Transcript The Backbone of Crowdfunding and the Role of Banks

The Backbone of Crowdfunding
and the Role of Banks
Thomas Coke, Esq.
My Expertise
• Formerly with the State of Michigan Securities Division as
a securities product attorney
• Served on the NASAA committee for small business
offerings
• Worked with Small Business Development Center in
Kalamazoo
• Established regional and national network in the
crowdfunding space
• Lawyer with a detailed knowledge of crowdfunding laws at
the federal level and in other states
• Will focus in this talk on the anatomy and backbone of
crowdfunding and the role of banks
Anatomy of Crowdfunding
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Payment Gateways
Websites/Portals
Document Management
Escrow Accounts/Funds Management
Payment Gateways
• How will investors purchase shares?
– The act is silent on the issue
– Need something easy to track and easy to use
• Credit Cards
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Easy to use and set-up
High interchange fees
Chargeback issues
Traditionally credit isn’t allowed to purchase securities
• Wires
– Fast
– Very expensive in many cases
Payment Gateways II
• Paper Checks
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Inexpensive
Provides a great deal of information
Requires some labor
Issues such as timing, security, difficulty in reading
• Electronic Checks
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Can be easy to use
Provide a lot of data
Low cost
Easy to ingrate within a campaign
ACH can have issues, so look to alternatives
This is where VerifyValid fits in
Websites/Portals
• Existing platforms
– Some platforms already exist and may be used
• Use company site
– An issuer with an existing site could add and investment link or button on their
home page
• Create a new site
– A crowdfund issuer could create a simple page and make it public to raise
capital
– VerifyValid offers their CheckItOut service, which is perfect for this
• Registration with Securities Division
– In the act it states a crowdfunding website will have to provide a letter of intent
to the state and file a form
– A website will have to keep records, available upon request
– If they stay up and running for twelve months they have to notify the state
again at the end of twelve months
Document Management
• What an issuer needs
– Application (my sources tell me it will be similar to what is used in
Georgia and Kansas, and I can provide those)
– Prospectus (very similar to a business plan)
– More in depth and with risk factors mentioned
– Keep updates on progress
– Think about what an investor will want to see
• What a website needs
– Records of the securities transactions
– Updates on progress of offerings
– Again, should be focused on the users of the site, both issuers and
investors
– Records have to kept and available to the administrator
Escrow Accounts/Fund Management
• Where will you host your Escrow account
– Consider community bank, regional bank or big bank
– Will you use this bank after your raise for your business
accounts?
• If the goal is not reached how will funds be sent back to
investors?
– Especially relevant for credit cards and wires
– Who will administer this process?
• If the goal is reached how will the issuer access the funds
– An issuer can’t handle the funds until they reach their goal, so
who administers the funds until then
The Role of Banks
• MBA Supports Crowdfunding
• Crowdfunding is a great tool for banks,
especially community banks
• Bank run Portals
MBA and Crowdfunding
• The Michigan Bankers Association is supportive of
crowdfunding and what it can do for entrepreneurs
• The MBA views crowdfunding as a new way banks,
especially community banks, can be a bigger asset to
their communities
• There are many possible intersections of banks and
crowdfunding issuers and investors
Crowdfunding As A Tool For
Banks
• Banks will have a new treasury management tool for existing small
and medium business customers
– Existing SMB’s will likely have audited financials to raise $2million
– Great way to help an SMB improve their capital position through
equity not debt
• Attracting new SMB customers
– Many of those crowdfunding will be new businesses
– Natural way to attract accounts
– Shows bank support for entrepreneurs
• Building loyalty with existing SMB customers
– Boomer effect
– Assisting the sale and continued operation of existing SMBs
Bank Run Portals
• Banks may attach themselves to or even run
portals
• Because escrow accounts are needed banks are
in a great position to support and be involved
with crowdfunding
• Bank support will help the success of
crowdfunding
Thanks for your time
• I’ll look forward to your questions during
Q&A
• Please feel free to contact me
– [email protected]
– (312) 320-1597
– www.linkedin.com/in/thomascoke/
– @cokethom