Frequently Asked Questions
What is EarlyShares.com?
EarlyShares is an Equity Based Crowdfunding platform. We have created a secure, user-friendly website that allows companies to pitch their ideas and investors to discover and invest in ideas they are willing to support.
What is Equity Based Crowdfunding?
For startups and small businesses, Equity Based Crowdfunding is a new way to raise money by selling small ownership stakes online to a large group of people.
For everyday people, this is an opportunity to invest in businesses they see potential in with as little as $100.
How is EarlyShares.com different from Kickstarter?
Kickstarter is a rewards based Crowdfunding Platform – you are essentially reserving or pre-ordering a product or perk that does not yet exist: A Pebble watch, a book, or a movie DVD with your name in the credits. With Equity Crowdfunding, you are actually becoming a shareholder of the company you invest in, and stand to gain from its success or lose your invested amount if it fails.
How do I raise money on EarlyShares? When can I do it?
Unfortunately, you cannot raise money on EarlyShares.com or any other Equity Crowdfunding platform at this time. The SEC is currently in the process of finalizing Crowdfunding rules, and we expect them to be complete in early 2013. In the meantime, we encourage you to register on our platform and start working on your pitch while receiving regular updates from us on the SEC’s progress and industry news. By registering early you will secure your place among the first companies to raise money on our platform once Equity Crowdfunding becomes legal.
How much can I raise for my business on EarlyShares.com?
By law, you will be able to raise up to $1 million annually from un-accredited investors. The amount you are able to raise from accredited investors is not limited. Raising money on EarlyShares will not disqualify you from applying for traditional funding methods.
How much will it cost me to raise money on EarlyShares.com?
EarlyShares will be taking a fixed percentage of the amount each company raises on our platform, which will depend on the SEC guidelines. We’re going to update this FAQ as soon as we have more details.
How do I submit my company?
Your first step is to register on the platform and fill out an informal profile. You can then work on your pitch, guided by easy-to-follow instructions.
Can anyone from anywhere across the globe register a company on EarlyShares.com?
Unfortunately, no. At this point in time, only U.S. based companies can register on EarlyShares.com.
How much equity do I have to sell?
We anticipate companies to give up 10% to 30% of equity in exchange for the funds.
Do I make any commitments by registering?
No. Registering simply indicates to EarlyShares that you have an interest in Equity Crowdfunding and includes you in our newsletter distribution list.
What kinds of businesses can raise money on EarlyShares?
We will consider any types of businesses that do not require federal regulation (i.e. gambling, firearms, etc.). To date, we have companies ranging from bakeries to biotech startups registered on the platform.
What documents/information will I be required to provide?
The SEC rules will determine exactly what information is required. Generally, you will need a business plan, financial statements, and a written + video pitch.
I am a startup with no revenue. Can I apply?
Yes, as long as you have a management team, a business plan, and a vision.
Who determines how much my company is worth?
You do. But remember that investors will ask you how you came up with the amount your company is worth. If your company has revenues and has been in business for a while, we recommend using one of the industry recognized valuation methods, Annual Revenue Valuation. If you are a startup with no revenue, you will have to rely on your projections for valuation. You also have the option of receiving your company valuation from one of our partners. Although that involves some upfront costs, you will benefit from investor confidence that comes with a professional independent valuation.
What if my company doesn’t raise the full amount sought?
We will operate on an all or nothing basis, so unfortunately you will not receive any money. The reason for this is our commitment to investor protection. A company that has not raised the desired amount has a higher risk of failure, and it’s a risk we can’t accept.
What if I want to make a change after my campaign goes live?
You can only add information to the campaign. The amount of money sought and number of shares offered can’t be changed.
My company will have hundreds of shareholders. How do I deal with them all?
Your shareholders will be pooled together into one legal entity that in turn will hold your company’s shares. You will only have to interact with that entity. You can also choose a minimum investment amount per investor to avoid having too many investors.
Will I have to give up some control of my company to the investors?
No. You will maintain full control of your company. The investors may able to contact you with questions and ideas, but will not be involved in running the business. You can also choose a minimum and maximum investment amount per investor to avoid having too many investors or to avoid having majority shareholders.
