1. Crowd-financing for Public-Private Partnerships in the U.S.1
How would it work?2
3
4
Morteza Farajian, Ph.D.5
Office of Transportation Public-Private Partnerships6
600 E. Main St., Suite 2120, Richmond, VA 232197
Tel: 804-786-0470; Email: Morteza.Farajian@p3.virginia.gov8
9
Brian Ross, MSCEE, MBA, LEED AP10
InfraShares11
2713 Belmont Canyon Road, Belmont CA 9400212
Tel: 415-312-2224; Email: brianross@infrashares.com13
14
15
16
17
Word count: 5,911 words text + 4 tables/figures x 250 words (each) = 6,911 words18
19
20
21
22
23
24
Submission date: July 31, 201525

2. Farajian, Ross 2
ABSTRACT1
In January 2015, President Obama introduced a $302 billion proposal known as the Grow America Act2
to help federal agencies find new ways to increase infrastructure investments by at least 35% in an3
attempt to partially resolve the significant funding need for the aging infrastructure in the U.S.4
Public-private partnership (P3) model remains a tool that can facilitate private investment. However,5
the current P3 model does not allow for broad based public equity investment in P3 projects. The6
Jumpstart Our Business Startups (JOBS) Act in 2012 has led to a rapidly changing legislative and7
regulatory environment, which provides for the ability of new ventures to raise equity and debt8
investment. This new form of investment crowdfunding, or crowd-financing, provides flexibility9
for start-ups to raise low cost capital from supporters of their project or business. This flexibility10
can also be utilized in P3 projects providing the opportunity to engage small institutional and11
individual investors as direct equity participants. This crowd-financing enhanced P3 model creates12
value beyond just the financing benefits. Due to the novelty of the approach and potential impact13
to taxpayers, a comprehensive look at the approach is needed. This paper introduces an implication14
framework for the P3 crowd-financing model and builds on a previous paper that provided a policy15
review on the model using a SWOT analysis. This paper also highlights similarities between16
crowd-financing models being implemented in the real estate industry and applications to P3s, and17
then describes the current regulatory framework for crowd-financing. An outline of how18
crowd-financing would be implemented for P3s is provided, including discussions of investment19
type, SEC exemptions, and crowd-financing platform interaction.20
21
22
23
Keywords: Public-Private Partnership, Crowd-financing P3 Model, Investment Crowdfunding,24
Direct Equity Investors,25
26

3. Farajian, Ross 3
Introduction1
2
The need to address aging infrastructure due to growing capacity demands and decreasing3
economic competiveness is greater than ever in the United States. In fact, this need is becoming a4
critical issue for the nation and evident in an overall grade of D+ given to American infrastructure5
by the American Society of Civil Engineers (ASCE) (1). The question is how the needed new6
infrastructure development and the aging infrastructure maintenance should be funded particularly7
given U.S. government budgetary constraints and “shortages in lending capacity and more8
stringent regulation in the banking system” (2). This question has been the core of numerous9
academic and non-academic studies. In January 2015, President Obama introduced a $302 billion10
proposal known as the Grow America Act to help federal agencies find new ways to increase11
infrastructure investments by at least 35% (3). The 2015 Grow America Act, the 2014 Build America12
Investment initiative and the 2012 Jumpstart Our Business Startups (JOBs) Act all can pave the road13
to increase private investment in the U.S. infrastructure.14
15
One of the tools that has been used worldwide, as well as in the U.S., to facilitate private sector16
investment in the infrastructure is an innovative form of project delivery model which is called17
Public-Private Partnership (P3). Over the past two decades, P3s in the U.S. have evolved18
drastically, expanding to over thirty three U.S. states, District of Columbia and one U.S. territory19
with various P3 approaches and enabling legislations (4). In general, most of the P3 approaches20
have similar elements in their financial package: public funds, debt and potentially equity. Debt is21
usually repaid through project revenues which typically come from user fees or availability22
payments. Different forms of bonds such as Private Activity Bonds (PABs) and Qualified Public23
Infrastructure Bonds (QPIBs), provide the opportunity for individual or institutional investors to invest24
in the U.S. infrastructure at the debt level.25
26
Similar to debt, equity is usually repaid through project revenues if sufficient revenue is available27
after debt service payments. Therefore, investing at the equity level is riskier than investing at the28
debt level, and as a result is rewarded at a higher rate of return. While the current P3 model29
provides the opportunity for individual investors to invest in P3 projects at debt level, it provides30
little or no opportunity for individual investors to have a direct equity investment in those projects.31
Therefore, the current P3 model can be easily criticized since the direct equity opportunity is32
primarily limited to large infrastructure funds and developers who usually enjoy a high rate of33
return on their equity. It might be true that equity investment in P3 projects is risky and therefore34
should be rewarded with a higher rate of return; however, this high rate of return can be justified35
only if it is determined by the market based on a true interaction between supply and demand. An36
