In today’s hyper-connected world, social media has emerged as a fundamental element in shaping business landscapes. For startups, especially, these platforms offer a direct line to potential customers, partners, and, critically, investors. The evolution of social media has coincided with regulatory advancements such as the JOBS (Jumpstart Our Business Startups) Act in the United States, which has significantly altered the fundraising environment by allowing companies to publicly advertise their fundraising efforts—a veritable game changer.

Here’s why and how startups should leverage social media to catapult their growth and visibility.

1. Increase Visibility with Targeted Content

Startups often face the challenge of building brand recognition from scratch. Social media accelerates this process by providing platforms where targeted content can reach a global audience at the click of a button. Content that resonates with a specific audience can elevate a startup’s visibility exponentially.

Tip: Focus on creating high-quality, engaging content that reflects your brand’s values and vision. Use analytics tools provided by platforms like KorePixel, Facebook and Instagram to understand the demographics of your audience and tailor your content accordingly.

2. Engage Directly with Potential Investors

Under the JOBS Act, particularly Titles II, III, and IV startups have the unprecedented ability to openly solicit investments from the public (non-accredited) and accredited investors through social media channels. This can drastically expand the pool of potential investors beyond traditional venture capital networks.

Tip: When engaging with potential investors, maintain transparency and professionalism. Regular updates about your business’s progress, insightful posts about your industry, and thought leadership articles can help establish credibility and attract investment.  Make sure you work with your FINRA Broker-Dealer to make sure your messaging is compliant.

3. Leverage Influencers to Build Credibility

Influencers in various industries can provide startups with a much-needed credibility boost. They can act as brand ambassadors, lending their reputation and following to the startup’s products or services. This is particularly effective in industries like technology, fashion, and health and wellness.

Tip: Identify influencers who align with your startup’s ethos and have a genuine interest in your industry. Collaborations could range from simple endorsements to complex partnerships like co-branded products or guest appearances on webinars.

4. Utilize Cost-Effective Advertising

Advertising on social media is generally more affordable compared to traditional media channels. Moreover, it offers the advantage of being highly customizable in terms of audience, budget, and timing. For startups, this means being able to run lean, efficient campaigns that are data-driven and optimized in real-time.

Tip: Experiment with different advertising formats and platforms to find what works best for your startup. Utilize A/B testing to gauge the effectiveness of your ads and continuously refine your strategy based on performance data.

5. Showcase Your Company Culture

Today’s consumers and investors are increasingly interested in the operations behind the brands they support. Social media gives startups an excellent platform to showcase their culture, values, and the people behind the scenes. This not only helps in building a brand but also in attracting like-minded employees and investors.

Tip: Share behind-the-scenes content, employee stories, and community involvement activities. These posts humanize your brand and can create emotional connections with your audience, which is invaluable for loyalty and engagement.

6. Monitor Feedback and Respond Quickly

Social media channels are a goldmine for customer feedback. Monitoring what people are saying about your brand online can provide you with insights into market needs and product shortcomings, allowing for quick adjustments. Additionally, engaging with followers through comments and messages can build a sense of community and loyalty.

Tip: Set up alerts for mentions of your brand across social media platforms and the web. Use tools like Hootsuite or Sprout Social to keep track of conversations and respond promptly.

7. Drive Traffic to Your Website

Ultimately, the primary goal of most social media activity is to drive traffic back to your company website, where potential investors or customers can take the next step in the engagement process. Social media can effectively funnel users to your site by linking to blog posts, product pages, and other relevant content.

Tip: Ensure that your social media profiles are optimized with a clear bio, link to your website, and a consistent name and image across platforms. Use strong calls-to-action in your posts to encourage clicks to your website.

For startups today, mastering social media is not just an option—it’s a vital part of business strategy. The synergy between regulatory environments like the JOBS Act and the expansive reach of social media offers unprecedented opportunities for startups to secure funding, build brand presence, and engage with a global audience. By embracing these platforms strategically, startups not only enhance their visibility but also forge a path towards sustainable growth and success.

Understanding the regulations surrounding public offerings is crucial for both companies and investors. In this article written by Patrick Costello, from Bevilacqua PLLC, we’ll delve into Section 12(g) of the Securities Exchange Act. You’ll find insights on outlining the requirements for companies to register securities with the SEC. Also, Patrick sheds light on the factors triggering registration, including asset value and investor thresholds.

Keep reading and learn more about this important matter in the financial market.

Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) (15 U.S.C § 78l(g)) mandates that a company register with the Securities and Exchange Commission (the “SEC”) a class of securities if:

1. the company has gross assets of more than $10 million; and

1. the securities of such class are held of record by more than (a) 2,000 persons or (b) 500 non-accredited investors (as defined under Securities Act Rule 501(a) (17 C.F.R. § 230.501(a))

These are referred to individually as the “Gross Assets Threshold” and the “Held of Record Threshold,” and, together, the “Thresholds.”

Issuers who cross the Thresholds must register the relevant class of securities with the SEC by filing a form 10-12G registration statement within 120 days of the last day of the fiscal year in which the issuer exceeds the Thresholds. After filing its 10-12(G) registration statement, an issuer will need to comply with the continuous reporting obligations under Exchange Act Section 13 as it relates to annual, quarterly, and periodic reports, and beneficial ownership reporting, Section 14 as it relates to proxy rules and Section 16 as it relates to insider transactions in a public company’s securities.

