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Raising Capital Via Crowdfunding: A Step Closer to Reality
The JOBS Act (short for Jumpstart Our Business Startups Act) became law in April 2012. One of the more controversial provisions in the JOBS Act was the creation of a new “crowdfunding” exemption from federal and state securities-law registration available for startup and early stage businesses seeking to raise capital. Crowdfunding is the name given […]
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The JOBS Act (short for Jumpstart Our Business Startups Act) became law in April 2012. One of the more controversial provisions in the JOBS Act was the creation of a new “crowdfunding” exemption from federal and state securities-law registration available for startup and early stage businesses seeking to raise capital.
Crowdfunding is the name given to raising money via the Internet. Someone raising funds through crowdfunding typically seeks small amounts from a large number of individuals. Crowdfunding existed prior to the JOBS Act, but the funds typically came in the form of donations — either to support a cause or an artistic endeavor without any expectation of a financial return from the donation. Sometimes the contributor received a token gift for his or her contribution, such as a product sample.
In the United States, crowdfunding has not been used by businesses to raise capital from individual investors because of limitations imposed by federal and state securities laws. Offering someone an ownership interest in a company in exchange for an investment involves the sale of a “security,” and current law does not allow the solicitation of equity capital from the public-at-large via the Internet without going through the process of fully registering the offering with the U.S. Securities & Exchange Commission (SEC). The JOBS Act crowdfunding provisions set out to change that by allowing businesses to raise capital using Web-crowdfunding techniques. The goal was to facilitate the raising of capital by making relatively low-dollar offerings of securities less costly.
The crowdfunding exemption created by the JOBS Act allows companies to seek small investments from an unlimited number of investors, subject to certain conditions imposed by Congress. Those conditions include:
The crowdfunding provisions of the JOBS Act are not self-implementing. Congress directed the SEC to adopt regulations implementing the crowdfunding exemption within 270 days of enactment of the JOBS Act. That deadline came and went, but on Oct. 23, 2013, the SEC issued a proposed “Regulation Crowdfunding.” The regulation is more than 50 pages long and is contained in a release totaling 585 pages. The proposed regulation expands on some of the requirements included in the JOBS Act and adds several new requirements not included in the JOBS Act pursuant to authority delegated by Congress to the SEC to promulgate regulations implementing the Act.
The public disclosure of business and financial information about a company selling securities is a fundamental component of the current regulatory scheme governing securities offerings, so it comes as no surprise that Congress and the SEC require the disclosure of specific information.
Within the JOBS Act itself, Congress required companies raising money through crowdfunding to disclose information such as the names and addresses of the company’s officers, directors, and 20 percent shareholders, and a description of the business or anticipated business of the company. The SEC, in its Regulation Crowdfunding, requires the following additional information be disclosed: (a) the business experience of officers and directors, (b) the compensation being paid to intermediaries for the offering, (c) the number of employees, (d) risk factors, (e) material indebtedness, and (f) related party transactions.
Congress also mandated in the JOBS Act that specific financial information be provided to potential investors. Companies raising less than $100,000 must disclose their most recent tax return and provide financial statements certified by the CEO. Businesses raising between $100,000 and $500,000 must provide financial statements reviewed by an outside CPA firm. Companies raising more than $500,000 must provide financial statements audited by an outside CPA firm.
In its Regulation Crowdfunding, the SEC added the requirement that companies must also provide a narrative discussion of its financial condition, including a narrative discussion of its historical financial results (if it has an operating history), liquidity, and capital resources. The SEC also specified that, for offerings in excess of $100,000, the financial statements must consist of a balance sheet, income statement, cash-flow statement, and statement of changes in owners’ equity for the past two years. In order to facilitate the disclosure of information required by the JOBS Act and its regulation, the SEC proposed a new Form C on which a company may supply the required information.
In its release announcing the proposed Regulation Crowdfunding, the SEC said it was mindful of the costs of complying with the crowdfunding requirements and sought to strike a balance between making crowdfunding affordable for small businesses and protecting the interests of investors. The SEC estimated that the upfront costs of complying with the crowdfunding requirements were between $13,500 and $18,500 for an offering of less than $100,000; between $40,500 and $70,500 for an offering of more than $100,000 but less than $500,000; and between $77,250 and $152,250 for an offering exceeding $500,000.
