1. What is Sparkmarket?
Sparkmarket is a technology provider that outfits businesses who are located in certain States (currently Georgia and Tennessee) with the tools necessary to build and run a compliant “intrastate capital raise” by means of a small public offering of debt.
Sparkmarket is only a SaaS technology solutions provider, and is not a registered broker/dealer, or investment adviser, and does not solicit for the offer or sale of securities for any person, or make any recommendations with respect to investments.
2. What does Sparkmarket do?
In the first instance, Sparkmarket helps businesses who are looking for investment funding determine if it is eligible under State and Federal securities laws to use an “intrastate exemption” to conduct its capital raise by means of offering small denominations of debt. If a business is eligible, Sparkmarket equips the business with technology tools and industry-recommended best-practices (including marketing tips and proposed loan terms) to legally solicit and collect investment funds from the everyday public in a simple, safe and compliant manner.
Businesses can schedule a one-on-one consult with a Sparkmarket Campaign Manager, who will work with a business to design a personalized campaign based on the funding needs of that business. Businesses can then “share” access to their Campaign via a customizable widget, which can be embedded into its own website and/or social media profile, to legally advertise the investment offering to its local network. Our technology also provides screening for investor eligibility and allows eligible persons to invest in the deal.
3. What is an “Intrastate Exemption”.
By law, all investment securities (whether equity or debt based) offered by businesses for sale in the United States must be either “registered” or “exempt from registration”. Registering public offerings of securities can be time consuming and extremely expensive, and are generally inappropriate for most small and medium sized businesses. However, exempt offerings generally cannot be made publicly (that is, offered and sold to persons who do not have a pre-existing relationship with the business). If a business keeps its offers and sale to persons only within it home State, however, it is generally exempt from federal registration, and, in certain States, is exempt from State registration as well.
Sparkmarket’s technology helps businesses build and run their own intrastate exempt offering.
4. Is the Intrastate Exemption like Crowdfunding?
It can be, but does not have to be. “Crowdfunding” is a general term that means many different things to different people, and in different industries. It is commonly understood to mean offering something of value to the public at large for its support in a project. The Intrastate Exemption is just a way of facilitating limited public offerings of securities by businesses in their home State. That offering may be to the public at large, or it may be limited to select persons, or persons belonging to a select group (such as an existing customer base or affinity group).
Sparkmarket’s technology provides the tools to complete an Intrastate offering of securities. Whether the business chooses to characterize its Campaign as “crowdfunding” is an individual choice.
5. What is a “Spark?”
If a business chooses to “Spark” its loan, it creates a business milestone that it will work to achieve over the course of the loan term. The goal may be anything that works for that business such as a specified increase in revenue, profit, customers or asset value; or any other metric that makes sense for that business.
If the business reaches its Spark goal, it spreads a portion of the financial value of such milestone to its backers, who receive a bonus return in addition to the loan’s original return amount. In this way, backers are financially incentivized to support the business’s initiatives, through frequent patronage, referrals, and generally serving as ambassadors to the community, and rewarded for taking an early risk on a venture that turns out to be a success. Businesses are encouraged to be creative with their Spark, and use this additional incentive to keep investors excited about supporting the business over the course of the loan and beyond.
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6. Who can raise capital through Sparkmarket?
Any LLC or C-corporation that is organized and operating in our area of current operation (currently Georgia or Tennessee) that passes certain regulatory eligibility criteria. Our wizard, which can be accessed for no charge, helps businesses determine their eligibility.
7. Do Sparkmarket’s tools work with equity Campaigns?
Currently, Sparkmarket’s tools do not support equity-based offerings. Businesses may only issue and sell debt (Notes) in offerings which use our tools.
8. Is the debt sold in a Campaign a loan?
Yes. Investors in a Campaign are “lenders” to that business, and the business is the borrower of funds from each investor. During the closing process of a Campaign, investors are each individually issued a Promissory Note which represents their investment in the Company.
