INTRODUCTION

Since the dawn of the digital era, entrepreneurs have dreamed of being able to raise capital on the Internet.

Until 2012, they couldn’t do so legally, because federal and state securities laws in the United States prohibited businesses from raising capital using “general solicitation” and “general advertising” methods such as newspaper ads, television and radio commercials, email blasts, Internet advertising, and social media websites. To be able to issue securities in exchange for investment, entrepreneurs were required to register an initial public offering (IPO) with the federal government, a process that typically takes months and costs hundreds of thousands of dollars in legal, accounting, and other fees they can’t afford.

In 2012, that changed with the passage of the federal Jumpstart Our Business Startups (JOBS) Act, which allowed entrepreneurs and start-up companies for the first time to raise capital using “general solicitation” and “general advertising” in two specific situations:

1.They could use these methods as long as they sold their securities only to “accredited investors” (extremely wealthy and sophisticated people who arguably don’t need the protection of the securities laws).

2.They were authorized to sell their securities to the public through “crowd-funding portals” registered with the U.S. Securities and Exchange Commission (SEC).

Since the mid-2000s, a number of crowdfunding websites (most prominently Kick-starter.com, Indiegogo.com, and RocketHub.com) have helped individuals and companies raise money from the public to finance specific projects (such as a new book or film, an invention, or even in vitro fertilization treatments). However, these early crowdfunding websites could not offer securities in exchange for investment. Under the JOBS Act, companies can now use crowdfunding sites to offer their stock, bonds, and other securities to the public without having to make an IPO and without violating securities laws.

In October 2015, after two years of public comment, the SEC handed down Regulation Crowdfunding, a document of almost seven hundred pages spelling out the rules under which entrepreneurs and their companies can use crowdfunding websites to raise capital and sell their securities.

If you are an entrepreneur with an amazing idea but no money to launch it, if you are a start-up or early-stage company looking to raise capital through crowdfunding, or if you are a lawyer, accountant, or other adviser to entrepreneurs and early-stage companies, The Crowdfunding Handbook is for you. In the chapters that follow, you will learn, step by step, how to:

Determine if a crowdfunded offering is right for your company

Set up your company to maximize the odds of crowdfunding success

Figure out how much money you need to raise via crowdfunding and what type of securities you should offer to the “crowd”

Prepare the documents necessary to offer your securities to the crowd

Find and deal with the crowdfunding websites (called portals) that will host your crowdfunded offering

Make changes to your offering or pull the plug on it before the offering is finalized

Market and promote your offering online and off-line

Manage your investor crowd once the offering is over

If you are an investor looking to find the next Facebook or Twitter while they are still off the radar screen and invisible to other investors, The Crowdfunding Handbook is also for you. In the chapters that follow, you will learn how to read the documents entrepreneurs are required to prepare to promote their companies, communicate with company founders, make intelligent investment choices, and (perhaps) become a player in the companies you invest in.

Over the years, a number of books have been published on the crowdfunding phenomenon, but the vast majority of these were written before the JOBS Act was passed, and they do not discuss how to use crowdfunding to raise capital for a start-up business. While there are one or two books in print describing the JOBS Act and its implications for the process of raising capital, they were published well before the Regulation Crowdfunding rules were passed. They were not written by lawyers, and they did not give step-by-step guidance on how to navigate these new rules.

The Crowdfunding Handbook is one of the first—if not the first—practical guide for entrepreneurs and start-ups that want to raise capital through crowdfunding, providing them with the information and tools they need to launch a successful offering of securities on the Internet and setting the standard for all future books on this topic.

This book is divided into five parts.

Since some readers may not be familiar with the crowdfunding process, Part 1 offers an overview of the basics and describes how crowdfunding had evolved prior to the JOBS Act.

Part 2, the heart of the book, provides a step-by-step guide to launching a crowd-funded offering of securities. It contains specific information and tips on:

Making sure your company can legally raise capital through crowdfunding

Creating the right legal entity for a crowdfunded offering and incorporating in the right state

Selecting the right security (stock, bonds, or something more creative) to offer the crowd

Preparing a term sheet for the offering and selling it to the crowdfunding portals that will host the offering

Setting the terms of the offering and changing them if necessary while the offering is in progress

Preparing the offering documents that will sell your company to investors

Marketing your offering online and off-line

Closing your offering and getting your money from the portal

Understanding your legal responsibilities once the offering is completed

Managing your crowd and keeping your investors happy so you still have time to run your company

Part 3 gives advice on communicating with crowdfunding investors, including making changes to your business plan and launching multiple crowdfunded offerings.

Part 4 contains information for two specific types of players in the coming market for crowdfunded securities:

1.People who wish to invest in crowdfunded securities but who need to know the rules and limits on their investments

2.Entrepreneurs who wish to set up crowdfunding portals to help other companies raise capital through crowdfunded offerings of securities

Finally, for readers who need to know more than the basics, Part 5 tracks the history of federal and state securities laws prior to the JOBS Act, summarizes the JOBS Act’s key provisions, and contains a detailed description of the rules in Regulation Crowdfunding.

For those readers looking for specific information, a road map to The Crowd-funding Handbook is provided at the end of the Introduction.

An appendix section to The Crowdfunding Handbook contains numerous forms and other documents that will help entrepreneurs create successful crowdfunded offerings. These include:

The official text of Form C, the SEC’s required disclosure and reporting form for offerings under Regulation Crowdfunding, along with the question-and-answer version of Form C

Sample incorporation documents for a company seeking to raise capital via crowdfunding

Sample term sheets for several types of offerings

A sample risk-factors section (required by the JOBS Act and Regulation Crowdfunding) describing the pitfalls inherent in a crowdfunded offering of securities

A sample questionnaire by which entrepreneurs and funding portals can determine if an investor is accredited

With the help of The Crowdfunding Handbook, any reader should be able to take advantage of this new and exciting way to raise the capital he or she needs to launch a successful venture. All you need now is a compelling idea for a new venture, a detailed business plan, and the courage to see it through.