Absent future clarification from the SEC, Section 12(g)’s registration requirements are unavoidable once an issuer crosses the Thresholds under any circumstances. Registration under Section 12(g) is required even if an issuer crosses the Thresholds and subsequently complies with Section 12(g)’s requirements to terminate a registration statement under Section 12(g) (less than 300 holders of record) before the 120-day registration deadline. Further, an issuer who crosses the Thresholds inadvertently and then purposefully seeks to terminate their registration requirements under Section 12(g)(4) may be deemed to be engaging in a scheme to avoid the application of the federal securities laws, likely considered a violation of the anti-fraud rules.

Considering the consequences and difficulties associated with the above aspects of Section 12(g), issuers must engage in proper business planning to avoid an accidental crossing of the Thresholds. Thankfully, there are certain exemptions and definitional exclusions from Section 12(g) that can help issuers avoid crossing Section 12(g)’s Thresholds.

Calculating the Holders of Record

To determine the number of holders of record, an issuer should count (i) each person who is identified as the owner of the record at the company’s registrar for the class of securities and (ii) if the shareholders list was improperly maintained, each person who would have been a record holder had it been properly maintained (17 C.F.R. § 240.12g5-1). As stated above, there are a few exclusions and special rules that apply when calculating the Thresholds. For example, Exchange Act Rule 12g5-1 contains the following special rules:   

In addition to the above rules for calculating the Held of Record Threshold, two very important exemptions increase or alter the Thresholds for securities issued under Regulation Crowdfunding and Tier 2 of Regulation A. For Regulation Crowdfunding, Exchange Act Rule 12g-6 (17 C.F.R. § 240.12g-6) states that securities issued in a Regulation Crowdfunding offering will not be counted towards the Held of Record Threshold if:

1. the issuer is current in its ongoing annual reports;
2. has gross assets of $25 million or less as of the end of the most recently completed fiscal year; and
3. has engaged a transfer agent to serve as the transfer agent for the securities in question.

Additionally, there is a transition period for issuers who exceed $25 million in gross assets according to (b) above. Specifically, Rule 12g-6 states that a crowdfunding issuer can continue to exclude their securities from the holder of record calculation for a period ending on the day before the last day of their fiscal year, which is two years after the issuer’s total assets rose above $25 million; provided, however, that such issuer continues to comply with its ongoing reporting requirements during those two years. An issuer that does not comply with their ongoing reporting obligations must register the relevant class of securities under Section 12(g) within 120 days.

Likewise, for Regulation A,  Exchange Act Rule 12g5-1(a)(7) (17 C.F.R. § 240.12g5-1(a)(7)) states that companies may exclude securities issued in Tier 2 offerings from the Held of Record calculation if they:

1. are current in their annual, semiannual, and special financial reports as of the most recently completed fiscal year;
2. has engaged a transfer agent with respect to the class of securities at issue; and
3. Had (1) a public float of less than $75 million as of the last business day of its most recently completed semiannual period; or (2) if the public float is zero, then less than $50 million as of the most recently completed fiscal year.

As with Rule 12g-6 above, an issuer can continue to exclude such securities from the Held of Record Threshold for a period ending on the day before the last day of their fiscal year two years after they became ineligible for the Rule 12g5-1(a)(7) exemption. An issuer that does not comply with their ongoing reporting obligations must register the relevant class of securities under Section 12(g) within 120 days.

Conclusion

Section 12(g) represents a critical component of the U.S. securities regulatory framework, balancing investor protection with the practical needs of growing businesses. The evolution of its thresholds and conditions reflects a dynamic response to the changing economic landscape, particularly for startups and small businesses, and especially at a time when exempt capital financing is as accessible as it is today. Understanding these regulations is essential for companies seeking to comply with federal securities laws while capitalizing on opportunities for growth and investment. To do so, it is essential that these issuers engage with qualified securities attorneys who can assist them with compliance and navigation of the federal securities laws.

Stay tuned to our blog! We’re always bringing fresh content to keep you always updated.

Let’s talk about how capital is raised, especially about the myths that surround this matter.

For decades, the narrative around raising capital for private companies has been confined to a familiar sequence of chapters: family and friends, government grants, banks, angel groups, accelerators, and venture capital. This traditional pathway has painted a partial picture of the opportunities available to entrepreneurs, leaving many vital chapters unread and unexplored. However, the advent of the JOBS Act and the rise of online capital formation have added crucial new dimensions to this narrative, expanding the playbook for entrepreneurs seeking funding. We will debunk the myths surrounding capital raising, urging entrepreneurs to read beyond the first six chapters and explore the broader spectrum of options now at their disposal.

The Unread Chapters of Capital Raising

Raising capital is a nuanced art, steeped in tradition yet rapidly evolving with technology. Each of the nine chapters of capital raising—ranging from personal networks to sophisticated online platforms—has its own set of rules, expectations, and audience. Yet, at their core, they all share a common process: crafting a compelling pitch, valuing the business, and reaching out to potential investors. Whether through personal meetings, phone calls, or digital platforms, the essence of capital raising remains a quest to gather a crowd of supporters, investors, and advocates for your business.

