JOBS Act Update: Equity Crowdfunding Will Have to Wait

Submitted by Paul Winkle

Navocate Business Sales

 

The JOBS Act, signed into law April 5th, 2012 by President Obama has eight Titles (parts).  Title III – Crowdfunding allows businesses (Issuers) to raise small dollar amounts from many investors (the crowd) though registered websites, called funding portals, in return for securities.  While most people have heard of the JOBS Act, they remain unfamiliar with a component which is poised to allow American entrepreneurs and business owners create American jobs.  Wikipedia states: “The Jumpstart Our Business Startups Act or JOBS Act is a law intended to encourage funding of United States small businesses by easing various securities regulations.”

Rule 506 is of particular importance to crowdfunding. When The JOBS Act was enacted, it directed the Securities and Exchange Commission to remove the prohibitions on general solicitation or general advertising for securities offerings relying on Rule 506. By requiring the SEC to remove these restrictions, Congress sought to make it easier for companies to inform the public that they are seeking to raise capital through the sale of securities.

Yesterday, the SEC met to “consider whether to propose rules to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act and Rule 144A under the Securities Act, as mandated by Section 201(a) of the Jumpstart Our Business Startups Act.”

During the 45 minutes meeting, the majority of commissioners voted in favor of proposing rules to eliminate the prohibition against general solicitation and general advertising in rule 506 and rule 144a offerings.

Commissioners Paredes and Gallagher, who both voted in favor of proposing rules, commended the Division of Corporate Finance for their hard work but also voiced concern about the delays in promulgating the rules. Both commissioners had expected interim final rules be in place already to allow Issuers capital access under the Title II of the JOBS Act.

The SEC missed the first deadline of July 4th prescribed in the Act to enact rules. Furthermore the Commission elected to vote on proposed rules yesterday instead of enacting interim final rules.  Yesterday’s topics were originally scheduled to be discussed August 22nd.

The Commission will seek public comment on the proposed rules for 30 days prior to promulgating final or interim final rules.  Representatives from the Division of Corporation Finance expressed an interest in public comments particularly involving the approach an Issuer would be required to use to verify accredited investor status.

Charles Kwon from the Commission’s Division of Corporation Finance proposed Issuers be provided flexibility in determining if an investor is accredited.  Issuers would be required to take “reasonable steps” to verify that purchasers of the securities are accredited investors and should  consider the facts and circumstances of the transaction.  Mr. Kwon stated an issuer be objective when determining the accredited nature of the purchaser.  Some criteria he mentioned the Commission may use to determine if an Issuer took reasonable steps in that determination are:

• The amount and type of information that the issuer has about the purchaser.
• Type of purchaser (accredited, institutional, etc.) that the purchaser claims to be.
• Terms of investment, such as a minimum investment amount.
• Method used to solicit purchaser.

Further recommendation was made that the Commission not require a specific verification method or use a non-exclusive list since it would be impractical and overly burdensome and might lead to a standardized form.

A current verification method used to determine if an investor is accredited is a self-authenticating questionnaire which is sent to the purchaser by the issuer or representative of the issuer.  A full definition of accredited investor.

It’s easy to understand why entrepreneurs and small business owners remain confused about how they should proceed, and what steps they should begin addressing now, in order to be prepared to take advantage of equity crowdfunding. To help with that preparation, CrowdFundingRoadmap and Laughlin Associates are hosting a one of a kind Crowdfunding Bootcamp to prepare entrepreneurs with the key elements they need to be ready to crowdfund under the new crowdfunding bill. Details for the event can be found at Crowdfunding Bootcamp.

About Navocate

Navocate provides Business Sales and Acquisition services for Emerging Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks.

Wall Street News Alert Calls It Quits - 10 Year Old Firm to Liquidate Assets

Wall Street News Alert, the entity that was responsible for the majority of “penny stock” promotions and emails for over a decade, has left the investor relations business. The company, once seen as one of the largest and most well-known small cap stock advertising firms, represented hundreds of clients before closing the doors and deciding to sell its assets.

Wall Street News Alert, the electronic advertising subsidiary of Wall Street Capital Funding, has closed the doors after a decade of representing “penny stock” clients. The investor relations firm, which described itself as, “one of the internet's premiere financial destinations, offering the investment community some of the market's leading emerging opportunities,” promoted hundreds of companies for the purpose of, “introducing millions of potential investors to unknown companies.”

