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243
Index
AAccredited investors, 216America Invents Act (AIA),
102–103Antitrust laws, 198Appbackr, 61AppsFunder, 61Australian Small Scale Offerings
Board (ASSOB), 53, 77
BBackers, communicating
with. See Investors, communicating with
Bandwagoning, 65Bankruptcy and reorganization laws,
197–198Barnett, Chance, 19–20, 21, 28Blass, David W., 69–70Blue sky laws, 5, 150BrewDog, 61Broker-dealers, 69–71Building and loan
associations, 4Business associations, crowdfunding
interests in, 177–193choice of entity, 191–193entities, principal forms of,
178–191corporations, 179–180,
188–191
limited liability companies (LLCs), 179–180, 186–188
limited liability partnerships (LLPs), 179–180, 183–184
limited partnerships (LPs), 179–180, 184–186
partnerships, 179–180, 181–183
law, nature of, 178Business brokers, 159–161
CC corporations, 191Camillo, Chris, 136Canonical, 67Charity/donation crowdfunding,
39–40, 56–57Chen, Perry, 9CircleUp, 54Coffee Joulies, 23Communication skills, 19–20Companies Act 1867, 201–202Contracts, 193–197
issues in crowdfunding, 196–197law, nature of, 194–196
binding nature, 195defenses to contract
formation, 195elements of contract, 194–195enforceability, 195–196
bindex.indd 243 2/10/2014 1:44:31 PM
COPYRIG
HTED M
ATERIAL
244 Index
Copyrights, 103–105crowdfunding risks, 104–105
Corporations, 179–180, 188–191, 193
CraftFund, 61Crowd Supply, 22Crowd wisdom, pitfalls of, 65Crowdbrewed, 61CrowdCheck, 78Crowdcube, 52, 77, 206–207CROWDFUND Act, 171–176Crowdfunding
alternatives to, 145–161credit unions, 157entity, choice of, 148–149factoring, 158finance, basic types of,
145–148finders and business brokers,
159–161initial public offerings
(IPOs), 155leasing, 158–159letters of credit, 159On Deck Capital, 158owner financing, 159peer-to-peer lending, 157–158private placements and
Regulation D, 150–155securities laws, overview of,
149–150Small Business Administration
loans, 156trade credit, 157traditional banks, 157
campaign, business planning in preparation for, 83–96
basic information, 85budgeting, projections, and
forecasting, 94–96
description of business, 85–88description of financial
condition, 88–89disclosure document, writing,
84–85pricing securities and
understanding capital structure, 90–93
reviewed vs. audited financial statements, 93–94
use of proceeds and offering amount, 89–90
history of, 3–14building and loan
associations, 4disappearance of, 5–6modern era, 9–14Regulation D, Sarbanes-Oxley,
and regulatory reform, 6–8Statue of Liberty, 4
laws based on global jurisdiction, 199–211
crowdfunding in Europe, 203–206
Europe, emergence of equity investing in, 200–201
European platforms, 206–211investing regulations, 201–203
legal aspects of, and U.S. law, 165–198
basic legal issues, 197–198contracts, 193–197interests in business
associations, 177–193looking ahead, 209–211securities regulation, 166–177
social media, 15–30finding a solution, 21–26fundamentals of
crowdfunding, 18–21
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Index 245
preparing for crowd investing, 26–28
quality entrepreneurs and ideas, 16–18
transformed environment, 28–30
statistical view of, 31–45crowdfunding models,
35–42market outlook, 42–45marketplace, 32–35
Crowdfunding for Dummies (Neiss), 19–20
Crowdfunding models, 35–42donation-based, 39–40equity-based, 41–42financial vs. nonfinancial
return, 38–39lending-based, 40, 41rewards-based, 40, 41
Crowdfunding Regulatory Intermediary Advocates, 11
Crowdfunding world map, 33–35Crowdsourced feedback, 64
managing, 65–66Crowdtilt, 57
DDebt-based crowdfunding, 54–55Demo days, 219Dodd-Frank Act, 117, 118The Doom that Came to Atlantic
City, 76Doriot, George, xiiiDragon Innovation, 59Due diligence, xiDunning-Kruger effect, 65The Dynamics of Crowdfunding:
Determinants of Success and Failure (Mollick), 17, 28
EElevation Dock, 22Ellenoff, Doug,
127–128Enron, 7–8, 12Enterprise Investment Scheme
(EIS), 52Entrepreneurship, shift in, 29Equity crowdfunding, ix–xiv,
41–42, 51–54Espinal, Carlos, xiiEurope
crowdfunding in, 203–206emergence of equity investing in,
200–201investing regulations,
