CFO interviewed Manatt’s Brian Korn, chair of the firm’s Digital Finance and Marketplace Lending practice, for an article about the crowdfunding exemption, Title III of the Jumpstart Our Business Startups Act, that went into effect on May 16. However, industry insiders told CFO that they do not expect a rush of small businesses to tap non-accredited investors for seed funding and other kinds of financing.
Korn told the publication that by filing annual reports with the SEC, companies that participate in crowdfunding “are taking public-offering-style liability on misstatements in any of their disclosures.”
Many companies would be better off sticking with accredited investors, Korn said, citing a financial barrier: “If you went to a private placement in lieu of crowdfunding, you would not have to file with the SEC, you would not have to use a funding portal or broker/dealer, and you could offer and raise an unlimited amount of money. For most IPOs, the legal fees are at least $500,000 to $1 million. To prepare a disclosure statement that adequately protects any business in a crowdfunding round, you’re talking about at least $50,000 to $100,000.”
Read the article here.