Businesses who complete a Campaign are obligated to pay their investors back based on the terms contained in the Promissory Notes, which are built by the business using Sparkmarket’s tools. However, investors are not considered “owners” or “shareholders” of the business, but they are creditors of the business.
9. How much money can my business raise using Sparkmarket’s tools?
Georgia-based businesses can raise up to $5 million from Georgia residents (both accredited and non-accredited). Tennessee residents can raise up to $1 million from Tennessee residents.
10. What length (term) of loan can I choose to create?
Businesses can set their own loan terms between 6-36 months.
11. What are my repayment options?
Businesses can choose to make repayments on their loan on a monthly basis. All payments must be of principal and interest.
12. How does my business pay investors back?
A payment schedule is determined in advance, and your business will pay the same amount at each payment interval during the term of the loan. At the maturity date, the business is required to pay the unpaid balance to investors (including accrued interest). If the business has selected a “Spark” for its loan, the bonus return must be added to the unpaid balance at maturity.
13. Do I have to provide a personal guaranty?
No, but you have the option to do so. Sparkmarket enables you to set your own loan terms, including the option of personally guaranteeing the repayment of the loan, to test the most advantageous terms attractive to your network. In this way, a business can test the crowd and beat the terms of any bank loan.
14. Who can invest in my Campaign?
The only investors eligible to invest in offerings that use Sparkmarket’s technology are persons who are legal residents of the State in which the business is formed and operating. Investors are required to certify as to their residency status. Currently, Sparkmarket is only serving businesses in Georgia and Tennessee, but may expand to other States as state and federal securities laws permit.
15. Can I set a minimum or maximum investment amount for Investors?
Yes. You can set a minimum investment amount as low as $100 and a maximum amount of up to $10,000. Investors who qualify as “accredited investors” are not subject to any maximum investment amount (although businesses can set a universal maximum, if they wish).
16. Does my Campaign have to have a minimum to close?
Not by law, but we require all businesses to set a commitment minimum, and the business may not move to close a Campaign until the commitment minimum is reached. With that said, a business may keep all funds submitted by investors during the closing process even if actual funds submitted drop below the identified campaign minimum.
17. Are there regulatory filings that are required?
There are no federal regulatory filings that are required for Campaigns that are run using Sparkmarket’s intrastate tools. However, there are State based regulatory filings which must be completed before a Campaign can launch. Sparkmarket’s tools assist businesses in constructing and submitting these filings.
18. How long can my Campaign run?
Sparkmarket’s tools can be used to run a Campaign for up to 180 days. After 90 days, a business must pay a listing fee of $50 a month.
19. Does Sparkmarket promote my Campaign or drive traffic to my site?
No. Sparkmarket is not a registered broker/dealer or investment adviser, and does not solicit purchasers of securities or recommend securities in any transactions. Further, Sparkmarket is not a crowdfunding portal or registered intermediary which posts transactions that are generally viewable to the public in a centralized place. Rather, we provide businesses with simple technology solutions and know-how to effectively build, manage, execute and close your own intrastate capital raise Campaign from your own networks (customers, friends and family). Research has shown that, of the funds raised in the vast majority of successful investment crowdfunding campaigns, only 6% originated from backers outside the business’ network.
20. Are there restrictions on how I can promote my Campaign?
Yes, but the restrictions are significantly less burdensome than other methods for raising capital. You can advertise your offering to the general public using basically any methodology you wish (e-mail, social media, posters, radio, flyers, orally, events, etc…), as long as your message communicates that the offering is restricted to legal residents of your State.
Sparkmarket’s technology tools provide safeguards to qualify investors’ eligibility to participate in your offering, and Sparkmarket offers consulting on compliance when using various offering methods. However, businesses are themselves always responsible for all legal compliance, and Sparkmarket is not the legal representative of any business or investor. Businesses are urged to consult their own independent legal counsel for all questions regarding securities laws compliance.
