Crowdfunding website Flash Funders of Santa Monica is hoping for a big boost Jan. 29.
That’s the day the Securities and Exchange Commission’s Title III rulings, also known as Regulation CF, go into effect, opening equity crowdfunding to tens of millions of unaccredited adult investors in the United States.
While it’s currently legal for companies to sell up to $50 million worth of equity to uncredited investors using the SEC’s Regulation A+ rules, which went into effect last year, Flash Funders Chief Executive Vincent Bradley said the Regulation A+ route isn’t practical for early stage businesses.
The legal due diligence required for Regulation A+ costs hundreds of thousands of dollars, according to Bradley, which is cost prohibitive for small startups. That means the only other crowdfunding option for early stage startups is to raise money from accredited investors.
“Previously, when you were trying to raise capital online, you were restricted to marketing to the 8.5 million accredited investors in the United States, which is very difficult,” he said. “Regulation CF will allow early stage businesses to target 120 million-plus unaccredited Americans. That’s a big deal.”
Still, Regulation CF will come with restrictions. Under the SEC’s rules, companies will only be able to raise $1 million from unaccredited investors over a 12-month period. Individual investors with incomes less than $100,000 will be limited to investing $2,000 or 5 percent of their annual income, whichever is greater. And the aggregate amount of securities sold to an unaccredited investor through all crowdfunding offerings may not exceed $100,000.
Still, Bradley sees equity crowdfunding as a boon for early stage startups and imagines unaccredited investors will invest with the same enthusiasm they have shown while giving money on donation-based crowdfunding websites such as New York’s Kickstarter and San Francisco’s Indiegogo Inc. If they do, Bradley foresees the new crowdfunding rules upending early stage financing entirely.
“Capital formation is really going to change in 2016,” said Bradley. “This is the biggest year in private markets in 80 years – since the crash of ’29.”
Cloud services company J2 Global Inc. of Hollywood gobbled up four more firms in the fourth quarter of last year, bringing the total number of companies it acquired in 2015 to 24.
J2 announced last week that it purchased Australian website-hosting company Ausweb; discount e-retailer Offers.com and email security company MX Toolbox of Austin, Texas; and British cloud storage outfit Backup.
J2 provides cloud services such as Internet fax, email marketing, and data storage and backup. It also owns several media firms such as video game media company IGN Entertainment Inc. and men’s lifestyle website AskMen.
“In 2014 we acquired 29 companies for about $300 million,” said Chief Executive Hemi Zucker, noting that some of those included divisions of companies. “We will do more carve-outs probably in 2016. As you know, the markets are choking. And for us, we like it because there are more opportunities. This year we did only 24 deals, but we spent more money than last year.”
Zucker said the average deal was valued between $12 million and $14 million.
“We are going deeper into the ocean and we are catching bigger fish,” he said.
J2’s acquisitions are aimed at bringing together a fragmented industry of independent cloud storage and Internet service companies under one roof. Buying up smaller companies has been a cost-effective method for acquiring customers, Zucker said, since it’s often cheaper than traditional methods.
“You can get your customers by advertising and sales and by organic acquisition, but at a certain point you hit a wall because you compete with other people for customers,” he said. “If I buy a company and I pay them two or three times their revenue, it’s still cheaper.”
Growing through bit-size acquisitions has proved a successful strategy for J2. The company’s revenue surged from $371 million in 2012 to $599 million in 2014, according to filings with the Securities and Exchange Commission. The company’s share price has steadily risen from a low of about $24 a share in 2012 to close at $75.81 on the Nasdaq on Jan. 14.
Efficient Power Conversion Corp. of El Segundo has hired Yuanzhe Zhang as its director of applications engineering. Zhang’s focus will be designing envelope tracking systems for wireless electronics. … Online media company Young Turks Network of Culver City has hired Chris Puckett as vice president of advertising and brand partnerships. Puckett was previously East Coast director of brand partnerships and sales for Playa Vista’s Fullscreen Inc.
Staff reporter Garrett Reim can be reached at email@example.com or (323) 549-5225, ext. 232.
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