Category: Capital Raising

RegCF Funds: Acquisitions and Strategies

Posted on by Sara Hanks

In today’s article, we will explore the differences between Regulation A (Reg A) and Regulation Crowdfunding (Reg CF) regarding their disclosure requirements for companies raising funds.

There’s an interesting contrast between Regulation A and Regulation CF in terms of disclosure.

Reg A requires that issuers provide financial statements for “businesses acquired or to be acquired.” Even if that’s not what the money is being raised for. If you just acquired, or are probably going to acquire, a business (and it doesn’t have to be a whole company, just a “business”, and the SEC Staff has a fairly robust view of when a business is being acquired, so don’t assume you can ever convince them that you are only acquiring “assets”), then you have to provide Reg A-compliant financial statements for that business.

Reg CF doesn’t have that feature. Probably because originally the offering limit for Reg CF was $1 million, and everyone assumed it would be used by very early-stage startups who weren’t going to be in acquisition mode just yet. And what can you buy with $1 million?

But with the offering limit now at $5 million, that has changed. We are seeing later-stage companies using Reg CF, and in several cases we have seen companies that are going to use the funds raised to acquire another company or business. What should they disclose about that acquisition?

Reg CF doesn’t specifically mandate financials statements of the acquiree company in that case. However, if there ARE financials, then it would be consistent with all the other filings in this space (Form C-AR, for example) for regulators or plaintiffs’ lawyers to argue that they should be produced, and that to withhold them would be the omission of material information. While QuickBooks financials are definitely not GAAP, they do include useful information, so consider availability of QB financials in deciding what to disclose. (But also consider how reliable the QB financials are!)

At the very least consider including material data points in the discussion of financial condition in the Form C. What is material is always going to be a facts-and-circumstances analysis, but you should apply that analysis bearing in mind the “catch-all” disclosure requirement of Rule 201(y): “Any material information necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading”. So if your Form C says you are planning to acquire a profitable donut shop, you’d better either explain what you mean by profitable or provide the data necessary to put that statement in context.

Just because disclosure isn’t specifically itemized doesn’t mean it isn’t needed.

It’s always good to remember that seeking professional guidance and leveraging a trustworthy fundraising platform, are 2 essential aspects when raising funds for your company. This combined approach impact both regulatory compliance in your offering documents and a streamlined fundraising process.

Diversifying Capital Raising Strategies for Startups

Posted on by Oscar Jofre

Navigating the VC Winter: Diversifying Capital Raising Strategies for Startups

In the face of a VC winter, startups find themselves at a crucial juncture, requiring innovative approaches to secure funding. We will embark on an exploration of the myriad avenues available for raising capital beyond the traditional venture capital (VC) sphere. We dive into anecdotes of how private companies have creatively accessed funds, emphasizing the importance of not being tethered to a single source of capital. The focus is on the JOBS Act and its provisions, which offer startups a variety of options with potentially more favorable terms than VC funding. We’ll tackle the challenges companies face in this endeavor, from navigating regulatory landscapes to attracting investors. Additionally, we outline seven strategic steps to diversify funding sources, reinforcing the necessity of a well-rounded understanding of all available options. By the end, startups and established companies alike will be equipped with the knowledge to navigate the capital raising process effectively, leveraging regulations to their advantage and working with trusted advisors to ensure success.

The Landscape of Raising Capital

Raising capital for private companies is an art form, with various avenues from VC and angel investments to friends and family, bank loans, government grants, and the provisions under the JOBS Act. Each source has its narrative, shaping the journey of a startup in unique ways. These stories reveal a broader landscape of funding opportunities, illustrating that the path to securing capital is not linear but a web of interconnected routes.

Beyond VC: The JOBS Act and Other Avenues

Entrepreneurs must look beyond VC to fuel their growth, especially in times when VC funding becomes scarce. The JOBS Act emerges as a beacon of hope in such times, offering three distinct regulations (RegCF, RegD 506c, RegA+) that provide startups with options for funding. These options often come with better terms than traditional VC deals, underscoring the importance of a strategic approach that blends various funding sources. This strategy not only mitigates the risk associated with relying on a single source but also broadens the potential investor base.

Navigating Capital-Raising Challenges

The journey of raising capital is fraught with challenges, from understanding the regulatory framework to choosing the right partners for issuance and attracting potential investors. A significant hurdle is the lack of awareness about the diversity of funding sources. Many companies do not realize the breadth of options available to them, limiting their potential to secure the necessary capital. Familiarity with each source’s regulatory roadmap, working with trusted FINRA Broker-Dealers, and leveraging technology partners for issuance are crucial steps in this process.

Understanding Sources of Capital

A comprehensive understanding of all sources of capital is essential. Each source, from VC and bank funding to government grants, friends and family, and the JOBS Act, comes with its own set of advantages and disadvantages. For instance, while VC funding can offer significant capital and mentorship, it often requires giving up a portion of equity and control. On the other hand, JOBS Act funding may provide more favorable terms but requires navigating a regulatory landscape and a totally different approach in attracting investors to your company.

Seven Steps to Raising Capital

  1. Educate Yourself on Regulations: Understanding the legal framework is paramount. This knowledge will guide which investors you can target and how.
  2. Build a Diverse Funding Strategy: Combine different sources of funding to minimize reliance on any single avenue.
  3. Select the Right Partners: Work with trusted advisors, such as FINRA Broker-Dealers and technology partners, who understand your business and the regulatory environment.
  4. Prepare a Compelling Pitch: Your pitch should resonate with the specific investors you’re targeting, whether they’re angel investors, VC firms, or the public through a crowdfunding campaign.
  5. Leverage Government Grants and Loans: Explore and apply for grants and loans that may be available for your industry or for innovation.
  6. Engage Your Network: Friends and family can be an initial source of capital, often willing to invest in your success.
  7. Utilize JOBS Act Provisions: Understand and leverage the specific regulations under the JOBS Act that best suit your company’s stage and needs.

In the challenging terrain of capital raising, knowledge and strategy are your best allies. The regulatory landscape, embodied by the JOBS Act, provides a roadmap for startups and established companies alike to navigate their way to successful funding. Educating oneself on the myriad sources of capital, understanding the pros and cons of each, and crafting a diversified funding strategy are essential steps. By working with trusted advisors and carefully selecting funding sources, companies can weather the VC winter and emerge with the capital necessary for growth. Remember, the journey of raising capital is complex and multifaceted, but with the right approach and resources, it is navigable. There are no shortcuts, but the path is rich with opportunities for those willing to explore beyond the traditional routes.

 

 

Raising capital for startups: 3 red flags for not being tricked

Posted on by Scarlett Duarte

Can a startup pay a transaction-based fee for capital raising assistance? This is a very common question. For the most part, the answer is a clear “no,” but why is that? 

The short answer is that—except under certain limited circumstances—it is illegal. Regulatory protections provide investors with the right to their money back with interest and attorney fees, and it may result in, among other things, the founders not only being held personally liable to investors but also getting listed on a  bad-actor list. 

Finding investors is one of the biggest challenges that  companies face. This is especially true for startups because most founders don’t have an established network of investors ready to invest capital. 

Often, founders who are seeking to expand their network of investors will run into someone who would be happy to make a few introductions … for a fee. RUN AWAY!!

Here are 3 Red Flags while raising capital for your company.

Red Flag #1: Transaction-based compensation

Most often, someone who wants a fee for helping to raise capital (often referred to as a “finder”) is not licensed to do so, and generally speaking, use of a finder who is not a licensed broker-dealer is a violation of federal and state securities laws. Below we summarize how to identify a broker-dealer and then look at the potential negative consequences of using an unlicensed broker-dealer.

What is an unlicensed broker-dealer?

The answer is simple: Just ask the finder, “Are you a registered FINRA Broker-Dealer?” The answer is either yes or no.

For decades, the SEC & FINRA have defined a four-factor test to determine when a “finder” is required to register as a broker-dealer. The SEC’s position is that these 4 factors will be analyzed in determining when someone is acting as a broker-dealer, with no one factor being dispositive:

  1. Whether the person receives commissions or other transaction-based compensation;
  2. Whether the person makes buy/sell recommendations and provides investment details;
  3. Whether the person has a history of selling securities (regular activity); and
  4. Whether the person takes an active role in negotiations between the investor and the issuer.

“What if a finder receives a percentage of the money raised through finder introductions, but does not make recommendations, does not have a history of selling securities, and does not take an active role in negotiations between the investor and the issuer?” 

Despite its emphasis on four factors, the SEC has stated in several no-action letters that transaction-based compensation represents a hallmark of being a broker-dealer, even when the other three factors are absent. Consequently, an individual or company that receives a commission substantially increases the risk that the party receiving the commission will be considered a broker-dealer. For decades, the best advice has been that in view of the risks involved, issuers should typically not engage finders on a percentage-based compensation basis.

Red Flag #2: Reliance on No-Action Letters

On several occasions, we have come across finders who refer to a no-action letter issued by the SEC in 2014 as evidence they can receive a commission despite not being a licensed broker-dealer.

The problem with that position is that the letter has several conditions, including that the buyer of the securities being sold has, following the sale of the securities, (i) control of the company, and (ii) must actively operate the company.

Nearly all startup financings do not fit into this scenario, so the no-action letter does not apply.2

Finders will also often attempt to find (and share with the startup’s leaders) comfort by relying on the 1991 SEC No-Action Letter involving the singer Paul Anka. While often cited by finders, the SEC staff’s decision to not recommend enforcement against Mr. Anka—if, without registering as a broker-dealer, he provided the company a list of potential investors in exchange for a commission—is of limited relevance and utility.

The SEC staff noted its no-action decision was conditioned on several factors, including that Mr. Anka was not engaging in the following activities: soliciting the prospective investors, participating in any general solicitation, assisting in the preparation of sales materials, performing independent analysis, engaging in “due diligence,” assisting or providing financing, providing valuation or investment advice, and handling any funds or securities.

Red Flag #3: Liability for using an unlicensed broker-dealer in capital raise

What Possible Liability Is There for Using an Unlicensed Broker-Dealer to Raise Capital? 

Using a finder will create liability under federal and state law. Agreements for the sale of securities made in violation of federal securities law may be held void.4 This would certainly apply to the agreement with the unregistered broker who attempts to collect a fee for assisting in the sale of the securities.

While the startup may feel that this is not such a bad thing, a violation of federal securities laws also will void (or make voidable) the agreement between the startup and investors under which the startup raised the funds. If the agreements are held void by a court, then all parties to those agreements would have a right of rescission that would last for the later of three years from the transaction or one year from the date the violation is discovered.

A right of rescission is simply a right to cancel the agreement and return each party to its original position, which means returning investments back to investors. In other words, the use of a finder who is not but should be a registered broker-dealer in effect gives the investors a multi-year redemption right.

Are There Other Potential Consequences of Engaging an Unlicensed Broker-Dealer to Raise Capital?
Yes, otherwise we would not have posed the question. Founders who engage unregistered broker-dealers to raise capital may:

  1. SEC Enforcement Actions: Face enforcement actions from the SEC as an aider and abettor8;
  2. State Regulatory Actions: Face enforcement actions from state securities regulators; and
  3. Prohibition and Labeling: Be labeled a “bad actor” and prohibited from participating in or being involved with companies that do securities offerings made under commonly used securities exemptions.9

Additionally, the startup and its principles may be prohibited from using the updated JOBS Act regulations such as Rule 506, Regulation CF, and Regulation A+ securities offering, which is the most commonly relied-upon securities exemption for startups and emerging growth companies. And, just because the list goes on, the use of an unlicensed broker-dealer could impact the ability to close future rounds of financing because of the contingent liability associated with the initial violation, which is likely to come up in investor due diligence.

RegD SEC Reporting Obligations

Posted on by Scarlett Duarte

RegD SEC reporting obligations is a theme that causes a lot of doubts, even concerns, among people who are thinking about raising capital. The compliance details required by Securities and Exchange Commission (SEC) have a lot of particularities, which demands attention of all potential issuers.

Regulation D (Reg D) offerings are exempt from the full SEC registration requirements but still require compliance with certain reporting obligations. The reporting requirements under Regulation D vary depending on the specific exemption used for the offering.

 

RegD SEC Reporting Obligations

In this short guide, we will explain practical details regarding SEC reporting for RegD.

Here’s an overview:

 

Rule 504 Offering (Regulation D, Rule 504):
Companies conducting offerings under Rule 504 are generally exempt from SEC registration requirements. However, there are no specific ongoing reporting requirements mandated by the SEC for Rule 504 offerings.

Rule 505 Offering (Regulation D, Rule 505):
Companies utilizing Rule 505 for their Reg D offerings are allowed to raise up to $5 million within a 12-month period.

While Rule 505 itself doesn’t impose ongoing reporting obligations to the SEC, individual states might have their reporting requirements for Rule 505 offerings.

Rule 506(b) Offering (Regulation D, Rule 506(b)):
Under Rule 506(b), companies can raise an unlimited amount of capital from an unlimited number of accredited investors and up to 35 non-accredited but sophisticated investors.

There are no specific ongoing reporting requirements to the SEC for Rule 506(b) offerings. However, if non-accredited investors are involved, some level of disclosure may be required to satisfy anti-fraud provisions.

Rule 506(c) Offering (Regulation D, Rule 506(c)):
Rule 506(c) allows companies to conduct offerings where they can generally solicit and advertise their offerings to the public but are limited to accepting investments only from accredited investors.

There are no specific ongoing reporting requirements to the SEC for Rule 506(c) offerings.

However, companies might need to file a Form D notice with the SEC within 15 days of the first sale of securities.

Take note!

While Regulation D exemptions typically do not impose explicit ongoing reporting requirements to the SEC, companies that conduct Reg D offerings are subject to anti-fraud provisions and should provide investors with all material information necessary to make an informed investment decision.

Additionally, states may have their reporting requirements for offerings made under Regulation D, so companies should consider state-specific regulations when conducting these offerings.

It’s important for companies utilizing Regulation D exemptions to consult legal and financial professionals to understand the specific reporting obligations, if any, and to ensure compliance with all relevant securities laws and regulations.

Communications and publicity by issuers prior to and during a Regulation CF (RegCF) Offering

Posted on by Sara Hanks

The idea behind crowdfunding is that the crowd — family, friends, and fans of a small or startup company, even if they are not rich or experienced investors — can invest in that company’s securities. For a traditionally risk-averse area of law, that’s a pretty revolutionary concept.  

In order to make this leap, Congress wanted to ensure that all potential investors had access to the same information. The solution that Congress came up in the JOBS Act with was that there had to be one centralized place that an investor could access that information — the website of the funding portal or broker-dealer that hosts the crowdfunding offering (going forward we will refer to both of these as “platforms”). 

This means (with some very limited exceptions that we’ll describe below) most communications about the offering can ONLY be found on the platform. On the platform, the company can use any form of communication it likes, and can give as much information as it likes (so long as it’s not misleading). Remember that the platforms are required to have a communication channel — basically a chat or Q&A function — a place where you can discuss the offering with investors and potential investors (though you must identify yourself). That gives you the ability to control much of your message. 

So with that background in mind, we wanted to go through what you can and cannot do regarding communications prior to and during the offering. Unfortunately, there are a lot of limitations. Securities law is a highly regulated area and this is not like doing a Kickstarter campaign. Also, bear in mind this is a changing regulatory environment. We put together this guide based on existing law, the SEC’s interpretations that it put out on May 13, and numerous conversations with the SEC Staff. As the industry develops, the Staff’s positions may evolve. 

We do understand that the restrictions are in many cases counter-intuitive and don’t reflect the way people communicate these days. The problems derive from the wording of the statute as passed by Congress. The JOBS Act crowdfunding provisions are pretty stringent with respect to publicity; the SEC has “interpreted” those provisions as much as possible to give startups and small businesses more flexibility. 

What you can say before you launch your offering 

US securities laws regulate both “offers” and sales of securities; whenever you make an offer or sale of securities, that offer or sale must comply with the SEC’s rules. The SEC interprets the term “offer” very broadly and it can include activity that “conditions the market” for the offering. “Conditioning the market” is any activity that raises public interest in your company, and could include suddenly heightened levels of advertising, although regular product and service information or advertising is ok (see discussion below). 

Under new rules which went into effect on March 15, 2021, companies considering making a crowdfunding offering may “test the waters” (TTW) in order to decide whether to commit to the time and 2 expense of making an offering.1 Prior to filing the Form C with the SEC, you may make oral or written communications to find out whether investors might be interested in investing in your offering. The way in which you make these communications (eg, email, Insta, posting on a crowdfunding portal site) and the content of those communications are not limited, but the communications must state that: 

  • No money or other consideration is being solicited, and if sent in response, will not be accepted; 
  • No offer to buy the securities can be accepted and no part of the purchase price can be received until the offering statement is filed and only though the platform of an intermediary (funding portal or broker-dealer); and 
  • A person’s indication of interest includes no obligation or commitment of any kind.2 

You can collect indications of interest from potential investors including name, address, phone number and/or email address. The rule does not address getting any further information, such as the manner of any potential payment. If you do make TTW communications, you must file any written communication or broadcast script as an exhibit to your Form C. And TTW communications are subject to the regular provisions of securities law that impose liability for misleading statements. 

Before the point at which you file your Form C with the SEC, the TTW process is the only way you can make any offers of securities, either publicly or privately. This would apply to meetings with potential investors, giving out any information on forums which offer “sneak peeks” or “first looks” at your offering, and public announcements about the offering. Discussions at a conference or a demo day about your intentions to do a crowdfunding offering must comply with the TTW rules and you should read out the information in the bullets above. Any non-compliant communication made prior to filing the Form C may be construed as an unregistered offer of securities made in violation of Section 5 of the Securities Act — a “Bad Act” that will prevent you from being able to use Regulation CF, Rule 506, or Regulation A in the future. 

Normal advertising of your product or service is permitted as the SEC knows you have a business to run. However, if just before the offering all of a sudden you produce five times the amount of advertising that you had previously done, the SEC might wonder whether you were doing this to stir up interest in investing in your company. If you plan to change your marketing around the time of your offering (or if you are launching your company at the same time as your RegCF offering, which often happens), it would be prudent to discuss this with your counsel so that you can confirm that your advertising is consistent with the SEC’s rules. 

Genuine conversations with friends or family about what you are planning to do and getting their help and input on your offering and how to structure it, are ok, even if those people invest later. You can’t be pitching to them as investors, though, except in compliance with the TTW rules. 

What you can say after you launch 

After you launch your offering by filing your Form C with the SEC, communications outside the platform fall into two categories: 

  • Communications that don’t mention the “terms of the offering”; and 1 We are talking here about Crowdfunding Regulation Rule 206. There is another new rule that permits testing the waters before deciding which type of exempt offering (eg, Regulation CF or Regulation A) to make, which does not preempt state regulation; using that rule may be complicated and require extensive legal advice. 2 We advise including the entirety of this wording as a legend or disclaimer in the communication in question. The convention in Regulation A is that “it it fits, the legend must be included” and if the legend doesn’t fit (eg, Twitter) the communication must include an active hyperlink to it. 3 
  • Communications that just contain “tombstone” information. 

Communications that don’t mention the terms of the offering 

We are calling these “non-terms” communications in this memo, although you can also think of them as “soft” communications. “Terms” in this context are the following: 

  • The amount of securities offered; 
  • The nature of the securities (i.e., whether they are debt or equity, common or preferred, etc.); 
  • The price of the securities; 
  • The closing date of the offering period; 
  • The use of proceeds; and 
  • The issuer’s progress towards meeting its funding target. 

There are two types of communication that fall into the non-terms category. 

First, regular communications and advertising. You can still continue to run your business as normal and there is nothing wrong with creating press releases, advertisements, newsletters and other publicity to help grow your business. If those communications don’t mention any of the terms of the offering, they are permitted. Once you’ve filed your Form C, you don’t need to worry about “conditioning the market.” You can ramp up your advertising and communications program as much as you like so long as they are genuine business advertising (e.g., typical business advertising would not mention financial performance). 

Second, and more interestingly, offering-related communications that don’t mention the terms of the offering. You can talk about the offering as long as you don’t mention the TERMS of the offering. Yes, we realize that sounds weird but it’s the way the statute (the JOBS Act) was drafted. Rather than restricting the discussion of the “offering,” which is what traditional securities lawyers would have expected, the statute restricts discussion of “terms,” and the SEC defined “terms” to mean only those six things discussed above. This means you can make any kind of communication or advertising in which you say you are doing an offering (although not WHAT you are offering; that would be a “term”) and include all sort of soft information about the company’s mission statement and how the CEO’s grandma’s work ethic inspired her drive and ambition. 

You can link to the platform’s website from such communications. But be careful about linking to any other site that contains the terms of the offering. A link (in the mind of the SEC) is an indirect communication of the terms. So linking to something that contains terms could mean that a non-terms communication becomes a tombstone communication (see below) that doesn’t comply with the tombstone rules. This applies to third-party created content as well. If a third-party journalist has written an article about how great your company is and includes terms of the offering, linking to that article is an implicit endorsement of the article and could become a statement of the company that doesn’t comply with the Tombstone rules. 

Whether you are identifying a “term” of the offering can be pretty subtle. While “We are making an offering so that all our fans can be co-owners,” might indirectly include a term because it’s hinting that you are offering equity, it’s probably ok. Try to avoid hints as to what you are offering, and just drive investors to the intermediary’s site to find out more. 

Even though non-terms communications can effectively include any information (other than terms) that you like, bear in mind that they are subject, like all communications, to the securities antifraud rules. So even though you are technically permitted to say that you anticipate launching your “Uber for Ferrets” in 4 November in a non-terms communication, if you don’t have a reasonable basis for saying that, you are in trouble for making a misleading statement. 

Tombstone communications 

A tombstone is what it sounds like — just the facts — and a very limited set of facts at that. Think of these communications as “hard” factual information. 

The specific rules under Regulation CF (RegCF) allow for “notices” limited to the following, which can be written or oral: 

  • A statement that the issuer is conducting an offering pursuant to Section 4(a)(6) of the Securities Act; 
  • The name of the intermediary through which the offering is being conducted and (in written communications) a link directing the potential investor to the intermediary’s platform; 
  • The terms of the offering (the amount of securities offered, the nature of the securities, the price of the securities, the closing date of the offering period, the intended use of proceeds, and progress made so far); and 
  • Factual information about the legal identity and business location of the issuer, limited to the name of the issuer of the security, the address, phone number, and website of the issuer, the e-mail address of a representative of the issuer and a brief description of the business of the issuer. 

These are the outer limits of what you can say. You don’t have to include all or any of the terms. You could just say “Company X has an equity crowdfunding campaign on SuperPortal — Go to www.SuperPortal.com/CompanyX to find out more.” The platform’s address is compulsory.

“Brief description of the business of the issuer” does mean brief. The rule that applies when companies are doing Initial Public Offerings (IPOs), which is the only guidance we have in this area, lets those companies describe their general business, principal products or services, and the industry segment (e.g.,for manufacturing companies, the general type of manufacturing, the principal products or classes of products and the segments in which the company conducts business). The brief description does not allow for inclusion of details about how the product works or the overall addressable market for it, and certainly not any customer endorsements. 

“Limited time and availability”-type statements may be acceptable as part of the “terms of the offering.” For example, the company might state that the offering is “only” open until the termination date, or explain that the amount of securities available is limited to the oversubscription amount. 

A few “context” or filler words might be acceptable in a tombstone notice, depending on that context. For example, the company might state that it is “pleased” to be making an offering under the newly- adopted Regulation Crowdfunding, or even refer to the fact that this is a “historic” event. Such additional wording will generally be a matter of judgement. “Check out our offering on [link]” or “Check out progress of our offering on [link]” are OK. “Our offering is making great progress on [link]” is not. Words that imply growth, success or progress (whether referring to the company or the offering) are always problematic. If you want to use a lot of additional context information, that information can be put in a “non-terms” communication that goes out at the same time and through the same means as a tombstone communication. 

The only links that can be included on a tombstone communication are links to the platform. No links to 5 reviews of the offering on Kingscrowd. No links to any press stories on Crowdfund Insider or CrowdFundBeat. No links to the company’s website. The implicit endorsement principle applies here just as with non-terms communications, meaning that anything you link to becomes a communication by the company. 

An important point with respect to tombstone notices is that while content is severely limited, medium is not. Thus, notices containing tombstone information can be posted on social media, published in newspapers, broadcast on TV, slotted into Google Ads, etc. Craft breweries might wish to publish notices on their beer coasters, and donut shops might wish to have specially printed napkins. 

What constitutes a “notice” 

It is important to note that (until we hear otherwise from the SEC) the “notice” is supposed to be a standalone communication. It can’t be attached to or embedded in other communications. That means you cannot include it on your website (as all the information on your website will probably be deemed to be part of the “notice” and it will likely fail the tombstone rule) and you cannot include it in announcements about new products — again, it will fail the tombstone rule. 

We have listed some examples of permissible communications in Exhibit A. 

Websites 

It’s a bad idea to include ANY information about the terms of the offering on your website. However, some issuers have found a clever solution: you can create a landing page that sits in front of your regular website. The landing page can include the tombstone information and two options: either investors can continue to your company’s regular webpage OR they can go to the platform to find out more about the offering on the platform. We have attached sample text for landing pages on Exhibit A. 

“Invest now” buttons 

Under the SEC’s current interpretations as we understand them, having an “invest now” button on your website with a link to the platform hosting your offering is fine although you should not mention any terms of the offering on your website unless your ENTIRE website complies with the tombstone rule. Most of them don’t. 

Social Media 

As we mention above, the medium of communication is not limited at all, even for tombstone communications. Companies can use social media to draw attention to their offerings as soon as they have filed their Form C with the SEC. Social media are subject to the same restrictions as any other communications: either don’t mention the offering terms at all or limit content to the tombstone information. 

Emails 

“Blast” emails that go out to everyone on your mailing list are subject to the same rules as social media: either don’t mention the offering terms at all or limit content to the tombstone information. Personalized emails to people you know will probably not be deemed to be advertising the terms of the offering, so you can send them, but be careful you don’t give your friends any more information than is on the platform — remember the rule about giving everyone access to the same information. 

Images 

Images are permitted in tombstone communications. However, these images also have to fit within the “tombstone” parameters. So brevity is required. Publishing a few pictures that show what the company does and how it does it is fine. An online coffee table book with hundreds of moodily-lit photos, not so much. Also, a picture tells a thousand words and those words better not be misleading. So use images only of real products actually currently produced by the company (or in planning, so long as you clearly indicate that), actual employees hard at work, genuine workspace, etc. No cash registers, or images of dollar bills or graphics showing (or implying) increase in revenues or stock price. And don’t use images you don’t have the right to use! (Also, we never thought we’d need to say this, but don’t use the SEC’s logo anywhere on your notice, or anywhere else.) 

While the “brevity” requirement doesn’t apply to non-terms communications, the rules about images not being misleading do. 

Videos 

Videos are permitted. You could have the CEO saying the tombstone information, together with video images of the company’s operations, but as with images in general, the video must comport with the tombstone rules. So “Gone with the Wind” length opuses will not work under the tombstone rule, although they are fine with non-terms communications. 

Updates and communications to alert investors that important information is available on the platform 

Updates can and should be found on the crowdfunding platform. You can use communications that don’t mention the terms of the offering, to drive readers to the platform’s site to learn about updates and things like webinars hosted on the platform. They may include links to the platform. 

Press releases 

Yes, they are permitted, but they can’t contain very much. Press releases are also laden with potential pitfalls, as we discuss below. Press releases that mention the offering terms are limited to the same “tombstone” content restrictions that apply to all notices. Companies may say that they are pleased (or even thrilled) to announce that they are making a crowdfunding offering but the usual quotes from company officers can’t be included (unless those quotes are along the lines of “ I am thrilled that Company will be making a crowdfunding offering,” or “Company is a software-as-a-service provider with offices in six states”). The “about the company” section in press releases is subject to the same restrictions and if the press release is put together by a PR outfit, watch out for any non-permitted language in the “about the PR outfit” section of the press release (nothing like “Publicity Hound Agency is happy to help companies seeking crowdfunding from everyday investors who now have the opportunity to invest in the next Facebook”). 

You could also issue non-terms press releases that state you are doing an offering (and you can identify or link to the platform) but don’t include terms and still include all the soft info, including quotes, mission statements and deep backgrounds. It’s likely, though, that journalists would call asking “So what are you offering, then?” and if you answer, you are going to make your non-terms communication into communication that fails the tombstone rule. 

Press interviews and articles 

Interviews with the media can be thorny because participation with a journalist makes the resulting 7 article a communication of the company. In fact, the SEC Staff have stated that they don’t see how interviews can easily be conducted, because even if the company personnel stick to the tombstone information (which would make for a pretty weird interview), the journalist could add non-tombstone information later, which would result in the article being a notice that didn’t comply with the tombstone rule. 

The same thing could happen with interviews where the company tries to keep the interview on a nonterms basis. The company personnel could refrain from mentioning any terms (again, it’s going to be pretty odd saying, “Yes, we are making an offering of securities but I can’t say what we are offering”), but the first thing the journalist is going to do is get the detailed terms from the company’s campaign page on the platform’s site, and again the result is that the article becomes a non-complying notice. 

These rules apply to all articles that the company “participates in.” This means that if you (or your publicists) tell the press, “Hey, take a look at the Company X crowdfunding campaign” any resulting article is probably going to result in a violation of the rules. By you. 

Links to press articles are subject to all the same rules discussed in this memo. If you link to an article, you are adopting and incorporating all the information in that article. If the article mentions the terms of the offering then you can’t link to it from a non-terms communication (such as your website) and if it includes soft non-terms information, then you can’t link to it from a tombstone communication. And if it includes misleading statements, you are now making those statements. 

Remember that prior to the launch of the offering you should not be talking about your campaign with the press (or publicly with anyone else). If you are asked about whether you are doing a campaign priorto launch you should respond with either a “no comment” or “you know companies aren’t allowed to discuss these matters.” No winking (either real or emoji-style.) 

Press articles that the company did not participate in 

In general, if you (or your publicists) didn’t participate in or suggest to a journalist that he or she write an article, it’s not your problem. You aren’t required to monitor the media or correct mistakes. However, if you were to circulate an article (or place it or a link to it on your website), then that would be subject to the rules we discuss in this memo. You can’t do indirectly what you can’t do directly. 

Also, if you add (or link to) press coverage to your campaign page on the platform’s site, you are now adopting that content, so it had better not be misleading. 

Demo Days 

Demo days and industry conferences are subject to many of the same constraints that apply to press interviews. In theory, you could limit your remarks to a statement that you are raising funds through crowdfunding, but in reality people are going to ask what you are selling. You could say “I can’t talk about that; go to SuperPortal.com,” but that would lead to more follow-up questions. And following the tombstone rules means you can’t say too much about your product, which rather undermines the whole purpose of a demo day. 

Demo days might be easier to manage when you are still in the testing-the-waters phase. 

“Ask Me Anythings” 

The only place you can do an “Ask Me Anything” (AMA) that references the terms of the offering is on the 8 platform where your offering is hosted. You can’t do AMAs on Reddit. Unless you limit the AMA to nonterms communications or tombstone information. In which case, people aren’t going to be able to ask you “anything.” 

Product and service advertising 

As we mentioned above, once you’ve filed your Form C, ordinary advertising or other communications (such as putting out an informational newsletter) can continue and can even be ramped up. Most advertising by its nature would constitute non-terms communication, so it couldn’t include references to the terms of the offering. So don’t include information about your offering in your supermarket mailer coupons. 

What about side by side communications? 

You are doubtless wondering whether you could do a non-terms Tweet and follow it immediately with a tombstone Tweet. It appears, at least for the moment, that this works. There is the possibility that if you tried to put a non-terms advertisement right next to a tombstone advertisement in print media or online, the SEC might view them collectively as one single (non-complying) “notice”. It is unclear how much time or space would need to separate communications to avoid this problem, or even whether it is a problem. 

“Can I still talk to my friends?”

Yes, you can still talk to your friends face to face at the pub (we are talking real friends, not Facebook friends, here) and even tell them that you are doing a crowdfunding offering, even before you file with the SEC. You aren’t limited to the tombstone information (man, would that be a weird conversation). After you’ve launched the offering, you can ask your friends to help spread the word (that’s the point of social media) but please do not pay them, even in beer or donuts, because that would make them paid “stock touts.” Don’t ask them to make favorable comments on the platform’s chat board either, unless they say on the chat board that they are doing so because you asked them to. If they are journalists, don’t ask them to write a favorable piece about your offering. 

“What if people email me personally with questions?” 

Best practice would be to respond “That’s a great question, Freddie. I’ve answered it here on the SuperPortal chat site [link]”. Remember the Congressional intent of having all investors have access tothe same information. 

Links 

As we’ve seen from the discussion above, you can’t link from a communication that does comply with the rule you are trying to comply with to something that doesn’t. So for example, you can’t link from a Tweet that doesn’t mention the offering terms to something that does and you can’t link from a tombstone communication to anything other than the platform’s website. 

Emoji 

Emoji are subject to antifraud provisions in exactly the same way as text or images are. The current limited range of emoji and their inability to do nuance means that the chance of emoji being misleading is heightened. Seriously people, you need to use your words. 

 

After the offering 

These limitations only last until the offering is closed. Once that happens you are free to speak freely again, so long as you don’t make any misleading statements. 

And what about platforms? 

The rules for publicity by platforms are different, and also depend on whether the platform is a broker or a portal. We have published a separate memo for them. CrowdCheck is not a law firm, the foregoing is not legal advice, and even more than usual, it is subject to change as regulatory positions evolve and the SEC Staff provide guidance in newly-adopted rules. Please contact your lawyer with respect to any of the matters discussed here. 

 

Exhibit A Sample Tombstones: 

  • Company X, Inc. 

[Company Logo] 

 

Company X is a large widget company based in Anywhere, U.S.A. and incorporated on July 4, 1776. We make widgets and they come in red, white, and blue. Our widgets are designed to spread patriotic cheer. 

 

We are selling common shares in our company at $17.76 a share. The minimum amount is $13,000 and the maximum amount is $50,000. The offering will remain open until July 4, 2021. 

 

This offering is being made pursuant to Section 4(a)(6) of the Securities Act. 

For additional information please visit: https://www.SuperPortal.com/companyx or Invest Button URL Link direct

  • Freddy’s Ferret Food Company is making a Regulation CF Offering of Preferred Shares on FundCrowdFund.com. Freddy’s Ferret Food Company was incorporated in Delaware in 2006 and has its principal office in Los Angeles, California. Freddy’s Ferret Food Company makes ferret food out of its four manufacturing plants located in Trenton, New Jersey. Freddy’s Ferret Food is offering up to 500,000 shares of Preferred Stock at $2 a share and the offering will remain open until February 2, 2021. For more information on the offering please go to www.fundcrowdfund.com/freddysferretfoodcompany. 

 

Sample “non-terms” communications 

  • We are doing a crowdfunding offering! We planning to Make America Great Again by selling a million extra large red hats and extra small red gloves with logos on them, and to bring jobs back to Big Bug Creek, Arizona. The more stuff we make, the greater our profits will be. We think we are poised for significant growth. Already we’ve received orders from 100,000 people in Cleveland. Invest in us TODAY, while you still can and Make Capitalism Great Again! [LINK TO PLATFORM]. 
  • Feel the “Burn”! We are making a crowdfunding offering on SuperPortal.com to raise funds to expand our hot sauce factory. Be a part of history. Small investors have been screwed for years.This is your chance to Stick it to the Man and buy securities in a business that has grown consistently for the last five years. 

 

Sample Communications on Social Media:
Note all these communications will have a link to the platform. 

 

  • Company Y has launched its crowdfunding campaign; click here to find out more. 

 

  • Interested in investing in Company Y? Click here. 

 

Sample Landing Page: 

Thanks to Regulation CF, now everyone can own shares in our company. 

 

[Button] Invest in our Company 

[Button] Continue to our Website

 

CrowdCheck is not a law firm, the foregoing is not legal advice, and even more than usual, it is subject to change as regulatory positions evolve and the SEC Staff provide guidance in newly-adopted rules. Please contact your lawyer with respect to any of the matters discussed here.

Private Capital Market Regulations – 10 RegA+ Issuers Penalized for SEC Violation: What Can We Learn?

Posted on by Oscar Jofre

The Importance of Compliance in Private Capital Market Regulations

We’ve discussed compliance at length and how it’s essential for building trust within the private capital markets. But what happens when you’re not compliant?

The SEC will eventually find out and impose penalties to issuers that fail to meet securities regulations, as ten Regulation A+ (RegA+) issuers recently learned.

These recent violations can serve as a cautionary tale to issuers about the importance of adhering to Private Capital Market Regulations.

Regulation A+ and the SEC’s Oversight

Companies selling securities to raise capital generally have to register with the SEC and comply with other rules that can be expensive and onerous for smaller companies, so RegA+ allows exemptions from registration, provided certain other conditions are met. In its press release, the SEC announced that 10 RegA+ issuers failed to comply with these conditions, highlighting the challenges within Private Capital Market Regulations. The SEC reported that each issuer was previously qualified to sell securities under RegA+, but subsequently made significant changes to the offering so that it no longer met exemption requirements. These changes included “improperly increasing the number of shares offered, improperly increasing or decreasing the price of shares offered, failing to file updated financial statements at least annually for ongoing offerings, engaging in prohibited at the market offerings, or engaging in prohibited delayed offerings.”

Private Capital Market Regulations: Protecting Investors and Market Integrity

These regulations are not just arbitrary demands by the SEC; they exist to protect investors and the integrity of the system as a whole. For example, changing the offering price without getting those changes cleared by the SEC is a concern because it could be a vector for fraud or money laundering; issuing securities for a different price conceals the actual amount of money changing hands. Similarly, making unsanctioned changes to offering terms can erode investor confidence. Ideally, each investor conducted their own due diligence before investing – they felt comfortable with the terms listed in offering documents qualified by the SEC. Changing these terms without notifying investors and having changes approved by the SEC just isn’t fair play, and underscores the critical role of Private Capital Market Regulations.

The Consequences of Non-Compliance

The ten issuers cited by the SEC violated these principles, and got caught. Each company agreed to stop violating the Securities Act, and to pay civil penalties that ranged from $5,000 to $90,000. In the press release, Daniel R. Gregus, Director of the SEC’s Chicago Regional Office was quoted saying: “Companies that choose to benefit from Regulation A as a cost-effective way to raise capital must meet its requirements,” reinforcing the significance of compliance with Private Capital Market Regulations.

