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Index A limited liability companies Accredited investors, 216 (LLCs), 179–180, America Invents Act (AIA), 186–188 102–103 limited liability partnerships Antitrust laws, 198 (LLPs), 179–180, 183–184 Appbackr, 61 limited partnerships (LPs), AppsFunder, 61 179–180, 184–186 Australian Small Scale Offerings partnerships, 179–180, Board (ASSOB), 53, 77 181–183 law, nature of, 178 B Business brokers, 159–161 Backers, communicating with. See Investors, C communicating with C corporations, 191 Bandwagoning, 65 Camillo, Chris, 136 Bankruptcy and reorganization laws, Canonical, 67 197–198 Charity/donation crowdfunding, Barnett, Chance, 19–20, 21, 28 39–40, 56–57 Blass, David W., 69–70 Chen, Perry, 9 Blue sky laws, 5, 150 CircleUp, 54 BrewDog, 61 Coffee Joulies, 23 Broker-dealers, 69–71 Communication skills, 19–20 Building and loan Companies Act 1867, 201–202 associations,COPYRIGHTED 4 Contracts, MATERIAL 193–197 Business associations, crowdfunding issues in crowdfunding, 196–197 interests in, 177–193 law, nature of, 194–196 choice of entity, 191–193 binding nature, 195 entities, principal forms of, defenses to contract 178–191 formation, 195 corporations, 179–180, elements of contract, 194–195 188–191 enforceability, 195–196 243 bindex.indd 243 2/10/2014 1:44:31 PM 244 Index Copyrights, 103–105 description of business, 85–88 crowdfunding risks, 104–105 description of financial Corporations, 179–180, condition, 88–89 188–191, 193 disclosure document, writing, CraftFund, 61 84–85 Crowd Supply, 22 pricing securities and Crowd wisdom, pitfalls of, 65 understanding capital Crowdbrewed, 61 structure, 90–93 CrowdCheck, 78 reviewed vs. audited financial Crowdcube, 52, 77, 206–207 statements, 93–94 CROWDFUND Act, 171–176 use of proceeds and offering Crowdfunding amount, 89–90 alternatives to, 145–161 history of, 3–14 credit unions, 157 building and loan entity, choice of, 148–149 associations, 4 factoring, 158 disappearance of, 5–6 finance, basic types of, modern era, 9–14 145–148 Regulation D, Sarbanes-Oxley, finders and business brokers, and regulatory reform, 6–8 159–161 Statue of Liberty, 4 initial public offerings laws based on global jurisdiction, (IPOs), 155 199–211 leasing, 158–159 crowdfunding in Europe, letters of credit, 159 203–206 On Deck Capital, 158 Europe, emergence of equity owner financing, 159 investing in, 200–201 peer-to-peer lending, 157–158 European platforms, 206–211 private placements and investing regulations, 201–203 Regulation D, 150–155 legal aspects of, and U.S. law, securities laws, overview of, 165–198 149–150 basic legal issues, 197–198 Small Business Administration contracts, 193–197 loans, 156 interests in business trade credit, 157 associations, 177–193 traditional banks, 157 looking ahead, 209–211 campaign, business planning in securities regulation, 166–177 preparation for, 83–96 social media, 15–30 basic information, 85 finding a solution, 21–26 budgeting, projections, and fundamentals of forecasting, 94–96 crowdfunding, 18–21 bindex.indd 244 2/10/2014 1:44:31 PM Index 245 preparing for crowd investing, E 26–28 Elevation Dock, 22 quality entrepreneurs and Ellenoff, Doug, ideas, 16–18 127–128 transformed environment, Enron, 7–8, 12 28–30 Enterprise Investment Scheme statistical view of, 31–45 (EIS), 52 crowdfunding models, Entrepreneurship, shift in, 29 35–42 Equity crowdfunding, ix–xiv, market outlook, 42–45 41–42, 51–54 marketplace, 32–35 Espinal, Carlos, xii Crowdfunding for Dummies (Neiss), Europe 19–20 crowdfunding in, 203–206 Crowdfunding models, 35–42 emergence of equity investing in, donation-based, 39–40 200–201 equity-based, 41–42 investing regulations, financial vs. nonfinancial 201–203 return, 38–39 looking ahead, 209–211 lending-based, 40, 41 platforms, 206–211 rewards-based, 40, 41 France, 208 Crowdfunding Regulatory Germany, 208 Intermediary Advocates, 11 Italy, 209 Crowdfunding world map, 33–35 Netherlands, 207–208 Crowdsourced feedback, 64 United Kingdom, managing, 65–66 206–207 Crowdtilt, 57 F D Factoring, 158 Debt-based crowdfunding, 54–55 Finance, basic Demo days, 219 types of, 145–148 Dodd-Frank Act, 117, 118 convertible securities, The Doom that Came to Atlantic 147–148 City, 76 debt, 145–146 Doriot, George, xiii equity, 146–147 Dragon Innovation, 59 common stock, 147 Due diligence, xi preferred stock, 147 Dunning-Kruger effect, 65 partnership and limited The Dynamics of Crowdfunding: liability company Determinants of Success and interests, 147 Failure (Mollick), 17, 28 options and warrants, 148 bindex.indd 245 2/10/2014 1:44:32 PM 246 Index Financial Conduct Horlick, Nicola, 60 Authority, 55 “How to Run a Successful Financial crisis of 2008, 12 Campaign on Kickstarter” Finders (private placement brokers), (Hayes), 22 159–161 Howey test, 169, 183, 