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Real Estate Crowdfunding for Retirement

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Real estate is an important part of any well-diversified portfolio. Not only is it a good way to protect yourself against volatility in the stock market, it can also provide retirement income.

One of the best things about investing in real estate is that you have so many different ways to do it. House-flipping is one option if you want to pocket big profits all at once. Becoming a landlord is another way to go if you’d rather be on the receiving end of monthly rental payments.

Real estate crowdfunding, is an alternative that’s gaining popularity. It’s estimated that the real estate crowdfunding industry topped $2.5 billion in 2015 and is still growing. If you are wondering if this is a good time get in on the game and start fortifying your retirement goals, here’s a overview of real estate crowdfunding.

Real estate becomes more accessible. Private real estate deals have historically been reserved for high net-worth investors who possess the right connections to gain access. Real estate crowdfunding opens up many of these opportunities to the average investor.

This is a great opportunity for investors who are struggling to find an entry point into the real estate market. Crowdfunding enables investors of all ages, risk profiles and wealth levels to acquire real estate for the first time. With as little as a $5,000 investment or in some cases even less, investors can buy a stake in a property. From residential projects to shopping malls to office buildings, there are numerous options.

Crowdfunding is removing barriers to investing in real estate that previously shut a large number of investors out of the game. The SEC’s approval of Title III of the JOBs Act in October 2015 widens the possibilities even further by allow non-accredited investors to take part in crowdfunded real estate deals.

The opportunity for diversification expands. With direct ownership, your options are more limited when you don’t have the ability to purchase multiple properties. Real estate crowdfunding eliminates that obstacle.

Instead of being locked in to a single property type, investors have more flexibility where they put their money. They also have a choice between investing in equity in return for a share in a particular property, or debt investments, which are tied to the property’s mortgage.

If you buy a property to flip or rent, you’ll most likely feel more comfortable investing in your own backyard. When you are investing through crowdfunding, you can invest throughout the country and more easily diversify across property types, investment types and geographies.

It’s a less stressful way to invest in real estate. Owning a rental property or tackling a flip project is great for investors who prefer an active role but it’s not necessarily a good fit for someone who wants to relax in retirement.

With house-flipping, investors have to factor in all the costs involved, from buying the property to physical construction, as well as the interest paid to lenders if you’re financing the project. Besides that, there are the tax implications that go along with realizing short-term financial gains. Bottom line, it takes a long time to master the art of rehabbing. Investors have to be able to anticipate problems and have a counterattack ready.

Owning a rental house is no less of a challenge. There are the difficulties that go along with finding tenants and making sure you’re adhering to the legal guidelines for renting. Then there’s the day-to-day demands associated with managing a property, which can be time-consuming.

The passive nature of real estate crowdfunding as being more suited to retirees who have less of an interest in direct involvement.

Real Estate Investing is a Great Way to add Retirement Income
For some investors, real estate is a viable option for generating money and diversifying your investments.

Understand the risks. While real estate crowdfunding may be more preferable to direct ownership for some retirees, there are some potential drawbacks.

Liquidity is one issue that may be of more concern to retirees. Depending on how a deal is structured, you may be looking at a holding period of anywhere from 18 months to seven years before you’re able to recoup your investment.

In that scenario, owning a rental property or flipping homes could begin to look more attractive because there’s a more immediate payoff. Factoring in the holding period is important if you have a pressing need for sustainable cash flow outside your existing investments.

With crowdfunding deals that are structured as debt or loans, investors receive returns for loaning the owner/ developer money.

SEC Targets Reg A+ Marijuana Company, Med-X, in Administrative Proceeding.

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Reprinted from Crowdfund Beat, By Samuel S. Guzik, CrowdFundBeat special guest editor, Guzik & Associate

The Regulation A+ industry was buzzing this week – not with excitement, but with a healthy dose of trepidation. One of the first, high (no pun intended) profile Regulation A+ offerings, launched in November 2015, after a seemingly successful “Testing the Waters” campaign, was for a company called Med-X, a startup formed to participate in the newly burgeoning marijuana industry – the so called “Green Rush.”