These penalties serve as a reminder that issuers must be careful when making changes to their offering after qualification. Working with an experienced team can help to mitigate some of this risk, but ultimately, it is the issuer’s responsibility to meet all securities regulations, including those pertaining to Private Capital Market Regulations. And as with most things, 90% of the job is preparation.

How not to fall into the wrong with the regulators checklist

  • Always check with your securities lawyer and FINRA Broker-Dealer who did your RegA+ filing before making any public statements, news releases, or announcements related to investment in your company, as these might be construed as offerings subject to SEC rules and Private Capital Market Regulations;
  • Track all your activities date, time, where distributed
  • Be thoroughly familiar with your company, its business, and how it is structured.
  • Have a clear idea of your company’s funding needs, how much capital you need to raise, what kind of equity or control you are prepared to give up in return
  • Seek advice from qualified experts: securities lawyers, broker-dealers, accountants; being familiar with your own company will help you answer their questions and get better advice.
  • Choose the right capital-raising route for your needs, whether it be a bank loan, remortgaging your house, or using one of the JOBS Act exemptions.
  • READ THE REGULATIONS! Seriously, read the regulations, and any explanatory notes from the SEC on how they apply and what you need to do to comply.
  • Make notes about the parts you’re not sure about, and ask your experts how they apply to you.

It may turn out that the exemption you initially chose isn’t the right one for your needs, so be prepared to go back and change your plans. It’s much easier to change plans before they’re implemented than it is to have to fix something that’s gone wrong with the implementation.

Once you’re satisfied with the regulation you’ve chosen, make a list of all the things you’ll need to do to carry out a compliant and successful raise. You might do this yourself, or with the assistance of your experts, but in any event you should have your experts review it to see if you’ve got anything wrong or left anything out. Execute the plan. You may need to delegate some of the items on the list to others, but ensure that there is always someone accountable to sign off on the completion of every requirement. Maintain a paper trail of who did what and when, not so much to know whom to blame but to be able to identify where something went wrong and how to fix it. Don’t panic. Mistakes happen.

What is an Escrow Provider’s Role in RegA+?

Posted on by Oscar Jofre

An escrow provider is a neutral party that handles financial transactions between two or more parties. They are often used in the securities industry to ensure that all parties involved in trade receive their agreed-upon share of the investment. Escrow providers in RegA+ play an essential role, securely holding funds investors have paid until those investors can be verified. This article will explain what an escrow provider is, their importance in RegA+, and some of the benefits they offer companies.

 

An escrow provider is a financial institution or company that holds funds on behalf of two other parties until their agreement has been met. In the context of securities offerings, escrow providers are often used in Regulation A+ transactions to hold funds invested by investors until the broker-dealer has completed their due diligence on those investors. This due diligence includes verifying the investor’s identity and ensuring that the investment is legitimate.

 

The escrow provider plays an important role in protecting both the investor and issuer in a Reg A+ transaction. Holding the funds until the completion of the broker-dealer’s due diligence protects the issuer from fraud and also ensures that the buyer receives their money back if the deal falls through. 

 

Escrow providers help to make sure that all of the necessary steps are taken to complete the transaction and that everyone involved is satisfied with the outcome. Part of this process includes making sure that the correct paperwork is filed and that all of the right people have signed off on it and everyone involved is legitimate. 

 

Beyond using an escrow provider to ensure that your Reg A+ transactions are completed smoothly and efficiently, it is also required for companies utilizing equity crowdfunding. Therefore, choosing an experienced escrow provider can provide valuable assistance and peace of mind throughout the process. 

 

Escrow providers play an essential role in Reg A+ transactions by holding and managing the funds until the necessary due diligence has been completed. They also ensure that all parties involved in the transaction comply with securities laws. These factors make escrow providers in RegA+ a necessary component of a successful offering. 

What Does Direct Listing Mean?

Posted on by Oscar Jofre

Recently, we received a question from an issuer wondering what “direct listing” means. In short, a direct listing, also sometimes referred to as a direct public offering, is an offering in which an issuer raises capital directly from investors without a third-party intermediary like a broker-dealer or funding platform. 

 

Direct listings can occur in both the public and private markets. In the private market, companies raising capital often do so under JOBS Act exemptions for SEC registration, such as RegA+ or RegD. Companies may opt for a direct listing because it lowers the costs of capital as there are often fewer fees that would otherwise be paid to an intermediary. Issuers can also use a direct listing to allow investors to invest through the issuer’s website, which can prevent investors from being directed to other offerings. This often gives issuers more control over the investment. In contrast, RegCF offerings cannot be conducted without using an SEC-registered intermediary.

 

However, there are significant downsides to opting for a direct listing. Some states require issuers to utilize an intermediary like a broker-dealer or funding portal to sell securities. Additionally, some Tier I RegA+ direct listings require the issuer to register the security in every state that it intends to sell the security, making the offering more burdensome and costly. Additionally, a direct listing can make it easier for companies to miss essential aspects of regulatory compliance, creating additional risks for themselves and investors. This, offerings made via a direct listing require a higher level of due diligence from investors to ensure they aren’t falling victim to fraud.

 

When using a registered intermediary like a broker-dealer or a funding portal, these entities often have defined processes and compliance requirements that ensure capital is being raised in accordance with securities regulations, protecting both issuers and investors. An SEC-registered intermediary ensures that an issuer has gone through due diligence like bad actor checks to validate that it is eligible to be listed on a portal.

 

Ultimately, any company seeking to raise capital through a JOBS Act exemption should talk to a broker-dealer and a securities lawyer to understand how they can compliantly and successfully raise the capital they need to grow in the private market. 

Private Equity vs. Venture Capital

Posted on by Oscar Jofre

For companies looking to raise capital, there are many options on the table. From raising capital from friends and family and crowdfunding to private equity and venture capital, not every option is suited for all entrepreneurs. In this context, the question “Private Equity vs. Venture Capital” is becoming popular.

So in this article we will explore the difference between venture capital and private equity, as well as some alternatives for companies looking to secure funding in the private capital markets. 

 

What is Private Equity?

Private equity firms are investment firms that raise capital from accredited investors to make investments in private companies. In the case of private equity, these firms generally seek to take a majority stake in portfolio companies – which means that the firm will obtain greater than 50% ownership. Another characteristic of private equity firms is that they generally prefer to invest in established companies that have operational inefficiencies. The goal is to reduce these inefficiencies so that the company can turn profitable. If the firm sells a portfolio company or it goes public, it distributes returns to investors. 

 

What is Venture Capital?

Similar to private equity, venture capital (VC) firms raise capital from accredited investors. However, they take a different role in the private capital markets. VC firms seek to invest in early-stage and startup companies with high growth potential. They often control less than 50% ownership and take a mentorship role. Once a portfolio company is acquired or goes public through an IPO, it can distribute returns to investors. 

 

Alternative Capital Raising Opportunities

However, many companies find it difficult to secure VC or private equity funding. Since 2022, VC funding has dropped by more than 50% and late-stage investments have plummeted even more dramatically, down 63%. Still, there is hope for companies seeking to raise capital. During this time, the amount of capital being raised through JOBS Act exemptions had grown considerably, providing viable opportunities for entrepreneurs seeking capital. Through RegA+, companies can raise up to $75 million, and through RegCF, companies can raise up to $5 million. This capital can be raised from both accredited and nonaccredited investors, creating a wide pool of potential investors. At the same time, the minimum investment is typically much smaller, which allows everyday people to get involved with promising companies. It is also more cost-effective to raise capital through these alternatives than traditional VC or private equity firms, or going through an IPO.

 

Now that you know the key-points on Private Equity vs. Venture Capital, it’s easy to understand that learn about the differences can help you identify what capital-raising options may be best suited for your company. However, if you need additional guidance, reaching out to a broker-dealer or securities attorney can help point you in the right direction for your capital-raising journey.

Can I Trade Private Shares?

Posted on by Oscar Jofre

Think of buying a traditional stock, listed on a public exchange like the New York Stock Exchange or NASDAQ. You can buy and sell these stocks freely; you can do so through a broker-dealer, online, or even through an app on your smartphone. You can sell it almost immediately, although there can be some limitations.

Can I trade private shares? The answer is yes. Similar to the public market, you can invest in private companies through three common types of capital raises and trade your securities on a secondary market.

 

To sum these exemptions up, they allow private companies to sell securities to US investors without going through the SEC’s registration process. They each vary as to how much capital can be raised. These exemptions include:

 

  • RegA+ is a securities exemption that allows companies to offer and sell securities to US investors and raise up to $75 million in a 12-month period through Reg A+.
  • RegCF allows companies to offer and sell securities to US investors and raise up to $5 million through online marketplaces and crowdfunding sources in a 12-month period.
  • RegD is a securities exemption that allows companies to raise capital from accredited investors (and a limited number of nonaccredited investors) without limit within a 12-month period.

 

With all of these exemptions, investors can share the securities they’ve invested in. However, there are some key differences pertaining to the length of time an investor is required to hold the security before selling it on a secondary trading platform. Reg A+ is the closest to an IPO, assets can be sold the next day, and there is no lockout period. On the other hand, securities sold under RegCF cannot be sold for the first 12 months after buying it unless it’s sold to an accredited investor, back to the issuing company, or a family member. With Reg D, investors can not sell these assets for six months to a year unless they are registered with the SEC.

Once you can trade your securities, the transaction will be carried on an alternative trading system or ATS. An ATS is much like a traditional exchange, the only difference is that they do not take on regulatory responsibilities. They are also operated by a FINRA-registered broker-dealer.

Did you like this text? Send the post “Can I trade private shares?” to a friend!

Before you make an investment decision, be sure to understand the limitations of secondary trading. If you’re unsure of what the limitations are, please reach out to a transfer agent or broker-dealer for additional information.

What is an Option?

Posted on by Oscar Jofre

Like warrants, options are a form of security called a derivative. As a derivative’s name suggests, these securities gain their value from an underlying asset. In the case of options, this is the underlying security. 

 

There are typically two primary forms of options; call options and put options. Both are governed by contracts; a call option allows the holder to buy securities at a set price while a put option allows them to sell. However, options contracts do not come for free. They can be bought for a premium, which is a non-refundable payment due upfront. Once options have been purchased, the holder has a certain amount of time during which they can exercise their options. On the other hand, options do not require the holder to purchase the shares contracts allow. When options are exercised, the price paid is referred to as the strike price.

 

In buying call options, the holder is guaranteed to buy securities at a certain price, even if the underlying security significantly increases in price. A put option works more like an insurance policy, protecting the holder’s portfolio from potential downturns. If a security was to decrease in price, the shareholder would be able to sell at a set price specified by their option contract, even if the market price was to fall lower than what the option allows it to be sold at.

 

In addition to being a way to minimize investment risks and maximize profits, options are becoming a popular incentive for employees, especially in startup companies when looking to attract employees. In addition to options that can be bought, options also refer to the ones issued to employees by their employer. This gives employees the chance, but not the obligation, to buy shares within a specified time. Employee stock options either come as an Incentive Stock Option or Nonqualified Stock Options, with the difference being the tax incentives that go along with exercising the options. 

 

Whether you have call or put options, they are a useful way to protect your portfolio from downsides or benefit from being able to purchase more shares at a discounted price. They are just one of the many forms of securities available, which should be considered carefully when making investment decisions.

 

What is a Burn Rate?

Posted on by Oscar Jofre

Recently, we received a question from an issuer, asking what a burn rate is. We believe that education is an essential part of the capital raising process, so don’t hesitate to reach out to our team with any questions that could help you along your capital raising journey.

 

The word “burn rate” gets thrown around a lot in the realm of startups and early-stage businesses. But what exactly does it mean, and why is it so important? In this blog post, we’ll explore the ins and outs of burn rate, including what it is, why it matters, and how you can keep it under control.

 

Simply put, the burn rate is the rate at which a company is losing money. It takes into account the company’s operating expenses and revenue, measuring it monthly. This metric shows how much cash a company needs to continue operating for a certain period of time. For example, if a company has monthly expenses of $100,000 and revenue of $50,000, its burn rate is $50,000 per month. This means that the company is losing $50,000 each month, and if nothing changes, it will run out of cash in two months. It’s important to note that the burn rate can fluctuate based on several factors, including:

 

  • Investments in development
  • Advertising and marketing costs
  • Research and development costs
  • Operating expenses (e.g., wages, rent, etc.)

 

By monitoring the burn rate, businesses can make informed decisions about how to use their resources and budget.

 

Why is Burn Rate Important?

 

Understanding and managing burn rate is crucial for any startup or early-stage business. A high burn rate suggests that a company is depleting its cash supply at a rapid pace, which puts it at a higher risk of entering a state of financial distress. This can have serious consequences for investors, who may need to set more aggressive deadlines for the company to realize revenue, or inject more cash into the business to provide more time to reach profitability.

 

Conversely, a low burn rate can indicate that a company has a stronger financial position and are in a better position to become profitable. Low burn rates are also more attractive to investors since their investments can go further.

 

Keeping Burn Rate Under Control

 

Now that we understand the importance of burn rate, let’s look at some strategies for managing it effectively.

 

Layoffs and Pay Cuts: If a company is experiencing a high burn rate, investors may seek to reduce expenses on employee compensation. While layoffs and pay cuts are never easy, they can help a company achieve a leaner strategy and reduce operating expenses.

 

Growth: One way to reduce the burn rate is to project an increase in growth that will improve economies of scale. For example, some startups are currently in a loss-generating scenario, but investors continue to fund them to achieve future profitability.

 

Marketing: Investing in marketing can help a company grow and expand its user base or product use. However, startups are often constrained by limited resources and budgets, making paid advertising a challenge. Instead, they can use low-cost or no-cost tactics to achieve growth, such as email marketing or social media.

 

Burn rate is a crucial metric for any startup or early-stage business. By understanding and managing it effectively, companies can improve their financial health and position themselves for long-term success. Whether it’s reducing staff or compensation, investing in growth, or using low-cost marketing tactics, there are a variety of strategies for keeping the burn rate in check. And for investors, keeping a close eye on the burn rate can help you make informed decisions about funding and supporting startups.

Veni, Vidi, Verify

Posted on by Oscar Jofre

More than two millennia ago, Julius Caesar said the famous phrase, “Veni, Vidi, Vici”, triumphant in battle. This translates to, “I came, I saw, I conquered.” While the Roman Empire has long since fallen, these powerful words continue to ring true today – only in a different context. When it comes to investment opportunities, there is a simple way to “conquer” the investment process: Veni, Vidi, Verify.


I Came: The Search for Investment Opportunites 

 

With Regulation CF or RegA+, investors have more investment opportunities available to them than ever. Many of these investment opportunities are in startups that have a promising future, ranging from collectibles, MedTech, real estate, and many other growing industries. This is the time to start thinking about how you can use these opportunities to grow your investment portfolio while aligning your risk tolerance with your investing goals.

 

I Saw: Seeking Legitimate Investments

 

The abundance of options available to investors can be considered both a blessing and a curse. Despite the many opportunities available, you must ensure that the company is legitimate and the way you invest. For issuers, the same could be said about making certain investors are who they say they are to protect your company. When investing, it is good to analyze the risk versus the reward of a particular investment. You want to ensure that everything is above board in terms of your investment and there are no underlying additional risks. 

 

I Verified: Confidence Through Verification

 

Verification allows investors and issuers alike to verify the information provided by all parties to help confirm the transaction is legitimate and complies with regulatory requirements. Verification can ensure the quality of an investment with the assistance of data and information, such as:

 

  • ID verification
  • KYC and AML
  • Regulatory compliance
  • Transaction information
  • Company information and history

 

This gives investors the peace of mind to pursue assets knowing that they are making an informed decision and letting issuers know that investors are who they say they are. Additionally, tools such as the KoreID mobile app enhances the process of verification during the investment process. With KoreID, investors can securely manage their investments and personal information to meet KYC requirements. 

Veni, Vidi, Verify helps both issuers and investors ensure that they are making secure investments. Ultimately, verification and adherence to securities regulations create trust between investors and issuers during the investment process.

What is Phishing?

Posted on by Oscar Jofre

No one thinks they’ll fall victim to a cybercrime, but in reality, you’ve likely come across a suspicious email that could be trying to steal login credentials, financial information, or your identity or install dangerous computer viruses. Maybe you’ve received an email that claims to be from Netflix or Amazon, requesting your password, account email, payment information, or other personal information and directing you to an unfamiliar website. These characteristics are the hallmarks of a classic phishing attack, which can lead to identity theft, credit card fraud, ransomware attacks, and more. 

 

Where Did Phishing Come From?

 

The history of phishing dates back to the mid-1990s, when groups of hackers posed as AOL employees and used the instant messaging platform to steal passwords and login credentials. The purpose of these attacks was to use the hijacked accounts to access the internet, rather than pay for access once the 30-day free trial of AOL expired. These hackers were known as “phreaks”, a group of individuals who had a keen interest in studying telecommunication systems. The name “phishing” was used to link these scams to this community.

 

In the early 2000s, hackers began to branch out past AOL accounts to target financial systems to steal credit card information and passwords. Since then, the prevalence of phishing scams has grown exponentially, with 36% of data breaches involving a phishing attack, according to a Verizon report. Between 2021 and 2022 alone, the number of malicious phishing emails grew by 569%, according to cybersecurity company Cofense.

 

How Phishing Works

 

In modern phishing attacks, many hackers use spoofing to disguise an email address, website, phone number, or sender name in the hopes that it will appear legitimate. It could be as simple as changing a number, letter, or symbol so that the URL a hacker is using, without close inspection, is coming from a legitimate source. This will often trick victims into disclosing sensitive information like passwords or credit card numbers, which are then stolen by the hackers. 

 

Protecting Yourself

 

Luckily, there are easy steps to protect yourself against phishing attacks. According to the FBI, companies generally will not contact you asking for your username or password. If you receive an email, text, or phone call requesting this information, that should be a significant red flag. If you receive an unsolicited email with a link, avoid clicking on it. Instead, carefully examine the sender’s name, email address, spelling, and other details about the correspondence to see if there are slight inaccuracies that could point to it being a phishing scam. And, if an email asks you to download something or open an attachment, do not do so unless you can verify that the sender and attachment are legitimate. Also, be wary of the information you share online. Details like birthdays, pet names, schools you attended, and other personal details can be used to guess passwords. 

 

The Importance of Verification

 

Ultimately, the confirmation of someone’s identity can help to avoid potential scams. This can be achieved in the private capital markets by complying with securities regulations. For investors, due diligence and careful research of investment opportunities can highlight potential red flags that could be a telling sign of something too good to be true. At the same time, verifying the identity of a company raising money can provide assurance that it is a legitimate investment opportunity. For issuers, identity verification like AML and KYC confirm that investors are who they claim to be. 

 

Being on the lookout for phishing can help protect your identity and financial information from hackers. Understanding what these scams are and how they work is one of the best defenses available. Stay tuned for the next article in this series, which will shed light on a different type of scam. If you have any questions or topics you’d like to see discussed in more detail, please reach out and share your ideas with us!

My Company is Based in Canada: Can I Use RegCF to Raise Capital?

Posted on by Oscar Jofre

Recently, we received a question from an issuer, asking if Canadian companies can use RegCF to raise capital. We believe that education is an essential part of the capital raising process, so don’t hesitate to reach out to our team with any questions that could help you along your capital raising journey.

 

Crowdfunding is a popular way for small businesses, startups, and entrepreneurs to raise capital without necessarily needing the support of venture capitalists or angel investors. Regulation Crowdfunding (RegCF) provides an avenue for companies to legally raise capital through equity crowdfunding in the United States and is regulated by the Securities and Exchange Commission (SEC). 

 

Although RegCF is available to US companies, many Canadian companies have questions regarding whether they can also use this exemption to raise capital. This article will answer those questions and provide insight into the legal requirements and structures that work for Canadian companies.

 

Legal Requirements for Raising Capital Through RegCF in Canada

 

In short, the answer is yes, Canadian companies can use RegCF. However, certain requirements must be met for a company outside of the U.S. to take raise capital through this exemption.

 

The main legal requirement is that the company must establish a US entity, such as a corporation or a limited liability company (LLC), which will be managed from within the U.S. The SEC states that “the issuer’s officers, partners, or managers must primarily direct, control, and coordinate its activities from the U.S., and its principal place of business must be in the U.S.”

 

It is also recommended that Canadian companies considering using RegCF to raise capital should provide evidence of their plans to engage the US market. This could include investing in marketing and advertising initiatives, setting up offices or physical locations within the US, hiring personnel from the US, etc.

 

Using RegCF in Canada

 

There are a few different ways that Canadian businesses approach a RegCF offering. One option is to create a wholly-owned subsidiary in the United States that will operate the business and raise funds through RegCF. This subsidiary must have its own business plan and financials, and cannot simply be a shell company. Alternatively, Canadian companies can create a US-based holding company that will own the Canadian entity and operate the business in both countries. This structure can be beneficial for companies looking to expand their operations into the US market while also raising capital from US-based investors. Canadian companies can also create a new US-based company that licenses the product or service of the Canadian company. 

 

Ultimately, a Canadian company seeking to raise capital using RegCF must create a US-based entity with a primary place of business in the US. The company raising capital cannot simply be a shell company that directs capital raised back to the parent company.

 

Alternatives for Canadian Companies

 

There are several other options for raising capital for Canadian companies that cannot or do not wish to use RegCF. These include traditional venture capital and angel investing, as well as debt financing from banks and other lenders. Additionally, many Canadian provinces have their own provincial securities commissions that offer exemptions from the registration requirements for businesses looking to raise funds from investors within their jurisdiction. But because of RegCF’s benefits of allowing companies to advertise offerings, as well as its low minimum investment requirements, it is certainly worth considering for Canadian businesses looking to raise capital.

 

Deciding whether or not to use RegCF for a Canadian company is ultimately a decision that should be made on a case-by-case basis. Although US securities laws may present some additional regulations, there are many benefits to using this platform if it is done properly. The ability to access capital from a larger pool of investors, as well as the streamlined process of RegCF, can make it an attractive option for Canadian businesses looking to raise funds.  Ultimately, Canadian companies should discuss their capital raising options with a securities attorney if they have questions about the process and their options.

April Investment Crowdfunding Sees Near-Record Levels

Posted on by Oscar Jofre

The last couple of months have been a turbulent time for the financial sector. In March, we first saw the collapse of Silicon Valley Bank, the largest bank by deposits in Silicon Valley and favored by tech startups. This was followed a couple of days later by the collapse of Signature Bank. The third collapse this year was that of First Republic Bank, the largest banking failure since the financial crisis in 2008. These events have been coupled with stagnation in the venture capital market that has highlighted the stability of the investment crowdfunding industry. Ultimately, April demonstrated a resilient interest in investment crowdfunding.

 

Investment Crowdfunding Proves Appetite for Deals

 

In a recent newsletter, Sherwood Neiss, Principal at Crowdfund Capital Advisors, was quoted saying, “A large amount of capital and number of investors flowing into Investment Crowdfunding offers proves that there is a massive appetite for these deals.” Neiss continues, “While there might have been fewer deals in April, the reality is startups still need capital, and Investment Crowdfunding is where they will find it. We expect to start to see an uptick in deals in May as these issuers realize opportunity exists here.” 

 

Investment Crowdfunding Sees a Decline in New Deals, Rise in Capital Commitments

 

In April, there was a decline in new deals, with only 91 being launched, compared to 147 in March 2023. This marked the lowest number of crowdfunding deals since June 2020. However, capital commitments reached an impressive $65.4 million in April, the second-highest level of commitment since March 2021, when investment crowdfunding was reaching a high point of interest during the pandemic. 

 

There were also 54 issuers that raised over $1 million each during April, while six raised the maximum of $5 million. With the 54 issuers that closed their raise during the month bringing in an impressive $131 million, it was the second-highest monthly close of capital, despite ongoing challenges faced by the private capital markets. 

 

More Investors are Making Investment Decisions

 

The number of checks written by investors in April 2023 increased by 92.9% compared to the prior month but dropped by 4% compared to the prior year. The average check size dropped to $1,174 in April 2023 due to a large number of active deals compared to March. 

 

The investment crowdfunding industry is growing rapidly and shows no signs of slowing down. As investors become more comfortable with deploying capital in private markets, despite current challenges in the private market, it will only continue to fuel this growth trend.

 

What is an Escrow Provider?

Posted on by Oscar Jofre

If you’ve bought a home, you’ve likely heard the term escrow. In the homebuying process, escrow can be used to hold a good faith deposit while the contract is being finalized. It can also be used after the home is purchased to pay for property taxes, homeowners insurance, or mortgage insurance. In these instances, money held in escrow is managed by an independent, third-party intermediary. However, escrow is also common during the process of investing in a company, where the escrow provider takes custody of funds and assets until specific transaction conditions are met. But what exactly is the role of an escrow provider in a transaction? What responsibilities do they have? And when should they be utilized? 

 

What is an Escrow Provider?

 

An escrow provider is an independent third-party intermediary which ensures that a transaction is completed in accordance with the rules of the agreement. An escrow provider collects, holds, and distributes funds on behalf of the individuals involved in a transaction. The help of certified escrow providers ensures that both parties meet their obligations and bring confidence to complete a transaction reliably. 

 

In many cases, the buyer and seller agree to use an escrow provider for several advantages, such as:

 

  • Mitigating the risk of nonpayment or fraud
  • Ensuring that all funds are securely handled
  • Being an impartial third party to the transaction

 

The process when utilizing an escrow provider generally includes:

 

  • Creating a contract outlining the obligations of the buyer and seller
  • Depositing funds into an escrow account
  • Ensuring that all conditions of the agreement are met before releasing funds

 

At the same time, technology can play an important role in the escrow process. For example, smart contracts that leverage blockchain technology can be programmed to automatically transfer assets between two parties once the conditions of the contract have been met. This can automate some of the escrow process, which can help to streamline the escrow process.

 

JOBS Act and Escrow

 

The Jumpstart Our Business Startups (JOBS) Act has since become a major factor in creating a secure capital-raising environment in the private capital markets. To raise capital, issuers must follow securities regulations to ensure compliance in the capital-raising process. This provides an additional layer of protection for investors and startups raising capital.

 

An essential component of compliance includes finding an escrow provider to administer transactions. This ensures that all funds are handled securely and that a third-party intermediary manages the transaction. Putting investors and issuers at ease by bringing peace of mind to the transaction. 

 

Escrow providers are essential for any type of business transaction where an impartial third-party intermediary is involved. With an increase in accredited and nonaccredited investors alike being involved in the private capital markets thanks to the JOBS Act, it is crucial to ensure that one is involved in the capital raising process. Whether you are an investor or issuer, using an escrow provider guarantees all funds are handled correctly while avoiding financial risk or fraud. 

Why the Private Capital Markets are Outpacing the Public Markets

Posted on by Oscar Jofre

The private capital market has seen considerable growth over the past few years due to geopolitical tensions, inflation, and interest rate hikes. These factors are driving heightened volatility in public markets, and investors are therefore looking for protection in private market deals. The ability for private companies to raise capital with accredited and nonaccredited investors through regulations like RegCF and RegA+ has also added to this growth.

 

Large Pool of Capital

 

The private capital market is also benefiting from a large pool of capital currently available to investors. According to Preqin, global private capital dry powder stood at around $1.96 trillion in December 2022. Dry powder is the cash that has been committed by investors but has not yet been “called” by investment managers to be allocated for a specific investment. This sizable reserve of money, when deployed, will provide an influx of investment into the private markets.

 

Growth & Flexibility

 

Companies are also opting to stay private for longer durations of time. In 2011, companies typically stayed private for five years before going public. As of 2020, this has extended to a time period of 11 years. Remaining private can give companies greater flexibility as they grow their business. They may find it easier to adapt and make changes in the early stages with private capital, before choosing a public route when they are more mature and established. With the ability to earn up to $75 million in 12 months with RegA+, for example, the ability for private companies to raise capital is unprecedented in the sector. 

 

The Shift from Public Markets to Private Capital Markets

 

This trend is likely to continue into 2023 and beyond as investors seek alternatives to the public markets. As such, understanding the implications of this shift from public to private is essential for any investor looking to capitalize on these opportunities. Private companies are looking to stay private longer because:

 

  • It allows them to keep their business strategies under wraps and maintain control over key decisions.
  • They can gain access to more capital at a lower cost compared to public markets, allowing for accelerated growth.
  • The private capital market has more flexible structures and less regulation compared with the public markets.

 

Private vs Public Market Size

 

McKinsey estimates that in North America, private market fundraising grew by 21% between 2020 and 2021. In the United States alone, there were 7,042,866 private companies. In comparison, there were only 4,000 public companies in the United States as of 2020. These statistics highlight the significant impact that businesses have on the world economy, with diverse markets and industries contributing to growth and prosperity.

 

The private capital market is rapidly outpacing the public market and this trend looks set to continue into 2023. As private companies continue to significantly outnumber public companies, the increase of capital raising opportunities will only help this sector to grow.

What is a Board of Directors?

Posted on by Oscar Jofre

Recently, we received a question from an issuer, asking to explain what a board of directors is. We believe that education is an essential part of the capital raising process, so don’t hesitate to reach out to our team with any questions that could help you along your capital raising journey.

 

Without further ado, this article will explore the role of a board of directors and the critical role they play within a company. The board of directors serves as the “operating mind” of the company – providing oversight to shareholders, officers, and employees alike. More importantly, boards can be utilized as a tool to mitigate risk when raising capital. This is because a board of directors typically has experience addressing issues that include:

 

  • Strategic direction
  • Corporate governance
  • Independence and accountability

 

What is a Board of Directors?

 

A board of directors, or ‘board’ is the highest governing body of a company. It is responsible for oversight and providing direction to the organization. The board consists of members who are elected by shareholders, normally on an annual basis. These members act as representatives of shareholders and their interests, ensuring that the company is managed properly. Public companies are required to have a board of directors, and while the same is not true for private companies, many still choose to do so.

 

The Need for a Board of Directors

 

The board of directors plays a vital role in ensuring the company is run correctly and its goals are met. The board works to ensure that any decisions made by the company are in line with shareholders’ interests, such as profitability and value preservation. A board also protects shareholders from potential risks associated with investing, such as fraud or mismanagement. In addition, having a board of directors can help to ensure that the company is making responsible decisions and staying compliant with legal and regulatory requirements. The board also helps to prevent self-dealing by executive officers or other members of management, as well as helping to set policy for the organization. 

 

One of the main benefits of having a board of directors is its ability to provide risk mitigation when raising capital. The presence of an independent board can demonstrate to investors that the company has taken steps to protect their interests and show potential investors that there is a competent and experienced group looking after their investments. It is important to distinguish between a board of directors and the other roles within a company. Officers are usually C-level executives who report directly to the board when making decisions regarding how the company operates. 

 

Early-Stage Companies and the Single-Person Corporation

 

For start-ups or early-stage companies, it is common for one person to wear multiple hats. In these instances, an entrepreneur likely serves as both an officer and a board member, making decisions from both perspectives. However, this differs from larger corporations who usually have more members on their boards, to ensure that the company is managed properly. As the company grows, so does the importance of electing an independent board.

 

Tools to Mitigate Risk When Raising Capital

 

When it comes to raising capital, boards must have access to certain tools to manage risk. This includes a minute book, cap table, and other documents which provide information about how the company is operating. By having access to this information, boards can minimize the risk of investors losing their money. With the advent of digital technologies that streamline this data management, board directors can have real-time access to company data that allows them to make informed decisions.

 

From start-ups to larger corporations, boards of directors play an important role in managing risk and providing oversight. Ultimately, having a board of directors is an important aspect of the capital raising process that can provide investors additional confidence in an investment after completing their due diligence.

What You Should Know About Investing in Private Capital Markets

Posted on by Oscar Jofre

Investing in the private market can be a great way to gain returns unavailable elsewhere. With the right research, investments in private companies can yield higher returns than traditional public markets. With the size of the global private markets growing throughout the past two years, notably in North America, investors must know what to consider before investing in a private company. In this blog, we will look at some key considerations for investing in the private market.

 

Pros & Cons for Non-Accredited Investors

 

Investing in privately-held businesses can be an exciting way to:

 

  • Diversify a portfolio
  • Offer access to investment opportunities that are not available through the public market
  • Potentially provide higher returns than traditional stock and bond investments

 

However, non-accredited investors (those who do not meet certain SEC criteria) need to understand the unique regulatory and financial risks associated with private markets before making an investment decision. Consider the cons of divesting in private companies, such as:

  • Requires a higher amount of due diligence
  • Lower liquidity than publicly-traded securities
  • Can be seen as risker investments than public securities

 

Evaluating Potential Investments

 

Before investing, it is important to conduct due diligence and research a potential investment thoroughly. Consider creating a financial plan and closely examining the deal structure, competitive landscape, and why the company needs your investment. Also, take a look at the company’s management team as well. Do they have experience raising capital? Do they pass a bad actor check?

 

Comparing Private and Public Investments

 

Private investments may offer higher potential returns than those found in the public markets, however, they are often riskier. As an investor, you should be aware of the differences between private and publicly-held businesses before deciding to invest. Consider factors such as liquidity, transparency, and financial reporting.

 

Liquidity: Private investments are sometimes illiquid, meaning that it may be difficult to access your money when needed. However, securities purchased through RegA+ are freely tradeable on a secondary market, which can provide some options for liquidity. In contrast, investments in public companies can be sold on the open market quickly and easily.

 

Transparency: Public companies must adhere to strict disclosure rules that allow investors to clearly understand the risks and rewards of their investments. In comparison, private companies do not have the same regulatory requirements and may be less transparent with their operations or provide limited information to shareholders. This means that investors should carefully review materials provided by the issuer to get a better understanding of the investment risk to ensure it meets their level of risk tolerance.

 

Financial Reporting: Public companies are required to report quarterly earnings and provide other financial information to investors regularly. This is not always the case with privately-held businesses which may only provide periodic updates or no financial information at all.

 

Protecting Your Investment

 

As an investor in a privately-held business, you may be at the mercy of the majority shareholders and can be subject to financial losses if the company does not succeed. To protect yourself, it is important to conduct background checks on all potential investments and set terms for your investment up front. Be sure to understand what rights you have as an investor and any restrictions on transferring or liquidating your shares. Especially if investing in JOBS Act exemptions, like RegA+ or RegCF, if the company you are looking to invest in offers a third-party option where you can sell your shares, this is a great way to access liquidity options.

 

Diversify Your Portfolio

 

The key to success with private investments is diversification. Investing in various companies across different sectors can reduce the risk of investing in a single business or startup that may not succeed. This will help to spread out any potential losses should a particular business not perform as expected.

 

Investing in the private market can be an exciting and rewarding venture for non-accredited investors. Understanding the risks and potential rewards of each potential investment is essential for any investor looking to make a profit in this sector. Ensure that you are comfortable with the risk associated before investing in any venture. Doing so will help to minimize potential losses and maximize potential gains. With careful planning and research, investors can benefit from private investments and diversify their portfolios.

 

Additional knowledge sources
https://www.investopedia.com/articles/stocks/08/privately-held-company-investing.asp

https://guides.loc.gov/company-research/private

https://www.cnbc.com/2021/02/22/if-asked-to-invest-in-a-private-venture-heres-what-you-need-to-do.html

How Do I Build a Community for My Company?

Posted on by Oscar Jofre

What is a community? The word can be defined as “a body of persons of common and especially professional interests scattered through a larger society” or “a group of people with a common characteristic or interest living together within a larger society.” Putting this into a bit more context, picture a beaver in the forest, building a dam. This seemingly simple, instinctual event has a profound effect on the surrounding area. The dam forms a pond, which creates the perfect habitat for a diverse range of animals, insects, and other organisms, while also improving the water conditions. 

 

This beaver is much like an entrepreneur building a business. As the business grows, it provides employment opportunities, creates a network of suppliers and partners, develops relationships with customers, and is supported by shareholders. They all play a crucial role in the success of your business. 

 

By nurturing these relationships, especially in today’s highly competitive business environment, this community can help increase engagement, loyalty, and interest in your company, which can translate into more investment and business opportunities down the road.

 

Recognizing the Benefits of a Strong Community

 

From customers to employees and suppliers, building a community around your company can bring numerous benefits. A thriving and engaging community can create:

 

  • Increased customer or employee loyalty: When customers and employees feel a sense of belonging and loyalty to your brand, they are more likely to remain loyal for longer. This can result in higher rates of retention, as well as increased referrals and advocacy.
  • Improved engagement with stakeholders: A thriving community can help you engage with key stakeholders such as investors, partners, and suppliers. This can help to foster stronger relationships over time, leading to better deals and collaborations.
  • Increased brand reputation: A community of loyal customers or employees can promote your brand integrity and trustworthiness, which is essential for building a successful business.
  • More growth opportunities: With a strong network of loyal loyal customers and employees, you’ll have a larger pool of potential buyers or investors when you are looking to grow.
  • A foundation for investors: Ultimately, when you’re looking to raise capital or attract investors, having a strong community of engaged stakeholders around your company can be an invaluable asset by providing evidence of your brand’s trustworthiness and potential. These stakeholders can also become valuable investors that share in your vision for the future.

 

Ultimately, cultivating this community requires transparency and compliance to build trust and instill confidence. But how do you go about building a community for your company? 

 

6 Tips for Building a Community

 

1. Understand Your Audience

 

The first step in building a community is to understand your audience. Who are the people you want to attract and engage with? What are their needs, wants, and interests? What motivates them to invest in your company? By creating customer personas and conducting market research, you can get a better understanding of your target audience. This can help you tailor your messaging, content, and engagement strategies to better resonate with your community.

 

2. Focus on Transparency and Communication

 

Transparency and open communication are essential ingredients for building a strong community. Shareholders, employees, and customers all want to feel like they have a voice and that their concerns are being heard. This is especially important when it comes to managing shareholder relationships. To build trust and transparency, consider implementing regular communication channels like newsletters, social media updates, and webinars. Make a point of responding to customer and shareholder feedback promptly and thoroughly.

 

3. Leverage Technology

 

Technology can be a powerful tool in building and managing your community. Consider investing in a customer relationship management (CRM) system to track and manage your customer interactions. This can help you identify patterns and trends in customer behavior, enabling you to tailor your messaging and engagement strategies to better resonate with your community.

