Category Archives: capital raising

How new and amended S.E.C. rules can that affect YOUR capital raising in Georgia?

The Securities and Exchange Commission (S.E.C.) did it! After months of reading articles about proposals and submitting my own public comments, the S.E.C. finally has adopted what I think are epic changes to Rules 147 and Rule 504. (See S.E.C. press release) Both of these changes are meant to provide more access to capital for entrepreneurs under the 2012 JOBS Act and the SEC’s Regulation CF.

The updates to Rule 147 will continue to be a safe harbour under Section 3(a)(11) of the Securities Act so that issuers that engage in securities offerings through intrastate offerings (“within a state only”) in reliance on state law exemptions will be protected. The new Rule 147A is similar to Rule 147 BUT….BUT it will allow offers to be accessible to out-of-state residents and for companies to be incorporated or organized out-of-state. THIS IS HUGE—no longer will issuing companies only be able able to raise money within the state they are incorporated if they are using an intrastate offering exemption.

DISCLAIMER (like any good attorney): The information contained below is a brief summary of the rules. As always, please consult a knowledgeable securities attorney before attempting any capital raising or dealing with investors. They will be able to provide you with more details about the rules. You are responsible for your own due diligence in this matter and this blog cannot be relied upon as specific legal advice.

Rule 147 Changes: No longer bound by borders!

New Rule 147A and updates to Rule 147 are meant to modernize the existing intrastate offering framework that permits companies to raise money from investors within their state without having to register and report on the federal level. As many of you know, Georgia was one of the first of 33 current states to adopt intrastate offerings which is called the Invest Georgia Exemption or “IGE”. (See blog and see rules) IGE has been successful in providing over 38 companies the opportunity to raise money from investors that reside inside of the state of Georgia, GroundFloor being one of the most famous examples.

Here are HIGHLIGHTS of the New Rule 147A and the updates to Rule 147:

  • The issuer must have its “principal place of business” in-state and satisfy at least one “doing business” requirement that would demonstrate the in-state nature of its business;
  • A new “reasonable belief” standard for issuers to rely on when determining the residence of a securities purchaser at the time of sale;
  • A requirement that issuers obtain a written representation from each purchaser regarding residency;
  • A limit on resales to persons residing within the state or territory of the offering for a period of six months from the date of the sale by the issuer to the purchaser;
  • An integration safe harbor that includes prior offers or sales of securities by the issuer made under another provision, as well as certain subsequent offers or sales of securities by the issuer occurring after the completion of the offering; and
  • Legend requirements to offerees and purchasers about the limits on resales.

In essence, what the new updates to rule 147 and new Rule 147A mean is that Georgia will be able to expand its existing intrastate offering program so that companies can raise capital from investor OUTSIDE of the State of Georgia! This is a step in the right direction towards expanding access to capital in a highly competitive fundraising market. Many times companies do not use intrastate offerings because of the limitation of investors to within a certain state—-especially when most investors officially reside in California, New York or Boston. This will open up more options for issuing companies to raise funds but also better competition amongst the states that do offer intrastate offerings. Note that the Georgia Secretary of State’s office will have to update the rules in order to take advantage of the S.E.C. rules but is a less onerous process than a legislative update (believe me…I know!)

Amendments to Rule 504 (which in effect repeal Rule 505): Say goodbye to $1MM.

The S.E.C. has 3 rules under Regulation D that exempts companies from S.E.C. registration: Rules 504, 505 and 506. Rule 504 exempts companies from registering with the S.E.C. for offers and sales of up to $1MM in a 12 month period (with some additional exemptions—see my disclaimer above). The change to Rule 504 raises the amount of capital that can be raised from $1MM to $5MM. The main distinction between a Rule 504 exemption and Rule 505 exemption was the amount of capital that could be raised. Under Rule 505, there were similar requirements under Rule 504 but a company could raise up to $5MM. Since the S.E.C. allows raising under Rule 504 up to to the same level and Rule 505, Rule 505 is unnecessary and useless and therefore is being repealed.

Other Information to Note:

I know that you are as EXCITED as I am about these new and updated rule changes—but remember that there is a “holding period” by which S.E.C. rules must be published in the Federal Register before the rules become effective so that the public has adequate notice. Updates to Rule 147 and new rule 147A will become effective 150 days after publication in the Federal Register and updates to Rule 504 will become effective 60 days after publication. Rule 505 will be repealed and become effective 180 days after publication in the Federal Register.

