1. Crowdsourcing and funding 2015 – the new frontier
What they did not teach you in Law School
Craig Owen White, Esq.
© All Rights Reserved 2015

2. Disclaimer
Nothing contained in this presentation is to be considered as the rendering of legal advice for specific cases, and attendees are responsible for obtaining such advice from their own legal counsel. This presentation is for educational and informational purposes only. The views of the presenter should not be construed as the views of the International Senior Lawyers Project or of Hahn Loeser & Parks LLP.

3. The Business Lawyer is to:
Assist Client in identifying, quantifying and assessing risk.
Document the deal in a manner that identifies rights and obligations of each party and can be enforced under the rule of law.
Charge reasonable fees and be promptly paid for services.
Be a steward of the commercial law, statutes and regulations.
Maintain high ethics and integrity.

4. TIMELESS NEED? Working capital needed to fund:
Passion or personal goal
New business idea in proof of concept stage
Exploration of an idea
To fund next stage growth

5. what is CROWDSOURCING? New Sharing Economy Technology Driven
Sharing collective knowledge
Growing passion for micro-volunteering
Flash and unpredictable crowd creation

6. The crowdsourcing Promise
The Funder gets a piece of the action in exchange for the funder’s contribution .
Funder Feels Good about helping someone else

7. What is CrowdFUNDING?
The practice of funding a project or venture by raising small amounts of money from a large number of people, most commonly over the Internet.

8. What is CrowdFUNDING?
The practice of funding a project or venture by raising small amounts of money from a large number of people, most commonly over the Internet.

9. What is CrowdFUNDING?
The practice of funding a project or venture by raising small amounts of money from a large number of people, most commonly over the Internet.
ACCESS TO THE INTERNET COMMUNITY IS USUALLY THROUGH A SPECIALIZED PORTAL (PLATFORM) BUT CAN BE VIA THE FUNDRAISERS OWN WEBSITE

10. How Does Crowdfunding Actually work?
 All Starts with the “Crowdfunding Portal”: ─ “Crowdfunding Portal” - a website trough which the offering is being made. ─ The go-between investors and the Issuer. ─ Responsible for documentation of the deal as well as the pass through of all informational materials to investor.  Differentiation: ─ Portals differentiate themselves by type of crowdfunding (e.g., debt, equity, reward, etc.).

11. Crowdfunding Portals and Platforms

12. The Opportunity
Raising Money via the Internat in the United States from US investors (including members of the African diaspora) for investment in Africa.

13. THE ‘Challenges’ OF cROWDFUNDING
Fraudulent entrepreneurs with a slick video can dupe thousands into investing in a questionable company or nonexistent product Incompetent entrepreneurs can fail to deliver on their promises Unsatisfied investors can dispute their transactions and amass huge liabilities for the platforms and payment processors Insecure platforms can risk credit card data, misappropriate funds or violate applicable law

14. TYPES OF CROWDFUNDING Campaigns
Donation-Based
Pre-Order
Rewards- Based

15. TYPES OF CROWDFUNDING Campaigns
Donation-Based
Pre-Order
Rewards- Based
Cause- Related Marketing
Fund a Cause, Mission or someone’s passion
Launched May 2010
Over $1.2 Billion raised for personal causes

16. WHAT HAVE PEOPLE REQUESTED FUNDING FOR ?
Donation based portal
WHAT HAVE PEOPLE REQUESTED FUNDING FOR ?
Weddings
Funerals
School Tuitions
Divorces
Vacation Travel
Fulfilling a Dream
Whatever the imagination can image

17. TYPES OF CROWDFUNDING Campaigns
Donation-Based
Pre-Order
Rewards- Based
Target is customer who loves to be trendsetter
Product may be in development or early stage production
No delivery timeframe is promised
Typically no refunds
ROI = the product

18. KING OF PRE-ORDER CAMPAIGN – Pebble Watch

20. Main TYPES OF CROWDFUNDING Campaigns
Donation-Based
Pre-Order
Rewards- Based

21. Crowdfunding
The practice of funding a project or venture by raising small amounts of money from a large number of people, most commonly over the Internet.

22. Crowdfunding
The practice of funding a project or venture by raising small amounts of money from a large number of people, most commonly over the Internet.
ESSENTIALLY – The selling of a security (investment instrument) where the buyer/owner takes a risk for a reward (or Return on Investment (ROI)).