Social media platforms like LinkedIn, Facebook, and Twitter can also be powerful tools for building and engaging with your community. Regularly update your social media channels with relevant content, respond to customer feedback and comments, and use social media analytics to track engagement and identify opportunities to better connect with your community.

 

4. Create Meaningful Content

 

Creating high-quality, engaging content is another key element in building a community. Content can come in many different forms, including blog posts, videos, webinars, eBooks, and more. The key is to create content that is tailored specifically to your target audience and resonates with them on an emotional level. This will help you build relationships and foster loyalty among your customers, employees, and shareholders.

 

5. Foster and Incentivize Engagement

 

Engaging your community is an important part of building relationships and developing loyalty. Consider running contests, giveaways, or other promotional activities to incentivize engagement. You can also create loyalty programs or rewards systems to further reward customer engagement.

 

6. Gather Around a Cause

 

When building a strong community creates a sense of purpose around your company. Find something that your customers, employees, and shareholders can all rally behind. This should be something bigger than just making money – it could be related to sustainability, philanthropy, or another cause the community can get behind. By giving people something to believe in, you can create a sense of shared identity that will bring your community together. 

 

When it comes to raising capital, you should also focus on creating experiences that make investors feel appreciated and valued. For example, you could offer exclusive investor-only events or create a private investment platform where invited investors can access exclusive content about your company and its opportunities. 

 

Regardless of how you approach it, building a thriving community around your business is essential to growing and scaling effectively. This will lead to increased loyalty, greater investment opportunities, and higher long-term returns. By taking these key steps to develop a strong community around your business, you’ll be well on your way to achieving your capital-raising goals.

 

Small Businesses and Their Economic Success

Posted on by Oscar Jofre

Small businesses have always been an integral part of the economy, contributing to job creation and economic growth. Over the last decade, small businesses have faced a variety of challenges, including economic downturns, government regulations, and evolving consumer preferences. Despite these difficulties, small businesses have continued to play a significant role in driving economic success. In this blog, we’ll examine the level of success small businesses have achieved in the economy over the last decade and how JOBS Act regulations have impacted this success.

 

The Role of Small Businesses in the Economy

 

Small businesses are often referred to as the backbone of the economy. According to the US Small Business Administration (SBA), small businesses account for 44 percent of US economic activity and employ nearly half of the country’s private sector workforce. In fact, there are 33.2 million small businesses in the United States and they created 8.7 million jobs created between March 2020 and March 2021. Small businesses also contribute to innovation and competition in the marketplace, which in turn drives economic growth

 

Small Business Challenges and Successes

 

Over the last decade, small businesses have faced a variety of challenges, including the great recession, rising costs, and increased competition from online retailers. Despite these challenges, small businesses have continued to achieve success in the economy. With eight out of ten small businesses having no employees and 16% of small businesses having up to 19 employees, this sector of the economy is mostly driven by individuals who can take risks and innovate for growth.

 

Meaning, small business growth often depends on entrepreneurs’ risk-taking capability and ability to identify profitable opportunities. Additionally, the passage of the JOBS Act in 2012 has enabled small businesses to access capital more easily than ever before. The act allows businesses to raise money from investors without having to register with the Securities and Exchange Commission (SEC). This allows smaller organizations that are still private to raise millions of dollars in capital while tapping into a much wider pool of potential investors.

 

The Impact of JOBS Act Regulations on Small Business Success

 

The JOBS Act allows companies to use SEC exemptions from registration, which include:

 

  • Reg CF to raise up to $5 million
  • Reg A to raise up to $75 million
  • Reg D to raise an unlimited amount of capital

 

These capital-raising methods allow small businesses to access a much wider pool of potential investors, obtain higher levels of capital, and achieve greater success in the economy. By allowing organizations to tap into an audience of investors they would have not had access to previously, the JOBS Act has enabled small businesses to build relationships with their customers, grow their operations, and create good jobs in local economies. With the continued support of government regulations and technological advancements, small businesses are poised to play an even greater role in driving economic success in the years to come.

7 Golden Rules for the Secondary Market

Posted on by Oscar Jofre

Secondary markets provide investors a way to trade securities they have previously purchased or buy new ones offered by other investors. This blog will look at the seven golden rules of secondary markets as well as how these rules are enforced through JOBS Act regulations.

 

What is a Secondary Market?

 

A secondary market is an organized platform that provides investors with the opportunity to buy securities from other investors, rather than from the issuer itself. It allows investors to have more flexibility in trading their securities and opens up the potential for greater liquidity. Secondary markets can be used to buy or sell almost any type of security, including stocks, bonds, options, futures, derivatives, and commodities.

 

How an ATS Differ from an Exchange

 

When trading securities on a secondary market, it is vital to understand the different types of Alternative Trading Systems (ATSs) available. ATSs are electronic trading platforms that can be used to trade securities without going through a traditional exchange. These systems can provide investors with greater liquidity and flexibility in trading their securities than what is available on an exchange.

 

Like an exchange that brings together buyers and sellers of securities, an ATS does not take on regulatory responsibilities. This means that an ATS can trade both listed and unlisted securities, like those purchased under a JOBS Act exemption. ATSs are also regulated by the SEC but must be operated by a FINRA-registered broker-dealer. 

 

The 7 Golden Rules of Secondary Markets

 

To ensure that transactions are compliant with security regulations, both issuers and investors should consider the following rules when transacting on a secondary market. 

 

Rule 1: Know Your Client (KYC) – Before conducting transactions, there must be a KYC procedure carried out by the broker-dealer. This helps to identify potentially risky investors and ensure that steps are being taken to prevent fraud, money laundering, and other illicit activities.

 

Rule 2: Disclose Financial Data – Issuers must disclose all relevant financial data before engaging in a transaction on the secondary market. This includes any material changes that have occurred since the last disclosure was filed. From an investor’s perspective, it is important to understand the financial health of the issuer before investing in their securities. This can be achieved by viewing the issuer’s financial statements, annual reports, and/or audited financials. Transparency is crucial in building trust with investors, and failure to disclose pertinent information can result in legal repercussions that can affect the trading of your security on the secondary market.

 

Rule 3: Respect Minimum Price Fluctuations – When trading on the secondary market, investors must always respect price fluctuation limits set by the governing body. These limits are designed to protect both buyers and sellers from extreme volatility or manipulation of the market. With most investors not being able to trade JOBS Act securities on the secondary market for at least a year, these limits help protect investors from quick market movements while providing issuers with stability.

 

Rule 4: Execute Trades Quickly – All trades on the secondary market must be executed quickly to ensure that buyers and sellers are getting the best price attainable. This is especially important with JOBS Act securities, as they are subject to strict time frames for when trading can take place. By executing orders promptly, investors can maximize their profits and minimize losses.

 

Rule 5: Follow Market Regulations – All transactions on the secondary market must adhere to governing body regulations, such as those set forth by the SEC, FINRA, and other regulatory agencies. This ensures that trades are conducted fairly and within legal bounds. It also protects all parties involved in a transaction from fraud.

 

Rule 6: Adhere to Securities Laws and Regulations – Issuers must comply with all applicable securities laws and regulations when trading on the secondary market. This includes complying with JOBS Act regulations, such as Regulation A+ and Regulation Crowdfunding. Failure to comply with these regulations can result in fines, penalties, and legal action.

 

Rule 7: Maintain Good Communication with Investors – Issuers should maintain regular and open communication with investors, providing updates on the company’s performance and any important developments. This helps to build trust and confidence in the relationship between the issuer and the investor. Good communication can also help to mitigate potential issues or conflicts that may arise in the future.

 

Overall, secondary markets can offer a variety of benefits to both investors and issuers, including greater liquidity and flexibility in trading securities. However, both parties need to follow the rules and regulations governing these markets to ensure fair and secure transactions. By adhering to the seven golden rules of secondary markets, investors and issuers can mitigate risk and build trusting relationships that can lead to greater success in their investment endeavors.

5 Things You Need to Know About Transfer Agents

Posted on by Oscar Jofre

When a company issues securities, it is vital to keep the official record of ownership and distribution accurate and up-to-date at all times. This process is managed by transfer agents who in addition to assuming responsibility for maintaining accurate records of security transactions, can also handle shareholder inquiries, distribute shareholder materials, and more. In this blog post, we will discuss the five critical things that companies need to know about transfer agents before embarking on their next capital raise.

 

1. Protecting Issuers and Investors

 

Transfer agents protect issuers and investors by ensuring that the issuance of securities maintains a high degree of accuracy and reliability, and is consistent with the applicable regulations, thereby protecting both the issuer and the investor from the risk of disputes and expensive litigation. Transfer agents play a critical role in maintaining the integrity of the security issuance process, closely monitoring any changes in ownership or other company-specific details. This helps to prevent fraudulent activities such as double ownership or over-issuance of securities.

 

2. Issuing and Canceling Certificates

 

Another crucial function of transfer agents is to issue or cancel certificates reflecting shareholder ownership in the company, to ensure that the shareholders receive accurate documentation of their investment. The certificates are tangible evidence that shareholders own securities in the company and that they have the right to vote or receive dividends. Transfer agents must also cancel and decommission certificates to reflect trades or company-specific events such as stock splits, mergers, or acquisitions. Canceling or decommissioning certificates is a vital task in maintaining a current and accurate representation of who owns what within the company.

 

3. Managing the Cap Table

 

Transfer agents play a crucial role in managing the cap table. The cap table is the official record of the ownership structure of the company, including the number of shares held and who holds them. It is essential to manage the cap table effectively to avoid conflicts, confusion, or discrepancies among shareholders. The transfer agent ensures that the cap table stays up to date with any changes that may occur due to equity issuances or mergers and acquisition activity involving the company. The effectiveness of the cap table management is critical for companies raising capital or going through mergers and acquisitions, for helping investors conduct their own due diligence, and for tracking the company’s overall value and growth.

 

4. Legal Compliance

 

Another significant responsibility of transfer agents is ensuring the company’s compliance with specific securities laws and regulations. The transfer agent makes sure that the company is aware of and adhering to the legislative guidelines and rules governing the issuance and transfer of securities. Transfer agents must comply with both federal and state regulations, making this a complex task. Companies need to work closely with their transfer agents to ensure they are clear on aspects of the legal requirements that affect their business. Navigating the regulatory landscape can be daunting, but a transfer agent can help make it smoother for companies.

 

5. Investor Relations

Finally, transfer agents are essential for providing service to shareholders. Often, they are the first point of contact when shareholders have questions, concerns, or problems that require resolution. They help to answer any inquiries shareholders may have and maintain a clear line of communication. Excellent customer service is key to maintaining a positive relationship with shareholders. Shareholders who feel valued are more likely to remain invested in the company and can become valuable brand ambassadors. This, in turn, can lead to more significant investments in the company, improving overall shareholder value.

A transfer agent plays a critical role in ensuring that securities transactions are processed accurately and reliably, protecting the interests of the issuer and the investor. Using an experienced and knowledgeable transfer agent has many valuable benefits for companies. They provide companies with a comprehensive solution for managing securities issuances, maintaining shareholder relationships, and navigating the complex regulatory landscape. Transfer agents are an essential part of the securities industry, and companies who work with them are better positioned to succeed.

KorePartner Spotlight: Richard Johnson, CEO of Texture Capital

Posted on by Oscar Jofre

At Texture Capital, the mission is to revolutionize the two trillion-dollar market for private securities by leveraging blockchain technology and smart contracts. The company has received approval from FINRA to commence operations as a digital securities broker-dealer and operate an Alternative Trading System (ATS). This is an important milestone for Texture, enabling them to issue, tokenize, and trade digital securities. We recently spoke to Richard Johnson, the company’s CEO, to ask him about RegA+ and RegCF and their vision for the future of capital markets.

Q: Why did you become involved in the capital markets/digital securities/blockchain industry?

A: I have spent my whole career in capital markets. For most of that time, I was a trader working at different investment banks and broker-dealers in the electronic trading space. But then, in 2014, I discovered crypto… well really just Bitcoin back then. I came into the space with a trader’s mindset, thinking about how to build execution algorithms and electronic routers for the new asset class. However, I quickly went down the rabbit hole and realized there was something much more revolutionary about the technology. Since then I have been working in the space in one form or another – consultant, analyst, operator, and founder.

Q: What services does your company provide to companies looking to raise capital through the JOBS Act exemptions?

A: I started Texture Capital in 2019 as I recognized there was a strong need for regulated intermediaries to help companies compliantly issue tokens representing equity, debt, royalties, revenue share, or other investment contracts, and to provide a regulated venue for secondary trading. Texture Capital is a FINRA and SEC-regulated broker-dealer focused on digital securities. We help clients raise capital through exemptions such as Regulations, A, D, S, and CF and can also support certain registered offerings. We also operate one of the few Alternative Trading Systems for digital securities. Recently, we have been focusing on offering our digital securities market infrastructure on a ‘white label’ basis to fractional marketplaces. We are agnostic to the underlying asset class and work with clients across private equity, private credit, real estate, and alternatives.

Q: What are your unique areas of expertise?

A: The Texture team is steeped in fintech and traditional capital markets experience. We have built ATSs and marketplaces that have executed many billions of dollars of notional transaction value. 

Q: What excites you about this industry?

A: What excited me about this industry, and why I started Texture Capital, is that blockchain technology represents an entirely new (and better) way of recording financial transactions. Fundamentally, blockchain is about the transfer of value. And capital markets, particularly trading, are about the transfer of value. So what we have now is a once-in-a-lifetime opportunity to build a new market structure from scratch, using the best tech available, and improving how markets work throughout the economy.

Q: Why is a partnership with KoreConX the right fit for your company?

A: We are big fans of KoreConX. KoreConX serves a different, but complementary, part of the ecosystem. You provide the technology to help issuers raise capital and transfer agency services to help them manage the cap table, while we provide all the broker-dealer services. Texture and KoreConX are great partners, and on top of that, we share a commitment to API-driven, technology solutions.

Q: Anything else you’d like to add about RegA+, RegCF, or any other topic that you feel is relevant to your company, our partnership, and the ecosystem you’re a part of?

A: Yes. As a final thought, I want to say how important RegA+ and RegCF are in the capital formation process right now. The current market environment makes it very difficult to raise capital through old-school VC channels. But through these exemptions, companies have a way to fundraise directly from their community, fans, friends, family, partners, suppliers, etc. I expect to see significant growth in the crowdfunding space going forward and tokenization will be the catalyst.

The future of capital markets is bright, and Texture Capital is leading the way with innovative solutions. We look forward to seeing what’s next!

Approaching the 11th Anniversary of the JOBS Act

Posted on by Oscar Jofre

Eleven years ago, the Jumpstart Our Business Startups (JOBS) Act was signed into law in a White House Rose Garden ceremony. Looking back on this landmark legislation, we see its impact has been far-reaching. From increased access to capital for small businesses to the rise of new markets for investment opportunities, the JOBS Act has reshaped how companies raise funds and spur economic growth. In 2022, $150.9 B was raised through Regulations A+, CF, and D, showcasing the tremendous power of these regulations for companies. As we mark the 11th anniversary of this game-changing law, let’s look at what it has accomplished and how it is (still) changing the capital formation landscape.

 

David Wield: The Father of the JOBS Act

 

David Weild IV is a veteran Wall Street executive and advisor to U.S. and international capital markets. He has become well known as a champion of small business as the “Father of the JOBS Act”. Signed into law by President Barack Obama in April 2012, the Jumpstart Our Business Startups (JOBS) Act has opened up access to capital markets, giving small businesses and startups the ability to raise money from a much larger pool of investors. Wield has remarked that this was not a political action; it was signed in “an incredibly bipartisan fashion, which is really a departure from what we’ve generally seen. It actually increases economic activity. It’s good for poor people, good for rich people. And it adds to the US Treasury”.

 

As such, Weild is seen as a leading figure in the JOBS Act movement, inspiring the startup community to break down barriers and build the future. He has helped make it easier for companies to become public, empowering a new generation of entrepreneurs looking to start or grow their businesses. Furthermore, Weild’s efforts have allowed more investors to participate in capital markets.

 

Benefitting from the JOBS Act

 

At the inception of the JOBS Act in 2012, non-accredited investors were only allowed to invest up to $2,000 or 5% of their net worth per year. This was designed to protect non-accredited investors from taking on too much risk by investing in startups, as these investments would likely be high risk and high reward. Since then, the JOBS Act has expanded to allow non-accredited investors to invest up to 10% of their net worth or $107,000 per year in startups and private placements.  

 

For companies they were initially allowed to raise:

 

  • Up to $50 million in RegA+ offerings
  • $1 million through crowdfunding (RegCF)
  • Unlimited capital from accredited investors under RegD

 

These numbers have grown significantly since 2012, with:

 

  • Reg A allowing $75 million to be raised
  • Reg CF allowing $5 million to be raised

 

These rules have opened the door for startups to access large amounts of capital that otherwise may not have been available to them. This has allowed more companies to grow, innovate and create jobs in the U.S.

 

How Much has Been Raised with JOBS Act Regulations?

 

The JOBS Act regulations have revolutionized how capital is raised by companies and how investors access new markets. According to Crowdfund Insider, companies have raised:

 

  • $1.8 Billion from July 2021 to June 2022 with RegA+
  • $2.3 trillion with RegD 506(B)
  • $148 trillion with RegD 506(C)
  • $506.7 million with RegCF

 

Since its formation in 2012, the JOBS Act has opened up a variety of avenues for entrepreneurs to access capital. The exempt offering ecosystem has allowed innovators to raise large sums of money with relatively fewer requirements than a traditional public offering, while still requiring compliance and offering investors protection. This has enabled companies to stay in business and grow, allowing the US economy to remain competitive on the global stage.

 

Insights from Industry Leaders

 

Expanding the discussion about capital formation, KoreConX launched its podcast series, KoreTalkX in April 2022. Through this platform, we’ve hosted many thought leaders and experts to share their insights on capital-raising strategies and compliance regulations. Guests have included renowned thought leaders including David Weild, Jason Fishman, Shari Noonan, Joel Steinmetz, Jonny Price, Douglas Ruark, Sara Hanks, and many others. Each of these episodes has explored topics in-depth to provide entrepreneurs with the tools they need to be successful when raising capital from investors.

Reforms to RegD

Posted on by Oscar Jofre

With Regulation D (RegD) offerings, companies are exempt from registering securities with the SEC. Under RegD, companies can raise capital from accredited investors (and a limited number of nonaccredited investors in some cases) to support the growth of their business. This has become a popular method for private companies to raise capital, and can often be a starting point for larger capital raises under Regulation CF or Regulation A+. This popularity and the minimal disclosure requirements of RegD have prompted SEC Commissioner Caroline A. Crenshaw to propose changes to RegD disclosure requirements in January. Let’s see about these reforms to RegD.

 

Current Regulations Under RegD

 

The objective of RegD was to enable small and medium-sized businesses to seek capital-raising opportunities, without the cost-prohibitive disclosure requirements of a public offering. Under current regulation, companies may make private offerings of securities without having to register with the SEC, provided that they comply with certain disclosure requirements. These include filing Form D (which provides information about a company’s executives and its financial condition) and providing investors with a private placement memorandum outlining the terms of the offering. However, as this method of capital raising has been leveraged by multi-billion-dollar companies for whom it was not originally intended, the SEC is looking to update the disclosure requirements.

 

Commissioner Crenshaw’s Proposed Reforms

 

Commissioner Crenshaw has proposed a two-tiered framework, similar to Regulation A (RegA) which also provides an exemption from SEC registration requirements. Under the proposed reforms, companies offering securities through RegD would be required to provide more disclosure than is currently required, with the burden of disclosure increasing based on company size. Smaller companies (up to a threshold) would only need to provide basic information about their business operations such as management, operational updates, and financial statements. Larger companies (over the threshold) would be required to provide additional, heightened financial disclosures similar to those that are required under an S-1 filing. 

 

This reform could have far-reaching implications for small and medium businesses that wish to access capital markets and would largely depend on where the threshold is set. It remains to be seen whether these proposed reforms will move forward, but it’s clear that Commissioner Crenshaw is interested in modernizing and streamlining the process of raising capital.  

 

Effects of These Changes

 

The SEC’s proposed reforms would require issuers to provide more extensive disclosure and adhere to certain standards that are typically only associated with public offerings. This could potentially be a costly endeavor, as it would involve additional filing fees, legal expenses, and accounting costs.

 

The proposed reforms could also limit the ability of small businesses to access capital through Regulation D, as the costs associated with meeting the new requirements may be too high for some companies. For example, smaller companies may find it difficult to pay for the necessary accounting and legal fees, or they may not be able to generate enough interest from investors due to the higher thresholds that must be met to qualify for RegD. Small start-ups trying to raise only $250,000, these companies may not have the money to prepare the audited financials and Form 1A level disclosures.

The SEC’s proposed reforms of Regulation D are a step in the right direction toward protecting investors and ensuring that issuers adhere to certain standards. However, these reforms could potentially be harmful to small businesses seeking to raise capital through RegD offerings. The SEC needs to consider the potential effects of its proposed reforms and ensure that they are not overly burdensome on companies whose access to capital is already limited.

 

7 Things You Need to Raise Capital Online in 2023

Posted on by Oscar Jofre

. ising capital online can be a great way to a vast pool of potential investors. With the JOBS Act exemptions and many online funding portals available, it’s easier than ever to get started. Here are 7 Things You Need to Raise Capital Online in 2023.

 

1. Know Your Options

 

From Regulation D 506(c) offerings to RegCF and RegA+ offerings, it’s important to understand the differences between them. Each option has different requirements for time, cost, and resources. Plan accordingly for whatever option you choose by considering the trade-offs. Many issuers start with a RegD, then move on to a RegCF, and then a RegA+ because of the costs and compliance efforts required with each exemption.

 

2. Plan for a Higher Cost of Capital

 

Raising capital can be expensive. Especially when doing so online, you should plan on paying more than you usually would because of the additional costs associated with marketing, platform fees for using a crowdfunding platform, etc. These costs, along with fees for broker-dealers and legal counsel, can add up quickly, but understanding the potential costs will help you to plan accordingly. While raising capital online will cost more than a brokered or VC deal, you will retain greater ownership and control and suffer from less dilution, which may be a valuable tradeoff.

 

3. Find the Best Online Capital-Raising Platform

 

Before you embark on your journey to raise capital online, you need to find the right platform for your needs. You will want to make sure that you are working with the best platform possible. The first step is to do your research and find out which platform suits you best. You should look into the fees each platform charges, their customer service ratings, and whether or not they have any special features such as automated investing tools or portfolios with pre-set risk profiles.


Be wary of platforms that promise unrealistic returns or make promises about how easy it will be to raise capital in a short amount of time. Seek out platforms that have built up a good reputation and are transparent with their fees and services. Platforms do not raise money for you. Be sure to have a clear strategy in place before you launch your capital-raising campaign, and do not use a platform that promises too much. You can explore the list of FINRA-regulated funding platforms here.

 

4. You’re Responsible for Marketing

 

You’ll need to craft an effective message and have the resources available to get it out there – whether that’s through social media, email campaigns, print ads, or other forms of advertising.  When you sign up for a capital raising platform, they do not help you with marketing or getting investors. This is left up to your organization or you can hire a marketing firm that is experienced in marketing for online capital raises. Ensure you know your target market and audience so that your message resonates with the right people who will invest in your cause or project. Researching trends in the current market can help you refine your strategy over time as well. Focus on building relationships with potential investors by providing value upfront before asking them for anything monetary related – this can go far towards building trust and credibility between both parties when marketing for your capital raise.

 

5. Launch with an Announcement and Target Multiple Investors

 

Announce the closing of your last smaller raise and its success when launching your next round. You can create a sense of urgency that will attract investors and help drive interest in your offering. This proven strategy can be rinsed and repeated as often as needed (though it can be overdone, and your audience will eventually catch on that this isn’t really the last chance to invest). Another way to maximize your chances for success when raising capital online is to target multiple investor types. While it’s important to target self-directed investors online, you can also retain marketing partners to reach out to family offices and institutional investors. By targeting multiple investor types simultaneously, you’ll improve your chances of raising more capital.

 

6. Focus on Marketing and Platforms

 

It is essential to have a well-structured marketing plan. That will help you reach your target audience and create awareness of your offering. It’s also important to focus on choosing the right platform for your capital-raising efforts. Consider your capital-raising goals, the platform you plan to use to meet those goals, and the availability of resources to help you achieve success. Will your campaign primarily use affinity marketing? Or will you utilize tools such as advertising, email campaigns, and social media?

 

7. Get a Valuation Report and a Securities Attorney

 

During the process of raising capital online, understand the value of your assets and make sure that you are compliant with security laws. A 3rd-party valuation report can give you a better understanding of your company’s worth and help inform investors about its potential. These reports are available from many reputable firms, and retaining one can help you to make a more convincing case for the worth of your company. It is also essential to hire a securities attorney to ensure you comply with JOBS Act exemptions. Without a lawyer experienced in securities law on your side, you could be risking legal violations and hefty fines.

 

5 Tips for Frictionless Capital Raising

Posted on by Oscar Jofre

Raising capital can be a tricky process. Fortunately, with the JOBS Act and its exemptions from SEC registration under RegA+, RegCF, or RegD, entrepreneurs can now access capital raising 24/7/365. Here are five tips to help you make the most of this opportunity and enjoy frictionless capital raising.

Use Mobile Apps for Online Investments

Mobile apps are becoming an increasingly popular way to access capital markets and make investments online. When a company raises capital under a JOBS Act exemption, a mobile app can streamline the investment process for investors. For example, the KoreID Mobile App allows investors to manage current and pending investments and reinvest with ease. KoreID allows investors to securely manage their personal information so that they don’t have to reenter the same information each time they go to invest.

Utilize Affinity Marketing

What better way to raise capital than to leverage your existing network of customers? Customers that align with your company’s mission and values can become powerful brand ambassadors when they invest. This type of marketing also helps give potential investors a sense of trust and familiarity, which can be invaluable when it comes to securing investments. By utilizing affinity marketing, you can easily create an affinity network and unlock new capital-raising opportunities.

Seek the Crowd

Over the last year, the amount of venture capital funding has dropped significantly. Instead, online capital formation facilitated by the JOBS Act has become a powerful player in the private capital market. RegA+ and RegCF allow companies to raise capital from the general public, creating a wider pool of potential investors. And, since online capital raising is open 24/7/365, these sources of capital can be a valuable alternative to traditional funding routes.

Have a Plan and Tailor Your Pitch

Before you even consider approaching potential investors, you should always have an airtight business plan in place. This includes your stated objectives, financial projections, and any other details that provide an in-depth look into your venture. Once you’ve mapped out the specifics of your venture, it’s time to start crafting a tailored pitch that resonates with potential investors. Creating a compelling presentation with the right balance of facts, figures, and storytelling can help draw investors in and establish trust. Think about the investors you are pitching to and tailor your pitch accordingly. Are they venture capitalists and angel investors? Or are you targeting family and friends or seeking equity crowdfunding? Each type of investor has different requirements, so it’s key to understand who you are pitching to and adjust your strategy accordingly. Regardless of who you’re targeting, it’s vital that you fully understand your business plan, because investors will ask you questions that a memorized sales pitch might not answer adequately. By doing this, you can ensure that the capital-raising process is as seamless as possible.

Prioritize Compliance

When raising capital, adhering to securities regulations is essential for success. While there are many components to compliance, using a broker-dealer is one of the first things that any company should consider when raising capital. Broker-dealers can also help you navigate the complexities of securities regulations. By selecting an experienced and reliable broker-dealer, you’ll have peace of mind knowing that the process is compliant and secure. With these raises sometimes having thousands of investors on a cap table, you want to be sure that your investors are managed properly and that your raise is in compliance with the law.

Raising capital for your venture doesn’t have to be a daunting task. By following these five tips for frictionless capital raising, you can make the process as smooth as possible so you can be well on your way to securing the funds needed for growth. 

 

Seeking Opportunities in Times of Crisis

Posted on by Oscar Jofre

The collapse of Silicon Valley Bank has sent shockwaves through the financial sector, sending bank stocks plummeting, heightening stresses, and leaving many people with feelings of anxiety and uncertainty about the future. However, amidst this chaos lies a unique opportunity to innovate and create jobs, which can stand as a shining message of hope. We see this as a time for ingenuity and entrepreneurial spirit to uncover a unique solution to this crisis and serve as the spark that sets off further development in the sector. This blog will discuss how opportunity and crisis are closely linked, showcasing the potential for businesses to use this moment of disruption as a chance for growth and renewal.

The Innovation Opportunity

 

When crises arise, they can often be overwhelming and unsettling. But, in times like these also lies a unique opportunity for entrepreneurs to shine, by innovating solutions that meet the challenges of the moment. This is an opportune time for businesses to:

 

  • Make a meaningful difference.
  • Find creative solutions to problems.
  • Identify new markets for their services.
  • Develop products that can meet the unique needs of those affected by this crisis.
  • Offer creative solutions that can help bring stability and growth back to the sector.

 

When businesses take advantage of these types of opportunities, it can result in job growth and increased economic activity. But, to take advantage of this opportunity, companies need access to capital that can fund innovation and job creation. Fortunately, RegA+ and RegCF exist to fund businesses. And because retail investors can make investments into companies through these JOBS Act exemptions, it provides companies a source of capital even if there is decreased venture capital or private equity activity.

 

Raising Capital During a Crisis

 

In times of crisis and disruption, finding capital can also be difficult. This is especially true for start-ups that do not have access to the same resources as large businesses. Fortunately, there is a range of ways that companies can raise capital, such as through RegA+, and RegCF. 

 

Through RegA+, companies can raise up to $75 million from both accredited and nonaccredited investors. And since it offers companies the ability to turn current customers into investors and brand ambassadors, the exemption can bring a company tremendous value and help to grow the business. A Reg A raise is excellent for companies that have a wide customer base or need to raise a large amount of capital.

 

Like RegA+, RegCF allows both accredited and nonaccredited investors to invest in the offering. However, offerings are limited to a maximum of $5 million per year. Compared to other regulations, Reg CF is one of the most popular due to its lower cost and ease of implementation. 

 

These options offer companies a way to raise capital to fund innovation, job growth, and other related activities when traditional means might be less available.

 

The collapse of Silicon Valley Bank has sent shockwaves throughout the financial sector. But despite times of crisis like this, entrepreneurs can find unique solutions and opportunities to innovate, create new jobs, and make a meaningful difference. By seeking creative solutions that are tailored to the unique needs of those affected by this crisis, entrepreneurs have the potential to help bring stability and growth back to the sector. In addition, through access to capital through the JOBS Act, businesses can have the resources necessary to fund their growth during a time of disruption. All-in-all, the opportunity is closely linked with times of crisis, providing companies and entrepreneurs with a unique chance for growth and renewal.

What is TradeCheck?

Posted on by Oscar Jofre

Through RegA+, RegCF, and RegD, hundreds of companies across the country have been able to raise capital from both retail and accredited investors. The shares held by these investors are freely tradeable (after one year in the case of RegCF or RegD, however, buying and selling these securities requires compliance with a patchwork of regulations that can differ between different jurisdictions.

 

TradeCheck is a solution offered by KoreConX to ensure that state rules governing the resale of unlisted securities are met by providing clarity on state requirements for trading securities, automating compliance checks, and producing reports detailing transactions. TradeCheck is unique in its ability to provide transparency into transaction compliance, helping companies ensure a smooth and compliant trading process. 

 

TradeCheck can be used by all parties involved in a regulation process, including investors, issuers, and intermediaries. To use it, investors simply enter their email addresses into the platform and follow the prompts, where they will be asked to log in with their KoreID and password, and answer a security question before they can access their account. 

 

For issuers, the process begins with KoreConX walking them through the necessary state requirements, and providing a detailed report on which states transactions may be made in and for what time period. Alongside this, the inclusion of the issuer’s information in the Mergent “Securities Manuals” is also a part of this service. Ultimately, TradeCheck helps companies get clearance for all states and territories except California

 

The TradeCheck service also offers additional assurance to the investor or intermediary regarding the correctness of the disclosure available about the company, operating history, and financial statements. This is achieved by providing a third-party audit of the company’s documents to ensure that all the necessary regulations are met. The audit also helps in preventing any fraudulent activity which can result from incorrect disclosure or faulty financial information being provided to an investor. 

 

TradeCheck helps issuers and intermediaries comply with the regulations set by the broker-dealer operating their Alternative Trading System (ATS). It provides automated compliance checks and produces reports detailing transactions, providing transparency for investors in the regulatory compliance process. TradeCheck applies to many different types of securities and brings multiple benefits to investors, intermediaries, and other parties involved in the trading process. Ultimately, TradeCheck helps to reduce risk and increase investor confidence in trading securities.

What is Affinity Marketing?

Posted on by Oscar Jofre

Affinity marketing is an effective way to increase brand recognition and reach a larger target audience, especially when it comes to raising capital. By leveraging existing connections with customers, companies can improve their visibility and attract more investors. With the right strategy and tools, affinity marketing can be a powerful tool for businesses looking to expand their customer base and create trust between parties. 

 

Affinity marketing is a type of marketing strategy that focuses on creating relationships between a company and its customer base. This connection could be due to things like shared values, such as environmental sustainability or ethical labor practices. The main goal of this approach is to create loyalty and increase brand recognition. The idea behind affinity marketing is that a brand can appeal to an audience that is connected by brand loyalty, shared values, or other aspects that would make them like to make a purchase, return as a customer, or even become investors. 

 

Using the JOBS Act and Affinity Marketing

 

With Regulations A+ and CF, affinity marketing is an effective way to raise capital. By leveraging existing connections with customers, companies can reach a larger target audience and increase their chances of success. When beginning new capital-raising efforts, affinity marketing promotes a sense of trust and credibility.

 

Whether you have had several raises in the past or this is your first capital raise, affinity marketing is an effective way to reach a larger target audience. Leveraging your existing connections can help you gain exposure and attract more investors because people trust the brands they already know. By leveraging this group of investors, you can improve the visibility of your company and reach a larger pool by utilizing these people as a type of brand ambassador for your marketing.

 

Tips For Implementing Affinity Marketing Effectively

 

When implementing an affinity marketing strategy, there are certain steps you should take to ensure success. Here are some tips for using this type of marketing effectively:

 

Identify your target audience: Identify a customer base that shares similar values or had displayed brand loyalty. This will help you create a more tailored marketing plan that is specific to the target audience.

 

Set clear objectives and goals: Setting clear, measurable objectives and goals will help ensure that your affinity marketing strategy is successful. It will also allow you to track progress and make necessary adjustments as needed.

 

Communicate with your partner: Establishing a strong relationship with your affinity marketing partner, like an investor acquisition firm, is essential for success. Communicating regularly and discussing expectations, challenges, and successes will help foster collaboration and ensure successful outcomes.

 

Measure results: Tracking metrics such as customer acquisition rate, customer engagement rate, or return on investment (ROI) is important to determine the success of your affinity marketing strategy.

 

Affinity marketing is an effective way to increase brand recognition and reach a larger target audience. Especially when raising capital. By leveraging existing connections with customers, companies can reach more potential investors and create trust between parties. Additionally, tracking specific metrics can help measure success and ensure that you are meeting your goals. With the right strategy and tools, affinity marketing can be an effective way to increase brand visibility and reach a larger pool of investors.

 

LSI Starts Next Week!

Posted on by Oscar Jofre

In 2022, KoreConX partnered with Life Science Intelligence (LSI) to host the Emerging Medtech Summit, an event for investors and strategic partners within the life sciences ecosystem. With the next LSI event in 2023 taking place in Dana Point, California, from March 20th to the 23rd, now is the perfect time for companies in the Medtech industry to learn what they can gain from attending the event.

 

LSI was founded by Scott Pantel, an experienced leader in the Medtech field who believes that making strategic decisions requires data-backed insights. His team of economists, analysts, and market researchers are experts in the healthcare industry and specialize in providing actionable data to identify new trends. This allows LSI to guide its clients to make decisions on reliable information and stay ahead of the competition. LSI’s services are not limited to just the Medtech industry but extend into different areas such as digital health technology, medical devices, and diagnostics.

 

The 2023 LSI Emerging Medtech Summit event covers a wide range of topics that can help Medtech and other companies within the space understand the industry’s landscape. Attendees will have exclusive access to the knowledge of many industry leaders. This is especially critical for strategic decisions related to medical devices, diagnostics, and digital health solutions. 

 

The upcoming 2023 LSI Emerging Medtech Summit is an opportunity to learn from and ask questions directly to Scott Pantel while learning about the various regulations, trends, and challenges in the Medtech space.

Addressing the Decrease in VC Funding to Women-Led Startups

Posted on by Oscar Jofre

In recent years, the number of female entrepreneurs has grown exponentially. Many women have decided to turn their business ideas into reality. Others have leveraged the resources available to expand an existing business. Despite data suggesting that female-led startups outperform male-led startups, studies have shown that women-led startups only received 1.9% or around $4.5 billion of the total venture capital allocated in 2022, a startling statistic when $238.3 billion was raised from VC investments according to PitchBook, a decline from 2.4% the previous year. The gender gap in VC funding to women-led startups has become more pronounced.

 

What are the Causes of this Gender Gap?

 

Various factors cause the gender gap in venture capital (VC) funding, but most importantly it’s due to an overall lack of access to resources, networks, and mentors that can help female entrepreneurs succeed. Male investors dominate most venture capital firms, making it difficult for women to receive funding. Furthermore, women are not as well-represented in the technology industry. That is a key factor in obtaining VC investments due to the high growth potential of tech companies.

 

How Does This Affect Female Entrepreneurs?

 

The gender gap in VC funding can have a huge negative impact on the success of female entrepreneurs. Without adequate startup capital, developing a successful business and scaling it to profitability is difficult. This is especially true compared to male-led startups that receive more access to resources that can help foster growth.  And it’s a vicious circle. Less investment in woman-run companies makes it harder for them to succeed, which feeds the perception that they’re not good investments. With a drop in the female-owned businesses in VC funds, alternative means of capital raising like RegA+ and RegCF offer female entrepreneurs a chance to access the capital they need.

 

The Benefits of Alternative Capital Raising Options for Women-led Startups

 

With VC funding becoming increasingly difficult to attain, there are other options that female entrepreneurs can tap into to secure the resources needed for their companies. RegA+ and RegCF offer two alternatives that allow private companies to raise capital through more accessible means.

