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Setting Up A Crowdfunding Campaign In 6 Months

March 27, 2024

chrisseveney

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Creating Wealth Simplified | Crowdfunding Campaign

 

Crowdfunding sounds like a simple and straightforward concept, but in real estate, it’s not one to be taken lightly. A lot of things could go wrong if you don’t have the experience to back you and a solid team in place. In this episode, Chris Seveney simplifies the process of setting up a real estate crowdfunding campaign in six months. He talks about the whole process, especially the importance of getting a team up and running. Get your notes and tune in!

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Setting Up A Crowdfunding Campaign In 6 Months

In this episode, I have an interesting topic that I want to share with people from my experiences. This is how to create a crowdfunding campaign to raise money and specifically, how I created my Regulation A+ offering. If you ever wondered what goes into crafting such an offering or you’re looking to understand the intricacies of navigating these regulations, you are in the right place. Let’s get started on this.

First, I want to talk about crowdfunding and Regulation A+ offering. People hear a lot of terms about crowdfunding. People go to GoFundMe and some of these other sites which are for specific immediate emergency needs. True crowdfunding and real estate are raising money from other people to invest in a certain real estate deal offering funds that you have. I will start by saying you should not be raising money from others until you have significant experience. That’s the caveat I always start with.

You should not be raising money from others until you have significant experience. Click To Tweet

Let’s talk about first, what is a Regulation A+ offering. There are other types of offerings out there and we compare each one. People may have heard of a syndication or Regulation D offering, which has a 506(b) and a 506(c). In a 506(b) offering, you file a form with the SEC saying you’re filing for exemption. You can’t advertise anything for this offering but you can accept up the 35 non-accredited investors and credit investors.

Most people usually go the 506(c) route, in which you cannot accept non-accredited investors and only accredited. People should Google what accredited versus non-accredited is. It’s somebody who either individually makes $200,000 a year, $300,000 combined, or has a net worth of over $1 million, which is termed as accredited.

Let’s talk about 506(b) and 506(c). Regulation A+ takes it to a whole other level. It’s like you combine both of those because you can advertise and accept non-accredited investors. A big difference is you don’t file a simple form to the SEC saying you’re exempted but you have to get qualified. You have to provide them with your offering circular that they will review, comment on, and make sure meets your regulations and guidelines. Once it does, you get qualified and you can go out and raise money.

You can see why this is attractive to sponsors. Not only do you raise $75 million per year in these types of offerings but you have all those non-accredited investors, which is in the majority of the country can invest in your offering. I want to talk about Regulation A and a little bit of the comparison between it. Let’s talk about the whole process of how to even put one of these together.

How did I start? I started with the Regulation A offering first by watching a ton of videos online. One of the things that I noticed was the players in the space. Many of the players you saw from the conference and webinar are always the same. I put down a lot of information and started reaching out and talking to these people saying, “I’m interested in starting this up. What don’t I know? Where should I start? What could I do?”

Early on, a broker-dealer company and Aton who runs Balmore got to give him so much recognition because he gave me so much information on things to look out for and things to do. I took that information. For those who do know me, I’m the type of person who does a ton of research. I started going on to the SEC’s website, which for some reason is called EDGAR, and I don’t know why. I started searching and reading a lot of other offerings.

This is painful, to say the least, but I was looking at what are others doing. What is the competition doing? How are these structured? Not only that but because all this information is public, you also get to see who everyone is using for their team. When you think about a broker-dealer in a sense being the point guard if you’re on a basketball team, the center, which might be that escrow company, who do they work with?

You want to make sure when you build that team, you’re building a team that has worked together in the past because then they know how each other functions and it makes things more efficient. I started all of this in approximately November of 2021. It was when I came up with this idea and started doing that research. I put together spreadsheets of the teams that I had worked together. I started reaching out, calling all these companies, and getting proposals from them on what it would look like.

Creating Wealth Simplified | Crowdfunding Campaign

Crowdfunding Campaign: You want to make sure that when you build that team, you’re building one that has worked together in the past.

 

Putting Everything Together

I put together one of these offerings because it isn’t cheap. It will cost you potentially $100,000 to put one of these together compared to a 506(b) or 506(c), which may cost about $10,000. It’s 10X the cost. I always want to know going in what my exposure, risk, and cost are. This is money that I’m putting out there. This is my money. I’m putting $100,000 into this so I want to make sure I have something good.