But this month’s headline for Med-X was a bit more sanguine, enough to counteract even the most potent dosage of THC: “REGULATION A EXEMPTION OF MED-X, INC. TEMPORARILY SUSPENDED.” The story that followed was not the kind of publicity any company is looking for – especially when it is in the throes of raising money under Reg A+. Actually, it was not a story. Rather, it was an Administrative Order issued by the SEC on September 16, 2016, temporarily suspending the exemption of Med-X under Regulation A+.

Why? Well, it seems that this company failed to notice, or at least heed, the requirement that Reg A+ issuers file periodic informational reports as a condition of maintaining their status as Reg A+ issues. The basic requirement calls for a company, at the least, to file a semi-annual and annual report with the SEC following the “qualification” of the offering. Seems that Med-X failed to file its annual report, which would include audited financial statements, when due back in the Spring of 2016.

Some have speculated that the SEC was targeting a disfavored industry – Rule 506. I doubt it. The SEC has approved the registered sale of other companies in this industry long before Regulation A+ was adopted.

Others have speculated that this action reflects an uneven hand towards Regulation A+ issuers. After all, this type of swift action is rare for fully reporting companies which are delinquent in their filings. One more time: I think not.

The Staff at the SEC has been remarkably supportive of the rollout of Regulation A+, as measured anecdotally in terms of the efficiency in which it has been processing the review of Regulation A+ offerings.

Rather, I think back to one of the more notable sound bytes I coined in a Webinar back in April 2015: “Regulation A+ is not your daughter’s Kickstarter campaign.” Raising capital from outside investors is serious, heavily regulated business. And as indicated by some of the early Regulation A+ participants, the level of sophistication of the management of some of these issuers has hardly met the bar required to file and prosecute a Regulation A+ offering.

Yes, Regulation A+ is a little more complex than the pipedream: filling out a form, waiting for SEC approval, and then crowdfunding your way to $50 million. Apart from detailed disclosure rules, including audited financial statements, and the always difficult task of raising capital – especially for early stage companies – there is an ongoing SEC reporting requirement. Yes, the requirement is lighter than a fully reporting public company, to be sure, but enough to quickly overload an early stage company, with limited financial and human resources.

So if nothing else, this is one SEC enforcement action can be expected to inject a dose of reality into the Regulation A+ capital raising process. As our President might say, “A Teachable Moment.”

Samuel Guzik

Samuel S. Guzik has more than 35 years of experience as a corporate and securities attorney and business advisor in private practice in New York and Los Angeles, including as an associate at Willkie Farr and Gallagher, a major New York based international law firm, a partner at the law firm of Ervin, Cohen and Jessup, in Los Angeles, and in the firm he founded in 1993, Guzik & Associates.

Mr. Guzik has represented public and privately held companies and entrepreneurs on a broad range of business and financing transactions, both public and private. Mr. Guzik has also successfully represented clients in federal securities litigation and SEC enforcement proceedings. Guzik has represented businesses in a diverse range of industries, including digital media, apparel, health care and numerous high technology based businesses.

Guzik is a recognized authority and thought leader on matters relating to the JOBS Act of 2012 and the ongoing SEC rulemaking, including Regulation D Rule 506 private placements, Regulation A+, and investment crowdfunding. He has been consulted by Congressional members, state legislators and the U.S. Small Business Administration Office of Advocacy on matters relating to the JOBS Act and state securities matters.

Guzik & Associates
1875 Century Park East, Suite 700
Los Angeles, CA 90067
Telephone: 310-914-8600
www.guziklaw.com
www.corporatesecuritieslawyerblog.com
@SamuelGuzik1

Venture capital for everyone

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Venture capital have made fortunes for a new investors. Wish you had put resources into Apple when it was still in its carport days?

As crowdfunding bounced in ubiquity, another government administer now permits supposed unaccredited investors to set up as meager as $100 for a stake in new companies and little organizations. The SEC’s tenet, called Regulation Crowdfunding, will help organizations raise capital while additionally let ordinary individuals — and not only the affluent — in on the activity.

Beforehand, these sorts of speculations were limited to authorize financial specialists, those with a total assets of $1 million, or who met other resource criteria. The principle change, which produced results in May, is a key part of the JOBS Act of 2012, which was intended to open the capital pipeline after access was extremely tightened in the wake of the credit emergency.

