1. Crowdfunding

2. What is investment crowdfunding? • Large numbers of investors make small investments in small business or start-up • Debt/equity/other classes • Expands family and friends investment stage • Traditional progression of early-stage funding • Early-stage funding today • How different from non-profit crowdfunding • Different laws • Different motivations

3. Impetus for regulatory change Small business lending dried up Unemployment still high Lobbying of Congress for solutions Concerns about fraud

4. The regulatory context Public offers and sales of securities must be registered with Securities and Exchange Commission Entities that bring buyers and sellers of securities together are “brokers” (or exchanges) Rules also cover recommendations with respect to securities

5. The JOBS Act of 2012 • New exemption from registration for investment crowdfunding • Under $1 million • Investors limited as to total amount of crowdfunding investment per year • Investment must be made through registered intermediary • “Funding portal” • Broker • Disclosure requirements apply • SEC has to draft rules

6. Advantages of crowdfunding • Seed money to get company to next stage • Patient money • Different expectations of profitability, timing, and control • Debt/equity/preferred shares • Don’t need to have connections or be located in tech hubs or in “hot” industries

7. Considerations • Disclosure requirements, including financial • Ongoing obligations • Dilution • Valuation • Impact on institutional funding • Secondary market • Managing large numbers of shareholders • Costs