individual investor can easily criticize the high rate of returns on equity investment in P3 projects37
by stating that he/she would be willing to take similar risks at a lower return rate compared to38
investment funds. The only way that this claim can be validated and the criticism can be addressed39
is providing the equity investment opportunity to such investors.40
41
Farajian et al. (2015) discuss policy implications of a new P3 model that uses the crowdfunding42
concept to provide individual investors the opportunity to invest equity in P3 projects (5). Under43
this new P3 model, part of the equity investment for a P3 project is raised from individual investors44
(the crowd), particularly the ones in the same region or state, through a competitive process and an45
intermediary online platform. This new form of investment crowdfunding, or crowd-financing,46
provides flexibilities that can be utilized in delivery of P3 projects. Although Farajian et al.47
acknowledge potential financial benefits may be gained through this new approach as a result of48

4. Farajian, Ross 4
higher competition at equity level and potential lower cost of capital for equity investments, they1
mainly focus on policy benefits such as enhanced transparency, providing equal investment2
opportunities to local stakeholders and users of the facility, and enhanced local stakeholder3
support. In particular, this new model provides the opportunity to extend the partnership to4
potential users of the project or people who are impacted by the project and better align their5
interests with the interests of the public agency and the P3 developer. Figure 1 summarizes the6
strengths, weaknesses, opportunities and threats of this new P3 approach.7
8
Figure 1: SWOT Analysis Summary9
10
Source: Farajian, et al (2015) (5)11
12
This paper is taking the discussion of the P3 crowd-financing model from the policy level to the13
application level and intends to address the question that how this concept can be implemented in14
practice. In particular, this paper discusses (1) precedents in real estate development for a15
crowd-financed P3 model, (2) available options based on the JOBS Act, SEC regulations and State16
legislations, and (3) a process to utilize the crowd-financing model in P3 procurement and post17
procurement.18
19
Background and Comparison to Current Applications in Real Estate20
21
The 2012 JOBS Act made significant changes to the ways that new companies can raise capital.22
Specifically, the JOBS Act lifted the ban on general solicitation thereby allowing, under certain23
conditions, new companies to sell equity shares and debt instruments (collectively referred to as24
securities) to the general public via the internet without the onerous process of registering the25
offering with the SEC as an IPO. The ability to raise small amounts of investment from many26
more individual investors, referred to in this paper as crowd-financing (as opposed to27
crowd-funding which refers to raising money through donations), is typically facilitated by online28
Equal investment opportunity Induced complexity
Return on equity Lack of track record and market confidence
Enhanced stakeholder support Administrative and accounting challenges
Increased transparency Third-party confidential information
Social equality
Strengths Weaknesses
Opportunities Threats
Prioritization Business failure
Idea exchange Fraud
Possible misconceptions
Internal in Origin
Disadvantages
Advantages
External in Origin

5. Farajian, Ross 5
platforms that cater to specific industries such as information technology, health products, or real1
estate development. Small investors who are interested in specific projects can now invest directly2
in projects they have not been able to previously because such investment opportunities were3
limited, statutorily and practically, to institutional investors with large sums of investment capital.4
5
The changes implemented in the JOBS Act apply only to new business ventures, or “start-ups”.6
Because the Special Purpose Vehicles (SPV) established by the Development Company, equity7
sponsors, design/build firm, and O&M partners to undertake the P3 is technically a new venture, it8
is able to take advantage of the regulations established by the JOBS Act. While crowdfunding has9
received the most recent attention with regard to new venture capital and start-up businesses, the10
mechanism is also gaining popularity as a tool in civic projects and real estate development11
investments. This evolution in the use of crowdfunding demonstrates the potential of12
crowd-financing for P3 projects (5).13
14
Crowd-financing for a P3 would generally follow the successful model established by the15
commercial real estate industry for crowdfunding investment in real estate development projects.16
Websites such as Fundrise.com, Realtyshares.com, and Realtymogul.com exemplify the various17
regulatory frameworks, security structures, fees, and revenue models employed for crowdfunding18
investment in real estate, but at a fundamental level the process consists of a developer offering19
investment in a SPV established to undertake a new real estate development project that will20
generate returns for the investors.21
22
Similarly in a P3 project, the P3 developer sets up a SPV and investors purchase debt or equity23
shares in the SPV. The SPV then makes debt service payments or equity returns depending on the24
success of the project. The key differences between a typical infrastructure P3 project and a real25
estate development project are the associated development risks (design, construction, O&M), the26