**************************************************************************

I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization. I have been elected to the Georgia House of Representatives (East DeKalb/South Gwinnett) since 2011 and I serve on the committees of Juvenile Justice, Interstate Cooperation, Judiciary Non-Civil and as the ranking Democrat on the Small Business and Job Creation Committee.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities called Minority Access to Capital, Inc. Please visit our website to learn about events and sign up for our enewsletter.

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

Follow us on social media:  

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Filed under capital raising

How new and amended S.E.C. rules can that affect YOUR capital raising in Georgia?

The Securities and Exchange Commission (S.E.C.) did it! After months of reading articles about proposals and submitting my own public comments, the S.E.C. finally has adopted what I think are epic changes to Rules 147 and Rule 504. (See S.E.C. press release) Both of these changes are meant to provide more access to capital for entrepreneurs under the 2012 JOBS Act and the SEC’s Regulation CF.

The updates to Rule 147 will continue to be a safe harbour under Section 3(a)(11) of the Securities Act so that issuers that engage in securities offerings through intrastate offerings (“within a state only”) in reliance on state law exemptions will be protected. The new Rule 147A is similar to Rule 147 BUT….BUT it will allow offers to be accessible to out-of-state residents and for companies to be incorporated or organized out-of-state. THIS IS HUGE—no longer will issuing companies only be able able to raise money within the state they are incorporated if they are using an intrastate offering exemption.

DISCLAIMER (like any good attorney): The information contained below is a brief summary of the rules. As always, please consult a knowledgeable securities attorney before attempting any capital raising or dealing with investors. They will be able to provide you with more details about the rules. You are responsible for your own due diligence in this matter and this blog cannot be relied upon as specific legal advice.

Rule 147 Changes: No longer bound by borders!

New Rule 147A and updates to Rule 147 are meant to modernize the existing intrastate offering framework that permits companies to raise money from investors within their state without having to register and report on the federal level. As many of you know, Georgia was one of the first of 33 current states to adopt intrastate offerings which is called the Invest Georgia Exemption or “IGE”. (See blog and see rules) IGE has been successful in providing over 38 companies the opportunity to raise money from investors that reside inside of the state of Georgia, GroundFloor being one of the most famous examples.

Here are HIGHLIGHTS of the New Rule 147A and the updates to Rule 147:

  • The issuer must have its “principal place of business” in-state and satisfy at least one “doing business” requirement that would demonstrate the in-state nature of its business;
  • A new “reasonable belief” standard for issuers to rely on when determining the residence of a securities purchaser at the time of sale;
  • A requirement that issuers obtain a written representation from each purchaser regarding residency;
  • A limit on resales to persons residing within the state or territory of the offering for a period of six months from the date of the sale by the issuer to the purchaser;
  • An integration safe harbor that includes prior offers or sales of securities by the issuer made under another provision, as well as certain subsequent offers or sales of securities by the issuer occurring after the completion of the offering; and
  • Legend requirements to offerees and purchasers about the limits on resales.

In essence, what the new updates to rule 147 and new Rule 147A mean is that Georgia will be able to expand its existing intrastate offering program so that companies can raise capital from investor OUTSIDE of the State of Georgia! This is a step in the right direction towards expanding access to capital in a highly competitive fundraising market. Many times companies do not use intrastate offerings because of the limitation of investors to within a certain state—-especially when most investors officially reside in California, New York or Boston. This will open up more options for issuing companies to raise funds but also better competition amongst the states that do offer intrastate offerings. Note that the Georgia Secretary of State’s office will have to update the rules in order to take advantage of the S.E.C. rules but is a less onerous process than a legislative update (believe me…I know!)

Amendments to Rule 504 (which in effect repeal Rule 505): Say goodbye to $1MM.

The S.E.C. has 3 rules under Regulation D that exempts companies from S.E.C. registration: Rules 504, 505 and 506. Rule 504 exempts companies from registering with the S.E.C. for offers and sales of up to $1MM in a 12 month period (with some additional exemptions—see my disclaimer above). The change to Rule 504 raises the amount of capital that can be raised from $1MM to $5MM. The main distinction between a Rule 504 exemption and Rule 505 exemption was the amount of capital that could be raised. Under Rule 505, there were similar requirements under Rule 504 but a company could raise up to $5MM. Since the S.E.C. allows raising under Rule 504 up to to the same level and Rule 505, Rule 505 is unnecessary and useless and therefore is being repealed.