 

Regulation A+ is a type of private offering, exempt from SEC reporting requirements, that allows companies to raise up to $75 million from accredited and non-accredited investors. This makes it an attractive option for female entrepreneurs looking for significant sources of capital. Regulation Crowdfunding allows companies to raise up to $5 million from both accredited and non-accredited investors as well. The main advantage of this type of capital raising is that it is typically more cost-effective than a RegA+ raise. For early-stage companies, it is the ideal option.

 

What Can Female Entrepreneurs Do To Combat this Gender Gap?

 

The best way for female entrepreneurs to fight the gender gap in VC funding is by taking advantage of alternative capital-raising options. By utilizing RegA+ and RegCF, female entrepreneurs gain access to much-needed resources to launch their businesses and scale them. Additionally, female entrepreneurs need to continue networking with potential investors and other entrepreneurs to build their own trust networks. By leveraging the power of these networks, female entrepreneurs can gain access to capital from a diverse pool of investors.

Overall, the gender gap in venture capital funding is an issue that needs to be addressed and overcome by women-led companies. Regulation A+ and Regulation Crowdfunding offer two viable solutions for female entrepreneurs to gain access to the resources they need.

To sum up: With these capital-raising options, female entrepreneurs can take their businesses to the next level.

How Do I Know if My Cap Table is Ready?

Posted on by Oscar Jofre

A cap table (short for capitalization table) is essential for any company looking to raise capital. It provides a detailed breakdown of the equity owned by shareholders, enabling founders to understand how their offerings will be impacted and make sound decisions regarding their finances. When properly managed, cap tables help potential investors feel confident in their investments as they provide a clear picture of the company’s ownership. As such, understanding your cap table and ensuring it is up to date is important when assessing if your company is ready to move forward with fundraising efforts.

 

Must-Haves for Proper Cap Table Management

 

When it comes to cap table management, remember to include this elements:

 

  • Voting rights
  • Share issuance
  • Past and current shareholders
  • List any future projections for additional capital raises or dilution
  • Track all options grants, vesting schedules, and related information
  • The amount of money each shareholder has invested in the company
  • Include details about convertible notes, warrants, and other debt instruments
  • Clearly list all shareholders, their ownership percentages, and the date of their investments

 

All of the above must be taken into consideration and recorded accurately to ensure proper cap table management. With these basics accounted for, founders can feel confident that their cap table contains the necessary information so they can be ready to raise capital. Still, some dos and don’ts should also be observed to ensure the best possible outcome for organizations raising capital.

 

Cap Table Dos: 

 

  • Ensure that all information is readily available in an easy-to-understand way
  • Maintain accurate and up-to-date information
  • Take into account dilution from future funding rounds, options pools, and performance issues

 

Cap Table Don’ts 

 

  • Overlooking the potential for dilution when raising capital
  • Failing to update it when new shareholders invest
  • Hesitating to consult a legal or financial advisor with any questions that arise
  • Neglecting the importance of understanding the cap table and its implications

 

By following these dos and don’ts, organizations can avoid potential pitfalls in the capital raising process and ensure an efficient, effective raise for all involved parties. A well-maintained cap table ensures transparency between investors, founders, and shareholders.

 

Best Practices for Managing a Cap Table

 

Though having a comprehensive cap table is vital, keeping it updated and organized requires consistent effort. To ensure your cap table remains accurate, it’s essential to follow the best practices for managing a cap table, including:

 

  • Updating the tables regularly as new investments come in or out
  • Keeping multiple copies of the tables in both digital and physical form
  • Storing the cap table in a secure location with proper backups for redundancy
  • Utilizing a FINRA broker-deal with knowledge of and experience handling cap tables for JOBS Act raises
  • Monitoring new regulations and laws to ensure the cap table is compliant with all applicable standards

 

By following these best practices for managing a cap table, companies can ensure accuracy, transparency, and compliance when looking to benefit from raising capital. It will also give investors confidence that they have all the information they need to make informed decisions.

Who Does Due Diligence on Companies Using RegCF?

Posted on by Oscar Jofre

When it comes to raising capital using Regulation Crowdfunding (RegCF), due diligence is an essential part of the process. Due diligence helps ensure that the company offering securities complies with all applicable laws and regulations and that investors are fully informed about the risks that come with investing. We are going through who does due diligence on companies using RegCF

 

Conducting Due Diligence for Reg CF

 

The responsibility for conducting due diligence on companies using RegCF lies with a variety of parties. To offer securities through a RegCF raise, companies must use an SEC and FINRA-registered Broker-Dealer or crowdfunding platform. The broker-dealer or crowdfunding platform needs to ensure that the issuer provides accurate company information and complies with securities regulations at both the federal and state levels. These parties also ensure that any investors pass KYC and AML checks to ensure they are not bad actors or other people unable to invest.

 

The issuers themselves also have responsibilities when it comes to due diligence. They must provide investors with accurate and complete information about the company, its securities offering, and the risks associated with investing. Investors also have an obligation to thoroughly review any information regarding the investment opportunity so that they can understand its potential risk and determine if it is an appropriate investment.

 

Types of Information Gathered During Due Diligence

 

When conducting due diligence on companies using RegCF, there is an information-gathering process, notably from your Form C, such as:

 

  • Business plans
  • Background checks on key officers
  • Financial statements and tax returns
  • Intellectual property registration filings
  • Proof of ownership in any subsidiaries of the company
  • Legal documents related to the business, such as contracts and bylaws

 

This information provided during the due diligence process allows investors to better understand the company and its business operations. 

 

Protecting Investors and Issuers 

 

Performing due diligence on companies using RegCF is an important part of protecting investors. It helps ensure that only qualified and legitimate businesses can raise capital. It also provides investors with the information they need to make informed decisions about their investments.

 

Due diligence is important for companies raising funds through RegCF because of the number of new-to-the-space investors. Issuers will demand their broker-dealer to complete all due dilligence. Raises can be successful and investors need to be sure of that, as well. Additionally, platforms should also have procedures in place to collect information from companies and investors before they are allowed to raise funds, such as background checks. By doing so, platforms ensure that investors are protected and companies meet all necessary criteria before raising funds.

 

Proper due diligence has clear roles: From broker-dealers and the platforms that facilitate the RegCF transactions to issuers and investors themselves. Accurate and complete information about companies using RegCF protects issuers and investors. For investors, it allows them to make better-informed decisions about their investments. For issuers, it provides an opportunity to demonstrate commitment to compliance and build credibility with investors for a successful raise.

Who Does Due Diligence on Companies using RegA+?

Posted on by Oscar Jofre

Due diligence is an essential part of the investment process. Especially following the passage of the JOBS Act in 2012, which expanded Regulation A+ (RegA+), companies now have additional opportunities to seek capital from investors. This has created a need for due diligence on these companies that is both thorough and efficient. In this blog post, we will discuss who does due diligence on companies using RegA+ and who does due diligence on companies using RegA+.

 

What Is Due Diligence?

 

The Securities Act of 1933, a result of the stock market crash years earlier, introduced due diligence as a common practice. The purpose of the act was to create transparency into the financial statements of companies and protect investors from fraud. While the SEC requires the information provided to be accurate, it does not make any guarantees of its accuracy. However, the Securities Act of 1933 for the first time allowed investors to make informed decisions regarding their investments.  

 

In the context of raising capital through RegA+, due diligence means that the issuer has provided all of the necessary information to investors and securities regulators so that they comply with securities laws. This may include information like:

 

  • Funding: The issuer should provide a detailed plan of how the money raised through RegA+ will be used.
  • Products/Services: The issuer should provide a clear description of their products and services, as well as any potential advantages that they may have over the competition.
  • Business Plan: The issuer should provide a detailed and comprehensive business plan outlining their current and future projects, as well as realistic projections based on their financial reports.
  • Management Team: The issuer should disclose information about the company’s officers, founders, board members, and any previous experience in business that may be relevant to investors.

 

Issuers should also use a registered broker-dealer as an intermediary to comply with Regulation A+ (RegA+). By doing this, they will ensure that they are meeting their due diligence requirements.

 

Who Is Responsible for Doing Due Diligence on companies using RegA+?

 

When it comes to due diligence for companies using RegA+, typically, the issuer’s FINRA Broker-Dealer is responsible for conducting due diligence both on the potential investors and the company itself. The broker-dealer will be required to perform regulatory checks on investors such as KYC, AML, and investor suitability to ensure investors are appropriate for the company. Additionally, they will perform due diligence on the issuer so that they can be assured that the company is operating in a manner compliant with securities laws so that they do not present false information to investors. Failing to meet compliance standards can result in the issuer being left responsible for severe penalties, such as returning all money raised to investors. 

 

However, both investors and issuers have a responsibility for due diligence as well. Investors should research the company thoroughly and make sure they understand all details surrounding the offering before investing their money. This includes reviewing all relevant documents, such as the offering circular, stock subscription agreements, and other related materials that give them a good understanding of the investment opportunity and its potential risks.

 

Issuers also contribute to due diligence as they must work with their FINRA Broker-Dealer to ensure that their offering is compliant with all laws and regulations. This includes verifying all information provided in the offering materials and making sure it meets regulatory requirements. The issuer must also disclose all information that could influence an investor’s decision to purchase the securities. 

 

Due diligence is essential for both investors and issuers when it comes to investments under Regulation A+ (RegA+). Ensure that thorough due diligence is conducted ensures that the offering is conducted in a manner that aligns with the best interests of both investors and the issuer. Ultimately, due diligence is a key component when it comes to investments under Regulation A+ (RegA+) and should not be overlooked.

 

Online Capital Formation is Always Available, Even When VC Funding Is Not

Posted on by Oscar Jofre

The venture capital (VC) industry has been struggling since 2022. Venture funding has dropped by more than 50% since 2022 and late-stage investments have plummeted even more dramatically, down 63%. Online capital raising may be a viable alternative for entrepreneurs seeking funding in an uncertain VC climate.

 

What Is Online Capital Formation?

 

Online capital formation is the process of using digital platforms to raise funds from investors through JOBS Act regulations. Using exemptions from SEC registration such as RegA+ and RegCF, companies can tap into a larger pool of investors beyond traditional VCs and private equity firms. These investments can be accessed by anyone, regardless of their net worth or accreditation status. On the other hand, venture capital firms are typically limited to investing in businesses with high growth potential and start-up costs that require large sums of money. With online capital raising, entrepreneurs can access smaller sums of money from a larger pool of investors. In 2022, companies raised an impressive $494.0 million from RegCF raises and $431.8 from Reg A through over half a million investments. 

 

Benefits of Online Capital Formation

 

Online capital formation offers many benefits for entrepreneurs and investors alike:

 

  1. Access to a larger pool of investors: By using online capital raising platforms, businesses can access a much wider range of investors than traditional VCs or private equity firms. This allows businesses to access capital from individuals and retail investors who may not have the same wealth or investment track record as professional investors.

 

  1. Increased transparency: Online capital raising platforms allow for greater transparency, giving investors more information about an offering before they commit to investing in a particular business. This allows investors to make more informed decisions and reduces the risks associated with investing.

 

  1. Lower cost of capital: Online capital-raising platforms typically charge lower fees than traditional VCs and private equity firms, making it a more cost-effective way to raise funds. Companies are typically able to retain more of their businesses than the VC or private equity route.

 

Available 24/7/365

 

Online capital raising is available 24/7/365, which allows entrepreneurs to access funding when they need it without having to wait for the next round of venture capital or private equity investments. This makes online capital raising a particularly attractive option for businesses that need quick access to funds. This makes online capital raising such as Reg A+, Reg CF, and Reg D an attractive option for companies looking to access funds quickly and efficiently.

 

VCs have traditionally been the go-to source of funding for entrepreneurs, but venture capital investments are dwindling in today’s turbulent economic environment. Online capital raising offers a viable alternative that allows businesses to access a wider pool of investors, increased transparency, and continuous access to capital. With online capital-raising platforms, entrepreneurs can access funding quickly and efficiently without requiring lengthy fundraising cycles. In this challenging economic environment, online capital raising provides a much-needed lifeline for emerging businesses.

Why Use RegCF for Real Estate?

Posted on by Oscar Jofre

Companies in the real estate industry have a variety of financing options available for their projects, but one that is often overlooked is the use of Regulation Crowdfunding (Reg CF). Equity crowdfunding is becoming an increasingly popular tool among companies due to its potential to provide access to potentially high-yielding investments and the ability to offer new ways for investors to diversify their portfolios. 

 

What is Reg CF for Real Estate?

 

Reg CF is a type of equity crowdfunding that allows companies to raise capital from everyday individuals, not just accredited investors. Unlike traditional real estate investments, the price tag for Reg CF investments is much smaller, making it more appealing to a wide range of investors. Companies can sell securities such as stocks or debt instruments in exchange for investor funds. For real estate, this can be done in various ways such as selling shares in a real estate investment trust (REIT), selling property-specific investments, or launching a syndication.

 

Benefits of Reg CF for Real Estate

 

Using regulation CF for real estate offers a wide range of benefits to both investors and issuers that may not be readily available with other forms of capital raising. These benefits include:

 

It Can Provide Access to High-Yielding Investment Opportunities: Real estate investments can offer higher returns than traditional stocks and bonds, with an average annual return of 12.9% according to a study by the Cambridge Centre for Alternative Finance in 2017. By using Reg CF, investors can tap into this high-potential market and issuers can access the capital to fund their real estate projects.

 

It Offers a More Diverse Investment Portfolio: Real estate equity crowdfunding allows investors to invest in specific projects or properties, rather than having to invest in an entire REIT or development company. This provides more control and transparency for the investor as they can see exactly where their money is going.

 

It Can Offer Lower Investment Requirements: When using Reg CF, the minimum investment is typically much lower than traditional real estate investments, meaning that anyone can invest as little or as much as they want in a given project. This makes it easier for companies to attract a larger pool of potential investors and increase their chances of successfully raising the necessary funds.

 

It Can Help Facilitate Market Research: When using Reg CF, issuers must provide investors with all the information they need to make an informed decision, in-depth market research included. This can increase investor confidence in the project and potentially lead to higher returns for real estate agents.

 

Reg CF is an effective tool in the real estate space, allowing companies to access capital quickly and easily from a wide range of potential investors. As the popularity of crowdfunding continues to grow, it is becoming increasingly important for companies in the real estate space to understand how Reg CF works and how it can be used in conjunction with other financing methods to maximize their fundraising efforts.

What is Tokenization in Real Estate?

Posted on by Oscar Jofre

Real estate tokenization is a new way of dividing property ownership rights using blockchain technology and digital tokens. Tokenization enables fractional real estate ownership, owning just part of a property without having to buy the entire asset. This makes such investments accessible to people without the resources to buy an entire property. So how does real estate tokenization work, and what are the implications for investors, property owners, and other stakeholders?

 

What is Real Estate Tokenization?

 

According to Deloitte, a large amount of our future economy will be powered by tokenization, and the value of blockchain technology is projected to rise about $3.1 trillion by 2030. Investors and realtors alike are using this option more and more often. The total value of tokenized real estate increased from $65 billion in June 2021 to $194 billion in May 2022. 

 

While many countries are developing a legal framework for tokenized assets, not all jurisdictions have implemented regulations yet. It is also important to understand the potential impact of taxes and other fees on profits from tokenized property investments.

 

Distributed Ledger Technology

 

The use of distributed ledger technology (DLT) is key to making real estate tokenization possible. DLT uses blockchain to securely store digital records of fractional ownership shares across a network of computers. Those decentralized digital records allow quick and secure verification of each investor’s ownership stake.

 

Smart Contracts

 

Real estate tokenization can also use smart contracts. A smart contract is a code-based agreement between two or more parties that automatically records transactions on the blockchain when certain conditions are met. Smart contracts facilitate the transfer of shares in a property, automated payment processing and compliance with regulatory requirements. This automation greatly reduces transaction costs.

 

Implications of Real Estate Tokenization

 

Tokenization significantly reduces the costs of investing in real estate, both by increasing the efficiency of transactions and record keeping, and by breaking up assets into affordable chunks. This increases liquidity and market transparency, and brings real estate investment within reach of more people than ever before. 

 

Finally, tokenization provides an additional level of security by protecting investor rights through secure digital records stored on the blockchain. This safeguards investor interests, reducing the risk of fraud or manipulation.

 

Real estate tokenization can revolutionize the way we buy, sell, and invest in properties. Tokenization provides investors with greater liquidity and security, by recording fractional ownership shares in an asset on the blockchain and tracking all subsequent transactions. It also opens up new opportunities for those who may not have had access to traditional real estate investments in the past. However, before investing in tokenized assets, it is important to understand the regulatory landscape and potential risks associated with these types of investments.

The Need for Compliant and Safe Online Capital Formation

Posted on by Oscar Jofre

In the State of the Union address given by President Joe Biden on February 7th, 2023, he remarked: “Every time somebody starts a small business, it’s an act of hope.” This followed a statement citing the record 10 million Americans who applied to start a new business within the past two years. The President also remarked that Vice President Kamala Harris would continue her work to ensure that these businesses can access the capital they need to thrive. But what does this look like? 

 

As he shared in his speech, there are already major changes to the economy underway. From increasing taxes on capital gains to boosting infrastructure spending, many of Biden’s plans are focused on driving domestic growth. But one area that needs more attention is online capital formation – particularly how to do so in a compliant and safe way. The sheer number of Americans applying for small business startups sheds a light on an urgent need to provide access to capital for these entrepreneurs. 

 

The Benefits of Online Capital Formation

 

In 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law. This legislation was designed to make it easier for small businesses to raise capital by loosening specific regulations. Most notably, it enhanced Reg A+ and created Reg CF which allows companies to receive investments from everyday people, sometimes referred to as retail investors. The exemptions from SEC registration have since expanded to increase the amount of capital that can be raised by private companies. As a result, more companies have begun to see Reg A+ and Reg CF as viable alternatives to traditional VC and private equity funding, like medtech, real estate, and cannabis companies.

 

The exemptions have also allowed for capital to be raised online, reducing barriers for entrepreneurs as well. Online capital formation has the potential to provide a great benefit to entrepreneurs by providing access to investment opportunities that they can use to scale their businesses faster and more efficiently. This expansion of capital availability can also help drive economic growth across industries, as well as help create jobs in tech and start-ups. Furthermore, it will allow investors to diversify their portfolios and access new markets.

 

Gary Gensler’s Remarks to the Small Business Capital Formation Advisory Committee

 

In a separate speech also delivered on February 7th, Gary Gensler of the SEC discussed the importance of private funds and their advisers. He noted, “the people whose assets are invested in private funds often are teachers, firefighters, municipal workers, students, and professors.” While addressing the Small Business Capital Formation Advisory Committee, Gensler stated that “there may be somewhere in the range of $250 billion in fees and expenses each year” for private funds. This is money that portfolio companies, like small businesses, do not get to use. He called for greater transparency, efficiency, and competition between intermediaries to help both investors and the companies who benefit from these funds.

 

The Need for Compliance and Safety

 

Although online capital formation can be beneficial for entrepreneurs, investors, and the economy at large, it is important that measures are taken to ensure compliance with laws and regulations. This is especially true for private funds and their advisers, as Gensler discussed. The SEC is focused on protecting not just the investor, but also the companies that are seeking capital.

 

To do this, there must be rigorous enforcement of laws and regulations that govern online capital formation. Companies need to ensure that they understand disclosure requirements so that investors can make informed decisions. Additionally, safeguards must be put in place to protect against data misuse and cyber-security risks that can occur when seeking capital online.

 

The Biden Administration’s Role

 

President Biden has expressed his commitment to creating an environment where entrepreneurs can access the capital they need to grow their businesses. He is in support of the JOBS Act and other key initiatives that have been put in place to help small businesses. Additionally, he has directed his Administration to focus on creating more jobs, including ones in tech and alternative energy sectors.

 

For entrepreneurs to access capital more efficiently and safely, online capital formation must be optimized with compliance in mind. This can be done through the implementation of strong regulations, while also encouraging innovation within the sector.

 

What Are the Costs for a RegCF Issuance?

Posted on by Oscar Jofre

Raising capital is necessary for many companies, but it comes with a price tag. This is why we often receive questions from companies seeking to understand how to budget for the fundraising process. With Regulation Crowdfunding (Reg CF) issuances becoming increasingly popular in the United States, understanding the costs associated with these offerings is essential to successful capital raising. 

To shed a light on this topic, we have worked with our KorePartners to research the estimated budget for a Reg CF offering. However, this estimated budget is based on a variety of factors that can influence the total cost of capital raising. Thus, this information will not apply to all companies but is a general guide to the expenses involved in a Reg CF raise.

Estimated Reg CF Costs for US-Based Companies:

What Why/Work to be done When Estimated Cost
USA Lawyer To file your SEC Form C and state filings First step in moving forward $7,500-15,000k 
Auditors Are required to be filed with your Form C First step requirement $2,500 +
FINRA Broker-Dealer States require you to have a Broker-Dealer to sell securities to investors  Begin engagement when you start with a lawyer  3-5% fees + $2,600-$10,000 (these are upfront fees) 
Escrow Provider SEC requires that funds be held in escrow during the capital raise for a RegCF Required to file Form C $1,000 – $3,500 one time fee

Closing fees TBD
Investor Acquisition

  • Investment Page
  • PR Firm
  • IR Firm
  • Video
  • Social media
  • Media Firm
  • Advertising
  • Webinar
  • Newsletter
  • Publishers
 The sooner you can begin to start building your community, the more it increases your company’s chance of achieving your offering goals Before you file your Form C  $10,000 to $15,000/month 

Plus any additional advertising you will do
Investor Relations Director If not already available in house, you may look to hire an internal resource to manage incoming inquiries from potential investors, in order to handle outbound calls to investor leads compliantly. This is only an option to consider $4,500/month
Data Access Providers with Data set up to access 1.5B records $2,500-$5,000 one-time fee

$2.00-$5.00 for investor lead
KoreConX All-In-One platform RegCF Solution

  • Mobile App
  • Private Label
  • RegCF Invest Button
  • Shareholder Platform
  • Portfolio Platform
  • DealRoom Platform
  • KoreID
  • KoreID Verified
 $550.00/month

$3,500 Set up Fee
SEC-Transfer Agent KoreConX End-to-end solution includes the RegCF Investment platform and

SEC Transfer Transfer Agent as required to file your Form C

 Required to file Form C Included with KoreConX All-in-One Platform
Investment Platform for RegCF Requires 10-14 days to set up After you retain your lawyer  Included with your KoreConX All-In-One Platform 
Live Offering During the live offering you will have to pay for KYC (ID, AML), search fees required   Ranges from $1.50/person-$15/person. With KoreConX these fees are provided at cost and vary depending on country; with no markups
Live Offering During the live offering you will have to pay for your Payment processors (Credit Card, ACH, EFT, Crypto, WireTransfer, IRA) With KoreConX these fees are provided at cost with no markups

 

Looking Ahead at the Growth of Private Equity

Posted on by Oscar Jofre

As a market now worth millions of dollars on a global scale, the history of private equity dates back to the early 1900s when J.P. Morgan purchased the Carnegie Steel Corporation. Since then, the industry has seen tremendous growth, especially as the global economic climate continues to develop. Over the next four years, analysts predict that the global private equity market will grow by $734.93 billion between 2022 to 2027, a CAGR of 9.32%. 

 

Much of this growth is being driven by many factors. One of the most important factors is the increasing number of high-net-worth individuals on a global scale. High-net-worth individuals are defined as people with net investable assets amounting to more than $1 million. Because of this wealth, they are key players in private equity investments. Based on a report published by Boston Consulting Group, its projections show that capital commitments to private equity funds from these wealthy individuals will grow at a CAGR of 19% to reach $1.2 trillion by 2025 and account for over 10% of all capital raised by private equity funds.

 

The rise in private equity deals is another major driver of the market. Strategic alliances between companies are becoming more common, allowing them to access resources they otherwise would not be able to gain access to on their own. For example, Blackstone recently partnered with Thomson Reuters to carve out its financial and risk business into a USD 20 billion strategic venture. 

 

Despite the various drivers of market growth, there are a few challenges that could impact the future development of the private equity market, such as transaction risks and liquidity. This concern primarily arises in transactions between companies from two different countries. Transaction risk can lead to losses when the currency rate changes before transactions are completed, as well as through delays or defaults in payments due to foreign exchange controls or political instability in certain countries. Additionally, low liquidity levels of private equity assets could hinder investments in private equity, as investors require more liquidity to invest in other assets.

 

Overall, the private equity market is expected to experience moderate growth over the next five years. This growth will be driven by factors such as an increasing number of HNWIs investing in private equity and a rise in strategic alliances between companies. However, some challenges could impede this future development including transaction risks associated with international transactions and low liquidity levels of assets. Despite these potential issues, global private equity investments will likely increase between 2023 and 2027 due to economic recovery and businesses seeking new investments. 

Is Reg D Suitable for My Company?

Posted on by Oscar Jofre

Regulation D (Reg D) is a set of rules established by the U.S. Securities and Exchange Commission (SEC) that allows companies to raise capital without registering their securities for public sale and is related to, but different than other JOBS Act regulations. Reg D also establishes certain disclosure requirements that companies must comply with when selling securities under this type of offering and offers several advantages for companies seeking to raise capital, these include:

 

  • Ability to raise capital from accredited and some nonaccredited investors
  • Reduced disclosure requirements, and faster access to capital
  • No limits on offering sizes

 

However, there are also certain drawbacks associated with Reg D. For example, companies must comply with state regulations that may require disclosure of notices of sale or the names of those who receive compensation in connection with the sale. Additionally, the benefits of Reg D only apply to the issuer of the securities, not to affiliates of the issuer or to any other individuals who may later resell them.

 

What is Reg D?

 

Reg D is a set of rules established by the SEC to help companies raise capital without registering their securities for public sale. The regulations are designed to make it easier for businesses to access capital markets and take advantage of potential investors who were not previously able to invest in private offerings.

 

Under Regulation D, companies are allowed to raise capital without registering their securities with the SEC under rule 506. Under Rules 506(b) and 506(c), companies are not limited to the amount of capital that can be raised. However, offerings under rule 506(b) cannot use any form of general solicitation, which means they need to rely on their networks of accredited investors. In addition, 506(b) offerings can have up to 35 nonaccredited investors.

 

Who Can Benefit from Reg D?

 

Reg D can benefit both companies and investors. Companies can access capital markets without registering their securities for public sale, a great alternative to a cost-intensive IPO. Issuers can also raise the capital they need to grow and expand their business, as well as fund future rounds of fundraising that may be accomplished through a Reg CF or a Reg A+ offering.

 

For investors, Reg D offers the opportunity to invest in companies with potentially higher returns than other investments due to the increased risk associated with such investments. The majority of investors must meet specific criteria (such as having an annual income of over $200,000) to be considered accredited investors.

 

Is Reg D Suitable For My Company?

 

The answer to this question depends on several factors, such as your company’s financial situation and whether you can meet the disclosure requirements under Reg D. Companies that may benefit from a Reg D offering include:

 

  • Start-ups or development-stage companies
  • Growing businesses needing additional capital
  • Companies looking to access capital more quickly than they could through a traditional public offering

 

Reg D can be beneficial for companies, as well as accredited investors who meet specific criteria. While there are potential risks associated with a Reg D offering, it may be suitable for your company if you can meet the disclosure requirements and familiarize yourself with the relevant regulations. Ultimately, it is important to consult a qualified securities lawyer to determine if Reg D is the right option for your company.

 

What You Need to Know About Cap Table Management

Posted on by Oscar Jofre

More than a simple spreadsheet, a cap table (short for capitalization table) records detailed data regarding the equity owned by shareholders. When it comes to raising capital, your cap table will help you make sound decisions regarding your offering. So, what exactly is cap table management?

 

A clear and well-managed cap table paints a detailed picture of exactly who owns what in the company. Whether a founder is looking to raise additional capital or offer incentives to employees, a correctly-managed cap table will show the exact breakdown of shares, digital securities, options, warrants, loans, SAFE, Debenture, etc. This information enables founders to understand how equity distribution is impacted by business decisions.

 

Proper cap table management ensures that all transactions are accounted for and that potential investors are easily able to see the equity structure during funding rounds. Founders are also able to better negotiate the terms of a deal when they have the entire picture of their company’s structure available for reference. Without a cap table, companies can face challenges when it comes to raising capital, due to a lack of transparency in the ownership of the company.

 

But, it’s not enough to simply have a cap table. Once created, it must be maintained properly and updated each time an equity-based transaction is conducted. In the early stages of the company, the cap table will be relatively simple to manage but as rounds of funding progress, it becomes more complex as shares are distributed amongst investors and employees. Some of the key features of a well-managed cap table management include: 

 

  • Records the voting rights of each shareholder.
  • Documents when shares are issued and diluted.
  • Keeps track of all equity holders, past and present.
  • Records who owns what percentage of the company.
  • Increases transparency among shareholders and investors.
  • Enables quicker and more efficient transactions due to up-to-date information.
  • Shows how much money each shareholder has invested in the company.

 

While simple cap tables can be created in programs such as Excel, a cap table management software may provide a better solution as it becomes more complex.  As part of its all-in-one platform, KoreConX provides companies with the tools to properly record every transaction in their cap table. Encouraging transparency of shareholders, every type of security (including digital securities, shares, options, warrants, loans, SAFEs, and Debentures) that may be offered is accounted for and kept up to date as deals occur. By maintaining transparent records, companies can benefit from both shorter transaction times and expedited due diligence.

 

With an understanding of the importance of keeping a properly managed cap table, founders can arm themselves with the ability to make well-informed business decisions. Detailed insight into a company’s financial structure allows potential investors to feel confident in their investments, secure with the knowledge that their share is accurately accounted for. Even if the task of creating a cap table may seem daunting, it is simplified with a cap table management software so that everyone is on the same page.  

What You Need to Know About RegCF

Posted on by Oscar Jofre

Raising capital is always a challenge, especially in the startup sector, which means that it’s vital to understand all the options available and how they can help you attain your goals. We will discuss Regulation Crowdfunding (RegCF), which has proved to be an increasingly popular method among early-stage companies looking for funds due to its exemption from SEC registration and access to a vast pool of potential investors, in addition to being cost-effective. This blog post will outline some essential things you need to know before taking advantage of RegCF as a form of raising capital. Understanding what challenges you may face along the way and what resources are at your disposal will hopefully give you greater insight into whether this capital option is right for your business.

 

What is RegCF?

 

  • RegCF refers to equity-based crowdfunding.
  • This type of financing method raises money through small individual investments from many people.
  • Startups and early-stage businesses can use RegCF to offer and sell securities to the investing public.
  • Anyone can invest in a Regulation Crowdfunding offering, but there are limits based on annual income and net worth for investors who are not accredited.

 

What do you need to know about RegCF?

 

RegCF is a type of securities-based crowdfunding that allows startups and early-stage businesses to offer and sell securities to the investing public. This type of financing method raises money through small individual investments from many people, and it has seen a surge in popularity since its enactment in 2012. In 2019, the SEC passed amendments to RegCF, making it even easier for companies to raise capital, such as increasing the offering limit to $5 million. As of 2021, over $1.1 billion has been raised through RegCF.

 

Who can invest in a Regulation Crowdfunding offering?

 

Any person can invest in a Regulation Crowdfunding offering. However, there are certain restrictions based on annual income and net worth for those who are not accredited investors. According to the SEC, an individual will be considered an accredited investor if they have earned income that exceeded $200,000 ($300,000 together with a spouse or spousal equivalent) in each of the prior two years and reasonably expects the same for the current year, have a net worth over $1 million (excluding the value of their primary residence), or hold certain professional certifications.

 

What are the investment limits for non-accredited investors?

 

For non-accredited investors, the amount they can invest in a RegCF offering depends on their net worth and annual income. If an individual’s annual income or net worth is less than $124,000, then during any 12 months, they can invest up to the greater of either $2,500 or 5% of the greater of their annual income or net worth. If their annual income and net worth are equal to or more than $124,000, then during any 12 months, they can invest up to 10% of annual income or net worth, whichever is greater, but not to exceed $124,000.

 

What Are the Benefits of RegCF?

 

Any startup or early-stage business can use RegCF to raise capital. This financing is beneficial for companies that do not have the resources or connections to access traditional forms of financing, such as venture capital or bank loans. RegCF also provides an alternative to Initial Public Offerings (IPOs) for companies that are too small for a public offering.

 

RegCF is an excellent way for startups and early-stage businesses to access capital. It offers increased access to capital and no restrictions on who can invest. RegCF is expected to reach $5 billion in raises in the future, and with the popularity of this financing only growing, it’s clear that RegCF is here to stay. By understanding the basics of Regulation Crowdfunding, startups and small businesses can make informed decisions about when and how to raise capital to achieve their business goals.

Online Capital Formation And Why You Have To Understand It

Posted on by Jason Futko

The JOBS Act reached its tenth anniversary in 2022. We celebrated the date with the launch of our Podcast, KoreTalkX, recently mentioned by Spotify as in the top 10% of the most shared shows globally. But the regulations that brought a lot of novelties to the capital raising process still face some misconceptions. Especially regarding Crowdfunding. We are introducing Online Capital Formation and why you have to understand it.

We do write a lot about the democratization of capital because we believe that everyone should be able to participate and share in the benefits. Whether as entrepreneurs, brand advocates, innovators, or investors (both accredited and non-accredited). What we may be missing here is that Regulation CF (RegCF) has matured over the past decade, and it is time to look at it in a more complex way.

Crowdfunding?

For many individuals, the word  “crowdfunding” still evokes Kickstarter as a Top of Mind idea. Entrepreneurs that need money to launch a product pitch their ideas online. People can contribute based on a variety of rewards listed on a website. But that is far from being a regulated entity.

RegCF helps companies turn investors into shareholders. Companies and product makers are not selling their stories anymore. They are selling their stock. And that is why we feel the word “crowdfunding” doesn’t encompass the whole idea behind it.

That is why we put together our KorePartners, like Sara Hanks (CEO/Founder of CrowdCheck) and Douglas Ruark (President of Regulation D Resources) to help us put a flag in the ground to what we believe is the new era in Crowdfunding: Online Capital Formation.

Sara Hanks, Douglas Ruark. and Oscar A Jofre, our CEO and co-founder, will join our communications coordinator Rafael Gonçalves in a webinar next Monday, on December, 19th, at 4 PM EST, to remind us all of the paths we have traveled while pointing the way forward for the Online Capital Formation idea.

Join us on LinkedIn Live or subscribe on Airmeet.

What You Need to Know About RegA+

Posted on by Oscar Jofre

If you are an entrepreneur looking to raise funds, you may have heard of Regulation A+, often referred to simply as Reg A+. This alternative to traditional venture capital, private equity, or other funding sources allows companies to sell securities to the public without going through the lengthy and costly process of registering with the SEC. Since it was expanded in 2012 with the JOBS Act, Reg A+ continues to evolve, facilitating increased capital formation for companies within the private capital market.

 

What is Reg A+?

 

The goal of Reg A+ is to make it easier and less expensive for small businesses to access capital while still providing investors with the protection of an SEC-qualified offering. The offering is exempt from complete SEC registration, allowing companies to raise up to $75 million in capital, with certain restrictions and requirements. To qualify for this exemption, a company must file an offering statement (Form 1-A) with the SEC that includes all pertinent information about the business and the offering. The company must also provide ongoing disclosure about its business, including financial statements and other material information.

 

Who is Reg A+ for?

 

Reg A+ is aimed primarily at small and medium-sized businesses looking to raise funds from the public, but larger companies can also use it. Because there are fewer restrictions and requirements than traditional SEC registration, Reg A+ offers a more affordable option for companies that do not have access to venture capital or other significant funding sources. Because Reg A+ is such a robust option for companies looking to raise capital, many companies stay private longer instead of going public through an IPO. 

 

Advantages of Reg A+

 

Beyond lower costs than going public, Reg A+ offers additional benefits for issuers and investors alike. It is a unique opportunity for investors to get involved with early-stage companies since the offering allows both nonaccredited and accredited investors to invest. At the same time, these investors can benefit from the potential for higher returns and the ability to diversify their portfolios. Investors also benefit from SEC oversight, which aims to protect them and ensure that they are investing in legitimate investment opportunities. Investors may also have options for liquidity, as securities purchased through a Reg A+ offering can be traded on a secondary market.

 

Reg A+ benefits companies because it offers a relatively simple and cost-effective way to access the public markets while accessing an increased pool of potential investors than a traditional offering. Unlike conventional VC or private equity funding routes, issuers can also retain more ownership over their business while finding investors who share the vision for the mission and direction of the company. Issuers can also benefit enormously from building brand advocates out of their investors, which can, in turn, inspire new investors or customers. 

 

Reg A+ offers an excellent alternative for small businesses looking to raise capital without going through the lengthy and costly process of registering with the SEC. With a maximum offering cap of $75 million, Reg A+ can be used for companies of all sizes and offers investors the opportunity to access early-stage companies that they may not otherwise have access to. 

How Does Technology Improve Transparency and Sustainability?

Posted on by Oscar Jofre

Technology has significantly impacted many different aspects of our lives, and the world of capital raising is no exception. With the help of technology, we can more efficiently raise capital and improve transparency and sustainability in the process. Here is a closer look at how technology is helping to improve transparency and sustainability in the world of capital raising and investment:

 

Improving Transparency

 

One of the biggest ways technology improves transparency in capital raising is by providing more information to investors. In the past, it was often difficult for investors to get a clear picture of where their money was going and how it was being used. However, thanks to technology, there are now a number of platforms and tools that provide investors with real-time updates and insights into how their money is being used. This increased transparency gives investors more confidence in the process and helps build trust between them and the companies they invest in.

 

Another way that technology is improving transparency is by making it easier for companies to comply with regulations. In the past, companies often had to spend a lot of time and money on compliance, which could cut into their profits. However, thanks to the advent of compliance automation, companies can now more easily and efficiently comply with regulations, which frees up more time and resources to focus on other areas of their business.

 

Improving Sustainability

 

In addition to improving transparency, technology is also helping to improve sustainability in the world of capital raising. One of the biggest ways technology does this is by making it easier for companies to access alternative funding sources. In the past, companies often had to rely on traditional funding sources, such as banks and venture capitalists. However, thanks to JOBS Act regulations like Reg A+ and Reg CF, companies can now more easily raise capital from a wider pool of investors, including regular people. This not only helps to improve the sustainability of businesses but also helps to create more opportunities for people to invest in the companies they believe in while having customers that not only help you raise capital but can be seen as brand ambassadors.

