Why we need to Rethink Investor Recognition

I deal with startups from across the country but mostly from the tech centers, Austin, San Francisco, New York, and increasingly Chicago, and Atlanta.  I can tell almost immediately if the startup is coming from the Bay Area because they are head and shoulders above all others in how they treat the investor.

They thank the investor for the time they are spending.  They show respect for the investors background (and most often have actually looked it up and found some talking points to start off the conversation).  They show gratitude for the "insight and helpful advice" the investor is giving them.  As an investor, I know this is somewhat fawning and it can be overdone, but the fact that they are taking time to research before the meeting, and showing a modicum of respect for the investors time and advice sets a better tone for the discussion.

Outside of the Bay Area, most entrepreneurs come to pitch their deal and get a response--nothing more.  They treat the investor and the entrepreneur as equals and while most say thank you for taking time at the beginning of the meeting, that's about it.  There's no tone set for the discussions -- this will be another conversation with just another investor -- no big deal.

On your next pitch, research the investor you are going to meet and take an extra step to thank him for his advice and show how it means something to you.  You're not just raising funding, you're building a relationship.

The Rise of Analytics in Fundraising

Analytics is fast turning into a must have.  It comes under various names-- Big Data, Predictive Analytics, and more.  Big data refers to the acquisition and management of large data sets.  Predictive analytics refers to the brand of data mining concerned with the prediction of future probabilities and trends. The goal is to find the one or two variables that can predict an outcome.   Some are familiar with the law of large numbers which says if you perform the same experiment on a large data set, the expected outcome will converge as more experiments are done.

In the investment world, analytics are used to determine where and how much to invest.  The goal is to yield the highest possible return.  The variables cover the type of investment, the duration, and the amount to invest in each type.   The same concept now applies to many other areas.

There are now databases of backers for rewards campaigns.  Here's one example by Krowdster.

For those raising funding, Funding Analytics takes in a large number of potential investors and then determines what factors are the key variables.  Since investors change their perspectives, so what they look for in an investment will change as well.

At its most basic level, funding analytics shows you which investors are most likely to invest in your startup or growth company.

TEN Funding Program-- How to Raise Funding at Every Stage of the Business

Crowdfunding can be used to raise funding throughout the life of a business.  When the idea of a new business strikes you and there's nothing built yet, then you should run a donations campaign--ask family and friends to donate $10K collectively.  Make sure they understand that no one is getting paid back.  The value of this step is that it establishes a network to support your business.  The money can be used for some initial costs such as filing patents, building websites, and starting work on a prototype.

The next step is to use a Rewards/Prepay campaign to pre-sell 50 units of your product.  It can be anything.  The key here is that you start to build your customer network.  If you can't presell 50 units, then you have a product problem that needs to be solved first before you go any further.  The funding you raise should be enough to build the first version of your product. 

With a successful rewards campaign behind you,  you now move towards turning those customers into investor using the Texas Intrastate crowdfunding campaign.  The Texas Intrastate law gives anyone the ability to invest in your business.  Again, the funding helps, but building your network is the important point.  If all fifty of your Prepay customers invested in your business you now have fifty brand ambassadors supporting your business--not a trivial support by any means. 

With support from your customers, and now investors in your business, you approach angel investors and start to raise funding to grow the business.  Angels invest $250 to $2M to grow a working operation.  When you arrive at the angel investors door, they are expecting you to have a product at some stage of usage and some revenue.  The previous steps give you the ability to do that. 

If you need more funding, then you can go back and raise revenue-based funding.  The investors at this stage take a piece of the revenue as payment rather than an equity stake.  

If you find yourself having trouble raising funding, it may mean that you skipped some key steps. You should go back and fill in the gaps of building your support network and your customer base before proceeding. 

Texas Venture Growth Forum Event Results -- 1

The Texas Venture Growth Forum (TXVGF) held its inaugural event October 7-8, 2015 in Austin bringing together a community of over 900 Texas stakeholders to address the Series B funding gap in the Lone Star State.

In total, there were 124 one-on-one meetings between 26 B+ series company CEO’s representing over $334M in funds raised, and 32 late stage funds and investor groups that represented over $15B in assets under management. On social media, the reach of the TXVGF extended beyond the microcosm of the AT&T Center to well over 70,000 people interested in startups.