Other Information to Note:

I know that you are as EXCITED as I am about these new and updated rule changes—but remember that there is a “holding period” by which S.E.C. rules must be published in the Federal Register before the rules become effective so that the public has adequate notice. Updates to Rule 147 and new rule 147A will become effective 150 days after publication in the Federal Register and updates to Rule 504 will become effective 60 days after publication. Rule 505 will be repealed and become effective 180 days after publication in the Federal Register.

**************************************************************************

I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization. I have been elected to the Georgia House of Representatives (East DeKalb/South Gwinnett) since 2011 and I serve on the committees of Juvenile Justice, Interstate Cooperation, Judiciary Non-Civil and as the ranking Democrat on the Small Business and Job Creation Committee.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities called Minority Access to Capital, Inc. Please visit our website to learn about events and sign up for our enewsletter.

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

Follow us on social media:  

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Filed under capital raising, private debt, private equity, securities

Private Equity Trends: Data makes the world go ’round.

hh…private equity. I call it “capital purgatory” since, in my experience working with capital raising clients, it’s easier to obtain private equity than venture capital but harder to obtain than an angel investment and therefore—-companies are in an unknown, in between stage between possibly getting enough capital to scale and grow their business and just enough investment from a wealth individual to continue bootstrapping their efforts for growth. Therefore, in my opinion, I secretly refer to private equity (PE) as “capital purgatory”.

As you probably know, private equity is a system by which a fund is managed by a general partner who use a variety of investment strategies (buy outs, mezzanine financing, venture capital, leverage buyouts (LBOs)) to invest in companies that in turn make money to pay out profits to limited partners, those being the investors into the fund. Generally the limited partners (LPs) like to see their investment return in 7-10 years. If you are a visual person like me, here is a handy chart for reference:

(Source: Wikipedia, last accessed 10/24/16)

Although I am but a humble lawyer, I will tell you the allure and fascination of analytical information for private equity astounds even my husband John Jackson, who is the numbers, analytical, “this is what this data means” person in our family. Data is vital to the world as we know it and particularly helpful in identifying trends, making investment decisions, and assessing any given situation. Consider these points about the U.S. private equity industry: (Credits: My favorite- Pitchbook, last accessed 10/24/16)

  • 2016 may see the LEAST amount of PE investment since 2006, (2009 as the exception/outlier of course) with only 2,477 deals totaling only $484 Billion raised. (Source: Pitchbook, page 5)
  • In 2016, buy-outs are down to the lowest since 2006 and platform creation is up. (Source: Id. at page 6)
  • Company valuations are on the rise as 2016 saw valuations in multiples of 5 of EBITDA [Earning Before Interest, Taxes, Depreciation and Amortization] (Source: Id. at page 7)
  • Median debt [of companies in PE portfolio] is down by almost 8 percentage points since 2010. (Source: Id.)
  • Deals over $1B make up the majority of deals in 2016. (Source: Id. at page 9) That’s a lot of unicorns—thanks Uber and Airbnb
  • IT (surprise, surprise) continued to obtain a majority of PE funds in 2016. (Source: Id.)
  • The overall value of funds dropped in Q3 of 2016 despite having a robust Q2. (Source: Id. at page 14)

And on…and on…..there was much data to be digested in the 20 pages of data. But the point is the world of PE is a fascinating world that, in my opinion, is partially data driven (what industries are trending? what has been their performance record?) and partially human psychology (who will win the U.S. elections? what effect may that have on my investments? do I “like” this company?). By taking a look at the past trends and, to some extent, projections, you can make your own assessment as an investor or a company which direction you should go.

 

*********************************************************************

I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization. I have been elected to the Georgia House of Representatives (East DeKalb/South Gwinnett) since 2011 and I serve on Juvenile Justice, Judiciary Non-Civil and as the ranking Democrat on the Small Business and Job Creation Committee.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities: Minority Access to Capital, Inc.

