If you want to exercise your new right to invest in innovative startups and growing small businesses, where will you start — which funding portals will you visit to find the best offerings of private securities? For many people who have little or no experience evaluating angel investment opportunities, the best place to start is a website like Stratifund.
Many of the companies that sell securities via Title III crowdfunding portals, at least in the first year or two, will be early-stage startups with little or no history of profit or even positive cash flow.
“In many cases, issuers can avoid thorny disagreements over valuation by offering hybrid securities known as convertible notes to crowdfunding investors”…
In this article I profile a pioneer in the securities crowdfunding world: 99Funding, a broker-dealer-affiliated funding platform that currently features Regulation D offerings (for accredited investors only) and plans to introduce Title III offerings this month.
The aspect of the JOBS Act that has the potential to touch the largest number of Americans is Title III (“the crowdfunding exemption”).
Do you need to know about equity crowdfunding? If you are a typical reader of The Corporate Counselor, the answer is yes, but only in connection with the potential future acquisition of, or investment in, a company that raised money by equity crowdfunding.
There are important distinctions between funding portals and broker-dealer platforms. Funding portals are a new type of intermediary created by Title III of the JOBS Act, while broker-dealers have been established market makers for many decades. A broker-dealer can be an individual or a company.
The potential rewards of angel investing are not just financial, though. There are also strategic benefits, which may include:
Crowdfunding, or crowdfinancing, is a method of collecting many small contributions, by means of an online funding platform, to finance or capitalize a popular enterprise. As crowdfunding is so new, there is much confusion in the marketplace about it—for example, many people still think of Kickstarter as the epitome of crowdfunding.
Angels often provide the first round of “outside” capital—that is, outside of the founders’ employees, family, and friends (the three Fs). Angel capital may be in the form of straight debt, convertible debt, or equity
Smart entrepreneurs, some Title III crowdfunding skeptics say, do not want hundreds or thousands of unsophisticated angel investors mucking up their capitalization tables, annoying founders with questions, suggestions, job applications, and—gulp—complaints.
Title III equity offerings are predominantly C corporation stock, limited liability company (LLC) membership units, convertible debt, and a relatively new structure called a simple agreement for future equity (SAFE). This article covers the fundamentals of each of these securities, and their advantages and drawbacks for investors.