CROWDFUNDING GUIDELINES

Transcription

1 Page 1 of 13 CROWDFUNDING GUIDELINES 1. ISSUER GUIDELINES a) PROFILE: The Issuer profile should show the following: i. The Issuer must be a registered company in Nigeria according to the provisions of the ii. Companies and Allied Matters Act 2004 iii. The promoter(s) must be aged 18 and above iv. The Issuer must be a Nigerian company v. The startups must be run by the promoters vi. The purpose for which the Issuer requires funding should NOT be illegal or charitable b) MARKETING: i. The Issuer cannot use general solicitation or advertising to market the securities; ii. The Issuer may sell its securities to an unlimited number of "accredited investors" all of whom must have sufficient knowledge and experience in financial and business matters to make them capable of reasonably assessing the risk and return on the potential investment opportunity; iii. Companies must decide what information to give to accredited investors, so long as it does not violate the anti-fraud prohibitions of the federal securities laws. iv. The Issuer must be available to answer questions by prospective purchasers and provide all required financial and other information v. The Issuing house must take reasonable steps to confirm that investors are accredited investors. NASD is fully indemnified from any loss on the instruments issued. vi. Issuers must file the result of their capital raising with the Securities and Exchange Commission. The filing should include information such as names and addresses of the issuer s promoters, executive officers and directors, and some details about the offering. c) CAPITAL RAISED i. Crowdfunding must be done through a Crowdfunding agent [ CFA ] registered to operate on the NASD Crowdfunding site. Such CFA have the responsibility of packaging the project and preparing it for funding. ii. An Issuer may engage more than one (1) CFA for each project or capital raising. iii. The Issuer shall bear the responsibility and liability to shareholders for the information memorandum, placement documents and due diligence its claims. iv. The issuer may project a minimum target of 15,000,000 and maximum amount of 100,000,000 net of professional fees in each calendar year. v. Subscriptions shall be received into escrow accounts managed by the CFA. vi. Fundraisings that meet a 60% success level will be released to the Issuer. Where the amount raised falls short of the 60% threshold, the monies collected into the CFA escrow account will be returned to investors.

2 Page 2 of 13 vii. Issuers who successfully raise an excess of 100 million are required to file annual returns with SEC and NASD. d) DISCLOSURE REQUIREMENTS Issuers will file the following details on an extensible Markup Language (XML) form i. Name, legal status, physical address and website address of the Issuer; ii. Names of the directors, executive officers or persons holding more than 5% of the shares of the Issuer; iii. Principal occupation of directors and other promoters over the last three years; iv. A description of the business of the Issuer and the business plan of the Issuer; v. A description of the financial condition of the Issuer; vi. A statement of financial condition no older than 180 days; vii. Any debt obligations of the companies and any contingent liabilities; viii. A description of the stated purpose and intended use of the proceeds of the offering sought by the issuer with respect to the target offering amount; ix. The target offering amount, the deadline to reach the target offering amount and regular updates regarding the progress of the Issuer in meeting the target offering amount; x. Disclosure as to whether the Issuer can accept over subscriptions; xi. Statement on investors right to cancel subscription usually 48 hour cancellation window; xii. Statement on Issuer right to cancel usually a 48 hour cancellation window; xiii. Circumstance(s) under which the offering may be closed early; xiv. The price to the public of the securities or the method for determining the price; xv. A description of the ownership and capital structure of the Issuer; xvi. A disclosure of the material factors that make an investment in the Issuer speculative or risky; xvii. Record of the CFA in previous issuances (if any); xviii. Financial disclosure requirements will vary in line with the amount to be raised. E.g. Audited accounts are required where amount to be raised exceeds 35million; The Issuer is also required to file all advertising materials with NASD before publishing them. This is to ensure there is accountability and that no unwarranted representations are made. 2. ACCREDITED INVESTOR GUIDELINES a) PROFILE: i. Only accredited investors are allowed access into the Crowdfunding market. ii. Accredited investors must show evidence that supports a statement that they earn an annual income of 10 million or more or owning investment assets in excess of 100 million for High Net Worth Individuals and investment assets in excess of N10 million for Institutional Investors. iii. High Net Worth Individuals may invest up to 10% of their annual income in crowdfunding products over a 12 month period. Institutional Investors may invest a minimum of 500,000:00 over a 12 month period. The table below will apply in the calculation of crowdfunding investment capacity.