 

Another way that technology is improving sustainability in capital raising is by making it easier for companies to track their progress and impact. In the past, it was often difficult for companies to track their progress and impact due to a lack of data. However, thanks to technology, companies can now more efficiently collect and track data related to their business. This data can then be used to help improve companies’ sustainability by helping them track their progress and make necessary adjustments. 

 

Thanks to technology, we can raise capital more efficiently and create more opportunities for people to invest in the companies they believe in while improving transparency and sustainability. This means more confidence in the process and trust between investors and the companies they are investing in. For businesses, this means more time and resources to focus on other areas of their business. And for the world, this means a more sustainable future where anyone can invest in the companies they believe in.

 

Real Estate Revolution: Democratization Through Tokens

Posted on by Oscar Jofre

The real estate market has seen a substantial uptick in value, with more and more people looking to invest in this asset class. However, the high barrier to entry – requiring significant capital – has traditionally limited participation to only those with deep pockets. But with tokenization and the blockchain technology that supports it, anyone can get in on the action.

 

What is Tokenization?

In simple terms, tokenization is the process of converting something of value – in this case, real estate – into digital tokens that can be bought and sold on a blockchain platform. This allows for fractional ownership of assets, which opens up investment opportunities to a much wider pool of people. Tokenization is a process that can facilitate investment in fractional portions of real property, thus lowering the barrier to entry for retail investors. By digitizing real estate ownership and using blockchain technology to track transactions, tokenization makes it easier and faster to buy and sell property and reduces the costs associated with traditional real estate transactions.

 

Why Tokenize Real Estate?

There are a number of benefits to real estate tokenization. For investors, lower minimums and smaller investment amounts can lead to higher returns as they benefit from the potential appreciation of the underlying real estate asset. For issuers, access to a wider pool of investors is facilitated by the ease of transferability and liquidity of tokens. In addition, through automated processes and a permanent, unchangeable digital ledger, blockchain technology has the potential to streamline investment transactions and reduce transaction costs.

 

For real estate agents, the benefits of tokenization are twofold. First, it presents an opportunity to increase business by working with clients interested in tokenizing their property. In addition, real estate agents who are early adopters of this technology will have a competitive advantage as the industry moves towards greater adoption of blockchain-based solutions. With tokenization, an asset can be transferred and sold much more easily and quickly than through traditional methods, so real estate agents who can help their clients navigate this new landscape will be in high demand.

 

How Does Tokenization Work?

 

The tokenization process begins with the asset owner working with a platform provider to create a digital token representing property ownership. The asset is then appraised, and a value is assigned to the token. Once the token is created, it can be bought and sold on a blockchain platform, similar to how cryptocurrency is traded. When the asset is sold, the tokens are transferred to the new owner, and the transaction is recorded on the blockchain.

 

The entire process is facilitated by smart contracts, self-executing contracts that can be programmed to execute certain actions when certain conditions are met. For example, a smart contract could be programmed to automatically transfer ownership of the tokens when the asset is sold. This would eliminate the need for a third party to facilitate the transaction and ensure that the transaction is completed promptly and efficiently.

 

While there are many advantages to real estate tokenization, issuers should know the securities law implications of issuing tokens. Tokenizing real estate is a complex process, but the benefits are significant for both investors and issuers. By lowering the barrier to entry and increasing liquidity, tokenization has the potential to revolutionize the real estate industry.

 

KoreClient Spotlight: Wealthcasa

Posted on by Oscar Jofre

For many people, investment properties come with a price tag that is cost-prohibitive to everyday investors. However, as Reg A+ sees wider use in the real estate market, it opens up new opportunities for investors.

 

Wealthcasa also aims to make real estate accessible to everyday investors through a Reg A+ offering. Cesare Bauco, CEO of Wealthcasa, says that “the whole [idea] behind Wealthcasa is to be a vehicle for the average person to get into the [real estate] investment market.” This allows people who may not fit the criteria of a traditional investor to invest in real estate. “Reg A+ was very intriguing when it was brought to light to us,” added Bauco. This gives people who may not have had the opportunity to invest in real estate before the chance to invest in Wealthcasa. “We thought this would be a good opportunity to raise funds that way and bring along Americans that normally can’t get into that.”

 

“Our parent company, located in Canada, is a new home builder by trade, with over 20 years of development and construction experience and 800 units currently under development in the greater Toronto area. We like to position ourselves where we can actually enter the US markets in many areas; we have been scouting opportunities, like Florida, Tennessee, and California,” said Bauco. This experience will lend itself well to developing the planned communities. 

 

Once the first Wealthcasa property has been developed, the company also seeks to offer a rent-to-owner program, giving people other ways to get into the real estate market. This program allows people to rent a home and build equity in the home. Eventually, usually after 5-7 years, they will either have the ability to purchase the unit themselves. Or, if they are not in a position to buy, the accumulated value of the asset will be shared with that buyer-renter.

 

Ultimately, Wealthcasa wants to create a platform for people to become investors in the real estate market by offering an accessible way and a rent-to-owner program that will allow renters to build equity over time.

 

What are the Differences Between Regulations A, CF, D, and S?

Posted on by Oscar Jofre

When it comes to raising capital, there are various ways you can raise money from investors. And while they all have their own specific compliance requirements, they all share one common goal: to protect investors while still providing them with opportunities to invest in private companies. Let’s look at the four most popular types of equity crowdfunding; through Regulation A, CF, D, or S. 

 

Regulation A+

 

Offering size per year: Up to $75 million

Number of investors allowed: Unlimited, as long as the issuer meets certain conditions.

Type of investor allowed: Both accredited and non-accredited investors.

SEC qualification required: Reg A+ offerings must be qualified by the SEC and certain state securities regulators and must also file a “Form 1-A”. Audited financials are required for Tier II offerings.

 

This type of crowdfunding is popular because it allows companies to raise up to $75 million per year in capital and is open to accredited and non-accredited investors. Offering the ability to turn current customers into investors and brand ambassadors (like several JOBS Act regulations promote) can bring a company tremendous value and help to grow the business. A Reg A raise is excellent for companies that have a wide customer base or need to raise a large amount of capital. Compared to other regulations, Reg A+ is a bit more complex and time-consuming to implement. Yet, it still offers a great deal of potential with the ability to market the offering to a wide pool of potential investors.

 

Regulation CF

 

Offering size per year: $5 million

Number of investors allowed: Unlimited, as long as the issuer meets certain conditions.

Type of investor allowed: Both accredited and non-accredited investors

SEC qualification required: The offering must be conducted on either an SEC-registered crowdfunding platform or through a registered broker-dealer. Audited financials are required for companies looking to raise more than $1,235,000. Companies must fill out a “Form C.”

 

Compared to other regulations, Reg CF is one of the most popular due to its lower cost and ease of implementation. Regulation CF offers companies the ability to raise up to $5 million per year and allows accredited and non-accredited investors to invest in the company. Companies that need a smaller sum of capital while still leveraging the power of marketing can benefit from utilizing this type of regulation. 

 

Regulation D

 

Offering size per year: Unlimited

Number of investors allowed: 2000

Type of investor allowed: Primarily accredited investors, with non-accredited investors only allowed for 506(b) offerings.

SEC qualification required: Reg D offerings do not need to be registered with the SEC but must still meet certain filing and disclosure requirements.

 

A Reg D offering must follow either Rule 506(b) or 506(c). Both allow up to 2000 investors but differ slightly in that 506(b) offerings allow up to 35 non-accredited investors. Additionally, 506(b) offerings do not permit general solicitation. This means that companies will have to rely on their own network of investors to reach their goals. While this type of offering is more restrictive than others, it can be attractive to companies that need a smaller sum of capital and have access to a network of accredited investors. 

 

Regulation S

 

Offering size per year: Unlimited

Number of investors allowed: 2000

Type of investor allowed: Foreign (non-US) accredited and non-accredited investors

SEC approval/qualification required: Reg S offerings are not subject to SEC rules, but they must follow the securities laws in the countries issuers seek investors from.

 

An excellent complement to Reg D, Reg S allows companies to raise capital from foreign and non-U.S. investors. This regulation was made for big deals, allowing companies to reach a larger and more diverse pool of investors. Reg S is great for companies looking to raise a large amount of capital or to break into foreign markets. Issuers must be careful not to make the terms of the offerings available to US-based people.

 

Depending on the size of your offering, the number of investors you’re looking to attract, and the type of investor you want, one regulation may be better suited for your needs than another. Still, it is important to consult with a professional when making these decisions to ensure that you meet all necessary compliance requirements.

What eBAY Tells Us About Secondary Markets For Private Companies

Posted on by Mark Roderick

This blog was originally written by KorePartner Mark Roderick. You can view the original post here. 

 

The securities of private companies are illiquid, meaning they’re hard to sell.

Since 2017 I’d guess a billion dollars and a million person-hours have been spent by those who believe blockchain technology will create liquidity for private securities. Joining that chorus, a recent post on LinkedIn first noted that trillions of dollars are locked up in private securities, then claimed that blockchain technology (specifically, the technology created by the company posting) could unlock all that value.

This is all wrong, in my always-humble opinion. All that money and all those person-hours are more or less wasted.

My crystal ball is no clearer than anyone else’s. But when I try to believe that blockchain will create active secondary markets I run up against two facts:

  • Fact #1: Secondary markets for private securities have been perfectly legal in this country for a long time, yet there are very few of them.
  • Fact #2: The New York Stock Exchange and other exchanges around the world were vibrant even when they were using little slips of paper.

Those two things tell me that it’s not the technology that creates an active secondary market and hence that blockchain won’t change much.

An active secondary market is created when there are lots of buyers and lots of sellers, especially buyers. When millions of people wanted to buy Polaroid in the 1960s they didn’t care whether Polaroid used pieces of paper or stone tablets. Conversely, put the stock of a pink sheet company on a blockchain and you won’t increase the volume.

As described more fully here, there are a bunch of reasons why there aren’t lots of potential buyers for a typical private company:

  • It probably has a very limited business, possibly only one product or even one asset.
  • It probably has limited access to capital.
  • It probably lacks professional management.
  • Investors probably have limited voting rights.
  • There are probably no independent directors.
  • Its business probably depends on one or two people who could die or start acting like Elon Musk.
  • Insiders can probably do what they want, including paying themselves unlimited compensation.
  • No stock exchange is imposing rules to protect investors.

All that seems obvious now and was obvious in 2017. But now I’m thinking of another company with lessons about secondary markets: eBay.

If there’s anything even less liquid than stock in a private company, it’s a used refrigerator, a bracelet you inherited from your grandmother, the clock you haven’t used for 15 years.

All those things and thousands more were once completely illiquid and therefore worth nothing. eBay changed that, almost miraculously adding dollars to everyone’s personal balance sheet. Just as every ATS operating today seeks to create an active market for securities, eBay created a market for refrigerators, bracelets, and clocks. Quite amazing when you think about it.

eBay didn’t create the market by turning refrigerators, bracelets, and clocks into NFTs. To the contrary, when you sell something on eBay you have to ship it, physically, using the lowest of low technology. eBay created the secondary market simply by connecting buyers and sellers using Web2. Just like another company that has created a pretty active market, Amazon.

If any ATS operating today had a thousandth of the registered users eBay has, its founders and investors would be even rubbing their hands with glee.

As a Crowdfunding advocate, I wonder what the world would look like if all those dollars and person-hours had been spent improving the experience of initial investors rather than pursuing secondary markets and blockchain, things dreams are made of. As the shine comes off blockchain maybe we’ll find out.

How Can an Update on RegD Impact Private Markets?

Posted on by Oscar Jofre

Far larger than the initial public offering (IPO) market, Regulation D is incredibly important within the private capital markets, facilitating over $1 trillion in capital every year. Now, the SEC is considering updates to the accredited investor definition, which would have a significant impact on Reg D offerings, the private market, and the economy as a whole.

 

Understanding Regulation D

 

To understand how an update to RegD could impact private markets, it is important to have a brief overview of the regulation. There are two types of Reg D – 506b and 506c. Both offer exemptions from Securities and Exchange Commission (SEC) registration requirements for securities offerings and require investors to be accredited. An accredited investor is an individual who meets certain financial criteria, such as earning $200,000 or more a year or having a net worth of over $1 million. The main difference between 506b and 506c is that 506b does not allow the issuer to solicit generally or advertise the offering to potential investors.

 

Changes on the Horizon

 

The SEC is currently considering updates to RegD, including changes to the definition of an accredited investor. Some changes could include raising the income or net worth thresholds, although it is still somewhat unclear as to what the SEC envisions. Raising these thresholds would mean fewer individuals would qualify as accredited investors and therefore have access to private securities offerings. The impact of these changes could affect different types of investors differently. Still, they will likely have a significant impact on private capital formation and the ability of entrepreneurs to access funding.

 

The update could also impact companies that use Reg D offerings as part of their fundraising strategy. Currently, these companies can access a much larger pool of capital than they would through an IPO or traditional venture capital, as nearly 15 million Americans qualify under the current definition. But if the definition of an accredited investor is narrowed, this could limit access to capital for smaller or startup companies. 

 

What Does This Mean for the Private Market?

 

Even though the SEC says that these changes are to protect investors, net worth and income are not the only way to determine whether an investor is accredited or not. The ability to make an educated investment decision also relies on the education and experience of the investors, which isn’t considered in the definition of an accredited investor. Some organizations, like the Investor Choice Advocate Network, believe that the definition should be updated to reflect non-financial measurements such as the professional certifications required for CPAs, registered investment advisors, financial planners, and other professionals. 

 

Updates could also mean that fewer individuals from underrepresented groups may be able to participate in a Reg D offering. With these groups historically facing obstacles to participating in capital markets, these updates could dramatically reduce investment opportunities for some individuals as well as make it more difficult for companies who are looking to raise capital from underrepresented communities.

 

Of course, it is difficult to say exactly what the impact of updated Reg D would be on private markets when we still do not know what those updates will be. Hopefully, we will have more information soon.

How is Equity Crowdfunding Different Than Kickstarter?

Posted on by Oscar Jofre

Kickstarter and equity crowdfunding are two different ways to raise money for a project or venture. Kickstarter is a platform where people can donate money to projects in exchange for rewards, such as early access to the product or a copy of the finished product. Equity crowdfunding, on the other hand, allows people to invest in a company or project in exchange for a percentage of ownership in that company or project and has raised over a billion since it was introduced. But what are their differences and similarities, and how do you ensure your crowdfunding platform is compliant?

 

A Unique Way to Raise Money: Kickstarter Vs. Equity Crowdfunding

 

Kickstarter is a crowdfunding platform that allows people to donate money to projects in exchange for rewards. The project creator sets a fundraising goal and a deadline, and if the goal is reached, the project receives the funding. Rewards can be anything from early access to the product or a copy of the finished product. Kickstarter is an all-or-nothing platform, meaning that if the project doesn’t reach its fundraising goal, the project creator doesn’t receive any of the money.

 

On the other hand, equity crowdfunding is a way for people to invest in a company or project in exchange for a percentage of ownership in that company. Equity crowdfunding is different from Kickstarter in a few ways. First, with equity crowdfunding, investors are actually investing in the company, rather than just donating money. Second, equity crowdfunding is not an all-or-nothing platform. Even if a company or project doesn’t reach its fundraising goal, the issuer still receives the money that was raised.

 

If you are trying to choose between the two platforms, it is crucial to consider your goals. If you are looking for a way to raise an amount of money quickly without giving up a percentage of your company, Kickstarter may be the better option. This is because of the all-or-nothing nature of Kickstarter, which means that you either reach your fundraising goal and receive the money, or you don’t receive any money and do not need to pay a fee.

 

However, if you are looking to raise millions of dollars while gaining not only investors but brand ambassadors, equity crowdfunding may be the better option. This is because, with equity crowdfunding, people are actually investing in your company and will want to see it succeed. Additionally, even if you don’t reach your fundraising goal, you will still receive the money that was raised, which can be used to continue growing your company.

 

Ensuring Your Crowdfunding Platform Is Compliant

 

If you are using a crowdfunding platform, it is important to ensure that the platform is compliant with securities laws, especially when it comes to equity crowdfunding. This means that the platform follows all the rules and regulations set by the government. To ensure the equity crowdfunding platform you use is compliant you to consider:

 

  • Does the company actually exist?
  • Has the SEC approved these securities?
  • Have they been filed with the board of directors?

 

Knowing who and who is not doing this is often difficult to determine from the outside. If you are an investor, you look at the actual filing from the company to understand what the company has filed for and its ongoing obligations.

 

If you are looking for a quick way to raise money without giving up equity in your company, Kickstarter may be the better option. However, if you are looking to raise money and gain investors, equity crowdfunding may be the better option. Additionally, it is important to ensure that the platform you are using is compliant with all the rules and regulations set by the government, whether you are raising capital or you are an investor.

Selling Shareholders for RegA+

Posted on by Oscar Jofre

For many investors in the private market, one of the risks they face is the lack of a liquid market for selling shares.

Through a Reg A+ offering, however, accredited investors who purchased securities during a Reg D or Series A raise can sell a portion of their holdings, creating a powerful buy incentive.

The law allows issuers to allocate up to 30% of their Reg A+ offering to selling shareholders, and investors are under no obligation to sell stock. 

What is a Selling Shareholder?

A selling shareholder is an individual or entity that sells securities of a company in a registered offering.

The shares sold by selling shareholders are first offered to other shareholders on a pro-rata basis before being made available to the general public.

Selling shareholders are typically early investors in a company who are looking to cash out some of their investment. They may also be employees or insiders who are looking to sell a portion of their holdings.

In some cases, selling shareholders may be venture capitalists or other institutional investors who are looking to exit their investment before a company’s IPO.

Selling Shares with a Reg A+ Offering

The Reg A+ selling shareholder allowance is a valuable tool for companies seeking to raise capital from accredited investors.

For investors to sell their shares with a Reg A+ offering, the company must file an amendment to their offering circular with the SEC that includes a selling shareholders section.

The amendment must disclose the number of shares being sold and the maximum offering price. In addition, all selling shareholders must be identified in the 1A.

The Reg A+ selling shareholder allowance is a great way for companies to raise capital while letting investors potentially get a return on their initial investment.

The allowance also provides an incentive for accredited investors to participate in a Reg A+ offering, as they can receive immediate liquidity without waiting for a company to go public.

If you’re considering a Reg A+ offering, consult with your securities attorney to determine if the selling shareholder allowance is right for your company.

How Much Can I Invest in a Company with RegCF?

Posted on by Oscar Jofre

As Regulation Crowdfunding offerings continue to grow in popularity, more and more investors are looking to get involved. RegCF gives investors the ability to invest smaller amounts of money into early-stage companies as non-accredited investors. This is why investors put $1.1 billion into RegCF offerings in 2021 and this is predicted to double in 2022. But what exactly is Regulation Crowdfunding? And how much can you invest in a RegCF offering?

 

Why Invest in RegCF?

Reg CF allows you to invest in some of the newest and most innovative companies. This is because early-stage startups often have a difficult time accessing traditional forms of funding, such as venture capital. Other offerings have fairly large minimum investment amounts, which non-accredited investors might have trouble affording (since this prime directive of investing is never to invest more than you can afford to lose). This traditional approach to capital raising meant that only wealthy investors could afford to participate.

 

Since RegCF is specifically set up around the crowdfunding paradigm, the minimum investment amount is more affordable to more people. This is why in 2021 over 540,000 investors put their money into over 1,500 Reg CF offerings, double the number of offerings in 2019 and 2020 combined. This showcases the clear and continued interest in this type of investment from the public.

 

Investing in a RegCF Raise

Regulation Crowdfunding is a process through which companies can offer and sell securities to the general public. This process was created by the JOBS Act, and it allows companies to raise up to $5 million per year from non-accredited investors. So what does this mean for investors? Well, basically, it means that you have the opportunity to invest in some of the newest and most exciting startups, even if you’re not an accredited investor. And while you can’t sell your shares for the first year, there are several other benefits of investing in a RegCF company, but you must be aware of how much you can invest before doing so. Because of the inherent risk of investing, the SEC has placed limits on how much nonaccredited investors can invest within any 12-month period.

 

In a 12-month period, nonaccredited investors are limited in the amount they can invest in a RegCF offering. This limit is based on the investor’s annual income or net worth, whichever is greater. If an investor’s annual income or net worth is less than $124,000, then the investor can invest up to the greater of $2,500 or 5% of the greater of their annual income or net worth. If both an investor’s annual income and net worth are more than $124,000, then the investor can invest up to 10% of their annual income or net worth, whichever is greater. However, the total amount invested in RegCF offerings during a 12-month period cannot exceed $124,000.

 

Accredited investors have no limit to how much they can invest in RegCF offerings and are defined as individuals that meet at least one of the following criteria:

  • Annual income greater than $200,000 (or $300,000 with a spouse or spousal equivalent);
  • Net worth of over $1 million (with or without a spouse and excluding the value of the individual’s primary residence);
  • OR holds certain professional certifications, designations, or credentials in good standing, including a Series 7, 65, or 82 license.

 

Calculating Net Worth

To determine how much an individual can invest in securities through crowdfunding, it is vital to understand how Regulation Crowdfunding defines net worth. There are a few ways to calculate net worth, but the most common is to add up all your assets and subtract all your liabilities, according to the SEC. The value of an individual’s primary residence is not included in the calculation of their net worth, and neither is any loan against the residence up to its fair market value. Any increase in the loan amount in the 60 days before the purchase of securities will also be disregarded, to prevent artificially inflated net worth.

 

For joint calculations, you can also determine your combined net worth or annual income by adding your spouse’s income and assets to the calculation, even if the assets are not owned jointly. In these cases, the maximum investment cannot exceed that of an individual with the same net worth. 

 

Once you understand how much you can invest, the only thing left is to do your due diligence! You’ll want to review the provided disclosures so that you can get the full picture of the investment’s risk to ensure it aligns with your level of risk tolerance. 

Call Centers for RegA+

Posted on by Oscar Jofre

A call center can be extremely helpful for companies looking to raise capital through a Reg A+ offering. By having a dedicated call center, businesses can easily keep track of all the investors who are interested in their company and ensure that they are meeting all compliance requirements. Additionally, a call center can assist investors with forms. This can help to build trust with potential investors and increase the chances of a successful raise. 

For companies using RegA+, prioritizing compliance is essential for a successful offering; a non-compliant raises risks of SEC penalties. This can be a daunting task for companies, as there are many different regulations to keep track of, and some of these rules have implications for the call center. 

 

In this regard, the call center cannot act like a broker-dealer, which means they cannot sell securities. If the investor has questions about whether or not an offering would be a good investment decision, the call center cannot answer this. However, if the issuer noticed that a potential investor was filling out a form that was not completed, a call center could reach out and see if there was a technical or logistic issue that the investor was experiencing, such as where they could find a routing number or where to fill in other important information. 

 

Still, the call center can direct the investor to resources like the offering circular if they have questions about the investment and its risk. And if the issuer has placed a firm focus on compliance, the offering circular should be a significant source of information for investors to make their decision based on their risk tolerance.

 

A call center can also yield useful, practical information about the market, by noticing and reporting patterns about the sorts of questions clients are asking. Similarly, if there are trouble spots in an online application that are a source of confusion, the feedback from a call center can help to identify them and suggest improvements.

 

These are just a few of the ways a call center can be helpful in a company’s Reg A+ offering and beyond. We interviewed Sara Hanks for a KoreTalkX in which she mentioned the topic. Learn more here:

 

Howey Test: What is it?

Posted on by Oscar Jofre

The Howey Test is a simple but important test used by the US Securities and Exchange Commission (SEC) to determine whether an investment contract is a security. Whether you are an investor or a company offering a security, it’s vital to know about the Howey Test and how it applies to securities.

 

Utilizing the Howey Test

 

The Howey Test is used by the SEC to determine whether an investment contract is a security. The test is named after the Supreme Court case SEC v. W. J. Howey Co., which established the test in 1946. The Howey Test has three prongs:

 

  1. There is an investment of money
  2. There is a common enterprise
  3. There is an expectation of profits 

 

If all three prongs are met, then the investment contract is considered a security and is subject to securities regulations. The Howey Test is crucial because it helps to protect investors from fraud and scams. There are many different types of securities, such as stocks, bonds, and mutual funds, and each has its own set of rules and regulations. The Howey Test ensures that all securities offerings are legitimate and that investors are not being misled.

 

The Howey Test applies to any investment contract, whether it is for a physical asset, like a piece of real estate, or a financial asset, like a stock. For the Howey Test to apply, there must be an investment of money. This can be in the form of cash, property, or even services. The second prong of the test states that there must be a common enterprise. This means that the investment must be pooled together with other investors’ money to make a profit. The third prong says there must be an expectation of profits. This means that the investor is relying on someone else, such as a company’s management team, to make investments and profits.

 

The Howey Test is not necessarily a test you can pass or fail. It is one of several tests used in securities law to determine whether an instrument being offered is a security or not. Other tests can also be used, such as the Reves test. Which should be applied depends, as the SEC says, on the facts and circumstances. An instrument is only a security if it meets all three prongs of the Howey Test. 

 

Bringing it All Together

 

The Howey Test is a simple but vital test used by the SEC to determine whether an investment contract is a security. The test’s three prongs allow the SEC to evaluate different types of investments to see if they fit the definition of a security. The Howey Test is important because it protects investors from fraud and scams. Investors want to ensure they are not being misled and that the investments they are making are legitimate. The Howey Test is one way to help make sure that is the case. 

 

What is the Role of FINRA?

Posted on by Oscar Jofre

When it comes to investment, there are a lot of things to think about. You want to make sure that you’re making smart decisions with your money, and that you’re not being taken advantage of. That’s where the Financial Industry Regulatory Authority (FINRA) comes in. FINRA is an independent regulator for securities firms, and its job is to make sure that all firms operate fairly and honestly, and that investors are protected–giving investors confidence in the legitimacy of their investment while holding securities companies to a high standard. Keep reading to learn more about the role of FINRA and how they help to protect investors.

 

What is FINRA?

 

FINRA is a not-for-profit regulatory organization authorized by the US Congress to protect investors. FINRA oversees all US-based securities firms and is considered the front line of defense when it comes to investor protection. FINRA’s rules and regulations ensure that all securities firms operate fairly and honestly and that investors are given the information they need to make informed investment decisions. Operating under the auspices of the US Securities and Exchange Commission (SEC), FINRA is the largest independent regulator for securities firms doing business in the United States.

 

Who does FINRA protect?

 

FINRA exists to protect investors, which means that they provide rules and regulations that apply to all securities firms to create a level playing field. They do this through a variety of means, including registration and licensing, monitoring and examining firms, conducting enforcement actions, and providing investor education. FINRA also offers assistance and support to investors who have been wronged by a securities firm. By educating investors about their rights and responsibilities when it comes to investing, FINRA helps protect them from being taken advantage of. In terms of security firms, FINRA’s job is to make sure they are adhering to all relevant rules and regulations, and that they are providing accurate and complete information to their investors.

 

Why is FINRA important?

 

FINRA plays an important role in the investment landscape by ensuring that all securities firms operate fairly and honestly. This helps to create trust between investors and the industry, which is essential for a thriving economy. In today’s day and age, with crowdfunding being available to accredited and non-accredited investors, FINRAs role is more important than ever. Giving peace of mind to investors is one of the most important roles that FINRA plays.

 

What is the role of FINRA as it relates to investment crowdfunding?

 

Investment crowdfunding is a relatively new phenomenon, and FINRA has been working to create rules and regulations that will protect investors while still allowing this innovative form of investing to flourish. The role of FINRA in investment crowdfunding is to protect investors by ensuring that issuers are providing accurate and complete information about their offerings, and that platforms are properly registered and compliant with all relevant rules and regulations. By doing so, FINRA is helping to create a safe and transparent environment for this growing industry.

 

One of the key issues that FINRA is concerned with is the disclosure of information by issuers, which is essential to ensuring that investors can make informed investment decisions. When it comes to Reg CF offerings, FINRA Rule 251(a)(3) requires issuers to file a Form C with the SEC before they can solicit investors. Form C must include information about the issuer, the offering, and the use of proceeds. In addition, all materials that are used to solicit investors must be filed with FINRA. These filings give FINRA the ability to review the offering and make sure that it is compliant with all applicable rules and regulations.

 

How Does Tech Allow People to Make Smaller Investments?

Posted on by Oscar Jofre

The world of technology has completely revolutionized the way we view investments–no longer do people need to invest large sums of money to have access to incredible investment opportunities. Through the use of online platforms and computerized transactions, people can now make smaller investments that still have the potential to provide generous returns. This change has made it possible for more people to invest in the private market and other forms of capital, thus democratizing the process and giving more people a chance to participate in the economy.

 

Making Investments Accessible

 

In the past, making investments usually required working with a financial advisor and entailed putting down large sums of money. This often puts investing out of reach for the average person. However, with the advent of online platforms, virtually anyone can now get started in investing with relatively little money. For example, Acorns is an app that rounds up your credit or debit card purchases to the nearest dollar and then invests that spare change into a portfolio of ETFs. In this way, users can invest without even realizing it, while simply making purchases as they normally would. This convenience is one of the main reasons why investing has become more popular in recent years. And, with JOBS Act regulations, nonaccredited investors can use technology to pool their money and invest in startups that were only accessible to the wealthy.

 

While VCs have been known to invest large sums of money into startups, there are now platforms that allow nonaccredited investors to get in on the action with as little as $100. This is made possible through the use of crowdfunding platforms such as WeFunder and Republic. These platforms give everyone a chance to support the businesses they believe in and potentially make a profit from their investment. 

 

Technology has also made it easier for people to keep track of their investments and monitor their portfolios. In the past, people had to rely on paper statements and manual calculations to track their progress. Now, numerous apps and websites offer real-time data and analysis of an investment portfolio. This makes it easy for investors to stay on top of their finances and make well-informed decisions about where to allocate their money.

 

A Technology-Driven Evolution

 

It is clear that technology has completely changed the landscape of investing. No longer do people need to have a lot of money to get started. With the click of a button, anyone can now invest in the stock market or support their favorite businesses through crowdfunding. This accessibility has democratized the process of making investments and given more people the opportunity to participate in the economy. In the past, only those with a lot of money could afford to invest. However, thanks to technology, that is no longer the case.

 

The changes that have been brought about by technology are sure to revolutionize the way we think about investments in the years to come even more than they have already. This not only benefits the common person who wants to invest their money but also smaller organizations and startups looking to raise capital. Through acts like Reg CF and Reg A+, businesses now have a better chance than ever before to get the funding they need from a wider pool of potential investors that are accredited and nonaccredited alike. This is all thanks to the power of technology and its ability to connect people from all over the world.

 

Thanks to technology, making investments has become more convenient and accessible than ever before. Whether you’re looking to invest a small amount of spare change or put together a portfolio of startups, there’s an online platform that can help you do it. This change from the past has democratized investing and given more people the opportunity to participate in the economy. In the years to come, we can only expect this trend to continue as technology continues to evolve.

 

KoreClient Spotlight: Orion Capital

Posted on by Oscar Jofre

Orion Capital is a small holding company that specializes in connecting investors with unique investment opportunities. With a focus on the little guy, Orion Capital allows anyone with an appetite for investment to participate in deals they would never have had access to otherwise. With a wide network of seasoned professionals from a variety of backgrounds, Orion can provide expert advice and guidance for nearly any opportunity that comes their way. RegCF is allowing them to offer a vehicle to open up their experience to a wider audience, giving everyday people access to high-quality investments.

 

Eric Shampine, a founding partner of Orion Capital, has been working in the real estate and investment world for years. He is a strong believer in the power of small investments to create big returns. “If you can diversify your portfolio across hundreds of small investments, whatever it may be, it lowers the risk for you and you still get to play in that investment world,” said Shampine. Orion Capital offers investors just that opportunity. By pooling together small investments from a large number of people, they can create a diversified portfolio that minimizes risk while still providing exposure to high-growth investments.

 

One of the key advantages of Orion Capital’s strategy is tapping into a wide variety of different industries and investment strategies. With a large network of contacts, they can quickly identify and assess opportunities as they arise. “We have a lot of different contacts in different industries and we’re always on the lookout for new investment opportunities,” said Shampine. This allows them to be nimble and take advantage of opportunities as they come up, rather than being tied down to one particular strategy or asset class. “While it is a less formal structure it is a very wide net of experience that can be very specific for whatever we come across,” said Shampine.

 

Mainstreet Investing with RegCF

 

Orion Capital is always looking for new opportunities to invest and provide investors with exposure to high-quality investments to diversify their portfolios, and they are now exploring this with a RegCF raise. This raise will allow them to expand their reach and provide even more people with access to these types of investments. “With this latest RegCF raise, the funds are a combination of assets. Initially, we are looking for smaller balance real estate assets that will provide consistent cash flow for the dividend we will be paying out to the investors. As I am building this, that is the first base we want covered to protect our investors’ capital and preserve dividends. Once that core is built up, I will look to deploy capital in investments with slightly higher risk. A little more opportunity for equity growth and scale it up that way, but this is not a fund where I’m looking to have only one or two major investments,” said Shampine. By utilizing RegCF, Orion Capital can provide even more people with access to these types of investments. Through equity crowdfunding, smaller investors can invest for a smaller stake in an investment opportunity traditionally not available to them. 



The firm’s focus is on main street investments for main street investors. Multiple smaller assets diversify the risk; there are good investments to be made in things such as single-family homes, mortgage notes, mom & pop businesses, and other smaller investments people can relate to that provide equity growth and cash flow.

 

Regulation CF DisclaimerThis communication may be deemed to be a solicitation of interest under Regulation CF under the Securities Act of 1933, in which case the following applies:

  • No money or other consideration is being solicited, and if sent in response, will not be accepted;
  • No offer to buy the securities can be accepted, and no part of the purchase price can be received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

 

Over the Next Five Years, the Private Capital Market is Expected to Double

Posted on by Oscar Jofre

Over the past decade, fiscal stimulus and opportunities for liquidity have caused a surge within the private capital markets. Even though this year’s outlook is challenged by increasing borrowing costs and economies cooling, London-based research firm Preqin forecasts that the industry’s global assets under management will double to $18.3 trillion by the end of 2027, from $9.3 trillion currently. The study highlights how investors desire to seek alternative investment types in an economic environment characterized by uncertainties. While the first half of 2022 did see a fundraising drop in private capital by $337 billion from $495 billion in the same period last year. However, by 2023, private capital fundraising is expected to return to 2019 levels as the growing trend of private capital continues.

 

Private equity fundraising hit a record $561 billion in 2021, with North America leading the way, followed by Asia-Pacific and Europe, according to Preqin. According to McKinsey North America had about a 22% growth in private capital markets, compared to Europe with 17% and Asia with 13%. This means that for investors and companies raising capital, the US is a more attractive market than Europe and Asia and is a great place to market your private capital offering, notably through JOBS Act regulations like Reg A+ and Reg CF. 

 

Private markets have been able to continue to grow during this pandemic because of the growth in digitalization and the internet. This has allowed for a decrease in face-to-face interactions, which has made it easier for managers to connect with LPs, as well as an increase in online tools and resources. For example, many fund managers have started using online data rooms, which allow investors to access documents and due diligence materials remotely. In addition, online investor portals have become more popular, providing LPs with 24/7 access to information on their portfolios.

 

The study found that the average private equity fund size has increased over the past decade, while the number of first-time funds has declined. The report attributes this to the “maturing” of the industry and the rise of large institutional investors, which have become an increasingly important source of private capital. Institutional investors, such as pension funds, insurance companies, and endowments, are allocating more of their portfolios to private capital as they seek higher returns. Private markets have outperformed traditional public markets in recent years, but that outperformance is expected to moderate over the next decade. Preqin’s study predicts that private equity returns will net 7.6 percent annually between 2018 and 2027, compared to 6.4 percent for public markets.

 

According to Preqin, the interest in impact investing has also increased in recent years. The firm estimates that there are now more than 3,000 impact funds globally, with assets under management totaling $228 billion. In particular, environmental, social, and governance (ESG) considerations are becoming increasingly important to private capital investors. A majority of private capital firms say that they consider ESG factors when making investment decisions, and almost half of firms say that they have adopted policies or strategies specifically focused on impact investing. As the private capital markets continue to grow, firms need to consider how they can best position themselves to capitalize on this growth.

 

The private capital markets are expected to continue growing in the coming years, presenting a unique opportunity for raising capital. In addition, the growth of the private capital markets may lead to more regulation, as policymakers seek to mitigate risk and protect investors. Overall, the study provides a positive outlook for the private capital markets. For firms looking to take advantage of this growth, it’s vital to consider how they can best position themselves to capitalize on these opportunities. For investors, this means considering which private capital investment opportunities offer the best potential returns. But regardless of how the private capital markets evolve, one thing is clear: they are likely to play an increasingly important role in the global economy.

KoreClient Spotlight: Budding Technologies

Posted on by Oscar Jofre

Budding Technologies, Inc. is looking to change the cannabis industry with innovative technology and the use of blockchain through its product, Budbo.

 

The Budbo ecosystem consists of three unique products; Budbo App, Budbo Connect, and BudboTrax. Together, these touch all aspects of the cannabis industry from growers and product manufacturers to dispensaries and consumers.

 

The Budbo App features a patent-pending technology that allows cannabis users to log into the application and enter some demographic data that is then used to make suggestions on strains and products of cannabis that would be best for the user. Users are also rewarded for providing this data with cryptocurrency tokens that can be spent on merchandise or accepted by dispensaries. With this technology, new users can feel more confident in choosing the strains and products that would be best for them based on data like their weight, gender, and experience level. After answering several questions on a 1-10 scale, the algorithm can make these suggestions. Pick-up and delivery options are available to consumers with an easy-to-use interface.

 

For dispensaries, growers, and product manufacturers, Budbo Connect enables them to access the data provided by Budbo customers and other third-party APIs. In the Connect dashboard, companies can keep product information up to date so that it can be found by the most appropriate customer. In turn, companies can see what types of products are popular or sought after by cannabis users in their region. With companies able to tailor their inventory to what customers are looking for, they can reduce waste, increase sales, and find the right product manufacturers for these products.