How do I compensate my shareholders?
There are several ways investors can benefit from stock ownership. You may pay your investors dividends once you reach a certain revenue/income level; investors’ shares could be acquired should you sell your company; they will also be able to sell their shares on the stock market should the company become public or the secondary market should it remain private.
What terms are given to potential investors for each offering?
For the Regulation D 506(c) offerings under Title II of the JOBS Act (accessible to accredited investors only), the issuer will dictate and provide the terms of the offering with guidance from their legal counsel. Issuers utilizing Title II will also be able to use standardized terms made available on the website. Deal documents will be made available to each investor and their professional advisors to thoroughly review before they decide to invest. We are still awaiting guidance from the SEC before we know how the terms for Title III Crowdfunding offerings (accessible to all investors) will look.
Will I negotiate different terms with each investor?
Once the offering is posted to the website there will be no ability to change the terms of the offering, thus no negotiations will be made. In other words, once an offering is posted to the website for investors to access it is “take it or leave it.”
Is it necessary that all shareholders are treated equally, or can some shareholders be offered more favorable terms?
Each investor must receive the same terms for a particular offering. This adds to the integrity and the efficiency of the process. By offering the same terms, each investor will be on an equal playing field for the round and it will prevent delay and complications associated with negotiating separate terms for each investor.
What kind of control/oversight will the investor(s) and/or EarlyShares have over our company if we raise money in this fashion?
First and foremost, EarlyShares does not have control in your company. EarlyShares is an intermediary that does not take ownership in exchange for the services it provides. With regard to investors in Regulation D offerings that are available to accredited investors only – each investors “control” will be proportionate to their investment amount just as it would be in an offline capital raise. We are still awaiting guidance from the SEC before we know how the terms for Title III Crowdfunding offerings (accessible to all investors) will look. Here is a comment letter we sent to the SEC last year regarding how we anticipate structuring investors in those offerings: http://www.sec.gov/comments/jobs-title-iii/jobstitleiii-104.pdf
Is it possible to put an Equity Incentive Plan in place?
Yes. Raising capital through EarlyShares and its partners does not preclude the ability to offer an Equity Incentive Plan.
At what point am I committed to raising money through EarlyShares?
Once an issuer decides to pursue raising capital through EarlyShares, the issuer will be asked a few questions regarding its business. Upon a review of those answers, one of two things will happen: 1) You will be promptly notified that you were not selected to move further in the process, or 2) You will be promptly notified that EarlyShares and its partners would like more information about the company. If scenario #1 happens, it does not mean that you have a “bad” company or that your company will not be able to raise money elsewhere (or even through EarlyShares in the future). It simply means that the information you provided was not aligned with the investment process facilitated by EarlyShares and its partners. If scenario #2 happens, you will be asked to sign an engagement letter with EarlyShares and its partners. The engagement letter will limit your ability to raise money elsewhere for a particular amount of time. This engagement letter exists because it would be a mutual disservice to the parties involved to exhaust various resources all for not.
How long will the whole process take from start to finish?
EarlyShares and its partners are constantly working to streamline the process for all parties involved in an expedient manner. Our accessibility and transparency throughout the process provides the optimum ability for an issuer to complete the process in their desired timeframe. That being said, the timeframe is heavily dependent on the issuer’s ability to respond to requests and return necessary information in a timely manner as the process moves along.
What types of compliance will we need if we raise money in this fashion?
EarlyShares and its partners do not provide any sort of professional advice, whatsoever. While we pride ourselves on our service to issuers and assisting them with the process, we do not provide compliance services. We aggregate data regarding compliance for your reference and review with your legal counsel. We do understand that some issuers may not have a team of lawyers handy, so we will provide them with names of law firms that we have a relationship with for them to satisfy those concerns at a competitive rate.
When we have a shareholders meeting, who represents the investors?
With regard to investors in Regulation D offerings that are available to accredited investors only – each investor will represent themselves just as they would in an offline capital raise. We are still awaiting guidance from the SEC before we know how the structure for Title III Crowdfunding offerings (accessible to all investors) will look. Here is a comment letter we sent to the SEC last year regarding how we anticipate structuring investors in those offerings: http://www.sec.gov/comments/jobs-title-iii/jobstitleiii-104.pdf
What type of liability are we open to as Directors and/or Officers?
