China’s largest e-commerce companies are eager to leverage their millions of users and hoards of data for new projects. For example, Alibaba’s other businesses include healthcare management, financial services, and cloud data. Now JD.com, its smaller but still formidable rival, is branching out into crowdfunding for startups.
JD.com, which filled 689 million orders last year, has launched JD Equity Crowdfunding platform to help startups secure capital. The project is an offshoot of Coufenzi, the crowdfunding site JD.com opened last July.
Like Kickstarter, Coufenzi allows users to contribute funds toward individual projects and products. So far, projects on Coufenzi have raised a total of RMB280 million (about $45 million).
JD Equity Crowdfunding, on the other hand, is designed for entrepreneurs who need to find early-stage investors. The site isn’t the first startup crowdfunding site in China, but with JD.com’s resources, it claims to already be the largest. Its competitors include CTQuan, which has raised $4 million in venture capital backing and uses a model similar to AngelList.
A JD.com spokesperson told TechCrunch that JD Equity Crowdfunding plans to differentiate from other platforms by “developing a complete ecosystem for startup companies.” In addition to the crowdfunding site itself, this includes resources such as JD Cloud, its cloud computing unit, financing tools, marketing support, and training from JD.com’s management, as well venture capital partners like Capital Today, ZhenFund, and Sequoia Capital. In exchange, JD.com will take a small equity stake in each successfully funded startup (though it isn’t disclosing how much).
“We believe that securing funding is only the first step in the success of a startup, and we want to ensure that companies on our platform have all the tools they need to reach their long-term goals. We are experienced in growing our own business rapidly, and helping our partners grow into success, and will draw upon this knowledge to help our partners succeed,” said the company.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
Creating, adopting and implementing new laws tend to proceed at a glacial pace. Elected officials and regulators are cautious as even a minor change can have a significant impact on the economy, businesses, and people’s lives.
The federal government of the United States enacted the Jumpstart Our Business Startups Act (Job’s Act) on April 5, 2012. The U.S. Securities and Exchange Commission (“SEC”) issued for comment a new equity crowdfunding rule as required under Title III of the Job’s Act on October 23, 2013. The comment period closed February 3, 2014, and silence has ensued with no clear date when the SEC will issue a revised rule for comment or a final rule.
State legislatures and securities regulators have chosen not to wait for a federal equity crowdfunding rule to emerge. Instead, they have been busy creating, adopting, and implementing their own intrastate* equity crowdfunding exemptions.
On March 18, 2014, five (5) states had adopted an intrastate equity crowdfunding exemption and sixteen (16) states were looking at adopting an intrastate equity crowdfunding exemption.
A year later, March 18, 2015, seventeen (17) states have adopted an intrastate crowdfunding exemption; twenty-one (21) states are looking at adopting an intrastate crowdfunding exemption.
The Governor of one of those pending states just signed its crowdfunding bill and it will become law on June 24, 2015. A second is waiting only for the approval of their state Governor before their intrastate crowdfunding exemption becomes law.
State legislatures and regulators have embraced intrastate equity crowdfunding as evidenced by their participation levels and speed at which they have adopted new legislation.
Funding portals are starting to emerge** and a number of intrastate equity crowdfunding campaigns have closed. Intrastate equity crowdfunding, however, has not taken off to the extent as originally anticipated due to confusion and fear that the SEC may interpret any online campaign as a federal and not intrastate offering.
The Idaho Department of Finance issued an order on January 20, 2012, which mirrors the intrastate crowdfunding rules adopted in other states. A blanket order has not been adopted in Idaho and an intrastate equity crowdfunding bill has not been proposed in Idaho at this time. Issuers wanting to crowdfund in Idaho would need to obtain their own order from the Idaho Department of Finance before conducting an equity crowdfunding campaign.
Michigan enacted legislation effective October 21, 2014, to create a stock exchange for securities sold or offered on a web portal pursuant to their intrastate crowdfunding exemption.
An updated PDF chart summarizing each state’s intrastate crowdfunding exemption will be added in the next week or two once I have a chance to cross-check all the information.