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

Follow us on social media:  

LinkedIn Company Page

Twitter

Facebook

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Filed under capital raising, investor relations

8 Things You May Not Know About the New Federal Crowdfunding Rules But Should Know

As many of you know, the S.E.C. adopted rules on October 30, 2015 under Title III of the 2012 JOBS Act (“Jump Start Our Businesses Act”) related to crowdfunding that allows issuing companies to raise capital from a crowd of investors based on their income and net worth. (Source: S.E.C. Press Release)

Usually when experts and others discuss these new federal crowdfunding rules, formally known as Regulation Crowdfunding, there is an emphasis on the great opportunity that is there for issuing companies. However, Regulation Crowdfunding is (1) new and therefore many unintended consequences unknown and (2) riddled with regulatory compliance requirements that only a knowledgeable securities attorney should undertake.  (See my previous blogs on this issue)

That being said, here is a non-exclusive list of the top 8 things I think that you, as an issuing company, SHOULD know about the new federal crowdfunding rules but may not know:

  1. Beware of the money you raised 12 months prior to your Regulation Crowdfunding raise. Warning! Math is involved! And if you are anything like me, you’d rather to leave the math to other people. But it’s important to note that non-crowdfunding offerings are NOT counted towards the $1MM maximum aggregate amount that issuers can raise but previous Regulation Crowdfunding offerings are counted towards that $1MM if you raise it within the preceding 12 months. This is an IMPORTANT distinction! Let’s take a look at an example or two: If a company raises $500,000 under a Regulation D exemption in the 12 months prior to raising capital under Regulation Crowdfunding, that $500,000 is not counted towards the maximum amount of $1MM that can be raised. However, if a company raises the same $500,000 within 12 months prior to a Regulation Crowdfunding raise, the issuing company can only raise $500,000 MAX in the 2nd Regulation Crowdfunding raise. Now in practice, since Regulation Crowdfunding is new, there is no issuing company that should run afoul of this provision for now. But for future reference, beware! (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 2(a))
  2. The investors’ income AND net worth must be considered together. I’d like to take this time to apologize for the subsequent confusing rule; it’s almost as if the S.E.C. wants to complicate things. That being said, the rule is that if EITHER an investor’s annual income OR net worth is less than $100,000, then the investor’s investment limit is the GREATER of: $2,000 or 5% of the lesser of the investor’s annual income or net worth. Let’s say you have an investor that has an annual income of $97,000 but a net worth of $5 MM. They can only invest the greater of $2,000 or 5% of the lesser of the investor’s annual income of net worth. BOTH the net worth of the investor AND the annual income must be over $100,000 in order to qualify for the higher investment limits according to the rule. It’s not enough that either one is over $100,000. That’s a tricky distinction and seems an awkward distinction at times, but its an important distinction. (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 2(b))
  3. You need a specific business plan to qualify to use Regulation Crowdfunding and I have absolutely no idea what that looks like. The S.E.C. has not given guidance about what this business plan would need to include in order to be compliant with Regulation Crowdfunding. I imagine the reason that the S.E.C. placed this as a requirement is to make sure at least some level of thought has went into the business seeking to use Regulation Crowdfunding and so that investors would have some general information about the business in addition to the financial statements that are required to be provided to investors under Regulation Crowdfunding. It’s generally a good idea to have a business plan anyway whether its required under Regulation Crowdfunding or note. So get to writing! (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 2 (d))
  4. Progress reports are required beyond the Initial Offering Statement Disclosure on form C. That’s right—after you have file form C (Initial Offering Statement) or form C/A (amendment to initial offering statement), there are more forms to file. It’s almost like grade school all over again. An issuer must provide an update on its progress toward meeting the target offering within five (5) business days after reaching 50% and 100% of its target offering on form C-U. The issuer only has to provide the final form C-U if the intermediary provides frequent updates on its platform. I am obviously biased but this is yet another reason why you should give the burden of keeping up with these little details to a knowledgeable team, including a knowledgeable securities attorney.  (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 3(d))
  5. The S.E.C. has a hard time of letting go because there are annual reports required even AFTER the raise has been completed. That’s right. Even after an issuer has finished their raise, Regulation Crowdfunding requires that the issuer provide an annual report on Form C-AR no later than 120 days after the end of its fiscal year….each year. Now, there are 5 triggering events in which issuers are no longer required to do annual reporting; in which case they are to file a notice on Form C-TR terminating their reporting requirements. I’d advise marking calendars and giving this task to the head compliance officer. Remember that non-compliance with Regulation Crowdfunding or a violation can prevent an issuer from using it in the future so issuers want to make sure they are 100% compliant. (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 3(e))
  6. You can’t go posting your offering terms on your social media page…and other things you cannot do online. Before you think that you can post your offering terms on your Facebook or LinkedIn page, get that vision out of your mind. An issuer cannot advertise terms of the Regulation Crowdfunding offering except for a notice that directs potential investors to the crowdfunding portal, the one portal that is required to be S.E.C. registered and FINRA certified. Once on the intermediary platform, the issuer is then allowed to communicate with investors and potential investors about the terms of the offering. I know it’s very tempting for issuers to get very excited and want to blast their offering out to the world, especially millennials like myself who live on social media, but seek legal counsel and craft a message that is intriguing but doesn’t violate the rules of Regulation Crowdfunding. (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 4)
  7. Count your investors! That’s right—count them individually. Section 12(g) is the Exchange Act requires issuers with total assets or more than $10MM ($25MM if you are using Regulation Crowdfunding) AND a class of securities with more than 2,000 record holders or 500 who are not accredited to register with the S.E.C. (Code word for expensive and time consuming) There are 3 ways to PREVENT your investors from being counted towards those magic numbers if you are using a Regulation Crowdfunding exemption to raise capital. Make sure you meet those requirements because I ASSURE YOU—you don’t want to trigger registration requirements. You can shift that burden to your intermediary crowdfunding portal but as you can see from No. 8 below, you will need to do your due diligence to make sure the crowdfunding portal is doing what it needs to do to be compliant as well. (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 6)
  8. Beware of bad people—and that includes a lot of people. One of the ways to get disqualified from using Regulation Crowdfunding is a “bad actor” disqualification from a “covered person” that experienced a “disqualifying event.” (I put those in all quotes because they all have very specific definitions.) You’d be surprised who is a “covered person” who can disqualify a company totally from using Regulation Crowdfunding. For example, the issuer including its predecessors and affiliated issuers, directors, officers and general partners, promoters, persons compensated for soliciting investors, and beneficial owners of 20% or more to name a few. So be careful who you invite on your team—one wrong move and they could disqualify you from using Regulation Crowdfunding now or in the future. The good thing is that no bad acts will be included in the look back period prior to May 16, 2016 and there are safe haven provisions. But don’t get sloppy—still do your homework on potential team members. (Source: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, published May 13, 2016, 7)

