Tag Archives: crowdfunding

The Cashflow Hustle Podcast: Crowdfunding Techniques to Level Up Your Business

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Mark Roderick appeared on the Cashflow Hustle Podcast with Justin Grimes, where he discussed Crowdfunding Techniques to Level Up Your Business.

In this Episode, You’ll Learn About:

1. The Crowdfunding and its flavors
2. The deductions in Crowdfunding
3. The role of SEC
4. Blockchain technology in Crowdfunding
5. The Investor portals
6. Tokenized security in Crowdfunding

Questions? Let me know.

Facebook’s Cryptocurrency

Facebook just announced a Facebook cryptocurrency called Libra.

To me, the timing seems poor. Over the last year or so, Facebook has suffered one public relations black eye after another regarding its privacy policies, it compliance with an order of the Federal Trade Commission, its role in disseminating conspiracy theories and election interference, and its dominance in the social media industry. A Facebook cryptocurrency will, by definition, give Facebook even more private information and even more financial power. Already, regulators and members of the public are shouting “No!”

A few thoughts about what this means:

  • Not long ago, some predicted that cryptocurrencies would lead to a better world, a world that would be more free, more decentralized, where consumers could interact with one another without middlemen. Libra, a cryptocurrency created by one of the most powerful companies in the world, seems to promise exactly the opposite.
  • It didn’t take long to get from idealism to disappointment, but the arc itself is typical of technologies, from radio to automobiles to the internet. We expect technologies to save us, then they don’t.
  • Are tokens securities? Does Howey apply? Facebook’s announcement shows that those questions are small potatoes in the scheme of how cryptocurrencies may re-shape the financial world.
  • Undoubtedly, Facebook is in this for the data. Will consumers care? Probably not.
  • Facebook might be first, but how long can it be before Google and Amazon — especially Amazon — issue their own cryptocurrencies?
  • Regardless of political persuasion, governments aren’t going to allow Facebook or anybody else to compete with their national currencies. We are already seeing opposition from Democrats and Republicans alike, and we can expect more.
  • And the next step: How long can it be before the U.S. dollar itself is given the features of a cryptocurrency, in effect competing with Facebook?
  • The price of bitcoin increased on the announcement, but I think that’s exactly wrong. The announcement shows that bitcoin and other cryptocurrencies will be left behind as big companies take over, just as a few big companies now monetize the once-egalitarian internet.
  • In the same way, I expect the announcement to stifle innovation in the cryptocurrency industry generally, just as the existence of Facebook already stifles innovation in social media and Microsoft once stifled innovation in software. Nobody wants to compete with the giant.

As all six readers of this blog know, I’m a believer in Crowdfunding from a capitalist, ideological perspective. I believe in making capital available to entrepreneurs everywhere, no matter where you grew up, no matter who your parents are, and in making great investments available to ordinary Americans, helping to narrow the wealth and income gaps that do so much harm to our society.

Frankly, Facebook and Libra feel like a step in the opposite direction, toward a world where knowledge and wealth and power are more concentrated and ordinary Americans are so many data points to be monetized. I’m certainly interested in hearing a different point of view.

Questions? Let me know.

Mark Roderick is one of the leading Crowdfunding lawyers in the United States. He represents platforms, portals, issuers, and others throughout the industry. For more information on Crowdfunding, including news, updates and links to important information pertaining to the JOBS Act and how Crowdfunding may affect your business, follow Mark’s blog, or his twitter handle: @CrowdfundAttny. He can also be reached at 856.661.2265 or mark.roderick@flastergreenberg.com

The Wealthy Wellthy Podcast: What You Don’t Know About Crowdfunding

The Wealthy Wellthy Podcast: What You Don’t Know About Crowdfunding

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Our guest on this episode of The Wealthy Wellthy Podcast is Mark Roderick, an attorney who devotes most of his time to crowdfunding. Maybe you are like me in thinking that crowdfunding is pretty straightforward and self-explanatory. I mean, if your friend is looking to start a business and you want to support them, you can donate or invest through their crowdfunding page online and that’s that, right?