size of projects, the duration of projects, the types of customers (the public and public agencies),27
and the role of public agencies in selection, oversight, and financing of projects. Just as there are28
numerous real estate crowd-financing platforms that specialize in specific project types (retail,29
apartments, single family residences, etc.), there is a need for crowd-financing platforms that cater30
to the unique aspects of infrastructure as an asset class (6).31
32
Another key difference between crowd-financing for real estate and large transportation P3s is the33
role of debt. As discussed earlier, the debt financing in a typical transportation P3 project is34
usually provided through various government loan programs such as the Transportation35
Infrastructure Finance and Innovation Act (TIFIA), tax-exempt project revenue bonds such as36
PABs, or other bonds that are offered competitively in the bond market. This reduces the need for37
debt crowd-financing for transportation P3 projects; therefore, this paper focuses on the role of38
equity crowd-financing used by the P3 SPV. However, if necessary or desirable, the SPV could39
issue debt securities via crowd-financing platforms, which is common in the real estate investment40
crowdfunding industry. Debt crowd-financing may also be appropriate for P3s in other41
infrastructure sectors such as water/waste-water, telecoms and social infrastructure where public42
debt facilitation is not as advantageous.43
44
Another key comparison to crowd-financing for commercial real estate is the role of pension45
funds. While pension funds typically have a portion of their assets allocated to commercial real46
estate, individuals with interest in a pension fund are not able to select specific projects in their47

6. Farajian, Ross 6
community that they want their specific funds to be invested in; they are subject to the investment1
decisions of the fund managers. As with pension fund investment in infrastructure, the wishes of2
the individual participants are not a consideration in the fund’s investment decision and therefore3
investments through pension funds do not represent the same level of benefits that a4
crowd-financing model can offer. For instance, pension funds do not provide the same level of5
public engagement and support that can be gained through crowd-financing of direct equity6
investment from individual investors who may be the users of the project or live close to the7
project.8
9
Furthermore, pension funds do not provide the same level of transparency and ongoing10
engagement that investors will receive as direct equity participants through crowd-financing.11
Also, the competitive crowd-financing process provides a great opportunity to make the rate of12
return on equity investment more competitive by offering it to qualified individuals in the same13
way that bonds are offered in the bond market. Finally, the returns offered to investors through14
pension funds may be mitigated by management fees and limited project selection due to the15
Employee Retirement Income Security Act of 1974 (ERISA) restrictions.16
17
However, while inclusion of pension funds as equity participants in a P3 does not provide the same18
level of public engagement or economic impact as crowd-financing equity from individuals,19
pension funds do play a critical role in private investment in public infrastructure and P3s.20
Because pension funds often desire the long-term, stable, inflation hedged returns of infrastructure21
assets, they are a natural fit as equity sponsors of P3s and frequent investors in infrastructure funds22
that participate in P3s. Unfortunately, because the investment thresholds for direct investment in23
P3s and infrastructure funds can be quite high, typically over $1 million, many smaller pension24
funds are unable to participate. Crowd-financing for P3s, and potentially infrastructure funds, will25
allow smaller, local funds to participate alongside individuals and large institutional investors,26
providing more competitive and resilient sources of equity.27
28
Initiating Crowd-financing for a P329
30
In real estate development crowdfunding, the crowdfunding campaign is initiated by the real estate31
developer. However, in a P3, the crowd-financing process could be initiated by either the P332
developer or the public agency sponsor. P3 developer partners are typically selected by the public33
agency partner through a competitive RFQ/RFP process. The public agency may include a34
requirement or preference for some portion of the capital to be raised through crowd-financing in35
the RFQ/RFP documents. If the evaluation is based on a minimum price that as long as all36
requirements are met, the lowest bid is selected, a minimum amount to be crowd-financed can be37
required by the public agency in the procurement document. Under the best value evaluation38
approach in which a combination of technical and financial scores is used to select the proposal,39
the public agency can develop scoring criteria for the value placed on the type, or amount, of40
crowdfunded capital offered to the public. Similar to how points are awarded to innovative design,41
points could be awarded for innovative financing structures that include community investment.42
As an example, the City of Oakland recently released a Request for Proposals for the43
redevelopment of the Henry J. Kaiser Convention Center that included the following language (7):44
45
“Community-based Financing Tools: The City is interested in exploring the viability of new46