Rewards Crowdfunding

Platforms like Kickstarter and Indiegogo have shown that product-based businesses can attract funding from customers and enthusiasts who believe in their vision. This model allows entrepreneurs to validate their market fit while securing the capital needed for production and scaling.

JOBS Act Regulations (RegCF, RegD, RegA+)

The JOBS Act has revolutionized access to capital by legalizing equity crowdfunding (RegCF), simplifying offerings to accredited investors (RegD), and expanding the ability to publicly solicit investments (RegA+). These regulations have democratized investment, making it accessible to a broader audience of both entrepreneurs and investors.  There is now over 2,500 platforms in the USA alone that cater to any of the such JOBS Act Regulations but Spark.Market and Red Crow are now becoming the new trend of online capital formation.  

Online Capital Formation

The digital transformation of capital raising has enabled platforms to streamline the investment process, making it more efficient and far-reaching. Online capital formation leverages technology to connect companies with a global pool of investors, transcending geographical and traditional barriers.  KoreIssuance sole purpose is to enable companies to utilize the JOBS Act regulations and to allow companies to raise capital on their own terms, and website.

Technology’s Role in Accessing Capital

The transition to online platforms has not only modernized the capital raising process but also expanded its potential. Digital platforms offer a cost-effective, efficient way to reach investors, turning the erstwhile daunting task of fundraising into a more manageable, even rewarding endeavor. This shift towards online capital formation fosters a more inclusive ecosystem, where businesses can attract not just investors but also future customers, partners, and champions of their brand.  The entire process is done online with such infrastructure created by KoreConX, which provides the infrastructure for all participants (investors, companies, issuers, lawyers, auditors, IA firms, Broker-Dealers, SEC-Transfer Agents, ATS, OMS, Banks, Payment Rails) this is the key to allow democratization.  In this new world, people can invest as low as $5.00 and it can be done cost effective and 100% compliantly.

Challenges Beyond Chapter 6

Venturing into the realms of rewards crowdfunding, JOBS Act regulations, and online capital formation presents its own set of challenges. Entrepreneurs may encounter skepticism from traditionalists who view these methods as less prestigious or viable. However, the success stories emerging from these avenues are dispelling such myths, proving that these “new chapters” are not just viable but also potentially more aligned with the modern entrepreneurial journey.

Keep in mind the skepticism they demonstrate is a reaction to how threatening this way of capital raising is competing with them.  You will hear remarks like, “dumb money”, “they bring no value”, “not sophisticated” and much more.  This tells you when something is working when money (investors) have choices and they are selection you rather than going to a fund.

Embracing the Full Spectrum of Capital Raising

Educate Yourself: Understand the nuances and requirements of each capital-raising avenue.

Build a Comprehensive Pitch: Tailor your pitch to suit different platforms and investor expectations.

Leverage Technology: Use online platforms to streamline the fundraising process and reach a broader audience.  Working with KoreIssuance can be the difference of success and failure.

Engage Your Network: Tap into your personal and professional networks for initial support and validation.

Explore All Avenues: Don’t limit yourself to traditional funding sources; explore crowdfunding, online platforms, and JOBS Act opportunities.

Compliance and Transparency: Ensure your fundraising efforts comply with legal requirements and maintain transparency with potential investors.  Trusted partners is essential to any type of successful capital raise.

Value Beyond Capital: Look for investors and platforms that offer value beyond just funding, such as mentorship, networking, and market access.

Continuous Learning: Stay informed about evolving regulations and emerging platforms to maximize your fundraising potential.

The landscape of capital raising is broader and more diverse than ever before. Entrepreneurs today have the opportunity to explore a multitude of chapters beyond the traditional six, each offering unique benefits and access to a wider range of investors. By embracing the JOBS Act regulations and leveraging online capital formation, startups can navigate the fundraising process more effectively, tapping into a vast pool of potential supporters. Educating oneself about these opportunities, working with trusted advisors, and adopting a strategic approach to capital raising are essential steps toward securing the necessary funding. In the ever-evolving narrative of entrepreneurship, understanding and utilizing the full spectrum of funding options available is not just an advantage—it’s a necessity.

Introduction: Regulation S vs Rule 144

Regulation S and Rule 144 are pivotal components of the United States securities law framework, each facilitating different aspects of the capital markets, particularly in the context of private offerings and the sale of securities to non-U.S. investors. Understanding the nuances between these two regulations is essential for issuers, investors, and intermediaries navigating the private capital markets.

Regulation S

Regulation S provides a safe harbor that exempts securities offerings from the registration requirements of Section 5 of the Securities Act of 1933, as long as the offering is conducted outside the United States. Most people are not aware that is particular regulation was named after Sara Hanks when she was at the SEC.  This regulation is designed to facilitate the sale of securities to non-U.S. residents in offshore transactions, without the stringent disclosures and registration processes required for public offerings in the U.S.

