Crowdfinance has given rise to modern corporate finance offerings and structures including PIPRs, Title III Crowdfunding, Intrastate Crowdfunding and Registered Crowdfinance. Although primarily structured as equity, offerings may also be structured as corporate debt. For a comparative analysis of crowdfinance offerings, please visit http://nowstreetwire.com/a/comparative-analysis-of-crowdfinance-offerings
What are PIPRs?
PIPRs ("Private Issuers Publicly Raising"?), also known as "506(c) Offerings," are essentially private securities offerings, not subject to SEC registration, that are permitted to be advertised to the general public across multiple communications mediums, so long as the securities are placed solely with "accredited investors" and the issuer complies with other applicable provisions of Regulation D. (Reg D provides exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register them with the SEC). Under 506(c), it is the responsibility of the issuer to verify the accredited investor status of anyone whom it sells its securities to.
PIPRs are, for the most part, being presented via intermediaries, which are technology platforms created to showcase and facilitate the investments. There are two different types of platforms: one that is run by broker/dealers (and therefore has stronger obligations to vet the issuer and to ensure the suitability of the investment for their clients), and one that is not registered with the SEC or FINRA and that functions primarily as a medium through which the issuer can communicate its offering directly to investors. These non-registered platforms do require certain documentation (such as business plans, financials, and other third-party data). The platforms also make it easy to connect with the venture management team to conduct further due diligence. Both types of platforms are liable for any misstatements or misrepresentations under the anti-fraud laws.
Title III Crowdfunding:
Title III Crowdfunding, also known as 4(a)(6) Crowdfunding, is essentially the component of the JOBS Act that allows non-accredited investors to receive securities in exchange for funding private companies. Although the JOBS Act was signed into law in April 2012, this form of crowdfunding will not be legal until the SEC implements the final rules that will govern Title III Crowdfunding. The SEC released its proposed rules on October 23, 2013 and is currently accepting comments from the general public. Highlights of Title III Crowdfunding include:
·Issuers employing this exemption may only raise up to $1M per year.
·For offerings between $100,000 and $500,000, reviews of financial statements are required.
·For offerings greater than $500,000, audits of financial statements are mandatory.
·Investors in Title III Crowdfunded Offerings are subject to investment limits based on net worth and annual income. These limits are $2,000 or 5% (whichever is greater) for people earning (or worth) up to $100,000, and $100,000 or 10% (whichever is less) for people earning (or worth) $100,000 or more.
·The transaction must be conducted through a broker or funding portal that complies with the requirements of section 4A(a).
The JOBs Act can be read in its entirety at http://www.gpo.gov/fdsys/pkg/BILLS-112hr3606enr/pdf/BILLS-112hr3606enr.pdf
While national securities-based crowdfunding as written under Title III of the JOBS Act remains illegal, individual states have begun adopting their own legislation to legalize crowdfunding under Rule 147, the intrastate exemption. Officials in nearly a dozen states, including Georgia, Alabama, Kansas, North Carolina and Wisconsin, have enacted or proposed new laws to make it possible for its local businesses to secure financing from local residents. The country's first publicized unaccredited equities crowdfunded raise was completed in the fall of 2013 in Georgia utilizing the Invest Georgia Exemption (IGE). Details can be found at SparkMarket, leading provider of intrastate crowdfunding solutions.
Registered Crowdfinanced Offerings are non-exempt, fully registered offerings that are financed by a crowd of retail investors (most likely an issuer's customer base) as oppose to a small number of institutional investors.