Frequently Asked Questions
Before Deciding to Conduct an Offering
Why should a company consider using Netcapital to raise capital?
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.
Why should I raise dilutive capital through Netcapital when I can raise non-dilutive capital from sites like Kickstarter?
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!
Who can fundraise on Netcapital?
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. 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 $1,070,000 (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.
What qualifies a company to list on Netcapital?
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.
What makes a company ineligible to raise using Section 4(a)(6)?
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.
Am I eligible if my company is in the idea stage and I have no historical financials?
You do not have to have an operating history to list an offering on Netcapital.
I already have an offering on another crowdfunding platform. Can I list another offering on Netcapital?
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.
How much will it cost for me to fundraise through Netcapital?
We have no up front fee, and we only make money if you make money! Netcapital takes a 4.9% success fee on total capital raised through our platform.
How much can I raise through Netcapital?
Netcapital allows issuers to raise an unlimited amount of funds; however issuers can only raise $1,070,000 from unaccredited investors in a rolling 12 month period under Reg CF. Any amount above this amount must come from accredited investors. Our platform accommodates both types of investors.
Can companies outside the U.S. raise capital through Netcapital?
No. Under applicable SEC rules, only U.S. companies can raise capital using a registered Funding Portal like Netcapital.
Who can invest in my offering?
Investors do not have to qualify as accredited investors to buy shares in your company. Under 506(c) and Section 4(a)(6), general solicitation is allowed and is a great way to convert customers, vendors, employees, friends, family, local community, followers, and fans into investors in your company.
Will each investor have a line on my cap table?
All shares sold through Netcapital are held by our partner custodian who has the right and obligation to exercise all provisions, covenants, and other rights (including voting rights) of the securities by proxy. This means that there is only one investor on your cap table that represents all shareholders who invested in your company through Netcapital.
Creating the Offering
What information do I need to list on Netcapital?
Generally speaking you will need:
- Profits & loss statements
- Balance sheet
- Cash flow statement
- Change in owner’s equity statement
- Business plan
- Funding history
- Articles of organization
- Certificate of formation
- Operating agreement
- Pitch deck
- Fundraising history
- Price per share for your offering
- Minimum and maximum raise amounts
- Board authorization
- Use of proceeds
Do I need audited financials?
Issuers offering less than $107,000 are required to disclose total income, taxable income and total tax as reflected in the issuer’s federal income tax returns and certified by the principal executive officer. Issuers offering more than $107,000 but not more than $535,000 must have financial statements reviewed by a public accountant that is independent of the issuer. Issuers raising more than $535,000 but less than $1,070,000 must have financial statements reviewed by a public accountant, and if the issuer has previously sold securities in reliance on Regulation Crowdfunding, financial statements must be audited by a public accountant that is independent of the issuer.
If reviewed or audited financial statements are available to the issuer, the issuer must provide the reviewed or audited financial statements even if any lesser requirement would otherwise be available.
Can I abbreviate the cap table or do I need to enter all lines?
Issuers must include in the cap table all shareholders that hold greater than 5% of the company as well as the shares owned by each director and officer, even if it is less than 5%. Investors that own less than 5% of the company can be combined under “other”.
What kind of due diligence does Netcapital do on my company?
Netcapital collects all of the information required by the SEC for 4(a)(6) and 506(c) filings. We do not make investment recommendations of any kind, but make all of the diligence documents required for the SEC available to the public.
What is the best strategy for promoting my offering? Does Netcapital help with this?
Developing a promotional strategy for your fundraise is critical for success. We require each company to complete a marketing review before listing on our platform While Net capital cannot promote specific offerings, we can advise you about the structure or content of the your offering, including assisting you in preparing offering documentation and helping you think about how to leverage your own networks for success. Here’s an example of the type of assistance Netcapital provides to companies like yours:
- Develop and send a launch tweet, email, LinkedIn post, Facebook posts to our social media community
- Ability of your company to leverage our proprietary tools to take advantage of various social media networks
- Fundraising strategy coaching
- Access to our built in investor network
- Access to our investor dashboard to provide some information about investor behavior on our site
- Connect you with advisors to our company who are professional angels and who can help you tactically plan to close out your round.
What types of securities can I sell?
Netcapital only supports the selling of common stock or membership unit securities with voting rights. We do not currently support the sale of preferred stock or debt securities or securities that are not freely transferable.
