Proposal for filing SEC Offerings for CityDAO
The following proposal outlines how CityDAO can operate to raise capital for its operations by utilizing established crowdfunding and private equity funding legal structures to benefit its members.
The benefit of establishing fund offerings for CityDAO is that the fund structure is the most effective means of raising private capital to purchase property for CityDAO for the use of its citizens as well as to derive a profit. After all, an organization exists to provide goods and services to its body of members. Being an organization that operates for profit is the most effective means to generate value for the community. It is important to note that the fund will be separate from the CityDAO NFT.
Below are two examples of offerings CityDAO may create but these structures are not definitive in scope for the kinds of funds that can be started to support commercial development activities. In my opinion, these structures would be the most effective means of accomplishing our goals based on my current understanding of the direction CityDAO is going.
Regulation A+ Tier II Offering
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These offerings are for non-accredited investor members of CityDAO. Generally speaking, the terms that define an accredited investor are outlined in the link HERE.
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These offerings are not limited solely to non-accredited investor members of CityDAO but, are the only investment offering that non-accredited investors can partake in.
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Regulation A+ Tier II offerings allow for CityDAO to raise up to 75M in investor capital annually. By utilizing bank leverage, CityDAO would have the potential to purchase up to about 250M in real estate annually from a fund structure based on a Regulation A+ Tier II Offering.
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The offering can be limited to CitizenDAO NFT holders or some other criteria can be formed.
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The CitizenDAO NFT holders will make the policy surrounding the mission of the fund through votes and will form the investment strategy through cooperative efforts to achieve its mission.
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The Private Placement Memorandum (PPM) will serve as the “bible” of the fund for all intents and purposes and it contains the guiding principles of the fund. The PPM will contain the following sections at a minimum but, may contain other sections to define the CityDAO fund.
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Coverage
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Legends and securities laws notices
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Table of contents
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Summary
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Use of proceeds
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Investment Program
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Risk factors
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Description of the management company and managers
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Discussion of fees (Management fees, Performance fees)
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Manner of valuing the investments
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Discussion of conflicts of interest
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Discussion of brokerage
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Discussion of litigation of the investment manager
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Discussion of financial statements of the fund
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A summary of the LPA or Operating Agreement
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Discussion of service providers
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Tax disclosures
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ERISA disclosures
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Other notices (privacy notice, the definition of investors qualified to invest, disclosure on the lack of transferability, etc.)
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The limited partnership agreement (LPA) is what will define to the government the relationship between the general partners, CityDAO, and the Limited Partners, CityDAO Citizens. The purpose of the limited partnership agreement is to clearly define the roles, responsibilities, and liability of every individual involved in the partnership. Common LPA clauses include the following:
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Cover page
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Table of contents
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Preamble
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Definitions
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Information on the formation (business office, registered agent, length of the fund, etc.)
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Capitalization structure (initially and on a going-forward basis)
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Manner of allocation of profits and losses (including the various tax allocation provisions)
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Manner of distributions and withdrawals
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Rights and duties of the management company
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Rights and duties of the investors
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Information on accounting, books, and records
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Transfer rights
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Dissolution of the partnership; winding up
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Manner of final distributions
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Grant of power of attorney
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Miscellaneous provisions (headings, amendments, applicable law, jurisdiction)
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The Subscription Agreement will allow for the CityDAO General Partner to verify if they are able to work with a specific citizen that applies to enter into the organization. It is important that CityDAO verify the identity of each Citizen before accepting citizens into the organization for purposes of complying with Know Your Client (KYC) laws as well as understanding the financial limitations of each member, as for a Reg A+ Tier 2 offering there is a limit that the individual can “can invest to no more than 10% of the greater of the person’s, alone or together with a spouse, annual income or net worth (excluding the value of the person’s primary residence and any loans secured by the residence (up to the value of the residence)).” - Source: SEC.gov | Updated Investor Bulletin: Regulation A
Regulation D Section 506(c) Offering
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These offerings are exclusively for accredited investors.
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These offerings are able to be widely marketed by CityDAO.
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Much of the same standards will apply from the Regulation A+ Offering in regards to the LPA, PPM, and Subscription agreements. However, in these offerings, the investors must be verified as accredited. Softwares that help manage these process flows include, but are not limited to, the following:
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Efront Alternative Investment Solution
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Shareworks Private Equity Admin
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Lexis Nexis Risk Management
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These solutions will help us make an educated decision on managing risk and compliance.
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This tier of investment can be more speculative than the Regulation A+ offerings and the returns will reflect that risk. Either positively or negatively.
COSTS:
- The approximate cost to set up EACH of the aforementioned entities can vary greatly depending on hours billed, the number of questions we have to ask about the structure of the fund, and the level of understanding we have about setting up the fund to suit CityDAOs needs.
- As a rule of thumb, CityDAO should budget about $100,000 USD towards the setup of EACH entity. Because of the special considerations of the funds relating to the metaverse, costs may rise to this level. However, if there are fewer billable hours utilized due to CityDAO having a granular understanding of what is required in the structure of their documents, costs could be as low as $20,000 per registered entity.
- McCollum & Associates, LLC, a trusted real estate legal team, has offered its services to guide CityDAO towards the creation of the entities it needs as well as its continued legal protection.
Disclaimer: I am not an attorney and this is not legal or financial advice. I am opening up this topic for discussion by CityDAO before having an attorney review the full proposal. Will advise once new information becomes available.