Cryptocurrency offerings are new tools companies use to raise money. For Initial Coin Offerings, or ICOs; "a company looking to create a new coin, app, or service launches an ICO. Investors buy in to the offering, either with fiat currency or with preexisting digital tokens like ether. In exchange for their support, investors receive a new cryptocurrency token specific to the ICO." A security token (STO), on the other hand, "is any cryptocurrency that pays dividends, profits, shares or interest or invests in any other asset that also generates profits. According to the Howey Test, a cryptocurrency token is a security if it invests in money, invests in a common enterprise or expects to make a profit from the effort of others." Finally, an NFT, or Non-fungible token, is a unique, one and only electronic token, or computer program. Typically, NFTs represent artwork, but in actuality, they could represent anything capable of being described electronically.
If a startup "wants to raise money through any of these tools, it usually creates a plan or a whitepaper which states what the project is about, what need(s) the project will fulfill upon completion, how much money is needed to undertake the venture, how much of the virtual tokens the pioneers of the project will keep for themselves, what type of money is accepted, and how long the ICO/STO/NFT campaign will run for. During the campaign, enthusiasts and supporters of the firm’s initiative buy some of the asset with fiat or virtual currency. These coins are referred to as tokens and are similar to shares of a company sold to investors in an IPO-type transaction. If the money raised does not meet the minimum funds required by the firm, the money is returned to the backers and the NFT/STO/ICO is deemed to be unsuccessful. If the funds requirements are met within the specified timeframe, the money raised is used to either initiate the new scheme or to complete it. A total of 875 blockchain projects raised $6.2 billion in 2017. A total of 1,258 blockchain projects raised $7.8 billion in 2018, with the bulk of the funding coming through the first two quarters" of 2018.
With the introduction of the JOBS Act, cryptocurrency issuers have the ability to apply for three distinct JOBS Act based exemptions: Reg S, Reg D, Reg A+, and Reg CF. Note that "Reg CF startups can raise up to $1.07 million USD. This is meant to quickly fund small projects to boost innovation. We would argue that a lot of projects can be started with $1 million if done right."
It was only a matter of time before the success of cryptocurrency offerings would lead to the attention from regulators eager to shut them down. Most of the stated reasons for doing so relate to the prevalence of fraud in the sector, but, remember, no fraud was greater than the $19 trillion lost during the financial crisis.
Get Advice on NFTs/ICOs/STOsCryptocurrency offerings are basically crowdfunded securities. As such, they share some of the same requirements that crowdfunding campaigns do: "in the United States, STOs' have to meet SEC requirements concerning transparency." They still keep "many of the benefits of an ICO, including lower costs and ease of access. And because they are regulated, STOs could potentially open the door to institutional investors who otherwise wouldn’t have invested in the previous iteration of the token sale."
As with the newer forms of financing we have discussed, if you can access this type of funding, it should be on flexible, lower cost than normal terms.
For cryptocurrency offerings in the current environment, legal advice is required, "a company needs to work within the country’s existing regulatory frameworks. Failure to do so could lead regulators to shut down non-compliant projects as the SEC did to illegal ICOs in 2018." If you are using Regulation Crowdfunding and equity (Reg A+) crowdfunding as the basis for your NFT, Initial Coin Offering/Security Token Offering (NFT/ICO/STO), "a company is permitted to raise a maximum aggregate amount of $1,070,000 in a 12-month period; individual investors are limited in the amounts they are allowed to invest in all Regulation Crowdfunding offerings over the course of a 12-month period; a Regulation Crowdfunding offering must be conducted through one online platform that is registered with the SEC and FINRA."
To make the best use of this resource, we suggest you research specific cryptocurrency platforms to find out exactly what they look for when it comes to eligibility.
In general, the same restrictions apply to cryptocurrency offerings that apply to equity crowdfunding offerings: "companies not eligible to use the Regulation Crowdfunding exemption include: non-U.S. companies; companies that already are Exchange Act reporting companies; certain investment companies; companies that are disqualified under Regulation Crowdfunding’s disqualification rules; companies that have failed to comply with the annual reporting requirements under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement; and companies that have no specific business plan or have indicated their business plan is to engage in a merger or acquisition with an unidentified company or companies."
Cryptocurrency platforms do not focus on women or minority businesses.
For cryptocurrency, as for equity crowdfunding, the major platforms suffer from the same issues that mainstream financial institutions do: they are biased and bigoted.
The following documents may be required:
Fees vary widely for the different types of cryptocurrency offering. Below, we cover charges assuming you use Regulation CF or Reg A+ Equity Crowdfunding.
Other Fees include Late Payment Fees, Closing Fees, taxes.
Apply For AssistanceMinority Small Business Cryptocurrency financing.
Cryptocurrency may help small firms and people with good ideas who are locked out of the capital markets, but women and minorities have yet to take advantage of cryptocurrency financing in any meaningful way.
There are few cryptocurrency platforms that are targeting women and minority businesses. A few African-based platforms exist, but if you are African in Africa, you are not a minority. Besides, most of these platforms are controlled by non-Africans. You must conduct a comprehensive review to determine if any work with women and minority businesses. If you need help, contact us.
Cryptocurrency based offerings seem to be tailor-made to help women and minority firms. After all, these are supposed to be ways of raising money in new markets, without concern for the gender and race. The truth is that, when it comes to money, gender and race ALWAYS matter. The initial excitement that surrounded crowdfunding as an option for women and minority firms to raise money soon faded, as the SEC created regulations that favored lawyers and large firms. On the crypto side, the initial boom in Initial Coin Offersings (ICOs) occurred too quickly for most women and minority-owned firms to take advantage of. As a result, the SEC has, once again, structured the market for the advantage of lawyers and existing firms, not due to public safety concerns, but due to a desire to maintain current capital allocation patterns. Despite all of this, we still feel that for a limited number of women and minority firms, these new tool provide an option that was missing even two years ago. It’s an option selected minority- and women-owned firms should consider."
Cryptocurrency offerings in the US are under the jurisdiction of the SEC, since the SEC regulates JOBS Act equity and debt based crowdfunding.
We have included some forms and templates you might find helpful in your search for capital.
These sample funding documents are educational in nature. You will still need to review all documents with your team and with a lawyer.
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