Texas State House Representative Jason Villalba, provided the keynote calling for the state to support the reseeding of the venture capital community in Texas which at one time in the 90s was robust and growing. Since the dotcom crash, the community has recovered but never fully developed a Series B level funding community.  Neal Dikeman chaired the panel on Corporate VCs describing Shell Technology Ventures approach to investing in startups.  One out of five VC deals are now done by a Corporate VC in the US.

The event was a tremendous success and a tangible foot forward in advancing Series B+ investments in Texas’ startup ecosystem. In the spirit of maintaining momentum, the team behind the Tech and Mobile event has been working non-stop to plan similar events in the Cybersecurity and Life Science spaces for 2016. These events will provide an opportunity that investors and CEO’s in these spaces will not want to miss. 

Want insurance for your next angel investment? Consider Assureli

Assureli’s algorithm and risk model helps angel investors make some money back on their investments even if the business they invested in fails. 

Originally from San Antonio, Texas, Tarek Hassan from assureli, has always been an entrepreneur.  He graduated from the University of Texas at Austin in 1998 and his first business, Surf Break, was a partnership which he created with Southwest Airlines and American Airlines, putting internet stations into their boarding areas (started in Austin airport in 2002) to help increase the value of customer service for their passengers in the boarding area.

Today he and his CTO, Pat Luciano have created a new risk model for the insurance industry focusing on startups.  With the 2012 JOBS Act and the SEC rules coming into place they are looking to help accredited and soon unaccredited investors reduce their risks.  The team includes two entrepreneurs, a Mathematics professor, and three actuaries. 

Assureli provides insurance to investors of startup opportunities

The idea came from seeing the large growth of entrepreneurs with great ideas and a growing number of investors entering the market through crowdfunding.  Assureli allows investors online or offline a new alternative to investing.  Instead of investing your money and losing it all when the business you invested in fails (which is a majority of the time) now the investor can pay a little extra with Assureli’s premiums to insure your investment.   If the business fails within a certain time period, the investor can make anywhere from 25%-75% of your investment back depending on when the business fails.   The premiums range from 10%-19% of the investment.  The insurance is non-transferable.

How does it work?

The premium payment to assureli will range from 10% to 19% of the investment made into the companies, based on risk of the segment.   Higher risk industries such as the food/hospitality industry will be closer to the 19% mark for example. 

How does the investor receive coverage in the event of a loss?

When the business invested in, fails in

year 5, then 25% of the investment is returned to the investor. 

year 6, then 50% of the investment is returned to the investor. 

year 7, then 75% of the investment is returned to the investor.

Under what conditions does it not payout?

The business is not determined to be a failure and funds will not be returned to the investor when the company fails, if:

1.      Business does not show signs of at least a 10% increase in revenue and customer base year-over-year, for the previous 3 years in a row of operations.

2.      An investment equal to half of the amount or more of the investment in question, is paid to the company on/after the 3rd year anniversary date of the first investment, to help its growth.

3.      Investor inaccurately submits information regarding the investment amount or the company the investment is made into.

What do you think?

We have included a very short survey and would like to request some feedback please.  It will take you only 2-3 minutes at most, it’s just a few quick questions, and it can provide the right feedback as we move forward to offer you this service, sooner rather than later.  Here is the survey link and a request for your feedback.  https://survey.zohopublic.com/zs/knCN9f

7 Tips for raising $39M from 350 Angel Investors Rob Neville of Savara

Rob Neville, CEO of Savara Pharmaceuticals raised over $39M from 350 Angel investors, representing 30 Angel groups from around the world. Neville believes that there hordes of wealthy individuals looking to invest their money in promising startups. Most startups generally reach out to venture capitalists (VCs) for later stage funding, so it was an unusual and historic to raise this level of financing from Angel investors. Savara never specifically eliminated VCs as a potential source of financing, but the momentum within the Angel community simply carried them further than expected. Neville shares his experience with raising Angel funding.

1.      Scale from Angels to Groups to Networks

Raising meaningful amounts of capital from individual Angel investors is time consuming, and simply does not scale. At some point Angel groups become an essential part of fundraising, where 20-50 angels meet on a regular basis to collectively evaluate deals. Even Angel groups have their limitations, and Angel networks are the next logical step. Angel networks contain many affiliated Angel groups often spread around the globe. In most cases, candidates will pass screening and diligence only once for the first group within the network. For the follow on presentations, the screening and diligence details are shared throughout the network. Essentially, the candidate can skip the screening and due diligence process and access more investors quickly. Examples of Angel networks include the Keiretsu Forum and Tech Coast Angels.