Intrastate Crowdfunding Exemption Bills Pending
Alaska, Arizona, California, Colorado, Florida, Hawaii, Illinois, Iowa, Kentucky, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, Nevada, New Mexico, North Carolina, South Carolina, Virginia and West Virginia are all considering intrastate crowdfunding exemption bills.
The Governor of Kentucky signed the intrastate equity crowdfunding bill on March 19, 2015. The bill becomes effective 90 days after the close of the legislative session. This spring session officially closes March 25, 2015, which means the Kentucky crowdfunding exemption is effective June 24, 2015.
The Virginia intrastate equity crowdfunding bill has been delivered to the Governor of Virginia for execution into law.
Connecticut and Rhode Island, both not on the list above, have legislation pending in their respective state, that would require the state to conduct a study and make recommendations on the legislation necessary to implement crowdfunding in their particular state.
Texas, which has adopted a crowdfunding exemption, has proposed legislation to create a stock exchange for securities sold or offered on a web portal pursuant to their intrastate crowdfunding exemption. They are also considering two proposed bills providing for further regulation of crowdfunding portals.
The chart below provides the name and status of the intrastate crowdfunding related bills that are pending as of March 19, 2015. This list may not be complete. Several states have competing intrastate crowdfunding bills pending in the house and senate, or renumber and rename the same bill depending if it is in the state house or senate.
Author: Alixe Cormick is the founder of Venture Law Corporation in Vancouver, British Columbia and a member of the Advisory Board of the National Crowdfunding Association of Canada. You can reach Alixe by phone at 604-659-9188, by email at acormick@venturelawcorp.com, on twitter @AlixeCormick or on Google+.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
The venture world is hunting for the next batch of billion dollar unicorns in the hardware market, and investors are turning to the crowd to source their deals.
VCs have already committed $516 million in funding for hardware companies this year, according to CrunchBase data — a significant jump from the $398 million captured in Q1 of 2014.
Projects that win over consumers on crowdfunding sites have proven able to reproduce that success in shopping centers and malls — Misfit raised $55 million in venture funding after its Indiegogo debut, and Pebble, Kickstarter’s most funded project to date, is holding its own against Apple in the smart watch race.
With big exits like Oculus VR, Nest, Beats, GoPro and Square, it’s no wonder that angel investors like Gil Penchina are now developing investment theses around the crowdfunding campaigns that give many of these hardware companies their initial boost.
Penchina has partnered with Indiegogo to launch a new syndicate on AngelList dedicated to investing in successful campaigns. His previous fifteen syndicates have been backed by over two thousand people and put $12 million dollars to work in deals alongside traditional firms like Battery and Bessemer.
The Indiegogo investment platform went live on AngelList yesterday and saw $75k in capital committed in the first five hours. They’re hitting the ground running and closing a deal today for Bluesmart, the YC-backed smart luggage startup that raised over $2 million in its December 2014 campaign.
Indiegogo has a good track record for identifying startup winners, which include social robot Jibo, home security system Canary, and the Misfit Shine. Since 2013, successful Indiegogo campaigns have raised a combined $210 million in follow-on venture funding.
“On a high level, it’s something like a 10 to 1 multiple — whatever you raise on Indiegogo you can raise ten times more in VC funds following,” says Indiegogo founder Slava Rubin.
“Companies are able to validate a product, test marketing, and prove that they can bring these things to market — this makes the conversation with VCs very different,” says Rubin.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
While he’s not sure how many additional investors came directly through the crowdfunding platform, “we wouldn’t have ended up where we were without it,” he said.
CareGuide, which has websites that connect people with care providers for everything from the elderly to pet and house sitters, recently completed a second round of financing raising about $1.65-million from 21 investors, eight of them new.
Mr. Green took the equity crowdfunding route believing he could tap more investors through smaller sums of around $25,000 to $50,000. That’s different from the more traditional route, where equity financing often includes fewer investors putting up larger sums.
“It democratizes things in a way,” said Mr. Green. “People with smaller sums to invest have access to deals like this.”