201–203looking ahead, 209–211platforms, 206–211
France, 208Germany, 208Italy, 209Netherlands, 207–208United Kingdom,
206–207
FFactoring, 158Finance, basic
types of, 145–148convertible securities,
147–148debt, 145–146equity, 146–147
common stock, 147preferred stock, 147partnership and limited
liability company interests, 147
options and warrants, 148
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246 Index
Financial Conduct Authority, 55
Financial crisis of 2008, 12Finders (private placement brokers),
159–161France, crowdfunding platforms
in, 208Fraud
in investment crowdfunding, 77–78
in noninvestment crowdfunding, 73–77
defining, 73–74examples of, 75–76protection from, 76–77risks of, 74–75
“Free-rider problem,” 31Freedom of Information Act (FOIA)
Machine, 67–68FundersClub, 53–54Funding Circle, 55Fundly, 57, 72Fundrazr, 72
GGeneral solicitation, 215German Exchange Act of
1896, 202Germany, crowdfunding platforms
in, 208Goos, Craig, 129Grandma Pearl, 29Great Depression, 12Gridiron Thunder, 66Groupthink, 65
HHandibot, 76Hanks, Sara, 127–128Happy Canes, 29
Horlick, Nicola, 60“How to Run a Successful
Campaign on Kickstarter” (Hayes), 22
Howey test, 169, 183, 186HWTrek, 59
IiLobby, 72Illusory superiority, 65Indiegogo, 47, 48, 49–51, 59–60,
64, 72, 121terms of service, 74
Initial public offerings (IPOs), 155Instagrad, 61Intellectual property, protecting,
97–110, 197copyrights, 103–105
crowdfunding risks, 104–105
importance of, 98–99patents, 99–103
America Invents Act (AIA), 102–103
fundamentals of, 100–101provisional patent application,
101–102portfolio management,
109–110trade secret protection,
107–109crowdfunding risks, 108–109
trademarks, 105–107crowdfunding risks,
106–107Investment crowdfunding,
51–55debt-based crowdfunding,
54–55equity crowdfunding, 51–54
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Index 247
Investor options, 111–125bringing on investors, 112–114
benefit, 112–113drawbacks, 113–114
capital spectrum, 122–125debt, 124equity, 124–125revenue sharing, 123
general obligations to investors, 115–118
nonaccredited vs. accredited investors, 117–118
regulatory obligations, 115–117
investor education obligations, 118–120
maximizing investor participation, 120–122
Investors, communicating with, 127–143
crowd communications checklist, 141–143
resources, 143investor relations, 137–141
changes in, 141choosing investors,
137–138consistent communication,
139–140pitches, 138–139strategy, 140–141
issuer’s dilemma, 129–134crowd building, value of,
130–131digital presence,
building, 132influencers, connecting with,
132–133target list, building,
133–134
reconnecting with prospective investors and backers, 134–137
offline networking, 135–136process, benefit of, 136–137social media, 134–135
Italy, crowdfunding platforms in, 209
JJackson, Dave, 23JOBS Act, 10–11, 12, 15–16, 27,
83–84, 88, 150, 216, 217consequences of, 174–177requirements for financial
statements, 93requirements for valuing a
company, 90, 92Title II, 11, 13, 15–16, 116–118,
127, 152, 216Title III, 11, 13, 15, 115–120,
127, 130, 169–170Joint Stock Companies
Act 1844, 201
KKansas Act, 202Kickstarter, 9–10, 12, 16, 47, 48,
49–51, 59, 64, 66, 68, 72, 75–76
change in project guidelines, 73–74
Kiva, 9, 12, 55, 56Kobe Red Beef Jerky, 75–76Krasfur, Andy, 68
L“Last mile problem,” 13Leasing, 158–159Lending Club, ix, 158
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248 Index
Letters of credit, 159Limited liability companies (LLCs),
77, 147, 148–149, 179–180, 186–188, 192–193
Limited liability partnerships (LLPs), 179–180, 183–184, 192
Limited partnerships (LPs), 179–180, 184–186, 192
MMadoff, Bernie, 7Malkin, Pearl, 29Market dynamics, current,
47–80broker-dealers, 69–71charity/donation crowdfunding,
56–57crowdfunding as a political tool,
71–73fraud
in investment crowdfunding, 77–78
in noninvestment crowdfunding, 73–77
investment crowdfunding, 51–55
debt-based crowdfunding, 54–55
equity crowdfunding, 51––54
niche crowdfunding platforms, 57–62
alternative energy, 58apps, 61beer, 61book publishing, 61concerts/events, 60education, 61–62film, 59–60
hardware, 58–59real estate, 57–58