Who sets the share price and valuation?
The issuer sets the share price and valuation for the offering. Netcapital cannot suggest how to structure the offering from a price and valuation perspective. We are acting only as an intermediary between the issuer and the investors.
Can I raise capital under multiple terms at the same time? For example, offer preferred equity outside of Netcapital and common stock through Netcapital?
Yes, however this typically requires board approval and is the responsibility of the issuer and their board to notify all shareholders of the multiple offerings. One caveat: You may not work with any other Funding Portal by rule. If you are working with Netcapital and have an offering on netcapital.com to sell Title III securities, you may not sell Title III securities anywhere else.
Do I get the money immediately when an investor invests in the offering?
As soon as an offering page through Netcapital goes live, investors can make investments. The money will be drawn from the investor account to be held in an escrow account. The offering must be kept open for a minimum of 21 days. If total capital in the escrow account meets the funding goal by the offering deadline and the offering closes, the money will then be disbursed from escrow and sent to your company account. Typically it takes 3-4 weeks to receive all of the funds after an offering closes.
Can I do a rolling close?
Due to SEC regulations we do not offer rolling closes at this time.
During the Offering
Once my offering goes live, can I make any changes?
Yes, however all changes must go through Netcapital and all investors must be notified of the material change. Investors are then given one week to confirm they would like to continue with their investment based on the change.
How do I get updates on how much is raised?
Issuers can go to their account dashboard or their public offering page on netcapital.com at any time to view how much money has been invested in aggregate to date.
Will I be charged if I don’t reach my funding goal?
We only make money if you make money. Netcapital only takes a fee if you reach your funding goal and the offering closes.
What if my company meets its funding goal before the offering period ends?
The offering will remain live on our site, however no new investments will be accepted.
How should I set my max offering amount?
The max should be the most you are willing to sell at the dollar price specified in your offering.
What is a side-by-side offering?
Side-by-side allows an issuer to sell 4(a)(6)Title III securities, which are available to the general public, in addition to 506(c) securities, which are reserved for accredited investors only. This allows Issuers to raise an unlimited amount of capital through a Netcapital offering.
How long should I make my offering available for?
We recommend listing your offering somewhere between 60 and 90 days.
Can I extend my offering if the minimum isn’t met?
Currently we do not allow issuers to extend their offering if the minimum isn’t met.
After my offering closes, how long will it take for me to receive the funds?
Typically it takes 3-4 weeks to receive all the funds after an offering closes.
Will I be in contact directly with the SEC? Or will Netcapital handle this?
Netcapital will submit all forms to the SEC on your behalf.
What will be my relationship with Netcapital after the closing?
Netcapital will always be there to serve as a resource. We will help you file your annual reports with the SEC to remain compliant and to help you communicate with your Netcapital investors.
What ongoing obligations does an issuer have after a successful offering?
After a successful offering, the company will be required to file regular annual reports with the SEC that include all of the information that was required to be included in the original offering statement described above (updated in all respects as applicable to the current date of the annual report). This must be filed no later than 120 days after the end of each completed fiscal year.
One key difference between an annual report and the original offering statement is that the financial statements for the most recent fiscal year need only be certified to be true and correct in all material respects (unless reviewed or audited financial statements are available for such year, in which case those financial statements must be provided) by the principal executive officer of the company.
Companies will be required to continue to file annual reports every year until the earliest of the following occurs:
- The company has filed for an IPO;
- The company has filed at least one annual report and has fewer than 300 shareholders of record;
- The company has filed at least three annual reports and has total assets that do not exceed $10 million;
- The company or another party purchases or repurchases all of the securities issued pursuant to Section 4(a)(6) offerings, including any payment in full of debt securities and any complete redemption of redeemable securities; or
- The company liquidates or dissolves in accordance with state law.
Are there requirements for communicating with my shareholders? What are my obligations?
Netcapital will manage all investor communication after closing. As a result of your offering, you will be required to submit Annual Reports to Netcapital and the SEC, as well as post the report to your website to make it available to all of your investors. Netcapital strongly encourages quarterly reporting and communication with your investors in addition to providing updates throughout the year on any changes as they occur.
How is voting handled?
Our partner custodian holds all shares purchased through Netcapital and has the right and obligation to exercise all provisions, covenants, and other rights, including voting rights, of the securities by proxy.
How do I determine if raising money under Section 4(a)(6) is right for my company?
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.