Every entrepreneur faces the stage in their business where they need to acquire capital, either from acquaintances, networking, angel investors, venture capitalists, or strategic partners. This process is messy and confusing, filled with regulations and stipulations that may make acquiring the capital more trouble than it is worth. This was partially due to the antiquated laws that were created in the aftermath of The Great Depression and were stifling in the modern economic climate. However, in 2012, the Jobs Act made it legal for entrepreneurs to advertise to raise capital. This opened up a whole new world for small business owners and others who were desperate to be able to connect more easily with potential investors as well as investors who were eager to find new opportunities.

During the interview, Mark distinguishes between the 3 kinds of crowdfunding: (1) to accredited investors only, (2) Regulation A to accredited or non accredited investors, and (3) Title 3 – which is the most common. He also talks about the factors that are most important from a legal perspective when you are determining which crowdfunding site to use to raise capital or to invest capital. It was also interesting to hear Mark spell out the 3 reasons why people invest through crowdfunding: (1) they want to support the company, (2) to do social good, and (3) to make money.

Mark even gave me some advice about a real estate deal I am considering and revealed that 90-95% of the capital exchanged through crowdfunding is for real estate transactions. Finally, he busted a couple of myths regarding the amount of risk involved in crowdfunding and whether money raised from others is subject to securities laws.

What We Covered

  • [2:16] – Who is Mark Roderick?
  • [3:28] – Mark describes the fragmented traditional ways of raising capital.
  • [8:58] – Angel investors and how to present your “deck” to them.
  • [11:08] – Working with venture capitalists and strategic partners.
  • [13:31] – A brief history of the laws affecting capital.
  • [22:34] – What does crowdfunding look like for startup entrepreneurs?
  • [27:20] – How to find a regulated site to post your capital request on.
  • [30:58] – Crowdfunding is the intersection of old and new school.
  • [34:57] – Advice to keep in mind when you are using a crowdfunding site.
  • [38:06] – Mark tells us 3 of the crowdfunding sites he works with.
  • [40:08] – When should an entrepreneur hire an attorney during this process?
  • [42:40]– The prevalence of real estate in the crowdfunding world.
  • [53:24] – What message does Mark want to get out there?
  • [56:17] – Mark busts 2 myths about crowdfunding.

Questions? Let me know.

The Real Estate Syndication Show: How To Do Crowdfunding Legally

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Raising money without begging investors is no easy task for startups. At times, help from a third-party individual is needed to make it happen. But how do you know if you are legally paying brokers to raise capital and not breaking any law or guides set by the Securities and Exchange Commission?

In this interview, Mark Roderick explains what a broker is, and the legal process that raising money entails. He cites examples of the repercussions of hiring an unlicensed broker-dealer, gives advice on the lessons he has learned in the industry, and touches on his blog that tackles crowdfunding.

 

The Real Estate Way to Wealth and Freedom Podcast

WEALTH AND FREEDOM PODCAST

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In this episode of The Real Estate Way to Wealth and Freedom, you will learn:

  • Crowdfunding – what it is and how it relates to real estate
  • Comparing and contrasting crowdfunding and syndication
  • How much money you can raise and who you can raise money from
  • Title 2, Title 3, & Title 4 crowdfunding – what to know
  • Predictions of how technology will impact real estate investing in the future

Questions? Let me know.

A Millennial’s Guide to Real Estate Investing Podcast

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On this episode of A Millennial’s Guide to Real Estate Investing, host Antoine Martel sits down with Mark Roderick, a leading crowdfunding, investing and fintech lawyer. They talk about blockchain, crowdfunding, the JOBS act, and how all of these things are going to be changing the real estate industry. Also discussed are the different types of crowdfunding flavors and how each of them work.

Questions? Let me know.

