October 25, 2018
Howard Marks
Chief Executive Officer
StartEngine Crowdfunding, Inc.
750 N San Vicente Blvd.
Suite 800 West
West Hollywood, CA 90069
Re: StartEngine Crowdfunding, Inc.
Amendment No. 1 to
Offering Statement on Form 1-A
Filed August 29, 2018
File No. 024-10862
Dear Mr. Marks:
We have reviewed your amended offering statement and have the following
comments. In some of our comments, we may ask you to provide us with
information so we
may better understand your disclosure.
Please respond to this letter by amending your offering statement and
providing the
requested information. If you do not believe our comments apply to your facts
and
circumstances or do not believe an amendment is appropriate, please tell us why
in your
response.
After reviewing any amendment to your offering statement and the
information you
provide in response to these comments, we may have additional comments. Unless
we note
otherwise, our references to prior comments are to comments in our August 15,
2018 letter.
Amendment No. 1 to Offering Statement on Form 1-A
Summary, page 4
1. Please include a brief description regarding your subsidiary, StartEngine
Secure, to the
extent that the operations of the subsidiary are material to your
business.
Howard Marks
FirstName LastNameHoward Marks
StartEngine Crowdfunding, Inc.
Comapany NameStartEngine Crowdfunding, Inc.
October 25, 2018
October 25, 2018 Page 2
Page 2
FirstName LastName
Risk Factors
In the event the smart contract does not work as anticipated . . . , page 10
2. Please revise to clarify whether the Common Tokens and the Series
Preferred Tokens will
be governed by separate smart contracts. We note that the three risk
factors preceding this
one refer to smart contracts in the plural while your discussion on
page 33 references
utilizing a single smart contract. Please confirm which smart contract
is being referenced
in this section to the extent that the offering utilizes more than
one.
3. To the extent that it is known, please specify which remedies may not
be available to
tokenholders that would be available to traditional securities
holders.
Plan of Distribution and Selling Shareholders
Plan of Distribution, page 14
4. We note your response to comment 11. Notwithstanding your response, we
note that Item
5 of Part I of your Form 1-A continues to state that you will offer
securities in the state of
Nebraska, which is inconsistent with your disclosure in the fourth
paragraph on page 14,
as previously indicated. Please revise or advise.
5. We note your disclosures regarding the digital stock certificates
StartEngine Secure will
use on the Ethereum blockchain. Please indicate whether and, if so
how, these digital
stock certificates will differ from the tokens being used to represent
the Common Stock
and Series Token Preferred Stock.
Investors' Tender of Funds, page 15
6. We note your response to comment 12 that you have amended the
disclosure to discuss
AML and OFAC procedures. Please provide a detailed discussion of the
due diligence
process, including the steps that will be taken. In addition, please
state whether the due
diligence process will be the same for all investors regardless of
whether they purchase
stock or Tokens.
7. We note your revised disclosure in response to comment 17 stating that
the "company
may wait until it has completed due diligence on several investments
before submitting a
disbursement request to the Escrow Agent." We note also your
disclosure that
subscriptions could take an indefinite period of time to be processed
because of the
subscription and due diligence process. In light of your revised
disclosure, please further
revise to clarify if there is a maximum amount of time that investors
should expect to wait
to receive their securities. Please also add a discussion in risk
factors addressing the fact
that there is uncertainty as to the amount of time that it will take
for investors to receive
their securities.
Determination of Number of Shares or Tokens Issued for BTC or ETH, page 15
8. We note your response to comment 14. Please specify which of the
exchange rates posted
Howard Marks
FirstName LastNameHoward Marks
StartEngine Crowdfunding, Inc.
Comapany NameStartEngine Crowdfunding, Inc.
October 25, 2018
October 25, 2018 Page 3
Page 3
FirstName LastName
on Bloomberg you will use for the calculation. To the extent that the
exchange rate used
is a composite rate, please include the components included in the
calculation of the
composite. Please revise your disclosure to explain how payments are
calculated if
subscriptions are not processed within two business days. Please also
explain the process
if you reject a subscription, since you state that you will return the
funds in BTC or ETH.