Nevertheless, the company undeniably experienced a great run throughout the decade, often being compensated up to $21,000 per day to email to its database of investors. While the company’s website has not been active for some time, a Google search reveals that the website still has over 140,000 press releases indexed on the web. Once thought to solicit emails to a proprietary list of over a million recipients at once, the company also issued thousands of “investment opinions” for its clients.

Operating numerous websites, purported to have received over 250 million hits, to generate investment leads and email addresses, the company is now selling its websites and investor database. Interested parties should contact wsna@bellsouth.net

This information is being distributed by Universal Media Consultants.

From top magazines to leading TV stations, UMC has been very effective at distilling our client's messages in the major national media. Our aim is simple. To multiply message impact and client exposure in highly targeted markets, quickly, imaginatively, and cost-effectively. For more information visit: Universal Media Consultants

Navocate Offering Free Crowdfunding Preparedness Webinar

Entrepreneurs are about to receive a new and unprecedented funding opportunity—an opportunity that may ultimately determine the success of their business. I’m referring to the method of raising business capital through Crowdfunding. For small investors it could provide a great “level-the-playing-field” opportunity to get in on the ground floor of promising startups. Equity crowdfunding will allow entrepreneurs to sell unregistered shares  to all sorts of investors via registered funding portals or broker dealers. Companies will be restricted to selling no more than $1 million of stock per year, but to an unlimited number of generic investors. The JOBS Act opens true equity crowdfunding up to the masses and as such, there is expected to be a massive influx of entrepreneurs rushing to raise equity for their companies.

To help you understand equity Crowd-funding, and to navigate through the volumes of misinformation, we’ve assembled well-respected panelists from companies that are at the forefront of the recently- passed Crowdfunding law (part of the April, 2012 JOBS Act).

Navocate's goal is to provide you information and guidance on how Crowdfunding will open investment opportunities to non-accredited investors—establishing a new avenue for business capital.

Topics include:

• An update on the latest Crowdfunding regulatory issues.
• Eligibility and reporting requirements.
• Advice on how to position your company to receive Crowdfunding capital.
• How to value your company and set an appropriate share price.

  

Who Should Participate?

• Entrepreneurs working on their start-up business plans.
• Business owners of established companies—pre-revenue or profitable.

The Crowdfunding webcast is a funding preparedness guide for issuers, and is set to take place on June 12th at 1pm EDT.

Click this link to register now for “Get Funded Through Crowdfunding.” https://navocate.webex.com. 

About the Panelist Companies

Maurice Lopes, CEO of EarlyShares (Miami)—an equity-based Crowdfunding platform (Funding Portal) which provides early-stage companies and investors a secure, easy to use platform for raising and investing capital. www.earlyshares.com

Ruth Hedges, CEO of Funding Roadmap (Las Vegas)—offering the first online business plan & due diligence reporting software built on a cloud network. www.fundingroadmap.com

About Navocate

Navocate provides business sales and acquisitions services for emerging companies with revenues from $3M - $30M. We focus on the under-served market segment above business brokers and below investment banks.  www.navocate.com

Paul Winkle

(888) 900-5866, ext. 5

paul@navocate.com

Navocate to launch Crowdfunding Valuation Model*: free webcast

Posted by Paul Winkle on Mon, Jun 04, 2012 @ 10:12 AM

in

Companies wanting to access capital through equity crowdfunding are required to produce a third-party valuation of their business and provide a price for the securities offered as well as the method used for determining that price. Navocate Business Sales + Acquisitions is sponsoring a free webcast to discuss their Valuation Model developed exclusively for companies wanting to access capital through crowdfunding.

In order to crowdfund, a company (start-up, pre-revenue or revenue producing) must be incorporated. In addition, a Company (referred to as an “Issuer”) must disclose how the securities offered are being valued and provide examples of methods for how such securities may be valued in the future.

Navocate provides Crowdfund companies with an affordable business valuation and securities pricing report as mandated under Title III (Crowdfunding) of the JOBS Act. Navocate’s proprietary valuation model uses three methods to analyze both pre-revenue and income-producing companies:

1. Sell-Side (historic view) — Navocate analyzes your financial statements (or pro formas and forward-looking financials for pre-revenue companies) to understand your business’s performance relative to a database of over 650 industry sectors.

2. Buy-Side (future view) — Navocate next analyzes how a potential investor would evaluate your company relative to deal structure, cash flow, risks, and ROI.

