Exempt Offerings  JOBS Act Solutions

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Seed Rounds and Crowdfunding

Posted on March 6, 2019 at 3:30 PM Comments comments (0)

Startups and fast-growing businesses are increasingly turning to Crowdfunding exemptions to raise capital in Seed Rounds and Pre-Seed Rounds. They are relying on JOBS Act exemptions from SEC registration, primarily Regulation D, to make equity and debt offerings to accredited investors and non-accredited investors. And they are quickly learning how to use other exemptions created by the JOBS Act, especially Regulation S and Registration A.

➢ Q: What is a Pre-seed Round?

A: This is when the issuer and other founders if any are getting the company’s operations off the ground. This is time for a Friends-and-Family Round. No debt. Almost all the investors in early stage companies demand and receive part ownership. It is too early for promissory notes, except for some well-secured real estate deals, unless the investor insists on preferred convertible notes. Valuation is the rub. Valuation is seldom transparent. It is subjective, based on management, track record, market size, competition, risk and any number of things.

➢ Q: What is a Seed Round? A: Sometimes called the Early-Stage Round, this is when issuers hire a founding team to do market research, ancillary product development and market testing. This is also when the issuer decides what the final product or service is going to be and what the ideal demographic is going to be.

➢ Q: Who are Seed Round investors?

A: Seed Round capital sources include angel investors, private equity investors, and alternative class investors. Some issuers return to friends, family and associates at this stage.

➢ Q: What are the Crowdfunding exemptions?

A: Regulation D, using either or both Rule 506(c and Rule 506(b], is the most popular exemption. 

Regulation S, for offerings to non-U.S. citizens, is becoming more popular as issuers discover some advantages over Regulation D, such as little regulatory oversight (especially in Malta and other favored offshore jurisdictions), no maximum raise, and no PPM (private placement memorandum) required.

Regulation A has two versions, one with a $20 million max, and the other a $50 million max. Regulation A is the exemption most similar to full registration with the SEC; therefore, compared to the other exemptions, particularly Regulation S, it is prohibitively expensive and time-intensive.

Practice Tip: Well-advised issuers are increasingly using separate Regulation D and Regulation S websites, one for domestic marketing and one for foreign marketing, offering the same assets.

➢ Q: What is the difference between 506(c and 506(b?

A: Rule 506(c allows an issuer to market to the public; Rule 506(b does not. Rule 506(b allows up to 35 non-accredited investors; Rule 506(c does not. The usual drill is to use 506(b to raise money from friends, family and associates. After all capital requirements have not been met, the issuer converts the 506(b offering into a 506(c offering.

History Factoid: To market securities to strangers, as now allowed under Rule 506(c, was illegal for over 8 decades. Today, issuers using Rule 506(c can do practically anything to go after both accredited or non-accredited investors; for instance last year a REIT used 506(c to raise capital from early-stage investors on Craigslist.

➢ Q: So why do any issuers use 506(b?

A: Issuers continue to use Rule 506(b because it allows up to 35 non-accredited investors. If you need family money and some members of the family are not accredited, you must use 506(b.

Practice Tip: An issuer can go from 506(b to 506(c but not from 506(c to 506(b.

➢ Q: What are Series A, B and C Rounds?

A: These rounds are for issuers with track records who have established a user base, have consistent revenue figures or enjoy other proofs of process. Most Series A Rounds raise between $15 million to $50 million. Series B and Series C Rounds usually raise more capital than that, sometimes much more. These rounds are when series 7 and other securities licensees take interest and when VCs and PE (private equity) funds do much of their investing.

Sometimes a single large investor will serve as the “anchor” (think COSTCO as the first tenant in a shopping center), drawing in other, more risk-adverse investors, in exchange for re-negotiated terms.

Most issuers never need Series A funding, let alone Series B or C funding. Their Pre-Seed and Seed Rounds have raised enough capital to enable them to avoid giving more equity.


Private Placement Advisors LLC designs and executes Pre-Seed and Seed Rounds using Crowdfunding (JOBS Act) exemptions. This is all we do. Schedule a free 20-minute consultation. We will listen to the company’s narrative, we will ask questions, and we will suggest one or more JOBS Act solutions. For specific suggestions on how Private Placement Advisors LLC may be able to help your company raise Seed and Pre-Seed capital, email [email protected]

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]



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]

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.










ICOs are so 2017

Posted on May 1, 2018 at 5:35 PM Comments comments (0)

Is there really a new term for fundraising?


