Innovation among crowdfunding portals: a PBC that accepts Bitcoin

Innovation in crowdfunding space continues, and I would like to report on two interesting developments.  Both have to do with the crowdfunding portal WeFunder, currently the largest Regulation Crowdfunding portal in the U.S.

First, WeFunder now accepts Bitcoin.  In the announcement in late October, WeFunder explained that the goal is "to make investments easier and cheaper" and to enable investors "to send money from outside the U.S. to bypass having to invest using an international wire transfer."  As confidence in Bitcoin increases, this development can truly facilitate cross border investments and further globalize the investment markets.  Let's see if other portals will follow.   WeFunder is working with BitPay and Silvergate Bank to facilitate this process, and has already had over $50,000 worth of Bicoin come in.

Second, WeFunder is now a public benefit corporation.  Here is an article about it.  WeFunder is the first registered Regulation Crowdfunding portal to do so, but not the first crowdfunding portal all together.  Kickstarter became a PBC in 2015.  WeFunder's charter states that they "aim to increase economic growth and lower wealth disparity, by sharing the rewards of capitalism more broadly, and destroying the barriers that reduce social mobility."  Among its commitments, WeFunder will donate 5% of its profits to programs that mentor more first-time entrepreneurs.  WeFunder is still a for-profit corporation, but now its directors must consider the corporation's public benefit purpose along with its regular corporate goal of generating profit, and report to shareholders regarding its progress in achieving the public benefit purpose.  I previously wrote about Delaware PBC's here.  

Now, a quick update regarding the status of crowdfunding offerings.  According to WeFunder status update, as of November 5, 2016, investors invested $11,782,334 in Regulation CF offerings (that is since May 16, 2016).  So far, there have been 49 successful offerings that reached the minimum funding targets.  Most of the offerings were conducted through WeFunder (34), followed by StartEngine (5) and NextSeed (6).  A total of 13,999 investments have been made.  Three companies raised the maximum of $1 million.

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 corporate, securities, and intellectual property law.

Title III Crowdfunding Update

I recently listened to a webinar regarding equity crowdfunding by the Angel Capital Association.  It was very informative, and I decided to share with you some insights.  You can listen to the full webinar here.  Here are their presentation slides.

After giving a helpful overview of the regulation, the speakers turned to the overview of the current crowdfunding landscape, about 3.5 months after the SEC rules regarding Title III crowdfunding became effective.  I found this to be the most informative part of the webinar.  Below is a brief summary.

The speakers mentioned that as of the end of August, 16 Title III crowdfunding portals were approved by FINRA.  Even though several of the portals are registered broker-dealers, the majority is not, and in fact have little operational experience in the crowdfunding space.  One of the portals, WeFunder, has been the portal of choice for about 92% of all money raised through Title III crowdfunding since May 16th (the effective date of the SEC rules).  Most of the existing crowdfunding platforms for accredited investors are still staying away from Title III crowdfunding until the market stabilizes.

In general, there was an expectation that there would be more Title III deals (like, 5-10 times more).  As of the end of August, only 22 companies had raised at least their minimum threshold amounts.  Most are local companies, not experienced in fundraising.  Many are in the food & beverage-related industry.

The fewer number of participants is not all that surprising given the high costs involved in raising the money through Title III crowdfunding campaigns, once you add all the marketing costs, platform fees, accounting costs, and the cost of preparing disclosure documents and other information.  Companies should also add $3,000-$5,000 ongoing yearly compliance once the offering ends.

As the Title III crowdfunding market develops and stabilizes, albeit slowly, we may see more crowdfunding regulation coming from Washington, where several legislative initiatives that aim at revising the final SEC rules are currently in the works.  

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 corporate, securities, and intellectual property law.