3. Soft-Side — Finally, Navocate models soft parameters that can have exponential effects on your company’s success (either positive or negative), such as management structure, financial controls, market opportunity and growth rate, and overall risk factors.

The result: Navocate’s valuation and securities pricing report provides you with a thorough valuation of your business, our assessment of an appropriate stock price range, and an explanation of the methodologies and rationale behind the analysis—in an affordable, easy to read document.

The intent of the JOBS Act is to provide companies access to capital via crowdfunding to grow their business and create jobs. If you are an Issuer wanting to learn more about Crowdfunding, click this button to register now for “Get Funded Through Crowdfunding,” June 12^th, 1 pm Eastern time:

Register Here

When asked ‘How did you hear about this webcast?’ during the registration process, please select ‘Paul Winkle’ in the drop-down menu.

*Crowdfunding was signed into Law April 5th, 2012 by President Obama. However, it will not be legal under the federal securities laws until the U.S. Securities and Exchange Commission (SEC) adopts rules to implement a new exemption that will allow crowdfunding. In addition, the SEC has latitude to prescribe additional rules and requirements.

Navocate provides Business Sales and Acquisitions services for Entrepreneurial Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com.

Tags: valuation, Crowdfunding, valuation model

 

Navocate Offering Free Crowdfunding Preparedness Webinar for Issuers

Entrepreneurs are about to receive a new and unprecedented funding opportunity—an opportunity that may ultimately determine the success of their business. I’m referring to the method of raising business capital through Crowdfunding. For small investors it could provide a great “level-the-playing-field” opportunity to get in on the ground floor of promising startups. Equity crowdfunding will allow entrepreneurs to sell unregistered shares to all sorts of investors via registered funding portals or broker dealers. Companies will be restricted to selling no more than $1 million of stock per year, but to an unlimited number of generic investors. The JOBS Act opens true equity crowdfunding up to the masses and as such, there is expected to be a massive influx of entrepreneurs rushing to raise equity for their companies.

To help you understand equity Crowd-funding, and to navigate through the volumes of misinformation, we’ve assembled well-respected panelists from companies that are at the forefront of the recently- passed Crowdfunding law (part of the April, 2012 JOBS Act).



Navocate's goal is to provide you information and guidance on how Crowdfunding will open investment opportunities to non-accredited investors—establishing a new avenue for business capital.



Topics include:

• An update on the latest Crowdfunding regulatory issues.

• Eligibility and reporting requirements.

• Advice on how to position your company to receive Crowdfunding capital.

• How to value your company and set an appropriate share price.





Who Should Participate?

• Entrepreneurs working on their start-up business plans.

• Business owners of established companies—pre-revenue or profitable.



The Crowdfunding webcast is a funding preparedness guide for issuers, and is set to take place on June 12th at 1pm EDT.





Click this link to register now for “Get Funded Through Crowdfunding.” https://navocate.webex.com.





About the Panelist Companies



• Maurice Lopes, CEO of EarlyShares (Miami)—an equity-based Crowdfunding platform (Funding Portal) which provides early-stage companies and investors a secure, easy to use platform for raising and investing capital.



• Ruth Hedges, CEO of Funding Roadmap (Las Vegas)—offering the first online business plan & due diligence reporting software built on a cloud network



About Navocate



Navocate provides business sales and ac-quisitions services for emerging companies with revenues from $3M - $30M. We focus on the under-served market segment above business brokers and below investment banks.



Paul Winkle

(888) 900-5866, ext. 5

paul@navocate.com

Navocate to launch Crowdfunding Valuation Model*: free webcast

Posted by Paul Winkle on Mon, Jun 04, 2012 @ 10:12 AM

5
inShare

Companies wanting to access capital through equity crowdfunding are required to produce a third-party valuation of their business and provide a price for the securities offered as well as the method used for determining that price. Navocate Business Sales + Acquisitions is sponsoring a free webcast to discuss their Valuation Model developed exclusively for companies wanting to access capital through crowdfunding.

In order to crowdfund, a company (start-up, pre-revenue or revenue producing) must be incorporated. In addition, a Company (referred to as an “Issuer”) must disclose how the securities offered are being valued and provide examples of methods for how such securities may be valued in the future.

Navocate provides Crowdfund companies with an affordable business valuation and securities pricing report as mandated under Title III (Crowdfunding) of the JOBS Act. Navocate’s proprietary valuation model uses three methods to analyze both pre-revenue and income-producing companies:

1. Sell-Side (historic view) — Navocate analyzes your financial statements (or pro formas and forward-looking financials for pre-revenue companies) to understand your business’s performance relative to a database of over 650 industry sectors.

