**Note: these FAQs are not intended to answer every question that you may have and are not to be considered a substitute for the information found in Title 17, Chapter II, Part 227 of the Federal Code or section 4(a)(6) of the Securities Act of 1933, or any other law of the United States or any State.
For more detailed information, please see the Educational Materials section under the Investors tab on this website or visit the SEC website at www.sec.gov.
Who is Folla Capital?
Folla Capital is an SEC registered and FINRA member broker-dealer focusing on helping small businesses raise capital through programs now available as a result of the JOBS Act of 2012, including investment crowdfunding or community capital. We educate business owners on the various securities exemptions available, compare and contrast them with traditional forms of capital, advise, consult, and guide them throughout the process.
What is “investment crowdfunding”?
While the term might be new, the concept is not. Investment crowdfunding is simply raising a small amount of funds from a large number of people. Investment crowdfunding allows businesses to raise money by selling equity (stock) in their business or borrowing money (debt) from the crowd. Investment crowdfunding (or as we like to call it “community capital”) allows individuals to invest relatively small amounts of money into companies whose people, products, or missions they love and want to support. Investment crowdfunding opportunities are offered under section 4(a)(6) of the Securities Act of 1933, often referred to as “Title III Crowdfunding” or “Regulation Crowdfunding” of “Reg CF”.
Is this like Kickstarter or GoFundMe?
No. On sites like Kickstarter, and GoFundMe you donate money and expect nothing in return other than any “rewards” that may be offered.
Are all investment crowdfunding offerings the same?
There are several different types of offers that may be appropriate for issuers as well as for different classes of investors. Some businesses sell equity and others issue debt or convertible debt. Some offerings are only available to “accredited investors” and others are available to anyone who wants to invest. Different laws apply to different offerings. You should carefully read each business’s disclosure documents prior to making any investment.
What is the difference between selling equity and issuing debt?
Buying equity in a business means you are buying ownership. That ownership is usually in the form of shares of stock. Debt means businesses give investors a promissory note in exchange for funding. The promissory note may include interest to the investor, the option to convert the note to stock at some point in the future (convertible note), or other terms and conditions. You should carefully read each business’s disclosure documents prior to making any investment.
How does Folla Capital make money?
We charge issuers (companies raising money) an initial upfront fee, monthly maintenance fees and a percentage of the amount of money they raise.
Who can invest?
Anyone over 18 years old can invest.
How much can I invest?
The amount that you can invest depends on whether or not you are considered an “accredited” investor. An accredited investor is defined as someone who meets very specific criteria outlined by the SEC and federal law. Generally, an accredited investor is someone with a net worth of at least $1,000,000, not including their primary residence, or has an annual income of at least $200,000 individually or $300,000 jointly and that income is expected to continue. You do not have to be an “accredited” investor to invest.
Where the purchaser is not an accredited investor (as defined in Rule 501 (§230.501 of this chapter)), the aggregate amount of securities sold to such an investor across all issuers in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) during the 12-month period preceding the date of such transaction, including the securities sold to such investor in such transaction, shall not exceed:
The greater of $2,200, or 5 percent of the greater of the investor's annual income or net worth, if either the investor's annual income or net worth is less than $107,000; or
Ten percent of the greater of the investor's annual income or net worth, not to exceed an amount sold of $107,000, if both the investor's annual income and net worth are equal to or more than $107,000.
These limits do not apply to "accredited" investors and they may be adjusted periodically by the SEC.
How much does it cost to invest?
$0. There is no cost to invest.
Is there a minimum amount that I must invest?
Each company sets a minimum investment amount for their own offering.
Are these investments risky?
Yes. While all investments are inherently risky, startup or early stage businesses are generally considered more risky than established businesses. It is very important that you do your own due diligence to better understand the business, the investment, and the risk factors specific to that business before you invest in any offering. These opportunities are only for investors who can afford to lose some or all of their investment.
Where can I find the information I need to make an informed decision?
The Folla Capital, LLC website (www.follacapital.com) contains information about the company raising money. There you will find the company's offering materials, including “Form C”, which provides more in-depth information about the company and the investment. The platform also includes a communications channel where you can interact directly with the company. You will be able to share information with other people interested in investing or who have already invested. You are required to do your own due diligence. No one is going to do it for you. No regulator confirms the truth of any statements in the disclosure documents or the issuer’s financial statements.
Can I encourage other people to invest in offerings I like?
There is nothing illegal about casually discussing a business you like or are interested in; however, you should refrain from giving investment advice to others, because you could violate certain laws regulating securities and investment advice.