As always, I encourage you seek knowledgeable counsel BEFORE you make the decision to do ANY private placement offering, but especially Regulation Crowdfunding since its a new and unchartered territory of securities law. Remember that the world of securities law is highly regulated and rule specific— it’s not an area of law to “play lawyer” in even for other lawyers who don’t have knowledge about this area.

***************************************************************************

I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private capital (including crowdfunding) that have a line item budgeted for legal services.We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities:

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

Follow us on social media:  

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Twitter
Facebook
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Filed under capital raising, crowdfunding

IGE (Invest Georgia Exemption): How Georgia is leading the crowd in crowdfunding

I’ll admit. The state where I was born and raised has been no. 1 in a lot of bad things over the years—transportation issues, traffic problems, education failure. But I am proud to say that Georgia is one of the top states if not THE top state to do business and that makes this Georgia peach proud. (Source)

Luckily I have the opportunity to serve in the Georgia legislature and create and push for policies that I believe will help Georgia continue to lead other states with respect to business friendliness. One of my projects leading up to the 2017 legislative session is to examine our private investment policy in Georgia and provide recommendations to stakeholders to strengthen our flow of private capital through the State.

One of the important measures that Georgia took the lead on was its intrastate crowdfunding exemption. The Invest Georgia Exemption, or IGE (2011), is an exemption to the 1933 federal Securities Act that allows Georgia to create its own regulations around intrastate crowdfunding (not interstate–that’s across state lines).Georgia was one of the FIRST states to pass this intrastate exemption and now there are 31 other states that have passed similar regulations to make it easier to raise capital within a state.

After taking a look at the states across the country, Georgia really is leading the states in intrastate offerings because of its raised cap, notice only 2 page filing requirement, a higher than normal cap on investment amounts and the fact that crowdfunding portals are not required in order to raise capital.

 

 

 Here is the gist of the IGE regulations: (Legal Disclaimer: Please consult the full regulations of IGE before proceeding.)