2. Buy-Side (future view) — Navocate next analyzes how a potential investor would evaluate your company relative to deal structure, cash flow, risks, and ROI.

3. Soft-Side — Finally, Navocate models soft parameters that can have exponential effects on your company’s success (either positive or negative), such as management structure, financial controls, market opportunity and growth rate, and overall risk factors.

The result: Navocate’s valuation and securities pricing report provides you with a thorough valuation of your business, our assessment of an appropriate stock price range, and an explanation of the methodologies and rationale behind the analysis—in an affordable, easy to read document.

The intent of the JOBS Act is to provide companies access to capital via crowdfunding to grow their business and create jobs. If you are an Issuer wanting to learn more about Crowdfunding, click this button to register now for “Get Funded Through Crowdfunding,” June 12^th, 1 pm Eastern time:



When asked ‘How did you hear about this webcast?’ during the registration process, please select ‘Paul Winkle’ in the drop-down menu.

*Crowdfunding was signed into Law April 5th, 2012 by President Obama. However, it will not be legal under the federal securities laws until the U.S. Securities and Exchange Commission (SEC) adopts rules to implement a new exemption that will allow crowdfunding. In addition, the SEC has latitude to prescribe additional rules and requirements.

Navocate provides Business Sales and Acquisitions services for Entrepreneurial Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com.

Tags: valuation, Crowdfunding, valuation model

 

Crowdfunding Prep Guide for Businesses: Survey Question at end.

Posted by Paul Winkle 

inIf you own a business (start-up, early stage or established) and want to capitalize it using the newly passed Crowdfunding Exemption, you will find the following information vital.

There are 8 months before the SEC is required to issue final rules for the protection of investors and to carry out the terms of the Act as it pertains to Title III – Crowdfunding.  Before businesses (issuers) can raise any funds, they are required by the Act to disclose and report a laundry list of information about their companies to a registered Crowdfund Investing Portal (CIP).  There are preparations and positioning strategies an issuer can implement now to ensure a successful raise, grow their business and create jobs. 

Here is an outline of action items you, the owner, need to be thinking of.  This is presented as a motivational guide and act as a tool for further research. 

 Corporate housekeeping and governance

The level of preparation needed here will depend on the stage of development your company is at (start-up, early stage or established). First of all, your company must be incorporated to offer equity shares.  This means researching the rules and procedures of the state you plan on incorporating in.  Consulting an attorney or accountant experienced in this area is advisable.

You should establish a management team capable of handling daily business operations and the financial and regulatory reporting requirements.  Having an Advisory Board of trusted and experienced mentors is suggested. In general, you are setting up a system of rules to follow while running your company.

Business plan and financials

Have a business plan.  All of the information you are required to file with the SEC and report to the CIP will be contained in your business plan.  This includes a description of your business, names of officers and directors, a description of the financial condition of the company, the stated purpose of use of proceeds, ownership and capital structure, the target amount to be raised and the deadline for reaching that target.  The business plan should include an elevator pitch, executive summary, due diligence documentation, financial statements and pro forms.

Utilizing cloud based electronic business plan and due diligence reporting systems that provide complete transparency as required by the Crowdfunding Exemption is preferred.  Your business plan will need to evolve as your company does.  Using a cloud based service will allow you to easily make updates as your company morphs and keep up with reporting requirements.  If you do not have the time or expertise to write a business plan, hire someone. 

Issuers are also required to produce financial statements.  The amount of the offering will determine the level of review required.  For example, companies raising under $100k are required to disclose their most recent tax return and financial statements (certified to be true and complete by the principle executive officer).  If an issuer is raising more than $500k, audited financials are required.

Valuation Model

As an issuer, you are required to provide the commission and investors via the CIP, the share price of securities being offered or the method for determining the price.  Issuers must also state how the securities being offered are being valued, and must give examples of methods for how the securities may be valued in the future.

This is an area that the issuer should seriously consider seeking professional guidance.  Look for help from qualified specialists trained at assembling valuation models.  They will draw information from   documents provided in the business plan, financials and pro forms.

In Closing

I have only mentioned some of the requirements necessary to be compliant with the reporting requirements of the Crowdfunding Exemption.   Additionally, the SEC will most likely add to those requirements in order to protect the investor (they have been granted latitude to do so).

Issuers that begin positioning their companies now will have the best chance of getting crowdfunded next year.