Key Features of Regulation S:

• Offshore Transactions: Regulation S applies only to offers and sales of securities that occur outside the U.S. and to non-U.S. persons. The issuer must ensure that the offering cannot be deemed to have been made to a person in the United States.  The offering must be gated and block all U.S. persons, one other major factor is that a company must follow local securities laws to make sure they are compliant when offering their securities in offshore markets.
• Category System: Regulation S categorizes offerings to determine the level of restrictions required to prevent the securities from flowing back into the U.S. market. These categories help in defining the resale limitations and distribution compliance period for the securities.
• No Directed Selling Efforts: Issuers and distributors must not engage in any directed selling efforts within the United States, ensuring the offering is genuinely foreign and not targeting U.S. investors indirectly.

Rule 144

Purpose and Application: Rule 144 provides a safe harbor for the public resale of restricted and controlled securities in the U.S. market, without requiring SEC registration. This rule is crucial for investors looking to sell their holdings of restricted securities (typically acquired through private placements or as compensation) and for affiliates of the issuer who hold control securities.  This very common with RegD 506b and 506c offerings.

Key Features:

• Holding Period: Sellers must adhere to a specific holding period before restricted securities can be sold on the public market—six months for securities of a reporting company and one year for a non-reporting company.
• Volume Limitations: There are limits on the volume of securities that can be sold within a three-month period, which helps prevent market manipulation and protect investors.
• Manner of Sale and Information Requirements: Rule 144 imposes conditions on how sales can be made and requires that adequate current information about the issuer is publicly available.

Differences Between Regulation S and Rule 144

• Geographical Focus: Regulation S deals exclusively with offers and sales of securities conducted outside the United States to non-U.S. persons. In contrast, Rule 144 applies to the resale of restricted and controlled securities within the U.S. market.
• Targeted Securities and Sellers: Regulation S can be applied by issuers, distributors, or their affiliates for initial sales to non-U.S. persons. Rule 144 is used by shareholders (both affiliates and non-affiliates) who seek to sell their restricted or controlled securities in the U.S. market.
• Conditions and Restrictions: While both set forth conditions to prevent the improper flow of securities, Regulation S focuses on ensuring that the securities are offered and sold outside the U.S. without directed selling efforts to U.S. persons. Rule 144 establishes criteria related to holding periods, volume limitations, and disclosure to facilitate the safe resale of securities in the U.S.
• Purpose: The fundamental purpose of Regulation S is to exempt international securities transactions from U.S. registration requirements, promoting global capital formation. Rule 144, however, aims to provide liquidity for holders of restricted and controlled securities by enabling a pathway to public resale under certain conditions.

Regulation S and Rule 144 address different needs within the securities market, reflecting the SEC’s efforts to accommodate the complexities of global capital flows while protecting investors. Regulation S facilitates the international offering of securities by U.S. and foreign issuers, whereas Rule 144 allows investors to sell restricted and controlled securities in the U.S. Understanding these regulations is crucial for conducting compliant securities transactions, whether operating within the U.S. or on a global scale.

It’s always important when using either of these regulations to speak to your securities lawyer to ensure your company is using the regulations compliantly.

In today’s fast-paced business environment, private companies face a myriad of challenges as they scale and seek capital. A crucial, yet often overlooked aspect of their growth trajectory is effective entity management.

This blog post covers the essence of entity management and distinguishes between cap table management and equity management, highlighting the significance of each for private companies.

Entity Management: What does it mean?

Basically, entity management simplifies how organizations track, organize, and manage all details related to their business entities. An effective process helps to ensure compliance and streamline operations, impacting positively in decision-making.

In the next sections, we’ll explore the role of robust entity management software, underscore the potential pitfalls of neglecting this area, and provide insights into selecting a reliable technology partner. Our aim is to equip you with the knowledge to navigate the complexities of entity management, ensuring compliance and facilitating your company’s growth and success.

The Role of Entity Management Software

As private companies expand, particularly those leveraging the JOBS Act Regulations for capital raising, the complexity of regulatory compliance and entity management escalates. Strong entity management involves not just the maintenance of corporate records but ensuring that these entities meet all regulatory requirements timely. This is where the adoption of a comprehensive entity management software becomes invaluable. A technology partner who is adept at understanding the growth dynamics and regulatory landscape can be a linchpin in maintaining compliance, thereby avoiding the repercussions of missed filings or non-compliance.

The Challenges of Inadequate Entity Management

The consequences of not employing effective entity management software can be dire. Missed filings or regulatory non-compliance can severely impact a company’s ability to raise capital, pursue mergers and acquisitions (M&A), or even go public. For sectors like real estate, which typically involves managing multiple entities for various projects, the ripple effects of non-compliance can be even more pronounced. These challenges underscore the necessity of a vigilant approach to entity management.

Choosing a Trusted Entity Management Software Partner

The importance of selecting a trusted software partner cannot be overstated. This partner should not only possess a comprehensive understanding of managing multiple entities but also ensure their software facilitates time and cost savings while keeping up with regulatory deadlines. Here are three red flags to watch out for when choosing an entity management software partner:

Compliance Assurance: Ensure the partner operates with end-to-end compliance. The lack of a robust compliance framework is a major red flag.

Understanding Private Company Challenges: The partner must have a proven track record of understanding and addressing the unique challenges faced by private companies. Lack of expertise in dealing with private company-specific issues is a significant concern.