Once I decide to invest, who should I send my money to?
You will send the money to an escrow agent. An escrow agent is a person or entity that holds property, money in this case, in trust for third parties while the transaction is finalized.
Can I cancel my investment?
You can cancel your investment up until 48 hours prior to the offering deadline as specified in the offering materials. Any cancellation requests after that will be at the discretion of the issuer.
Can the company cancel my investment?
Yes. The company has the right to accept or reject investments at its sole discretion.
Will I be able to sell my investment?
Generally speaking, no. Investment crowdfunding securities are illiquid investments and currently there is no secondary market. In addition, regulators have placed certain restrictions on resale.
Why should I consider using investment crowdfunding?
Businesses need money to start, operate and or expand their businesses. Banks have very strict lending guidelines and angel investors and venture capitalists either say “no” more often than “yes” or they desire unreasonable terms or control over the business you have built. Investment crowdfunding allows business owners to set their own terms based on what they think is best for their company and their investors. There are also other benefits to investment crowdfunding including creating a large database of brand ambassadors or potential customers.
How much money can I raise?
Regulation Crowdfunding currently allows a business to raise up to $5,000,000 during the 12-month period preceding the date of such offer or sale, including the securities offered in such transaction. There are several other exemptions available that allow companies to raise more than that amount. We will be happy to discuss those options with you further.
Can any type of business raise capital using investment crowdfunding?
Most businesses can use investment crowdfunding to raise capital. The basic requirements are:
They must be organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia;
They can NOT be a “reporting company” pursuant to section 13 or section 15(d) of the Securities and Exchange Act 0f 1934;
They can NOT be an investment company as defined in section 3 of the Investment Company Act of 1940;
They can NOT be disqualified as a “bad actor” as specified in §227.503(a);
They can NOT have sold securities using the investment crowdfunding exemption and NOT filed the required reports within the past 2 years;
They MUST have a specific business plan; and
They can NOT raise capital to engage in a merger or acquisition with an unidentified company or companies.
Does an issuer have to say what they are going to do with the money?
Yes. A business must disclose to investors how it will use the money it raises.
What other kind of information about a business must be provided?
There are many requirements for the disclosure document. For instance, a company must disclose:
The name, legal status, physical address of the issuer;
The names of all directors and officers, including their principal occupation if employed elsewhere;
The names of all persons owning more than 20% of the voting stock of the company;
A description of the business and its anticipated business plan;
Current number of employees;
Material factors that make the investment risky; and
The target amount of the raise.
The above are just a sampling of the requirements of the disclosure document. All disclosure requirements for issuers can be found at https://ecfr.io/Title-17/cfr227_main
If I issue debt, to I have to personally guarantee the loan?
No. Personal guarantees are an option but are not a requirement.
If I decide to raise money using investment crowdfunding, am I guaranteed to get funded?
No. There is no guarantee that your offering will be funded. There are many factors that will determine your success including the location of your business, what type of business you operate, what stage of the business lifecycle you are in, how realistic your business plan is, the security and terms that you offer and how your market your offering (within the rules).
Can I ask my customers to invest?
Yes. Current customers may be a very important factor in your success.
Are there any advertising or marketing rules that I must follow?
Yes! This is very important! An issuer may not directly or indirectly advertise the terms of an offering except by meeting very specific requirements. Generally, you want to direct any potential investor to the website where your offering is located. This is where they can learn about your offering and make an investment if they want to.
Do I have to file ongoing reports?
Yes. Generally, an issuer must file periodic progress updates as well as an annual report until it is no longer required to do so.
How long does the process take?
It all depends on how long it takes you to gather and provide the information necessary for the offering materials. You should expect to spend 30 - 90 days preparing for the raise. Once the documents have been filed, the law requires the campaign to be open for a minimum of 21 days. How quickly you raise the money depends on many factors, but you should be prepared for it to take longer than you may want or expect.
How much does it cost?
We charge issuers an initial upfront fee, monthly maintenance fees, and a percentage of the amount of money they raise. Our current fee schedule is:
$1,000 upfront onboarding fee that gives you access to a business planning and financial projection tool;
$500 per month maintenance fee; and
8% of the capital raised (credited for the $500/month maintenance fee)
The above costs do not include the cost of a review or audit of financial statements as required by the rules.
We also have a separate monthly fee for services related to reporting requirements, investor data maintenance, including cap table maintenance for equity offerings and investor principal and interest payments for debt offerings. We offer this service as a convenience for you and it is completely optional.