November 21, 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. 2 to
Offering Statement on Form 1-A
Filed November 1, 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 October 25,
2018 letter.
Amendment No. 2 to Offering Statement on Form 1-A
Cover Page
1. Please revise the forepart of the offering statement to highlight that an
investor's decision
to purchase securities pursuant to the subscription agreement, as well as
agreement to the
exclusive forum and jury trial waiver provisions thereunder, is
irrevocable. Refer to
Sections 1(a) and 7 of each of the subscription agreements for common
stock and
preferred stock, filed as exhibits 4.1 and 4.2, respectively.
Howard Marks
FirstName LastNameHoward Marks
StartEngine Crowdfunding, Inc.
Comapany 21, 2018
November NameStartEngine Crowdfunding, Inc.
November 21, 2018 Page 2
Page 2
FirstName LastName
Summary
The Offering, page 5
2. We note your revised disclosure on page 34 in response to comment 2.
For consistency,
please revise your disclosure in the first paragraph of this section,
as well as the first
paragraph under the heading "Securities Being Offered" on page 34, to
state that there will
be a smart contract for each class of Tokens.
Risk Factors
Investors in this offering may not be entitled to a jury trial..., page 11
3. Please revise the second sentence of the fourth paragraph in this
section to remove the
word "substantive" from your statement that no condition, stipulation
or provision of the
subscription agreement serves as a waiver of any provision of the
federal securities
laws. In addition, please revise to clarify whether purchasers in
secondary transactions
would be subject to this provision. If the provision is not intended
to apply to secondary
purchasers, disclose any difference in rights between primary and
secondary purchasers
and describe how the provision will be implemented, including, for
example, in instances
where a single shareholder purchases in both the primary and secondary
market.
The smart contracts may be vulnerable and may not work as anticipated..., page
12
4. We note your response to comment 3 that you have revised your
disclosure to "reflect that
due to the nature of the Tokens in the offering, the remedies will be
the identical to those
available to traditional securities holders." However, we are unable
to locate your revised
disclosure that so states. Please revise or advise.
Plan of Distribution, page 16
5. We note your revised disclosure in response to comment 5. Please
further revise to briefly
explain what you mean by your statement that the Tokens are
"effectively" digital stock
certificates. As previously requested, please revise your disclosure
to 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 17
6. We note your disclosure here and in the risk factor on page 10 that
there may be a
significant delay between the time of subscription and final delivery
of the security (e.g.,
up to 6 months). Please explain in more detail why the diligence
procedures described on
page 17 could take up to six months to complete. We further note that
the subscriptions
are irrevocable and that the company will determine in its sole
discretion upon completion
of diligence when to accept and close on a subscription. Please
provide more information
about what rights subscribers may have after remitting payment, but
prior to a closing,
including in instances of dissolution or liquidation of the company.
Finally, please tell us
Howard Marks
FirstName LastNameHoward Marks
StartEngine Crowdfunding, Inc.
Comapany 21, 2018
November NameStartEngine Crowdfunding, Inc.
November 21, 2018 Page 3
Page 3
FirstName LastName
how these closings are appropriate under Rule 251(d)(3)(i)(F) of
Regulation A.
Additional Perks, page 18
7. We note your response to comment 9 that you are no longer offering the
10% incentive.
We note, however, that your website continues to include various
references to this
incentive for a number of r offerings on your funding portal. Please
advise. In addition,
we reissue comment 9 for information regarding the historical
incentive offers made to
investors. Please tell us how long you have offered this incentive.
Please provide a list of
all instances where this incentive was offered to investors, including
the identification of
the respective offering/investment opportunity on your portal, the
amounts distributed or
to be distributed pursuant to the terms of the incentive and the
dates. Please also explain
in detail how you intend to address the investors who have invested in
the investment
opportunities on your portal in reliance on this incentive to the
extent you intend to
terminate this incentive as represented in your response. Finally,
please explain to us how
the incentive perk did not violate the funding portal prohibitions
outlined in comment 9.
8. We note your response to comment 10 that you are no longer offering
the 10% incentive
and reissue to address the incentives that have historically been
offered. Please explain
how you determined which Regulation Crowdfunding issuers participated
in the incentive
and whether there were any fees or other services exchanged in
connection with an
issuer's participation. In addition, please provide your analysis as
to why you should not
be deemed to have been a statutory underwriter for the bonus shares.
The Company's Business
Services under Development, page 20
9. Please enhance your discussion to address the estimated time frame of
when you think
these additional services will be completed, including expected costs
to be incurred.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page
27
10. Please revise to disclose revenue metrics (e.g. revenues by product
and or type, the
number of underlying transactions, fees received from warrants) and
discuss any material
change period over period for the periods presented.