21. How do investments work?
When your Campaign is active, potential investors can commit to support your Campaign through the Campaign page. However, these operate as commitments only, and investors do not pay any subscription funds until the closing process. Once a Campaign has reached its minimum level of commitments, the business may move to close the Campaign to further commitments and begin collecting subscription funds. Once this happens, Sparkmarket will contact the committed investors with instructions as to how they can submit their subscription payment and receive their Promissory Note.
22. How much does it cost to raise capital using Sparkmarket’s technology?
Unlike broker/dealers, many crowdfunding platforms and certain other intermediaries in the capital raising space, Sparkmarket does not take any transaction-based commission. That means that we are a subscription and service fee based provider, and the cost to run your Campaign, although payable in stages, is not dependent on the size or success of your Campaign.
We charge fees at two stages of your Campaign:
*Campaign Launch Fee – $500 (reduced to $199 for Early Access participants). You can design, modify and prepare your Campaign using our technology tools for free. Once you choose to publish your Campaign for investment, you will be charged a non-refundable Campaign Launch Fee of $500 (reduced to $199 for Early Access participants).
*Closing Fee – $1,999. At any time after your Campaign has successfully reached its minimum level of commitments, you can choose to close the Campaign. At such time, you will be charged a Closing Fee of $1,999.
We also offer a variety of special consulting services at Sparkmarket, including intrastate offering compliance, Regulation A+ and Regulation D compliance, private placement consultation and investor relations best practices. These services are provided upon request for a special fee. Contact us for more information.
23. How does Closing a Campaign Work?
After you move to close your Campaign and submit the required payment, Sparkmarket will produce closing documents (your Note Purchase Agreement and Promissory Note) for your review, and coordinate with committed investors for signature and payment of subscription funds. Once subscription funds have been received, our third-party escrow provider will break escrow on the Campaign, and will release subscription funds to the business less any escrow fees.
24. What other resources does Sparkmarket provide to businesses?
We are available to hold pre-scheduled one-on-one consultations with any businesses who are interested in running an intrastate capital raise, and are pleased to discuss any questions which arise during the process of your Campaign build.
We can also provide general advice with respect to constructing and marketing an effective Campaign and have referral resources for businesses to utilize in connection with their Campaigns.
25. Is support/help provided following completion of a Campaign?
Sparkmarket does not operate as a debt servicing or subsequent communications platform. Businesses have the responsibility to communicate with their investors and follow their legal obligations following completion of a Campaign, including to fulfill payment and tax reporting obligations (such as obtaining Form W-9s from and issuing Form 1099s to investors).
In the future, Sparkmarket may offer an investor relations feature for use following the successful completion of a Campaign using our technology tools.
26. Who is eligible to support an intrastate Campaign?
Only legal residents of the State in which the business running the Campaign is located are eligible to participate. All persons wishes to invest in a Campaign will be required to certify as to their State of residency and provide supporting documentation. Businesses running a Campaign and Sparkmarket may take additional steps to verify an investor’s legal residency.
27. Do I have to create an investment account?
No. Unlike offerings made through broker/dealers or certain funding portals, Sparkmarket does not require you to create an investment account prior to committing to support a Campaign or investing in that Campaign. You will be required to create a Sparkmarket profile, but not an investment account.
28. How will I be notified of a Campaign?
Campaigns are open to the public (who are residents of the applicable State), but the business running the Campaign has control over access to the Campaign site. Thus, you may be invited to participate through a connection to the business, the business’ website, an advertisement, a social media contact, a mutual connection or any number of other methods. Once you certify as to your eligibility you can commit to support a Campaign through their Campaign page.
29. Am I buying a piece of the business in a Campaign?
No. Investors will not become equity owners in the business. You will be a “lender” to the business, and they will be a “borrower” of funds from the investors. Thus, you will have the rights of a creditor of the business, but not an equity investor.
30. How will I be communicated with during the Campaign?
You will be contacted by Sparkmarket only through the primary e-mail address that you provide when creating your profile. The business will have access to contact information for all investors who provide commitments and may contact you with additional eligibility questions as well.