community-based financing models that allow Oakland residents of all income and wealth levels47

7. Farajian, Ross 7
to participate in the profits generated by becoming investors in the project. To the degree possible,1
and to the degree it is feasible in combination with other financing mechanisms, respondents2
should consider using community-based financing tools such as community development IPOs or3
other innovative community financing tools and platforms.”4
5
In general, less prescriptive requirements allow the developers to become more innovative and6
compete in terms of public benefit or cost reduction. Theoretically, crowd-financing could provide7
a lower cost of capital, so developers that propose the largest offering could also potentially8
provide the best value for money (this needs to be explored further). However, if the P3 developer9
wishes to limit crowd-financing participation due to lack of overall financial benefits in particular10
cases but the public agency still believes crowd-financing provides non-financial benefits to the11
public, a policy decision can be made to mandate a minimum amount of equity to be12
crowd-financed. Similarly, the public agency can mandate a ceiling on the maximum amount of13
equity that can be crowd-financed. It is unlikely that equity crowd-financing will replace entirely14
traditional P3 equity sources such as private sponsor equity (developer/EPC partner), insurance15
companies, pension funds, and infra funds, but putting a ceiling on the percentage of equity that16
can be raised through crowd-financing ensures the developer still has enough equity stake “skin in17
the game” incentivizing its performance. This is necessary to ensure the P3 developer is18
incentivized to utilize its resources in the most efficient way to increase performance and mitigate19
the risk of default or bankruptcy. Ultimately, rating agencies would also consider this element as20
one of their evaluation criteria while providing a rating on debt.21
22
The crowd-financing process could also be executed as an auction for particular projects, allowing23
for investors to bid on securities and letting the market establish the risk weighted returns24
appropriate for the project instead of a limited number of institutional equity sponsors (8). On the25
other hand, the public agency may decide to define more restrictive terms of the offering to26
mitigate the potential political risk of riskier crowd-financing offerings.27
28
Alternatively, the P3 developer may include crowd-financing as part of their proposal without any29
specific requirement from the public agency; particularly in unsolicited proposals. The P330
developer may recognize the benefit of public engagement that crowdfunding offers and highlight31
it as part of their unsolicited proposal to increase public engagement and transparency in hopes of32
reducing the chance of political resistance associated with unsolicited proposals.33
34
In all these scenarios, the P3 developer (and possibly the public agency) may engage in a “testing35
the waters” campaign by providing preliminary information via the crowdfunding platform and36
soliciting non-binding indications of investment interest from the public. Strong indications of37
interest may signal strong public support for the project, as well as financial viability. Investors38
who indicate interest could be contacted prior to the general public once the actual offering is39
executed. However, “testing the waters” campaigns need to adhere to strict SEC regulations to40
avoid market tampering (see discussion of Regulation A+ offerings below).41
42
Regardless of the amount to be offered via crowd-financing, the P3 developer needs to retain43
responsibility for obtaining the necessary rating and securing financing for the project. The risk on44
assumptions related to rate of return will stay with the P3 developer although some benchmarking45
protections can be provided by the public agency to mitigate risks associated with market46
conditions similar to risk protections provided on interest assumed in debt financing. If the P347

8. Farajian, Ross 8
developer is unsuccessful in raising the planned crowd-financed amount, either it can increase the1
internal rate of return on crowd-financed portion of the equity to attract more investors or back-fill2
the gap. In either case since the P3 developer has the responsibility to deliver the proposed3
financial package, the weighted average cost of equity should stay the same. This means the P34
developer will need to reduce the internal rate of return on the other portion of equity which is not5
crowd-financed.6
7
Figure 2 summarizes the above discussion and represents a preliminary framework on how equity8
crowdfunded P3 model can be implemented.9
10
Figure 2: A Preliminary Framework for Equity Crowd-financed P3 Model (Source: Authors)11
12
Source: Created by the authors13
14
The type of capital raised through crowd-financing is very flexible and can be any type of security15
ranging from equity to debt. However, as discussed above, this paper focuses on the role of16
crowd-financed equity for transportation P3s. Equity financing involves not just the sale of17
common equity stock, but also the sale of other equity or quasi-equity instruments such as18
preferred stock, and convertible preferred stock:19
 Common Stock: A security that represents ownership in a corporation. Holders of common20
stock exercise control by electing a board of directors and voting on corporate policy.21
Common stockholders are on the bottom of the priority ladder for ownership structure. In22