Be that as it may, Venture capital comes at a cost.

Venture capital start-up investing is the most dangerous of the least secure type of crowdfunding. However for some people, the open door for a value stake in a start-up or little business might be powerful. From one viewpoint, crowdsourcing is only that: giving the opportunity to non accredited investors to get into the game and potentially make big financial gains.

Variety of Venture capital decisions

Try not to put every one of your advantages in one investment. Speculators ought to confine their introduction to a little chunks of their portfolio. Financial advisors often recommend making 15 to 20 speculations of up to $500 each. Having numerous speculations that do pay off can possibly make solid returns.

These are high-risk, high yield ventures, and thusly they ought to make up a small a percentage of an individual investor’s portfolio. Financial advisors often recommend that investors limit their high risk investments in venture capital opportunities to no more than 3 percent to 5 percent of their total portfolio.

It’s the same than what you would do in a conventional stock portfolio, take after the widespread counsel: Diversification is the way to achievement.

Crowdfunding is the greatest change to hit start-up investing in years, maybe ever

The guidelines do give some extra securities. For instance, there are strict due diligence requirements for the business and securities offering and points of confinement on the sums that can be contributed.

For instance, investors who make more than $100,000 a year by and large can contribute up to 10 percent of their salary, while a financial investors with pay of under $100,000, can contribute up to 5 percent over a 12-month time frame. There’s likewise a top of $100,000 on the sum that people can put resources into a year.

Organizations attempting to raise reserves must document printed material on their financials, projections and foundation and register with a platform. These platforms are required to check that the start-up’s disclosures are honest and exact. The platforms additionally give a stage to individual investors to meet up to inspect the points of interest to choose whether they need to contribute.

Small businesses and start-ups are required to file 2 updates per year (rather than the yearly 10-K or 10-Q reports that are typically filed) and post them on the investor area of their websites.

2016 Top 10 Investing Hot Spots

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The national housing market keeps on warming up, with U.S. home deals hitting a nine-year high in May and home costs taking off 4.7 percent year-over-year around the same time. Add to that $636.7 billion in greatly required new development (once more, on a national level) up 5 percent in May over April, and it’s anything but difficult to see why the “talking heads” on TV are energetically bragging that great times are here for lodging once more. As a general rule, be that as it may, as each astute financial specialist knows, lodging is not national. It’s local, best case scenario, and by and large a neighborhood issue that is profoundly impacted by the individual speculator’s capacities and picked contributing technique.

When you dissect the U.S. “hot lodging market,” you discover a considerable measure of alarming particulars in the points of interest. For instance, that $636.7 billion measurement flooding the wireless transmissions nowadays really is exceptionally deceptive in light of the fact that it incorporates all development, including open works and power plants. Actually, the main real lodging giver to that number was multifamily lodging, not new-home development in the single-family-living arrangement segment.

Believe Realty’s “Main 10 Real Estate Markets and Industry Perspectives” is another kind of hot rundown, calculating in the concealed patterns, the unnoticed demographic movements and the essential fine print that most media outlets either neglect to consider or purposely disregard. This rundown variables in neighborhood monetary patterns, work shifts, speculator action, purchasing and offering demographics and applicable enactment and strategy on state and national levels. These 10 markets speak to significant chance to the speculators who get to be included in them in a successful path as of right now as indicated by our examination.

Atlanta, Georgia

Atlanta, Georgia, falled behind the national lodging recuperation and, as a wonderful result, keeps on encountering conventional gratefulness for purchase and-holds in overabundance of national midpoints. (The Atlanta Board of Realtors pegged metro-zone thankfulness at 6.7 percent in May.) Although nearby stock is fixing, especially with regards to single-family “starter homes,” Atlanta still offers various passage focuses for financial specialists, whether they wish to alter and-flip, buy turnkey rentals or put resources into bigger undertakings. With a developing employments market construct decidedly in light of sought after segments like IT, amusement and assembling, the city—which RealtyTrac as of late named the most moderate in the nation—is exceptionally appealing to Millennial laborers wishing to buy their own homes while as yet living in an alluring, reasonable metro range.