It’s important to have a healthy pipeline of Angels, groups and networks, considering it takes two to three months to move through their respective processes, and even the best companies will face rejection.

2.      Tell a Compelling Story

Raising money from Angel groups is competitive, and the companies than win are those that tell the most compelling story. Focus less on the details and data – this will surface during the due diligence process. Neville suggests following a Ted Talk format and encourages CEO to practice their pitch over and over until it is perfected. In this regard he refers to Steve Jobs who would practice his story for two full days before keynote presentation, asking for feedback from product managers in the room. For 48 hours, all of his energy was directed at making the presentation the perfect embodiment of Apple’s messages. Practicing the pitch is paramount so that the flow is seamless and the story takes a meaningful form. Ideally the presentation should be graphically appealing, without the use of bullets.

3.      Be mindful of non-Economic Motivating Factors

“Do a little Good, make a little Money, have a little Fun.” Neville uses this to describe the drive behind Angel investors. While the economic return is an important motivator for Angel investors, it represents only one facet of attractiveness. CEO’s must be aware of the non-economic motivating factors that drive Angel investors decisions, often referred to as altruistic and hedonistic motivations. Altruistic Angels have a concern for the well-being of others, and wish to feel good about their allocation of funds. They will invest in stories that resonate emotionally, that help society in one way or another. Hedonistic Angels wish to get involved and be a part of an exciting growth story – leveraging their hard earned wisdom. They will invest in companies that are open to their input and participation. A compelling story will address economic, altruistic as well as hedonistic interests.

4.      Align Management with Angels

Neville stresses the importance of the alignment of Angels’ interests with those of the executive management, so that they all rise or fall together. He opens his presentations by mentioning that he has historically had successful exits, raising Angel funds and returning money to his shareholders. He then makes it clear that he and his team and board have invested meaningful capital into Savara. Alignment is influential because in a way it shows the Angels that you will treat their investment as your own. Angles appreciate a team that operates frugally, maximizing value creation with each dollar.

5.      Get ahead of the Due Diligence

Angel investors are accomplished and extremely busy people. Successful fundraisers keep the investment process simple and as straightforward for investors as possible.

Typically, a CEO will present twice to any one Angel group before receiving funds – the first time to motivate and assemble a due diligence team, the second time to communicate the results of the due diligence and hopefully collect investments. Candidates can alleviate work required by the due diligence team by completing a draft of the diligence document ahead of time. If a company relies on preparation of the diligence report from scratch by the Angels, it will take two to three months. Some companies with great stories never get a final due diligence report – often due to the business of the due diligence team members. Even when the Angels are actually doing the work, the majority of the information comes from the company anyways – organizing it beforehand takes out most of the work for the Angels. If feasible, having one or more existing or prospect investors own the draft diligence report as their own adds credibility.

6.      Communicate Often

Given Savara’s large investor base, investor relations become critical. A large investor base is often perceived as a liability or overhead, however, Neville views his investors as an asset. By communicating proactively and often, the Angels will more likely to participate in follow-on rounds. Savara generates a detailed quarterly report, and holds quarterly shareholder meetings. All email correspondence is personalized. A positive and consistent flow of news generates excitement and confidence in the team’s ability to execute.

In Savara’s $10M Series C round, a DocuSign was sent to shareholders asking for their electronic consent (a necessary step before a round of investment can begin). Within this electronic consent, shareholders were given the option to participate in the round (by simply clicking a radio button and entering the amount). Within a few weeks, $6M was committed from existing shareholders.

7.       Close Prospects as Expediently as Possible

The closing process from presenting your story to an Angel group to money in the bank must be as streamlined as possible. Angels have many investment opportunities, and their enthusiasm is likely to fade quickly after hearing your story, however compelling. Leveraging the sales funnel metaphor, prospect investors (those that express interest) must be converted into shareholders in a well-defined and expedient sales process.

To be effective, Neville found that the sales process needs some form of closing pressure (or possibility of loss pressure). This is naturally created when most of the funds have already been committed and the round is about to end. Breaking a larger round into smaller rounds (or tranches) creates multiple points of closing pressure. One additional technique is to offer warrant coverage for early investors. For example, in Savara’s Series B round, the initial investors received 12% warrant coverage – this warrant coverage declined by 2% every month thereafter. Without some form of closing pressure, Angels will not feel any sense of urgency to commit.