the event of liquidation, common shareholders have rights to a company's assets only after23
bondholders, preferred shareholders and other debtholders have been paid in full.24
Procurement
Documents
Define minimum threshhold
for Crowd-financed equity if
the public agency believes
equity crowd-financing
brings non-financial value
Define maximum threshhold
to maintain P3 developer's
skin in the game
Impose more restrictive
terms of offering in case
public agency wishes to
control the level of risk for
individual investors
Evaluation
In a best price
evaluation, only
minimum and maximum
threshholds should be
met
In a best value
evaluation, points will
be given for equity
crowd-financing, and
potentially internal
rate of return at
offering, based on
evaluation criteria
defined in the RFP
Financial Close
A crowdfunding platform
will be used for equity-
crowdfinancing
If offering is unsuccessful,
the P3 developer can
increase the internal rate of
return to attract more
investors
The P3 developer will
ultimately be responsibile to
back-fill any financing gaps
as a result of an
unsuccessful offering at no
cost to the public agency

9. Farajian, Ross 9
 Preferred Stock: A class of ownership in a corporation that has a higher claim on the assets1
and earnings than common stock. Preferred stock generally has a dividend that must be2
paid out before dividends to common stockholders (preferred return) and the shares usually3
do not have voting rights. The precise details as to the structure of preferred stock is4
specific to each corporation. However, the best way to think of preferred stock is as a5
financial instrument that has characteristics of both debt (fixed dividends) and equity6
(potential appreciation). Also known as "preferred shares".7
 Convertible Preferred Stock: Preferred stock that includes an option for the holder to8
convert the preferred shares into a fixed number of common shares, usually any time after9
a predetermined date.10
The type of equity offered could depend on several factors including: investor demand,11
developer’s determination of the most cost efficient structure, and possibly on the desires of the12
public agency as outlined in the RFP. However, given that the P3 developer will want to limit the13
crowd investors involvement in operations (voting rights), and that the public agency will most14
likely want to shield community investors from severe underperformance of the project15
(construction risk, ramp-up risk, economic downturn, T&R shortfalls, etc.), preferred stock is the16
most likely security to be offered. However, preferred stock will naturally offer lower equity17
returns than common stock.18
19
The P3 developer will also be responsible for providing the offering documentation required by the20
SEC filing exemption being used (e.g. 506(c), Regulation A+, Rule 147, etc. as discussed below).21
The SEC filing exemption will depend on the capital needs of the developer, the level of22
community investment required by the public agency, and the nature of the project. The SEC has23
finalized rule-making on Title II and Title IV of the JOBS Act, enabling Regulation D 506(c) and24
Regulation A+ offerings. Many states have also enacted “intrastate” crowdfunding regulations25
which operate under the Rule 147 intrastate offering exemption.26
27
Crowdfunding Regulations and Types of Offering Registration Exemptions28
29
Regulation 506(c)30
31
For Regulation D 506(c) general solicitation offerings enabled by the 2012 JOBS Act, the primary32
benefit is that the amount of capital that can be raised is unlimited (9). 506(c) offerings are the33
main SEC crowdfunding exemption currently used by commercial real estate crowdfunding34
platforms, with multiple projects raising over $50 million dollars (10). In addition to being exempt35
from SEC registration, 506(c) offerings are exempt from state securities registration as well (Blue36
Sky exemption). Because 506(c) offerings are the most common, there are numerous service37
providers that facilitate the legal process for low fees.38
39
Drawbacks to the use of 506(c) offerings include a limit of 2000 investors, and the investors must40
be accredited (11). This limits participation to investors that have a net worth over $1 million, or41
made over $200,000 per year in gross income in both of the prior two years (9). An accredited42
investor may also be an entity such as a bank, partnership, corporation, nonprofit or trust, when the43
entity satisfies certain criteria. Also, the securities sold through 506(c) offerings are restricted44
from being resold for one year, except under special circumstances, which make them highly45

10. Farajian, Ross 10
illiquid.1
2
Because of the opportunity for large capital raises, but the restriction to accredited investors,3
506(c) offerings are best suited for large regional mega-projects that may serve multiple states4
(power generation, toll roads, oil & gas, etc.). These projects will typically require larger capital5
raises and will have a risk/return profile more suitable for accredited investors.6
7
Regulation A+8
9
Regulation A+ exempt offering rules were finalized by the SEC in June 2015 and are currently10
allowed for implementation. Reg A+ offerings are split into two tiers of offering with the ability to11
raise up to $20 million under tier 1 offerings and $50 million for tier 2 offerings (12). While the12
amount that can be raised is limited, unlike 506(c) offerings, Regulation A+ offerings are open to13
both accredited and unaccredited investors; with certain restriction on unaccredited investors for14
tier 2 offerings. Another benefit of Regulation A+ offerings is that the securities sold are15