3 Page 3 of 13 % Annual Income ⁿ Investment Assets ⁿ Maximum available for crowdfunding HNI s 10% 10,000, ,000, ,000, * Institutional Investors 5% 10,000, , α 10% 10,000, Between 1,000, ,000, and 5,000, % 50,000, ,500, ⁿ - Subject to annual review *- based on Annual income α based on Investment assets iv. Rewards for Investors will be in the form of Equity stake in the business / dividends v. Funded projects may include Arts, Film and Dance, Music, Design, Crafts, Fashion, Sports, Photography and the NASD industry classification. Exit plan for investments: NASD CF Portal will provide an option for accredited investors and Issuers to exit investments. b) MODE OF PAYMENT: i. Payments will be made to CFAs who will run an escrow account on behalf of their clients. Monies will only be disbursed when the project has been successfully funded to 60% of the total amount required and after deduction of all outstanding fees. ii. Fees: NASD CF Portal will have a standard administration fee of 50,000 and the total cost of the fund raising exercise shall not exceed 7% of value raised.

4 Page 4 of DISCLAIMER AND RISK WARNING Investing in equity on NASD CF does not guarantee a regular return on your investment unlike minibonds which pay interest regularly. Please bear in mind the following particular risks for equity investments: a) LOSS OF INVESTMENT The majority of start-up businesses fail or do not scale as planned and therefore investing in these businesses may involve significant risk. It is likely that you may lose all, or part, of your investment and you are advised to build a diversified portfolio in order to spread risk and increase the chance of an overall return on your investment capital. If a business you invest in fails, neither the Issuer nor NASD will pay back your investment. b) FORWARD LOOKING STATEMENTS: The Issuers proposal may contain assumptions or positive assertions that forecast the growth, development and success of a business. Such statements may include but are not limited to could, believe, may, imagine, expect, estimate, intend and plan as well as the negative forms of these expressions. If provided, Investors should be aware that they do not represent a final and accurate indication of the Issuers performance. These statements may qualify the proposal at the initial time it was produced but may not solely represent the reality of current trends. Investors must make a personal valuation of all available information prior to investing. c) ILLIQUIDITY: Liquidity is the ease with which an investor can sell their shares after purchase. Shares purchased in businesses pitching through NASD cannot be sold easily and they are unlikely to be listed on a secondary trading market other than NASD. Investments in small companies via the NASD CF Portal may therefore be highly illiquid until the equities of the Issuers company have been introduced to trade on the OTC market. d) LOSS OF CAPITAL: Investors should invest at their own risk and be advised that many small Companies may fail. e) RARITY OF DIVIDENDS: The investor should be aware that start-ups rarely pay dividends in the years before break-even is realised. Dividends are payments made by a business to its shareholders from the Issuer s profits. As a majority of the companies issuing equity on the NASD Portal are start-ups or early stage companies, these companies will rarely pay dividends to their investors. This means that you are unlikely to see a return on your investment until you are able to sell your shares. Profits are typically re-invested into the business to fuel growth and build shareholder value. Businesses have no obligation to pay dividends to shareholders. f) DILUTION: Investments made on the NASD CF Portal are subject to dilution, as the Issuers can call for additional investments in the future. The percentage of the Issuers business that Investors possess will decline. Dilution affects every existing shareholder who does not buy any of the new shares being issued.

5 Page 5 of 13 g) PRE-EMPTIVE RIGHTS Some businesses who pitch for equity investment through NASD may offer Preference Shares, which may include pre-emption rights that protect an investor from dilution. In this situation the business must give shareholders with Preference Shares the opportunity to buy additional shares during a subsequent fund raising round so that they can maintain or preserve their shareholding. Please check a pitch, and the Articles of the Issuer to see if the shares you are buying will have these preemption rights. Most companies do not offer pre-emption rights for Ordinary Shares. h) DIVERSIFICATION: Diversification involves spreading your money across multiple investments to reduce risk. However, it will not lessen all types of risk. Diversification is an essential part of investing. Investors should only invest a proportion of their available investment funds via NASD and should balance this with safer, more liquid investments. Investors are notified that investing in the securities of small companies should only be done as part of a diversified portfolio. i) LACK OF OPERATING HISTORY: Issuers start-ups are new in operation, a result of which investors have no operating history to base investment decisions on. j) DEPENDENCE ON DIRECTORS: The success of each CF issuance depends on the ability of the issuer s Directors to articulate a convincing and realisable company strategy..

