Exempt Offerings  JOBS Act Solutions

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Explaining Seed Round Funding

Posted on February 15, 2019 at 3:30 PM Comments comments (0)

First, we are talking equity. No notes or other debt is welcome unless convertible and even then probably not. Early stage investors demand partial ownership. It is too early for debt. Valuation is the rub.


Valuation is often not transparent to say the least. Valuation is subjective, based on management, track record, market size, competition and risk.


Stages of Seed or Early-Stage Funds


Pre-Seed Round


This is when the founders are getting the company’s operations off the ground. It is the first part of your Friends-and-Family Round.


SEC Rule 506(b allows up to 35 non-accredited investors. If you want family money and not all family members are accredited, go with 506(b and convert to 506(c when you need more capital.


Seed Round (also known as the Early-Stage Capital Round)


This round enables you to pay a founding team to perform market research and ongoing product development (and sometimes related product development). Your team determines what the final product or service should be and who its target demographic is.


Seed Round sources include angel investors, private equity investors, and other private placement investors. Some startups return to the friends-and-family well, the second part of the Friends-and-Family Round.


SEC Rule 506(c allows you to market your deal to the public (something not permitted for 80 years prior to enactment of the JOBS Act). The usual drill in Equity CrowdFunding is to use 506(b to raise from friends, family and associates and then use 506(c to raise from more money from the public, most commonly with online advertising.


Practice Note: You can go from 506(b to 506(c but not from 506(c to 506(b.


Valuations for Seed Rounds typically range between $3 million and $6 million while Seed Funding rounds themselves range from $10,000 to $20 million.


Equity CrowdFunding -- which means Regulation D, Regulation S and Regulation A under the JOBS Act -- is becoming the go-to tool for the Seed Round (as well as for the Pre-Seed Round). For $1 million offerings, “Reg Cf” is available.


Even after securing a Seed Round, in today’s tech-weighted economy, companies may attract insufficient investor interest from traditional Series A investors such as VCs and private equity funds. These companies now frequently turn to Equity Crowdfunding in the form of a Regulation A offering with a $50 million maximum raise or a Regulation D offering or Regulation S offering with no maximums.


If you have overseas investor interest, Regulation S allows you to take advantage of less regulatory oversight than with Regulation D offerings


Series A Round / Series B Round / Series C Round


These rounds are for companies that have developed a track record, established user base, consistent revenue figures or other key performance indicators. These rounds are used to further optimize the user base and to scale the product or service across different markets. The business model must promise long-term profits and a convincing, detailed description of how you go from here to there. You need more than a good idea. You a persuasive strategy for turning that idea into a successful, money-generating, ongoing business.


Series A, B and C rounds are where FINRA-licensed broker-dealers get involved. And this is when VCs and private equity players invest. A single investor may serve as the “anchor,” drawing in other, less adventuresome investors. Typically Series A rounds typically raise $2 million to $20 million. Series B and Series C Rounds raise from $50 million to much more than that.


Time for an IPO?


Of course, some startups find that they do not need Series A funding, let alone Series B or Series C funding. These companies already have sufficient outside funding together with operational cash flow.


Private Placement Advisors LLC designs and executes Seed Funding Rounds under the JOBS Act. That is all we do. Please contact [email protected]



How to raise cannabis capital using JOBS Act exemptions

Posted on January 26, 2019 at 11:15 PM Comments comments (0)

There are several ways to raise capital for your cannabis business using exemptions using JOBS Act exemptions Reg CF, Regulation A+, Regulation D, or Regulation S.

1. Regulation Crowdfunding (Reg CF)

Think Kickstarter with equity (or debt) being offered.

Reg CF or Regulation Crowdfunding is relatively new and makes it legal for private placements to be marketed to non-accredited investors. Securities purchased under the Reg CF exemption cannot be resold within a year. Only $1,070,000 can be raised each year.  You will need to file an annual report with financial statements. If you neglect to do so, you will be unable to fund-raise with Reg CF again until you file the missing annual report. You may concurrently raise funds from accredited investors using a Regulation D exemption.

2. Rule 506(b or Rule 506(c under Regulation D

Rule 506 is the easiest and most-used exemption. There is no limit to the amount you can raise under either 506 (b or 506 (c. Under the Rule 506(c exemption, general solicitation and advertising are permitted. Only accredited investors may invest. Under Rule 506(b, 35 investors may be non-accredited, but no general solicitation is permitted. This exemption is often used with the friends-and-family-round of capital raise or first capital stack.