un-restricted, meaning they can be sold at will by the investors; this adds liquidity to the securities16
making them more valuable to short-term investors. Regulation A+ also allows for “test the17
waters” campaigns that allow developers to gauge interest in a potential offering prior to any filing18
with the SEC.19
20
Because Regulation A+ offerings are open to all investors, the SEC requires that tier 1 offerings21
are qualified within each state where securities will be sold. Because each state has different22
securities regulations (Blue Sky Laws), this requirement makes it impractical for Regulation A+23
tier 1 offerings to be sold in more than just a few targeted states. Unlike 506(c) offerings, most24
Regulation A+ offerings will require that investors are provided annual reviewed or audited25
financial statements by the P3 SPV. While most intrastate offering regulations (discussed below)26
also allow for accredited and unaccredited investors, intrastate offerings typically require the27
offeror to be located in the state of the offering and have much lower limits for amounts that can be28
raised. Another benefit of regulation A+ offerings is that they can be combined with 506(c)29
offerings.30
31
Rule 147 - Intrastate Crowdfunding32
33
Not wanting to wait for full the SEC to finalize Title III of the JOBS Act, several states have passed34
intrastate crowdfunding laws to allow for businesses that operate solely in their state to raise35
crowdfunded capital from any local (residents of the state) investors (13). States active in36
transportation P3s such as Florida, Texas, Georgia, Colorado and Indiana have all passed intrastate37
crowdfunding legislation, while many other states are in the process of passing legislation or38
investing (see Figure 3 below).39
40
41
42
43
44
45
46
47

11. Farajian, Ross 11
Figure 3: State by State Map of Intrastate Crowdfunding Exemptions1
2
Source: Crowdfund Insider (13)3
4
The majority of the proposed bills continue the precedent of setting the overall offering cap at5
$2,000,000 (provided they deliver independently audited financials, otherwise $1,000,000).6
However, a few of the states (i.e. Illinois and Minnesota) propose to allow for significantly higher7
offering caps, and certain of the states (i.e. New Mexico and North Carolina, and South Carolina)8
have not included a cap at all. Moreover, many of the newly proposed bills specifically require the9
offering caps to be reviewed and increased every five (5) years to reflect changes in the Consumer10
Price Index (CPI). This option is best for small projects that will serve specific communities11
within a state (wastewater treatment plant, fire-station, school) selling to an investor demographic12
with a buy/hold mindset that can easily digest the nature of the project.13
14
Each type of offering discussed above has unique characteristics, limitations, advantages and15
disadvantages of each type of offering. It also suggests that each one of the offerings, and therefore16
may deliver better value for certain projects or certain policy goals. Table 1 summarizes the17
discussions in this section and provides additional information on specifics of each type of offering18
and what projects may benefit the most from that type of offering.19
20
21
22
23
24
25
26
27
28

12. Farajian, Ross 12
1
Table 1: Summary of Offering Exemptions2
3
4
5
Source: Created by the authors6
7
8
9
10
Reg A – Tier 1 Reg A – Tier 2 Reg D: Rule 506 ( c ) Intrastate (Typical)
Maximum Offering $20,000,000 $50,000,000 Unlimited $2,000,000
Offeree Types All, including non-
-‐accredited
investor
All, including non‐‐‐
accredited investor
Accredited Investors Only All ‐‐‐ Unaccredited
Individual
Investment Limits
None All offerings: 5% of income
or net worth below $100k,
10% above $100k, $100k
max
None $2,000 minimum; 5% of
income or net worth below
$100k, 10% above $100k,
$100k max
Investor Verification N/A Self‐‐‐Certification Heightened Accredited
Verification; Financial
Infrmation Required
Self‐‐‐Certification
Advertising /
General Solicitation
Unrestricted Unrestricted Unrestricted Limited to investors within state
Pre--‐filing /
Testing the
Waters
Testing the waters allowed
with no pre‐‐‐filing; must
file solicitation materials
with first offering
statement; offering circular
must be filed 48 hours
prior to first sale
Testing the waters allowed
with no pre‐‐‐filing; must
file solicitation materials
with first offering
statement; offering circular
must be filed 48 hours
prior to first sale
No filing requirements
(yet)
Pre‐‐‐filing with state
required before any offer
(no testing the waters)
Closing Speed Slow ‐‐‐ SEC and State
Qualification Required
Slow ‐‐‐ SEC Approval
Required
Fast ‐‐‐ NO SEC
Involvement
Fast ‐‐‐ NO SEC Involvement
Offering Documents Robust --‐ SEC Qualification
and State Approval
Robust ‐‐‐ SEC Approval No Specific Requirements Robust, State Filing Required
Financials Disclosure Reviewed Financials Audited Financials No Specific Requirements None under $100k; Reviewed
$100k ‐‐‐ $500k, Audited
above $500k
Ongoing
Disclosure/Filing
None Annual, Semi‐‐‐Annual,
Current Reports including
audited financials
None Annual Disclosure &
Financials
Transfer Restriction None None 1 Year 1 Year or to Issuer or
Accredited
Shareholder Limit None with conditions None with conditions 2,000 accredited
investors
Unlimited
Intermediary None Required None Required None Required Funding Portal or Broker‐‐‐
Dealer Required; Internet
Portal Required
State Pre‐‐‐
emption
No; Coordinated Review Yes Yes; but expensive blue
sky filing fees
Yes
Investor Education
Req.
