Who Dares to be the next Ben and Jerry’s or Fundrise to Raise up to $50 Million through Regulation A+?

By David Drake

All startups need capital to innovate, launch, scale and grow. For companies seeking additional financing for their working capital or to expand its operations but do not yet want to risk an IPO, using the newly approved Regulation A+ is a possible alternative.   Ben & Jerry’s Homemade Inc. (BJICA) is one firm that was able to successfully raise $750,000 from 1800 ice cream lovers within 60 days by employing the mandates of the former Regulation A offering with all its  cumbersome procedures.

One of the leading real estate #crowdfunding platforms, Fundrise, also used Regulation A  to raise funds for its first project in Washington DC called Maketto, an old building renovated and converted into a communal market where people converge and socialize as well. They purchased the building using their own money and raised $350,000 from 175 investors at $100 per share for the renovation. Its second Regulation A offering was for 906 H Street NE LLC in Washington DC. Fundrise raised $350,000 from the crowd, with $182,400 raised 2 days after offering went live. For its 3rd Regulation A offering in 2014, Fundrise chose the property at 1539 7th Street NW, Washington DC. Estimated project cost was $2 million, with $350,000 made available for general public investing  for as little as $100 per share.

Regulation A+ is an upgrade/improvement on Regulation A. With Reg A, $5 million can be raised in an offering from unaccredited investors, subject to state blue sky laws.  On the other hand, using Tier 2 (exempted from state blue sky law)  of Reg A+ companies can raise up to $50 million online as capital; and only $20 million under Tier 1, subject to blue sky law (reviews and fees) but will not file audited accounts with SEC. Firms undergo a cumbersome,  tiring and expensive process using Reg A rules.  With the newly enacted Reg A+, the firms have two options to choose from – the amount to be raised and how to go about it.

Last 21 May 2015, experts and thought leaders on Regulation A+, Crowdfunding and the Jumpstart Our Business Startups (JOBS) Act, as well as entrepreneurs, investors, angels, heads of venture capital firms, and industry professionals converged in New York City in a Master Class to discuss the nuances and opportunities brought about by the newly approved Regulation A+. This event brought  together crowdfunding stakeholders who deliberated  the viability of the new regulation and how it can successfully be applied in raising up to $50 million in capital.

I moderated the first panel wherein we discussed “Why startups should not ignore Regulation A+”. Alysse Romero,  Investor Representative for American Homeowner Preservation LLC, Allen Shayanfekr, Co-Founder of Sharestates  and Scott Andersen,  FinLawyer and ConsultDA partner, were panelists. Scott Andersen said, “It is still expensive to invest using Regulation A+ in comparison to a Reg D offering.  Keep in mind only a handful of  lawyers in North America during the last five years have actually prepared an offering using Reg A, and now with its broader scope and possibilities as Reg A+, attorneys are estimating total costs for conducting an offering, including obtaining an audit and making periodic disclosures, will be in the $75,000 range.” Allen Shayanfekr stated that the event was a blast and very educational for people who weren’t familiar with Regulation A+. He said the two most important takeaways for him were: “First, if you can do a private offering rather than a public one, you should stick to the private. It’s cheaper, faster, and with fewer reporting requirements. Second, if you decide to do a public offering – be prepared for a long process and also make sure you have an anchor investor to legitimize your raise.” Alysee Romero added that “the most transparent way to raise capital is to have a following, people who connect with you, your business, and your service or product etc. To get someone to emotionally connect is the most simplistic way to sell. It is also imperative to make sure your employees and partners are also passionate about what service/product you are offering.”

Panel 2 discussed “How crowdfunding fits within the current Angel Investors and Venture Capital landscape”.  Joe Rubin, Director and Co-Founder of FundingPost, was the moderator, with panelists:  Alan McGlade, Managing Director of Digital Entertainment Ventures; Brad Kayton, Angel Investor of Launchpad; Katherine O’Neill, Executive Director of JumpStart New Jersey Angel Network and Nick Jekogian, Founder & CEO of  Signature Group Investments.

The 3rd  Panel discussed the impact of Regulation A+ on real estate crowdfunding. Scott Purcell, CEO of FundAmerica, served as  moderator. Brian Newman, Director of Business Development in Prodigy Network, and Bruce Lipnick,  Chairman and CEO of Crowd Alliance and Asset Alliance, and I served as panelists.   Regulation A+, according to Scott Purcell, “has the potential to become a game-changer for medium sized businesses that need strategic capital to grow.” Purcell mentioned ways on how firms in the ecosystem like FundAmerica are helping to reduce these costs. Because of the technology involved in offering securities online, it is great to know that firms like FundAmerica are providing tools and services to make it as easy as possible for online platforms to serve their customers and be compliant to regulations.

