by David Drake
##startengine has officially launched on Friday, June 19, 2015 and finally brings you “true ##crowdfunding” as what I had written in Thomson Reuters last 2012. The firm’s model has previously been used by Ben and Jerry’s Ice Cream, and now it can be used under Regulation A + to raise up to $50 million.
The firm can be used for crowdfunding campaigns like other platforms (such as Kickstarter), with no upfront costs payable to launch a campaign through which you can reach out to interested investors in the process known as “testing the waters.” If you find that you can raise enough money, say $1 million, by way of indications of interest, you may wish to proceed with filing form 1A. You cannot, of course, make an offering until you have SEC approval for your filing under Regulation A + but you do have indications of interest when you test the waters. This may encourage you to proceed with the documentation required by the SEC so that you can obtain approval and proceed with your formal offering to interested investors.
Technically the process is similar to what Ben and Jerry did in the past when they sounded out people with existing relationships and sought indications of interest from them as investors. Much like Kickstarter, testing the waters enables you to determine if there is enough investor interest, and if there is say a potential of $1.3 million to $ 1.4 million, you will have enough encouragement to file for approval from SEC and to incur the upfront legal and other costs. The approval process could take you between two to three months and will cost you up to $100,000 in filing and other associated fees. However, since you have indications of interest which should work out to around $800,000 worth of money collected, you can pay most of these fees out of your escrow account after you have collected.
The ingenuity of the site is that you can launch a campaign and ask for indications of interest without making an offering. Once you have received SEC approval, you can launch an official offering to collect money from anybody who has shown an indication of interest. This is one of the best ways of offering stock to non-accredited investors in a private offering. You should remember that there are platforms like CrowdCheck which will be providing a complete service for legal and compliance except accounting fees which would normally amount to less than 2% of the overall offering cost. If you decide to move forward to file the forms with the SEC, there could be an upfront fee of $40,000 on indications of interest worth $2 million, and the process of collection could take from 4 months to 6 months.
Platform cost is presently zero to test the waters but as money is deposited into escrow, a $20 investor administration fee is payable after you release money from escrow. CrowdCheck reckons that initially they need 30 days to prepare Form 1A since the work would consist of, among other things, adding disclaimers, legal work, business plans and audited documents unless you are a start-up business.
Indications from SEC suggest that they will need 30 days to 45 days to provide a turnaround with their comments after which you may need another 30 days to 45 days to reply to their comments and obtain a second reply. All this suggests that the entire process from start to finish could be completed in a period of 4 to 6 months which includes testing the waters.
StartEngine is an #accelerator with a portfolio of 60 investments and has been functioning for the last three years in Santa Monica. Its large audience focus is expected to be new media and entertainment with a heavy emphasis on #film. I’ve spoken to the CEO, Ron Miller, who confirmed that no offering may be made or money collected without SEC approval. He also confirmed that the $ 20 investor administration fee is paid straight from the escrow proceeds, and this fact must be disclosed to all investors. Warrants also have to be issued for the amount of the administrative fees which provide the right to StartEngine to purchase shares at the same price for which they have been offered to investors.
Sarah Hanks of CrowdCheck also told me that they are working with several different industries including technology, green energy, and films, and it is difficult to predict at this stage who would be the biggest users. She also believes that you cannot do a Regulation A offering without the services of a properly experienced securities lawyer that knows how the filing process works. However, much of the work involved in putting together a compliant filing is not purely legal, and you shouldn’t have to pay expensive lawyers. CrowdCheck offers a combined compliance and legal product at a fixed fee suitable for smaller companies.
Note: This article originally appeared on HedgeCo.Net with this link http://www.hedgeco.net/blogs/2015/06/24/the-future-of-online-investing-startengine-launches-revolutionary-platform-by-david-drake/ on June 24, 2015.
Featured Image: Santa Monica Pier
Featured Image credit to mapio.cz
David Drake, Contributing Journalist.
Reach him directly at David@LDJCapital.com.