None None None Tests Required
Best for Small to medium sized projects
serving 1 state that will benefit
from all levels ofpublic
engagement
Medium to large sized projects
that will benefit from all levels
ofpublic engagement
Regional Mega-projects with
high capital needs and
targeting affluent individuals
and small institutional
investors
Small community projects with
need for broad-based community
engagement and targeted
economic impact

13. Farajian, Ross 13
1
The Crowdfunding Campaign and Internet Platform Function2
3
In terms of timing, the crowdfunding campaign will begin once the P3 project has been awarded4
and the P3 terms are agreed to (commercial close). Then the private developer works with a5
crowdfunding platform, such as www.infrashares.com, that specializes in crowdfunding6
investment for P3s to develop and run the crowdfunding campaign (14) The length of the7
campaign is determined by the financial close schedule, but will need to be long enough for the8
developer to promote the project and for investors to evaluate and make an investment decision.9
10
Retail investor traffic is driven to the crowdfunding platform through the use of public agency11
outreach, social media, traditional media, search engine optimization (SEO, google AdWords) and12
complimentary sites such as other investment crowdfunding sites targeting other industries. A13
teaser summary is posted on the site that can be viewed by potential investors that includes14
summary commercial terms and a video describing the project. Investors visiting the site can15
browse by project type, geography, security type, IRR, etc. to find an offering that fits their16
investment objectives. The site will also offer comparison and analysis tools to help investors17
determine which projects are right for them. If an investor is interested in a specific project, then18
they request access to the full offering materials such as offering statements, financial models,19
concession agreements, credit rating agency reviews, etc.20
21
If, after reviewing the offering documents and performing any other due diligence, they decide to22
invest, they make a pledge to invest upon successful completion of the campaign. Campaigns are23
considered successful if they reach the funding goal determined by the P3 developer. However,24
the crowdfunding platform may retain the option to backfill any shortfall with its own funds. As25
discussed earlier, since the P3 developer financing plan shouldn’t be structured to be dependent on26
the crowd-financing campaign, an unsuccessful campaign does not, in anyway, jeopardize27
reaching financial close. Under this scenario the P3 developer should readily have access to equity28
which should backfill the gap at no additional cost to the public agency (under certain29
circumstances the public agency may choose to develop a risk sharing mechanism).30
31
In order to make management of the crowd-financed equity investors as easy as possible for the P332
developers, the crowdfunding platform forms a discrete project fund LLC for each offering to act33
as intermediary between the P3 developer and the crowd investors. The project fund LLC acts on34
behalf of the crowd investors when dealing with the P3 developers in issues such as voting rights,35
management and consent, if granted. If a board seat is warranted, the platform management will36
represent the LLC. In general, the crowd investors will be passive investors in the project fund37
LLC, but the details of this relationship will vary by project. All disclosures, reports, financial38
statements issued by the P3 developer are distributed through the platform project fund LLC to39
investors. Third party escrow/ACH services (as required by the SEC) are used to facilitate the40
collection of investment monies and disbursement of returns. This structure removes P341
developers concerns regarding management of multitudes of individual investors.42
43
In order to facilitate this structure, the P3 developer enters into a private placement agreement with44
the project fund LLC, whereupon success of the crowdfunding campaign, securities of the P345
operating company are purchased from the P3 developer by the project fund LLC. The project46
fund LLC then subsequently issues securities of its ownership to the crowd investors through a47

14. Farajian, Ross 14
506c, Regulation A+ or intrastate offering. The project fund LLC securities are backed by the1
performance of the P3 project. This is the structure used by many of the commercial real estate2
crowdfunding sites1
.3
4
In addition to mitigating P3 developer concern over crowd investor management, the project fund5
LLC structure allows the P3 developer to avoid any SEC registration or navigation of6
crowdfunding regulation. SEC compliance is left to the experts at the platform who can leverage7
technology and industry acumen to manage the mechanics of the fund as efficiently as possible.8
Because of the rapid growth of the crowdfunding industry, there has been a proliferation of9
white-label providers that offer SEC filing, accreditation, escrow, payment distribution, document10
management, signature, and Customer Relationship manager (CRM) services. These vendors are11
offering commodity services that allow the platform to drive operational expenses very low12
relative to what a P3 developer would have to expend on their own.13
14
Post Financial Close15
16
Following investment and financial close of the P3, the crowdfunding platform will act as an17
ongoing engagement tool for the investors. The platform will distribute all financial statements,18
disclosures and construction/O&M updates issued by the SPV. The platform will also facilitate all19
disbursements of returns to investors and allow investors to track the performance of their20
individual investments or portfolio of projects. Any secondary market for existing securities will21
also be facilitated by the platform allowing investors to buy and sell securities as their individual22
liquidity needs require. This ongoing interaction between investors and the P3 project provides23
high levels of transparency and public oversight, making sure the developers incentives are24
aligned with crowd-financed investors over the long-term.25
26
Summary of Discussions and Future Research Need27
28
The goal of the crowd-financed P3 model is to facilitate involvement of the public, especially local29
communities, as a major partner in the current P3 model. In addition, aligning the interest of P330
developer, public agency and the crowd-financed equity investors who may be the users of the31
project or local stakeholders impacted by the project can act as catalyst to facilitate delivery of the32
project. This engagement provides the opportunity to use the interests and power of the crowd to33
bring down the investment barrier under the current P3 model and create opportunities for34
additional transparency and enhanced public engagement in the policy decisions.35
36
This paper explains how the crowd-financed P3 model can be implemented in practice. The37
lessons from utilizing crowdfunding in civic projects and commercial real estate can be used to38
design an implementation framework for the crowd-financed P3 model. Based on policy goals,39
project characteristics and market conditions different provisions can be added to procurement40
documents to define the rules around this implementation framework. Those provisions should41
instruct the P3 developers on how crowdfunding can be used in their financial proposals. The42
detail of those provisions and potential risk sharing mechanisms that can be utilized under the43
crowd-financed P3 model to achieve certain policy objectives can be the subject of future research44
studies.45
1
See Fundrise “Project Dependent Notes”:
https://fundrise.desk.com/customer/portal/articles/1596433-what-is-a-project-payment-dependent-note-.