The bulk of these estimated costs are for compensation payable to the broker-dealer or funding portal managing the offering and for fees payable to CPAs for obtaining reviewed or audited financial statements as required for offerings in excess of $100,000.
The SEC invited public comments on its proposed Regulation Crowdfunding. In its release announcing the new Regulation Crowdfunding, the SEC identified about 300 specific issues on which it solicited comments. Public comments were due in early February. Until the SEC issues Regulation Crowdfunding in its final form and it becomes effective, companies may not utilize the crowdfunding exemption contained in the JOBS Act to raise capital.
Ronald C. Berger is a business and corporate attorney at Bond, Schoeneck & King, PLLC. Contact him at (315) 218-8216 or rberger@bsk.com
Michael Rotella: A Shining Example of the Entrepreneurial Spirit in Upstate N.Y.
As entrepreneurship flourishes in upstate New York, more examples of success are popping up on the landscape. Achievement comes in many forms and is made up of many different ingredients. However, perseverance is a common theme among successful entrepreneurs. They never give up and they find a way to succeed no matter the obstacles. Michael
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As entrepreneurship flourishes in upstate New York, more examples of success are popping up on the landscape. Achievement comes in many forms and is made up of many different ingredients. However, perseverance is a common theme among successful entrepreneurs. They never give up and they find a way to succeed no matter the obstacles.
Michael Rotella, an upstate New York entrepreneur, is a great example of the start-up scene and epitomizes the word “perseverance.” We thought Rotella’s story was so intriguing, we asked him to tell it in the first person. Here is his story of entrepreneurial determination and success.
Rotella tells his story
My name is Michael Rotella and I’m the founder of SyracuseGuru.com. We’re an independent media site founded in June 2011 that is the authority on the best things to do in Syracuse. We are the ultimate lifestyle guide to Central New York, covering food, concerts, arts, theatre, and more. The website has grown to be a strong, recognizable brand and one that is on a constant upward trajectory. I’ve personally invested almost three years of tireless work into Guru and we’re now in the process of monetizing the site’s growing traffic and expanding the organization.
Many people I talk to seem confused when I tell them that, yes, I personally run the entire operation. Others have reached out to me with words of encouragement and/or gratitude, saying things like, “Thanks for making Syracuse cool again.” I’ve never liked to call myself an entrepreneur but the more work I do the more I understand exactly what that word means. I’ve also learned how one goes about being an entrepreneur in Syracuse. All of this while technically being a Whitman School of Management Entrepreneurship and Emerging Enterprises (EEE) dropout.
I could say that we don’t have substantial access to investment capital, we don’t keep our talent here, and New York state taxes aren’t exactly new-venture friendly. I could name about 10 other things that make Syracuse a horrible place to do business. But, I’d be missing a key point if I said all that. The fact is that Syracuse is the perfect place to do business. Our isolation from national trends means we, as entrepreneurs or just creative thinkers, have the ultimate environment for innovation. Organizations such as the Syracuse Technology Garden, Start Fast Venture Accelerator, and Terakeet have taught us that innovation does happen locally and often on a grand scale.
We have so many “old” or traditional industries here that allow a relatively simple concept like Guru to be truly disruptive. Do some Google searches on local event-related terms and you’ll see what I’m talking about. So what do you think CNY lacks? Do you have the talent or more important, the personal drive to fill that gap? Well, what are you waiting for? Syracuse is your personal innovation sandbox. Start playing.
With my venture, I have enjoyed a degree of luck before I even started and I credit part of my so-called success to that. I went into my venture with one of the area’s most talented graphic designers as a family member, I graduated from likely one of the best and most underrated programs at Syracuse University, I have experience with search-engine optimization, and those I previously had as friends became mentors and advisers when I stumbled upon and took action on my sudden vision. But, not all my luck has been good in the traditional sense. I have also suffered major setbacks in my constant pursuit of progress —a serious disability for one.
Beyond the normal difficulties of business, I also have to deal with the additional issues of having muscular dystrophy. This pretty much means I can’t work a normal 9 to 5 schedule, require special accommodations for office space, special equipment for my vehicle, and much more. I also have to improvise in social situations and while networking. When people first meet me there’s potential that they might be extra surprised with my achievements. “Oh, you’re the Guru?.” or similar remarks reflect this. Concern with going to pitch an ad contract and showing up on a mobility scooter is a major hurdle, make no mistake about that. “What will they think of me?” and similar sentiments do not belong in the entrepreneur’s mindset and this is something I still battle. In business and personal life, disability can be an absolute hell, but it’s being an entrepreneur and demanding that respect that has taught me how to handle the negativity. My life is an extension of the venture I started and vice versa. Letting anything come between my goals in business and what I love to do is something I find unacceptable.
