Wednesday, May 17, 2017

MNvest and Crowdfunding Tips

A few weeks ago, I attended a luncheon hosted by the Association for Corporate Growth, or ACG, regarding MNvest.  For those who may be unfamiliar (or who haven’t been reading posts like this one from my colleague and fellow entreVIEW author Dan Tenenbaum), MNvest is the shorthand reference to the MNvest Securities Registration Exemption, an amendment to the Minnesota Securities Act. MNvest, which “went live” on June 20, 2016, permits eligible Minnesota businesses to engage in “intra-state” equity crowdfunding campaigns. An equity crowdfunding campaign is an online approach to raising small amounts of capital from a large number of people. Whereas donation-based crowdfunding – think KickstarterIndiegogo, or GoFundMe  – permits individuals to contribute to various causes without necessarily receiving anything in return, through an equity crowdfunding campaign like MNvest, a Minnesota business can solicit investment funds from Minnesota residents in exchange for a financial stake in the business.  

To date, about six companies have submitted notice of their intent to sell equity crowdfunding offerings in Minnesota under MNVest. All offerings must be sold exclusively through a registered portal, and each of the portals registered in Minnesota tends to be designed for companies in specific industries. Both the Minnesota Department of Commerce and MNvest are excellent sources for additional information on intra-state equity crowdfunding in Minnesota, and I would strongly encourage you to review them if you are interested in more information.  

But back to the luncheon. As an attorney who regularly advises start-up companies, crowdfunding questions are hardly uncommon. Entrepreneurs want to know what they should consider before pursuing an equity crowdfunding campaign. One of the panelists, Howard Leonhardt, an inventor, serial entrepreneur, and experienced crowdfunder, has developed a list of 20 tips for crowdfunding success.  While they are a quick read, here are a few of the highlights (with some editorializing on my part): 

  • A crowdfunding campaign is incredibly hard work. An entrepreneur must be prepared to make hundreds or even thousands of calls and hold many in-person meetings. Posting a video to a portal and expecting the Internet to do the rest is simply not enough.
  • Keep it simple! Enough said.
  • Remember, with equity crowdfunding, you are selling an experience – an opportunity for someone to be included in the growth of your business – and not just a product or service.
  • Tell a story – don’t just present a list of facts and figures. People may not remember numbers, but they do remember personal stories. 

I’ll add to this one critical (and admittedly self-interested) tip from my own list: Seek the advice of an attorney! Equity crowdfunding campaigns require you to adhere to a comprehensive list of legal requirements, particularly those relating to what you must disclose about your business, when you are obligated to disclose, and how you may solicit participants in your offering. Failure to comply with these requirements may have significant effects on your business and all future fundraising efforts, not just those undertaken pursuant to an equity crowdfunding campaign. In addition, you probably want to understand the ramifications of taking on dozens (hundreds?) of shareholders before you do so!

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