31. Can I invest in a Campaign through an entity?
Yes, but that entity must also be organized in the State where the Campaign is eligible to conduct its offering. Also, there are certain restrictions related to ownership of that entity that must be verified. If you wish to invest in a Campaign through an entity, contact Sparkmarket for further instructions.
32. How much can I invest in a Campaign?
Businesses establish a maximum Campaign amount, and aggregate commitments will not be accepted above that amount. The business may also establish a maximum amount that any one investor may invest. If no maximum is provided, then investors will be limited to a maximum investment of $10,000, unless such investor qualifies as an “accredited investor” under rules established by the SEC, in which case there is no limit on individual investments.
33. How does a commitment work?
Sparkmarket’s campaign tools work on an investor “commitment” basis. Thus, persons who wish to be investors in a Campaign can “commit” to support that Campaign at the funding level they select. This will serve as their commitment to submit their investment funds if (but only if) the Campaign successfully reaches its minimum level of commitments. Until such time, investors are not required to submit any investment funds.
34. How do I complete my investment, and when do I have to submit my investment funds?
Once a Campaign reaches its minimum level of commitments, it will move to close the Campaign. Sparkmarket will then contact all persons who have committed to supporting the Campaign with instructions for signing the necessary deal documents submitting their investment payment.
All investors must execute a copy of the Note Purchase Agreement and submit payment to complete their investment.
All investment funds will be held in escrow until the Campaign escrow is closed.
35. Must Campaigns reach a minimum level of funding to close?
No. With that said, Sparkmarket requires all businesses to set a minimum level of commitments that must be received before the business can move to close the Campaign.
However, once the minimum commitment level is reached, all actual subscription funds collected may be used by the business as and when received, and there is no minimum level of investments needed to break the escrow and close the Campaign. Thus, once an investor submits its funds (and provided that the business accepts such subscription) funds will not be returned to the investor, even if the level of funds received is less than the level of commitments which were received in the Campaign.
36. Does a business have to accept my investment?
No. The decision to accept an investment from any individual investor is always left in the hands of the business itself. A business may choose to accept or reject your investment in its Campaign for any reason, or no reason.
37. What will I have once the Campaign is closed?
Once a Campaign is closed, investors will receive a copy of their personal Promissory Note executed by the business. All investors will then be considered “lenders” to the “borrower” business, and will be creditors of such business.
38. Are Notes issued in the Campaign transferable?
No. All Notes (the securities) issued in any Campaign using Sparkmarket’s tools will be non-transferable. Transfer may only occur in the sole and absolute discretion of the business issuing the Notes, and, in any event for a period of nine (9) months from the last sale of a Note in the offering, any permitted transfers must be made to persons who are a resident of the State in which the offering is being conducted.
39. How will the business communicate with me following the Campaign?
Following completion of a Campaign, a business has the responsibility to communicate with its investors directly, and they will have the contact information you provided to Sparkmarket. That communication may be about the Campaign, your Promissory Note and the payment related thereto, tax documentation requests, the business generally or other purposes.
Sparkmarket will not communicate with investors directly about any investments, but may communicate with investors and users of its services generally.
40. How and when will I get repaid?
Repayment of the principal and interest which the business owes you will be dictated by the terms chosen by the business and reflected in the Note Purchase Agreement and your individual Promissory Note. Generally, using Sparkmarket’s tools, a business will have a monthly repayment schedule of principal and interest.
41. What are the tax consequences and documentation aspects of my investment?
Sparkmarket is not a tax adviser to any business or investor, and you are encouraged to consult a competent tax professional regarding the tax consequences of your investment. Generally, businesses will be required to obtain a W-9 from each investor, and will be required to issue a Form 1099 annually to each investor reflecting any payments made on the loan.
42. If a business chose a “Spark” in their Campaign, when will I know if the Spark goal was reached, and what will I receive?
If the business has chosen to attach a special “Spark” incentive to their Campaign, they will be solely responsible to track its progress on such goals and communicate to its investors regarding it progress on that goal. Generally, if the goal is met, the investors will receive the incentive attached to the Spark directly from the business at or following the maturity of the loan.