Crowdfunding & Fintech for Real Estate Podcast

CF and Fintech for Real Estate Podcast

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Technology has made it easier to raise capital for real estate deals. Since Crowdfunding has grown exponentially, John Casmon, host of the popular Target Market Insights podcast, invited me on his show to learn more about crowdfunding and fintech (financial technology).  On this episode, I talk about different ways to use the internet to raise money and the impact new technologies will have on the way we buy real estate.

Key Market Insights

  • Crowdfunding is raising money on the internet

  • Two versions – donation based (think Kickstarter) and equity based

  • Crowdfunding is online syndication with 3 flavors: title 2, title 3 and title 4

  • All crowdfunding falls under the JobsAct

  • Title 2 is very similar to 506c for accredited investors

  • Title 3 is very different, can only raise $1MM annually

  • Title 4 can raise $50 million

  • FinTech – any technology disrupting the financial services industry

  • Many believe banks should be a disintermediary

  • Roboadvisor apps are apart of FinTech

  • Online syndication is not more risky than traditional syndication

  • Anytime you take money, you can be sued

  • When done properly, you should not be exposed to any actual liability – even if they lose money

  • Blockchain technology could disrupt the real estate industry

  • Blockchain is a database or ledger that cannot be changed and has no central authority – everyone must consent

  • Title companies and other “middle men” could be pushed away through blockchain

Questions? Let me know.

Podcast: The Complete Guide to Investment Crowdfunding Regulations in the US

Podcast MSR Blog Post

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Are the countless rules, regulations and exemptions surrounding crowdfunding in the US starting to get too difficult to keep track of?

Katipult recently partnered with Mark Roderick to help you get a better understanding of regulation relevant to your company. In this podcast, Mark shares information that will help you navigate the complex crowdfunding regulations in the US.

Questions? Let me know.

Podcast: A Primer on Real Estate Crowdfunding

Real Estate Investing for Cash Flow

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In this episode of The Real Estate Investing for Cash Flow Podcast, Kevin shares the mic with Mark Roderick — Corporate Securities Lawyer with a special focus in Fintech and Crowdfunding. Since the JOBS act of 2012, Mark has spent the majority of his time advising and representing the interests of upstart firms and companies on their fundraising activities. In addition, the contributions to his personal blog give detailed insight into the best fundraising strategies of the digital era.

HIGHLIGHTS [10:52] What was the ultimate catalyst for the JOBS act of 2012? [16:28] What is Mark’s “3 Flavors” of Crowdfunding? [25:44] What are the costs associated with setting up a Regulation A Public Offering? [33:42] What role has investor portals played in the last few years? [41:23] Mark’s closing thoughts.

Questions? Let me know.

Restricted Stock VS. Options for Key Employees of a Crowdfunding or Fintech Business

Mark Roderick Explains Restricted Stock VS. Options for Key Employees of a Crowdfunding or Fintech Business

You want to reward and incentivize your CFO and CMO with equity in the company. What’s the best approach?

First, make sure equity provides the right incentives. For the CFO almost certainly, because the CFO shares responsibility for the profitability of the whole company. For the CMO, maybe not. If we want the CMO focused on sales, maybe a cash commission makes more sense. On the other hand, you might decide that owning stock will have a positive psychological effect for your CMO, even if it doesn’t offer a direct incentive.

With that box checked, these are the most common equity-flavored alternatives:

  • Restricted Stock: The CFO might receive a total of 100 shares of stock today, with her right to receive distributions and otherwise enjoy the full benefits of the stock subject to a vesting schedule. The vesting schedule might be based on time (g., 20 shares per year for five years), economic milestones (e.g., 20 shares for each year showing a growth of at least 20% in cash flow or EBITDA), or a combination of the two.
  • Stock Options: The CFO might be granted the option to purchase 100 shares of stock for $0.10 per share (hoping they will someday be worth a lot more), subject to the same vesting schedule. Under section 409A of the tax code, that $0.10 per share exercise price must be the true fair market value at the date of grant, not an artificially low number.
  • Incentive Stock Options: If the company is a corporation (not an LLC) and satisfies lots of special rules, the CFO might be granted a special kind of stock option, with special tax benefits.
  • Phantom Stock: Rather than actual stock, the CFO might receive a contract right intended to achieve the same economic result.