Some in the industry are opting for "security token offerings," a term that the CEO of Overstock (which is under SEC investigation itself) advances. "The ICO craze of last year created a toxic waste dump of financial assets," says Patrick Byrne.

"What we're developing is a mechanism so that there will be a legal way to go forward, and not create any new toxic waste." "It's the new term," Byrne said. "The industry is distinguishing very clearly now between ICOs and STOs." Overstock has invested $2.5 million in start-up Elio Motors. The company is launching "ElioCoin” to fund production and other costs.

ElioCoin made clear this is a "security token offering" in a company statement. "It is a very clever offering, and could represent a whole new model for American entrepreneurship," Byrne said.

In an ICO, coins or tokens are put up for sale as a form of crowdfunding. There are no voting rights or dividends as with shares of a company. Instead, "utility tokens" give the bearer access to a network, platform, and services. Whoppercoin, Pandacoin, Trumpcoin, and PutinCoin have all raised money through ICOs.

In a security token offering, you also buy coins or tokens. However, these tokens must be backed by something tangible such as assets or a revenue stream. They are similar to a share of a company in that they are "programmable" to do things like conduct proxy voting, "You can program a token, but a static share certificate just sits there and collects dust," said Trevor Koverko, CEO of Polymath. The SEC has said that all ICOs constitute securities.

By using the term "security token offering" or STO, issuers are being more upfront with regulators, Byrne said. "I think the SEC should essentially shut down the utility token world," Byrne said. "Eventually the STO security offerings will be done in lieu of the IPO."

Join the LinkedIn discussion group, State Securities Regulation, and go down the rabbit hole with us to learn what is and what will be a security in crypto world (the metaphysics of it) and how do we know that (the epistemology of it).

Enjoy securities law history in the making.

Douglas Slain

Members of the State Securities Regulation LinkedIn discussion group are entitled to any of 21 audio law handbooks @ https://www.audible.com/search/ref=a_hp_tseft?advsearchKeywords=Douglas%20Slain&filterby=field-keywords

Will Regulation A+ be a more popular choice for smaller companies than Regulation D?

Posted on April 8, 2018 at 9:45 PM Comments comments (0)

 Rule 506 of Regulation D is the most widely used capital raising exemptions under the US securities laws, largely due to its flexibility. Regulation A+ provides a new way for smaller companies to raise capital and get some liquidity in their securities. However, if a company is confident that it can raise money through the traditional Rule 506 private placement, it may still want to avoid the SEC review process, the hassle of Blue Sky compliance under Tier 1, and the ongoing reporting obligations of Tier 2.

There are two tiers for Regulation A+: Tier 1, for offerings up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer; and Tier 2, for offerings up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer. Although Rule 506 does not provide an opportunity for selling security holders to participate in the offering, it does not have any caps on the amounts that can be raised, and, while any company, public or private, US or foreign, can raise capital under Rule 506, under Regulation A+ only a US or Canadian issuer that is: a) not a reporting company under the Securities Exchange Act of 1934, b) not an investment company, and c) not a blank check company is considered an “eligible issuer.” Still, in some instances, Regulation A+ appears to be more accommodating than Rule 506.

For example, while Rule 506(b allows an unlimited number of accredited investors, it allows only 35 non-accredited investors. However, Tier 1 of Regulation A+ does not have any limitation on the number or type of investors, but Tier 2 imposes a per-investor cap for non-accredited investors of the aggregate purchase price to be paid by the purchaser for the securities to be no more than 10% of the greater of annual income or net worth for individual investors or revenue or net assets most recently completed fiscal year for entities. In addition, Regulation A+ allows issuers to “test-the-waters” by trying to determine whether there is any interest in a contemplated securities offering (assuming such practice is allowed under applicable Blue Sky laws for Tier 1 offerings), Rule 506(b does not allow for general solicitation and advertising, though of course Rule 506(c does.

The biggest downside of Regulation A+ is that Blue Sky registration requirements are not preempted for Tier 1 offerings, which significantly limits offerings in multiple states, while such preemption does exist for Rule 506 offerings (as well as Tier 2 of Regulation A+ offerings.) But note that the welcomed flexibility of doing nationwide offerings under Tier 2 comes with a heavy price tag of ongoing reporting. After a Tier 2 offering, an issuer must file with the SEC annual reports on Form 1-K, semi-annual reports on Form 1-SA and current reports on Form 1-U (within 4 business days of the event). Interestingly, the SEC has observed that companies may “voluntarily” file quarterly financial statements on Form 1-U, but the practical effect of desired compliance with Rules 15c2-11 and Rule 144 to maintain placement of quotes by market makers and re-sales of securities, will lead to “voluntary” quarterly reporting becoming essentially mandatory. Rule 506 offerings are accompanied by private placement memoranda or PPMs, (even when offerings are solely to accredited investors) to protect issuers from Rule 10b-5 liability under the Exchange Act.. Still, there is no prescribed format for such PPMs and they are not reviewed by the SEC.