Now how does someone with my unique set of gifts and often-profound issues like disability succeed at a venture? Surely, if I can do it, then 10, 20, 50, maybe even 100 other young people can decide to stay in Syracuse and single-mindedly hustle like all the other local entrepreneurs and I do. We all have our immovable hurdles, and it’s up to us to be clever enough to get around them — that’s the definition of innovation, isn’t it?
I’m not saying this is all you need, but I think I have a few things figured out. Entrepreneurship is less about specifics and more about a mindset. Each person has a different goal and passion, but some principles hold true across the spectrum.
1. Have and follow a strict vision — Syracuse Guru was a simple concept that just hit me. Within the first few days, I fleshed it out into an entire vision. Before I wrote my first article, I envisioned where I am today. Now, I envision where I will be in another three years. This is key. I always say that belief is three-quarters of success — action being the final step. Belief in your mission and product is up there, but belief in yourself is number one. Can I — by myself —create and run the best media source in Central New York from nothing? Do I believe in my own vision? I said yes.
2. Never give up — This age-old cliché is the most powerful thing you can harness. The stubbornness to stick to a vision, to see it through, and to make your life and work one in the same means more than you can imagine. This is what I do every single day. It’s what you have to do. Be stubborn and fight for the right to make your own mistakes. Don’t take too much advice. You will know if it’s actually time to throw in the towel, but a real entrepreneur does not just stop. He or she moves on but keeps this attitude in reserve for the next venture.
3. Network — Networking isn’t something you do at a sanctioned “networking event.” That notion is completely wrong. Networking is something you do every single day of the week. Networking is making friends and it’s as simple as being social on your way through life. As I said, your friends often turn into huge supporters and even mentors once you launch a venture. Networking is doing favors more than asking for them. It’s setting up constant meetings to brainstorm about how you might work together. Think of networking as a lifestyle. Something you just do. Don’t confuse real networking with clicking, “Add Connection” on LinkedIn.
I’ll add that even though I have these words of wisdom for you, almost my entire existence is based upon uncertainty. As I’ve mention above I have a disability, which has a major effect on my life. Often skewed self-perception, living-arrangement issues, struggles with my peer group, uncertainty about the future, and worst of all—fear. These things come with my situation. I am not going to be clichéd and say what doesn’t kill you makes you stronger but I do believe that character is measured by how each of us grapples with our realities. You can give up or you can embrace everything good and bad and never slow down. A few years ago, I chose to demand more of myself and create my own momentum.
I often wonder where I would be without them but I know that these challenges are where Guru came from. My personal history is one of adapting amidst fear and uncertainty. So in a way, disability taught me everything I know about entrepreneurship. It’s not as simple as the “if I can do it then anyone can” narrative. What I will say is that you must intensely learn from difficulties no matter what they may be — no matter their severity. Take your biggest struggles and divert the frustration into creating a venture and building something real for yourself in Syracuse. That’s what I’ve done and it’s imbued all my efforts with a strength and drive I previously thought impossible.
For more information about Rotella, please visit www.syracuseguru.com. Contact him directly at mike@syracuseguru.com.
Robert M. (Rob) Simpson is president and CEO of CenterState CEO. Contact him via email at: rsimpson@centerstateceo.com. Kyle Blumin is a serial entrepreneur, with multiple business exits, based in upstate New York. He is passionate about driving personal and professional success through entrepreneurship. You can follow Blumin on Twitter @KyleBlumin.
Outlining the Priorities for a Final State Budget
As New York legislative leaders representing both the Assembly and Senate discuss and debate their goals for the upcoming state spending plan, with an April 1 deadline looming, a number of ideas have been put on the table. I recently urged my legislative colleagues to consider the following items that have statewide ramifications. Final budget
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As New York legislative leaders representing both the Assembly and Senate discuss and debate their goals for the upcoming state spending plan, with an April 1 deadline looming, a number of ideas have been put on the table. I recently urged my legislative colleagues to consider the following items that have statewide ramifications.
