Category Archives: Uncategorized

SEC Adopts Final Equity Crowdfunding Rules

SECLogoThe SEC has now adopted the final rules under which private companies can raise capital in the format described as “crowdfunding”.

The SEC has scheduled an extra long 180 days for implementation in order to permit new portals to comply with the rules.

A quick summary of the rules:

1. Permits a private company to raise up to $1 million in a 12-month period.
2. Offering must be conducted through a broker-dealer or registered funding portal.
3. Issuer must disclose its information on a new Form C.
4. Depending on the size of the offering, historical financial information may be required and may need to be reviewed or audited by independent accountants.
5. Investor’s investment amount will be limited based on the investor’s annual income or net worth.
6. There are issuer post-offering reporting obligations to the SEC.
7. The funding portals, themselves have procedural rules to follow.

For an easy to read summary of the new rules provided by The SEC Law Firm, click here.

To read the SEC press release, click here.

Corporations are Active Investors

Corporations continue to be active investors in younger companies. Stats indicate that the number of corporate investments doubled between 2009 and 2014 to 888 completed deals as reported by Pitchbook, the online deal database.

This growth in corporate investment is critical to provide capital for younger companies because traditional venture capital continues to be difficult to obtain and the public financing market has become less receptive (click here).

My colleagues and I have experienced this growing corporate interest in younger companies with several successful transactions.

The historical impediment to corporate investment, what was known as the “not invented here syndrome” at large corporations, seems less common today. Instead, large corporations appear to recognize that younger companies may be cost-effective and more agile in initial development. Large corporations have come to accept that investing in or acquiring a younger company can serve as a valuable product pipeline filler.

We’ve seen large corporate investors join financial investors in an investment round with the corporate investor receiving no special status or rights, such as a right of first refusal upon the company’s sale.

A couple transactions have taken the form of acquisitions with a purchase structure that included an attractive initial payment and an “earn-out” payment tied to the technology’s eventual commercial success.

Today, when my colleagues and I represent companies to raise capital, we regularly include strategic corporate investors and acquirers on our list of potential candidates. We structure our engagement compensation arrangements to encourage the pursuit of a broad range of outcomes. Our goal is to give our clients options from which to choose and the comfort that all options have been pursued.

To read the stats about corporate investing prepared by Pitchbook, please click here.

Please contact me to discuss your company’s capital market goals.

SEC’s Forum on Small Business Capital Formation

SECLogoThe SEC’s annual forum on small business capital formation, which has become an important forum for ideas and discussion, will be held on November 21st.

Thanks to Morrison & Foerster LLP  for the alert.

Click on the link below or copy and paste the link into your browser.

By Dennis McCarthy