15. Farajian, Ross 15
1
In summary, the benefits of the crow-financed P3 model and its readiness to be implemented make2
it an attractive topic both for public agencies and P3 developers. However, additional research is3
still needed to further study the implication of the crowd-financed P3 model, particularly to4
provide more information on popularity of the crowd-financed P3 model among individual5
investors and their appetite for infrastructure investing. Also, additional data on rate of the return6
that those individual investors may demand and a comparison against what investment funds or7
institutional investors demand will better enable decision makers to evaluate financial benefits of8
the crowd-financed P3 model.9
10
References:11
12
1. American Society of Civil Engineers. (2013). Report Card for America’s Infrastructure13
2. McKinsey Global Institute. (2013). Infrastructure productivity: How to save $1 trillion a year.14
Mckinsey and Company15
3. Dynan, K. (2015, January 16). Build America Investment Initiative- Expanding Opportunities to16
Invest in America's Infrastructure. Retrieved on July 20, 2015 from U.S. Department of the17
Treasury:18
http://www.treasury.gov/connect/blog/Pages/Build-America-Investment-Initiative---Expanding-O19
pportunities-to-Invest-in-America%E2%80%99s-Infrastructure.aspx20
4. Federal Highway Administration (2015). State P3 Legislation. Retrieved on July 20, 2015 from21
http://www.fhwa.dot.gov/ipd/p3/state_legislation/22
5. Farajian, M., Lauzon, A., Cui,Q. (2015) An Introduction to a Crowdfunded Public-Private23
Partnership Model in the U.S.: A Policy Review on Crowdfund Investing.Transportation Research24
Record Journal25
6. Ross, B. (2015, January 27). Opportunities for Crowdfunding in the P3 Industry. Retrieved July 27,26
2015, from InfraShares: www.infrashares.com27
7. City of Oakland (2014, September 22). Request for Proposals. Retrieved July 27, 2015, from28
http://www2.oaklandnet.com/oakca1/groups/ceda/documents/webcontent/oak049322.pdf29
8. Masscatalyst. (2015). Price Discovery with our Auction Market Platform. Retrieved on July 26,30
2015 from https://www.masscatalyst.com/how-it-works/auction31
9. U.S. Securities and Exchange Commission. (2013, September 22). Eliminating the Prohibition32
Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offering.33
Retrieved on July 27, 2015 from34
https://www.sec.gov/info/smallbus/secg/general-solicitation-small-entity-compliance-guide.htm35
10. Drake, D. (2014, November 4). Five Realty Crowdfunding Projects Raising $50M Or More.36
Retrieved on July 26, 2015 from37
http://www.forbes.com/sites/groupthink/2014/11/04/five-realty-crowdfunding-projects-raising-5038
m-or-more/39
11. Levine, M. L., & Feigin, P. A. (2014). Crowdfunding Provisions under the New Rule 506(c): New40
Opportunities for Real Estate Capital Formation. The CPA Journal, 46-51.41
12. Bergman, M. H. (2014). SEC Proposes rules to update regulation A. Insights; the Corporate &42
Securities Law Advisor, 32-35.43
13. Zeoli, A. (2015, May 7). State of the States: An Update On Interstate Crowdfunding.Retrieved on44
July 27, 2015 from45
http://www.crowdfundinsider.com/2015/05/67394-state-of-the-states-an-update-on-intrastate-cro46
wdfunding-2/47
14. Cho, A. (2015, April 20). Entrepreneurs Hope To Bring Crowdfunding To P3 Projects. Engineering48
News-Record, pp. 22-23.49