3. Regulation S is a relatively new but popular option. You can sell securities offshore without regard to the sophistication or number of purchasers in the offering or the size of the offering. You can raise as much as you want from an unlimited number of people. The regulatory environment is far less burdensome than with Regulation D offerings. Regulation S selling efforts from the U.S. are permitted if the efforts are directed abroad. You can sell securities offshore without regard to the sophistication or number of purchasers in the offering or the size of the offering.

You can raise as much as you want from an unlimited number of people. Unlike Rules 506(b and 506(c of Regulation D, Regulation S does not have specific information requirements.

An issuer who makes a Regulation S offering online may do so without jeopardizing its exemption by including prominent statements on its website saying that the offer is directed only outside the U.S. A Private Placement Memorandum is not required for a Regulation S offering, but steps must be taken so that foreign investors understand the structure, principals, and risks associated with the offering. A Regulation S offering may be conducted concurrently with a Regulation D offering to U.S. accredited investors without the offerings being deemed integrated. S

Securities sold under Regulation S are subject to re-sale restrictions. The nature of the restrictions depends on whether the issuer is foreign or domestic; whether the issuer is a public company; the types of securities being sold; and whether there is a “substantial U.S. market interest.” The securities being sold must contain a legend stating that the securities may not be resold to US investors for a restricted period of time.

4. Regulation A+

Regulation A+ is designed for companies who want to raise more funds publicly, but don’t want to do a full-blown IPO. You can raise up to $50 million per year. Importantly, you can advertise your cannabis fundraising while you “test the waters” and solicit investors before filing with the SEC.

It can be expensive. Before you can start fundraising with a Reg A+ you need to pre-file an offering placement memorandum (OPM) with the SEC. An OPM is like a business plan wrapped with a whole bunch of legal disclaimers, and can cost serious legal fees. We (Private Placement Advisors LLC) advise issuers to schedule 30 days to compile the required documents; 21 days to complete and submit the forms; and then up to 45 days to get SEC approval. 5. Cannabis Funding Platforms Platforms friendly to cannabis are said to be around the corner. This will be easier than going it alone but you may end up paying the platform 7%-8% of what you raise.

Questions? Contact [email protected]

Private Placements for Broker-Dealers

Posted on January 25, 2019 at 1:20 AM Comments comments (0)

Some startups try to engage a registered broker-dealer to help them raise capital in a private placement offering.

Who is a registered broker-dealer?

A registered broker-dealer is a financial intermediary registered with the SEC and Financial Industry Regulatory Authority (FINRA). “Broker” means that the firm can sell securities for clients and “dealer” means the firm can sell securities for itself. Money is earned with fee-based services and from commissions on capital raised.

How can a broker-dealer help?

Not all broker-dealers work on private equity offerings. But a broker-dealer who likes your private placement may have investors and investment networks with lists of pre-qualified Accredited Investors. They also may have ties to investment banks, venture capital firms or private equity firms. Also, some broker-dealers assist you in crafting a PPM, term sheet, pitch deck, and other documents. They may even be willing to make presentations on your behalf.

Finally, investors’ perceptions may be altered in favorable way. They may assume there is less risk if the financial intermediary has done its own due diligence before agreeing to work with the issuer.

Why doesn’t everyone use broker-dealers?

First, they do not want to work on most private placements. Second, they have to be paid.

More questions? Email [email protected]

Cannabis Securities Compliance

Posted on January 17, 2019 at 6:50 PM Comments comments (0)

Cannabis Securities Compliance

The touchstone of what constitutes a security is whether or not it is a “passive investment.”

If the investment requires active management engagement by the investor, it is not a security.

If it is a passive investment where the investor relies on others, it is a security.

Investors often have the right to give input into management decisions but do not exercise this right. The trend in securities regulation is to look beyond the terms of the agreement to the realities. Cannabis businesses can choose to have all investors be active member-managers and draft their operating agreement accordingly. The following are guidelines to ensure that such investors are “active member-managers” rather than “passive investors.”

1. Investors have voting rights under the terms of the LLC operating agreement and exercise those rights.

2. Investors have a management role or are otherwise “actively engaged.”

3. Investors are members on committees tasked with business operations.

4. Investors had input into and negotiated terms of the LLC agreement.

5. Investors actually receive and even approve reports regularly.

6. Investors have input on key company strategic decisions – major decisions are made after consultation with investors.

If investors have an active and participatory role in management you can ignore securities issues. Accordingly, you may want to see if new investors have experience in the cannabis industry. As the number of cannabis investors grows and becomes more geographically diverse, it is more likely investors will be considered “passive.” At that point you will need rely on one or more securities exemptions and make the appropriate filings.