Mr. Green’s company is one of a growing number of startups turning to equity crowdfunding to help finance their growth. Unlike regular crowdfunding, where companies raise money and offer rewards to the people handing over the proceeds, investors get a piece of the company and hopefully a return on their investment.
The distinction was underscored last year when Facebook bought virtual realty headset maker Oculus VR for $2-billion. The deal didn’t go over so well with early supporters of Oculus, who helped the startup raise $2.4-million in seed capital on Kickstarter in 2012. If it had been an equity crowdfunding deal, investors may have been rewarded with something more valuable than a T-shirt or developer kit.
Brian Koscak, a securities law partner at Cassels Brock & Blackwell LLP, said equity crowd funding is the “next evolution” of capital raising.
“I think we’re at the threshold of a new way of investing and new ways to raise capital online for companies,” said Mr Koscak, who is also vice chair of the Private Capital Markets Association of Canada.
“We have a capital raising crisis across Canada, and we need this to stimulate the economy, create jobs and, more importantly, prevent our best and brightest entrepreneurs from leaving and going south of the border.”
He also said that it’s important that the business is regulated by securities commissions in Canada. Today, six provinces, including Ontario and Quebec, are looking at adopting specific equity crowdfunding frameworks that include prospectus exemptions and registration requirements for a portal uniquely tailored to this type of online capital raising. The goal is to balance investor protection with fair and efficient capital markets.
Equity crowdfunding is legal in Canada today under existing prospectus exemptions, such as the accredited investor exemption and the offering memorandum exemption. Both are available across Canada except Ontario, which is considering adopting the offering memorandum exemption provided that it is done through a registered exempt market dealer/portal.
“If a portal offers securities on the Internet under existing prospectus exemptions, it must be registered with an exempt market dealer in the jurisdictions where the offering is made,” said Mr. Koscak.
Toronto-based Optimize Capital Markets focuses on institutional crowd funding, which involves larger transactions with accredited investors such as high-net worth individuals and institutions. Transaction size can range from $500,000 to $5-million or more.
“This is a new corporate finance channel and it’s evolving. We believe we are in the very early stages,” CEO Matthew McGrath said of the equity crowdfunding model.
And there’s a strong appetite for investors. Mr. McGrath said Optimize has twice as many investors signed up to the marketplace than it does companies seeking capital.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
The SEC has, after three long years, finally moved on rulings that allow everyday citizens (non-accredited investors) to participate in equity crowdfunding and investment in private startups and small businesses.
The long awaited promise of democratizing investment in startups & small businesses in the U.S. through equity crowdfunding laws is about to be fulfilled. These new rulings come under Title IV of the JOBS Act and will done initially through what are called Regulation A+ investment offerings.
In this post I’ll share a brief history of equity crowdfunding laws including an infographic, details on how the new Title IV / Regulation A+ offerings that include non-accredited investors work, and the impact these changes will bring to the landscape of private investing and fundraising.
A Brief History of the JOBS Act and Equity Crowdfunding
It was three years ago that the JOBS Act was voted into law by Congress and signed by President Obama on April 5th of 2012.
While implementation of the JOBS Act was mired by regulators at the SEC, Title II of the JOBS Act was the first portion of equity crowdfunding laws implemented in September of 2013. This portion of the equity crowdfunding laws allowed for public advertising of fundraising. However, it restricted the right to invest to Accredited Investors (wealthier investors) and left everyday citizens out in the cold.
In the first year of equity crowdfunding under Title II we saw this new capital market grow from nothing to an estimated $250M+ in funding raised publicly online.
Shortly after Title II was passed, the SEC came out with a proposal for Title III of the JOBS Act which was the part of the legislation that aimed to allow everyday citizens, or non-accredited investors, to invest through equity crowdfunding. Since then, Title III rulings completely stalled, and many felt they were dead on arrival.
Fast forward to today and we’re, at long last, about to bring non-accredited investors into the new capital market for equity crowdfunding. The new Title IV rulings / Regulation A+ offerings will become actionable after roughly 60 days, following publication in the Federal Register.