Austin, Texas

In spite of as of late being named the “most exaggerated lodging market in the country” (alongside San Antonio) by Forbes magazine, Austin, Texas, has a stunning capacity to take this kind of licking and keep right on blasting. Austin not just encountered a generally light effect from the Great Recession, because of a huge deluge of IT-related employments that hints at no abating, yet the number of inhabitants in IT laborers in the range is managing the city’s development in spite of potential “weaknesses” in numerous Texas markets on account of moderately low oil costs. IT occupations are an extraordinary indication of strength in any neighborhood economy since they pay well, are dependable and have a tendency to make huge quantities of different employments therefore. In Austin, more than six out of each 10 new occupations are in the data innovation part. By correlation, the national normal is just shy of three out of each 10. Current middle home costs in the region have gone up 21 percent since 2012, yet they are still to a great degree reasonable in respect to numerous IT-overwhelming California urban areas, making various tech representatives genuinely consider moving “back East”— no less than a little route—keeping in mind the end goal to discover more moderate, more worthy lodging and driving circumstances. With a business sector that meets the customary norms for “exaggerated,” a financial specialist ought to dependably have different “quick activity” exit alternatives accessible or a system for holding that includes income, paying little mind to appreciation. Right now, Austin still is alluring for these speculators.

Dallas, Texas

Dallas, Texas, is another Lone Star showcase that is making a few people anxious. Worries about Dallas are making openings in the land contributing part that already had been shut just because of an excess of action and rivalry. In the course of the most recent 12 months, costs in the range have risen 9.3 percent, well in front of national increases, and Dallas is in a matter of seconds second just to Denver, Colorado, in home appreciation. Albeit falling oil costs are a noteworthy component in Dallas lodging patterns, different livelihood open doors and professional business charge and authoritative approaches make it likely that open doors for financial specialists to get required in this business sector, especially on the off chance that they wish to possess rentals or multifamily properties, will stay accessible for whatever is left of the year. Because of Dallas’ prominent on the contributing scene, singular financial specialists may think that its hard to “break in” to the business sector at first. Working with a prepared or associated neighborhood nearness might be a decent approach to viably vet arrangements and keep close tabs on business sector and monetary movements.

Denver, Colorado

At present, Denver, Colorado, brags the best gratefulness in the nation (10.6 percent in the most recent 12 months) however thankfulness alone is presumably the most exceedingly bad thing whereupon to base your land contributing system. Denver is obviously a “hot” business sector, be that as it may, thanks in vast part to its fascination in various age gatherings and demographics who are occupied with purchasing at retail esteem with expectations of costs keeping on rising, exceedingly positioned government funded schools, focused wellbeing insights and a fortunate open travel framework. Likewise, we’d be delinquent to forget the “pot market” in the territory, however numerous investigators and neighborhood speculators caution that weed alone won’t support Denver’s development as more ranges of the nation turn out to be progressively tolerating of its therapeutic and recreational employments. Land putting resources into Denver is extraordinary in case you’re as of now in, however this is another real metro zone that could be hard to break into. Be that as it may, the business area in Denver is pulling in a lot of global movement without further ado and is less aggressive than the private side, making it a possibly fascinating play for financial specialists inspired by multifamily, retail or office space.

Detroit, Michigan

At the nadir of the lodging crash, most investigators were more agonized over whether there would be a Detroit lodging business sector to rank by mid-2016 than they were about putting it on a hot business sector rundown of any sort. In any case, with home costs up 127 percent from their most reduced point amid the accident and still 38 percent beneath pinnacle values, Detroit’s lodging market has space to develop and is making more than one hot rundown nowadays. In the event that you like paying money or getting imaginative with financing, Detroit is a decent place to consider, as one in each two exchanges is still all-trade out the range. The downtown range of the city is thriving, thanks in huge part to greatly astute, key development with respect to vast managers in the territory like Quicken Loans, which was as of late named the “Best Place to Work in IT” for 2016 by industry pioneers. Speculators wanting to get in on the activity in Detroit should be extremely cautious to know about stock “stopping up,” since a significant part of the bothered stock is blighted to the point that it can’t be spared and may not be the arrangement that it seems, by all accounts, to be on paper or on the web. Offering this issue as a powerful influence for your technique, be that as it may, and keeping your examination and due perseverance current ought to keep your interests free.