  1. Issuer has to be a for profit entity formed under the laws of Georgia and registered with the Secretary of State (so no partnerships or sole proprietorships);
  2. The maximum amount an issuer can raise is $5MM (up from $1MM as of the Fall of 2015);
  3. The issuer cannot accept any more than $10,000 from a single purchaser UNLESS purchaser is an “accredited investor” as defined under Rule 501 of the S.E.C. (that rule may be changing soon under federal law so watch for that legislation);
  4. All funds must be deposited into a bank authorized to do business in Georgia;
  5. Upon or before either of 2 triggering events, the issuer must file a notice with the Commissioner in writing or electronic form with specific information; and
  6. This exemption cannot be used with any other exemption under the Rules or Act EXCEPT for officers or sales to certain people.

That’s it. To date, Georgia has had 38 companies apply for the IGE Exemption.

Compare the raise cap and investor cap of Georgia with other states:(Data provided by GA House of Representatives Research Office)

  • Alabama- $1MM; $5k per investor
  • Arizona– $1MM or $2.5MM if GAAP financial statements are audited and presented; $10k per investor [Only 1 company has filed for exemption]
  • Colorado– $1MM; Unlimited [No companies have filed for exemption.]
  • DC- $500k or $1MM if GAAP used; For “natural persons”: $10k per investor if the investor’s gross incoem is less than $100k; $25k per investor if the investor’s gross incoemi s $100k-$200k; for non natural persons, $0 unless gross net worth is greater than $1MM
  • Florida– $1MM; The lesser of $2k or 5% of investor’s annual net worth per investor per year if the investor’s annual gross income or net worth is less than $100k or the lesser of $100k or 10% of the investor’s annual net worth per investor per year if the investor’s annual gross income or net wroth is over $100k
  • Idaho- $2MM; The lesser of $2,500 or 10% of the investor’s net wroth per investor exlcuding home auto and furnishings. [Idaho has issued orders authorizing crowdfunding in 5 instances.]
  • Illinois- $2MM or $4MM is the insurer provides independently reviewed and officer certified financial documents; $5k per investor per offering
  • Iowa- $1MM; $5k per investor per offering, treating relatives and people in the same household as one investor
  • Indiana-  $1MM or $2MM if GAAP used; $5k per investor
  • Kansas– $1MM; $10k per investor
  • Kentucky- $1MM or $2MM is GAAP used; $10k per investor
  • Maine- $1MM; $5k per investor
  • Maryland– $100k, $100 per investor
  • Massachusetts- $1MM or $2MM if the insurer provides independently reviewed and officer certified financial documents
  • Michigan– $1M or $2MM if the insurer provides independently reviewed and officer certified financial documents
  • Minnesota- $2MM or $5MM is GAAP used with periodic increases beginning in 2018
  • Mississippi- $1M; limited to qualified purchasers are defined in Code and none of the company’s officers and directors can purchase more than 15% of offering; notwithstanding, the limit is the greater of $50k or 10% of investors’ annual income or net worth if an “accredited investor” under Rule 501 of the S.E.C. OR the greater of $5,000 or 5% of the investor’s annual income or net worth is the investor is NOT an “accredited investor”
  • Montana– $1MM; $10k per investor
  • Nebraska- $1M or $2MM if GAAP used; $5k per investor
  • New Jersey- $1MM; $5k per investor, per offering
  • New Mexico– $2.5MM with no aggregate cap; $10k per investor per offering
  • Oregon- $250k; $2,500 per investor
  • South Carolina– Unlimited; Unlimited
  • Tennessee- $1MM; $10k per investor
  • Texas- $1MM; $5k per investor
  • Vermont- $1MM or $2MM if the insurer provides independently reviewed and officer certified financial documents; $10k per investor
  • Virginia- $2M; $10k per investor
  • Washington- $1M; the greater of $2k or 5% of the investors annual net worth per investor per year if the investor’s annual gross income or net worth is less than $100l or the lesser of $100k or 10% of investor’s annual net worth per investor per year if the investor’s annual gross income or net worth is over $100k
  • West Virginia- $1MM or $2MM if the insurer provides independently reviewed and officer certified financial documents; $10k per investor
  • Wisconsin- $1M or $2MM if the insurer provides independently reviewed and officer certified financial documents; $10k per investor (Cap may not apply if investor qualified as a Certified Investor under Wis. Stat. Section 551.102(4m).)
  • Wyoming-$1MM or $2MM if the insurer provides independently reviewed and officer certified financial documents; $5k per investor

 

My Thoughts: I like that South Carolina, whom many would argue is our biggest rival with respect to business competition, has an unlimited raise cap so companies are not restricted to how much money they can raise. However, as many states have done, I would suggest making sure that GAAP are used and that the financial statements are independent reviewed and audited before taking the cap off IGE. The cap on investor contributions should remain the same under IGE and not go to the complicated percentage scale so many states use based on income and/or net worth. Let’s keep it simple.