With Regulation A+ offerings, an issuer must file Form 1-A (a “mini” registration statement) through EDGAR with the SEC. First-time issuers are eligible to initially do a non-public submission of a draft of Form 1-A. Such Forms 1-A are subject to the SEC review and comment process, which increases the cost of the transaction and extends the time from the beginning of the transaction and the closing. Finally, the “bad actor” disqualification applies to both Rule 506 and Regulation A+ offerings. However, a company that had its registration revoked under Section 12(j) of the Exchange Act within five years before the filing of the offering statement or that has been delinquent in filing required reports under Regulation A+ during the two years before the filing of the offering statement (or for such shorter period that the issuer is required to file such reports) is not eligible to do an offering under this Regulation.

Reg D for Dummies

Posted on July 2, 2017 at 6:40 PM Comments comments (0)

What is the big deal about Rule 506(c? One of the most sweeping and deep changes in securities law in over 80 years occurred with the introductionof Rule 506(c. As long as you sell (not offer) to accredited investors, you may use the Internet and other public forums to market your offering anyway you want. A REIT recently raised over $40 million using Craigslist.com. With Rule 506(c, it is the wild-west. None of this means, however, that both state and Federal law prohibiting misleading statement or material omissions has changed. Securities offerings are more rigorously reviewed than most documents for securities violations. Innocent mistakes can be costly. Practice Note: One reason we recommend that our clients avoid unaccredited investors is because doing so requires you to include additional disclosures not necessary when all investors are accredited.

List of FINRA Approved Reg CF Crowdfunding Portals

Posted on June 3, 2017 at 11:05 PM Comments comments (0)

List of FINRA Approved Reg CF Crowdfunding Portals

1. Wefunder 2. StartEngine 3. NextSeed 4. Indiegogo / MicroVentures (First Democracy VC) 5. SeedInvest 6. FlashFunders 7. Open Deal (Republic) 8. Crowdboarders 9. CrowdSourceFunded 10. DreamFunded Marketplace 11. Funding Wonder Crowd 12. GridShare 13. GrowthFountain Capital 14. IndieCrowdFunder 15. JumpStart Micro 16. Kasdaq (Mr. Crowd) 17. MinnowCFunding 18. NetCapital Funding Portal 19. Not So Small Change (Small Change) 20. Razitall 21. TruCrowd

Exempt Offerings Questions

Posted on May 19, 2017 at 2:35 PM Comments comments (0)

Questions we hear

Can I do multiple offerings on the same raise at the same time?

How do Blue Sky laws work?

What does “testing the waters” mean for a Reg A+ offering and why are some Reg A+ issuers declining to test the waters?

Do I have to be a broker dealer?

Do I have to use a broker dealer?

Do I need FINRA’s approval for a Regulation D offering?

Is there a limit on how many investors I can have?

What documentation is required for my type of offering?

What is a Reg CF offering?

For answers, see  


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Equity Crowdfunding versus Rule 506(c?

Posted on May 4, 2017 at 5:05 PM Comments comments (0)

Rule 506(c offerings must be sold only to accredited investors, whereas crowdfunding campaigns can accept money from non-accredited investors.

Remember, however, that 506(c offerings can still be marketed and advertised to anyone.

Another difference is that under Rule 506(c, funding sources must be verified as accredited investors using a third party service (such as Private Placement Advisors LLC).

Rule 506(c offerings have no limit on the capital raise, whereas crowdfunding raises are usually restricted to a $1 million.  

The rules overseeing crowdfunding solicitation are much more restrictive than with 506(c offerings. General advertising is limited and specified disclosure has to occur at one or more online funding portals.

Bottom line.

Is $1M enough for you, or do you need more? If you need more up front, you should go with the 506(c exemption. If your financial needs are $1M or less, consider a crowdfunding program appropriate for your company.

Do you assume you will not need non-accredited investors? Then go with 506(c.

If you believe your campaign is particularly attractive to a wider variety of investors, equity crowdfunding is for you.