6 Page 6 of RISKS WHEN INVESTING IN MINI-BONDS Mini-bonds are a very different kind of investment to equity and you do not own a stake in the business issuing the mini-bond. Instead you receive regular interest payments from the Issuer and then your initial investment back at the end of the mini-bonds term. Before investing, you must read and agree to the Invitation Document for each mini-bond as these contain the exact terms and conditions, including the interest payments and final repayment time. It is important to understand that companies issuing mini-bonds ( the Issuers ) are solely responsible for their financial status and consequently their ability to pay interest and return investors capital when the mini-bonds mature. NASD does not issue the mini-bonds listed on the NASD platform and is not responsible for their performance. a) LOSS OF INVESTMENT AND INTEREST PAYMENTS: Companies issuing mini-bonds, like all businesses, are vulnerable to financial difficultly and investing in mini-bonds may involve significant risk. In the event of an Issuer failing it is likely that you may lose all, or part, of your initial investment and receive no outstanding or future interest payments. If a business you invest in fails, neither the Issuer nor NASD will pay you back you investment. Investors are advised to seek professional opinion and should build a diversified portfolio in order to hedge their investment risks. b) LACK OF LIQUIDITY: Liquidity is the ease with which you can sell your investments after you have purchased them. Minibonds purchased from businesses pitching through NASD cannot be sold as they are generally nontransferable and will not be listed on a secondary trading market. Please refer to the individual minibond documentation for full details of transferability. Investments in mini-bonds through NASD should be viewed as a long term and illiquid investment. c) RESTRICTED REDEMPTION RIGHTS: Companies issuing mini-bonds through NASD set the terms for redeeming their investor s capital. Investors should be aware that they will not be able to redeem their initial investment under any circumstances other than those set out in the terms and conditions of the documentation of an individual mini-bond, meaning their capital will typically be locked up for 3-5 years and should therefore be viewed as a long term and illiquid investment. d) UNSECURED INVESTMENT: Mini-bonds are typically an unsecured investment, meaning there is no security over property or assets supporting the purchase of bonds. For example, when a bank lends you money to buy a house its security on the property is a mortgage, entitling the bank to repossess your house if you don t make the required payments. Investors in unsecured mini-bonds have no such mortgage or security over the assets of companies they lend to. This means that if an Issuer fails, it is unlikely that an investor will have their initial investment or outstanding interest payments returned to them because there is no security over any remaining assets.

7 Page 7 of 13 e) LOWER IN THE PECKING ORDER ON WINDING UP: If an Issuer falls into financial difficulty and goes out of business, other creditors and debt holders with seniority including fixed charge holders, administrators, employees who are owed wages, banks, and secured debtors - will be compensated first. This means it is unlikely mini-bond investors, who sit below all of the previously mentioned in the pecking order, will have their initial investment or outstanding interest payments returned to them after higher ranked creditors are compensated. 5. PRIVACY POLICY: a) DEFINITIONS This privacy policy may be referred to as the Privacy Policy, or simply the Policy. b) UPDATES NASD may periodically change the Privacy Policy on its CF portal to reflect changes in technology and for any other reason. The updated Privacy Policy will be posted on the CF portal and Accredited Investors agree to review the Privacy Policy before using the CF portal. Accredited Investors who disagree with the Privacy Policy as updated from time to time are advised to stop using NASD CF services immediately. Accredited Investors who continue using the Services after such change(s) will be deemed to have accepted the change(s). c) INFORMATION COLLECTION AND USE In order to use the NASD CF portal, Accredited Investors must create an account which may require all or some of the following personal information such as name, address, sex, age, occupation, mobile/phone number, residential and postal addresses, local government of origin, country, state and payment information. Please note password and credit card information of Accredited Investors are not accessible by Issuers. NASD may provide information and data generated by cookies, web logs, aggregate analysis information to the affiliates, vendors and service agencies that we may use to assist us in providing product and / or services to enhance your customer experience. Our site use cookies [a small text file that contains analytical data] to enhance and personalize the Users overall experience. All personal information voluntarily provided on the CFA portal shall be used solely for the purpose for which it is provided, that is Crowdfunding. NASD reserves the right to transfer personal information to a successor entity upon a merger or other form of corporate alliance with another entity.