The entrepreneurs and investors found the insights from the panel discussions to be an eye-opener. The straightforward steps and formula for online syndication and financing provided by the securities and regulatory experts on the newly revised Regulation A+ were educational and informative.   Now everyone is in a wait-and-see mode on how the use and execution of the Regulation A+ will unfold in the next 6 months. It is interesting to note who will follow the footsteps of firms like Ben & Jerry’s and Fundrise who were able to use the old version of this regulation successfully. By then, we  will be able to see which firms out there are willing to take this route and who will be the lawyers they will partner with to efficiently raise capital.

The event sponsors included  Belluci Napoli, Madame Paulette, FinLawyer and  ConsultDA. Join us this June 25, 2015, for more discussions on Regulation A+  in  the real estate crowdfunding conference we are holding in New York City. It is a Master Class and limited to 30 people only. With all the rules in place, who do you think would benefit greatly in taking this new method of capital acquisition?

David Drake is the Chairman of LDJ Capital, private equity advisory; Victoria Partners, a 110 family office network; Drake Hospitality Group; and The Soho Loft Media Groupwith divisions Victoria Global Communications, Times Impact Publications, andThe Soho Loft Conferences. Reach him directly at David@LDJCapital.com.

by David Drake

One of the outcomes of the 2008 global financial crisis was the “funding gap”. Banks were less willing to provide #loans and #investors moved #capital into more stable platforms. In general, the market tolerated less risk.

In this new environment, raising capital became the greatest challenge for small and midsize businesses (SMBs). They needed new platforms. Enter #crowdfunding.

While some players have been around since 2008, the huge crowdfunding wave crashed onto the market between 2012 and 2013, particularly in Europe and the U.S. As of April 2012, there were more than 450 crowdfunding websites worldwide.

Given the relatively recent arrival of the crowdfunding wave to the market, its future iterations will be interesting to follow.

Here are six waves to watch in crowdfunding.

1. Crowdfunding will continue to grow. Online crowdfunding platforms raised $2.7 billion in capital in 2012 with expectations that the number would reach $5 billion by 2013, according to a study from crowdfunding-focused research firm Massolution. And these figures will likely continue to rise.

The World Bank commissioned a study and estimated that by 2025, the global crowdfunding market potential could be between $90 billion and $96 billion.

This reveals that more entrepreneurs are turning to crowdfunding as a low pressure route for raising startup capital for their businesses.

And while these figures take into account all crowdfunding models, the equity model could see a huge spike. Current equity crowdfunding rules by the SEC allows only participation from accredited investors. And with only 3 percent of the accredited investors in the U.S currently participating in startup investing, the prospect of the figure doubling is likely as more VCs embrace crowdfunding as a viable investment vehicle.

2. More industries will cut out the middle. Crowdfunding allows startup companies to connect easily with investors without going through a costly middle man. This trend is fast gaining traction in industries like real estate where there are many middlemen between entrepreneurs and prospective investors.

For instance, real-estate agents, brokers and other intermediaries can significantly escalate the cost of executing projects. Some real estate development firms have decided to raise capital through crowdfunding to save on the cost of agent and broker fees. CEO Zeke Turner of Mainstreet Property Group raised about $1.8 million from accredited investors through its partnership with CrowdStreet, a crowdfunding platform.

3. Larger emphasis on social-media driven marketing. Because entrepreneurs are reaching out to people beyond their network, crowdfunding relies heavily on its “social edge” over more traditional marketing methods that cater to smaller group of investors. And startups are taking note, providing easier ways to engage with an expanded audience.

New platforms, such as FundRazr, a social-media crowdfunding website has emerged to help generate traffic for an entrepreneur’s crowdfunding campaign. Among other features, FundRazr helps generate awareness for a crowdfunding campaign through a user’s social-media networks on sites like Facebook and Twitter.

4. More money will be invested in crowdfunding opportunities. Many large financial institutions, VCs and angel investors are moving assets into the equity crowdfunding wave. Some of them are even using their brokerages to advertise about crowdfunding opportunities to their investors, hoping to make money as advisors to those seeking investment counsel. The participation of these large brokerage firms in crowdfunding helps validate it as a new financial model.

A recent study by crowdfunding platform ourcrowd reveals that of the 500,000 active angel investors in the world, 50,000 have invested through equity crowdfunding platforms.

This trend helps entrepreneur gain access to big capital from top-notch investors they normally wouldn’t have been able to connect easily with.

5. Niche platforms will increase. While there are major crowdfunding platforms like Kickstarter and Indiegogo that cover various markets, there are niche platforms popping up for specific areas. By utilizing these platforms, startups now have a better chance at reaching their targeted audience.

For instance, there are new platforms that specialize in areas like book publishing. Examples include Pentian and Pubslush that connect self-publishing authors with investors. Pentian affords average investors, who put in as low as $10, the opportunity to fund a book publishing project. In return, early supporters receive a signed copy and a share of the author’s royalty in the future.

