January 31, 2014
Crowdpassage.com is a website dedicated to expanding education of rewards and equity crowdfunding, as well as encouraging networking of crowds and groups of supporting industries. It is a reaction to one of its founders, Mr. Matthew Nutting, who has experiences a near total absence of good information in the marketplace.
REQUEST FOR INFORMATION NO. 51
"Should we exempt issuers whith no operating history or issuers that have been in existence for fewer than 12 months from the requirement to provide financial statements, as one commenter suggested? Why or Why Not?"
REQUEST FOR INFORMATION NO. 52
"If we were to exept issuers with little or no operating history from the requirements to provide financial statements, should we require additional discussion of the fact that issuer does not have an operating history? If so, what additional discussion should we require."
RESPONSES TO RFI NOS. 51 52
One of the leading limitations for Title III offerings is the upfront costs likely required from the individual or group before they can seek investors from the "crowd". The costs of an audit or professionally prepared financial statements can be preventative.
Many clients who are leading up to a Title III offering are presuming they can create a new entity with simple finances, and in turn, simple financial statements.
We strongly object to any efforts to require a new entity (such as one with less than 12 months' of operating history) to also need to produce prior or other financials. We submit that potential investors can seek additional information from the offeror, through public resources or through the "wisdom of the crowd".
Having worked with hundreds or thousands of start-ups and investors in start-ups, it is imperative that the burden and costs needed for an offering be kept to an absolute minimum. Anything else will have a negative and profound impact on whether Title III offerings are feasible. Again, if agencies such as the SEC are not careful to ensure that Title III works for low-income families then the law will only be useful as as tool for middle-class ventures.
Matthew R. Nutting, Esq.