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I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private securities (equity and/or debt) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. I also serve as the ranking Democrat on the Georgia House Small Business Development and Job Creation Committee. View past and upcoming speaking engagements and request me to speak to your organization.

NEW SERVICE OFFERING: Legal Opinions! You have an issue, we have an answer. For more information, click HERE for a sample legal opinion memo.

You may be interested in my non-profit organization as well to EDUCATE and EMPOWER minorities:

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

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If you have a gift to offer the world, it doesn’t need to be nicely wrapped. Just do it!

Many of you have seen or heard my rants on Facebook, Twitter, Instagram,YouTube or anywhere else that I think I have an audience. And the rant is typically the same—-WHERE ARE ALL THE MINORITIES (WOMEN AND RACIAL MINORITIES) WHEN INVESTORS AND OTHERS ARE DISCUSSING PRIVATE CAPITAL? Many times, I look to my left—and my right—-and I am the only woman or person of color in the room or at the table (and if I am having a really depressing week—I’m the only one of for both). And this doesn’t make sense given the Business FAQs about Georgia (Georgia is #1 in the growth of women owned businesses and metro Atlanta is #1 in the US for black owned businesses) and the amount of private capital being infused into Georgia (see below).

So I decided to develop a personal and professional pledge—the DK Pledge I call it—-as a constant reminder to myself why I must continue to break down the walls of access, education and communication between minority businesses and the world of private capital.

But the pledge was not enough. You see, I am a woman of action—I’ve been raised that if I don’t like something, I don’t complain, I do something about it (which is probably why I was elected to the GA House of Representatives at age 27 but I digress). So I decided to start a non-profit with the FOCUS on “Educating and empowering minorities, especially women and racial minorities, on how to access private capital to grow their companies and create generational wealth.”I started with a small interest group in January and now we have a 8 member Board of Directors, approved by-laws, registration with the Secretary of State, and as of April 1, 2016 we are now a 501(c)(3) under the IRS Code with tax exempt status!—Just in time for our April 28th meeting which I hope you will join us in attending!

Now I wish that I could say that I did this alone but I didn’t. I had help as we all need rather we want to admit it or not. Say hello to my fabulous Board Members who believe in my vision and have supported this effort:

 

Carleton Moten

Board Member

VP of Finance

Maurice Jackson

Vice Chair of Board

VP of Programs

 

 

Rod Echols

Board Member

VP of Technology

 

Shannon Weaver

Board Member

VP of Sponsorships

 

Sylvester Ford

Board Member

VP of Membership

 

Dar’shun Kendrick

Founder/Board Chair

 

 

And a SPECIAL shout out to the tax attorney that helped us to get it all done—Mr. Keith Miles.

You can contact any of the above mentioned Executive Board Members by downloading this CONTACT LIST and letting us know if you’d like to be involved with our organization. Here are other ways to connect with us as well:

So…if you are a finance professional out there, minority or not, are you ready to help us in our mission to empower and educate minority entrepreneurs on how to obtain a piece of the almost $2 Trillion in private capital that has been invested over the last 10 years? If so, contact me and let me know.

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I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private securities (equity and/or debt) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University. View past and upcoming speaking engagements and request me to speak to your organization.

NEW SERVICE OFFERING: Legal Opinions! You have an issue, we have an answer. For more information, click HERE for a sample legal opinion memo.

We are ONLY authorized to practice law in Georgia and therefore any legal advice in this blog only pertains to Georgia based businesses. Please visit us online to sign up for a time to discuss services or for our 1 hour consultation.

Follow us on social media:  

LinkedIn Company Page

Twitter
Facebook
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Periscope- Search “Kendrick Law” (interactive live videos)

 

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Choosing the Right Investors For Your Business

Minority Access to Capital, Inc. (MATC) had a GREAT general body meeting on March 10th, 2016 with partners J.R. McNair of Strongbox West and Gregg with Allstate. (Pictured above). If you missed the meeting, here are the audio notes and the powerpoint is below. Topic: Choosing the Right Investors For Your Business.