Reputation and Reliability: Investigate the partner’s reputation and reliability. A partner lacking in trusted testimonials or case studies may not be able to provide the level of service your company requires.

The process of finding a trustworthy company may take some time, but is essential in different aspects of the business. So it’s worth to spend time

Cap Table Management vs. Equity Management

Distinguishing between cap table management and equity management is essential for private companies. Cap table management involves tracking the ownership stakes, types of equity owned, and the dilution effects of future funding rounds. It is a snapshot of who owns what in the company. Equity management, on the other hand, encompasses a broader scope, including managing equity compensation, issuing new shares, and ensuring compliance with tax laws and regulations. Both are critical for effectively managing a company’s equity and ensuring stakeholders are correctly accounted for and rewarded.

Effective entity management is not merely a compliance requirement; it is a strategic imperative for growing private companies. Understanding the nuances between cap table management and equity management, and the importance of each, is crucial. Equally important is the selection of a robust entity management software partner that understands the unique challenges faced by your company and can ensure compliance and efficiency.

Educating yourself on the key considerations and red flags in choosing a technology partner will empower you to make informed decisions. Ultimately this facilitates your company’s growth and success in the complex landscape of private capital markets. Remember, the right questions lead to the right partner, ensuring your company’s entity management is in capable hands.

Overview of the Digital Assets Ecosystem

In an era where digital assets are redefining the boundaries of technology and finance, understanding the complex landscape of the digital assets ecosystem becomes paramount for companies aiming to leverage these innovations.  We will dive into the critical importance of aligning with a compliant and trusted digital assets ecosystem, offering insights into its transformative potential for private companies in the capital markets.

We explore the historical challenges faced by digital assets, emphasize the necessity of a compliant regulatory framework, and provide practical steps for selecting the right ecosystem. Through anecdotes and expert analysis, we aim to educate and guide you towards making informed decisions in this rapidly evolving sector.

Why Ecosystems for Digital Assets Are Essential

The journey of digital assets in the marketplace is a tale of innovation, ambition, and, unfortunately, a learning curve steeped in regulatory missteps. The initial excitement surrounding Initial Coin Offerings (ICOs) gave way to disillusionment as scams proliferated. Similarly, the Non-Fungible Token (NFT) phase, while showcasing the potential for unique asset ownership on the blockchain, also faced its challenges in market acceptance and regulatory clarity. These historical lessons underscore the imperative need for a robust compliance ecosystem from the outset of any digital asset venture.

For private companies venturing into the private capital markets through digital assets, the right ecosystem is not just an advantage—it’s a necessity. This ecosystem must strike a delicate balance between advanced technological frameworks and stringent regulatory compliance.

Practical examples

Also, a good digital ecosystem should encompass a comprehensive regulatory framework, partnerships with legal experts, collaboration with FINRA Broker-Dealers, and blockchain technology that has been vetted and qualified by regulatory bodies.

A prime example of such diligence is KoreChain, which stands out as a pioneering entity that has navigated its blockchain infrastructure through SEC scrutiny, achieving a qualified status under the JOBS Act. This milestone not only highlights KoreChain’s commitment to regulatory compliance but also sets a precedent for what constitutes a trustworthy digital assets ecosystem.

Regulatory frameworks

The digital assets sector faces unique challenges, primarily due to its turbulent history and the evolving regulatory landscape. The shift from ICOs to NFTs and now to a new, regulated phase illustrates the sector’s dynamic nature. The clear message from regulators like the SEC is uncompromising: engagement in digital assets must be 100% compliant. This underscores the critical need for companies to align with digital assets ecosystems that have not only embraced but have been validated by regulatory frameworks. The onus is on companies to rigorously vet potential ecosystems, ensuring they do not fall foul of regulatory mandates.

Collaborating with a trusted digital assets ecosystem instills confidence that your offerings are compliant and that your partners are fully versed in securities law. Such ecosystems prioritize regulatory compliance and include all necessary intermediaries to ensure adherence to securities law.

Trustworthiness in digital assets ecosystem

It is essential for companies to demand evidence of compliance before engaging in any digital assets ecosystem, thereby safeguarding their operations and reputation.

Selecting the right digital assets ecosystem involves a meticulous approach:

As we can see, navigating the digital assets landscape requires a well-informed approach, prioritizing regulatory compliance above all. The lessons learned from the ICO and NFT phases highlight the perils of overlooking regulatory requirements.

Digital Assets Ecosystem: Key Takeaways

As we venture into a new, regulated era of digital assets, the selection of your digital assets ecosystem should be guided by rigorous scrutiny of its regulatory standing, technological robustness, and the support network it offers.

Educating oneself on these aspects is not just advisable; it’s essential for success and compliance in the dynamic world of digital assets.

Remember, starting with technology without a clear understanding of regulatory requirements is a pathway to failure. Instead, choose wisely, ensuring your digital assets journey is both innovative and compliant.

Loan Alternatives for Startups

Getting money to start a business is a critical issue that entrepreneurs have to deal. Sometimes the landscape seems so uncertain that a lot of them think of paying astronomical taxes to get the capital and get the idea off the drawing board.