Assuming some form of closing pressure has been created, prospects should be encouraged early to “reserve” a place in the offering while they complete their due diligence (without any obligation). Neville will ask early for a verbal range of interest. Once a number or range has been provided, these prospects become “soft commitments”. Accumulating soft commitments quickly helps create additional closing pressure.

As soon as a “soft commitment” has been made, attention moves towards getting signed documents and converting Angels into “hard commitments”. It must be emphasized that a “hard commitment” does not come with the expectation of funds transfer – this will happen later. Neville makes it easy for the investor to sign the documents by using pre-filled DocuSign forms.

After receiving a “hard commitment”, a funds transfer email is sent. Collecting funds should also be as simple as possible, with various funding options being made available. In the early days, Savara team members would literally collect checks by hand. Upon receipt of the funds, the prospect is officially welcomed as a shareholder.

To learn more about fundraising through TEN click here: TEN Site

Mark Standeford of Cardiovate on the Opportunity in Stem Cell Therapy

Cardiovate’s technology provides a structure for a patient’s own cells to form new tissue, replacing damaged blood vessels.

 Originally from Indiana, Mark Standeford of Cardiovate started working in medical device R&D and moved to Texas 9 years ago.  Through his work he traveled significantly and always enjoyed Texas in terms of its climate, culture and of course the people.  He performed his undergraduate degree at Ball State University.  As he was studying for his BS degree in Engineering Technology he found several courses in Computer Integration that he enjoyed and ended up taking the extra courses during his 4 years to complete an A.S. along with my B.S degree.  After working for a few years he attended University of Texas at Dallas to complete an MBA.

Cardiovate provides tissue regeneration

Cardiovate is a medical technology company targeting transformational opportunities in tissue regeneration and repair through the development of novel products.  The core technology provides a structure for a patient’s own cells to form new tissue, replacing damaged and diseased blood vessels.

The idea came from research that was collaborated by the University of Texas San Antonio and the University of Texas Health Science Center San Antonio.  The body’s vascular system is complex with a key component of that system being the interior tissue that lines the system which is known as the endovascular lining and is comprised of endothelial tissue.  The idea is to help the body regenerate its own endovascular tissue after surgery by using a bioabsorbable material that dissolves after use.

Vascular disease can cause restrictions to occur which will impede a person’s blood flow.  This reduced blood flow causes damage to the body’s systems and tissue that depend on the blood.  Over time as the blood flow decreases, severe complications can occur which can lead to loss of limbs (amputation) or even death.  Even less severe complications can be detrimental to a person’s quality of life if they have severe pain in their limbs due to poor blood flow.

When blood flow complications become severe, surgical intervention is required in order to establish good flow.  Often times this surgical procedure utilizes a synthetic tube to replace a damaged blood vessel.  Over time the body reacts to this synthetic tube and blood flow is again restricted as the tube becomes clogged.  The underlying issue is that the synthetic tube does not have an endothelial lining as your natural blood vessel does which causes the body to react and clot. 

The technology targets the poor performance of the current synthetic tubes by creating a structure or scaffold that the body can rebuild a new endothelial lining with, and then our material absorbs and leaves the body with just its own natural new tissue, thus reducing the response to clot.  This reduced response by the body will provide for improved clinical outcomes which in turn will reduce the number of surgeries a patient has to go through and the cost of treating vascular disease.

Cardiovate’s device is for vascular surgeons and interventional radiologist who treat patients with peripheral vascular disease.  They will utilize our synthetic device instead of existing devices along with their current surgical techniques.  By using the product the overall cost of treatment will be reduced which will provide value to hospitals and payers who choose this over existing products.

Challenges ahead

The most challenging aspect has been aligning resources with development tasks that create value as we move forward.   The technology has a lot of potential applications which is exciting but can be distracting at the same time. 

In this field, data driven analysis is key to supporting a solid business strategy so Cardiovate must continue to create data that supports the value proposition.  The next steps are to complete a set of product builds and use the devices in planned animal studies. The studies will inform on the initial blood vessel tissue generation with our latest design.  Cardiovate is also collaborating with a stem cell company to see if their product on our device will facilitate even better tissue generation than our device alone. 

Lessons for entrepreneurs

No matter what your product or service, make sure to first test the business model.  It is easy to get excited about a new technology or service but that is the invention phase which does not tell if you have a good business opportunity.  The entrepreneur should be focused on how you create a sustainable business for the new technology or service.  Often times I have seen new inventions raise excitement and funding but fail to test the market opportunity before moving heavily into development and fail.