11. Please revise to disclose cost of revenue metrics (e.g. cost of
revenues by type) and
discuss any material change period over period for the periods
presented.
12. Please enhance your disclosure to discuss the underlying drivers for
the decrease in your
gross margin from 79.7% for the six months ending June 30, 2017 to
68.2% for the six
months ending June 30, 2018.
13. Please break out general and administrative expenses by type (i.e.
salaries and benefits,
research and development, etc.) and discuss any material changes
period over period.
Howard Marks
FirstName LastNameHoward Marks
StartEngine Crowdfunding, Inc.
Comapany 21, 2018
November NameStartEngine Crowdfunding, Inc.
November 21, 2018 Page 4
Page 4
FirstName LastName
14. Please revise to discuss the changes in financial position for the
periods presented.
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies, page F-6
15. Please provide an accounting policy for other current assets,
including the nature thereof
and disclose the amounts of material assets for the periods presented.
Fair Value of Financial Instruments
Level 3 - Investments - Warrants, page F-8
16. Please revise to disclose the number of private portfolio companies
for which you hold
warrants, including the warrants received during the periods presented
for each portfolio
company.
Revenue Recognition, page F-12, page F-12
17. We note that, on January 1, 2018, you adopted ASC 606 Revenue from
Contracts with
Customers. Please revise your accounting policy to disclose the impact
of this new
guidance to your financial statements and provide the revised
disclosures as required.
Additionally, please also address the following:
Your current disclosure appears general in nature. In your revised
disclosure, discuss
the various types of fees and nature thereof, including
sponsorships, and when fees are
due and how they are received;
Disclose if you offer refunds, for example, if an offering does
not raise sufficient
funds, and if so, how you account for the refunds; and
Disclose the circumstances of when you would receive equity
warrants in a transaction
and how you account for the transaction.
Note 6 - Stockholders' Equity, page F-15
18. We note from page F-35 that you granted stock options to employees and
non-employees
subsequent to December 31, 2017. However, Note 6 to your interim
financial statements
only discloses information regarding stock option grants to employees.
Please revise to
disclose the information regarding grants to non-employees in
accordance with ASC 505-
50-50 or advise.
Consolidated Financial Statements for the Fiscal Years Ended December 31, 2017
and 2016
Note 3 - Marketable Securities and Investments, page F-31
19. Considering that your investment securities represent 53% of total
assets at both June 30,
2018 and December 31, 2017 and 87% of total assets at December 31,
2016, please
enhance your disclosure to provide additional transparency around
these investments, for
Howard Marks
StartEngine Crowdfunding, Inc.
November 21, 2018
Page 5
example, business and or industry sector, geographic concentration,
economic
characteristics and investment objective.
Available-for-Sale Securities, page F-31
20. Given that your investment securities represent 53% of total assets at
June 30, 2018 and
December 31, 2017, please supplementally discuss whether you are an
"investment
company" as defined under Section 3(a) of the Investment Company Act.
We may have
additional comments upon review of your response.
Exhibits
21. We note the statement in the penultimate paragraph on page 2 of each
of the subscription
agreements for common stock and preferred stock, filed as exhibits 4.1
and 4.2,
respectively, that you make no representations or warranties to
investors signing the
subscription agreement "as to the accuracy or completeness of the
information contained
in any offering materials." Please note that you are responsible for
your disclosure to
investors and as such, it is not appropriate to state or imply that
investors cannot rely on
your disclosure. Please revise or remove the disclaimer. In addition,
we note your
disclaimer on the bottom of page 1, which indicates that investors may
not view the
offering circular or other communications from the company, including
"testing the
watres" materials as investment advice and that investors must rely on
their own
examination of the company. Please explain to us in detail why this
disclaimer is
appropriate or revise to remove it from your subscription agreements.
You may contact Michelle Miller, Staff Accountant, at (202) 551-3368 or
H. Stephen
Kim, Assistant Chief Accountant, at (202) 551-3291 if you have questions
regarding comments
on the financial statements and related matters. Please contact David Lin,
Staff Attorney, at
(202) 551-3552 or Erin M. Purnell, Staff Attorney, at (202) 551-3454 with any
other questions.
FirstName LastNameHoward Marks Sincerely,
Comapany NameStartEngine Crowdfunding, Inc.
Division of
Corporation Finance
November 21, 2018 Page 5 Office of
Financial Services
FirstName LastName