But beyond traditional bank loans, there are a lot of loan alternatives for startups waiting to be explored. This guide will show you different funding options, empowering you with more knowledge to unfoggy the landscape.  Therefore, you’ll have more resources to think about which alternative may fit your business.

From innovative crowdfunding to strategic partnerships with angel investors, we’ll delve into the diverse funding ecosystem, equipping you with the knowledge to make informed decisions.

For startups and companies looking to get money to fund their business, there are many different options. While not every option may be best suited for every company, understanding each will help to choose which one is best for them. 

Family and friends

In the early stages of seeking loan alternatives for Startups, investment from family and friends can be both a simple and safe solution. Since family members and friends likely want to see you succeed, they are potential sources of funding.

Unlike traditional investors, family and friends do not need to register as an investor to donate. It is also likely that through this method, founders may not have to give up some of their equity. This allows them to retain control over their company. 

Angel investors

Angel investors and angel groups can also be a source of getting capital to fund your business.  Angel investors can be either non-accredited and accredited investors, for accredited investors there is an additional step to meet SEC regulations to make sure they have been verified. Angel groups are multiple angel investors who have pooled their money together to invest in startups. Typically, angel investors invest capital in exchange for equity and may play a role as a mentor, anticipating a return on their investment. 

Venture capital

Venture capital investors are SEC-regulated and invest in exchange for equity in the company. However, they are not investing their own money, rather investing other people’s. Since venture capital investors are trying to make money from their investments, they typically prefer to have some say in the company’s management, likely reducing the founders’ control. 

Strategic investors

Strategic investors may also be an option for companies. Typically owned by larger corporations, strategic investors invest in companies that will strengthen the corporate investor or that will help both parties grow. Strategic investors usually make available their connections or provide other resources that the company may need. This makes them our forth alternative to loans for startups.

Startup accelerator programs

Another way to get money for your business without getting a loan, is through startup accelerator programs

For some companies, crowdfunding may be useful for raising money. With this method, companies can either offer equity or rewards to investors, the latter allowing the company to raise the money they need without giving up control of the company. 

Getting capital to fund your business: Regulations for crowdfunding

Through the JOBS Act, the SEC passed Regulation A+ crowdfunding, which allows entities to raise up to $75 million in capital from both accredited and non-accredited investors. Crowdfunding gives access to a wider pool of potential investors, making it possible to secure the funding they need through this method. 

Alternatively, Regulation CF may be a better fit. Through RegCF, companies can raise up to $5 million, during a 12-month, period from anyone looking to invest. This gives an important opportunity to turn their loyal customers into shareholders as well. These types of offerings must be done online through an SEC-registered intermediary, like a funding portal or broker-dealer.

In the March 2021 update to the regulation, investment limits for accredited investors were removed and investment limits for non-accredited investors were revised to be $2,500 or 5% of the greater of annual income or net worth. It is also important to note that now, issuers (those seeking funding) can now “test the waters” to gauge interest before registering the offering with the SEC. Additionally, the use of special purpose vehicles (SPVs) within RegCF offerings was permitted.

Regulation D is another method that private companies can use to raise capital. Through RegD, some companies are allowed to sell securities without registering the offering with the SEC. However, if you choose to raise capital through RegD, you must electronically file the SEC’s “Form D.” By meeting either RegD exemptions 506(b) or 506(c), issuers can raise an unlimited amount of capital. To meet the requirements of the 506(b) exemption, companies must not use general solicitation to advertise securities, can raise money from an unlimited number of accredited investors and up to 35 other sophisticated investors, and must determine the information to provide investors while adhering to anti-fraud securities laws. For 506(c) exemptions, companies can solicit and advertise an offering but all investors must be accredited. In this case, the company must reasonably verify that the investor meet the SEC’s accredited investor requirements  

Direct offerings

Another loan alternative is to utilize direct offerings to raise money. Through a direct offering, companies can issue shares to the company directly to investors, without having to undergo an initial public offering (IPO). Since a direct offering is typically cheaper than an IPO, companies can raise funding without having major expenses. Since trading of shares bought through a direct offering is typically more difficult than those bought in an IPO, investors may request higher equity before they decide to invest. 

Security tokens

Companies can offer security tokens to investors through an issuance platform. Companies should be aware that these securities are required to follow SEC regulations. It is becoming more common for companies to offer securities through an issuance platform, as it allows them to reach a larger audience than traditional methods. This is also attractive to investors, as securities can be traded in a secondary market, providing them with more options and liquidity for their shares. 

Getting funds with a broker-dealer assistance

Additionally, companies looking to raise capital can do so with the help of a broker-dealer. Broker-dealers are SEC-registered entities that deal with transactions related to securities, as well as buying and selling securities for their own account or those of their customers. Plus, certain states require issuers to work with a broker-dealer to offer securities, so working with a broker-dealer allows issuers to maintain compliance with the SEC and other regulatory entities. This makes it likely that a company raising capital already has an established relationship with a broker-dealer. 

Funding through website

Lastly, companies looking to raise capital can do it directly through their website. With the KoreConX all-in-one platform, companies can raise capital at their website, maintaining their brand experience. The platform allows companies to place an “invest now” button on their site throughout their RegA, RegCF, RegD, or other offerings so that potential investors can easily invest. 