Cannabis businesses may utilize “management control” under recently released regulations. Regulations define as an “owner” any person who participates in the “direction, control, or management” of a business. Such individuals, having management rights, need to be vetted by state regulators in the license application process.

Both securities compliance and cannabis regulatory compliance are now very much in play. If investors lack management rights and are passive investors, securities compliance is required. 

Common missteps when structuring a private offering

Posted on January 16, 2019 at 1:40 AM Comments comments (0)

Using phrases like “the first” or “the only” can be problematic. Issuers should avoid any statements that can be construed as guarantees. When outlining the investment opportunity, cut to the chase. Less is more. Back up claims with references to reputable sources. Impress with thorough research and summaries of recent information from reputable sources. Use concise language. Avoid revisions that cause delay.

Offerings of operating companies rise and fall on their valuations. A valuation that is too low can lead to future dilution of owner’s equity while lowering the maximum that can be raised. A valuation that is too high can make it difficult to raise any capital at all. Try to have a well-reasoned rationale for the valuation.

Even a well crafted and sharply focused business plan will receive little interest with questionable investor returns or obviously excessive management fees. If management does not participate in profits until after investors' capital is returned, investors will be more willing to assume more risk. Inexplicable differences from industry average returns and fee structures are difficult to explain to investors. Some investors will not even try to figure out what the potential net return is, so make it easy for them. Multiple line items for consulting and advisory fees are red flags.

Use of proceeds that recaps the founders’ investment capital, if the capital was originally characterized as a loan, is understandably problematic. Real estate offerings using more than 70% leverage to acquire property will be perceived as risky, although high leverage can be appropriate in stabilized, low vacancy properties with creditworthy master tenants and a stable lease profile. Equity stack positions are appropriate for offerings of buy-and-hold-and-pray undeveloped land deals.

Commissions offered in Regulation D exempt offerings vary substantially by industry, but placement fees and broker compensation should not be so high as to be contrary to an investors’ interest. Try to use a flexible commission structure using language such as “up to X%” rather than a stated percentage. This will allow you to refer the deal to other brokers with a conventional syndicated commission structure if you need to go that way.

If the minimum offering amount is not received before the offering termination date, you face the time-consuming and irksome chore of notifying subscribers that the offering needs to be extended. And this notification can trigger a right of rescission giving an investor the right to reverse his or her decision to subscribe! Be sure to include a right to extend the offering period at the issuer's discretion. Allowing ample time for the offering avoids the need for “bridge” financing and permits the possibility of alternative financing sources.

A first impression is important when asking people for money. In this case, the first impression will likely be based on your offering documents including private placement memorandum (PPM), pitch deck, executive summary, and other documents. This is especially true for online offerings using a Regulation D, Rule 506(c exemption. Common pitfalls include hyperbolic pro-formas or financial models. Remember to be reasonable about forecasts and be sure to employ sensible operating metrics. Remember to identify the larger market relative to the revenue opportunity.

Contact [email protected] with any questions.










Cannabis Capital Raise / Marijuana Private Equity

Posted on January 14, 2019 at 6:40 PM Comments comments (0)

Cannabis Capital Raise LLC / Marijuana Private Equity




We work with marijuana entrepreneurs to raise early stage capital.

We publish a confidential monthly newsletter with customized template language for cannabis offerings in a variety of venues and jurisdictions. 

We show private issuers how to quickly and cheaply raise capital from U.S. residents under SEC Regulation D and simultaneously raise capital from non-U.S. investors under SEC Regulation S, using the same assets.




Do you own or manage a cannabis commerce company that has raised some capital organically and is now ready to raise more? Email [email protected]




Are you interested in cannabis investing opportunities? Email in confidence [email protected]




Cannabis Capital Raise LLC is a Hawaii-based financial consulting firm with adjunct offices in Palo Alto. Call 415-320-5496 to speak directly to Doug Slain or email him to schedule a conversation. 

California Cannabis Proposed Regulations

Posted on November 22, 2018 at 12:30 AM Comments comments (0)


The California Bureau of Cannabis (the Bureau) has said that it will finalize proposed regulations in December 2018. Details about how to comment on the proposed regulations are available here: https://cannabis.ca.gov/public-comment.

Cannabis Commerce Reporter selected, parsed, paraphrased or copied everything below. All mistakes are ours. 

Applicants and licensees must use their legal business names on all documents related to cannabis business activity. No more DBAs.

