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Costs of Online Equity & Debt Fundraising

Costs of Online Equity & Debt Fundraising

3rd Jul 2014

There is a lot of inaccurate information out in the media regarding the cost of raising money online via 506(c) or 4(a)(6) crowdfunding. This is almost entirely from one of FundAmerica’s competitors – he and I have gone numerous rounds both privately and in industry forums about this. He’s adamant that it will motivate the SEC to issue lighter regulations, whereas I’m adamant that it won’t and that the misinformation is doing nothing more than needlessly freaking people out about online fundraising.

Here’s what you should do…Forget everything you’ve read, as it’s all wrong.

So, what are the hard costs of raising funds online using the 506(c) exemption? (and, soon, the 4(a)(6) exemption)
These can be broken down into two types – hard costs and variable/success fees.

Hard Costs:(charged to the issuer no matter what, regardless of whether the offering is/isn’t successful)
Legal – $varies for your attorney to review and edit the offering subscription agreement and risk disclosures
Accounting – $0 (no audits or reviews are required in 506-D offerings)
Offering Documentation – $0 (use the online template, and no printing costs)
Compliance – $2 per investors, $30 for the issuer/entity, $30 per each officer, director and 20%+ beneficial owner for AML, Patriot Act, corporate status, bankruptcy, and other checks
Escrow – $250 plus AML and incoming funds costs
Form D – No charges for filing with the SEC, but there are one-time state fees for each location of your investors (approx $350 per state). Plus if you don’t file the form yourself (via Edgar) and instead have someone else do it then there will be some labor costs, but shouldn’t be too much

Call or email me with any questions and lets put an end to the misinformation.

Scott

Scott Purcell

Scott Purcell - author

Scott Purcell is the CEO of FundAmerica, a fintech services provider to the emerging equity and debt crowdfunding industry. His firm, with its subsidiaries provides escrow, payment processing, registered transfer agent services and compliance technology for numerous broker-dealers, investment advisers, portals and others who make a business of online capital formation pursuant to rules now in effect thanks to the JOBS Act. He is an active Board member of the Crowdfunding Intermediary Regulatory Association (CFIRA) and the author of the book “The Definitive Guide to Equity and Debt Crowdfunding” as well as the “Industry Best Practices for Funding Portals”.

Legal Disclaimer:
These materials are my personal opinions and for informational purposes only and not for the purpose of providing legal or tax advice. I am not advocating, advising or recommending anyone purchase any specific or general investment of any type, ever. The issues discussed include complicated areas of law and legal advice should only be obtained and relied upon from a securities attorney about your specific circumstances.

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