6. Regulation A will become a bigger deal. Regulation A may serve as an alternative to equity crowdfunding provisions in 2014 and beyond. Regulation A allows smaller ventures (under $5 million) to avoid some of the more onerous financial reporting requirements until they amass greater profits. Already, Fundrise, a real-estate crowdfunding platform, is leading the way by leveraging on state laws which enables it to afford non-accredited investors the opportunity of investing as little as $100 into projects listed on its platform. This is good news for entrepreneurs interested in impact investment activities in specific communities of interest.

Also, startup entrepreneurs who haven’t been able to raise capital for their businesses from high profile investors can now also do so easily from retail investors in their neighborhood.

In addition, with the cap for amounts raised through a Regulation A offering currently placed at $5 million, this is an opportunity for early-stage entrepreneurs who have started setting their sights on expansion.

Note: This article originally appeared on Entrepreneur with this link: http://www.entrepreneur.com/article/237789

Photo credit to good-wallpapers.com

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City-based family office, and The Soho Loft Media Group – The Voice of Capital Formation – a global financial media company with three divisions: Victoria Global Corporate Communications, Times Impact Publications, and The Soho Loft Conferences. You can reach him directly at David@LDJCapital.com.

Bolstering the container-farming industry both locally and internationally, Hivos Food and Lifestyle Fund, based in the Hague, the Netherlands invested EUR 500,000.00 in a closed investment round in Cape Town-based container-farm construction business AgriLED.

AgriLED manufactures and supplies container farms to smallholder farms, refugee camps and disaster agencies. It also makes market-leading full-spectrum LED Grow Lamps for controlled environment farms both locally and abroad and has had more than 2,000 tonnes of food grown under its lamps in the past year.

This investment comes at a crucial time for both the Western Cape and South African agriculture economy and allows AgriLED to scale internationally through the Hivos Food and Lifestyle Fund footprint, to deploy its high-impact high-nutrition farms with the backing and expertise of a global impact team.

Grown from the need of finding nutrition solutions that were both water- and space-smart in the drought-hit Western Cape in late-2017, Richard Lomax and Theo Pistorius started the business from their expertise in microbiology, remote sensing and electronic engineering. With insight from Richard’s family having worked with refugees, they developed LED Grow Lamps that produce better nutrition and taste while requiring less space and generating less heat than their pricier, foreign competitors. They mention, however, that the product development was always driven by their customers’ need for high-quality, nutritional food in extremely tough circumstances. This while still making sure the produce tastes great and the farms are economically viable for the suppliers, consumers and the producers.

“Most refugee camps depend on very expensive donations to provide small amounts of fresh, nutritious food at great expense to their inhabitants, while fresh nutrition is almost impossible to find in disaster areas. After hundreds of customer interviews, we concluded that you need a low- cost, rapidly deployable, semi-permanent solution that would provide healthy, fresh, nutritious food from deployment day 1,” says Theo Pistorius, the managing director of AgriLED. “We also had to create a space for people to have something to do while in the camps or communities, as lack of activity was a mental killer. So we developed a hybrid-high-and-low-tech solution to grow the food even while in transit to the site, and provide sustainable employment in the communities where we deploy.”

Jaap Spreeuwenberg, the Managing Director of Hivos Food and Lifestyle Fund, mentions that “AgriLED is the type of company that Hivos Food and Lifestyle Fund is looking for: its product delivers impact at its core, and when it scales it will increase both its profitability and impact in an exponential way. The containerized farm solutions increase food outputs and decrease costs substantially; an earn-back period between 24 and 36 months means buying its products is a rational solution for both the food entrepreneurs and the relief organisations that use the products to feed people in need.” He continues “The company is innovative and R&D-driven and sprung out of a practical solution to farm food in the drought-stricken Western Cape. Developed in the hardest of circumstances, it is a high quality, low-cost solution that can be of use all over the world. AgriLED will both help to provide healthy food for people in Southern Africa as well as provide an affordable and cheaper solution to provide vegetables, fruits and herbs in disaster areas and for refugees who would otherwise suffer from malnutrition, depend on dry-ration donations, or would not have food at all.”

Asked about their choice in partner, Theo responds: “We specifically approached the Hivos Food & Lifestyle Fund, as we were looking for an impact-focused partner with whom we could walk a long-term path. They understand the core focus of the business and provide international scalability. Farm-to-fork and urban agriculture are growing trends in the world, and we found that South African technology doesn’t have to stand back in a growing global market. We can also

service local businesses with high-quality products, that would help them supply local retailers and restaurants, and help their businesses grow. So, while helping local businesses win at farming sustainably, we also help those with the greatest need for food and skills-transfer, all around the world.”

Focusing on farm-to-fork, impact-oriented equity investments in Southern Africa, specifically in the EUR 50,000.00 to EUR 500,000 bracket, Hivos Food & Lifestyle Fund provide a fitting partner to AgriLED’s global focus.

AgriLED is based in Durbanville and can be visited at www.agriled.co.za.