Please also explain how the two percent processing fee is calculated
i.e., whether it is
two percent of the Bloomberg rate used for the calculation, two
percent of the fiat amount
collected after conversion of the BTC or ETH, two percent of the BTC
or ETH, or some
other amount. Please also include the calculation of the processing
fee in the examples
provided. Please specify which costs are borne by the company and
which costs are not
"practicable" and are borne by the investor.
Additional Perks, page 16
9. We note your intent to offer a 10% incentive on participating
Regulation Crowdfunding
offerings on your funding portal to investors in your offering. The
definition of funding
portal prohibits (i) offering investment advice or recommendation and
(ii) soliciting
purchases, sales or offers to buy securities offered or displayed on a
funding portal's
website, among other things. Please explain to us why your incentive
perk does not
violate these prohibitions. To the extent you believe you may rely on
a safe harbor to
offer this perk, please explain to us why you believe the offer fits
within the limited
activities that are deemed consistent with the statutory prohibitions
on funding portals.
10. Please provide us with additional information about the mechanics of
the incentive perk.
For example, please explain how you will determine which Regulation
Crowdfunding
issuers may "participate" in the incentive and whether there are any
fees or other services
exchanged in connection with an issuer's participation. In addition,
please provide us
with your analysis of why you are not deemed to be a statutory
underwriter for the bonus
shares.
Regulation S, page 24
11. We note your revised disclosure in response to comment 25. You
disclose that securities
sold pursuant to the Regulation S safe harbor may be subject to
certain resale restrictions,
including the imposition of certain "distribution compliance periods"
during which such
securities may not be resold or transferred to "U.S. persons." Please
further revise to
describe in greater detail such "distribution compliance periods" and
provide a definition
of "U.S. persons." Refer to Regulation S.
Securities Being Offered, page 33
12. We note your response to comment 30 that you have filed the smart
contract as Exhibit
3.2. Please revise your exhibit index to reflect the fact that this is
a form. In addition, we
note that your disclosure continues to suggest that the smart contract
has not been
developed yet. Therefore, we reissue comment 30 asking you to please
confirm whether
Howard Marks
StartEngine Crowdfunding, Inc.
October 25, 2018
Page 4
the smart contract is currently under development and note that since
you are not eligible
to conduct a delayed offering, all of the offering terms must be
established and set forth in
the offering statement prior to the time of qualification. Finally,
your discussion of the
terms of the smart contract largely describes what the smart contract
does not do
compared to other smart contracts. Please ensure, and include a
representation stating,
that all material terms of the smart contract have been disclosed in
this section.
Terms of the Tokens under the Smart Contract, page 33
13. We note your disclosure that you intend to request that your smart
contract be assigned its
own ERC number. Please revise to briefly explain the significance of
doing so and the
relevant approval process. If applicable, please disclose any material
risks to your
business resulting from any inability to do so.
14. We note your disclosure in the last paragraph of this section that
there are no limitations
on the transfer of Tokens, other than those that apply to all shares
under applicable
securities laws. We note, however, your disclosure in the third
paragraph of this section
that the smart contract has no transfer functionality and that only
the transfer agent may
transfer the shares. Please revise your disclosure in the last
paragraph to make this
limitation clear.
Exhibits
15. We note that you have filed the Form of Escrow Agreement as Exhibit 8
and the Form of
Technology Services Agreement as Exhibit 6.7 in response to comments
18 and 33,
respectively. Please file the executed versions of such agreements as
exhibits or tell us
why you are unable to do so.
General
16. In order to provide investors with a better understanding of the
offering process, please
revise your offering statement to include the diagram provided in
response to comment
36. Please refer generally to Items 14(d) and (c)(4) of Form 1-A.
Please contact David Lin at (202) 551-3552 or Erin Purnell at (202)
551-3454 with any
questions.
FirstName LastNameHoward Marks Sincerely,
Comapany NameStartEngine Crowdfunding, Inc.
Division of
Corporation Finance
October 25, 2018 Page 4 Office of
Financial Services
FirstName LastName