23. Crowdfunding
ESSENTIALLY – The selling of a security (investment instrument) where the buyer/owner takes a risk for a reward (or Return on Investment (ROI)).
SALE OF SECURITIES IN TH UNTIED STATES AND ELSEWHERE IS HIGHLY REGULATED
PREMISES – FULL AND FAIR DISCLOSURE SO BUYERS CAN EFFECTIVELY EVALUATE AND PRICE RISK

24. Main TYPES OF CROWDFUNDING Campaigns
Donation-Based
Pre-Order
Rewards- Based
Debt – Based
Equity –Based

25. SECURITIES LAW 101 Primary Regulatory Strategy
Full, fair, timely and equal disclosure of key information ensures a level playing field
Prospective buyers are divided into Aggregated (sophisticated) and Unaccredited (unsophisticated) pools.

26. SECURITIES LAW 101 Primary Regulatory Strategy
Securities offerings have to be registered with appropriate regulatory authorities unless the offeror is operating pursuant to an authorized exemption.

27. SECURITIES LAW 101 Primary Regulatory Strategy
Seller’s Access to Unaccredited Investors is restricted in order to protect the unwary.
Regulations focus on What, When and How Unaccredited Investors are solicited.

28. What is the driving force
What is the driving force? THE United States JOBS ACT (Jump-start our business startups act)
March 27, Passed by US Congress and signed into law on April 5, Objective – Democratize Access to Capital Strategy - Disrupt the current regulatory bottleneck that separates those in need of funds from funding sources. Challenges – Protect investors from fraud and sharp tactics that mask true level of risk.

29. THE JOBS ACT (Jump-start our business startups act)
Title I : Transitional “on ramp” for a new category of issuer, emerging growth companies (with annual gross revenue under $1 billion), to issue IPOs. Title II: Allows for “crowdfunding by (and public solicitation of) accredited investors. Title III; Allows for “crowdfunding” by (and public solicitation of ) all investors. Title IV: Regulation A+: Modifies regulation to provide for an exemption expansion for offerings up to $50 million in 12 months to any investor using general and online solicitation.

30. Equity Based Portal
> than $300 million raised for thousands of campaigns Thousands of campaigns running with sophisticated search filters All or none platform

31. Debt based portal: Empower people around the world with a $25 loan
Total Amount of all loans made through Kiva
$356,256,700
Number of Kiva Users:
1,270,453
Number of countries with Kiva Users
221
Number of borrowers through Kiva:
872,349
Number of loans funded through Kiva:
476,537
Current repayment rate (all partners):
98.98%
Average loan size
$398.69

33. Developer gains site control
Creates a vision

34. Developer gains site control
Creates a vision
Develops a budget to implement vision ($100 million)
Needs $20 million in equity to obtain $80 million in commercial debt financing
Forms Newco, a Delaware limited liability company to develop the project.
Decides to conduct an Internet campaign to raise $20 million in exchange for an equity stake in Newco.

35. Newco retains Platform Co to design the campaign
Platform Co assists Newco in selecting the Investment Portal based on target audience
Newco’s investment bank/advisors assists Newco in determining the equity stake and the target rate of return (ROI) to be offered to investors
Newco’s lawyers identify securities registration exemption that will be used to offer the securities over the Portal
Marketing materials are prepared for Internet distribution

36. Many Investors Send Investment Dollars to Portal
Portal Accumulates Investment Dollars Until Conditions Are Met
Portal Distributes Dollars to Newco and Newco issues ownership certificates to investors

37. Newco Sells the Real Estate Project for $200 million
Newco repays the $80 million in debt obligations and has $120 million (less transaction costs) to distribute to equity owners
Newco liquidates and distributes $110 million to all equity holders on a pro rata.

38. Possible Transaction Structure
Internet Investors
NewCo Delaware company
Developer
ZimCo
Mauritius Investment Co
Commercial Lender
Internet Investors
Investment Portal

39. Basic Equity Transaction Documents
Deal Documents
Private Placement Memorandum (PPM)
Subscription Agreement;
operating Agreement for Newco
─ Escrow Agreement with Investment Portal
Securities Documentation:
investor Questionnaire Materials
Securities Registration/Exemption Opinions or Supporting Documentation
General Due Diligence:
Company Organization Documents;
Company Specific Risks (for inclusion in PPM);
Company Financials (audited, reviewed, internally prepared);
“Bad Actor” searches on officers and directors.

40. THANK YOU
THANK YOU