Kansas City, Missouri

Specialists anticipated a hot year for lodging in Kansas City, Missouri, toward the end of a year ago, thus far, they haven’t been demonstrated off-base. Home costs are up more than 5 percent year-over-year (as of the end of Q2 2016) after a sound 5.6 thankfulness rate for all of 2015. Interest for lodging is still substantial, with 38 percent less homes available as of now than there were a year ago. In any case, lodging remains generally reasonable with middle home costs in the territory floating simply over $130,000 and the metro region making “best” records regarding bearableness all over because of low unemployment, high reasonableness, a rundown of built up bosses that are continually developing and an entrepreneurial/start-up-accommodating business group is hard to match. With rental rates and home estimations both encountering general positive patterns since 2012, financial specialists will have their decision of land putting systems in the zone. In any case, observe: developing licenses are 29 percent in the locale over a year ago, as per the Home Builders Association of Greater Kansas, so there are designers plainly hoping to fill (and potentially surge) the stock void. While not all licenses ever get utilized, the pace at which the city is issuing those grants is much quicker than going before years, and more allows have as of now been issued in 2016 than were issued for the length of 2009, 2010 or 2011. Notwithstanding, with a business sector preferably suited to innovative financing and more routine money streaming rental alternatives, Kansas City unquestionably measures up as a current hot business sector.

Nashville, Tennessee

Despite the fact that Nashville tenants are supposedly attempting to “make the jump” to homeownership nowadays, the city is hot for financial specialists in turnkey investment properties and multifamily lodging. Solid year-over-year livelihood and pay development (3.7 percent and 1.8 percent, separately) make it improbable that inhabitants will take off at any point in the near future, so both lodging and rental markets are solid in this metro region. For the individuals who can stand to purchase, the business sector is extraordinary, as they’ll make back the initial investment contrasted with nearby tenants’ expenses in around a year and five months. Numerous purchasers obviously see the benefit of owning, with home deal

FinLaw: Who will buy your company’s stock?

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By Scott Andersen, Reprinted from CrowdFundBeat

There is a maxim used by securities professionals that “stocks are sold, not bought.” This maxim summarizes the view that for a securities offering to be successful, it needs a broker-dealer to solicit and recommend the offering to prospective investors.

Now with the JOBS Act and companies selling securities directly to investors through general solicitation (advertising), the question is raised: who will buy your company’s stock? Moving away from a broker-dealer to reliance on advertising alone requires careful planning for an offering to be successful. This is difficult for a company that has not raised capital before. For one, there may be no securities professionals involved in structuring the offering, or marketing or selling it. Other professionals, such as attorneys, may recommend a Reg A offering but are not retained to provide guidance on how to market a successful offering. Failure means a blow to a company’s reputation and coffers; simply wasted money.

To raise capital under Rule 506(c) or Reg A, a company must plan carefully its marketing campaign, including how it will attract interest in its securities offering, how it will draw visitors to its website hosting the offering, and why it is likely that an investor will press the “invest now” button and invest? The company is driving the ship here, and must take responsibility for the offering to be successful. If the company lacks the experience or confidence to do so, it should hire a broker-dealer to solicit the offering as this will increase its odds of success. Broker-dealers have existing relationships with investors whom they can solicit and can provide advice on the terms of the offering. A company initiating a marketing campaign needs to find ways to introduce itself to the public and network to and develop relationships with prospective investors. The marketing should not be limited to creating a website and video and then expecting investors to come find the company as this alone generally will not work.

A few things to consider:

While a company may view its securities offering as great and a no brainer, others including prospective investors may not necessarily see it the same way. A company needs to market the offering, and in a manner compliant with securities laws.

Who is the targeted audience? Customers of a company and true believers are an ideal target audience. If not them, who? And what is the marketing strategy for reaching them?

Is a Reg A the right type of securities offering? Maybe a Reg D or Title III make more sense initially, especially if this is the first time a company is raising capital. In this way, a company pays lower legal fees while having an opportunity to test its online marketing strategy, the offering is ready to launch faster, and with Title III, a company can tap into a funding portal’s network of investors.

