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Before you start
Netcapital is opening the door for entrepreneurs everywhere to gain access to capital through their own communities and users. Investment opportunities serve to align the economic interests of a company and its investors and supporters. The act of investing can form a connection that promotes continued loyalty and support in ways that a one-time purchase or donation cannot. Netcapital can be an effective tool to finance your company while seeking to establish and enhance a community of brand ambassadors and loyal customers.
Virtually any U.S. company that is not also raising capital through another Section 4(a)(6) offering and which isn’t ineligible because of a bad actor event can raise capital on Netcapital. You don’t even have to have an operating history to list an offering on Netcapital.
Core criteria we apply to review a company’s application include:
- The company and its management team have never been found to commit fraud, securities violations or serious crimes by any court or governmental agency (the so-called no “bad actor” requirement).
- When aggregated with its other Section 4(a)(6) offerings in the prior 12-month period, the amount the company seeks to raise on Netcapital does not exceed $5,000,000 (required by JOBS Act Title III).
- The company is a U.S. company offering products or services, with a plan to deploy more capital into its operation.
Per SEC guidelines, certain companies are not eligible to use the Section 4(a)(6) exemption. Ineligible companies include non-U.S. companies, Exchange Act reporting companies, certain investment companies, companies that are subject to disqualification under Section 4(a)(6), companies that have failed to comply with the annual reporting requirements under Section 4(a)(6) 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.
There are certain circumstances that would make a company not eligible to raise capital using Section 4(a)(6). If any of a company's Covered Persons are a bad actor, then that company is ineligible to raise money via Section 4(a)(6). These terms are defined below.
Covered Persons includes:
- the Company, any predecessor of the Company and any affiliated issuer
- any director, executive officer, other officer participating in the offering, general partner or managing member of the Company
- any beneficial owner of 20% or more of the Company's outstanding voting equity securities, calculated on the basis of voting power
- any promoter connected with the Company in any capacity at the time of such sale
- any investment manager of an issuer that is a pooled investment fund and any director, executive officer, other officer participating in the offering, general partner or managing member of such investment manager, as well as any director, executive li officer or officer participating in the offering of any such general partner or managing member li
- any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with sales of securities in the offering (a "compensated solicitor")
- any director, executive officer, other officer participating in the offering, general partner, or managing member of any such compensated solicitor
A Bad Actor is a person who has conducted or been subject to the following:
- Criminal Acts. Conviction, within the prior 10 years, of any felony or misdemeanor in connection with the purchase or sale of any security; involving the making of any false filing with the SEC; or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities.
- Court Injunctions and Restraining Orders. Subject to any order, judgment or decree of any court, entered within the prior 5 years, that restrains or enjoins you from engaging in any conduct or practice in connection with the purchase or sale of any security; involving the making of any false filing with the SEC; or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities.
- Final Orders of Certain Regulators. Subject to a Final Order issued by a state securities commission (or an agency or officer of a state performing like functions); a state authority that supervises or examines banks, savings associations, or credit unions; a state insurance commission (or an agency or officer of a state performing like functions); an appropriate federal banking agency; the U.S. Commodity Futures Trading Commission; or the National Credit Union Administration
- (i) which order bars you from: association with an entity regulated by such commission, authority, agency, or officer; engaging in the business of securities, insurance or banking; or engaging in savings association or credit union activities;
- (ii) or which order constitutes a Final Order, entered within the prior 10 years, based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct.
- SEC Orders. Subject to an order of the SEC entered pursuant to the Exchange Act or the Advisers Act that suspends or revokes your registration as a broker, dealer, municipal securities dealer or investment adviser; places limitations on your activities, functions or operations; or Bars you from being associated with any entity or from Participating in the Offering of any penny stock.
- SEC Cease and Desist Orders. Subject to any order of the SEC, entered within the prior 5 years, that orders you to cease and desist from committing or causing a violation or future violation of any scienter-based anti-fraud provision of the Securities Act, the Exchange Act or the Advisers Act, or any rule or regulation thereunder; or Section 5 of the Securities Act.
- Suspension/Expulsion from SRO Membership or Association. Suspended, expelled or barred from SRO Membership or Association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade.
- Regulation A Stop Order. Filed (as a registrant or issuer), or been named as an underwriter in, any registration statement or Regulation A offering statement filed with the SEC that, within the prior 5 years, was the subject of a refusal order, stop order, or order suspending the Regulation A exemption, or is the subject of an investigation or proceeding to determine whether a stop order or suspension order should be issued.
- U.S. Postal Service False Representation Orders. Subject to a U.S. Postal Service false representation order, entered within the prior 5 years, or subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the U.S. Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations.
Any consideration of the tradeoff between the costs and the benefits of raising capital with Netcapital needs to take into account the complex regulatory requirements that companies must follow initially to raise capital and then follow on an ongoing basis. An overarching principle of securities laws is that in order to protect investors companies should provide complete and accurate information so that the public can make informed investment decisions. Incorrect or misleading information (including the omission of material information) comes with severe legal consequences. Companies considering a Section 4(a)(6) raise should also consult your attorneys and accountants to ensure full understanding of, and compliance with, all legal and accounting requirements. As a funding portal registered with the SEC and operating under Regulation CF, Netcapital is not authorized to and does not provide legal, tax, accounting or investment advice. However, we can help you with various procedural and practical questions, and here are some practical suggestions:.
- We think the first step is to talk to your advisors and consider and weigh the costs and benefits based on your company’s particular circumstances. A company should at a minimum consider whether it has available or can inexpensively obtain the required financial statements necessary to provide to investors as required under Section 4(a)(6).
- We also believe that a company should also consider its willingness to publicly disclose various detailed information about the company, including its financial condition, capital structure, sources of financing and liquidity, and key affiliates.
- If a company is generally comfortable making such information public, it should consider the expected costs and expenses associated with preparing and drafting initial filings with the SEC and with the ongoing compliance requirements under Section 4(a)(6).
We encourage you to contact us with questions on the cost and benefits of Section 4(a)(6) fundraising and how Netcapital can assist you with this process.
It depends on what kind of funding platform you are working with. Section 4(a)(6) does not allow your company to raise capital with any other Funding Portal. If you are working with another funding platform and have an offering under Section 4(a)(6), you may not sell securities under Section 4(a)(6) anywhere else. If you have questions about your eligibility, feel free to email us at email@example.com.
Netcapital charges an initial engagement fee as well as a 4.9% success fee on total capital raised through our platform.
No. Under applicable SEC rules, only U.S. companies can raise capital using a registered Funding Portal like Netcapital.
This website allows issuers to raise an unlimited amount of funds; however issuers are limited to raising $5,000,000 from investors in a rolling 12 month period under Section 4(a)(6) via offerings conducted by Netcapital Funding Portal Inc. Any amount above this in a 12 month rolling period must come from accredited investors in a Rule 506(c) offering on this website conducted by Livingston Securities, Inc. This website accommodates both types of investors.
When you pre-sell products on Kickstarter or Indiegogo, it is the same as booking a sale. You not only receive capital from your backers, but also incur an obligation to deliver on a purchase. This costs money. We think there is a place in the world for non-dilutive fundraising through rewards-based crowdfunding sites like Indiegogo and Kickstarter. However, a high growth company needs fuel to grow their business, and dilutive capital that does not have to be repaid (through delivering on products or otherwise) is an irreplaceable resource for high-growth venture. In short, they both have their place, and if you can, we think you should do both!