What is Crowd Funding?Open or CloseThe practice of funding a project or venture by raising money through contributions from a large number of people has been around for a long time. As a noteworthy example, the base of The Statue of Liberty was Crowd Funded! The most recent iteration – internet based Equity Crowd Funding – has evolved from internet fund raising initiatives in the Arts – think film, music, books – and Real Estate. The Crowd Funding most of us have heard about is Charity based -- we are doing good things, can you support us -- or Rewards based – help us fund this project and we will send you something. Mostly on either KickStarter or Indiegogo; some examples:
The success of Charitable and Rewards based Crowd Funding generated a lot of press and interest from the entrepreneurial and small business communities and government leaders. This resulted in Equity Crowd Funding being included as part of The JOBS Act of 2012.
- The "Coolest Cooler" raised $13.3 Million from 63,000 backers. The cooler features a blender, waterproof Bluetooth speakers and an LED light (KickStarter).
- Wong Fu Productions raised $350,000 from 6,700 backers to launch their first feature film, “Everything Before Us” (Indiegogo).
- Zack Brown raised $55,000 from 7,000 backers to make a bowl of potato salad. His initial goal was $10, but the campaign went viral and got a lot of attention (KickStarter).
Overview of The JOBS ACT of 2012Open or CloseTitle I: Re-Opening Capital Markets to EGC – IPO on-Ramp for “Emerging Growth Companies”
Title II: Access to Captial for Job Creators -- Crowd Funding for Angels, VC’s & 1%-ers
Title III: Crowd Funding -- Crowd Funding for the 99% … now “Regulation Crowd Funding”
Title IV: Small Company Capital Formation -- Regulation A+ or IPO “Lite”
Title V: Private Company Flexibility & Growth -- House Keeping
Title VI: Capital Expansion -- House Keeping
Title III Regulations were supposed to be issued by January 1, 2013. On October 23, 2013 the first Proposed Regulations were issued for review (585 pages; 296 days late). On October 30, 2015 Final Regulations were issued for review (686 pages; 1,033 days late). On May 16, 2016 the Final Regulations were implemented (685 pages; 1,216 days late).
The most significant aspects of the Title III Regulations are the Portal Regulations and the Disclosure Requirements; both of which are overly complex and serve only to increase costs of a capital raise process capped at $1Million. These now significant costs have impacted the value proposition and thus the viability of Regulation Crowd Funding as a funding option for small businesses. The Regulations have effectively eliminated “Regulation Crowd Funding”.
Overview of “Intra-State Crowd Funding”Open or CloseAll is not lost … State Legislatures, seeing the same possibilities of helping small businesses and the entrepreneurial community, began passing Legislation in 2011 for internet based Crowd Funding investments - using State exemptions to the Federal Securities laws -- creating Intra-State Crowd Funding.
On November 9, 2015 Governor Christie signed New Jersey’s Crowd Funding Bill into law, making New Jersey the 27th state to enact Intra-State Crowd Funding legislation. The key points for Issuers (New Jersey Companies) and Investors (New Jersey Residents) are summarized below.
On September 19, 2016, the state’s Attorney General’s Office released New Jersey’s Crowd Funding Regulations for immediate adoption and use.
On October 20, 2016, Crowd Funding NJ, Inc. became New Jersey’s first registered and authorized crowd funding Internet Site Operator (ISO) or Portal.
New Jersey Issuer Key PointsOpen or Close
- Issuer must be a New Jersey Entity and New Jersey authorized.
- Issuer must meet Federal Exemption.
- Offering must be through a registered New Jersey internet site
- Maximum offering is capped at $1 million.
- Maximum offering period is 12 months.
- Business, Related Party, Financial, Legal Disclosures.
- Issuer is permitted one issue; no Blind Pools.
- Quarterly on-line reporting.
New Jersey Investor Key PointsOpen or Close
- Investors must be New Jersey residents.
- Investors must affirm knowledge of risks.
- Investors maximum investment of $5,000.
- Accredited Investors are not limited to $5,000.
- Accredited Investors are excluded from the Cap.
- Related Party Investors are excluded from Issue
- Investor funds are to be returned within 60 days