rewards-based crowdfunding, 49–51
market testing with, 62–68Massolution report (2013),
16, 32C-STEP methodology, 32
Merit reviews, 171Migicovsky, Eric, 23MogoTXT, 66Mollick, Ethan, 17, 28,
122, 131
NNeiss, Sherwood, 19–20Netherlands, crowdfunding
platforms in, 207–208NeuYear, 24Niche crowdfunding platforms,
57–62alternative energy, 58apps, 61beer, 61book publishing, 61concerts/events, 60education, 61–62film, 59–60hardware, 58–59real estate, 57–58
Nondisclosure agreement (NDA), 98
OObama presidential campaign
(2008), 71Offline networking, 135–136On Deck Capital, 158Opena, 24Owner financing, 159
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Index 249
PPartnerships, 147, 149, 179–180,
181–183, 192Patents, 99–103
America Invents Act (AIA), 102–103
fundamentals of, 100–101provisional patent application,
101–102Pave, 62Pebble smartwatch, 22, 23, 58Peer-to-peer lending, 157–158Peters, Chris, 24Petrillo, Dave, 23Phillips, Jesse, 25–26Picatic, 60Pozible, 48Pretail campaigns, 50, 62–64
examples, 66–68Freedom of Information Act
(FOIA) Machine, 67–68Spira Running Shoes, 68Ubuntu Edge, 67
Prodigy Network, 57–58Prosper, 54–55, 158PubSlush, 61Pulitzer, Joseph, 48
QQueremos, 60
RRamos Alarm Clock, 24–25Regulation A/A+, 154–155Regulation D, 6–8, 12, 150–155,
213–226crowdfunding, 154event, structuring, 218–226
with both 506(b) and 506(c) companies, 223
for companies relying on Rule 506(c) and using general solicitation, 222
for companies relying solely on Rule 506(b), 221–222
506(c)-only events, 220closed pitch events, 220–221company application
process, 220demo days, 219proposed SEC rulesseries, 224
key securities law concepts, 215–218
accredited investors, 216general solicitation, 215JOBS Act, 216Rule 506(b), 216–217Rule 506(c), 217–218
Rule 506with general solicitation,
152–154without general solicitation,
152Rewards-based crowdfunding, 40,
41, 49–51fraud, examples of, 74–75
the Doom that Came to Atlantic City, 76
Handibot, 76Kobe Red Beef Jerky, 75–76
Ringelmann, Danae, 121RocketHub, 48, 64, 68RockThePost, 54, 71Rubin, Slava, 47Rule 506
with general solicitation, 152–154
without general solicitation, 152
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250 Index
Rule 506(b), 216–217, 223–224Rule 506(c), 54, 128–129, 214,
217–218, 223–224
SS corporations, 149, 191Sammut, Paul, 24–25Sarbanes-Oxley Act of 2002
(SOX), 8, 12Securities Act of 1933, 5–6, 118,
150, 170, 174Securities Exchange Act of 1934,
5–6, 12, 118, 173, 174, 176
Securities and Exchange Commission
creation of, 5–6, 12delayed approval for equity
crowdfunding, 53Regulation D, 6–8, 12Rule 506(c), 54, 128–129, 214,
217–218Title II (JOBS Act), 11, 13,
15–16, 116–118, 127, 152, 216
Title III (JOBS Act), 11, 13, 15, 115–120, 127, 130, 169–170
Securities laws, 149–150, 166–177blue sky laws, 150crowdfunding and crowdfund
investing, 168–170securities, 169–170types of, 168–169
federal, 149–150implications, 170–177
JOBS Act and its consequences, 174–177
legal status of crowdfunding intermediaries, 172–173
registration of offer and sale of securities, 170–172
registration as public company, 173–174
nature of, 166–168preemption, 150
Seed Enterprise Investment Scheme (SEIS), 52
Seed&Spark, 60SeedInvest, 54Seedrs, 52, 122, 207Seeds.nl, 208Shopstarter, 22Small Business Administration
loans, 156Social capital, 20–21Social Web, 10Sole proprietorships, 192Somolend, 54Spira Running Shoes, 68Stainless Games, 62Startup Exemption Framework,
10–11SunFunder, 58Symbid, 207–208
TTarget list, building, 133–134Title II (JOBS Act), 11, 13, 15–16,
116–118, 127, 152, 216Title III (JOBS Act), 11, 13,
15, 115–120, 127, 130, 169–170
Traction, xiiiTrade secret protection, 107–109
crowdfunding risks, 108–109Trademarks, 105–107
crowdfunding risks, 106–107Tsai, Eddie, 23–24TsaiClip, 23–24
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Index 251
UUbuntu Edge, 67Uniform Trade Secrets Act (UTSA),
107–108United Kingdom, crowdfunding
platforms in, 206–207
WWard, Rob, 24Watsi, 56
Web 2.0, 10Web 3.0, 10–11WeDemand, 60Windcentrale, 58WiSeed, 208WorldCom,
8, 12
ZZopa, 55
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