A few days ago, this NY Times article caught my eye about a three-year old site called “Kickstarter” that mainly had been used to raise funds for quirky projects but has now grown to help more serious entrepreneurs conduct fundraising for their innovative gadgets, etc. What blew me away is how a few guys raised a million bucks overnight for a digital watch they had invented – in particular, them going to the bar and coming back that evening to find out how much more they had raised in a few hours. They have now raised $7 million and counting.
Given that the JOBS Act was only recently enacted (but remember the SEC’s warning that it needs to adopt rules to implement the new crowdfunding exemption before the floodgates open), I turned to Scott Miller of Ellenoff Grossman & Schole who knows more than me about crowdfunding for some analysis of how Kickstarter operates. Here’s what Scott said:
Kickstarter, to date, has been operating based on the general belief that contributors are not purchasing securities (i.e. a profit interest in any of the companies in which they contribute funds) under the current methods used to raise funds on Kickstarter and similar funding sites. These fund sourcing sites do not purport to be an intermediary for a company’s offer and sale of its securities, but instead companies only agree to provide contributors with something of value, in consideration for their contributions – in this case a Pebble wristwatch. Based on the assumption that such transactions do not constitute investments in securities, it does not appear to be regulated under U.S. securities laws.
Now that new crowdfunding laws are scheduled to go into effect sometime within the next 245 days, crowd sourcing sites like Kickstarter will need to be more aware of the methods used to raise funds on their sites to assure that they are not subject to regulation under the crowdfunding laws, or, if necessary, that the sites are properly registered and all transactions are conducted in compliance with applicable crowdfunding laws.
Interestingly, even though the article was written after the JOBS Act was signed into law by the President, there is no mention, in the article, of these new crowdfunding provisions. It is possible that the author of the article, as well as Kickstarter and similar crowd sourcing sites, are not yet convinced that crowdfunding, as provided under the provisions of the JOBS Act, will become a viable means of raising capital. For starters, it limits the total amount a company can raise during any 12-month period to $1 million, which is $6 million less than the amount of funds raised by the watch company through Kickstarter.
Also, if the digital watch company – Pebble – had been able to raise $1 million pursuant to the equity crowdfunding laws included in the JOBS Act, at the time these funds were raised, it would have been required to have audited financial statements and also be required to make certain disclosures to the SEC. Finally, Kickstarter, or any other funding portal through which the funds were raised, would be required to register with the SEC. It appears that those with an interest in providing services as funding portals under the new crowdfunding laws, including existing crowd sourcing sites like Kickstarter, are going to wait for a final determination of the registration requirements, before making any decisions on whether to register with the SEC as a funding portal.
The PCAOB’s New Interactive Registered Auditor Database
A few days ago, the PCAOB updated its site to allow various sorting of registered auditors, such as firm location and type of audit firm practice.
Mailed: March-April Issue of “The Corporate Counsel”
We just mailed the March-April Issue of The Corporate Counsel and it includes pieces on:
– Analysis of the Jumpstart Our Business Startups Act
– Shareholder Proposal Eligibility Issues After Staff Legal Bulletin No. 14F
– Resignation or Retirement of Principal Officer and Appointment of Successor–Including Both Events in One Form 8-K
– Exclusive Forum Bylaws–Challenged in Delaware
– Hart-Scott-Rodino Act Developments–The DOJ and FTC Get Our Attention
– The SEC Staff (Again) Defends the Anti-Waiver Provisions of the 1933 and 1934 Acts
– The Latest on Regulation D
– SEC Backs “Primary Purpose” Test for Determining Whether Benefit is a Perquisite
– Confidential Treatment Requests–“Conditional” Issuer Consent to Release of Information
– More Staff Guidance on S-3 Waiver Requests
Act Now: Get this issue rushed to when you try a 2012 No-Risk Trial today.
– Broc Romanek