The Backbone of Crowdfunding and the Role of

The Backbone of Crowdfunding and the Role of Banks Thomas Coke, Esq.

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

Anatomy of Crowdfunding • • Payment Gateways Websites/Portals Document Management Escrow Accounts/Funds Management

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 isn’t allowed to purchase securities • Wires – Fast – Very expensive in many cases

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 Verify. Valid fits in

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 – Verify. Valid offers their Check. It. Out 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

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

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 can’t handle the funds until they reach their goal, so who administers the funds until then

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

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

Crowdfunding As A Tool For Banks • Banks will have a new treasury management tool for existing small and medium business customers – Existing SMB’s will likely have audited financials to raise $2 million – 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

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

Thanks for your time • I’ll look forward to your questions during Q&A • Please feel free to contact me – thomas. coke@verifyvalid. com – (312) 320 -1597 – www. linkedin. com/in/thomascoke/ – @cokethom