In January 2022, after doing all of this research and putting all the budgets and everything together, I had my attorney start drafting the document for the offering and putting everything together. At this point, I’ll briefly talk about who the team was. We had my attorney and a broker-dealer who is for compliance. We’ll get into that a minute about how this process works. We had what’s called a transfer agent because you sell shares of a stock who keeps track of a cap table in the shares that you’re issuing.

We had an escrow company that would when people invested hold that money until it was released to us. They would also have to do the checks on people on anti-money laundering to make sure that we’re not working with Mexican drug lords. We did have somebody want to invest a significant amount of money and did not want to do it through our offering. They want to do a little side deal with us. We googled them and lo and behold, the person spent fifteen years in prison affiliated with people you probably don’t want to be affiliated with.

The biggest other component to this is the technology. How do people invest? It is different than using other platforms where people can go in and invest. With Regulation A, there are more standards and rules that you have to follow. You just can’t use any type of platform. If you tell them, “I’m doing a Regulation A,” there’ll be a lot of buzz. The other is a marketing company. How are we going to market this to investors? When you look at putting all these costs together, marketing is going to be your biggest expense.

I started compiling all of this in January 2022. I went back and forth with our attorney. In April of 2022, we submitted our first submission to the SEC. Let me say it was breathtaking and thrilling within three months of a ton of work and back and forth. I believe we had about seven drafts between my attorney and I. We’re ready to submit.

We submit the offering. Time passes and we get our first response from the SEC. It was like six weeks later, maybe mid-May 2022, and there were only two comments. My attorney and I were like, “This is awesome, only two comments.” One of them was, “Easy”. The other was, “Oh, boy.” What we were trying to do with the, “Oh, boy,” was we want to give benefit to the first $10 million in investors and give them better returns.

The SEC came back and said, “No. That’s not a continuous offering. It has to be equal for everybody.” Some may think they are getting in early and then they don’t. How do you differentiate? They told us, “Nope. You can’t do that.” It’s not a big deal. We updated it about two weeks later and resubmitted it. Two weeks after that, we get comments. The comments were not what we originally were talking about but they’re new comments.

For anyone who has ever gone to the Department of Motor Vehicles, you got to get something done. You get up to the desk and they’re like, “We have the form.” “No, I was told to submit this form.” “No. You need this form.” “Let me go fill this out or get back to you.” They’re like, “Come back to us when you have this form.” You’re like, “Is there anything else?” “Get me this form.” You come back to the motor vehicles and say, “Here’s the form.” “Do you have this?” “You didn’t tell me I needed this. Can I get a full list?”

The frustration I’ve always run with is once they get to the point of, “We don’t like this,” the entire time stops. Once it stops, they’re like, “Answer this before we can even continue.” Instead of giving you, “Here are the five things you need to fix,” it was one at a time. That was a sense I was getting. Respond to those comments and answer them. They would give us comments and we would submit them the next day. Two weeks later, we got more comments.

This went on for about six weeks until finally in mid-July 2022, we got qualified. We’re able to get qualified in under three months. This whole process took about six months to do. In 2024, I’m hearing it’s taking much longer. I’m hearing people saying 9 months or 12 months to get through these offerings and get them to where they need to be.

Key Takeaways

What are some of the biggest lessons learned I have as going through this process? First is if, ands, or buts, you have to work with people who have done this in the past and have dealt with the SEC. It’s from your broker-dealer, attorney, to CPA because you do have to provide an audit and information for them. Also, your transfer agent, who you want to make sure has worked with private companies not just the public.

Let me walk you through a process and where everyone steps in. A lot of people are thinking, “There are too many people involved.” Once you’re qualified, you have a website where people can go invest, which is your technology button. I’m going to say I’m an investor and our offering has a minimum of $5,000. You go online and click on that button to go invest. You have to fill out your forms online and click submit, along with let’s say you gave ACH to pay by ACH.

Who’s involved in that process? 1) The technology company because they get the technology behind it to make sure it’s secure and no one breaks through that firewall. 2) The broker-dealer. How’s the broker-dealer involved? The moment Chris Seveney submits that information, that broker-dealer will make sure the forms are completed as well as do what’s called an AML-KYC check, Anti-Money Laundering-Know Your Customer check, in regards to making sure I’m not on any government lists for doing things with money that you shouldn’t be.