 

Lastly, BudboTrax, is a supply chain management system built on blockchain technology that gives users the ability to track products and lab results so that they can know exactly where their product comes from and if it meets the quality standards that they are looking for. This feature allows cannabis users to be confident in the product by providing much-needed clear visibility into the chain of custody of the cannabis plant and subsequent product.

 

Working together, these three elements create a robust suite of tools to empower the cannabis industry and to serve cannabis users with access to the safest and best product available.

 

To aid in the company’s growth, Budding Technologies, Inc. is using Regulation Crowdfunding to raise funds for their company. “We chose the Reg CF as the vehicle because it’s a grass-roots way to raise capital that is for everybody, and we feel cannabis and our technology is for everybody. What makes the Reg CF so great, is that it allows anyone interested in Budbo, cannabis, and blockchain, to have the opportunity to invest in Budbo and get involved with the company,” said Luke Patterson, the company’s CEO.

 

Budbo is an innovative company that is changing the way the cannabis industry works. With their use of blockchain technology, they are helping customers verify the quality of the products being sold while also giving businesses valuable data about what products are being used in their area and users on what cannabis is right for them.

 

Regulation CF Disclaimer

 

This communication may be deemed to be a solicitation of interest under Regulation CF under the Securities Act of 1933, in which case the following applies:

 

  • No money or other consideration is being solicited, and if sent in response, will not be accepted;
  • No offer to buy the securities can be accepted, and no part of the purchase price can be received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

What You Should Know About 2-Factor Authentication

Posted on by Oscar Jofre

In today’s world, we are more connected than ever before. We rely on technology to keep us connected with friends and family, to keep us up-to-date on the latest news, to help us stay productive at work, and to even make investment decisions. But as we all know, with great power comes great responsibility. And, as we become more reliant on technology, the risk of our data being compromised also increases. To protect our data, we need to use security measures such as two-factor authentication (2FA), which aims to prevent identity theft, fraud, and other malicious activity.

 

What is Two-Factor Authentication?

 

Two-factor authentication (2FA) is an additional layer of security that can be used to protect your data. It works by requiring two forms of authentication to access an account or system. The first form of authentication is typically something that the user knows, such as a password or the answer to a security question. The second form of authentication is usually something that the user has, such as a phone or a credit card. The second form can even be more complex, like a fingerprint used to unlock a phone.

 

Why is Two-Factor Authentication Important?

 

Two-factor authentication is important because it helps to protect our data by making it more difficult for hackers to gain access to our accounts. By requiring two forms of authentication, 2FA makes it much harder for hackers to guess or force their way into an account. In addition, even if a hacker can obtain one form of authentication, such as a password, they still would not be able to access the account without the second form of authentication. 2FA is also important when it comes to compliance–keeping accounts secure from fraudulent transactions minimizes the risk to companies raising capital with JOBS Act exemptions. 

 

How Does KoreID Help to Secure User Data?

 

2FA becomes incredibly important when dealing with sensitive data, like an investor’s financial information. With KoreID, trusted intermediaries like SEC-registered funding platforms or FINRA-registered broker-dealers can allow investors to use one set of login credentials to populate forms with the investor’s verified data. This enables investors to invest and reinvest more smoothly and 2FA helps to secure their sensitive information.

 

By using KoreID, investors can take advantage of the increased security that two-factor authentication provides. Two-factor authentication is an important tool that can be used to help protect your data. In today’s world, we need to do everything we can to protect our data and 2FA is one of the best ways to do that by making it more difficult for hackers to gain access to your accounts.

 

Cannabis Consumers’ Home Growth Increases Worldwide

Posted on by Oscar Jofre

As marijuana becomes increasingly legalized all over the world, an interesting trend is developing–an increase in the home-growing of the plant. This can be seen in the US, Canada, and Europe, with more people taking up this activity to ensure they have access to safe, high-quality cannabis, especially in more rural areas where access to dispensaries is limited. Keep reading to learn about what the rise in homegrown means for the global cannabis industry.

 

Global Home-growing Trends

 

Cannabis consumers are growing their own plants at home more frequently worldwide, as laws surrounding cannabis production and consumption continue to change. In Luxembourg, people 18 years or older will now be allowed to grow up to four cannabis plants in their homes, making it the third country in the world to legalize this activity, after Uruguay and Canada. This new legislation is intended to address the problem of drug-related crime by introducing fundamental changes in Luxembourg’s approach to recreational cannabis use.

 

The decision by the small but financially powerful European country to legalize the production and consumption of the drug is a milestone on the continent, which has been slower to adopt more liberal cannabis laws. Consumption will only be legal within the household, although fines for the possession of a maximum of three grams in public will be reduced considerably from current amounts.

 

In the United States, you can grow cannabis for medical or recreational purposes in 19 states. The rules vary by state, but generally, you are allowed to grow a certain number of plants, and the plants must be at a certain maturity level. For example, in Massachusetts, you are allowed to grow up to six plants, and only three of those plants can be mature. In California, you are allowed to grow up to 25 plants, regardless of maturity level. This increased demand for home growing in the US can be seen because of the numerous benefits it offers. Home-grown cannabis is typically cheaper than store-bought cannabis, and it also allows for more customization and control over the product. With store-bought cannabis, you are at the mercy of the growers and manufacturers, but when you grow your own, you can choose exactly what goes into your product. You can also grow unique strains that may not be available at your local dispensary, just a few reasons why home-grown cannabis has risen in popularity across the globe.

 

In Canada, where recreational cannabis was legalized in 2018, there is a growing trend of cannabis cultivation in people’s homes. This trend can be seen as an effort by consumers to have more control over the quality and price of the product they are buying. In general, when a product is legalized, there is often a surge in demand for that product. The legal status of cannabis has done nothing to slow this trend. As recreational cannabis has become legal in Canada, 10% of the country’s cannabis users grow it at home, according to the National Cannabis Survey (NCS) of 2019. This showcases how there is an increasing demand among cannabis users to be able to grow their own.

 

Creating Business Opportunities

 

With homegrown cannabis becoming more popular, businesses are taking notice and looking for ways to get in on the action. The JOBS Act regulations provide an opportunity for companies to connect with small investors and raise capital through crowdfunding. By using these regulations, companies can crowd-fund their business ventures related to cannabis home-growing. This includes businesses that sell products or services that help people grow cannabis at home or companies that invest in the cannabis home-growing industry.

 

The JOBS Act regulations have been a boon for small businesses and startups, and the cannabis industry is no exception. These regulations have opened up a new avenue of investment for companies involved in the cannabis home-growing industry. By connecting with small investors through crowdfunding, these businesses can raise the capital they need to grow and expand their operations. With global cannabis sales projected to skyrocket, now is the time for businesses to get involved in the home-growing market.

 

SEC Charges Eight in Scheme to Fraudulently Promote Securities Offerings

Posted on by Oscar Jofre

On September 30, 2022, the SEC announced charges against 8 CEOs and CFOs for fraudulently promoting Regulation A+ securities offerings.  The companies named by the SEC include Elegance Brands Inc. (now Sway Energy Corp.), Emerald Health Pharmaceuticals Inc., Hightimes Holding Corp., and Cloudastructure Inc.

 

This is not a good day for those who flout the rules, but we are glad the SEC has taken decisive action.  Reg A+ is gaining great momentum in the marketplace and this type of scrutiny by the SEC is necessary to keep it clean.

 

There are so many great companies and intermediaries working hard and being compliant. This only reminds us that we must continue to be diligent and keep our eyes open so that no further damage happens in the private markets.

 

It is not enough for the broker-dealers of record to simply do KYC ID verification; you also need to keep asking the hard questions.

 

If you are an IA firm,   you are creating and delivering the branding, messaging, and content through stories, videos, blogs, webinars, etc.  Each of these activities has far-reaching regulatory consequences. You can’t just simply do whatever they tell you to do; you too must be diligent in ensuring that you are telling the truth on their behalf. 

 

We turn down clients daily because we don’t compromise our ethics, and we only operate with full compliance to all regulations..  

 

There are only two ways to operate in this world:

  • Compliantly, ethically, legally
  • Non-Compliantly, unethically, illegally, and cutting corners

 

The choice is clear.

 

Capital-raising cannot be done by only the Issuer. This caution applies to all the following participants:

  • Issuer (Management, Board Directors)
  • Investors
  • Shareholders
  • Lawyers
  • Auditors
  • FINRA Broker-Dealers
  • Investor Acquisition Firms (Marketing Firms)
  • Call Centers (Boiler Rooms)
  • Transfer Agents
  • Issuance Technology Providers
  • Funding Platforms
  • Research Providers
  • Offering Aggregators
  • Investor Relations
  • Public Relations 

 

If you see any kind of questionable behavior, exercise caution and if necessary, let the SEC know.

 

SEC News Release 30 September 2022

https://www.sec.gov/litigation/litreleases/2022/lr25541.htm

 

Stay tuned for more updates from the SEC.

Best Practices for Shareholder Management

Posted on by Oscar Jofre

Shareholder management is a critical part of any company, but it can be especially daunting for those who have recently completed a RegA+ or RegCF offering. When you welcome so many new shareholders on board, it’s important to have a plan in place for how you will manage them to ensure a positive relationship. Thankfully, shareholder management can be streamlined with the right tools and communication strategy.

 

Shareholders have a vested interest in how your company performs. They will want to know about the company’s progress, financial information, or future plans, and they have a right to be kept in the loop. Unhappy shareholders may spread negative word-of-mouth about your company, which could hamper your ability to raise additional funds in the future. Additionally, if shareholders feel like they are in the dark about what’s going on with your company, they may choose to sell their shares, which could hurt your stock price. Thus, it is important to have a shareholder management plan in place to ensure that you are maintaining strong relationships with your shareholders. So, what does this look like in practice?

 

Continuous Improvement

 

A company’s first step should be to accurately evaluate its investor relations performance, with the analysis serving as a benchmark. While share price, analyst ratings, and price-to-earnings ratios provide some measure of a company’s ability to meet shareholder needs, they don’t provide much information about other dimensions of the investor relations function, such as the cost of operating the investor relations department or the quality of investor relations communication channels. It is important to establish an objective assessment of such things because ongoing monitoring of these metrics and the overall investor relations strategy can help to identify areas for improvement

 

Regular Communication

 

One of the most important things you can do to manage shareholders is to maintain regular communication with them. This can be done in many ways, such as through email, webinars, podcasts, or blogs. No matter what method you choose, it’s important to keep shareholders updated on your progress and answer any questions they might have. This will show them that you value their investment and are committed to keeping them informed.

 

Use Shareholder Management Tools

 

Another important tip for shareholder management is to use shareholder management tools, such as the shareholder management solution from KoreConX. This platform provides many features and benefits, such as the ability to keep shareholder documents like earnings reports secure and engage shareholders with portfolio management tools that allow them to see detailed information about their investments. Such tools eliminate the hassle of traditional mail and increase the ease of access for shareholders

 

Establish Expectations

 

When welcoming new shareholders on board, it’s important to set expectations from the start. Shareholders should know what kind of communication they can expect from the company and how often they will receive updates. It’s also important to let shareholders know what information will be shared with them and what will remain confidential. By setting clear expectations from the beginning, you can avoid misunderstandings and build trust with shareholders.

 

Seek Feedback

 

Another important tip for shareholder management is to seek feedback from shareholders regularly. This can be done through surveys, focus groups, or one-on-one interviews. Shareholders will appreciate being asked for their opinions and it can help you identify any areas where you need to improve your communication or management strategy. Feedback from shareholders may also be a great source of ideas for marketing, new or improved products, or other recommendations that will positively affect your business.

 

Be Transparent

 

Finally, it’s important to be transparent with shareholders about the company’s progress, financial information, and future plans. It’s easy to communicate good news, but a transparent company will ensure even the bad news is accurately conveyed to investors in a timely manner. Shareholders need to have confidence in your company–you don’t get that by denying the existence of problems, but by showing that you are proactive in (ideally) preventing them, identifying them, and solving or mitigating them. In some cases, it might make some sense to put on a rosy public face to the public but shareholders aren’t outsiders; they’re owners. This will show them that you’re committed to keeping them informed and help build trust between the company and its shareholders.

 

By following these tips, you can streamline shareholder management and build strong relationships with shareholders. With the right tools and communication strategy in place, you can ensure that shareholders are kept up-to-date on your progress and that their expectations are managed effectively. As a result, everyone remains on the same page, which can lead to a more efficient and cohesive shareholder management strategy, improve shareholder relations, and lead to a more successful enterprise.

 

Global Cannabis Sales are Projected to Skyrocket

Posted on by Oscar Jofre

Cannabis has been legalized for both medicinal and recreational use in many states, and this is only expected to increase the demand for the product. Experts believe that the cannabis market will continue to grow as more states legalize it and that by the end of 2026, the global industry will be worth $57 billion. This growth is being driven by many factors, including the changing attitudes towards cannabis, the increasing number of people who are using it for medicinal purposes, and the fact that it is now being sold in more places than ever before.

 

Changing Views on Cannabis Globally

One of the biggest drivers of this growth is the changing attitude towards cannabis. In the past, it was seen as a dangerous drug with no medicinal value. However, over the last few years, there has been a shift in public opinion. More and more people are now beginning to see cannabis as a potential medication, and this is reflected in its legality. In certain states in the US, such as Colorado and Washington, cannabis is now legal for both medicinal and recreational use. This change in attitude is also being seen in other parts of the world. In Canada, cannabis was legalized for medicinal use in 2001, and it became legal for recreational use in 2018. This has had a positive effect on the growth of the industry, as it has made it more socially acceptable. 

 

The changing attitude towards cannabis is not the only factor driving growth; the increasing use of cannabis for medicinal purposes is also having an impact. In the past, cannabis was mostly used to treat pain, but it is now being used to treat a wide range of conditions, such as anxiety, and depression. This is likely because more research is being carried out into the potential medicinal benefits of cannabis. As a result of this research, the number of people using cannabis for medicinal purposes is increasing. In Canada, the number of people with a medical cannabis license increased from just over 5,000 in 2001 to over 300,000 in 2018. This increase is also being seen in other parts of the world, such as Australia and the United States.

 

The final factor driving the growth of the cannabis market is the increasing availability of the product. With cannabis sold in legal dispensaries, this has made it more accessible to people who want to use it, and it has also made it safer, as the product is regulated. In addition, there are now many different types of cannabis products available, which appeals to a wider consumer base.

 

Industry Growth in the US

The growth of cannabis sales in the United States is projected to be a significant contributor to overall global growth. By 2026, US cannabis sales are estimated to reach $42 billion, making up 75% of the global market. This steady growth is attributed to new markets opening in states where cannabis has been legalized for adult use. And, major markets like New Jersey legalized adult use of cannabis this year, and New York is expected to follow, which would bring the number of legal states to 33. These new markets are expected to generate an additional $5 billion in sales by 2026. Medical cannabis sales have also seen a steady increase, although at a slower rate than adult-use sales.

 

Expanding Capital Access for Cannabis Companies

 

Just as the cannabis market is expected to grow, cannabis companies also have the opportunity to take advantage of the growing private capital market. For cannabis companies who often have difficulty seeking traditional funding, there are a growing number of investors looking to invest in private capital through the JOBS Act exemptions, like RegA+ and RegCF. This market is expected to grow to $30 billion by 2030, which gives cannabis companies an excellent opportunity to seek the funding needed to fuel their growth. 

KoreClient Spotlight: Stenergy

Posted on by Oscar Jofre

When Samuel and Leyla Butero decided to start their own business, they knew they had to offer a product that would make a difference in people’s lives, and with Stenergy, they hope to do just that. Stenergy is a health and wellness company that manufactures GluCora, a natural supplement that supports healthy glucose metabolism, and has received approval from Health Canada, the Canadian equivalent of the US Food and Drug Administration. In this recent interview, Samuel and Leyla shared their story of entrepreneurship and why they chose to do a Regulation CF campaign for their business.

 

Working as consultants for EastGate Biotech, a Canadian pharmaceutical company that creates insulin drug delivery technologies for the treatment of Type 2 diabetes, Samuel and Leyla discovered GluCora, a product the pharmaceutical company had decided not to focus on while it developed its core product lines. Leyla, who has long struggled with blood sugar levels, saw the potential of the product and the couple negotiated a licensing agreement with EastGate to be the exclusive manufacturer and distributor of GluCora in the US, Canada, and Central and South America, with first rights to the rest of the world. 

 

The active ingredient of GluCora is the Banaba plant, native to Southeast Asia and known as the crepe myrtle tree in the US. Banaba produces corosolic acid and has demonstrated the ability to improve the metabolism of glucose. The plant has been used for hundreds of years in traditional medicines, but GluCora makes it available in a product that has been approved by the Canadian health regulatory agency and that is available over the counter. Samuel said: “That it’s been shown to be effective and do what it says it’s going to do is really important and we feel that sets us apart from a lot of other natural supplements. We’re not paying a doctor to do an infomercial and say that it works. That’s a very common marketing gimmick, in our opinion, that a lot of supplements use. Health Canada is a third-party, objective health agency from a country that is widely respected for healthcare.”

 

For both Samuel and Leyla, the journey with GluCora has been deeply personal. When Leyla was pregnant with the couple’s first daughter, doctors would tell her that she had high blood sugar, despite avoiding foods that would cause this. They felt an intense stigma–as soon as a doctor saw Leyla’s weight, the doctor would attribute it to poor eating habits and no exercise, even though that was an inaccurate assumption. “We started to do our due diligence and our research and felt that this was something experienced by a lot of women that were having this same issue. Doctors weren’t hearing them,” said Samuel. “With our second daughter, I gained 90 pounds, I had gestational diabetes, and I could not control the weight. No matter what I did, the weight was just coming on,” added Leyla. Additional issues continued post-partum and she sought the help of her doctor, who, unfortunately, was not listening to the concerns that Leyla expressed. “No one would hear me.” 

 

It was at this point that the couple discovered GluCora. “Leyla started taking GluCora and within two weeks, lost 14 pounds,” said Samuel. She was feeling better and had more energy, and the couple realized that bringing GluCora to market was something they would have to do themselves. “I had been doing side hustles before that was even a word,” Samuel said of their journey to become entrepreneurs. “I had also worked in venture capital and private equity for some time, so I knew what it took to put a business together. The number one thing I always noticed from the successes versus failures was that successful businesses have a revenue-generating product or service that is scalable and works. That’s what we feel we’ve discovered in GluCora. We know there’s demand out there from people who have no place to turn to.”

 

To further expand the company, Stenergy has opted to raise capital under the Regulation CF exemption. “The biggest attraction to Regulation CF was visibility and building an ecosystem of not only investors but potential consumers, giving a way to legitimately raise money and work with our investors who are not only excited about the company but a product that could change so many people’s lives,” Samuel finished.

 

By utilizing Reg CF, organizations like Stenergy can bring their product to market quickly and efficiently while interacting with their potential consumers. This provides a unique opportunity for entrepreneurs like Samuel and Leyla Butero to connect with their target market and get the funding they need to bring their products to life.

 

Regulation CF Disclaimer

 

This communication may be deemed to be a solicitation of interest under Regulation CF under the Securities Act of 1933, in which case the following applies:

 

  • No money or other consideration is being solicited, and if sent in response, will not be accepted;
  • No offer to buy the securities can be accepted, and no part of the purchase price can be received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

The Growth of Online Startup Investments

Posted on by Oscar Jofre

Investments in online startups have been growing rapidly in recent years, and the trend is expected to continue well into the future, with the number of online startup deals growing nearly 10% in 2022, according to KingsCrowd. This growth can be attributed to several factors, including the increasing popularity of crowdfunding platforms and the decline in venture capital funding.

 

Why the Popularity Surge?

 

Online startup investing offers many advantages over traditional venture capital funding. For one, it’s much easier to get involved. Platforms like Wefunder and SeedInvest make it simple for anyone to invest in private companies. And because these platforms are online-only, there’s no need to travel or attend tedious meetings. Additionally, online startup investing is much more democratic than traditional venture capital funding. Anyone with a computer or smartphone can participate, which opens up investment opportunities to a much wider audience. With startups being able to grow online instead of requiring a physical presence, this migration to digital-only investing was inevitable.

 

Online startup investing is much less risky than traditional venture capital funding. In most cases, startups that raise money through crowdfunding are already well on their way to becoming successful businesses. This means that investors are far more likely to see a return on their investment. Overall, online startup investing is a great way for retail investors to get exposure to high-quality investment opportunities. With the right platform, getting started is easy, and there’s no need to be a financial expert. So if you’re looking for a way to get involved in the tech industry, online startup investing is definitely worth considering. 

 

Growth in Online Startups

 

With the occurrence of the pandemic and the rise of social distancing, there was a dramatic increase in the number of people working from home. This migration to digital-only workforces has been a boon for online startups. With more people working remotely, there’s been a surge in demand for products and services that can be delivered digitally. And as more and more of these startups pop up, it’s no surprise that online startup investments have been on the rise.

 

Interestingly, this trend appears to be here to stay. Even as some companies are beginning to allow employees to return to the office, many are opting to continue working from home permanently. This is good news for online startups, as they can continue to count on strong demand for their products and services. So if you’re thinking about investing in online startups, now is a great time to get started.

 

What’s Next?

 

With crowdfunding platforms reporting an increase in the amount of fundraising done, sometimes as much as double in the first four months of 2022, this method of startup funding is likely here to stay. This rise in online investing has given everyday Americans the chance to get in on the action and invest in some of the most innovative companies in the world. And as the overall economy continues to struggle, it is expected we’ll see even more companies turning to online crowdfunding platforms to raise money. So if you’re looking for a way to invest in the future, online startup investing is definitely something you should consider. With the right platform, it’s easy to get started, and there’s the potential to see significant returns on your investment. And for startups, this is a great way to raise money and show your company to a larger audience online.

 

KoreClient Spotlight: Brent Fawson, COO of Facible

Posted on by Oscar Jofre

Working at Facible, Brent Fawson believes that the company is poised to leave a lasting impact on lives around the world by making medical diagnostic testing more accessible. We sat down with Brent and talked to him about the medical industry, his company, and capital raising in the medical field.

Q: Tell me a little more about your company. How do you impact the Medtech space and the customers you serve?

A: Facible Diagnostics is a diagnostics company that uses our revolutionary Q-LAAD technology to take hospital-grade diagnostics out of the lab and to the point of care. Legacy diagnostic technologies often require a tradeoff between speed, accuracy, and ease of use. Q-LAAD technology enables the development of faster and more accurate diagnostic tests that are easier to run, and don’t require complex machinery so they can be run outside of a hospital laboratory making hospital-grade diagnostic testing available anywhere. It’s ideal for underserved and rural areas, urgent cares, physician’s offices or even the home.

Q: What excites you most about your industry?

A: I think with the SARS-CoV-2 pandemic, we have all seen the limitations with some of the legacy technology platforms. To have a revolutionary technology at the forefront of the industry is very exciting. I feel we are just scratching the surface of understanding and using medical data to improve our lives. There are companies out there, like Apple, that are beginning to use this data for research purposes. We can create richer data sets to understand and address big challenges we all face. With the COVID crisis, we have all seen not only current deficiencies in diagnostics, but also an unprecedented investment at the same time which will work to improve our lives.

Q: How do you see the LSI MedTech event having an impact on your company?

A: We are really excited to meet with like-minded people who understand the value a company like Facible can bring to the world through their partnership. We have a unique vision to offer investors and partners and love to collaborate and explore the endless possibilities of where our technology can go.

Q: Now that your company will be using Regulation A+ for your next offering, how do you see this helping your company?

A: A startup like Facible is always at risk of choosing the wrong funding pathway. Biotechnology development is expensive and it’s easy to start chasing money to keep the company going. You then run the risk of partnering with investors with different goals, objectives, and understanding of how best to use the funds provided.  We feel that because our technology is so revolutionary, we want to see our vision realized and Regulation A+ is the best path toward making that happen. This also is a great way to allow people that have supported us all along to finally be able to invest in our future.

Q: Why do you think education on RegA+ places such a vital role in expanding access to capital for medical companies?

A: Right now, there are very traditional ways to raise money. It’s such a well-worn path, it’s great to have these other alternate options out there and understand them. As we started looking at Reg A+ a couple of months ago, we knew nothing about it. It’s vital that entrepreneurs understand all of their options for capital to allow their company to be as successful as possible. Along with that, Reg A+ is so new that there are not many people that really understand how it works. It’s only through talking to people like Oscar (CEO, President, KoreConX) and Doug (Senior Principle, Regulation D Resources) that we have been able to understand it.

Q: What effect do you think Reg A can have on Medtech companies in general?

A: Medtech development is expensive. For a small company who has great ambition, amazing science, but few institutional connections it can be nearly impossible to fund a company. To have access to a broader capital market allows us to sell our vision directly to investors that understand and appreciate the impact that these emerging technologies can provide.

Q: What advice would you give a young Medtech entrepreneur as they begin their journey through capital raising and building their company?

A: You must have a good plan. You need to be willing to test your ideas with the right people so that you understand what value to bring. Make sure you are surrounding yourself with people who are willing to be critical. I have seen many companies try to move without fully vetting their vision. And beyond that, really try to understand what it’s going to take to bring your product to market. It’s an expensive and challenging process so make sure you go in with your eyes wide open.

Regulation A Disclaimer

This communication may be deemed to be a solicitation of interest under Regulation A under the Securities Act of 1933, in which case the following apply:

  • No money or other consideration is being solicited, and if sent in response, will not be accepted;
  • No offer to buy the securities can be accepted and no part of the purchase price can be received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

KoreClient Spotlight: Notarized.com

Posted on by Oscar Jofre

Notarized.com is a company that provides on-demand traveling notary services nationwide to businesses and individuals, as well as offering remote online notarization services in a convenient and secure way to sign documents online. Their system is encrypted with the highest level of security, and all documents are certified and legally enforceable. Recently we spoke with Notarized.com CEO Omar Kubba about the company and what they hope to accomplish with their RegCF offering.

 

With a passionate team, Notarized.com wants to change how people view closings. Streamlining the notary order process, Notarized.com makes it easy for busy people to find a notary, schedule an appointment and get the job done quickly. Notarized.com also offers a cloud-based notary solution that is convenient and easy to use for scheduling a remote online notarization. This process protects your confidential information and electronic signature with encryption and offers a legally binding document. Customers can sign documents electronically from anywhere in the world at any time, or they can schedule a traveling notary on demand to come to them, documents in hand. 

 

A remote online notarization solution allows the entire document signing process to be seamlessly conducted in the cloud, eliminating paper, hassles, and wasted time while saving money. This is an excellent solution for title companies, independent escrows, real estate professionals, lenders, and attorneys.

 

Omar Kubba founded Notarized.com in December 2016. As a second-generation title professional with over 20 years of sales experience in the title insurance industry, Omar is a multiple award-winning sales executive ranked in the top 1% of title professionals in the nation. “My firsthand experience in the industry highlighted inefficiencies that could be solved with a signing solution. I started the company to create a better process,” said Kubba. Notarized.com has been entirely self-funded since its inception in 2016. Notarized.com only began the journey of capital raising because they have an extensive plan to expand the company to serve their clients better. “Because of what we were trying to offer, we decided to raise capital to bring that dream to fruition,” said Omar.

 

In the future, Notarized.com aims to expand its product and service offerings to clients, increasing the number of verticals it operates under. In their roadmap is a complete overhaul of the online notarization experience to include a sophisticated, innovative, and revolutionary remote, online notarization platform, and mobile app, a secure e-signature solution, nationwide deed preparation software engine, a Notarized.com certified training program for notaries, and a contract lifecycle management (CLM) platform that empowers users to manage every stage of business contracts, among other additions to its suite of capabilities. 

 

To help achieve these goals and facilitate the capital raising process, Notarized.com has contracted 21st Century Capital to guide them through the process of capital growth. With 20+ years of capital experience, 21st Century Capital has a track record of delivering results to the companies they work with. 

 

Notarized.com has chosen to raise the capital for its expansion via the crowdfunding provisions of the JOBS Act and is using the KoreConX All-In-One Platform. “Notarized.com has an opportunity to present itself to a huge group of worldwide investors and let these people get in on the ground floor. While I still raise capital the traditional way, [RegCF] has changed my way of thinking about raising capital,” said David Bernard, Notarized.com advisor.

 

Regulation CF Disclaimer

 

This communication may be deemed to be a solicitation of interest under Regulation CF under the Securities Act of 1933, in which case the following applies:

 

  • No money or other consideration is being solicited, and if sent in response, will not be accepted;
  • No offer to buy the securities can be accepted, and no part of the purchase price can be received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

KoreClient Spotlight: Durable Energy

Posted on by Oscar Jofre

Durable Energy is on a mission to expand access to renewable energy and electric vehicle (EV) charging across the country. Partnered with  dealerships, parts companies, and other key service providers in the automotive industry, Durable Energy is decentralizing energy so everyone can have access to clean energy and offset their utility bills. We recently spoke with Xavone Charles and Anastasia Rivodeaux about the mission of Durable Energy and how Reg CF is helping them get there. 

 

Improving EV Infrastructure with Durable Energy

 

Currently, 60.8% of all electricity in the US is generated from fossil fuels. The output of this electricity production is 1.55 billion metric tons of carbon dioxide, which contributes significantly to global climate change. Renewable energy only accounts for 20.1% of the total energy produced, in part because of its perceived cost.  So increasing the accessibility and affordability of renewable energy sources can help to make renewables more competitive, thus reducing reliance on carbon-heavy sources. That’s the vision of Durable Energy, a company dedicated to transitioning the way we live, starting with EV.

 

Durable Energy believes in a 3 step plan to achieve its goal of energy decentralization:

 

  1. They are focusing on creating more renewable energy-powered EV charging stations in the nation, not only in the city but in rural locations and at businesses like dealerships. This will help increase the number of EVs on the road and provide people with a place to charge their vehicles when they are away from home.
  2. They are working to offset the amount of energy produced by solar so that it can be stored and used when the sun isn’t shining. This will help to make renewable energy more reliable and allow it to be used even when, and where, the weather isn’t cooperating. While southwestern states may have an abundance of sunlight, with this technology, that energy can be stored and transferred to the East Coast, where they have more of a need for it.
  3. Hydrogen systems are the future of cars and homes. By focusing on hydrogen fuel cells, Durable Energy will be able to provide a clean and renewable source of energy that can power both homes and vehicles. This will help to reduce reliance on fossil fuels as well as help reduce emissions from cars and trucks.

 

Changing EV with Reg CF

 

With Durable Energy, any dealership can open its own charging facility for private and public use. People could pay for a membership to have a certain amount of energy per month. “We are a part of a global transition. Everyone in the renewable energy space is trying to figure out how to tackle this large hurdle. Through Regulation CF, the end users who benefit from this technology can be a part of this as well,” said Xavone Charles from Durable Energy.

 

Through RegCF, Durable Energy can connect with the end user who will be using these products, enabling them to become early investors in the very infrastructure that they will utilize. “The existing grid is pretty much a monopoly. We’re building the new grid, the new infrastructure, and the new principles, and we want people to be a part of it. Our goal is to make EV transition in the US possible,” said Anastasia Rivodeaux of Durable Energy.

 

Regulation CF Disclaimer

This communication may be deemed to be a solicitation of interest under Regulation CF under the Securities Act of 1933, in which case the following apply:

  • No money or other consideration is being solicited, and if sent in response, will not be accepted;
  • No offer to buy the securities can be accepted and no part of the purchase price can be received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

 

Opportunities to Invest in the Private Capital Market

Posted on by Oscar Jofre

The private equity market is rapidly growing, fueled by expansions to the JOBS Act exemptions in 2021. By 2030, the private capital market is anticipated to grow to a total value of $30 billion. This is largely driven by more companies seeing the potential in regulated crowdfunding through RegA+ and RegCF, and the rising interest of retail investors looking to move into the private space. Plus, research has shown that there is nearly $5 trillion in uninvested funds held by private equity firms alone. In addition, retail investors now represent 25% of the security trading volume in the public markets, a significant increase from the previous decade. According to BNY Mellon, “a new generation of younger retail investors are purchasing equities with the intention of becoming long-term market participants.” These factors have coalesced to create a favorable environment for investments in the private capital market. 

 

With favorable conditions to invest in public companies, there are many emerging and attractive industries for investors. Some of these include:

 

  • Medtech: Every day, companies are creating lifesaving technologies to improve human health and revolutionize medical care. Medtech companies often require high amounts of capital to fund clinical trials, research and development, and the many other processes they must go through. Since offerings limits for RegA+ were expanded to $75M, Medtech companies are increasingly viewing the exemption as a viable choice for raising capital.

 

  • Cannabis: The cannabis industry is rapidly growing, especially as public perception grows more favorable and legalization at the state level spreads across the US. However, cannabis companies are often underserved by traditional financial institutions due to the illegality at the federal level. With RegCF and RegA+, cannabis companies can tap into a vast market of retail investors who are willing to invest in an evolving industry.

 

  • Real Estate: Traditional real estate investments are capital intensive, making them cost prohibitive for many investors who are not high net worth individuals, private equity, or institutional investors. However, with RegA+ and RegCF, retail investors can own fractions of properties. And in, 2020, insurance, finance, and real estate accounted for 53% of qualified RegA+ offerings and 79% of the funds raised through the exemption. This indicates that real estate is an attractive investment opportunity for many investors. 

 

  • Franchises: JOBS Act exemptions create new opportunities for franchisees and franchisors to raise capital. These companies often have existing customers, who can become investors and brand ambassadors.

 

Regardless of the industry, a key component of any offering is the broker-dealer. Many states require issuers to work with a broker-dealer when selling securities in those states. A broker-dealer ensures that the issuer follows all SEC and state securities laws. More importantly, working with a FINRA-registered broker-dealer gives investors confidence by verifying that the issuer has provided all required information for the investors to make a sound investment decision. FINRA protects American investors by ensuring that brokers operate fairly and honestly. Plus, the broker-dealer also completes compliance activities, such as KYC, AML, and investor suitability and due diligence on the issuer themselves. 

 

Working with a broker-dealer ensures that the issuer behaves compliantly and gives the investor peace of mind when investing in one of the many investment opportunities within the private capital market.

 

RegA+ Offers Stability for Issuers

Posted on by Oscar Jofre

When a company decides to go the RegA+ route, they are opting for a more stable and regulated way to raise capital. This is due in part to the stability of the price; once a company goes public, its stock price can change rapidly and unpredictably because of factors like news, earnings reports, analyst ratings, and supply and demand. By contrast, a RegA+ stock is only allowed to fluctuate within a certain percentage from the original offering price, which makes it a more stable and predictable investment. With a RegA+ offering, the price is set ahead of time and will not change unless there is a significant shift in the market. This makes RegA+ an attractive option for investors looking for a more stable investment.

 

For example, companies that do a RegA+ raise and set their company shares at $5.80 a piece will likely see their shares at a similar price 12 months later. Because shares are unlisted on a public exchange, the share price will stay the same for a while, giving investors some stability in their investment. This stability can be ideal for companies and their shareholders, as it gives them a chance to better plan and predict their finances. 

 

It also gives companies more control over the price of their shares, especially when there are selling shareholders. For example, ATLIS’s stock price went from $5.88 to $15.88 to $27.88 before being listed on the NASDAQ. When companies like this do a Reg A+ before other raises, they can halt and reprice their company before going public. 

 

The stability of RegA+ can be attractive to both companies and investors. It allows for better planning and forecasting of finances and peace of mind knowing that the share price will not rapidly change. This predictability is one of the main reasons why Reg A+ has become such a popular way to raise capital in recent years.

 

If you’re looking for a more stable investment, RegA+ may be the right option for you. With a set price and no sudden changes, you can know what to expect from your investment. This makes it an ideal choice for those looking for a regulated and predictable way to raise capital. Whether you’re a company or an investor, the stability of RegA+ may be just what you’re looking for.

 

The JOBS Act as the Founding Father Of A New Economy

Posted on by Jason Futko

April 5th, 2012. On this day, Barack Obama, 44th President of the United States, signed the JOBS Act into law. This has touched so many lives in so many ways that simply saying the JOBS act has democratized access to capital, does not fully capture the impact. We are talking about creating jobs, and helping people realize their dreams by developing solutions, and not only about capital markets. We can call the it The Founding Father Of A New Economy.

David Weild IV, father of the JOBS Act, has remarked that this was not a political action; it was signed in “an incredibly bipartisan fashion, which is really a departure from what we’ve generally seen. It actually increases economic activity. It’s good for poor people, good for rich people. And it adds to the US Treasury”.

Expanding Benefits In A New Economy

Five years later, in July, 2017, the SEC started expanding access to the JOBS Act benefits originally available only to emerging growth companies (EGC). These could submit draft registration statements relating to initial public offerings for review on a non-public basis. Permitting all companies (not just EGCs) to submit registration statements for non-public review, provides companies with more flexibility to plan their offerings. 

More Investors empowered by the JOBS Act

Private capital markets have grown more important, as both accredited and non-accredited investors started to be a bigger part of raising capital and actually becoming shareholders. There are more than $5 trillion of uninvested funds currently available, and this number is only expected to grow in the coming years.

ESG

This strategy that considers environmental, social, and governance factors. This investing style has been gaining in popularity in recent years, as more and more investors are looking for ways to invest in companies that positively impact the world. The focus on this kind of company, with strong commitment to ESG concerns, will grow especially among equity crowdfunding. 

Is it safe?

With the private capital markets blooming and so many new firms and platforms surfacing, it is only natural that users, issuers, and even broker-dealers and transfer agents feel confused and overwhelmed with logins and uncertain about compliance issues. This is something that the regulations were very careful about: protecting both investors and issuers, creating safe investment ecosystems.

As the JOBS Act has really opened up new ways to operate as the Founding Father of a new economy, there will be many opportunities for new players to enter the markets. These are very exciting times for being optimistic about the future of our startups.

The SEC Released its 41st Annual Small Business Forum Report

Posted on by Oscar Jofre

For 41 years, the Securities and Exchange Commission has hosted its annual Small Business Forum. The event, led by the SEC’s Office of the Advocate for Small Business Capital Formation, aims to gather feedback from both the public and private sectors to improve capital raising and sheds light on many issues facing small businesses and investors to help event participants develop policy recommendations.

 

Highlighting the needs of small businesses within the US is crucial, as they play a vital role in the economy and job creation. Over the past 25 years, 2 out of every 3 jobs created can be attributed to small businesses. These businesses serve as the lifeblood of their communities.