The minimum offering should both help a company take the next step in growing its business and be low enough that it is realistic for the company to successfully raise this amount.

A securities offering is not a race, and speed is a lot less important than success. Careful planning of a company’s marketing strategy is essential, and the company should obtain the help it needs to be effective, persuasive and compliant.

The key goal for any securities offering is to be successful. Without a proper marketing strategy, how can any company expect to attract visitors to a website to invest? Without a proper marketing strategy, the answer to the question of who will buy your company’s stock is clear: possibly no one.

***

About: Scott Andersen
Scott is principal at finLawyer.com and General Counsel of FundAmerica. He was most recently the Deputy Regional Chief Counsel at FINRA, and prior to that was the Enforcement Director at FINRA and the NYSE, Co-Chief of the Securities Prosecutions Unit of the NY Attorney General’s office, and Asst. Attorney General for the State of NY. He concentrates his practice on securities law and regulatory defense.

The information in this article is provided for general informational purposes only and is not intended to be legal advice. The issues discussed include complicated areas of law and legal advice should be obtained from a securities attorney about your specific circumstances.

Evaluating Crowdfunding for Architectural Projects

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By Rachael Everly, Reprinted from Crowdfund Beat

Crowdfunding is often described as a practice to start off online investment campaign by popular people and generate funds or finances for specific related projects. This practice can leverage entrepreneurs, tech enthusiasts or businessmen who can spur some community support and start a petition to motivate people for investing some small dollar contributions. But can it help architects?

How is Crowdfunding Relevant with Architecture?

Crowdfunding can be applied to a range of investment opportunities provided for a viable project, services or the idea of a physical structure which can present itself as a worthwhile investment option for the people. People like to invest for something which is sustainable and worthwhile. Crowdfunding can fund construction projects if the role of the architect is clearly defined to present investment models and communication digital tools to encourage more and more people for investing. The investment can only be leveraged if architects work with local communities and develop and implement creative design ideas to help the community as a single unit and create both short and long term goals.

The people would only invest for something of value which would help them in the long run and would serve the community such as an urban skyscraper, a pedestrian bridge, a religious structure or any improvement construction plan to renovate or restore any old cultural heritage building. People are willing to invest on improvement projects by making small contributions to help develop their community.

The Real Story

Colombia’s 66 story skyscraper BD Bacatá Downtown is crowd funded through small contributions from local investors and people. The fundraising drive is executed through various crowdfunding campaigns while catering interests of the local community in owning a percentage of the overall project. All crowdfunding investment helped to build the huge skyscraper by using heavy machinery and equipment as the planned skyscraper will comprise of 66 stories, 216 meters high above the city of Bogota.

It easily gathered interests from the people for their community welfare and each citizen had a collective goal and shared regional interest to work together to help architects construct this skyscraper. Crowdfunding for such architectural project can take time for additional research and analysis and help people to understand potential opportunities and implication for the development of such projects through innovative financing mechanisms.

Another project in the making is the ‘I make Rotterdam’ project in the Netherlands. It is how crowdfunding helped the architectural designers to fund for a constructional development to help the community to alleviate pedestrian traffic. All the investors will have their names enlisted across visible planks so that everyone would know who helped in the making of this constructional marvel. Crowdfunding thus can motivate and encourage people to make worthwhile investments and help their community for a noble cause.

Managing The Risks Of Crowdfunding

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By Evan Bundschuh, Reprinted from Crowd Fund Beat

For new ventures looking to raise capital or test their market/product, crowdfunding has proven to be the go-to solution with an ease and excitement that other methods of funding lack. With that excitement though comes challenges. As a fairly young platform with a legal landscape that has yet to develop, the risks of crowdfunding are often overlooked. While the risks may seem invisible, mistakes are inevitable, as are the lawsuits and damages that follow. The challenge is forecasting when and where the potential dangers/disasters will arise (before they do) in order to protect your business, its directors, and its newly formed brand. We outline these risks not to discourage the usage of crowdfunding but to bring risk concerns to the forefront so that they can be properly assessed, managed and mitigated.