Survey Question

As a business owner wanting to prepare your company to raise money via crowdfunding and after researching the costs of services mentioned in the above article, what would you reasonably expect to pay for the collective, bundled services listed below?

• Incorporation services.
• Cloud based business plan, due diligence and financial reporting services
• Business plan writing services.
• Valuation services.

Navocate provides Business Sales and Acquisitions services for Emerging Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com

Crowdfunding and M&A - How to Yield Returns

Posted by Paul Winkle on Tue, Apr 24, 2012 @ 08:06 AM

Welcome to the world of crowdfunding.  For those of you that have just heard the term, the crowdfund exemption was signed into law by the President April 5th.  It is part of the Jumpstart Our Business Startups (JOBS) Act.  It will take 270 additional days for the SEC to provide final regulatory guidance.

Scenario

Fast forward a year.  The SEC has promulgated rules affecting Title III – Crowdfunding.  Crowdfund Investing Portals (CIP’s), investors and issuers have had time to digest the SEC’s rubric.

Many CIPS do not qualify for registration.  They fail to provide adequate measures to protect, educate and inform investors; or they fail to demonstrate the means to properly qualify issuers or report to the Commission. 

Investors flock to the remaining registered CIP’s (if they have not done so already); fill out an application and answers questions to determine suitability, comprehension of risk and liquidity.  Since the Act limits the amount of capital they can commit, investors speculate wisely (see footnote 1).

Issuers must comply with the transparency, due diligence and reporting requirements imposed. They quickly realize the costs associated with compliance may be more than the amount of capital needed.  

Planning

For investors to win, they obviously need to pick investments with the best upside.  Aggregate investment limits set by the Act reduce downside risk, but limit upside if they happen to pick the next Google (see footnote 2).  They should choose issuers and CIP’s that offer resources beyond what is required by law.

Issuers need a well thought out plan for success.  There will be a rude awakening for entrepreneurs who think they will be able to fund an “idea” without embracing transparency issues.  They should prepare for full disclosure requirements by setting up cloud-based access to their business plan, financial summaries and other due diligence documentation. Assembling a board of advisors to help run the business and act as a sounding board for legal and accounting issues is a must.

Successful CIP’s will attract and keep investors by profiling issuer companies which produce results.   One way to accomplish this is to specialize in vetting a particular market segment or segments such as “green”, energy, technology or socially responsible companies, for example.  Another way for CIP’s to increase the odds for a healthy Return on Investment (ROI) is to provide issuers with access to advisory services to help grow their companies and/or M&A services when it is time to exit.

Conclusion

The goal of the Act is to create jobs.  The goal for the SEC is to protect the investor.  The SEC has plenty of latitude to augment the rules beyond the minimum requirements currently in the Act (my previous blog explores this topic).  CIP’s need to plan now by implementing policies and procedures which will position themselves to qualify for registration.  Investors should choose issuer companies with a well-defined game plan to produce jobs.  This strategy should produce the highest ROI.  Issuers should choose to register on CIP’s that either specialize in vetting companies in their particular industry and/or provide access to M&A and advisory services.

I am willing to host a webcast to answer questions concerning crowdfunding…particularly questions as it pertains to M&A strategies for issuers.  Please let me know if you would be interested.  If I get enough inquiries, I will schedule one.

One last item – a precursor

The SEC has 90 days (from April 5^th) to revise its rules issued in the Code of Federal Regulations, section 230.506 of Title 17.  This will allow for general solicitation or general advertising of securities to accredited investors. Dodd-Frank changed the accredited investor definition to exclude the value of the investor’s principal residence and any debt secured by the principal residence (not exceeding the value of the residence). The issuer is responsible for verifying an investor is accredited.  It will be interesting to see if the SEC changes the current method of verification which is a self-authenticating questionnaire sent to the investor by the issuer or broker/dealer.  It will also be interesting to gauge the latitude used by the SEC during the 506 determination.  This will be a good indicator of what lies ahead for the crowdfund exemption.

Footnotes

(1)    the greater of $2,000 or 5 percent of the annual income or net worth of such investor, as applicable, if either the annual income or the net worth of the investor is less than $100,000; and  

(2)    10 percent of the annual income or net worth of such investor, as applicable, not to exceed a maximum aggregate amount sold of $100,000, if either the annual income or net worth of the investor is equal to or more than $100,000.

Navocate provides Business Sales and Acquisitions services for Emerging Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com.