In most cases you can test the model early and cost effectively as long as you know (1) what the problem you are trying to solve is, (2) who your target customer is, (3) the target market including its dynamics, and (4) how you get paid for your product or service.

Resources for entrepreneurs

Experienced mentors and knowledge experts familiar with your industry are extremely valuable.  Use their knowledge to assist you in planning your strategy and execution.  Everyone needs others to bounce things off of and using experienced people that are open to new approaches but can ground an entrepreneur in avoiding known pitfalls is priceless.  Often times these experts are not someone you need to hire or have equity in the company because without any financial interest they can be unbiased in there help and provide the support you need to make the best decisions.

To learn more about fundraising through TEN click here: TEN Site

The 3 Levels of Due Diligence

While there are many checklists and rules of thumb surrounding the process of due diligence, the end point never seems clear.  How much due diligence is enough?  Most investors dedicate a certain number of hours 20, 30 or more and when those hours are used up--they make the investment decision.

In my experience there are 3 levels of due diligence.  The first level answers the question-- do we invest or not?  After reviewing the standard documents and talking to customers and industry professionals, the investor decides if the potential rewards outweigh the risks.

The second level of due diligence answers the question -- what will the startup have to accomplish to be successful?  This is not always an obvious answer such as make sales, or gain 10% marketshare, or ensure the product works.  There's often one or two critical factors that determines success.  In today's world it increasingly comes down to cost --cost of customer acquisition, cost of product development, or some other cost.  Yes, the startup can find customers and sell a product, but at the end of the day the margins come out razor thin if not negative.  Another critical factor I see is building the team -- can we find the right people to fill the gaps (and there are always gaps).  Do you know what the startup must do to achieve success?

The third level of due diligence answers the question -- what can the investor do to help the startup achieve success?  Nothing is more frustrating than to see a startup failing and not be able to do much about it due to lack of knowledge of the industry, the market, or the technology. If you can't help the startup, then it's questionable that it's a good investment for the angel.  I've never invested in a startup that at some point didn't need help.  On the other hand, if I can help the startup through connections, mentorship, or team building, then it may be a good fit.

Evan Loomis talks about his new book "Get Backed"

Evan Loomis talks about his new book "Get Backed"

Where are you from originally? 

I’m one of those rare natives who was born and raised in Austin, TX

What university did you go to? 

Texas A&M University

What brought you to Austin? 

After graduation I spent almost a decade as an investment banker in New York and venture capitalist in Washington DC.  I moved back to launch a home improvement concept called TreeHouse.  You can think of it as the “Whole Foods version of Home Depot.”

What is your group’s mission? 

We wrote Get Backed to demystify one of the most intimidating parts of launching a venture: raising money. There’s no shortage of advice on fundraising. Most of it is terrible. We asked ourselves: What if we could give entrepreneurs what we wished we had had when raising money for our ventures?

At a deeper level, this book is about helping people bring their ideas to life and building meaningful relationships in the process. We want you to crush it with your startup. But even more than that, we want you to build friendships that outlast any term sheet and create true value for you, your community, and your venture.

What need does it fulfill?

Entrepreneurs don’t need more advice; they need to be able to look over other founders’ shoulders. They need to see the real pitch decks of ventures that have raised money, what kind of investors they closed, the email scripts they used to close them, and the mistakes they made along the way. That’s what we do in Get Backed.

What exactly does it bring to startups?  

Get Backed shows you exactly what Evan, I, and dozens of other entrepreneurs did to raise money—even the mistakes we made. We teach you a step-by-step process that can be used to initiate and build relationships with anyone, from investors to potential cofounders, and help you create a pitch deck, building on the real-life examples of 15 ventures that have raised over $150 million.

What type of startup would benefit from your group?  

Get Backed is for anyone who has an idea and needs to move people to get it off the ground. If you’re raising money, thinking about raising money, or just need to know how to better pitch your idea, Get Backed is for you.

What was the most challenging aspect of starting up the initiative?  

Time!  We wrote this book over the course of two years while we were launching our own startups. 

What advice do you have for entrepreneurs?

The secret to raising money is one simple principle: successful fundraisers don’t raise money, they raise friends.  

What Austin-based resource have you found to be the most helpful and why?

There are phenomenal accelerators here that support startup founders. Places like Techstars, Capital Factory, SKU, DreamIt, and UnLtd USA provide community, mentorship, and focus in those critical early days.