8 Page 8 of 13 NASD may disclose personal information under special circumstances, such as to comply with court orders or when there is a violation of the its Crowdfunding Guidelines which ALL Accredited Investors must agree with. d) ELECTRONIC COMMUNICATION NASD shall communicate with Accredited investors electronically on the CF portal and Accredited Investors agree that any agreements, notices, disclosures, receipts, conformations, or other communications provided them electronically by NASD satisfy any legal requirement that such communications would satisfy if they were in writing. e) THIRD-PARTY AGENTS NASD may engage third parties to provide payment services on its CF portal. There may be links from NASD s CF portal to the applications, services or web sites of these third parties which are operated according to their own terms of use and privacy policies. NASD does not control those third party applications, services or web sites. Accredited Investors acknowledge and agree that no endorsement or representations are made by NASD about the third-party applications, services or web sites and it therefore has no liability on any as far as such third-party applications, services or web sites are concerned. Accredited Investors are advised to review the privacy policy on the website of these third parties before providing their personal information. f) SECURITY NASD may employ such methods and technology including encryption, back up data, password protection and other reasonable measures to protect personal information of Accredited Investors from unauthorized access. NASD will endeavour to secure data provided by Accredited Investors, however, no data transmission over the public internet can be guaranteed to be 100% secure. Accredited Investors are solely responsible for maintaining the confidentiality of their login and account information. g) INDEMNIFICATION Accredited Investors agree to indemnify, defend and hold NASD, its officers and employees, harmless from any claim, demand, liability, expense, or loss, including reasonable attorneys fees, made by any third party due to or arising out of, or in any way connected with the Accredited Investor s use of or access to the CF portal and or your violation of our Crowdfunding Guidelines.

9 Page 9 of 13 DEFINITIONS CROWDFUNDING RULES Except as otherwise defined, the following terms used in these Rules shall have the meaning ascribed to them below: Accredited Investor means a High Net worth Individual or Institutional investor that possesses the capacity, expertise and sophistication to undertake high risk investment activities or has access to specialized investment advisory service for high risk investment activities with an: a) Annual income of at least 10 million or investment assets of at least 100 million for the High Net worth individuals and b) Investment assets of at least 500 million for Institutional investors. Allowable investment amount means the maximum threshold for investment annually by an Accredited Investor through the Crowdfunding Portal as set out below: a) 10% of their annual income for High Net worth Individuals. b) 5% of the value of their investment assets for Institutions with investment assets of at least 500 million. c) 10% of the value of their investment assets for Institutions with investment assets of between 10 million and N50 million. d) 12.5% of the value of their investment assets for Institutions with investment assets above N50 million. Crowdfunding means the practice of funding a project or venture by raising small amounts of money from Accredited Investors via the Internet. Crowdfunding Agent means an Issuing House registered with NASD and permitted to operate as a Crowdfunding Agent Crowdfunding Portal means the online portal created by NASD for Crowdfunding Issue proceeds means the monies raised from Accredited Investors through the Crowdfunding Portal Issuer means any startup incorporated as a company in Nigeria under the CAMA whose promoters are of Nigerian origin. Promoter means any person who undertakes to take part in forming a company and who takes the necessary steps to accomplish that purpose. Startups means any company which has been in existence for a period less than four years from the date of incorporation. 1. REGISTRATION OF ISSUERS An Issuer desirous of raising funds through Crowdfunding on NASD Crowdfunding Portal shall satisfy the following requirements:

10 Page 10 of 13 (a) (b) (c) (d) (e) The Issuer must be a registered company in Nigeria according to the provisions of the Companies and Allied Matters Act 2004 The promoter(s) must be aged 18 and above The Issuer must be a Nigerian company The startups must be run by the promoters The purpose for which the Issuer requires funding should NOT be illegal or charitable 2. ISSUERS DISCLOSURE REQUIREMENTS Every Issuer shall make available to NASD the following preliminary information prior to their admittance on NASD s Crowdfunding Portal: (a) name, legal status, physical address and website address of the Issuer; (b) names of the directors, executive officers or persons holding more than 5% of the shares of the Issuer; (c) principal occupation of directors and other promoters over the last three years; (d) a description of the business of the Issuer and the business plan of the Issuer; (e) a description of the financial condition of the Issuer in the prescribed format; (f) A statement of its financial condition no older than 180 days (g) any debt obligations of the companies and any contingent liabilities (h) a description of the stated purpose and intended use of the proceeds of the offering sought by the issuer with respect to the target offering amount; (i) the target offering amount, the deadline to reach the target offering amount and regular updates regarding the progress of the Issuer in meeting the target offering amount; (j) Disclosure as to whether the Issuer can accept over subscriptions; (k) Statement on investors right to cancel subscription; (l) A statement on the Issuer s right to cancel; (m) Circumstance(s) under which the offering may be closed early; (n) the price to the public of the securities or the method for determining the price; (o) a description of the ownership and capital structure of the Issuer; (p) a discussion of the material factors that make an investment in the Issuer speculative or risky; (q) Record of the Crowdfunding Agent in previous issuances (if any); (r) Audited accounts where amount to be raised by the Issuer exceeds 35million; (s) The price to the public of the securities and the method(s) used in determining the price; (t) Any other information as may be prescribed by NASD from time to time in the interest of the public and for the protection of investors. 3. APPOINTMENT OF CROWDFUNDING AGENT 3.1 Every Issuer shall appoint Crowdfunding Agent(s) who shall advise on and package the offering of the Issuer s securities on the Crowdfunding Portal. 3.2 It shall be the responsibility of the Crowdfunding Agent appointed to advise the Issuer, make available all documentation required and liaise with NASD in order to ensure a successful exercise. 3.3 The Crowdfunding Agent so appointed must be registered to operate as a Broker/Dealer with NASD and be in good standing.

