The Backbone of Crowdfunding and the Role of Banks

1
The Backbone of Crowdfunding and the Role of Banks

• Thomas Coke, Esq.

2
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

3
Anatomy of Crowdfunding

• Payment Gateways
• Websites/Portals
• Document Management
• Escrow Accounts/Funds Management

4
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
• Easy to use and set-up
• High interchange fees
• Chargeback issues
• Traditionally credit isnt allowed to purchase
  securities
• Wires
• Fast
• Very expensive in many cases

5
Payment Gateways II

• Paper Checks
• Inexpensive
• Provides a great deal of information
• Requires some labor
• Issues such as timing, security, difficulty in
  reading
• Electronic Checks
• 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

6
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

7
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

8
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 cant handle the funds until they reach
  their goal, so who administers the funds until
  then

9
The Role of Banks

• MBA Supports Crowdfunding
• Crowdfunding is a great tool for banks,
  especially community banks
• Bank run Portals

10
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

11
Crowdfunding As A Tool For Banks

• Banks will have a new treasury management tool
  for existing small and medium business customers
• Existing SMBs 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

12
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

13
Thanks for your time

• Ill look forward to your questions during QA
• Please feel free to contact me
• thomas.coke_at_verifyvalid.com
• [phone]
• www.linkedin.com/in/thomascoke/
• _at_cokethom