 

Some of the key takeaways from the four-day event included the fact that more entrepreneurs need to be made aware of resources available when raising capital, as many have great ideas, but lack the knowledge and experience to raise capital effectively. This also means expanding access to capital to both underrepresented groups and locations, especially outside of major “tech-hub hotspots.” Additionally, panel discussions highlighted the issues minority entrepreneurs continue to face when seeking traditional funding options, such as venture capital or private equity. These funding methods often rely heavily on networks and connections that exclude many entrepreneurs. 

 

According to sources such as Crowdfund Insider, the Commission has addressed past issues such as democratizing the definition of an accredited investor by empowering a more significant segment of the population to gain access to Reg D private securities offerings. However, other suggestions often face political challenges and regulatory obstacles.

 

Even so, Commissioner Hester Pierce urged the Commission and forum participants to be inspired by the JOBS Act. She also commented: 

 

“Heightening the importance of this year’s Forum is the Commission’s current posture of, at best, indifference, and at times, hostility to facilitating capital formation. As it happens, today is the tenth anniversary of President Obama signing into law the Jumpstart Our Business Startups (JOBS) Act. That bipartisan legislation required the SEC to write rules lessening the burdens on small companies seeking to raise capital. Some of the Act’s provisions were things we could have done on our own. Congress and the President got fed up waiting for the Commission to take small business capital formation seriously.”

 

Additionally, Commissioner Allison Lee remarked:

 

“Many investors are business owners and vice versa. And capital raising and investor protection are not at odds with one another or a zero-sum proposition. Rather, investors need appropriate investment opportunities, and investor protection increases investor confidence, which in turn helps promote capital raising. The relationship between the two is symbiotic and we can and should seek to balance the need for both robust capital raising opportunities and robust investor protection.”

 

Hopefully, seeing how the JOBS Act has expanded capital formation will encourage the SEC to continue the momentum and create more tools and resources to support small businesses. In the meantime, companies should explore existing options and opportunities for capital, such as through the JOBS Act. Small businesses should not wait for the SEC to create more opportunities – they should take advantage of the rules and regulations that are currently in place to raise the capital they need to grow their businesses.

Why RegA+ Offerings Fail

Posted on by Oscar Jofre

When it comes to RegA+ offerings, there are several reasons they may fail: a failure to comply with regulatory requirements, a failure to budget for the offering properly, or a failure to assemble sufficient expertise. Most of these can be attributed to a lack of commitment; if organizations do not take these necessary components of the process seriously, then RegA+ offerings are set up for failure from the start.

 

Compliance for RegA+ Raises

 

Complying with regulations is one of the most important aspects of a RegA+ offering. However, many companies try to cut corners regarding compliance, thinking they can save time and money. This is a huge mistake that can have disastrous consequences. Not only will failing to comply with regulations result in fines and penalties, but it can also jeopardize the entire offering. When experiencing an audit or investigation, companies that have not been compliant with regulatory requirements often face much harsher consequences than those who have made an effort to stay compliant. Even if the raise completes without fines or penalties from the regulator, sloppy or half-hearted compliance raises the risk of being sued by an investor for some real or imagined offense. By wholeheartedly committing to the spirit and letter of the regulations from day one, and with the assistance of professionals well-versed in the regulatory requirements (a FINRA broker-dealer, an escrow agent, or an SEC-registered transfer agent), you can increase your chances of a successful RegA+ offering while protecting your company from potential legal problems down the road.

 

Budgeting for a RegA+ Raise

 

Budgeting is essential for a successful offering. Companies must have the proper funding to hire professionals, comply with regulations, and market the offering effectively. Without adequate funding, a company is likely to run into problems along the way. A RegA+ raise is a complex and costly undertaking, and companies should be prepared to commit the necessary funding before beginning the process. Including a well-thought-out budget in your business plan is one of the keys to success when raising capital through a RegA+ offering.

 

Affinity Marketing

 

Many companies turning to RegA+ aren’t just looking to raise capital; there’s something they want to do with the capital. Whether this is a product they want to make or a service they want to provide that they’re passionate about, they’re committed to that mission. Affinity marketing is a great way to connect with like-minded investors, show them that commitment, and bring them on board. This is much harder to do if the company isn’t actually committed to that mission in the first place.

 

Technology and Expertise

 

For issuers learning new technologies and working with experts in a field that they don’t know much about, it can be a daunting process. It takes commitment to learn these new technologies or do what the broker-dealer is advising, understanding that this is the path toward a successful offering. If you’re not sufficiently committed, you might just shrug this off as not worth the cost or effort.

 

Companies should take away from this that a successful RegA+ raise requires a commitment to the process from start to finish. Commitment is a willingness to put in whatever it takes to succeed: to invest the time and resources necessary, comply with regulations, budget appropriately for the offering, and assemble a team of experienced professionals. With a commitment to these essential components, a company can increase its chances of success and avoid the pitfalls that have led to the failure of other RegA+ offerings.

 

KorePartner Spotlight: Richard Heft, President of Ext. Marketing

Posted on by Oscar Jofre

Richard Heft is the President at Ext. Marketing, a full-service marketing firm that helps companies attract potential investors to apply their marketing strategy and achieve their communications objectives. Richard has over 20 years of experience in the marketing and communications industry, focusing on the financial services sector. In 2021, Richard and his co-author published The Ascendant Advisor, a book about marketing and content strategies for advisors to grow their businesses. 

 

We recently sat down with Richard to discuss his company, experience, and partnership with KoreConX.

 

Q: Why did you become involved in this industry?

A: Ext. has spent almost a decade and a half helping financial services firms translate their business objectives into cutting-edge marketing campaigns for the retail and institutional spaces. During this time, we also began to recognize that we would truly be a full-service marketing leader if we could help our clients reach a limitless number of online retail investors through various social channels. The power of these retail investors is that they not only have an almost unlimited appetite to consume information online, but they are also able to invest how they want, when they want, and where they want on the increasing number of self-managed platforms. We launched Ext. Digital to help companies in virtually all industries identify their target retail audience, create messaging that will resonate with that audience, and tailor their conversion funnel to ensure their brands and investment offerings stand out in a somewhat crowded marketplace.

 

Q: What services does your company provide for offerings?

A: We offer end-to-end digital marketing strategies, content creation, media activation, and ad buys. We also provide access to our proprietary financial influencer network to help amplify the audience for our client’s news and updates.

 

Q: What are your unique areas of expertise?

A: Beyond our unparalleled content creation and transparency regarding their ad spend, our clients benefit from our constant A/B testing & optimization approach to ensure their media dollars are continuously put to best use.

 

Q: What excites you about this industry?

A: There is a lot that excites me about this industry! I strongly believe that, even when the global economy looks uncertain, there is a massive opportunity for companies looking to raise capital to reach the right people with their stories. And the people they are reaching have never been more motivated and able to invest in the opportunities that appeal to them.

 

Q: How is a partnership with KoreConX right for your company?

A: KoreConX has always been an excellent, reliable partner to Ext. Digital. We have been thrilled to introduce our clients to KoreConX’s holistic platform, given the trust we have in Oscar, Peter, and the entire KoreConX team, and we have worked with many companies that we know are going to be leaders in their respective industries as a result of introductions made by KoreConX.

 

Q: Anything else you would like to add about RegA, RegCF, or any other topic you might find relevant for your company, our partnership, and the ecosystem you are part of?

A: I encourage any company exploring a capital raise through a Reg A, Reg D, or Reg CF issue to find partners they can trust over their entire journey. I firmly believe Ext. Digital is the ideal digital marketing partner for any company looking to take the next step in its journey.

 

Potential and Impact of the Cannabis Sector on Jobs Creation

Posted on by Oscar Jofre

The cannabis sector is growing fast, and with it, the potential for job creation. A recent study shows that the cannabis industry could create and support an additional 1,250,000+ jobs. As legalization spreads, it creates opportunities for all types of workers and the industry as a whole. Plus, as more companies utilize JOBS Act exemptions, the capital to support this growth is readily available.

 

Expected Job Creation Growth in the Cannabis Industry

 

As the cannabis industry continues to grow at an unprecedented rate, the need for qualified employees in all areas of the business increases. Vangst, a leading cannabis recruiting agency, filled over 150,000 positions in 2021 alone. With this level of growth projected to continue into 2022 and beyond, it’s evident that the cannabis sector is a significant player in job creation.

 

To get a better understanding of the employment landscape within the cannabis industry, Vangst surveyed over 1,000 professionals working in the space. The results showed that the majority of employees (34.4%) have less than a year’s experience in cannabis. On the other hand, over 30% have been working in the industry for five years or more, indicating opportunities for both experienced professionals and those just starting in their careers. 

 

According to a job report from Leafly, the legal cannabis industry supports the equivalent of 428,059 full-time jobs and created an average of 280 new jobs a day in 2021. In that year, according to New Frontier, legal cannabis sales reached $26.5 billion for the year, and this is expected to reach $32 billion by the end of 2022. This data also calculated the CAGR of the cannabis industry and expects it to grow 11% between 2020 and 2030 to reach more than $57 billion.

 

What This Means for Employment

 

With the sector experiencing its fifth consecutive year of 27% or more annual job growth, the demand for qualified employees in all business areas, from cultivation and production to sales and marketing, will continue to rise. Plus, with 49% of Americans trying cannabis at some point in their lifetime, it is evident that cannabis use is not going anywhere.  Indeed, consumer cannabis use increased by 50% during the pandemic.

 

The cannabis industry is an exciting and ever-changing field that offers ample opportunities for growth and advancement. Cannabis job creation is not only limited to those working in the plant-touching side of the business. The industry provides opportunities for professionals in a wide range of fields, from accounting and finance to human resources and marketing. This means that job creation will not slow down as the industry crosses over into other markets and types of products, providing a unique opportunity for those looking for a career change or those just starting their professional lives.

 

With its fifth consecutive year of high job growth, the cannabis sector shows no signs of slowing. As cannabis is legalized in more states, the industry’s growth is expected to continue to drive employment, especially as cannabis employment growth rates are quickly surpassing other industries.

 

A $30 Trillion Market in 8 Years: Shari Noonan Speaks with Crowdfund Insider

Posted on by Oscar Jofre

The private securities market is predicted to grow exponentially in the next decade, with a total value of $30 trillion by 2030. Recently, Shari Noonan, CEO of Rialto Markets spoke to Crowdfund Insider about this remarkable trajectory.

 

There are several reasons we can anticipate this tremendous growth. First, the JOBS Act introduced powerful exemptions to SEC registration, removing or easing many of the administrative barriers that had stood in the way of capital formation. As well, new tools have emerged to help companies seek capital in online capital markets.

 

Plus, these online tools mean that companies now have access to a wider pool of potential investors that had been traditionally unavailable to the private market. On this subject, Shari Noonan said, “Rialto Markets enables not only venture and institutional investing but also retail investing. This diversity can help private companies seeking capital find a wider range of investors, which might mitigate some of the shakiness in the economy.” With traditional forms of investment, reaching niche investors used to be nearly impossible. It’s a different story online because finding niches is a huge part of what the online world is all about. So whether a company is in real estate, ice cream, or electric vehicles, online platforms make it easier to find the right investors who support unique, innovative companies.

 

So far, the interest in investment through JOBS Act exemptions has not slowed down. “We saw a 1,021% increase in equity crowdfunding in 2021 to $113.52 billion, so that level of growth may be difficult to sustain, but it will still be a strong 2022 for the Reg CF and RegA+ investment markets,” added Shari.

 

So, what does this all mean for investors? Well, the private securities market is set to continue growing at a rapid pace, and with the help of companies like Rialto Markets, it’s easier than ever to get involved. And if it’s easier for investors to get involved, then it’s easier for companies to find investors.

 

For players in the private capital market, like Rialto, the mission is to create a fully democratized ecosystem. Shari believes that “​​this enables private companies looking to raise capital to expand their net and reach a much wider and more diverse investor base, providing investors with access to investments at an earlier stage than previously.” 

 

Continued growth will require a robust infrastructure. “We will continue to expand services to bring greater efficiency and scale to the private markets,” said Noonan when asked about Rialto’s plans for the future. This will also include support for new types of securities, and Rialto is already prepared for the expansion of digital securities. Shari points out that “many NFTs are securities that also live natively on a blockchain. The right way forward is to wrap NFTs into the regulatory framework by registering them as Reg CFs or Reg As, then approving and tracking ownership on a next-gen SEC-registered Transfer Agent.” This would allow the industry to test new technologies while adhering to securities laws that protect issuers and investors alike.

 

The private capital market is growing at an incredible rate as issuers increasingly turn to private capital sources for their funding needs and investors explore new types of investments. With so much growth potential ahead, the private capital market is poised to introduce new technologies, efficiencies, and opportunities to the financial world.

 

Oscar Jofre Speaks at Franchising Event in Denver, CO

Posted on by Oscar Jofre

We are always looking for ways to help our clients and the franchise community grow and succeed. That’s why we’re excited that our CEO, Oscar Jofre, got a chance to speak at the “Living in the Roaring 20s: Looking Ahead to a Wild Decade in Franchising” event in Denver, Colorado this week. The event featured dynamic panels of industry leaders. It was a great opportunity to take advantage of a hands-on learning experience, designed to help franchise businesses reach new heights and share key lessons learned from a global pandemic, tools and strategies for risk mitigation, and explore critical trends and new opportunities on the horizon.

 

Oscar was there to share his valuable expertise regarding raising capital. He joined two panels to discuss how crowdfunding can be used by franchisees and franchisors and how NFTs and cryptocurrencies are permanently altering the franchise landscape.

 

In addition to Oscar’s presentation, the event also featured panels on franchise strategy, industry outlook, sustainability, post-COVID best practices, navigating mergers and acquisitions, and much more of interest to anyone in the franchise industry, from those just starting to explore franchising to established professionals looking for ways to take their businesses to the next level. 

 

KoreConX is proud to have been a sponsor of this event, and we hope to see you at the next one!

Examining RegCF Trends

Posted on by Oscar Jofre

The internet has put financial literacy resources at the tip of our fingers and has done the same for investment opportunities. Whether it’s an app that allows you to buy and sell stock or cryptocurrencies, or a website that allows you to invest in a company that could be the next Uber, Tesla, or SpaceX, the average person now has access to new and exciting ways to invest that never existed before. 

 

The private capital market has been transformed by the JOBS Act and its exemptions, like Regulation CF, that allow companies to raise growth-fueling sums of money from accredited and nonaccredited investors alike. And, with companies now able to raise larger amounts than ever before, Reg CF investments are enjoying increasing popularity. This type of crowdfunding allows entrepreneurs to tap into the wallets of thousands of potential investors, providing not only the capital they need but also new networks, brand ambassadors, and more.

 

While the number of companies raising capital online decreased between 2018 and 2019, this number rebounded substantially since according to data shared by KingsCrowd. Between 2019 and 2020, the number of deals nearly doubled from 541 to 1024. The 2019 decrease could be attributed to multiple factors. One possible reason is that online crowdfunding was still considered a new space at the time, so investors and founders still had their reservations. The increased number of deals in 2020, 2021, and so far throughout 2022, suggests that this hesitation is starting to dissipate. This is supported by the tremendous milestone RegCF reached last year; over $1 billion has been raised through this exemption This could be due to a better understanding of how crowdfunding works or increased confidence in the industry as a whole. Whatever the reason, it’s clear that RegCF is becoming more popular among startups and investors alike.

 

When the COVID-19 pandemic began spreading across the US in the spring of 2020, it crippled and even bankrupted thousands of businesses. However, startups that raised capital with Reg CF didn’t appear to be affected the same way, possibly because of exploding demand in industries like telehealth, med-tech and delivery services, creating urgent new investment opportunities, coupled with large numbers of potential investors suddenly working from home and becoming more exposed to and accepting of online transactions and crowdfunding campaigns. 

 

This trend can also be seen in VC funding, which decreased during 2020 by 9% and 23% for the first quarter and second quarter of the year. The negative effect of the pandemic on VC funding largely impacted female founders more heavily than male founders, with female founders receiving only 2.3% of VC funding in 2020. That drove many founders to seek alternatives, which may explain some of the uptick in crowdfunding deals.

 

2022 is seeing a good flow of new crowdfunding deals as well. We’ve seen 429 new deals in the first quarter, according to KingsCrowd, and this number is only expected to increase as the number of founders and investors who recognize the power of crowdfunding continues to grow. With as little as $100, non-accredited investors can now own a part of a company and support a cause they believe in. This democratizes startup investing like never before.

 

Other trends we’re seeing are an increase in the mean amount raised per deal and a decrease in the median amount raised per deal, suggesting that while the biggest deals are getting bigger, the number of smaller deals is also growing, reflecting more participation by small businesses and small investors This has increased the amount of capital raised through RegCF from $239 million in 2020 to $1.1 billion in 2021, and this number is expected to double by the end of 2022. This means that more money is being funneled into startups and small businesses than ever before.

 

Will we see more startups turn to crowdfunding to compensate for the lack of VC funding? Only time will tell, but we’re excited to see how the rest of the year unfolds for the Reg CF community.

Private Capital Trends for the Cannabis Industry

Posted on by Oscar Jofre

As the cannabis industry continues to grow, so does the need for new methods of raising capital. Revenues have doubled over the past three years, and the industry is on track to reach $25 billion annually by 2025, or $14.1 billion for CBD alone, but traditional methods such as bank loans and private equity are often unavailable to cannabis businesses, forcing them to turn to the private market for capital. While often more flexible and forgiving than the public market, the private market can be a challenging place to raise capital without the knowledge and experience. 

 

The Constantly Growing Industry of Cannabis

 

The cannabis industry is changing, and new opportunities for entrepreneurs are coming. Thanks to the JOBS Act, businesses in the cannabis industry can now use regulations like A+ and CF to raise capital from the general public. This offers several advantages, particularly the ability to reach a larger pool of investors and thus raise larger sums of money.

 

However, the most significant advantage of Reg A+ is that it allows businesses to retain more control over their company. Traditional methods of raising capital typically require businesses to give up a larger share of their equity. This is especially beneficial for businesses in the cannabis industry, which is still in its early stages and is constantly changing. With Reg A+, companies can raise capital from the general public while avoiding the costly process of going public. With more control over their company, and the ability to avoid costly IPOs, firms in the cannabis industry can better position themselves for success.

 

Investing in the Private Cannabis Market

 

The private market for cannabis investments is growing rapidly as the legalization of cannabis spreads throughout the US. Entrepreneurs are looking to get in on the ground floor of this new industry, and there are several options available to them when it comes to investing in cannabis. 

 

Private CBD companies, such as Stigma Cannabis and UNITY Wellness, are turning to online capital raising to fund their growth. These diverse companies focus on many aspects of the industry, from CBD supplements to CBD skincare products, and represent only two of many companies innovating in this space. Regulations A and CF provide excellent opportunities for these companies and the investors looking to support them. 

 

Getting started as an investor in the rapidly evolving private cannabis industry can be scary, but it’s also an exciting opportunity with many challenges and rewards. You can make the most of this unique opportunity by educating yourself on the process and available resources, and looking for and researching a private cannabis company that resonates with you as an investor. 

 

For cannabis companies looking to raise capital, the process begins by identifying the team that will help you reach your goals, such as experienced securities lawyers, broker-dealers, investor acquisition firms, transfer agents, and other parties critical to your success. However, you should also consider how you can turn customers into investors and brand ambassadors as they will be essential throughout your capital-raising journey.

 

Cannabis Industry Trends in 2022

 

Cannabis companies are benefiting from increasing consumer acceptance of the product in 2022. In states where cannabis is legal, tax revenue from sales has been significantly higher than predicted. This trend will likely continue as more states legalize cannabis, and the industry becomes more mainstream. It could also remove many barriers to entry for potential investors and entrepreneurs looking to enter the space.

 

Despite the current political environment, which is generally unfavorable to cannabis companies, several bills are making their way through Congress that could positively impact the industry. The SAFE Banking Act, for example, would allow FDIC-insured banks to offer their services to cannabis companies, providing much-needed financial infrastructure. 

 

The industry will almost certainly continue to grow because of the acceptance of cannabis and its use in a variety of products. The cannabis plant produces several compounds with medical, industrial and commercial applications, with THC and CBD only the most well-known.  Developing these products and bringing them to market is creating more jobs, stimulating the economy, and becoming more accepted by people from all walks of life.

 

Growth in the cannabis industry is not likely to slow down anytime soon. Investors and companies interested in the industry should keep a close eye on developments at the state and federal levels and the financial health of companies in the space. With the right mix of factors, the cannabis industry could achieve even greater heights in the years to come.

 

Is Equity Crowdfunding Immune to Market Volatility?

Posted on by Oscar Jofre

In a recent TechCrunch article, author Rebecca Szkutak asserts, “With the fundraising climate now showing cloudy skies, equity crowdfunding is getting ready for a field day.” The stigma associated with crowdfunding is reversing; once viewed as a fundraising method for companies “not good enough” for venture capital, it has grown substantially in the past few years. Better yet, 2022 is “​​poised to be monumental for equity crowdfunding.” From the start of this year to the end of May, companies have raised $215 million through this method of capital raising, an increase of $200 million from the same period last year. Favorable evolutions to regulations in this space are only contributing to this growth. 

It will be exciting to see how these trends continue to develop and enable companies to raise capital through to the end of the year. To read the full article on TechCrunch, click here.

What Independence Day means to KoreConX

Posted on by Peter Daneyko

Independence Day is a really iconic holiday. Parades and fireworks, concerts and cookouts, celebrations of what America is and what it aspires to be, surrounded by that patriotic pride. Independence Day has special meaning to us at KoreConx, because we have always believed our mission to be the democratization of the American Dream. 

 

Big things start in small garages, like the ones where Steve Jobs, Steve Wozniak and Ronald Wayne started planting the Apple seed, or where Bill Gates and Paul Allen started looking at the future through Windows. But it was difficult to raise capital in those days, and those guys were lucky. How many other great ideas never got off the ground, simply because someone couldn’t find the investors to make it happen? How many would-be investors missed out on these opportunities, because they didn’t have the means to hear about them?

 

We set out to change that when KoreConX was founded back in 2016. The private capital market is 4 times the size of the public market, and there are more great ideas in garages than ever before. Our mission is to bring these things together,  to jumpstart innovation, create jobs, and help more people realize their own version of the American Dream. 

 

Whether you are inside your garage or you are looking for a good opportunity to invest, we are sure that is where true independence lies. We wish you a glorious Independence Day of celebration, parades and opportunities ahead.

 

Oscar A Jofre

What is KYC?

Posted on by Oscar Jofre

Each year, an estimated $2 trillion from illicit activities is laundered. This poses a significant challenge to financial institutions, requiring onerous efforts to verify that individuals involved in financial transactions are who they claim to be. This is where KYC, or Know Your Client, practices come into play. KYC compliance is at the core of any successful risk management strategy and ensures that financial institutions are not inadvertently aiding criminal activity. Let’s dive into KYC a little deeper.

 

What is KYC?

 

Regulations such as AML (anti-money-laundering), and eIDAS (electronic Identification, Authentication and Trust Services) exist to help detect and prevent financial crime, and to reduce the ability of terrorists to fund their operations.

By identifying their clients, financial institutions can help reduce the possibility of doing business with criminals or those who may be involved in criminal activity. KYC is quite complex: this means collecting various personal and professional information from their clients, verifying it, and assessing the risk the clients pose for money laundering.

There is a lot of database and document research involved in this stage, which helps assure the money is traceable: maybe dividends from investments, salaries or any other licit way of making money, with a reliable source.

 

How is KYC Conducted? 


The steps in a KYC procedure vary depending on the organization, but they typically include the following:

 

  1. Client identification: Identify the client and collect certain information, such as their name, date of birth, national identification (SSN, SIN, etc) and address.
  2. Client verification:Verify that the client is who they say they are, typically by examining documents such as a passport or driver’s license.
  3. Risk assessment: Assess the client’s risk level. This helps to determine what type of information needs to be collected from them and how often they will need to be screened. This step depends on the kind of business the client is involved in and each company can decide how much information they need.
  4. KYC compliance: Ensure that the organization complies with KYC regulations. This includes maintaining accurate records and keeping up-to-date with changes to KYC regulations.

 

By following these steps, organizations can effectively implement a KYC procedure.

 

What are the benefits of KYC? 

 

There are many benefits to implementing KYC compliance measures, including:

 

  • Prevention of financial crime: By identifying clients and understanding their financial activities, organizations can help prevent criminal activity such as money laundering.
  • Enhanced client protection: Organizations can better protect their clients from fraud and identity theft by knowing who their clients are. This is especially beneficial to banks or other institutions that are common targets of such crimes.
  • Improved client experience: By streamlining the KYC process and making it more user-friendly, organizations can improve the client experience. Clients must go through verification process with transparency and with clear goals.
  • Increased transparency: KYC compliance measures help create a more transparent environment for both organizations and their clients by sharing information.

 

What are the challenges of KYC? 

 

Despite the many benefits of KYC, there are also some challenges associated with it, such as:

 

  • Cost: the KYC process can be costly for organizations, particularly small businesses. This is because it requires using resources, such as staff time, to collect and verify client information.
  • Client privacy: some clients may be concerned about the amount of personal information that is required during the KYC process. This can potentially lead to identity theft or other privacy breaches.
  • Compliance: the KYC process must be followed correctly to be effective. This can be challenging for organizations, especially if they have a large number of clients.

 

What is the difference between KYC and AML? 

 

AML, or Anti-Money Laundering, is a process that is used to prevent the illicit use of financial services. This can include money laundering, terrorist financing, and other illegal activities. KYC compliance measures are a part of AML compliance, but they are not the same thing. KYC compliance measures focus specifically on the identification of clients, while AML compliance measures also include monitoring client activity to look for suspicious behavior.

 

KYC is a necessary process that can help to prevent financial crime. It involves collecting certain information from clients and using it to verify their identity to help protect against criminal activity. While KYC compliance measures can be costly and challenging to implement, they are essential to AML compliance, and KYC efforts can protect your company from financial crime.

What Kind of Data is Relevant for Private Equity?

Posted on by Oscar Jofre

The world of private equity is shrouded in a certain amount of mystery. What data do private equity firms use when making their investment decisions? What kind of research is needed to identify opportunities in this market? With the private equity markets raising over $665 billion in 2021, up from $521 billion in 2020, the use of data for private firms is becoming more crucial than ever. This blog post will look at the data types most relevant for private equity investors and how this information can benefit them in certain situations.

 

The Role of Data in Private Equity

 

Private equity is a type of investment generally reserved for high-net-worth individuals, venture capitalists, and institutional investors. However, these opportunities are being afforded to more individual investors thanks to the JOBS Act. It is an investment strategy that involves buying stakes in companies that are not publicly traded on stock markets. Private equity firms, in particular, typically have a longer time horizon for their investments than other types of investors and often are willing to invest in companies with high growth potential.

 

For these investments, investors may rely heavily on multiple data sources to provide insight and justify investment decisions. These sources may include:

 

  • Financial data is relevant to PE firms because of the need to monitor a company’s financial health. This data can help PE firms identify potential risks and flag companies that may be in trouble. Financial data can also help firms assess a company’s growth potential, allowing them to make more informed investment decisions. 
  • Operational data is relevant to PE firms because it helps them understand a company’s business model and evaluate its efficiency. This data can help firms identify opportunities for cost savings and process improvements. 
  • Market data lets PE firms know what’s happening in specific industries and understand where there might be opportunities for companies they own to gain or lose market share. It also helps firms keep tabs on broader industry trends that could present opportunities or threats to their portfolio companies.
  • Alternative data allows firms to track a company’s performance in real-time and make more informed investment decisions.

 

Data is an essential part of the private equity investment process, which firms must consider when making investment decisions. Private equity firms often rely on proprietary data sources, such as data from the companies they own or have invested in, to make investment decisions. They also use external data sources, such as public market data, to corroborate what they see from their data sources. 

 

The Importance of Data

 

With the increasing importance of various types of data, private equity firms must be able to access and analyze this data to stay ahead of the competition. Firms that can effectively use data will be well-positioned to make informed investment decisions, improve their portfolio companies’ performance, and generate better returns for their investors.

 

Beyond traditional data sources, alternative data is becoming increasingly important for private equity firms. This data can come from various sources and helps PE firms better understand the companies they invest in, make better investment decisions, and provide more hands-on operational support to their portfolio companies. Alternative data can help PE firms corroborate what they are being told and get a complete picture of the company they are interested in investing in. Alternative data can also help with operational decisions after an investment has been made. The ability to crunch a company’s proprietary data and glean insights into broader industry trends is crucial to helping a private equity company increase its market share, improve operational efficiency, and ultimately time the exit correctly. Therefore, a practical application of alternative data can create a virtuous cycle for private equity firms: better investment strategy, selection, execution, management, and realization, driving improved returns and increased LP demand. 

 

Any one source of data may not provide the entire picture of a potential investment, making it critical for private equity investors to analyze a wealth of data before making an investment decision. Overall, data can help to illustrate patterns and opportunities within the private equity space.

Recapping Our All-Star June Podcast Guests

Posted on by Oscar Jofre

Throughout June, we were happy to host another set of excellent speakers to add to our KoreTalkX series, covering timely topics like digital securities, RegA+ for cannabis, and the potential RegA+ unlocks for companies in the Medtech space. Keep reading to explore each episode in more depth. 

 

KoreTalkX #5: Digital securities matter; tokens, coins, and regulations.

 

The June lineup of KoreTalks kicked off with episode #5, during which Andrew Bull discussed the future of digital assets and their impact on the financial industry. As digital securities enter the mainstream, their potential to protect issuers and create opportunities for investors grows with the transparency they can offer. However, education will continue to be an important factor in driving the expansion of the digital asset space. This conversation is helpful for anyone interested in learning more about digital assets and their impact on the financial industry. With their experience in traditional finance and digital assets, Andrew Bull and Dr. Garimella provide valuable insights into this growing industry based on their observations of the industry’s development. 

 

KoreTalkX #6: Cannabis businesses need capital. Let’s raise it.

 

Reg A+ is a powerful tool for companies in the private sector, and it is no different for those in the cannabis industry. In KoreTalkX #6, Brianna Martyn of Big Stock Tips discussed the importance of due diligence when investing in the cannabis industry, advising investors to research and understand each company’s fundamentals before investing. Brianna spoke with Jessica Trapani of KoreConX about our role in helping private companies raise up to $75 million from brand advocates and customers without going public. 

 

KoreTalk #7: The MedTech ecosystem is booming.

 

The JOBS Act was signed into law two decades ago, yet we are just beginning to see more Medtech companies utilize the RegA+ exemption to raise capital. In the last KoreTalkX episode for June, Stephen Brock and Peter Daneyko discussed the benefits of the Jobs Act and how it will help businesses grow and create jobs. Especially in the Medtech space, which is traditionally capital-intensive, RegA+ provides a tremendous opportunity for companies to raise needed capital while retaining more ownership of their company. Additionally, the speakers also discuss new, game-changing opportunities for investors, who are now able to invest in companies that align with deeply personal values. 

 

If you’d like to watch any of these episodes in full, you can catch them on your favorite podcast platform. Click here to view episodes on Spotify, Amazon, or iTunes.

It is time to meet your MedTech A+ Team

Posted on by Oscar Jofre

With our KoreSummit on RegA + for Medtech companies quickly approaching, we’d like to introduce the speakers we are thrilled to have for this informative event an exciting and life-changing industry. It is time to meet your MedTech A+ Team.

 

Dawson Russel
A branding and marketing expert with over ten years of experience in the industry. He has helped over 100 companies build their brands and tell their stories to the right audience thanks to his specialty in creative storytelling. His company, Capital Raise Agency, provides full-scale branding, marketing strategy, website design and development, video production, lead generation, social media, email, native ad campaign management, and more. At the upcoming Medtech KoreSummit event, Dawson will be speaking about how to build a brand and tell a story that captivates an audience.

 

Scott Pantel
President and founder of Life Science Intelligence, a company that ​​provides deep knowledge of the healthcare industry, guiding clients with actionable data to identify significant trends in medical devices, diagnostic, and digital health technologies that are rapidly evolving in the industry. At the upcoming KoreSummit, Scott will be discussing where Medtech companies can begin when embarking on their capital-raising journey. His wealth of knowledge on the topic will help entrepreneurs better understand the potential of Regulation A+ and how it can be used to grow their businesses. 

 

Stephen Brock
CEO of Medical Funding Professionals, a company that helps innovative companies in the healthcare field gain access to capital. Stephen is also passionate about ensuring founders, early employees, and investors retain control of their companies. For many companies in Medtech, this means introducing them to the potential of Regulation A+, which is just beginning to see more adoption by companies in this space. Stephens’s expertise in the Medtech field will shine through in his participation in the event’s panels.

 

Douglas Ruark
A corporate finance expert who has been involved in the securities industry for over two decades. He has experience with SEC-exempt securities offerings and provides advisory services for clients preparing and executing Regulation D, Regulation CF, and Regulation A+ offerings. We are excited for Douglas to share his knowledge at the KoreSummit event, where he will be speaking about Form 1A and the regulatory requirements for filing. 

 

Shari Noonan
CEO and Co-Founder of Rialto Markets, has over 20 years of experience in financial services, giving her unique insight into the private market. Shari will be joining the event to discuss the topic: “Form 1A: What is it, the regulatory requirements, and all you need to complete the filling and go live.” This makes her a valuable speaker at the upcoming event as she can offer information on the topic from both a regulatory and technological perspective for MedTech companies. 

 

Andrew Corn
Founder and CEO of E5A, a marketing firm specializing in RegA+ offerings. With over 25 years of experience in the industry, Andrew has a unique perspective on raising capital through marketing. He will be speaking at the upcoming KoreSummit on how Medtech companies can sell the story, not the stock. Through marketing, companies can reach a wider pool of potential investors, including those who are not accredited investors. Andrew brings his world-class knowledge of marketing Regulation A+ offers and acquiring the right investors for a company’s raise.

 

Nick Antaki
Corporate attorney with experience in securities offerings and private placements, providing legal services to small and medium-sized businesses, including entity structuring, regulatory strategy, trademarks, copyrights, and trade secrets. Nick’s experience will be valuable to KoreSummit attendees as they look to raise money for their businesses, and he joins his colleague Doug Ruark from Reg D Resources.

 

Joel Steinmetz
COO and co-founder of Rialto Markets, with over 20 years of experience in the financial services field. He saw the many obstacles issuers and investors faced in the private placement market, opening up the opportunity to bring efficiency to inefficient markets, and inspiring him to co-found Rialto Markets.

 

Lee Saba
CTO and Head of Market Structure at Rialto with over 20 years of experience in financial services. We are excited to hear Lee share his thoughts in this growing Reg A+ vertical.

 

Matthew McNamara
Managing Partner at Assurance Dimensions and has over 20 years of experience as a Certified Public Accountant. He specializes in SEC and private company audits, focusing on technology, manufacturing, retail, construction, nonprofit, and transportation industries. Given his broad experience in accounting and auditing, McNamara is well-positioned to provide valuable insights on financial reporting for MedTech businesses.

 

Andy Angelos
President of Forward Progress, a company that provides end-to-end solutions for investor marketing, lead generation, and customer acquisition campaigns. Their battle-tested strategies connect you with accredited and nonaccredited investors to provide growth capital for your business. Andy will be speaking at a talk on “sell the story, not the stock” at the upcoming KoreSummit, sharing his expertise on connecting with investors and delivering sustained growth. With his vast experience in marketing and capital acquisition, Andy will surely give an insightful discussion that will be valuable for anyone in attendance.

 

John Hayes
Co-founder and CEO of Raising Stakes Media, a company that provides marketing and advertising services for businesses hoping to raise capital through a Reg A+ offering. With over 25 years of experience in the media industry, John brings a wealth of knowledge to the table for effectively telling a company’s story.

 

Oscar Jofre
Co-founder, president, and CEO of KoreConX. He has long been a passionate advocate for expanding the private capital market to increase opportunities for companies and investors alike. Part of his mission at KoreConX is to establish an ecosystem of trusted partners that can help investors and issuers succeed through the JOBS Act exemptions. 

 

Peter Daneyko
KoreConX’s CRO and brings a wealth of knowledge to the table regarding business development, startups, and sales. He will be speaking at the KoreSummit about Secondary ATS and Form 1A: What is it, the regulatory requirements, and all you need to complete the filling. This is essential information for anyone in the MedTech industry looking to go live with Reg A+, as it can be challenging to navigate the regulatory landscape. 

 

Dr. Kiran Garimella
Chief Scientist & CTO at KoreConX, is a world-renowned expert in artificial intelligence and machine learning, with over 20 years of experience in the technology industry. His experience and expertise make him a valuable asset to the KoreSummit, and he will talk about preparing for your live offering and secondary ATS.

 

Amanda Grange
Transfer specialist with KoreConX and returning for the upcoming KoreSummit event. She brings her experience to the table to discuss what issuers should be aware of when going live and the preparations they need to make to set themselves up for potential success.

 

It’s not too late to sign up for the event. You can register for the half-day webinar event here. It’s completely free to attend! 

 

There’s a Lot of Private Capital to Go Around

Posted on by Oscar Jofre

With all the turbulence in the public markets, private markets look even more attractive to investors.  The private markets are 4x the size of public markets. Investors are and will continue to look for investment opportunities and right now, there is a lot of private capital to go around when we see these numbers.

 

A Staggering Amount of Private Capital

 

The private capital available in the world today is staggering. A recent report by Bain & Company found that there is more than $5 trillion of uninvested funds currently available from private equity firms, and this number is only expected to grow in the coming years. With this influx of cash, private equity firms can engage in mega-deals and drive up valuations in the process.

 

The increased availability of private capital is not just limited to traditional private equity firms. Family offices, sovereign wealth funds, and pension funds play a more prominent role in the private equity space and have experienced sweeping changes in 2021. With all this capital available, it’s no wonder that the private market is growing. While some people may be concerned about a potential bubble, it’s important to remember that the private equity industry is still relatively small compared to other asset classes. So even though there may be some risk of over-inflated valuations, the private equity industry still has much room to grow

 

Accessing Private Capital

 

We are witnessing record-breaking investment levels reaching billions of dollars. Several reasons for this influx of cash include:

 

  • Low-interest rates
  • An improving global economy
  • A renewed focus on private equity and venture capital

 

The wealth of private capital available today is staggering and growing. The options for accessing this capital are many and diverse, so there’s no one-size-fits-all solution for each private company looking to raise capital. However, some general guidelines will help you find the right resources for your business. You must understand what stage your company is in. This will help you identify the right kind of capital, as well as the right source of that capital. There are generally four stages of funding for a business:

 

  • Pre-seed Stage: This is when you have an idea but no product or service to sell. You will need to raise funds to develop your concept and bring it to market.
  • Seed Stage: This is when you have a product or service but no sales. You will need funds to finance your product development, marketing, and initial sales efforts.
  • Early Stage: This is when you have initial sales but are not yet profitable. You will need funds to finance your growth and expand your business.
  • Late Stage: This is when you are profitable and looking to scale your business. You will need funds to finance your expansion plans.