Final budget needs to be responsible
First and foremost, the final state-budget agreement needs to reflect the interests of 19 million New Yorkers — not simply what might fit the political agenda of the newly elected mayor of New York City. Since January, the financial and legislative wish-lists of Mayor Bill de Blasio have received a great deal of attention, from both media and Albany lawmakers. But as statewide representatives, we need to be responsible to all New Yorkers. To do so, budget discussions should keep these priorities in mind:
As we approach the April 1 budget deadline, I will continue to fight for common-sense programs and a responsible state spending plan — one that represents the taxpaying public rather than personal politics.
Brian M. Kolb (R,I,C–Canandaigua) is the New York Assembly Minority Leader and represents the 131st Assembly District, which encompasses all of Ontario County and parts of Seneca County. Contact him at kolbb@assembly.state.ny.us
Growing old can have its advantages. One is that you can shrug off the latest calamities — because you have seen so many other calamities over the years — and you know they fizzled. This makes you look good. Younger people complain about the latest calamity. The world is running out of … fill in
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Growing old can have its advantages. One is that you can shrug off the latest calamities — because you have seen so many other calamities over the years — and you know they fizzled.
This makes you look good. Younger people complain about the latest calamity. The world is running out of … fill in the blank. This disease is so rampant we will face a new plague. Global cooling will exterminate the human race. Wait a minute. Global warming will exterminate the human race. Wait a minute. Climate change …
You tilt your head and rub your chin over this news. You nod a few times. You offer a few hmms. Inside you think, “Ho hum, another calamity. This is number 55.” Outside, you appear wise and thoughtful.
Such meanderings came to mind when I saw a report about population trends recently.
If you are old like me, you will know that humanity has collapsed already. Because the world has too many people. Billions are starving. Hordes of the starving are storming homes of the rich to find food. They are chowing down on their pets. Pestilence reigns.
This is what alarmists of a few years ago assured us would happen by now. They absolutely guaranteed it. Because too many babies were being born. The population calamity. Well, I guess you have noticed it did not happen.
Some alarmists have not yet received the word. They still rant about how the population bomb will soon explode.
It ain’t happening.
You can explain to alarmists that birth rates in all the developed countries have fallen dramatically. You can show them that in those countries the population bomb isn’t even a firecracker. “Yeah, but how about the poor countries? People are breeding like rabbits in the poor countries.” Right.
The item I read this week noted that birth numbers in the poorest countries are plummeting. Women in Thailand averaged seven babies each in the 1970s. Today, it is 1.6. A quick math lesson here: A country needs a birth rate of “2” to keep its population from shrinking. A little more than that, to allow for early deaths.
Brazil, Mexico, parts of India and Southeast Asia are racing in the same direction of Thailand. China has already arrived. Already more than half the world’s people live in countries whose population is shrinking.
Various countries are so worried about this they are offering incentives to folks to have more babies. Money, bonus miles, coupons — that sort of thing. Russia, South Korea, Chile, France, Australia. They are all pushing their people to turn off the TV and turn up the soft music. Ditch the birth control, pop open the bubbly.
They are doing this for practical reasons. One is that they need more young workers to support the growing numbers of oldies. Another is that they don’t feel it is a good idea for their countries to vanish. Don’t laugh. Italy and Japan’s birth rates point to extinction in the next century. Travel ads your great-grandchildren will see: Spend two weeks in Italy and meet all the Italians who are left. But hurry: Offer ends when Italy does.
So now you can stow the population bomb predictions in your calamity locker. Alongside the calamitous forecasts of old. You know, the plagues and droughts. And the end of forests. And farmlands eroded into the sea.
And you can prepare yourself for the next calamity: Population shrinkage. Alarmists will soon fire up the anxiety boilers over this. Already some Thai economist is proposing punitive taxes on single people and childless couples.
It could happen here. Our birth rate is dismal. And politicians forever look for reasons to whack us with more taxes. We may start funding Planned Parenthood to promote babies instead of abortions. At least it won’t have to change its name.
Stay tuned for this calamity to arrive.
From Tom…as in Morgan.
Tom Morgan writes about political, financial, and other subjects from his home near Oneonta, in addition to his radio shows and new TV show. For more information about him, visit his website at www.tomasinmorgan.com
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Stay up-to-date on the companies, people and issues that impact businesses in Syracuse, Central New York and beyond.