  1. Poor communication and lack of transparency. When it comes to describing the performance/effectiveness of your product, prices, associated fees, turn around times, etc. be as descriptive and transparent as possible. In a well published recent case, a disgruntled buyer filed a lawsuit over the failure to disclose a simple shipping fee, ultimately bankrupting the company which could not afford to issue full refunds to its purchasers.
  2. Lack of solvency and reserve capital: The same case example above also highlights the importance of having enough reserve capital on hand for the unexpected. The unexpected can come in the form of disgruntled backers demanding returns, expedited fulfillment costs following unexpected success, or attorney’s fees to defend your IP to name a few.
    Poor customer support & upsetting dissatisfied customers. Whether or not you are contractually required to provide a full refund, consider erring on the side of generosity when encountering dissatisfied backers. Dissatisfied customers are, without saying, the most vocal and the most likely to take action, whether that be taking to social media to inflict brand damage or taking legal action. Most crowdfunding backers are also of the tech generation and know how to effectively utilize social media outlets to voice dis-taste for a company.
  3. Failure to qualify and diversify: In order to help ensure business continuity, attempt to source from multiple suppliers/manufacturers and diversify your supply chain when possible. Dependence on any single supplier/manufacturer can prove financially damaging if/when they encounter a loss. Losses can range from natural disasters to political unrest to bankruptcy. The inability to obtain your product is only the tip of the iceberg. It’s the inability to fulfill orders and deliver on your goods sold that can quickly escalate financial damages sustained. Developing and maintaining vendor qualification checklists also help ensure manufacturers, suppliers, vendors and outside parties meet certain risk criteria to ensure product quality and business continuity.
  4. Exposing your (unprotected) intellectual property: For companies planning on filing patents, it’s wise to discuss this with a qualified IP attorney as early in the process as possible and before beginning any campaign. Beginning a crowdfunding campaign also begins a one year “time to file” clock, as it is considered public disclosure. If any patents are planning to be filed, that have not been already, they must be filed within that one year clock. Once expired, the ability to file can be lost. In addition to working with an IP attorney to protect your own IP, it is equally important to do so early in the process to ensure that you are not infringing on others. Without thorough trademark searches, you are exposing your company to potential trademark infringement claims.
  5. Overlooking a proper insurance portfolio: When it comes to placing insurance, companies will often only place what is either being requested of them, or seek out the coverage that is believed to be “standard”, but may fail to listen to the advice of their actual broker. The most commonly requested insurance is general & product liability. While this is often a good place to begin, securing only the most basic insurance leaves many of your exposures still exposed. For companies without excess capital and an in house risk manager, this can be particularly problematic. Placing insurance protections for: cargo (during shipment), the directors & officers of the company, product recalls and cyber liability for data breaches is equally important. Considering that many of policies require careful review, coordination and negotiation further highlights the importance of working with a knowledgeable broker that can help you assess your risk and craft a proper portfolio.
  6. Compliance & accusations of fraud: With crowdfunding bypassing any meaningful reporting/oversight, the threats of fraud accusations are increased. A recent FTC Alert warns companies engaged in crowdfunding to: 1) ensure crowdfunding promises be kept, and 2) utilize crowdfunding funds only for the purposes advertised. The SEC has also issued a recent alert (among others) adressing acceptable donation limits. Understanding the compliance environment and implementing best practices & strong internal controls can help avoid accusations of fraud.
  7. Lack of sufficient R&D: It is important that sufficient R&D has been performed under varying conditions before bringing any product to market. Will this product cause electrical shocks? Is this product mixed or bottled in a factory that contains allergens? Is there any potential for injury? Is the product properly labeled? Is it in compliance with all US customs laws? Are the claims that we are asserting, properly supported? Purchasing product liability insurance does offer protection, but it’s no substitute for sufficient R&D, internal controls and legal counsel. For higher risk products a product liability audit may also be recommended.
    Implementing outside ideas: It’s important to read the platform’s user agreements and understand exactly what implications they have. There has been much talk about the concern of companies implementing product feedback from users/backers. Whether it be in the form of comments on the platform or elsewhere, implementing ideas provided by users/backers can create a potential legal issue.
  8. Overlooking tax liability & implications: Complete tax compliance can be deceivingly difficult. Crowdfunding poses many tax questions and areas of concern including applicable securities laws, differing state laws, and requirements of 1099’s to name a few. Before launching any campaigns be sure to contact an accountant or financial advisor that understands the crowdfunding sector.Source @ http://www.gbainsurance.com/

Commonwealth Capital Adds New Crowdfunding Chapter to Its Premier E-Book

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CHICAGO, July 28, 2016 /PRNewswire/ — Commonwealth Capital LLC, a pioneering provider of Corporate Finance Advisory and Regulation Crowdfunding services, announced today that it has updated its popular e-book with a new Chapter Two dedicated entirely to crowdfunding.