In the world of entrepreneurs generally and the Fintech and Crowdfunding worlds specifically, restricted stock and stock options are the most common choices, so I’m going to focus on those today.

Economically, restricted stock and stock options are almost identical. But the tax consequences can be quite different. For purposes of the discussion below, I’m assuming (i) the CFO’s 100 shares are worth $0.10 per share today and increase in value at the rate of $1.00 per share per year, (ii) the CFO is given 10 years in which to exercise the options, and (iii) the company is sold in 10 years.

Scenario #1: Direct Stock Issuance – General Rule

If the CFO receives 100 shares today, vesting over five years, then she has zero taxable income today because no shares have vested. At the end of the first year she has $22 of taxable income (20 shares vested @$1.10 value per share), at the end of the second year he has $42 of taxable income (20 additional shares vested @$2.10 value per share), and so on. The employee must pay tax on this income each year, while the company can claim a corresponding tax deduction. Thus, over the duration of the vesting period the CFO pays tax on $310 of taxable income and the company obtains a $310 tax deduction.

In this example the CFO will pay roughly $100 of tax on his $310 of taxable income (depending on tax bracket, state of residence, etc.). The exact amount of the tax isn’t important. What’s important is that (i) she will have to fund this cost from her own pocket, and (ii) if the company is very valuable or she owns a lot of stock, her out-of-pocket tax cost could be prohibitively high.

When the company is sold after 10 years, the CFO will receive $1,010 for her shares and have $700 of gain. This $700 would be taxed at long term capital gain rates, and at that point she’ll have the cash to pay her tax.

Scenario #2:  Direct Stock Issuance Followed by §83(b) Election

Where an employee receives stock subject to a vesting schedule, §83(b) of the tax code permits an employee to elect to report as taxable income the entire current value of the stock. Having made the election, the employee does not report any additional taxable income as the stock vests.

In our example, the CFO could make an election and report $10 of taxable income on the date of grant (100 shares of the @ $0.10 per share). She would then have no additional taxable income as the stock vests, and the company would have no tax deductions. Upon the sale of her stock the employee would have $1,000 of income, taxed at long term capital gain rates.

An election under §83(b) must be filed with the Internal Revenue Service within 30 days after the CFO receives the stock.

NOTE:  Suppose the company fails after two years. Now the CFO has paid tax on $10 and has nothing to show for it except a $10 capital loss. That’s the downside of section 83(b).

Scenario #3: Options

The CFO recognizes no current taxable income as a result of receiving options. Instead, she recognizes taxable income as the options are exercised, equal to the difference between the exercise price of $0.10 per share and the value of the stock at the time.

In the simplest scenario, where the CFO exercises options to purchase 20 shares each year, the tax effect would be almost identical to Scenario #1 above. The CFRO would recognize $20 of taxable income in the first year, $40 the next year, and so forth, for a total of $300 of taxable income. No §83(b) election is available with options.

A more likely scenario is that the CFO wouldn’t (or wouldn’t be allowed to) exercise the options each year, but rather waits to exercise until the company is sold. In this case she would recognize no taxable income until sale, and at that point would recognize $1,000 of taxable income, taxed at ordinary income rates rather than capital gain rates. The company would be entitled to a corresponding deduction of $1,000. Again, the CFO would have plenty of money to pay the tax.

Conclusion

Options are simpler than restricted stock, especially if they can’t be exercised until an exit. And the holder of an option, unlike the holder of actual stock, has no right to see confidential information that the company would prefer to keep private.

For that reason, options typically make more sense from the company’s viewpoint, even though the employee might end up paying more tax (ordinary income vs. capital gains) overall. But every company and every situation is different.

Questions? Let me know.

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