EarlyShares and its partners do not provide any sort of professional advice, whatsoever. You are ultimately responsible to consult with the appropriate professional counsel in order to assess all potential risks and liabilities. The link below is a basic primer for you to review with your legal counsel: http://apps.americanbar.org/buslaw/newsletter/0003/materials/tip3.pdf
How do I ensure that my information remains confidential?
Why invest in startups and small businesses?
Investing in startups and small businesses allows you to support ideas you believe in. You also get a chance to be part of the next big thing, i.e. a new Google or Twitter.
How do I become an investor?
Becoming an investor is as easy as clicking on the “register” button and following a few simple steps.
How do I know I’m not investing in fraudulent companies?
EarlyShares partners with CrowdCheck. CrowdCheck performs due diligence checks on startups to protect investors and the companies themselves. In addition, EarlyShares has a strict vetting process and rigorously evaluates the applicants’ businesses.
What are the risks involved?
Like any investment, Equity Crowdfunding involves some risk. Despite our best efforts at vetting companies and ensuring the viability of their business models, some of them will fail. We therefore encourage you to diversify by investing in multiple companies, thus spreading the risk.
As an investor, how much can I invest?
The answer to this question depends on which type of investor you are and which type of offering you are investing in (Regulation D 506(c) under Title II or Crowdfunding under Title III). Generally speaking, for a Crowdfunding offering under Title III of the JOBS Act, if your income (or net worth) is less than $100,000 annually, the amount you may invest each year is 5% of your annual income or $2,000 per year, whichever is greater. If your income (or net worth) is $100,000 annually or higher, you may invest up to 10% of your income (or net worth). For Regulation D 506 (c) offerings under Title II, accredited investors will not be limited (by law) to an amount that they are able invest.
How do I determine if I am an accredited investor?
You will be issued a short and simple questionnaire which will immediately tell you whether you are considered accredited or not. If you aren’t, don’t let that stop you. You can still invest.
Can I make a private, non-disclosed investment?
Yes, you will have the opportunity to check the “Private” box during the “I would like to invest” phase.
Where are the funds kept prior to their release to the crowdfunded company?
All funds are processed and securely kept with a third-party financial institution. The funds are held in escrow and are completely separated from EarlyShares’ own operating accounts.
Can investments be made from anyone internationally or are there geographical restrictions?
There are no geographical restrictions. Investments will be accepted from anyone, internationally. The only requirement is that they are over 18 years of age and have an account with a recognized bank.
As an investor, can I communicate with the owner?
In short, yes. We feel it is important that investors can offer their input. However, it is up to the entrepreneurs to decide how receptive they will be.
How can I receive returns on my investment?
There are several ways in which you will be able to gain from your investment. The company may elect to pay a dividend once it reaches a pre-determined level of sales/profits; your shares will be acquired if the company is taken over; you may sell your shares on the stock market should the company become public or on the secondary market should it remain private. As of today, several companies have indicated an interest in creating a secondary market for Crowdfunding investments.
When can I sell my shares?
Sale of your shares will be restricted from transfer for a one year period unless the shares are transfered back to the issuers, to an accredited investor and a few other limited circumstances.
Can I withdraw or cancel my investment?
As of now, the SEC has not made its position clear. We anticipate there to be a way to withdraw an investment, but the specific details are still to be disclosed.
Why would anyone invest in a start-up without ever meeting the company’s team?
Investments on EarlyShares are deemed passive. The evolution of technology and the change of certain securities laws enables the EarlyShares investment process to become a natural evolution of the capital raising process. EarlyShares’ strategic partners conduct due diligence and screening on all companies that are listed on the website for investors to access and ultimately invest in. In addition, EarlyShares relies on each investor to conduct their own due diligence on each company before making a decision to invest. To assist in this process, EarlyShares enables investors to ask team members of each offering questions. With all that in place, investors must understand that any investment made in an early-stage venture (like those listed on EarlyShares) is inherently risky. For more information regarding the risks of such investments, look through the various sections in the EarlyShares University that address those risks.