License applicants must buy a different bond for each license they receive.

Permitted: 3% variance for moisture loss in dried flower instead of a 2.5% variance. “The Bureau has conducted additional research and determined that 3% is right for retail sales.”

In addition to not being transferable, licenses are not assignable.

“ … cannabis businesses are seeking alternative methods to acquire capital … due to lack of traditional business loans ... ”

An cannabis business owner includes “ … an individual who will be participating in the direction, control, or management of the business, including anyone who assumes responsibility for the license, or someone who is managing or directing the cannabis business in exchange for some of the profits; or someone who is responsible for debts of the business; or someone responsible for non-plant-touching portions of the cannabis business such as branding or marketing; or any individual who is “determining what cannabis goods the business will cultivate, manufacture, distribute, purchase, or sell.”

If an entity has a financial interest in a cannabis business, all individuals who own any of that entity are considered to have a financial interest in the busines.

A licensed premise cannot be in a location that requires persons to pass through the licensed premises order to access a business that sells alcohol or tobacco or provides access to a private residence.

Licensees may not use advertising likely to be appealing to anyone under 21 and only be displayed where at least 70 percent of the audience is reasonably expected to be 21 years of age or older.

15 miles is a “necessary and appropriate distance” from the California border for a licensee to operate.

Licensees must submit a written request to the Bureau for approval to sell specific items of branded merchandise together with photographs of the branded merchandise.

The requirement to record point-of-sale areas does not apply to all microbusinesses. It only applies to microbusinesses that have been authorized by the Bureau to engage in cannabis retail.

In order to transport cannabis goods to another licensee with the certificate of analysis, the certificate of analysis must be less than 12 months old.

A 3% variance for moisture loss in dried flower is now permitted, instead of a 2.5% variance. Variances for cannabinoid and terpenoid content from the labeled amount and the actual amount allows for a plus or minus 10%.

In order to transport cannabis goods to another licensee the certificate of analysis must be less than 12 months old.

Cannabis goods must be labeled with content for cannabinoids, terpenoids,Total THC, and/or Total CBD.

Cannabis goods that have not been transported to retail within 12 months of the date on the certificate of analysis must be destroyed or retested.

Details about how to comment on the proposed cannabis regulations are available here: https://cannabis.ca.gov/public-comment/

Cheat Sheet for Early-Stage ICO Sponsors

Posted on September 24, 2018 at 11:10 PM Comments comments (0)

Here are the questions you will be asked.

                                                For Starters

Does the ICO or ITO platform already exist?

Is the issuer doing a direct offering or a broker-dealer offering?

In what U.S. states and foreign countries will the issuer be doing business?

What is the purpose of the offering? What is the issuer’s business?

What exemptions will the issuer rely on for each jurisdiction: Rule 506(c, Rule 506(b, Rule 504, Regulation S, or Regulation A+.

What statements, representations, or comments have been made to third parties about future value?

Has the whitepaper been written? Released?

Is the white paper also an offering memorandum with prescribed disclosures and notices?

Has the smart contract code for the token been audited by a code audit firm?

Is there an exit strategy?

Does the issuer have a shareholders agreement?

Does the issuer have a board of directors?

Does the issuer have financial auditors?

Has the issuer worked with a transfer agent before?

Is the issuer comfortable with KYC and KYC best practices? 

                           Blockchain ( distributed ledger technology)

Does the blockchain facilitate transparency?

Does it provide guaranteed legal finality for securities transactions?

Does it provide recourse by means of technical intervention in case of errors or fraud?

Is there a published governance document?

Does the blockchain have financial institution recognition?

Has the issuer specifically determined that the blockchain does in fact prevent cryptocurrency fraud or unauthorized use? 


Which Protocol will the issuer use? 

Is the Protocol implemented on an enterprise-class technology platform? 

Does the Protocol manage the custodianship requirements of the security token? 

Does the Protocol have the capabilities to be managed by a regulated transfer agent?


Will this be for accredited investors only?

How will the issuer confirm or verify accredited investor status?

Will the purchasers be seeking a return on their investment or are they buying the token for other purposes?

If other purposes, what are they?

What are the rights of token holders? Voting? Dividends? 


Is the token coupled with a crypto-currency?

Will the tokens be immediately delivered to the purchasers? 

Is the number of tokens fixed or unlimited? •

Is there a release schedule for the tokens?

Will the tokens have a fixed value?

Does the issuer intend to list the tokens on any secondary markets? 

What are the lock-up periods?