186 France, crowdfunding platforms HWTrek, 59 in, 208 Fraud I in investment crowdfunding, iLobby, 72 77–78 Illusory superiority, 65 in noninvestment crowdfunding, Indiegogo, 47, 48, 49–51, 59–60, 73–77 64, 72, 121 defining, 73–74 terms of service, 74 examples of, 75–76 Initial public offerings (IPOs), 155 protection from, 76–77 Instagrad, 61 risks of, 74–75 Intellectual property, protecting, “Free-rider problem,” 31 97–110, 197 Freedom of Information Act (FOIA) copyrights, 103–105 Machine, 67–68 crowdfunding risks, FundersClub, 53–54 104–105 Funding Circle, 55 importance of, 98–99 Fundly, 57, 72 patents, 99–103 Fundrazr, 72 America Invents Act (AIA), 102–103 G fundamentals of, 100–101 General solicitation, 215 provisional patent application, German Exchange Act of 101–102 1896, 202 portfolio management, Germany, crowdfunding platforms 109–110 in, 208 trade secret protection, Goos, Craig, 129 107–109 Grandma Pearl, 29 crowdfunding risks, 108–109 Great Depression, 12 trademarks, 105–107 Gridiron Thunder, 66 crowdfunding risks, Groupthink, 65 106–107 Investment crowdfunding, H 51–55 Handibot, 76 debt-based crowdfunding, Hanks, Sara, 127–128 54–55 Happy Canes, 29 equity crowdfunding, 51–54 bindex.indd 246 2/10/2014 1:44:32 PM Index 247 Investor options, 111–125 reconnecting with prospective bringing on investors, 112–114 investors and backers, benefit, 112–113 134–137 drawbacks, 113–114 offline networking, 135–136 capital spectrum, 122–125 process, benefit of, 136–137 debt, 124 social media, 134–135 equity, 124–125 Italy, crowdfunding platforms in, revenue sharing, 123 209 general obligations to investors, 115–118 J nonaccredited vs. accredited Jackson, Dave, 23 investors, 117–118 JOBS Act, 10–11, 12, 15–16, 27, regulatory obligations, 83–84, 88, 150, 216, 217 115–117 consequences of, 174–177 investor education obligations, requirements for financial 118–120 statements, 93 maximizing investor requirements for valuing a participation, 120–122 company, 90, 92 Investors, communicating with, Title II, 11, 13, 15–16, 116–118, 127–143 127, 152, 216 crowd communications checklist, Title III, 11, 13, 15, 115–120, 141–143 127, 130, 169–170 resources, 143 Joint Stock Companies investor relations, 137–141 Act 1844, 201 changes in, 141 choosing investors, K 137–138 Kansas Act, 202 consistent communication, Kickstarter, 9–10, 12, 16, 47, 48, 139–140 49–51, 59, 64, 66, 68, pitches, 138–139 72, 75–76 strategy, 140–141 change in project guidelines, issuer’s dilemma, 129–134 73–74 crowd building, value of, Kiva, 9, 12, 55, 56 130–131 Kobe Red Beef Jerky, 75–76 digital presence, Krasfur, Andy, 68 building, 132 influencers, connecting with, L 132–133 “Last mile problem,” 13 target list, building, Leasing, 158–159 133–134 Lending Club, ix, 158 bindex.indd 247 2/10/2014 1:44:32 PM 248 Index Letters of credit, 159 hardware, 58–59 Limited liability companies (LLCs), real estate, 57–58 77, 147, 148–149, 179– rewards-based crowdfunding, 180, 186–188, 192–193 49–51 Limited liability partnerships market testing with, 62–68 (LLPs), 179–180, Massolution report (2013), 183–184, 192 16, 32 Limited partnerships (LPs), 179– C-STEP methodology, 32 180, 184–186, 192 Merit reviews, 171 Migicovsky, Eric, 23 M MogoTXT, 66 Madoff, Bernie, 7 Mollick, Ethan, 17, 28, Malkin, Pearl, 29 122, 131 Market dynamics, current, 47–80 N broker-dealers, 69–71 Neiss, Sherwood, 19–20 charity/donation crowdfunding, Netherlands, crowdfunding 56–57 platforms in, 207–208 crowdfunding as a political tool, NeuYear, 24 71–73 Niche crowdfunding platforms, fraud 57–62 in investment crowdfunding, alternative energy, 58 77–78 apps, 61 in noninvestment beer, 61 crowdfunding, 73–77 book publishing, 61 investment crowdfunding, concerts/events, 60 51–55 education, 61–62 debt-based crowdfunding, film, 59–60 54–55 hardware, 58–59 equity crowdfunding, real estate, 57–58 51––54 Nondisclosure agreement niche crowdfunding platforms, (NDA), 98 57–62 alternative energy, 58 O apps, 61 Obama presidential campaign beer, 61 (2008), 71 book publishing, 61 Offline networking, 135–136 concerts/events, 60 On Deck Capital, 158 education, 61–62 Opena, 24 film, 59–60 Owner financing, 159 bindex.indd 248 2/10/2014 1:44:32 PM Index 249 P for companies relying on Rule Partnerships, 147, 149, 179–180, 506(c) and using general 181–183, 192 solicitation, 222 Patents, 99–103 for companies relying solely on America Invents Act (AIA), Rule 506(b), 221–222 102–103 506(c)-only events, 220 fundamentals of, 100–101 closed pitch events, 220–221 provisional patent application, company application 101–102 process, 220 Pave, 62 demo days, 219 Pebble smartwatch, 22, 23, 58 proposed SEC rules Peer-to-peer lending, 157–158 series, 224 Peters, Chris, 24 key securities law concepts, Petrillo, Dave, 23 215–218 Phillips, Jesse, 25–26 accredited investors,