SEC Adopts Rules for Crowdfunding

The SEC after three and a half years from passing the JOBS Act as passed the rules for Title III Crowdfunding which you can read here.   In summary the SEC rules say:

More specifically, the recommended rules would: 

• Permit a company to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period;

• Permit individual investors, over a 12-month period, to invest in the aggregate across all crowdfunding offerings up to:
  • If either their annual income or net worth is less than $100,000, than the greater of:
    • $2,000 or
    • 5 percent of the lesser of their annual income or net worth.
  • If both their annual income and net worth are equal to or more than $100,000, 10 percent of the lesser of their annual income or net worth; and 
• During the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.

Under the recommended rules, certain companies would not be eligible to use the exemption.  Ineligible companies would include non-U.S. companies, Exchange Act reporting companies, certain investment companies, companies that are subject to disqualification under Regulation Crowdfunding, companies that have failed to comply with the annual reporting requirements under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement, and companies that have no specific business plan or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies.

Securities purchased in a crowdfunding transaction generally could not be resold for one year.  Holders of these securities would not count toward the threshold that requires a company to register its securities under Exchange Act Section 12(g) if the company is current in its annual reporting obligations, retains the services of a registered transfer agent and has less than $25 million in total assets as of the end of its most recently completed fiscal year.

In addition, all transactions relying on the new rules would be required to take place through an SEC-registered intermediary, either a broker-dealer or a funding portal. 

Disclosure by Companies 

Companies that rely on the recommended rules to conduct a crowdfunding offering must file certain information with the Commission and provide this information to investors and the intermediary facilitating the offering, including among other things, to disclose: 

• The price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;

• A discussion of the company’s financial condition;
• Financial statements of the company that, depending on the amount offered and sold during a 12-month period, are accompanied by information from the company’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor.  A company offering more than $500,000 but not more than $1 million of securities relying on these rules for the first time would be permitted to provide reviewed rather than audited financial statements, unless financial statements of the company are available that have been audited by an independent auditor;

• A description of the business and the use of proceeds from the offering;
• Information about officers and directors as well as owners of 20 percent or more of the company; and
• Certain related-party transactions.

In addition, companies relying on the crowdfunding exemption would be required to file an annual report with the Commission and provide it to investors.

Crowdfunding Platforms 

A funding portal would be required to register with the Commission on new Form Funding Portal, and become a member of a national securities association (currently, FINRA).  A company relying on the rules would be required to conduct its offering exclusively through one intermediary platform at a time. 

The recommended rules would require intermediaries to, among other things:

• Provide investors with educational materials that explain, among other things, the process for investing on the platform, the types of securities being offered and information a company must provide to investors, resale restrictions, and investment limits;
• Take certain measures to reduce the risk of fraud, including having a reasonable basis for believing that a company complies with Regulation Crowdfunding and that the company has established means to keep accurate records of securities holders;
• Make information that a company is required to disclose available to the public on its platform throughout the offering period and for a minimum of 21 days before any security may be sold in the offering;
• Provide communication channels to permit discussions about offerings on the platform;
• Provide disclosure to investors about the compensation the intermediary receives;
• Accept an investment commitment from an investor only after that investor has opened an account;
• Have a reasonable basis for believing an investor complies with the investment limitations;
• Provide investors notices once they have made investment commitments and confirmations at or before completion of a transaction;
• Comply with maintenance and transmission of funds requirements; and
• Comply with completion, cancellation and reconfirmation of offerings requirements.

The rules also would prohibit intermediaries from engaging in certain activities, such as:

• Providing access to their platforms to companies that they have a reasonable basis for believing have the potential for fraud or other investor protection concerns;
• Having a financial interest in a company that is offering or selling securities on its platform unless the intermediary receives the financial interest as compensation for the services, subject to certain conditions; and
• Compensating any person for providing the intermediary with personally identifiable information of any investor or potential investor.

Regulation Crowdfunding would contain certain rules that are specific to registered funding portals consistent with their more limited activities than that of a registered broker-dealer.  The rules would prohibit funding portals from, among other things: offering investment advice or making recommendations; soliciting purchases, sales or offers to buy securities; compensating promoters and other persons for solicitations or based on the sale of securities; and holding, possessing, or handling investor funds or securities.

The rules would provide a safe harbor under which funding portals could engage in certain activities consistent with these restrictions.  The rules also would require funding portals to maintain certain books and records related to their transactions and business.