With this historic ruling by the SEC, early stage investment is moving further online and being truly being democratized by allowing the general public to invest.
Regulation A+: Equity Crowdfunding With Non-Accredited Investors
The new rules for Regulation A+ offerings which include non-accredited investors are broken up into two tiers (alternatives) that allow companies to raise up to either $20,000,000 or $50,000,000.
Regulation A+ broadens the definition of “qualified investors” to include non-accredited investors, though there are clear caps on how much they can invest. Non-accredited investors can invest a maximum 10% of their income/net worth per year, protecting these often less experiences investors and making it so that they can’t “lose it all” with a single crowdfunded investment.
Once the rules become actionable in roughly 60 days, entrepreneurs will be able to start raising money from “the crowd.” Prior to these new rulings, only qualified / accredited investors could invest. Accredited investors are individuals who earn more than $200,000 per year or have a net worth of over $1,000,000, or entities with over $5M in assets.
Regulation A+ Offerings: Tier I
Tier I of Regulation A+ allows companies to fundraise up to $20,000,000 from both accredited and non-accredited investors. Tier I offerings will not have state pre-emption (as is the case under Title II 506(c) offerings), but rather will fall under a NASAA Coordinated Review (state-related requirements and review). However, while subject to formal review with state regulators, Tier I raises will not be required to perform formal audits and annual reporting as required under Tier II offerings.
Regulation A+ – Tier II
Tier II of Regulation A+ offerings allow you to raise up to $50,000,000 from both accredited and non-accredited investors. The biggest difference between Tier I and Tier II (other than amount of money you can raise) is pre-emption on Blue Sky Laws, removing requirements to register the offering in each state you sell securities. More significantly, Tier II offerings will be required to have audited financials and annual reporting requirements.
Since Tier II pre-empts state law, it is likely to be the favored tier of Regulation A+ and become more widely adopted by startups and small businesses.
How Regulation A+ Offerings Essentially Work
For companies utilizing Tier II of Regulation A+ offerings, in short companies will prepare all of their final offering documents and have an audit performed on them and their financial statements. They then submit a Form 8a short-form to the SEC and file it electronically via EDGAR online. Once approved, their deal can go live and take in non-accredited investment online utilizing equity crowdfunding platforms like the one I run.
The Future of Investing in Startups & Equity Crowdfunding
I don’t believe angels and VCs will be “disrupted” and displaced by equity crowdfunding yet, in the short and medium term. Rather, I know that great companies are built over time by incredible founders and by the investment and guidance of experienced and seasoned investors who can truly add value. (I stress that last part).
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
In a stunning development earlier today, the SEC released final Regulation A+ rules under Title IV of the JOBS Act that pre-empts state law for larger Regulation A offerings up to $50M and provides for state coordinated review for offerings up to $20M. Growth companies will now soon be able to raise up to $50 million from unaccredited investors in a mini-IPO style offering serving as a potential alternative to venture capital or other institutional capital. Imagine Uber or AirBnb, instead of going to big institutions for capital, now offering their stock directly to their drivers, riders, renters and tenants as well as the general public.
When the JOBS Act was passed in April of 2012, many believed that Title IV would actually be the most powerful change, but given that there was no deadline for implementation of the rules, most ignored Title IV as too remote to pay serious attention. There was also concern about the same problem that haunts existing Regulation A, namely state securities laws that would require registration in every individual state where securities are sold making it too expense/complicated to be workable. The infamous example of this was in 1980 when Massachusetts deemed the offering of Apple Computer stock to be “too risky” and did not allow its citizens to participate in the offering.
Since that stunning announcement, there has been great uproar about “pre-emption,” whether it is legal and whether it is appropriate for a federal agency to pre-empt the states in this manner. Most in the pro-business community ardently support pre-emption argue that securities offerings constitute interstate commerce and that state by state regulation is antiquated in a world where the internet blurs state lines. Many regulators, investor protection groups and even one crowdfunding platform opposed such pre-emption, arguing that state review adds value and necessary investor protections. In response, the states introduced a coordinated review process, which was designed to address these concerns. Critics argued that this was too little, too late and only resulted from the states being forced to act by the threat of pre-emption.
