Thursday, November 7, 2013
Thomas E. Vass (The Private Capital Market) recently published an article entitled, Estate Planning for Technology Executives Engaged in Crowdfunding: Where Estate Planning for CEOs Meets Section 4(A)(2) and Regulation D Rule 506 (C), (October 14, 2013) Provided below is the abstract from SSRN:
Under Title II of the JOBS Act, commonly known as Accredited Investor Crowdfunding, technology company executives can publicly solicit potential investors. The major change in the new way of crowdfunding capital from the traditional venture capital method is that there will not be a period of time for private negotiations between the company and different groups of investors, under Reg D Rule 506(c).
In the new method, the CEO will establish the terms and conditions of the investment at the very beginning of the offering process, and like the Field of Dreams, if the investors like it, they will invest.
In order to avoid the allegation of fraud in a public solicitation, the technology company must prepare the terms and conditions of the offering before making public statements about the offering. Otherwise, what is said by the executive in public to one set of investors may turn out to be a false representation, if the company changes the terms with a second set of investors, in private, non-public negotiations over the terms.
Getting the offering terms and subscription agreements right from the start has serious implications for the estate settlement plans of the owners of technology companies. In other words, there is a critical nexus of financial and legal issues for the CEO between crowdfunding and estate settlement that the owners need to get right, before the crowdfunding project begins.
This article is a first effort to explore how estate settlement plans of technology executives change as a result of crowdfunding. This is a new area of law and finance, and the analysis provided in the four articles is speculative and untested by experience, so senior executives should be cautioned to seek legal counsel on how to adjust their current estate settlement plans, if they intend to engage in a crowdfunding project.