Saturday, May 18, 2013

Crowdfunding Update

We are still patiently waiting for the SEC to develop rules implementing the crowdfunding provisions of the JOBS Act. While we are waiting, the industry prepares for the crowdfunding transactions. Recently, two interesting articles about crowdfunding caught my attention. First, published an article regarding the status of different crowdfunding platforms. According to the article, many crowdfunding platforms are raising money in preparation for the launch of their portals for non-accredited investors. Below is the list. The most recent and biggest raise by far is CircleUp getting $7.5 million in a Series A.

Seed Round: $1,500,000
Series A: $7,500,000 
Equity platform; San Francisco, CA 

Series A: $850,000 
Equity platform + ancillary products (white labeling being one); Minneapolis, MN 

Seed Round: ~$500,000 
Equity platform; UK 

Seed Round: $400,000 
Equity platform; Los Angeles, CA 

Series A: $1,150,000 
Equity platform; Miami, FL 

Pre-Seed: $529,000 
Seed Round: $6,000,000  
Equity platform; San Francisco, CA 

Seed Round: $880,000 
White labeling platform; Los Angeles, CA 

Seed Round: $500,000 
Real estate platform; Los Angeles, CA 

Seed Round: ~$193,000 
Revenue-share; Netherlands 
Raised seed round on Symbid, crowdfunding platform based out of the Netherlands 

Seed Round: $2.0M 
Debt platform; Cincinnati, OH 

Seed Round: $550,000 
Equity platform; Cambridge, MA 

Another interesting article that came out on discusses what companies can do to prepare for crowdfunding. The concern addressed in the article is that companies may find it difficult to attract VC capital after they raise money through crowdfunding from non-accredited investors. VC investors may be unwilling to deal with numerous small unsophisticated investors. One suggestion is to structure crowdfunding securities so that VCs can subsequently buy out such investors at a certain multiple of their investment. This would provide for a good return on investment for the earlier crowdfund investors, as well as allow VCs to control the investor group. Another proposal is to pool these investors into a collective, so that they vote as a group instead of individually. This may give them more leverage and make it easier for the company and the VCs to manage the investor pool. 

As different methods and approached get tested by various portals for accredited and non-accredited investors, I can’t wait to see how the world of private placements will change once start-ups will be able to raise capital through general solicitation and advertising through crowdfunding portals.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

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