permitted access to the restricted area and b) are provided with any information about the offering. They’ve also made it clear that simply asking potential investors to "click a box" on a generic form will not suffice as a means to establish this pre-existing relationship. The policies and procedures that Citizen VC undertook to evaluate the prospective investor's sophistication, financial circumstances and ability to understand the nature and risks of the securities to be offered led the SEC to concur that they had indeed developed substantive, pre-existing relationship with investors.
To view the No Action Letter, visit: http://www.sec.gov/divisions/corpfin/cf-noaction/2015/citizen-vc-inc-080615-502.htm
Don’t want to restrict your website and jump through hoops to establish a pre-existing relationship with your prospective investors? Try a Rule 506(c) offering which allows you to publicly raise capital from anyone so long as you verify that the folks that end up investing are accredited investor. Learn more at VerifyInvestor.com.
Record-breaking numbers of entrepreneurs around the world are starting their own businesses. Millions of people are forgoing the ‘job’ mentality and embracing their entrepreneurial spirit. There are little ecosystems of startup communities in nearly every major city in every industrialized country. The United States boasts almost half the global startups. Why is this happening?
1. U.S. vs. Global
The stage of economic development plays a role in volume, type and motivation for entrepreneurial startups. In the U.S., according to 2014 data from the Global Entrepreneurship Monitor, at least 13 percent of adults are starting and operating their own businesses. Where there is room for growth in the U.S. is in leveraging the global economy. GEM survey responses indicate fewer than 15 percent of U.S. entrepreneurs have a significant international customer base.
2. Opportunity Over Necessity
In the post 2008-recession, entrepreneurial motivation was reported as “necessity” – more people were starting businesses because they’d lost a job. Today, about 80 percent say they are motivated by opportunity in the economy.
3. Technology = Low Entry Cost
Technology is unquestionably the largest enabler of startup entry. The basic foundation for digital products and services are ubiquitous, cheap and flexible. The speed, universality and wireless nature of the Internet, the ease of cloud computing and access to tiny bits of code means an outsourcing and inexpensive smorgasbord for startups.
4. Social Media
An offshoot of technology, social media provides an interactive marketing and promotion platform at a fraction of the cost growing businesses used to have to spend on traditional advertising. A product invention or new service can be visible to the world with a small investment in a website and a few clicks of social promotion.
5. High Valuations
Valuations of a record number of privately held startups have hit $1 billion or more. As of June 2015, 66 of the 98 firms with valuations of $1 billion or more were American. There is no shortage of role models showing that it is indeed possible to become wealthy as an entrepreneur.
6. Demographics
Immigrants and boomers are both more likely to start businesses. According to the 2014 Kauffman Index of Startup Activity, immigrants to the U.S. started more than 28 percent of new businesses even though they represent just 13 percent of the population. And baby boomers between ages of 55 and 64 are starting more businesses than their Generation Y counterparts.
Under U.S. law, companies conducting capital raises under the new Rule 506(c) rules must verify investors to ensure they are accredited. Confidently bring investors on board with the help of the simple, reliable and confidential process offered through VerifyInvestor.com.
Disruptive technology is far from the only path to success. In fact, many believe that imitation is under-valued. A published report in the Harvard Business Review claims imitation is actually “an intelligent search for cause and effect.” Author Oded Shenkar’s research led him to conclude that imitation, as well as being a difficult task requiring imagination and intelligence, is in fact a “primary source of progress”.
Following Shenkar’s line of thinking, here are 5 key reasons to avoid disruptive technology in your startup.
1. It’s a Small World
Globalization has made the world a tiny one, at least when it comes to markets. Startups don’t often have the money (or time) to get a foothold in all the relevant markets at the same time. Look for great ideas in other parts of the world that are worth copying, find a way to improve upon them, and then be the first to deliver in your home market.
2. Imitation Drives Progress Too
History is littered with examples of successful businesses that imitated first and innovated second. McDonald’s didn’t invent fast food. Wal-Mart didn’t invent the high-volume, low-cost business model. It wasn’t Visa, MasterCard or American Express that invented the plastic card. To quote Shenkar, “Today’s lions are the descendants of copycats.”
3. Save on R & D
Research and development costs for inventors of a new technology are at least 30 percent higher than they are for ‘imitators’ looking for ways to improve. But don’t confuse this with imitation being easy: far from it. Scientists now acknowledge imitation is a demanding, complex process that takes advanced cognitive ability and high intelligence.
4. Learn From Early Adopters
Imitation based on the innovation of others has several advantages. Market research can be conducted on real customers in a real market. What other startups have had to do as they encounter obstacles, make mistakes, and pivot can be invaluable lessons for you.
5. Attract Investors
Not all investors are holding out until they find that next-big-thing. Many instead recognize the value in strategic innovation that is based on imitation of a proven concept. Look at banks, for example: they are much more likely to provide loans to those buying a franchise than those starting something completely untested, however promising it may be.
Federal laws may require that you verify that your investors are accredited. VerifyInvestor.com offers a simple, reliable and confidential process to help you confidently bring investors on board.
Video Transcript
Being asked to prove that youre an accredited investor? Here are some tips and tricks on safely getting verified as an accredited investor.
Insist on a safe verification process conducted by a reliable third party you trust to protect you and your information.
Verify the right investor. If you are investing with a spouse, both of you need to be verified. If you are investing and taking title through a trust or company, then that entity needs to get verified.
There may be multiple ways to get verified. Choose the method that is easiest for you which requires the least amount of disclosure.
Note who the actual owner of the assets is. The evidence provided should match the name of the investor being verified.
Dont provide any more information than necessary. Provide relevant sections rather than full documents and only show the assets you need to. Redact out sensitive information such as account numbers, addresses, and portfolio positions.
Do NOT divulge your social security number or allow them to pull your tax transcripts and credit report. Instead, take the time to securely obtain them yourself and provide your verifier with redacted versions.
You might be required to provide a credit report. Because you only get one free credit report per year from each of the three agencies, consider getting one report each time you get verified rather than using up all three free reports at once.
For real estate, private company stock, or alternative assets, use 3rd party objective valuations like appraisals, real estate broker estimates, or CPA valuations.
If youre a foreign investor outside the U.S., the verification standard is still the same. Provide U.S. documents whenever possible. Otherwise, provide your countrys equivalent. Translate relevant portions into English. Remember, verification thresholds are in U.S. dollars.
Having to verify that you are an accredited investor is frustrating, but we hope that these tips and tricks will help you get verified more safely and easily.
Happy investing!