Secrets of Wall Street E-Book (PRNewsFoto/Commonwealth Capital LLC)

Secrets of Wall Street E-Book (PRNewsFoto/Commonwealth Capital LLC)

The definition of the term “crowdfunding” has evolved in recent years. The term was originally used for donation-based crowdfunding only, but is now used to define capital-based crowdfunding — also known as Regulation Crowdfunding — under Title II (2) and then under Title III (3) of the Jumpstart Our Business Startups (JOBS) Act of 2012.

The JOBS Act has significantly leveled the investment playing field, encouraging a growing number of entrepreneurs to begin fielding their own crowdfunded offerings. Unfortunately, in their excitement to take advantage of these new opportunities, many entrepreneurs fail to recognize that significant legal and managerial risks remain when raising crowdfunded capital. These risks can be devastating professionally and personally if not identified and addressed from the start.

“What most entrepreneurs don’t understand is that seeking capital though Regulation Crowdfunding is a securities offering and is still a very tricky business,” said Timothy D. Hogan, CEO of Commonwealth Capital. “We’ve witnessed too many entrepreneurs making too many unnecessary mistakes and we want to do our part in correcting that problem.”

To help entrepreneurs get started right, Commonwealth Capital provides a complimentary 40-page Abridged Edition of the e-book, downloadable from its website. The new Chapter Two includes comprehensive excerpts and summaries from the 685-page document known as the SEC Final Rules regarding crowdfunding. More importantly, the Abridged Edition enables entrepreneurs to make qualified decisions on whether a securities offering is right for their company’s capitalization needs.

A complimentary copy of the Abridged Edition can be downloaded at http://commonwealthcapital.co/get-your-ebook. The complete, 140-page Expert Edition can be purchased online and downloaded at http://commonwealthcapital.co/purchase-expert-edition-e-book/.

About Commonwealth Capital LLC
Commonwealth Capital LLC, a pioneering provider of Corporate Finance Advisory and Regulation Crowdfunding services, is a subsidiary of Commonwealth Capital Advisors (CCA). Since 1998, CCA has successfully engaged hundreds of start-up and early stage companies in their quest for raising millions of dollars in capital. As former Wall Street investment bankers and experts in compliance matters related to selling securities, the company’s executives are intimately familiar with the criteria employed to successfully raise seed, development and expansion capital. Learn more at www.commonwealthcapital.co.

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Crowdfunding in Emerging Markets

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A new report, Crowdfunding in Emerging Markets: Lessons from East African Startups, captures lessons learned from East African entrepreneurs who were among the earliest adopters of crowdfunding in the developing world.

Crowdfunding is the practice of raising monetary contributions from a large number of people, typically online, to fund a project or venture. In the past 10 years, crowdfunding has evolved into a $16 billion market, largely concentrated in North America and Europe.

In developing countries, the crowdfunding market is expected to reach $327 million this year—about 2 percent of the global total. Despite this slow adoption, crowdfunding has been heralded as an opportunity to expand access to capital for entrepreneurs.

To better understand the challenges of crowdfunding in emerging markets, the World Bank Group conducted interviews with a number of East African technology entrepreneurs who ran crowdfunding campaigns, both successful and unsuccessful. From the interviews emerged six lessons about when, why, and how to launch crowdfunding campaigns:

Crowdfunding is more difficult than most entrepreneurs anticipate and is not for everyone.
Business needs should dictate platform choice.
Payment systems impact platform choice.
Quality and quantity of contributor networks are key.
Entrepreneurs should tap into complementary resources and organizations to increase their likelihood of success.
Crowdfunding can have non-monetary benefits.

Crowdfunding in Emerging Markets by CrowdFunding Beat on Scribd