Whichever loan alternatives for startups you choose, it must make sure that it aligns with the company’s goals. Without understanding each method, it is possible that founders may end up being asked to give up too much equity and lose control of the company they have worked hard to build. Companies should approach the process of raising capital with a strategy already in place so that they can be satisfied with the outcome. 

*Disclaimer: This article was last reviewed in January 2024. Please note that regulatory landscapes and requirements are subject to rapid changes. The information provided here is reflective of the early part of 2024.

We are diving into the world of FINRA Broker-Dealers – a crucial component in maintaining the integrity and trustworthiness of the private capital markets. We’ll explore their role, significance, and the technology that powers them, providing an overview of the challenges they face and their importance in safeguarding investors, companies, and intermediaries. 

We’ll also offer practical steps for those interested in becoming a FINRA Broker-Dealer, highlighting the ongoing responsibilities and the necessity of understanding the compliance landscape.

What is a broker-dealer?

Basically, a broker-dealer is a critical player in the financial landscape, serving as an intermediary that buys and sells securities for both clients and their own accounts. In essence, they facilitate the flow of capital by connecting investors with opportunities.

For people aiming to raise capital or just wanting to deep their knowledge, understanding the function and value of broker-dealers is important. As we’ll see in the next section, broker-dealers not only ensure transactions are executed efficiently but also uphold regulatory compliance, safeguarding the integrity of the capital markets and enhancing investor confidence.

Roles of a Broker-Dealer

Imagine you’re planning to climb a challenging mountain. Would you go alone or with an experienced guide? In the world of capital raising, FINRA Broker-Dealers are akin to these indispensable guides.

Therefore, one of major roles of a broker-dealer is to bring expertise and trustworthiness, ensuring that companies operate in compliance with regulations while securing capital.

An excellent example is when a startup, brimming with innovative ideas but new to the regulatory landscape, partners with a FINRA Broker-Dealer. This partnership not only enhances the credibility of the startup in the eyes of investors but also ensures adherence to the stringent regulatory framework, building a foundation of trust and reliability.  

The Pillars of the Private Capital Market

With over 3,000 registered FINRA Broker-Dealers in the USA, these entities are not just numerous; they are vital cogs in the financial ecosystem. They play a critical role in ensuring that capital markets operate smoothly, efficiently, and, most importantly, within the boundaries of securities law. Their presence bolsters investor confidence, knowing that there’s a regulatory watchguard ensuring fair and transparent transactions.

At KoreConX we only work with registered FINRA Broker-Dealers to utilize our infrastructure to make sure we provide and end to end compliant transactions for all participants in the transaction.

Broker-Dealer Compliance

The advent of the JOBS Act brought about a seismic shift in how private capital is raised, particularly for startups and small businesses. FINRA Broker-Dealers have been at the forefront of adopting technology to leverage these regulations efficiently. They use sophisticated platforms from KoreConX for tasks like conducting due diligence, monitoring transactions, and ensuring compliance with the JOBS Act and crowdfunding regulations. This technological integration not only streamlines processes but also enhances the accuracy and effectiveness of compliance measures.

Navigating Current Challenges

Despite their expertise and technological prowess, FINRA Broker-Dealers face an evolving landscape of challenges. The rapid pace of regulatory changes, the increasing complexity of financial products, and the need for advanced cybersecurity measures to protect sensitive data are just a few of the hurdles. Adapting to these changes while maintaining the highest standards of compliance and investor protection is a balancing act that requires constant vigilance and adaptability.

Safeguarding the Capital Market Ecosystem

The role of a FINRA Broker-Dealer transcends mere compliance. They are the guardians of market integrity, playing a pivotal role in ensuring a safe and fair environment for all participants – investors, companies, and intermediaries. Their work upholds the principles of transparency and fairness, which are fundamental to the health and stability of the private capital markets.

How to become a FINRA Broker-Dealer: Step-by-Step

1. Understand the Regulatory Framework: Before embarking on this journey, it’s crucial to have a thorough understanding of the FINRA rules, SEC regulations, and other relevant laws. This knowledge is the foundation upon which your Broker-Dealer operations will be built.
2. Obtain the Necessary Licenses: Register with FINRA, pass the required exams (like the Series 7 and Series 63), and meet the net capital requirements. This step is about more than just fulfilling legal obligations; it’s about equipping yourself with the tools and knowledge necessary for effective compliance and operation.  Once you have the people the firm also needs to add business line items such as RegCF, RegA+, digital securities to be able to transact in the private capital markets.
3. Implement Robust Compliance and Technological Systems: Set up systems for ongoing compliance, including technology for record-keeping, reporting, and monitoring transactions. Remember, becoming a Broker-Dealer is not just about starting; it’s about maintaining and continuously improving your operations and compliance posture.  FINRA has requirements where information can be hosted that FINRA Broker-Dealers must follow, we are KoreConX follow these guidelines so FINRA Broker-Dealers can transact with confidence.