After that’s clear, money will get transferred into the escrow company and hold that money. They’ll be communicating with the broker-dealer to make sure they get the thumbs up that we can release his money to the sponsor. They can’t release it until after the AML-KYC check is done. For us, we typically close every month. This means we take the money from escrow every month.

Once we take that money from escrow, somebody needs to know, “Who invested and how much?” You can issue those shares. We will create and work with our escrow company and transfer agent saying, “Hear are the 50 people invested. Each one invested $5,000 at $10 per share or $500. I need you to create their stock certificate.” They will create internally the investment and house that cap table. They’re the ones who hold all the shares for us so when I go to redeem at a later date, I know who that company is.

If I’ll say, “I want to redeem,” that company would send me paperwork. I would fill it out and send it to them. They would go back to the sponsor and say, “This person is redeeming. Once they receive their money, let us know and relinquish the shares.” A lot of moving parts are involved in all of this. A) Put that team together that’s worked through all of this. You can see how many areas it can go wrong, especially when you’re working with investors. You need to communicate with them and streamline these processes. The most important thing is working with those professionals.

The second one that I want to touch upon is doing your research. For me, it’s going through the SEC website and reviewing offerings. What I was doing was highlighting X from other offerings thinking, “I like this. How can I incorporate this or ask my attorney? I want to do something along these lines.” Also, the risk. You have to as part of this offering put in twenty pages of a risk profile and analysis. How do you do that? You have to put all this together.

Through a lot of these offerings, I was going through a lot of the risk and understanding, “This is a risk. I want to target this.” These are other things that I wanted to talk about as part of putting everything together. That was very beneficial to read all these offerings. The last is, what do others offer in regard to the terms? What is competitive to make sure I’m being competitive in my competition that could potentially be out there? If others are offering X and I present below X, what is going to get you to have investors want to invest with you?

Last but not least, part of that is simplicity. Keep things as simple as possible because if you’re not going to be simplistic, it makes it that much more challenging. People may not understand how to do that. Those are such important factors. Throughout this entire process, this whole six-month time, you want to also consistently be educating yourself on what else is going on in that space.

Creating Wealth Simplified | Crowdfunding Campaign

Crowdfunding Campaign: Throughout this entire process, you want to also consistently be educating yourself on what else is going on in that space.

 

I want to share with people that we were able to launch our crowdfunding and Regulation A+ offering in under six months. If you’re interested in understanding more about this process, I am happy to give you introductions to others who are in this space from the broker-dealers and transfer, you name it. I’m happy to provide you with any contacts.

One last thing before we end this episode is as you grow and scale, realize that like anything in business or life, those who start with you, long-term may not be who finish with you. You may outgrow certain vendors. We’ve gone through that. We outgrew, changed, or pivoted in some aspects where we’ve walked out some of our A-team players.

As you grow and scale, you realize that just like anything in business or in life, those who start with you long term may not be who finish with you. Click To Tweet

Probably the biggest and most important one is our accountant. People are like, “You switch your accountant?” Yes, because when we started, we were using a smaller firm that was very good with the audit. We were a new company and there were not a ton of things on that audit. We have a mortgage note debt fund. How do we value our loans? How do we account for those loans?

There’s a ton of IRS code on a lot of this stuff that you need to understand and you want to work with a CPA firm that understands that. We switched and we’re using the fifth largest CPA firm and auditing firm in the country. I’ll tell you, they are excellent to work with. It’s great to work with somebody like this because they have so much knowledge and give you so much more education back as well that you can learn from them.

Want to close on that. Here are some key takeaways. Rewinding everything is part of any type of crowdfunding campaign. First and foremost, need to put together a rockstar team. You need to do all the research and understand what it is you want to offer within your offering. You can take advice from others on what you’ve seen, what they’ve seen, what may work, and what may not work but you have to digest all of that and put it so it’s simplified, focused, and structured. From that, you need to consistently look at how everything is working and there will be tweaks along the way.

I hope you enjoyed this episode. In the next episode, I’m going to follow this up and talk about the benefits that we’ve gained and the rewards we’ve reaped from watching this Regulation A+ offering. Thank you for reading. As always, make sure to leave a review. Feel free to reach out to us if there’s a topic that you would like us to present. Take care, everybody. Enjoy.

 

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