In the final rule release, the SEC settled the dispute through a brilliant compromise by confirming pre-emption for Tier II Regulation A offerings up to $50M but also increasing Tier I Regulation A offerings from $5M to $20M and leaving pre-emption intact, thus giving “coordinated review” a chance to prove itself. This appears to be the result of an extensive negotiation between Commissioner Stein who opposes pre-emption and several of the other Commissioners. In coming to this decision, the SEC noted that:
Coordinated review is new and unproven and pre-emption is necessary at least until there is a track record of a functioning coordinated review program
Coordinated review has great potential if the states can stick together and maintain a seamless process
NASAA may appoint an individual to serve with the SEC internally on implementation of Reg A+
States will retain full enforcement and anti-fraud jurisdiction in all cases
Now, with pre-emption under Tier II and coordinated review under Tier I, it looks like Title IV (Reg A+) could make Title III Crowdfunding a relic.
Here are the highlights of the new Regulation A+ exemption:
High Maximum Raise: Issuers can raise up to $50,000,000 in a 12 month period for Tier II and $20,000,000 for Tier 1.
Anyone can invest: Not limited to just “accredited investors” – your friends and family can invest. Tier 2 investors will, however, be subject to investment limits described below.
Investment Limits: For Tier II, individual non- accredited investors can invest a maximum of the greater of 10% of their net worth or 10% of their net income in a Reg A+ offering (per offering). There is no limit for accredited investors in Tier II. There are no investment limits under Tier 1.
Self-Certification of Income / Net Worth: Unlike Rule 506(c) under Title II of the JOBS Act, investors will be able to self-certify their income or net worth for purposes of the investment limits so there will be no burdensome documentation required to prove income or net worth.
You can advertise your offering: There is no general solicitation restriction so you can freely advertise and talk about your offering, including at demo days, on television, and via social media.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
Some 5,000 jobs could be created in Ireland in the “fintech” industry over the next five years, according to an analysis by professional services firm Deloitte.
This would represent a doubling in employment in this burgeoning part of the IFSC and would “predominantly be driven by the projected spend on IT services by financial services firms in Ireland”, Deloitte said.
“Many financial services firms are struggling with outdated legacy platforms and IT architectures that are hampering their ability to grow and innovate,” David Dalton, head of financial services at Deloitte Ireland, told The Irish Times.
“While some financial services firms have been cautious about new fintech start-ups, particularly where they are disrupting traditional business models and competing for customers, we are increasingly seeing a symbiotic relationship developing, which is helping to address these legacy issues in financial services companies.
“Our view is that the fintech and financial services industries are inter-related and mutually dependent. The connectivity between the two sectors needs to be significantly enhanced.”
More recently, it has been used for broader applications of technology, including front-end consumer products, and new entrants competing with existing players.
Fintech was highlighted in the Government’s recently published IFS 2020 strategy with three action plans drawn up – greater sectoral collaboration, engaging both Irish-owned and foreign-owned small-and-medium-sized enterprises and multinationals; identifying domestic and international sources of funding; and supporting upskilling and mentoring programmes with participating companies.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
Author: Alixe Cormick is the founder of Venture Law Corporation in Vancouver, British Columbia and a member of the Advisory Board of the National Crowdfunding Association of Canada. You can reach Alixe by phone at 604-659-9188, by email at acormick@venturelawcorp.com, on twitter @AlixeCormick or on Google+.
In a stunning development earlier today, the SEC released final Regulation A+ rules under Title IV of the JOBS Act that pre-empts state law for larger Regulation A offerings up to $50M and provides for state coordinated review for offerings up to $20M. Growth companies will now soon be able to raise up to $50 million from unaccredited investors in a mini-IPO style offering serving as a potential alternative to venture capital or other institutional capital. Imagine Uber or AirBnb, instead of going to big institutions for capital, now offering their stock directly to their drivers, riders, renters and tenants as well as the general public.
