Exempt Offerings  JOBS Act Solutions

advising on exempt offerings to find investors.  

There are several ways to raise capital for your token-based technology company using exemptions such as Regulation CF, Regulation A+, Regulation D, Regulation S, or an ICO funding platform.

1. Regulation Crowdfunding (Reg CF)

Reg CF or Regulation Crowdfunding is relatively new and makes it legal for the private placements to be marketed to non-accredited investors. Think Kickstarter with equity (or debt) being offered.

Example:  https://www.startengine.com/indeco

Securities purchased under the Reg CF exemption cannot be resold within a year. Only $1,070,000 can be raised each year.

NB: you can raise unlimited dollars by running a concurrent Regulation D, Rule 506(c) offering for accredited investors.

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.

NB: However, you may still raise funds from accredited investors using a Regulation D exemption!

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

Examples of Reg D ICOs: Filecoin http://coinlist.co/filecoin

Rule 506 is the easiest and most-used exemption. There is no limit to the amount you can raise. Under the Rule 506(c exemption, general solicitation and advertising are permitted. Only accredited investors may invest. See www.privateplacementadvisors.com for more information about Rule 506(c offerings of ICOs.

3. Regulation S is a commonly used exemption.

First, US companies that want to sell their securities to foreign investors will want to use a SAFT. A SAFT is similar to the SAFE “Simple Agreement for Future Equity” framework used by Y Combinator.

A SAFT is the instrument used to convey rights in tokens prior to the the tokens becoming functional. Since the SAFT itself is a security it can be offered in a private placement to accredited investors. The tokens ultimately delivered to the investors, though, should be fully functional and therefore not securities under U.S. law.

With the Regulation S exemption the sale of securities must be an offshore transaction to a foreign investor and there must be no selling efforts that target the U.S. market. At the time of purchase, the investor must be outside the U.S., or at least the issuer reasonably believes that the purchaser is outside the U.S.

An offering does not qualify as exempt under Regulation S if anything is done in connection with the offering to the purpose of “conditioning” the U.S. market. Issuers cannot advertise the offering in the U.S., mail printed materials to U.S. investors, or have promotional seminars in the U.S.

NB: Companies can initiate Reg S selling efforts from the U.S. 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 Reg 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 PPM (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.

NB: Regulation S and Regulation D Offerings can be combined.

A Regulation S offering may be conducted concurrently with a Regulation D offering to U.S. accredited investors without the offerings being deemed integrated. Securities sold under Regulation S are subject to resale 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+ is designed for companies who want to raise more funds publicly, but don’t want to do a full-blown IPO yet.

Example of Reg A+ ICOs are:

FCFL https://app.microventures.com/proposed/fcfl-506c, and GAB https://www.startengine.com/gab-select

You can raise up to $50 million per year from anyone. (Soon to be $75 million. You can advertise your fundraising while you “test the waters” and solicit investors before filing with the SEC.

It is expensive. Before you can start fundraising and collect funds, 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 well over $50,000 in legal fees.

It is very time consuming. Regulation A+ offerings can be tedious and take significant time. Schedule may include 30 days to compile the required documents; 21 days to complete and submit the forms; up to 45 days to get SEC approval.

5. ICO Funding Platform Options

Here are some platforms that are friendly to ICOs. This is easier than going it alone but you will end up paying 6%-8% of what you raise to the platform.

StartEngine: https://www.startengine.com/ico 
Indiegogo: https://ico.indiegogo.com/
Coinlist: http://coinlist.co.


Join the State Securities Regulation LinkedIn discussion group and go down the crypto rabbit hole with us to learn 1) what will constitute securities in the eyes of state regulators and 2) what will constitute best practices for exempt offerings of ICO offerings.

Members of the discussion group are entitled to any of 21 audio handbooks on exempt [email protected] https://www.audible.com/search/ref=a_hp_tseft?advsearchKeywords=Douglas%20Slain&filterby=field-keywords