1. Crowdfunding

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