My presentation with David Rose on the general framework of equity crowdfunding under the JOBS Act. This presentation is not updated for the most recent developments. Specifically, the SEC has missed certain of their congressionally mandated deadlines and therefore both general solicitation and equity crowdfunding are still not legalas of the date of this presentation. If you have additional questions, feel free to send me a tweet at 1billionagles or email me at kiranlingam@gmail.com.

1. STARTUP CROWDFUNDING:
WHAT YOU NEED TO KNOW NOW
Kiran Lingam
David Rose
1billionangels.com CEO, Gust.com

2. DISCLAIMER
This slide deck and its accompanying presentation is not a substitute
for professional legal advice. The opinions expressed herein are the
solely the opinions of the authors and not of any law firm, employer
or organization affiliated with the author. Nothing in this blog shall
create an attorney-client relationship, nor is it a solicitation to
offer legal advice. If you ignore this warning and convey confidential
information in a private message or comment, there is no duty to keep
that information confidential or forego representation adverse to your
interests. Seek the advice of a licensed attorney in the appropriate
jurisdiction before taking any action that may affect your rights.

3. The JOBS Act
• Legislative History
• Title I: IPO On-Ramp
• Title II: General Solicitation and Advertising
• Title III: Crowdfunding
• Title IV: Regulation A+ Offerings
• Title V: Maximum Shareholder Limit

4. TYPES OF CROWDFUNDING
Unregulated Regulated
Non-equity, creative project Accredited Investor - Reg D
(Kickstarter) (Microventures)
Equity (or Debt)
Charitable Donation
Crowdfunding
(Causes)
(Crowdcube)

5. Accredited Investor Financing
• Reg D offering; legal after July 4, 2012
• Advertising allowed if all purchasers are accredited or QIB
• Must take "reasonable steps" to verify accredited status
• Maximum shareholder limit increased to 2,000
• No individual or aggregate size limits
• Example: Medical device company raises $10,000 each from 1,000
doctors for a total round of $10,000,000 by advertising in medical
journal.

6. Accredited Investor Financing
• No transaction fees unless registered broker-dealer
• Cannot hold customer funds or securities
• Cancharge fees for "ancillary services" (diligence, standard
documents, shareholder management)
• Broker-Dealer Platform: Microventures,
• Non Broker-Dealer Platforms: Angelist, Gust

7. Crowdfunding
• SEC has until January 1, 2013 to implement rules; not legal yet!
• New securities exemption
• Raiseup to $1 million per year from an unlimited number of (unaccredited)
investors
• Must use a funding portal or broker
• Maximum individual investments. For an investor with annual income or net worth:
• <$100,000, the greater of $2,000 or 5% of their annual income or net worth
• >= $100,000, the greater of 10% of their annual income or net worth, up to
$100,000

8. Issuer Disclosure
• Identifying information of issuer, directors, officers and 20% owners
• Business plan
• Financial statements (based on size of offering)
• Transaction details
• Price or method of determining price (reverse auction ok)
• Target financing amount, financing deadline and regular progress updates
• Use of proceeds
• Risk factors
• Description of Ownership Structure (including dilution and other risks)

9. Issuer Restrictions
• No advertising of financing except for notices directing
investors to the broker or funding portal
• No compensation for third parties to solicit investment
through the portal unless such compensation is disclosed in
communication
• Mustfile annual financial statements and result of operation
reports with SEC and investors
• Must provide Investors with final right to rescind investment
after all disclosure and final terms prior

10. Crowdfunding Portals
• An intermediary in a "crowdfunding transaction" (e.g. a website)
• Must register with SEC and become a member of FINRA
• No broker-dealer registration
• Can take transaction based fees (e.g. percentage of financing)
• Crowdfunding Portals (that are not broker-dealers) may not:
• Offer investment advice
• Solicit purchasers, sales or offers to buy securities displayed on it site
• Compensate employees, agents or others for such solicitation or based on sale of
securities
• Hold, manage, possess, or handle investor funds or securities

11. Crowdfunding Portals
• Make issuer disclosures available to SEC and investors at least 21 days
prior to any sale
• Takemeasures to reduce risk of fraud, including background checks on
each director, officer and 20% owner
• Ensure
that no funds are provided to issuer until target offering
amount is met
• Take appropriate steps to protect privacy
• Directors, officers, employees of portals may not hold equity in issuer
listed on its site

12. Crowdfunding Portals
• Must take reasonable steps to ensure investors to not violate individual
investment limitations across all portals
• Charged with implementing investor protections as directed by SEC, including
ensure each investor
• reviews investor-education information with standards established by SEC
• positively affirms understanding of risk
• answers questions demonstrating knowledge of risk
• Cannot buy potential investor lists or information
• May compensate third parties to solicit investors if such compensation is
disclosed in the solicitation

13. Crowdfunding Securities
• Crowdfunding securities restricted for 1 year, except sales to
the issuer or accredited investors or for estate planning
• Does not apply towards 2,000 shareholder limit unless
transferred (pending SEC clarification)
• No restriction on types of interests: common stock, preferred
stock, convertible notes
• Holding company structure (pending SEC rules)

14. Liability
• Liability for untrue statement (or omission) of material fact
• Burden of proof on issuer to show issuer did not know, and in exercise
of reasonable care, could not have known
• Crowdfunding investor may recover investment less proceeds
• Directors, officers, offerors and sellers are personally liable
• Class action suits?
• D&O Insurance?

15. So you want to create a portal?
• Broker-dealer
• Investment Advice
• Software (insource or outsource)
• Vertical / Differentiation
• Issuer Diligence
• Investor Verification

16. Should I Crowdfund my startup?
Pros Cons
• Customer Base
• Future Financing
• Community
• Liability
• Access to Capital
• Disclosure
• Costs

17. Predictions
• Rise of the Super Angel
• Gust and Angelist direction
• Portal proliferation followed by consolidation
• Fraud mitigated by crowd
• Democratization of Capital
• Effect on venture capital
• "Mom and Pop" Crowdfunding

18. Frequently Asked Questions
• Crowdfunding is not legal yet! January 1, 2013
• General solicitation to accrediteds is not legal yet! July 4, 2012
• Simultaneous crowdfunding and angel financing?
• Cannot crowdfund an investment company (no blind pooling)
• Notice of crowdfunding offering
• Subsidiaries or related companies
• Listing on multiple portals

19. QUESTIONS?
Kiran Lingam
David Rose
kiranlingam@gmail.com
CEO, Gust.com
Twitter: 1billionangels