North Carolina has a new equity crowdfunding platform to help power its progress. FundingStack, the state’s first registered funding portal, is now live.
The portal enables N.C. startups and growing small businesses to raise up to $2 million by presenting equity offerings through the online platform to both lower net-worth and more well-heeled investors. Interested investors must be N.C. residents.
While many national crowdfunding platforms are open only to more wealthy “accredited” individuals, FundingStack is permitted under a relatively new state law to create investment opportunities in N.C.- based companies to “non-accredited” investors as well, those who earn less than $200,000 per year and have a net worth below $1 million.
Accredited investors may invest an unlimited amount in one or more offerings, while non-accredited investors must limit their investment to $5,000 per issuer every 12 months, lowering potential risk.
The N.C. PACES Act (“North Carolina Providing Access to Capital for Entrepreneurs and Small Business Act”), signed into law in 2016 and first effective in 2017, is the legal framework in which FundingStack operates.
The portal will offer a growing online roster of N.C. businesses a platform on which to share their offerings and other legally required disclosures with prospective investors, who must sign a non-disclosure agreement.
FundingStack, its public outreach initiative “Invest in NC” and website, InvestinNC.com, are the brainchild of John Panaccione, founder and CEO of Logic Bay Corporation, a portal technology firm, and Donald (“Clem”) Seifert Jr., co-founder and CEO of Cardinal Crowdfund Solutions. The two firms are located at 2002 Eastwood Road in Wilmington.
The partners said they believe their new portal will provide an important alternative for startups and small, established businesses that are unable to secure funding through other sources.
Recently, venture capital firms have increasingly placed their bets in later-stage funding rounds.
At the same time, angel investors may not always be interested in six-figure opportunities.
“There’s a funding gap,” Seifert told a webinar of possible issuers and investors April 26, “and this funding gap exists between half-a-million dollars and $2 million.”
The new portal gives early-stage companies another platform from which to try to raise funds and represents an alternative to going it alone or using broker-dealers.
“We’re not a broker-dealer,” Seifert emphasized.
The FundingStack approach is designed to create “considerable cost savings” when compared to broker- dealers, he said. He and Panaccione will bill clients in monthly installments so companies can “better forecast and plan.”
In addition, the two are differentiating FundingStack by bundling a variety of ancillary service providers needed to raise capital into a single package.
If a client desires, Cardinal Crowdfund Solutions can “quarterback” tasks such as compiling financial documents, developing a business plan, creating marketing content, producing a video, holding webinars and coordinating legal filings, all of which are expected to occur in the first six months of the client relationship.
After this initial phase, Cardinal will continue to oversee mandatory quarterly reporting to both state regulators and investors until the offering no longer exists.
Escrow services will be administered separately by The Regan Law Firm, a Wilmington firm.
Before the process begins in earnest, Logic Bay and Cardinal will vet each prospective client to ensure that it has the capability to see the crowdfunding process through to completion and that it qualifies for participation under state regulations.
Crowdfunding is “so dependent on your own network and your own credibility,” observed Diane Durance, the director of University of North Carolina at Wilmington’s Center for Innovation and Entrepreneurship. The state’s first registered funding portal is “important from the standpoint of the structure it can provide,” Durance continued, and it can imbue a newer firm seeking capital with “more visibility and acceptability,” she said.
North Carolina companies seeking to raise capital via FundingStack can shape their offering in a variety of ways. These include taking out a basic loan with favorable terms to the investor; taking out a loan and paying it back when company revenue is generated from it; giving the investor a straight equity share in the company; predicating an equity share on future events like the issuance of preferred stock; or giving the investor a debt note, convertible to company shares at a predetermined discount, when a trigger event occurs.
The issuer is “in the driver’s seat,” Panaccione said.
To pique interest in the state’s new crowdfunding platform, Seifert and Panaccione will spend much of 2018 crisscrossing the state and staging regional events.
The two are especially keen on tapping into affinity groups, clusters of individuals with common interests such as professional associations, women entrepreneurs, people of color and veterans, a group which is of special interest to Panaccione, a paratrooper who served in the First Gulf War.
Face-to-face discussion at the events is “really important” for those seeking funding, Durance said.
“They’re like snowflakes; they’re each unique,” she added, with emerging firms in a variety of business segments such as technology and manufacturing capable of raising funds through the portal.
Seifert and Panaccione hope to conduct four events in each of eight regions of the state over the next 12 months.
The N.C. PACES Act does not amount to an endorsement of any particular online platform or offering but provides the rules under which portals like FundingStack and its participating issuers must operate.