Ennico - The crowdfunding handbook : raise money for your small business or start-up with equity funding portals

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THE CROWDFUNDING HANDBOOK

Raise Money for Your Small Business
or Start-Up With Equity Funding Portals

CLIFF ENNICO

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

Names: Ennico, Clifford R., author.

Title: The crowdfunding handbook : raise money for your small business or start-up with equity funding portals / Cliff Ennico.

Description: New York, NY : AMACOM, [2016]

Identifiers: LCCN 2016001361| ISBN 978-0814433607 (pbk.) | ISBN 9780814433614(ebook)

Subjects: LCSH: Crowd funding. | Venture capital. | New business enterprises--Finance. | Small business--Finance.

Classification: LCC HG4751 .E56 2016 | DDC 658.15/224--dc23 LC record available at http://lccn.loc.gov/2016001361

2016 Clifford R. Ennico

All rights reserved.

Printed in the United States of America.

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American Management Association ( www.amanet.org ) is a world leader in talent development, advancing the skills of individuals to drive business success. Our mission is to support the goals of individuals and organizations through a complete range of products and services, including classroom and virtual seminars, webcasts, webinars, podcasts, conferences, corporate and government solutions, business books, and research. AMAs approach to improving performance combines experiential learninglearning through doingwith opportunities for ongoing professional growth at every step of ones career journey.

To the seven strong women who shaped my character and made me what I am today:

Almerinda Ruggiero Ennico (18931976)

Matilda Tillie Wagner Frenz (18981983)

Edna Fredericka Wagner (19021990)

Maria Ennico White (19101992)

Maria Elena (Helen) Ennico (19111999)

Elizabeth (Betty) Urland Ennico (19162012)

Ruth Frenz Ennico (19282014)

The publisher and the author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the publisher and the author are not engaged in rendering financial, regulatory, investment, or other professional services. While the author is engaged in rendering legal services, he is providing only legal information in this book, not actual advice or guidance upon which any particular reader can rely. If professional assistance is required, the services of a competent professional person should be sought. Neither the publisher nor the author shall be liable for damages arising herefrom. The fact that an organization or website is referred to in this work as a citation and/or a potential source of further information does not mean that the author or the publisher endorses the information the organization or website may provide or recommendations it may make. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read.

Legal counsel should be consulted before offering or selling securities. A violation of either state or federal securities laws may result in civil and/or criminal penalties. The U.S. Securities and Exchange Commission may from time to time change its existing regulations permitting crowdfunded offerings of securities. Any such changes may cause the content of this book to become inaccurate. The author and publisher do not undertake to revise, amend, or update this book with new information or inform the reader of any changes.

Since the dawn of the digital era, entrepreneurs have dreamed of being able to raise capital on the Internet.

Until 2012, they couldnt do so legally, because federal and state securities laws in the United States prohibited businesses from raising capital using general solicitation and general advertising methods such as newspaper ads, television and radio commercials, email blasts, Internet advertising, and social media websites. To be able to issue securities in exchange for investment, entrepreneurs were required to register an initial public offering (IPO) with the federal government, a process that typically takes months and costs hundreds of thousands of dollars in legal, accounting, and other fees they cant afford.

In 2012, that changed with the passage of the federal Jumpstart Our Business Startups (JOBS) Act, which allowed entrepreneurs and start-up companies for the first time to raise capital using general solicitation and general advertising in two specific situations:

They could use these methods as long as they sold their securities only to accredited investors (extremely wealthy and sophisticated people who arguably dont need the protection of the securities laws).

They were authorized to sell their securities to the public through crowd-funding portals registered with the U.S. Securities and Exchange Commission (SEC).

Since the mid-2000s, a number of crowdfunding websites (most prominently Kick-starter.com , Indiegogo.com , and RocketHub.com ) have helped individuals and companies raise money from the public to finance specific projects (such as a new book or film, an invention, or even in vitro fertilization treatments). However, these early crowdfunding websites could not offer securities in exchange for investment. Under the JOBS Act, companies can now use crowdfunding sites to offer their stock, bonds, and other securities to the public without having to make an IPO and without violating securities laws.

In October 2015, after two years of public comment, the SEC handed down Regulation Crowdfunding, a document of almost seven hundred pages spelling out the rules under which entrepreneurs and their companies can use crowdfunding websites to raise capital and sell their securities.