Text of Presentation:

  1. 1. CHOOSINGTHE RIGHT INVESTORS FORYOUR BUSINESS Prepared Specifically For: Minority ATC (Access to Capital), Inc. March 10th, 2016 Dar’shun Kendrick, Esq./MBA Kendrick Law Practice, LLC
  2. 2. About Me  Started Kendrick Law Practice in January of 2010  Boutique law firm focused on private securities (legal compliance for companies raising private capital)  2 B.As (Oglethorpe University), J.D. (University of GA), M.B.A. (Kennesaw State)  FINRA Non-Public Arbitrator  Follow me on social media
  3. 3. DISCLAIMER: This presentation does not create an attorney-client relationship nor will specific legal advice be given. Furthermore, this presentation does NOT include all the laws, rules and regulations required for a proper and legal private placement offering. Please consult a knowledgeable securities attorney before making a solicitation to an investor.
  4. 4. The Numbers • $17.B in angel investing in 2009 to 57,255 businesses • $4B inVC funding in 1982  Almost $300B in 2007 • $1.6T in private equity overall from 2000-2009 • Quarter before last saw MOST private equity investment in a quarter since early 2000s
  5. 5. What is private capital? • Hedge funds • Venture Capital • Leveraged Buy outs • Angel investors • F & F • Convertible notes
  6. 6. What is NOT private capital? • Rewards based crowdfunding • Grants • Publicly held companies • Traditional loans
  7. 7. Ways to Raise $$Through an Exemption • Mini-IPO (Regulation A+) of $20- $50MM • Regulation D (3 rules) • Equity based crowdfunding
  8. 8. Not all investors are created equal!
  9. 9. 2 Important, Non Exclusive Factors RE: Investors Type of Capital Raise • Some exemptions will limit the NUMBER of “unaccredited investors” you can raise money from • Some exemptions will limit the WAY (no “general solicitation”) in which you raise • Some exemptions will limit RE-SALE in and of the secondary market • Some exemptions will limit the AMOUNT of money raise • Some exemptions will limit the LOCATION of those you raise money from Type of Relationship • Rule ofThumb: If you wouldn’t have dinner with the investor, don’t go into business with them.
  10. 10. Types of Investors • Institutional Investors (Morgan Stanley, SunTrust Rob Humph, Citibank, etc.) [$100M +] • Venture Capital Firms [$1M+; 10 year partnership; high return and usually “high growth” industries and preferred equity rights] • Angel investors [$2,500+; lesser restrictions on high growth and return; typically individuals or small groups]
  11. 11. So CAN YOU and SHOULDYOU just start raising money (in exchange for equity) from investors, including family and friends?
  12. 12. PIECE OF ADVICE Hire a knowledgeable securities attorney who will be able to guide you through the LEGAL COMPLIANCE and BUSINESS DECISIONS of who to go to dinner with for 6 months- 1 year.
  13. 13. Pitfalls • Corporate form set up has to be specific and in a certain order • “Time triggers” for solicitation • Agreements that you will need to have to investors (limit on the secondary market, unregistered security disclaimer, risk disclaimer, PPM, etc.) • Financials required to be provided to investors • Founder protections to be discussed (Dilution and bad math caused a company who thought they owned 66% of a company to go down to less than 10%) • M & A strategy needed for an exemption that allows for “general advertising” under a Reg. D exemption • State “blue sky laws” requirements • REMINDER: The S.E.C. can recommend CRIMINAL PROSECUTION to the Department of Justice, like the I.R.S.
  14. 14. Thank you! Dar’shun Kendrick, Esq./MBA Kendrick Law Practice http://www.kendricklaw.net(678) 739-8109 Find us on social media

JOIN US AT OUR NEXT MEETING!


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I am Dar’shun Kendrick, Private Securities Attorney and Owner of Kendrick Law Practicehelping businesses raise capital the LEGAL way. We work with “for profit” companies seeking to raise $250,000 or more through private securities (equity and/or debt) that have a line item budgeted for legal services. We do NOT find investors or introduce companies to investors; that is the job of “broker-dealers” and we are prohibited under federal securities law from doing so.  I have 2 B.A.s from Oglethorpe University, a law degree from the University of Georgia and an M.B.A. from Kennesaw State University.

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Filed under capital raising, investor, investor relations, private debt, private equity