How Loca-Vesting unlocks the key to Title III
by Kyle ClarkMr. Clark is a founding partner of VENTURE.co, he leads the teams of programmers, designers, and strategists who are streamlining the way startups and investors come together online.
What I love most about small business is the entrepreneurial spirit that drives innovation. Everything moves at breakneck speed, which creates an exciting ride.
We’ve seen this change recently in the form of locavesting, the dynamic practice of connecting people locally to invest directly in their community. As we have seen with our funding platform Venture.co, locavesting may be expanded globally, using the power of the web and social media to drive investment in small business.
Online locavesting is a transformative concept that breaks the traditional rules of communities defined by geography and reshaping it to one defined online by passions and interests. This transcends local, expands networks, and is a new horizon for small business.
Investing for Everyday People
The newly revised Title III regulations and Intrastate regulations will allow non-accredited investors to seize investment opportunities.
Everyday citizens with a passion for business in their (newly defined) community may now invest in businesses they are passionate about. They also can break the restrictions and exclusivity of traditional investment vehicles to gain access to new opportunities historically not available. Because of Title III, more investors have a place at the table to generate wealth and influence businesses.
One example of this open form of investing is SAP! Maple Water’s successful funding campaign on Designbook. Designbook is the pre-launch incubator that is part of the Venture.co family. SAP! Maple Water is a line of non-alcoholic beverages made from pure maple sap.
The makers of SAP! are using Venture.co’s Designbook platform to raise $200K in an Intrastate debt raise available to all Vermont residents. Small businesses seeking capital may leverage these new rules to gain access to investors anywhere, not only in Vermont.
Last fall, the SEC voted to implement Title III of the JOBS Act, allowing non-accredited investors to invest in emerging businesses. We believe that the new Title III regulations will allow people to invest in their communities, and see direct results of their investment. That direct participation is missing from the “Growth Mutual Fund” investing so many folks do through their 401-k’s or traditional brokers.
A Progression of Inclusion
The movement toward a more open investment environment did not “come out of nowhere.” It started with Title II when general solicitation for private placements was allowed. This opened startup investing from exclusive private clubs of “angels,” to all eight million accredited investors in the United States. Title II started to open doors for companies to solicit accredited investors outside of their existing networks. That was a pivotal first step toward the changes we see today.
Last March, the SEC adopted changes to Regulation A to allow smaller companies more access to capital. This change became known as Regulation A+, and it enabled companies to raise funds from non-accredited investors. Nevertheless, the barrier to entry was still high; with filing requirements and a risky “coordinated review process” at the state level.
The next positive change came when states started to adapt their versions of Rules 147 and 504. This provided smaller companies the option to raise funds locally. Good stuff, and it addressed a real need.
A local company might crowdfund successfully on a rewards-based platform like Kickstarter or Indiegogo, and build momentum around itself with passionate followers and customers (from the whole country and beyond), and then have no next step to turn those backers into investors.
When those customers wanted to invest in the company, there was no legal method for that company to capture investors into their raise because of the geography limitations of Rule 147 and Reg D 504.
Enter Title III Crowdfunding
With Title III crowdfunding, a viable and awesome vehicle has arrived for emerging businesses to raise capital to grow. When offering a raise, the company isn’t forced to limit the raise to accredited investors only as in ‘506 deals, file a whole lot of paperwork like REG A+, or limit the geography as in ‘147 and ‘504 deals. They now have the option to raise $1 million and fully leverage all the solid momentum that they’ve generated through their rewards campaign by extending the momentum with an equity campaign.
This type of freedom is important because it enables anyone to invest directly in the businesses they care about and see the returns. For 84 years, In the name of “investor protection,” we have limited investing directly in emerging businesses to the rich. Why was this not done before?
For businesses, it allows them to connect with an investment audience, constrained by fewer limitations than before.
Opening up equity investment from the rewards-based crowdfunding stage makes a lot of sense. Businesses successful in rewards campaigns already have a following and customers. Now, an equity campaign can give them a method not to just get cash to build their product (the likely use of funds from their rewards campaign). They can now get cash to grow their business, and they can invest it in their business, and share in the profits of their business with their backers.
That is a deeper form of growth, a totally different story than buying a t-shirt before it’s available to the public, or a video game, or a cool cooler, or a watch. Now, an investor can say, “I’m going to bet on that company making it, and I’m going to share in the profits of that company. I may get nothing, or I may get a lot.” They can invest in the success of that company.
At Venture.co we have developed a transaction engine that’s compliant with a nearly 500-page regulation that the SEC has developed to enable a company to efficiently, compliantly, and very inexpensively launch an equity crowdfunding campaign. The goal of developing our online transaction engine is to help conserve the most important asset of any entrepreneur: time.
For proof, we can look to the proven market study of the rewards campaign and apply that to the equity model. We believe that a successful equity crowdfunding campaign shows a willingness on the part of the general public to invest, and this, in turn, will add to the confidence of the institutional and accredited investors who are coming in under a 506(c) raise, for example.
Issuers must be efficient. One of the key things in doing raises that are under $1 million is to make sure that they’re efficiently done. A young company can’t afford to pay a lawyer $25,000 and a consultant $25,000 to raise $500,000. It’s unsustainable. Venture.co has developed a private placement online portal to manage investors, and to efficiently generate offering documents. It even includes online funds transfer and document distribution. So that the actual cost to the entrepreneur — not just hard dollar cost, but the cost of their most valuable asset, time, is reduced. It becomes economical for the entrepreneur to go after a crowdfunding equity raise when they’re doing it with these tools.
This is an exciting time in the world of investment. The marketplace is so different than it was 84 years ago, when many of the investment rules we work with today were first put into place. Information is everywhere now. Access is everywhere now. Investors need the ability to place their funds in companies that are emerging and growing, and not just in companies that can afford to hire compliance officers and investor relations people.
For more information on SAP! Maple Water, please visit: https://www.designbook.com/funding/sap
Each Note is an unsecured debt security that accrues a 5% (or 2X principal) annual interest rate and matures on December 31, 2021. If the Company’s cumulative gross revenue from ordinary operations, prior to the Maturity Date, equals or exceeds $20,000,000, or the company has a significant liquidity event, then the Company will pay an additional amount to the Holder (in addition to the accrued and unpaid interest and outstanding principal) on the Maturity Date so that the total amount paid to the Holder (including, all principal and interest paid on the Maturity Date or prior thereto) pursuant to this Note is equal to two (2) times the original principal amount due hereunder.
This media advisory is not an offer or solicitation to sell the securities of SAP! Maple Water. Such offering can only be made by means of a qualified investor receiving the full offering documentation, which can be obtained from the placement agent at www.designbook.com/funding/sap. All private placements of securities, including those of SAP! Maple Water, are conducted by Designbook personnel in their capacities as registered representatives of SDDCO Brokerage Advisors LLC Member: FINRA/SIPC (SDDCO–BA). Designbook and its affiliates and SDDCO–BA are business partners but remain independent and not affiliated. ◊