Is the issuer using legends to satisfy re-sale requirements? 

Is the issuer planning on a bounty of free tokens?


This article is not a legal advice, is not written by a lawyer, and is written for general informational purposes only. If you have questions or comments or are interested in learning more about these topics, feel free to email Doug Slain at [email protected] Doug is a securities regulation advisor and author who coaches ICO-sponsors and their advisors on JOBS Act best practices—especially Rule 506(c), Rule 506(b, Rule 504, and Regulation S. Doug authored the 21-volume Exempt Offering Series of audiobooks on Audible.com. He is the founder and sponsor of the 8 year-old LinkedIn discussion group, State Securities Regulation.

Crypto Fund using Regulation S

Posted on September 22, 2018 at 6:45 PM Comments comments (0)

A self-described “crypto-blockchain and ICO-focused investment research fund and media portal” has announced that its Regulation S securities token offering (STO) will begin shortly. The startup, XResearch, claims it is building a “community commons for crypto investors” offering institutional-quality research services and content. 

Token holders will be entitled to “institutional-quality research” and share in 5% of the equity of the company (all token holders in aggregate).

Using Regulation S, issuers can raise large amounts of capital with without the cost and delay of a Regulation D exemption, while purchasers benefit from the ability to resell in a secondary market.

Using either Rule 144 and Regulation S, issuers can use two separate exemptions for the same time period offering the same assets. Also, since a Regulation S issuer may make an offering within the U.S. to a “Qualified Institutional Buyer” (QIB) or to anyone outside the U.S., U.S. broker-dealers can purchase the securities and market them, whether or not any non-U.S. investors purchasing under them would qualify as QIBs, to large institutional buyers both inside and outside of the U.S.

Issuers using Regulation S can take advantage of the fact that the SEC and FINRA deem sales outside of the U.S to be regulated, whether or not those sales are in fact regulated. 

XResearch is led by Charles Wyman, who is working with Steven Wasserman, Barry Cohen, and Neil Benedict, among others.


Real Estate Funds and Rule 506

Posted on August 7, 2018 at 10:40 PM Comments comments (0)

The overwhelming majority of real estate funds rely on Rule 506 under Regulation D of the Securities Act to raise capital.

Previously, Rule 506 required hedge fund managers to have a pre-existing relationship with investors and it placed a firm prohibition on general solicitation and advertising practices. Under Rule 506(c), issuers may engage in general solicitation and advertising practices when offering securities, although purchasers of the securities must be verified as accredited investors.

Under an expanded Rule 506 framework, issuers have the option to continue to rely on the original Rule 506 exemption—now found under Rule 506(b)—which still prohibits general solicitation and advertising practices. Although Rule 506(c) removes the general solicitation and advertising prohibition—effectively freeing fund managers to advertise fund offerings through television, newspapers, websites, etc.—surprisingly few issuers have taken advantage of it.

In 2016, SEC Chair Mary Jo White stated that from September 2013 through late 2015, 506(c) offerings only had a $71 billion market as opposed to the $2.8 trillion market for 506(b) offerings. This is partially due in part to the heightened verification requirement of Rule 506(c): whereas Rule 506(b) allows potential investors to self-certify their accredited status, Rule 506(c) requires issuers to take reasonable steps to verify the accredited status of each investor.

Rule 506(c) sets out three primary methods of verification: Income: Issuers can review any I.R.S. form that reports the investor’s income for the two most recent years. This includes Form W-2, Form 1099, Schedule K-1 to Form 1065, and Form 1040. In addition to I.R.S. forms for the two most recent years, an investor must represent that she or he has a reasonable expectation of reaching the income level necessary to qualify as an accredited investor.

Net worth: Issuers review documents dated within the prior three months to determine whether an investor meets the requisite net worth.

For assets, issuers review bank statements, brokerage statements, certificates of deposits, tax assessments, and appraisal reports. For liabilities, issuers can use a consumer report from a consumer reporting agency.

Professional Verification: Issuers can obtain written confirmation from persons or entities that have taken reasonable steps to verify the investor is an accredited investor within the prior three months and has determined that the investor is an accredited investor. This includes: a) a registered broker-dealer; b) an investment adviser in good standing with the SEC; c) a licensed attorney, or d) a CPA.

The SEC has indicated issuers may be able to satisfy verification obligations through other means. Accordingly, there has been an increase in independent, third party verifiers who conduct accredited investor status verification and certification.

Please feel free to contact Private Placement Advisors LLC if you have any questions about exempt offerings under Rule 506(c) or other aspects of Regulation D.