Educating for a Better Financial Future

Embarking on the journey to become a FINRA Broker-Dealer is not just about fulfilling a regulatory role; it’s about committing to the ongoing responsibility of maintaining licenses, staying abreast of regulatory changes, and undertaking permissible activities. This role is crucial in safeguarding the interests of all parties involved in the private capital markets, thereby ensuring a stable, transparent, and fair financial ecosystem.

Understanding the requirements and responsibilities of being a FINRA Broker-Dealer is vital for anyone considering this path. It’s a commitment to excellence, continuous learning, and an unwavering dedication to maintaining the integrity of the capital markets. As we navigate the ever-evolving landscape of private investing, the role of the FINRA Broker-Dealer remains more important than ever, acting as a beacon of trust, compliance, and stability in the dynamic world of finance.

When it comes to investments, people like a clear sky rather than clouds of uncertainty. That’s where the Blue Sky Laws come in – a set of state regulations and rules to maintain a clear and safe financial atmosphere. From registration requirements to anti-fraud measures, these laws have a big impact on investor protection.

Keep reading and learn all the details.

Table of Contents

• What are blue sky laws?
• Ensuring investor protection
• Blue sky laws vs. regulations
• Your Shield Against Investment Fraud

What are blue sky laws?

Basically, Blue Sky Laws are state regulations made to safeguard investors from fraudulent securities activities. This legislation controls the sale of securities, such as stocks and bonds, within a specific state. Overall, it refers to a key instrument for ensuring transparency and protecting investors in the market.

Originating in the aftermath of the Great Depression, “blue sky laws” were made possible by the Uniform Securities Act of 1956. Leading up to the stock market crash of 1929, the SEC did not exist to regulate offerings and many investment deals offered great profits to increase their sale.

Today, this legislation plays a central role in regulating offerings and safeguarding investors against fraud. For companies offering securities to investors, understanding the role they play will be key to a successful offering. 

The purpose of the Uniform Securities Act was to provide individual states the ability to implement their own securities laws. As some securities may not be covered at the federal level, giving states the power to enact blue sky laws to protect investors .

Today, 40 out of the 50 states have implemented blue sky laws based on the Uniform Securities Act.

Ensuring investor protection

The blue sky laws also create provisions for liability and may allow investors to bring lawsuits against issuers in the event of fraud.

Since the blue sky laws were established to protect investors, the laws enacted by each affect the registration of securities, registration of issuer and brokers, as well as the state’s ability to regulate and enforce restrictions.

Companies must register securities in both their home state and any other state in which it intends to do business. However, laws can vary between states; while the language they use can be similar, the interpretations may vary.

For issuers, this is an important fact to note, as they must meet each state’s requirement for each state they intend to sell securities in. 

Blue sky laws vs. regulations

In 1996, Congress passed the National Securities Market Improvement Act which exempts certain securities from state regulation and returns the regulation of broker-dealer registration to federal control. As a reaction to transactions being more difficult for companies because of the requirement to comply with blue sky laws, the Act reduced the power of individual states to regulate securities. 

While the federal government plays a major role in securities regulation, understanding the laws in each state which a company intends to sell securities is still essential.

For companies looking to raise money through Reg A+, Tier I offerings must be reviewed and registered with both the SEC and state governments.

Tier II offerings do not need to be reviewed by the state for them to be sold. In both cases, states retain the ability to investigate and charge issuers with fraud, so maintaining compliance will promote not only investor protection but will protect the company too.

Additionally, issuers and brokers must still adhere to notice and filing requirements set for each state. 

Your Shield Against Investment Fraud

With an understanding of blue sky laws, companies can plan for a successful offering by following regulations set in place by each state. Failure to comply with the laws can result in severe consequences and penalties.

While it may seem like an overwhelming task, state securities regulators can be contacted to ensure that your offering meets their requirements or better yet reach out to your securities lawyer who will guide you through depending on what regulation your company wants to use for its offering such as RegCF or RegD or RegA+, each one will have different provisions that you will need to follow to make sure you are compliant with your offering.

Investing online is easier, faster, and safer with the new KoreID Mobile App For Online Investments. Launched by KoreConX, this first-of-its-kind mobile online passport for investments works on iOS and Android and is 100% free. All a user needs is an account on the KoreConX All-In-One Platform and their mobile number to enable the 2-factor authentication.

How it works

All current shareholders will receive an email guiding them to download the KoreID Mobile App. After they download it and log in with their email and password, a 2-factor authentication key will be texted to their mobile phone. They will have immediate in-hand access to their personal dashboard and their whole portfolio, including their individual or company’s pending investments, reports, and updates, allowing them to:

• Manage current investments.
• Manage pending investments.
• Re-Invest in companies when an offering is open.
• View company news releases, reports, meetings, messages
• Manage personal information.

Technology for financial services

“We are continually working to strengthen the trust and compliance infrastructure in private capital markets. This capability forges a new era in shareholder-company relationships, offering both parties the ability to communicate and allowing shareholders to reinvest in companies in a secure and compliant way,” explains Dr. Kiran Garimella, Chief Scientist and Technology Officer at KoreConX.

The KoreID Mobile App for online investments is now available in app stores. All users must have the 2-factor authentication security feature enabled in order to log in. You can download using the QR Code in the image. You can also look for it in Play Store, for Android, or for iOS, App Store.