Today, we are excited to announce that we’re going Title III. We
previously ran what was (at the time) one of the top 100 Kickstarter
campaigns so we thought it would be valuable to other founders to share
the key differences we’ve found preparing for an equity crowdfunding
campaign versus a rewards-based campaign.
Equity crowdfunding has an administrative load at least equal to the
entire amount of work we put into our Kickstarter campaign (over 25
people contributed to getting us ready for launch). There are many rules
governing what you can and can’t say and how you can market the
campaign. This burden requires expert support, as getting it wrong (e.g.
if SEC determines it’s an ‘illegal’ offering) could result in investors
having a right of refund from the management team or major
Why Equity Crowdfunding?
There are two reasons we launched an equity crowdfunding campaign.
First, we felt it’s the right thing to do: our company started as a side
project, only becoming a company following our exciting Kickstarter
success. Our Kickstarter backers were our initial seed investors, and
after we raised money from Y Combinator and some fantastic angel
investors, it just feels like the right thing to do to give our early
backers the opportunity to become equity investors. It doesn’t feel
right that only the already wealthy can get the returns available from
high-growth companies, that promotes inequality.
Our second reason is more strategic. We are a consumer-product company
working with genetic engineered (GE) organisms. We believe having a
large number of engaged shareholders who want to share future product
launches on social media channels can be a core, competitive advantage:
5,000 investors with 1,000 friends each means five million people might
see future launches – that’s a powerful asset for any startup.
Furthermore, we work with GE organisms which can be controversial, and
one of the biggest risks that remains is public backlash against our
products. Having a crowd of evangelists helping to share our positive
message about this technology helps mitigate that risk.
The first decision is which portal to select – using a portal is mandated by the SEC. We chose to launch our campaign with WeFunder for these reasons:
• They were offering the lowest price and their pricing was a percent of raise not fixed per investor
• They have been working on this for four years and know all the in’s
and out’s of the regulations. They were the only portal that we talked
to who raised the issue of having more than 500 non-accredited investors
and triggering SEC reporting requirements their standard documents were
the only one’s with a solution to the issue
• They were ready to go on launch day, May 16th
• They had good integration with Google analytics and Facebook tracking which we’ll need for tracking the campaign
• Standard documents suitable for your company
• Fair pricing that is well structured (% raise vs $ per investor)
• Acceptable minimum investment (we wanted as low as possible to maximize inclusion)
• Easy design tools for building the page
• Good analytics
• Responsive support
Getting investors to invest requires getting their attention. We are
still a small team, with most of our team focused on R&D. To help
market the campaign we therefore hired CrowdfundX to support our
You cannot market an equity crowdfunding campaign the same way you
market a rewards based crowdfunding campaign due to a number of
restrictions from the SEC. Until you file what’s known as Form C with
the SEC you are not allowed to tell anyone about the campaign, including
press, which makes it more challenging to develop the launch strategy.
In the future companies will probably file the Form C a week or two
ahead of publicly launching the campaign to help with this, but for
launch day that wasn’t an option.
There are also very strict ‘Tombstone’ rules which restrict what you can
say about the offering anywhere online except on the Portal to the
following three items:
(1) a statement that the issuer is conducting an offering, the name
of the intermediary through which the offering is being conducted and a
link directing the investor to the intermediary’s platform;
(2) the terms of the offering which includes only (a) the amount of
securities offered; (b) the nature of the securities; (c) the price of
the securities; and (d) the closing date of the offering period.
(3) factual information about the legal identity and business
location of the issuer, limited to the name of the issuer of the
security, the address, phone number and website of the issuer, the
e-mail address of a representative of the issuer and a brief description
of the business of the issuer.
Because of the various restrictions on what you can say and where you
can say it, we’ve decided to focus our marketing strategy on our
existing Kickstarter backers and other pre-order customers. We then plan
to follow this up with a PR and social media campaign
• Pitch Video
• Graphics for WeFunder landing page
• Social media accounts setup (including tracking pixels)
• Email list and emails to existing customers/supporters
• Press release
The rules around Title III are complex and easy to get wrong.
Eventually, I expect standards will develop around what you can and
can’t say or do, but until then it’s best to get a lawyer who can review
your marketing materials and regulatory filings. We decided to partner
with Sara Hanks from CrowdCheck. Sara has been deeply involved with the
development of the Title III rules and was super fast at responding to
all our questions.
It’s not required to have a company like CrowdCheck review your
materials, but we had them do this on behalf of investors to provide
additional clarification around our disclosures. You can read their
report here: https://portal.crowdcheck.com/#/report/view/310
One thing to remember early is to apply to the SEC for a CIK code – you
can’t launch the campaign without it and it takes a few days. You don’t’
want to find you are missing it right as you try to file your Form C.
Here’s how to get a CIK code:
• Bad actor report
• Compliance checklist
• Marketing communications review
• Video script review
• CIK code
• Form C disclosures review
There are two steps you need to take with your accounting, first you
have to produce GAAP financial statements, including notes, then if you
are planning to raise more than $100k you also need to get your
financial statements reviewed by an independent accountant (ie not the
person who normally does your accounting). This is a surprising amount
of work as GAAP accounting requires special treatment for things like
stock options. Quite a few companies hoping to launch campaigns today
didn’t get the accounting completed in time and this delayed their
Our accounting is done by TempCFO and our independent review was done by David Gosselin at dbbmckennon, feel free to contact him at email@example.com if you would like to get a review done for your raise.
• GAAP Balance sheet
• GAAP P&L
• GAAP Cash flow statement
• GAAP statement of stockholders equity
• GAAP notes to financial statements
• Accounts reviewed by independent accountant
We were advised to get Director and Officers Liability insurance to cover any potential risks to the founding team. Given how complex some of this can be and the severity of penalties for making mistakes, this feels essential. FounderShield helped us out: www.foundershield.com
• General Liability Insurance
• Directors and Officers Insurance
If you are interested to see the result of all our work on this campaign, you can visit our Wefunder page at www.taxa.com/invest.
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