11 Page 11 of The Crowdfunding Agent shall be required to disclose fully any interest by its directors and principal officers in any Issuer(s) which it represents. 3.5 Provided that every Crowdfunding Agent appointed who invests in an Issuer shall not exit such investment until the expiration of a period of at least one year from the date of investment. 4. LIMITATION OF INVESTMENT 4.1 No Accredited Investor shall be allowed to make investments through the Crowdfunding Portal which exceed the allowable investment amount. 4.2 Any investment made in excess of the allowable investment amount shall be returned to the Accredited Investor within 4 days of report of the breach of this requirement. 5. WITHDRAWAL OF SUBSCRIPTION 5.1 An Accredited Investor shall be permitted to withdraw its subscription in respect of an Issuer s securities provided that the intention to withdraw its subscription is communicated to the Issuer through the Crowdfunding Agent within 2 days from the time of subscription. 5.2 The Issuer shall be required to refund any investment made in Rule 5.1 within 3 days of its receipt of the Accredited Investor s withdrawal. 6. CANCELLATION OF SUBSCRIPTION 6.1 The Issuer may cancel any subscription by an Accredited Investor in respect of its securities provided that the intention to cancel a subscription is communicated to the Accredited Investor within 2 days from the date of receipt of the subscription. 6.2 The Issuer shall be required to refund any investment made in Rule 6.1 within 3 days of its notification of cancellation to the Accredited Investor. 7. CUSTODY AND DISBURSEMENT OF ISSUE PROCEEDS 7.1 NASD shall ensure that no issue proceeds are disbursed to the Issuer until the attainment at least 60% of the target offering. 7.2 Prior to disbursement, the issue proceeds shall be kept in an interest yielding escrow account managed by the appointed Crowdfunding Agent on behalf of the Issuer. 8. UNDER-SUBSCRIPTION Where the funds raised from any Crowdfunding exercise is less than 60% of the total issue, the exercise will be terminated and funds in the escrow account returned to the Accredited Investors within14 days of termination. Funds should be returned to investors with interest at the prevailing call account rate.

12 Page 12 of CLOSURE OF CROWDFUNDING PORTAL AND ALLOTMENT OF SECURITIES NASD shall close the Crowdfunding portal upon expiration of the deadline indicated for the exercise and the Issuer securities shall allot securities to the Accredited Investors. 10. LIABILITY/INDEMNITY The Issuer shall be solely liable to investors for any untrue statements of material facts or omissions of material facts in respect of the Company or the securities on the Crowdfunding Portal. 11. PROGRESS UPDATE An issuer shall prepare and make available to investors and potential investors through NASD s CF Portal regular updates on its progress in meeting the target offering. 12. CONTINUOUS OBLIGATION 12.1 As part of the Issuer s continuing obligations to NASD, it shall be required to provide the following information: (a) interim financial statements including quarterly and half-yearly; (b) Material changes in any of the information provided at the time of registration Provided that where the Issuer successfully raises funds in excess of 100 million through the Crowdfunding Portal it shall be required to file annual returns with NASD and the Securities and Exchange Commission. 13. DISQUALIFICATION OF ISSUER The NASD Crowdfunding Portal shall not be open to Issuers whose promoters have: (a) been convicted by a Court of any offence in connection with the promotion, formation or management of a company; (b) been convicted of any offence involving fraud, theft, false accounting or other dishonesty or an offence relating to companies, building societies, industrial and provident societies, credit unions, friendly societies, insurance, banking or other financial services, insolvency, consumer credit or consumer protection, money laundering, market manipulations or insider dealing (c) been found guilty of conducting any unauthorised regulated activities or been investigated for possible conduct of unauthorised regulated activities (d) been a promoter of any registered entity that was put into liquidation, wound up, ceased trading, had a receiver or administrator appointed or entered into any voluntary arrangement with its creditors;

13 Page 13 of 13 (e) been barred from engaging in the business of securities, insurance or banking, savings associations or credit unions; 14. DISPUTE RESOLUTION Disputes involving NASD, the Issuer and Accredited Investors shall be brought before a Disciplinary Committee and shall have the right to appeal in line with the Disciplinary measures and Dispute Resolution provisions contained in Clause 6 to 9 of the Rules and Regulations of the NASD OTC Market.