Ice Miller client Localstake is an investment crowdfunding platform for small businesses and real estate developers to raise funds from investors in their community. How did this Indianapolis-based company go from a tech-startup to an emerging leader in this new, meaningful, capital-raising alternative?
Learn more through our case study, "Localstake: Getting Ahead of the JOBS Act." An excerpt follows:
The Jumpstart Our Business Startups Act of 2012 (the JOBS Act) directed the Securities and Exchange Commission (SEC) to undertake new rulemaking to implement a framework for crowdfunding. Crowdfunding is the fundraising technique of soliciting small amounts from many individuals over the Internet.
Before the SEC issued proposed rules to implement crowdfunding in October of 2013, the SEC's activity on crowdfunding was limited to issuing a "frequently asked questions" article on its website and a reminder that the crowdfunding exemption could not be relied on until the SEC has issued final rules implementing the new exemption. The new rules are not expected to be issued until the end of 2014.
So with the JOBS Act rules yet to come, equity crowdfunding (where investors receive equity, debt or revenue share securities in a business) is currently not allowed and cannot be done, and the only permissible form of crowdfunding is reward/donation based crowdfunding on sites like Kickstarter and Indiegogo where the investors do not receive these types of securities, right?
Wrong. Early on, Localstake made the decision to register as a broker-dealer with the SEC to differentiate itself from other crowdfunding platforms like Kickstarter and Indiegogo that are donation/reward based. The distinction allows for equity crowdfunding to occur over the Localstake platform. As a registered broker-dealer, Localstake relies on existing securities registration exemptions to enable companies to make private investment offerings to both accredited investors (those individuals with either a net worth of more than $1 million (excluding the value of their homes) or an annual income of more than $200,000) and non-accredited investors.
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