 

There are many private capital sources, including family and friends, angel investors, venture capitalists, accredited investors, nonaccredited investors, and private equity firms. Each has its strengths and weaknesses, so it’s essential to understand the differences before approaching them for funding.

 

Additionally, we are even beginning to see a growing player in this market: JOBS Act exceptions. These exemptions, Regulation A+, Regulation CF, and Regulation D, are game-changer for companies and investors alike. These exemptions allow companies to raise significant capital from accredited and nonaccredited investors alike, which continues to widen the pool of potential investors. 

 

The private capital market is booming, with record-breaking investment levels reaching billions of dollars. There are several reasons for this influx of cash, including an improving global economy, low-interest rates, and a renewed focus on private equity and venture capital. Not to mention, the JOBS Act has introduced new sources of capital outside of the traditional VC and private equity round. The everyday investor is showing significant interest in the ability to get in on the ground floor with a promising company to grow their wealth. With so much private capital available, it is time to take advantage of it.

 

Private Equity’s Primetime Has Arrived

Posted on by Oscar Jofre

Private equity’s primetime has arrived! This stems from a number of reasons, including favorable economic conditions for the private capital market. In fact, 42% of private equity limited partners report a 16% net return in this space. Here are three factors in particular that have caused private equity to outperform public equity in 2022.

 

1) Interest Rates:

A survey found that 71% of global private equity investors have indicated that their equity investments have outperformed their public equity portfolios since the global financial crisis. This is in part because private equity firms are less reliant on debt financing than public companies. Higher borrowing costs will hit public companies harder, putting them at a competitive disadvantage over private companies with rising interest rates.

 

2) Economic Uncertainty:

Some degree of uncertainty characterizes current economic environment. This can be attributed to the ongoing trade conflicts between the United States and China, Brexit, and the coronavirus pandemic. These factors have made it difficult for public companies to make long-term plans and invest for the future. Private equity firms, on the other hand, are better suited to deal with economic uncertainty. This is because they can take a longer-term view and are not as reliant on short-term results.

 

3) Regulation:

The increased regulation of public companies has made it more difficult and expensive for them to operate. Private companies are not subject to the same level of regulation, giving them a competitive advantage. Additionally, private companies can benefit from registration exemptions, like RegA+ and RegCF, which allow them to raise capital from everyday investors without the need to go public. This provides private companies a significant tool they can use to their advantage and fuel their growth.

 

These combined factors show that private equity has arrived and is here to stay. This will likely continue in the future, making private equity an attractive investment for investors. More individuals are involved in the private markets with the rise in forms of private investment for regulated and non-regulated investors, such as the JOBS Act regulations. This means more capital is flowing into private markets, which drives up valuations. With the current market conditions, investors would be wise to allocate a portion of their portfolio to private equity to protect and grow their wealth and prepare their portfolios for the future.

How Can a Foreign Company use RegA+

Posted on by Oscar Jofre

For many issuers outside of the United States, the ability to raise capital from a wide pool of investors, including “the crowd” is immensely compelling. However, for foreign issuers to be able to use RegA+, there are some important considerations to keep in mind.

 

First and foremost is whether the company would be eligible to offer securities to U.S. investors. Foreign companies should seek the advice of qualified legal counsel to ensure compliance with all applicable U.S. laws and regulations. Additionally, foreign companies should consider the costs associated with making a public offering under RegA+ and the ongoing reporting requirements imposed on the company if it elects to use this securities exemption.

 

Benefit from RegA+ as a Foreign Company

 

The benefits of using Reg A+ for foreign companies are tremendous. Perhaps most importantly, RegA+, as a securities exemption, allows companies to raise $75 million from non-accredited investors. The exemption also enables issuers to “test the waters” concerning interest in their securities before officially launching the offering

 

Using RegA+ as a Foreign Company

 

It is vital first to understand the process and what is required when looking to do a RegA+ raise. Foreign companies should be aware of the following when using RegA+:

 

  • The company must be registered as a US company with a principal place of business in the US.
  • The company must have two years of audited financial statements.

 

While RegA+ offers a foreign company a simplified path to raising capital in the United States, several requirements still need to be met for the offering to be successful. These requirements include:

 

  • Filing a Form 1-A with the SEC.
  • Passing an SEC review process.
  • Engaging a US-based registered broker-dealer.
  • Disclosing all material information about the company and the offering.

 

However, like any method of raising capital, RegA+ may not be suitable for all foreign issuers. This makes it incredibly important to engage a knowledgeable team that can guide issuers through the process.

 

Trends We Believe Will Shape Investment Crowdfunding

Posted on by Oscar Jofre

In the first half of the year, a great deal has happened in investment crowdfunding. We’ve seen several trends emerge that are worth looking at as we move into 2022. These trends can impact everything from how you raise capital, structure your investments, and what kinds of companies you invest in. Here are three trends that we believe will shape investment crowdfunding in the coming year:

 

More support for Alternative Trading Systems (ATSs)

 

Alternative Trading Systems (ATSs) have been around for a while, but they’ve been slow to catch on in the investment crowdfunding space. That’s starting to change, though, as more and more platforms are beginning to see the benefits of using an ATS. An ATS is a platform that allows for the secondary trading of securities, which means that it can be used to buy and sell shares of companies not listed on a traditional stock exchange. One of the benefits of using an ATS is that it gives investors more liquidity for their investments. This means that investors will be able to sell their shares more efficiently and at a better price. ATS will also be a significant player as digital securities continue to evolve and see wider adoption.

 

Another benefit of using an ATS is that it can help to level the playing field for issuers. By using an ATS, issuers will be able to list their securities on a platform that is open to a broader range of investors. We believe that the increased use of ATSs will positively impact crowdfunding investments in the coming year. That’s because ATSs can help make the market more efficient, giving issuers and investors more options, but sweeping regulations are being proposed for alternative trading systems.

 

More focus on Environmental, Social, and Governance (ESG) factors

 

ESG investing is an investment strategy that considers environmental, social, and governance factors. This investing style has been gaining in popularity in recent years, as more and more investors are looking for ways to invest in companies that positively impact the world. We believe that the focus on ESG factors will continue to grow in the coming year as more investors look for ways to align their investments with their values, and crowdfunding can make the most out of this.

 

There are several reasons why we believe that the focus on ESG will continue to grow in the coming year:

  • A recent Gallups study showed that nearly half of the respondents polled are interested in sustainable investments, yet only 25% had heard about it. This could be a significant opportunity for companies looking to raise capital for ESG-focused businesses.
  • We also expect to see more regulation around ESG investing in the coming year. The SEC proposed a rule in March of 2022 requiring any SEC-registered companies to add specific disclosures on periodic reports and registration statements. Companies must also share information on climate-related risks that may impact business. While companies using JOBS Act exemptions are not SEC-registered, this may be an interesting development as investor demand continues to rise.
  • We also expect to see more interest from retail investors in ESG investing. A recent survey by Morgan Stanley found that 75% of millennial investors are interested in sustainable investments. This is a trend that we expect to continue in the coming year as more and more retail investors look for ways to invest in companies that positively impact the world.

 

Impact on Minority Companies

 

The past couple of years have been challenging for many businesses, but it has been especially challenging for minority-owned companies. That’s because the pandemic had a disproportionate impact on minority communities. For example, Black and Latino households have lost more wealth than white households during the pandemic, with 55% of households facing major financial problems. This has led to many people of color rethinking their investment strategies.

 

In addition, traditional financial institutions have long underserved minority-owned companies. Of venture capitalists, only 2% of their portfolio companies had a Latino founder, and 1% were led by a black person in 2017. 2020 data has shown little improvement The pandemic has highlighted just how important it is for minority communities to have access to capital. That’s why we predict that investment crowdfunding will become an increasingly popular way for minority-owned businesses to raise capital in the coming years.

 

Closing Thoughts

 

These three trends we believe will shape investment crowdfunding in the coming years. By understanding these trends, issuers and investors will be better positioned to take advantage of their present opportunities, allowing investors to connect more with businesses that they are passionate about and that align with their values. At the same time, it is also important for us to continue pushing the industry forward, enabling wider access to capital for businesses and more investment opportunities for investors.

Quarterbacks: Their Role and Why They’re Essential for Your RegA+ Raise

Posted on by Peter Daneyko

In the world of Reg A+, quarterbacks are essential to a successful offering. They play a critical role in the overall success of an offering, and their importance should not be underestimated. This article will explore the role of the quarterback and explain why they are so crucial for Reg A+. 

 

What is a Reg A+ Quarterback?

 

A quarterback works with issuers to advise and bring the necessary players to the table in a RegA+ offering. They are essential to ensure everything goes smoothly, lending their capital raising expertise to aid issuers on their capital raising journey. Without a quarterback, a company can easily overlook the nuances and complexities of securities regulations. A quarterback’s role is to manage and monitor the entire process. Doug Ruark, founder and president of Regulation D Resources Enterprises, Inc., defines the role of the quarterback as someone who has got to “work with clients that are looking to execute a securities offering, and need to get everything structured. Companies need to get all of their offering documents drafted, they need to go through the filing process with the SEC. And then, typically, a quarterback provides compliance support as they, company and quarterback, move forward and execute their offering”.

 

For a company to file with the SEC under RegA+, it must go through qualified testing. This is where a company’s financials, management team, and other factors are analyzed. A quarterback is essential in this process as they can provide valuable insight and knowledge about the company. Without a quarterback, a company may be at risk of not being fully prepared for this vital step.

 

The Importance of a Quarterback

 

A quarterback is a crucial part of any capital raising activity. They will be a valuable asset in the process and can help you avoid any costly mistakes. Some key QB responsibilities include:

  • Provide non-legal advisory services to management teams
  • Coordinate fundraising efforts with online platforms or crowdfunding portals
  • Facilitate communication between issuers and financial professionals like broker-dealers
  • Assist with due diligence
  • Work with marketing teams to establish marketing strategies
  • Other services to streamline the offering

 

Reg A+ Raises and QBs

 

By preparing well for a Reg A+ offering with a quarterback, companies can put their best foot forward and make a strong impression on potential investors. Having a well-coordinated team in place is critical, as is having all the necessary documentation and financials. Quarterbacks play an essential role in ensuring all the pieces are in place and working together smoothly so that when it comes time to present to investors, companies can do so with confidence. Quarterbacks can help their companies make a successful Reg A+ offering and attract the funding they need to grow by taking the time to do things right from the start.

 

It All Started with the JOBS Act

Posted on by Oscar Jofre

This month, we launched our newest series, KoreTalkX, during which we have hosted exciting, one-on-one conversations with industry experts to expand the knowledge base on capital raising in the private markets. We’re recapping the episodes so far and look forward to the next live event on Tuesday, May 31st, when Dr. Kiran Garimella (CTO, KoreConX) and Andrew Bull (Founding Memeber), Bull Blockchain Law) discuss digital securities. 

 

KoreTalkX #1: 10th Anniversary of the JOBS Act

In this conversation, David Weild IV, Father of the JOBS Act, and Oscar Jofre discuss the importance of the JOBS Act concerning small businesses and entrepreneurship. An important focus has been how the Act has helped increase innovation and expand access to capital for smaller companies, which is crucial for paving a brighter future.

 

Listen to the full episode on Spotify, Amazon, or iTunes!

 

KoreTalkX #2: How Can ESG Reshape Capital Raising?

This talk between Peter Daneyko and Paul Karrlsson-Willis, CEO of Justly Markets, discusses impact investing and ESG (environmental, social, and governance) criteria. Since the JOBS Act has allowed more people to invest in companies and given rise to the popularity of crowdfunding and investing for non-accredited investors, they discuss how many people are investing in businesses with missions they’re passionate about. 

 

Listen to the full episode on Spotify, Amazon, or iTunes!

 

KoreTalkX #3: How to Start and Manage a Cap Table?

In this discussion, Amanda Grange and Matthew McNamara, Managing Partner at Assurance Dimensions, talk about starting and managing a cap table. A primary focus is how the SEC compliance guidelines protect companies and how a good transfer agent will help a company stay within those guidelines. They also talk about how a well-managed and structured cap table can streamline a raise.

 

Listen to the full episode on Spotify, Amazon, or iTunes!

 

KoreTalkX #4: Thoughts on Investor Acquisition

Jason Futko and Tim Martinez, co-founder of Digital Niche Agency, talk about how to acquire investors for your startup. They highlight how important it is to have a good strategy before launching your campaign and how companies have a powerful opportunity to transform investors and customers into brand ambassadors. Additionally, they suggest entrepreneurs be prepared for a long marathon to achieve success and how to help achieve this in today’s climate.

 

Listen to the full episode on Spotify, Amazon, or iTunes!

 

Security Tokens for RegA+

Posted on by Oscar Jofre

Although security tokens have been around for a while, they have started to gain popularity because they offer several advantages over traditional investment vehicles. In particular, security tokens can be used in RegA+ offerings, allowing companies to raise money from accredited and unaccredited investors. As a result, security tokens have quickly become one of the most popular ways to invest in startups and other high-growth businesses.

 

What are Security Tokens?

 

Security tokens, as the name implies, are securities. And much like traditional securities, they represent an ownership stake in a company or some other asset and are subject to the same SEC oversight as stocks, bonds, mutual funds, and other forms of investment vehicles. Because of this, they share a familiar structure and have regulatory protection that makes them attractive for companies and investors alike. There is a greater assurance for the issuer that their investment will be protected from the volatility often associated with unregulated cryptocurrencies. For the investor, there is the added security of knowing that an asset backs its investment with value outside of the blockchain. 

 

​​”Security tokens are the missing link between the traditional financial world and the blockchain,” says Andrew Bull, founding partner of Bull Blockchain Law and KorePartner. “They provide the benefits of both worlds: the security of regulated securities and the flexibility and opportunity of digital assets.”

 

However, are security tokens the same as digital securities? The short answer is: yes, security tokens are the same as digital securities. Both represent an ownership stake in an entity or property, subject to SEC regulations. Thus, the names can be used interchangeably. The key difference between security tokens and traditional securities is that the former are digital representations that move and exist on a blockchain. 

 

It is also important to consider that while security tokens are cryptocurrencies, they are different from coins. Coins represent value on their own, like Bitcoin or Ethereum, whereas tokens have a function other than storage or exchange alone. And unlike utility tokens, security tokens represent a stake in an asset that has value outside of the blockchain. 

 

“Because security tokens denominate a stake in an asset that already has value outside of the blockchain, their value is not necessarily domain or ecosystem specific, as is the case with utility tokens,” says Bull. “Instead, the assets apportioned through the security tokens exist in the traditional market, in public and private equities. This makes the security token a naturally more attractive investment to both issuers and investors, as it provides a connection between traditional and digital investment assets.”

 

Benefits of Security Tokens for Issuers and Investors

 

Security tokens offer many benefits to companies and investors. Perhaps most importantly, they provide a bridge between traditional and digital investment assets, making it easier for companies to raise money and investors to gain exposure to the blockchain ecosystem. Because security tokens are subject to SEC regulations, issuing companies may benefit from the reassurance that their investment might be protected to a certain extent. The same benefit goes to the investor.

 

“Both parties can expect their ownership stake to be preserved on the blockchain ledger, as well,” said Bull. Investors can benefit from security tokens because they connect traditional and digital investment assets. Security tokens also have the potential to help investors by providing regulatory protection. This is important because it can help to mitigate the risk associated with investing in more experimental, unregulated cryptocurrencies.

 

On the other hand, digital assets not subject to SEC regulation, like utility tokens, have proven vulnerable to volatility and, therefore, challenging to maintain conditions stable enough to run a company. In this case, the investor in the utility token is exposed to a great deal more risk than the investor in the security token.

 

In summary, security tokens offer several benefits to both companies and investors. They provide a bridge between traditional and digital investment assets, making it easier for companies to raise money and investors to gain exposure to the blockchain ecosystem. These characteristics make security tokens less vulnerable to volatility and a more stable form of investment. They are also subject to SEC regulations, which provide some protection for both companies and investors.

Can Cannabis Companies Use RegCF?

Posted on by Oscar Jofre

In recent years, public perception of cannabis is gaining positive momentum. As of April 2021, 35 states have made medical marijuana legal, with 18 of them legalizing it recreationally. This growth has been tremendous, raising the industry’s value to over $13 billion and directly supporting 340,000 jobs. Additionally, 91% of Americans believe that regulators should legalize cannabis for medical and recreational use.

 

These factors have created an excellent opportunity for companies in this space. As public perceptions continue to rise, investments in cannabis companies may become more attractive to retail and accredited investors. Projections show that by 2028, cannabis will be an industry worth $70.8 billion globally. 

 

The passing of the JOBS Act in 2012, and its subsequent amendments, have made it easier for companies to raise money from investors. But can cannabis companies use RegCF to raise money? The answer is yes, but there are a few things they need to keep in mind. In this blog post, we’ll take a closer look at how cannabis companies can use RegCF to raise money and how it can benefit companies and investors alike.

 

RegCF and Cannabis

 

Crowdfunding has become a popular way to raise money, especially for small businesses and startups. It’s a way to get funding from a large pool of investors, each contributing a small amount of money. This can be helpful for companies looking to forego traditional funding sources, like venture capitalists or angel investors. Another factor contributing to the growing popularity of RegCF for cannabis companies is the growing legalization of cannabis products, especially across the United States and Canada.

 

RegCF is an exemption from securities laws that companies use to raise money from the public, without having to be registered as a publicly-traded company. This allows greater access to capital, without having to go through the arduous and expensive process of going through an IPO. 

 

So far, RegCF has been a successful way for cannabis companies to raise money, especially in an industry where traditional loans or going public may not be an option. The benefits of cannabis companies using RegCF to raise capital are:

 

  • Raising money from accredited and non-accredited investors.
  • Reaching a large number of potential investors through online platforms.
  • Enabling founders to retain more ownership of their company, while raising needed capital.

 

RegCF is a flexible way for all-sized companies to get funding, and it’s helping to fuel the growth of the cannabis industry. 

 

Growing with RegCF

 

The premise of the JOBS Act was to fuel the economy, create jobs, and allow startups to flourish. Cannabis companies can now capitalize on the success other companies have had using RegCF over the past decade and cannabis companies are seeing exciting potential in this ability. This democratization of capital will help fuel the industry’s growth and create jobs. In addition, RegCF provides a cost-effective way to raise money, which is critical for early-stage companies. The future looks bright for RegCF and cannabis companies as more states legalize marijuana and businesses continue to enter the space. The industry is still in its early stages, and RegCF provides an excellent opportunity for companies to raise the capital they need to grow.

Credit Cards, Escrow, and Broker-Dealers for RegA+ = $75 Million for Cannabis Companies

Posted on by Peter Daneyko

 

“It’s About Time”

 

Up until now, it was a real challenge for Cannabis companies to take advantage of Reg A+ exemptions that allow private companies to raise up to $75 million from the crowd; accredited and non-accredited investors alike.  So you have the investor community’s appetite, the table is set and they are ready, willing, and able; but what else do you need?

 

FINRA Broker-dealer

 

The regulation is meant to create jobs, allow private companies another way to raise capital, and allow for the investor community at large to participate. Before RegA+ exemptions, many potential investors were left looking into the candy store without any way to invest.  So with the democratization of capital and the ability of an untapped investor community to now have a seat at the table, the broker-dealer becomes an all-important intermediary.  In a highly regulated environment, the Broker-dealer takes the onerous task of KYC, ID verification, and AML ( anti-money laundering) off the issuer’s shoulder;  so you, the Issuer, can run your business without worrying about this important compliance requirement. As a result, you not only have the opportunity to gain large groups of investors but also develop brand advocates who share in your story.

 

Escrow Agent 

After the broker-dealer, you need an escrow agent that can hold funds from investors in all 50 states and territories and only charge you one flat fee. 

 

This key intermediary holds the investors’ funds on behalf of the Issuer until the broker-dealer completes the ID, KYC, and AML verification. Once these checks are complete, the escrow agent can release the funds. Until recently, a couple of historical challenges for industry sectors such as cannabis included the inability to get Escrow for their capital raises. Not only is Escrow now available but also at a cost-effective price point and with normalized fees, which is really the way it should have always been.  

 

Credit Cards 

 

Now below 2.9%  allowing both cannabis companies and their shareholders to be fairly treated when investing in the growth of their companies;  bringing jobs to communities and opportunities to those that believe in the company. Being responsible with your credit cards is common sense. Still, the ease of use and points as an added bonus is certainly one of the nice perks and perhaps a big reason for their high usage via crowd participation in private capital raises.

 

If you’re part of the Cannabis ecosystem looking to learn more about how KoreConX can help you on your capital raising journey, please fill out the form here.

Accredited Vs. Non-Accredited Investors: What’s the difference?

Posted on by Oscar Jofre

There is a big difference between accredited and non-accredited investors. Understanding the difference is key to knowing which type of investor you are or understanding the type of investor your offering is targeting. Let’s look at each type of investor and find out more about their specific benefits and limitations.

 

Accredited Investors

 

An accredited investor is an individual or institution that has been approved by the Securities and Exchange Commission (SEC) to invest in certain types of securities. These investments are typically unavailable to the retail investor, as they are considered high-risk and high-return. Historically, accredited investors have been able to:

 

  • Access to exclusive investment opportunities: Traditionally, many startups and early-stage companies will only accept investments from accredited investors, as they were considered to be more sophisticated and able to handle the higher risk.
  • Invest in private companies: Many accredited investors choose to invest in private companies, as they can offer higher returns than public companies. Before the JOBS Act, only accredited were able to invest in these companies.

 

To become an accredited investor, an individual must meet certain criteria set forth by the SEC. These include:

  • Entities that have assets of $5 million.
  • Earning an annual income of $200,000 (or $300,000 for couples) for the past two years.
  • Having a net worth of $1 million (excluding their primary residence).

 

Investing in private companies is often considered a high-risk investment, as there is often less information available about these companies than public companies. However, accredited investors are typically seen as more sophisticated and able to handle the higher risk.

 

Non-accredited Investors

 

A non-accredited investor is an individual who does not have the financial qualifications to be deemed an accredited investor. This can be due to a low net worth or a lack of investment experience. Historically, many non-accredited investors may have missed out on beneficial investment opportunities, especially in the private market. However, with the rise of JOBS Act exemptions, we are seeing more companies looking toward nonaccredited investors. The benefits of being a nonaccredited investor include:

 

  • No SEC qualification: Anyone with the desire to invest can be a non-accredited investor. There are no criteria set by the SEC that must be met. 
  • Access to new and exciting companies: Companies can tap into a new pool of potential investors by marketing toward non-accredited investors. These investors can also tap into a broader range of investment opportunities that may have been unavailable before the JOBS Act was passed into law.
  • The ability to invest smaller amounts of money: For non-accredited investors, the minimum investment amount is often lower than it is for accredited investors. This can be helpful for those who want to get started in investing but don’t have a large sum of money to put towards it.

 

As the private market continues to grow, both non-accredited and accredited investors alike can take advantage of exciting opportunities to invest in growing companies. The JOBS Act has also done an incredible job leveling the playing field for investors, which will only incentive more companies to tap into the growing pool of potential investors.

What are the Benefits of Having a Diverse Investment Portfolio?

Posted on by Oscar Jofre

Building a diverse investment portfolio is one of the smartest things you can do for your financial health. By spreading your money across various asset classes, you can reduce your risk and maximize your return potential. Keep reading to explore the benefits of diversifying your investments and learn some tips for creating a well-rounded portfolio.

 

Benefiting from a Diverse Portfolio

 

A diverse investment portfolio is spread out across several different businesses, industries, and asset classes. This reduces the risk that any single investment will fail, making your overall portfolio more resilient to economic downturns. This is done by having less than 50% of your entire investment portfolio tied to any specific business, country, or industry. Instead, a good risk-averse strategy for investing would be spreading out investments among assets as much as possible: like investing in 10-20 companies, each with 7.5-10% of your investment capital in each. This will form a far more robust investment portfolio. It is worth considering a diverse investment portfolio, even if you are a more experienced investor, as it will help balance risk and reward.

 

The benefits of having a diverse investment portfolio include:

 

  • More resilience: A diverse investment portfolio is more resistant to economic downturns as it is not reliant on one specific industry or sector.
  • Better returns: A well-diversified portfolio will typically outperform a non-diversified one over the long term.
  • Reduced risk: By spreading your investment across many different businesses, industries, and asset classes, you are less likely to lose everything if one particular investment fails.

 

When deciding whether to invest in a diverse range of asset classes, you must consider your investment goals and financial objectives. For example, an investor with less experience and fewer aversions to risk may choose to invest in high-risk assets. In contrast, investors with more experience or less risk tolerance may shift their focus to lower-risk assets for diversification, such as fixed-income investments. Both investors will be able to diversify their portfolios, however, this diversification is based on a strategy they feel most comfortable with.

 

Systematic vs. Specific Risk

 

Systematic risk is the inherent risk in an investment that cannot be eliminated by diversifying your assets. This type of risk is also known as market risk, and it affects all investments in the same way. For example, a stock market crash will affect all stocks, regardless of whether they are in different sectors or countries. This type of risk is impossible to eliminate and must be considered when making any investment.

 

Specific risk is associated with one particular investment, such as a company going bankrupt. This type of risk can be diversified away by investing in different companies or assets. For example, if you are worried about the possibility of a company going bankrupt, you can diversify your portfolio by investing in other companies in different industries.

 

Diversification is important because it allows you to reduce the overall risk of your investment portfolio. By investing in various assets, you can minimize the impact that any one investment has on your portfolio. For example, if you invest only in stocks, then a stock market crash will significantly impact the value of your portfolio. However, if you also invest in bonds, the stock market crash will not have as significant an impact because bonds will still be worth something. Diversification is not a guaranteed way to make money, but it is a way to minimize risk.

 

Tips for a Diverse Portfolio

 

When it comes to investing, it’s always important to diversify your portfolio. This way, if one of your investments fails, you still have others thriving. Here are some tips for diversifying your investment portfolio:

 

  • Invest in various industries: This will help minimize the effects of any one industry downturn. Allowing you to see growth in other sectors still.
  • Spread your investment across several companies: This will help ensure that if one company fails, others still have the potential to make you money.
  • Invest in a variety of asset classes: This includes things like index funds, bonds, equities, commodities, and dividend stocks. This will help you balance risk and reward.
  • Choose the right mix of investments for your situation: This will vary depending on your financial goals, objectives, and your risk tolerance.

 

By following these tips, you can help to ensure that your investment portfolio is well diversified. Even with a diverse selection of assets, it is essential to monitor your portfolio regularly to confirm that your continued investment is still in-line with your goals, protecting you if one of your investments fails.

 

If you’re looking to explore your options for investments, consult your financial, tax, or investment advisor. You should also be aware of and accept the risks of investing. This article is not financial advice.

 

This post was adapted from content by our KorePartners at Rialto Markets. You can view their article here.

How Does A Convertible Note Work?

Posted on by Raise Green

This article was originally written by our KorePartners at Raise Green. View the original article here. 

A Cornerstone of Regulation Crowdfunding

Convertible notes are a form of debt that converts to equity over time; said simply, convertible notes allow investors to loan money to a startup or early stage venture and receive equity in return, instead of their principal loan plus interest.

The greatest advantage of convertible notes is that investors and the note issuer do not have to finalize a valuation of the company at an early stage, which is especially important for companies that don’t have comprehensive data or time that allows an accurate valuation. Instead, investors “loan” their money to the business and in return will receive equity when an event, such as a future financing round, where the company’s valuation becomes more concrete. This type of security is very popular with Silicon Valley technology companies that have great interest from angel investors at an early stage, but lack the ability to make a proper valuation of the company’s worth.

Investing In A Convertible Note

So you’ve identified a compelling company that’s offering the sale of convertible notes for early stage fundraising. You’re interested in purchasing one or some of these convertible notes, but where do you start? It’s important to understand the terms of a convertible note before you invest.

Here’s the main aspects of a convertible note to know before you make any investment decisions.

Discount Rate

The discount rate represents the discount that you receive when purchasing a note relative to investors in a later round of funding, compensating investors for their additional risk taken by investing at an earlier point.

Valuation Cap

The valuation cap is an extra bonus for taking on risk by investing early. This tool limits the price at which your debt notes convert to equity, allowing investors to receive a greater return on their investment if the issuing company grows quickly.

Interest rate

As a convertible note acts as a loan from you (the investor) to the company issuing the note, there will be interest that accrues on the principal amount you invest. Instead of being paid out to investors in cash, this accrued interest converts to equity, increasing the total number of shares the investor receives upon the note’s conversion to equity.

Maturity date

This is the “due date” for the convertible note, signifying the date on which the issuing company must repay their investors.

Why Purchase a Convertible Note?

Convertible notes allow you to invest in early stage companies and projects that you believe have the opportunity to grow exponentially. By getting in at the ground floor and purchasing a convertible note, individual investors stand to earn a higher return on their investment. Whereas investing in early stage startups and projects has historically been off limits to the wider public, Regulation Crowdfunding now allows almost everyone to invest in companies that have the possibility to grow exponentially. Convertible notes carry risk like all forms of investing, but offer early investors bonuses for their willingness to accept this risk. As many companies and projects in the climate space are young and need funding, convertible notes provide a simple way for these businesses to raise capital that they desperately need, while offering their early believers a way to get them off the ground.

Online is Proving Successful for Minority Founders

Posted on by Oscar Jofre

Minority-owned startups are proving to be incredibly successful in gaining exposure on online platforms, growing their customer base and raising capital. In 2021, funding from crowd raising grew 33.7%, showing the increasing use of online fundraising.

A Lack of Diversity in Traditional Capital 

Online platforms for startup investing are more inclusive than traditional options. They don’t rely as heavily on already established personal relationships and networks between founders and investors. Instead, they provide a level playing field for all types of founders online.

These entrepreneurs can now get the funding to launch or expand their businesses through RegA+ and RegCF. Online startup investing platforms are also transparent, allowing founders to see which startups are doing well and which ones aren’t. This information was often hidden from view by traditional VCs, which could lead to bias. 

The Internet is Improving Equity Crowdfunding for Minorities

In 2020, only 2.6% of VC dollars were invested in minority-founded businesses. However, over $486 million were invested through online startups in 2021 – a significantly higher sum than traditional VC investment. Through regulations like RegA+ and RegCF, investors have the opportunity to invest in promising startups led by underrepresented founders. These online platforms level the playing field, allowing minority founders to receive the support and capital funding they need to succeed.

As more investors engage with these platforms and more promising startups seek funding through regulations, we will see continued growth in minority-founded companies receiving the support they deserve. Overall, online startup investing has the potential to create a more diverse and dynamic VC landscape – one that better reflects the diversity of several markets.

The Future of Online Funding

There are several reasons why online fundraising is such a valuable tool for minority entrepreneurs. In the past, minority entrepreneurs have often been shut out of traditional funding sources. Also, they have often been pigeon-holed into stereotypes by the mainstream media. But with online fundraising, they can bypass the traditional gatekeepers and structural obstacles, speaking directly to potential investors. They can tell their own stories and showcase the unique strengths of their businesses.

As the world becomes more digital, so too does entrepreneurship. This is especially apparent in how online fundraising is helping businesses of all sizes to raise money. It’s also becoming an increasingly important tool for these minority entrepreneurs.

How Liquidity Impacts Investing

Posted on by Jim Caboy

This article was originally written by our KorePartners at Rialto Markets. To view the original article, please click here. 

 

Liquidity is a term used in finance to describe how easy or difficult it is to buy or sell an asset in a market without affecting its price – in other words, how simply an asset can be exchanged for cash.

Many private companies struggle to create cash events and liquidity for their shareholders or growth plans and, in what is possibly the largest market of all, this is starting to change with the advent of crowdfunding and secondary trading platforms, known as ATSs (alternative trading systems). The private securities market, currently worth $7 trillion and forecast to be $30 trillion by 2030, is expected to transform when it starts to demonstrate the same kind of liquidity that the public markets offer today.

Stocks in publicly traded companies, mutual funds and bonds can all be categorized as liquid assets; generally, an asset is liquid if there is a constant high demand for it, thereby making it much easier to find potential buyers.

Stocks as liquid assets

Generally, any stock listed on a stock exchange is considered a liquid asset because there are people constantly buying and selling stocks at the market price, making it easier to liquidate stocks into cash.

Conversely, stocks traded on smaller marketplaces and lower value stocks like so-called ‘penny stocks’ (shares of small public companies that trade for less than $5s per share) would not be considered fully liquid assets, as concessions on the price or quantity of these stocks may be needed to liquidate them in a timely manner.

The liquidity of a stock is also never completely fixed; factors that influence a certain company or the stock market, such as economic downturn or complete market crashes can significantly impact the liquidity of any given stock. Most of the time this effect is only temporary, as the market tends to bounce back, but the liquidity of even the most reputable and better-performing companies usually suffers some decline.

What does liquidity mean for your investments?

Investing in early-stage companies was typically a long-term investment more open to the wealthy, through venture capital and private equity funds, but early-stage companies are going public through an IPO (initial public offering) much further into their life cycle. So, where this used to average three years, an IPO was stretching to at least 12, but having an ATS to monetize an investment now explodes the number of investors willing to invest. Although the liquidity will not be as robust as on the NYSE or Nasdaq it is available as an option should an investor have a life event or another priority that requires monetization of their shares.

KorePartner Spotlight: Curtis Spears, President and CEO of Andes Capital Group

Posted on by Oscar Jofre

Curtis Spears, President and CEO of Andes Capital Group, has over 25 years of experience in the asset management arena. At Andes Capital Group, he is responsible for overall firm strategy, strategic direction, and day-to-day operations. 

 

Andes Capital Group is a boutique firm that prides itself on its long-term relationships and excellent customer service. With a diversified client list that includes public and corporate pension funds, foundations, investment advisors, and endowments, Mr. Spears has had a hand in delivering bottom-line results for various customers.

 

Additionally, Curtis Spears is deeply committed to giving back to his community, as a Chicago native. He previously served on the Governing Board for UCAN and on auxiliary boards for the Steppenwolf Theater, the Field Museum, and the Primo Center for Women and Children. In these roles, he helped raise funds and increase awareness for various causes.

 

Curtis Spear’s years of experience in the financial services industry and his dedication to giving back make him an excellent KorePartner. We were excited to sit down with Curtis recently to ask him about himself and the capital industry.

 

Q: Why did you become involved in this industry?

 

A: I got lucky! I knew nothing about this industry coming out of college. When I first started in finance, I was a computer programmer, writing programs to manage index funds. As my role evolved, I became more interested in working directly with investors and spent the last half of my career servicing clients and raising capital. Over the years, I developed a particular interest in helping people get access to deals and access to capital that they historically would not have access to.

 

Q: What services does your company provide for RegA offerings?

 

A: As a KoreConX partner, we provide deal due diligence, AML/KYC, etc. However, since the bulk of our business is private placements, we have the ability to offer fundraising and general advisory services for every aspect of a deal.

 

Q: What are your unique areas of expertise?

 

A: Since the majority of our reps cut their teeth in asset management, fundraising is a crucial aspect of what we do. We have relationships that span every type of investor, from the most prominent institutions to the smallest retail individual. We are somewhat industry agnostic, but much of what we see tends to all be in the Medtech, fintech, and proptech areas.

 

Q: What excites you about this industry?

 

A: Over the years, outsized returns have been earned primarily in the private markets. What excites me is giving issuers even more access to capital with a new investor class and allowing the average investor to play. 

 

Q: How is a partnership with KoreConX the right fit for your company?

A: In talking with Oscar and the KoreConX team over the last couple of years, we learned that our interests and goals are truly aligned. That is important to us. Also, working with other like-minded partners and leveraging their expertise will really allow us all to propel this part of the industry forward.

 

Foreign Investors Key Considerations for Your Next Deal

Posted on by Nate Dodson

This post was originally written by our KorePartners at Crowdfunding Lawyers. View the original post here. 

 

When discussing fundraising for your deals, most of our attention has previously focused on U.S. citizens investing their own money. That’s to be expected, but it’s important not to overlook another potential funding source: foreign investors. This article will explore what you should know about working with foreign investors in the U.S. and their potential impact on your deal.

Foreign Investors in the U.S.

Foreign investors are those individuals or companies outside of the United States who invest their money into U.S.-based businesses. And foreign money can be great. But, of course, there are advantages and disadvantages to know here and some pretty important restrictions.

How Foreign Investments Work

Before we dive into how these investments work or the pros and cons of foreign investments, we should touch on the restrictions put in place by the U.S. government. You’ll find that they’re twofold. First, there are restrictions set out by the country’s government in which you’re raising funds that you need to consider, as well as those applied by the U.S. government. Second, there are also regulations regarding how much money can be raised from foreign investors.

Foreign Investment Regulations

Each country has its own rules regarding investments. It is your responsibility to investigate what those are and how they may impact you, your investors, and the money that you raise. Some factors to consider include how much money you’re raising and the level of involvement between citizens of foreign countries.

It’s important to stay in legal compliance within all countries, which means you need to know the true cost of remaining completely legally compliant within each’s borders. In some cases, you may find that it is simply too expensive to develop a feasible plan. For example, suppose you’re raising a small amount of capital in a foreign country to transfer to the United States, and you’re not being fraudulent. In that case, complying with local securities laws might be somewhat cumbersome.

Too often, those raising funds focus more on securities laws here in the United States rather than in the other country, but this can hamstring you.

Limitations on Who Can Invest

In addition to the laws governing investments in the other country, you’ll also need to consider our domestic Office of Foreign Assets Control, or OFAC, here in the U.S. This organization determines which foreigners can invest and which ones should be blocked. In some cases, the OFAC focuses on the individual or the nation in question. In other instances, their review centers on the foreign country and the investment amount.

For instance, if an investor has 15% of greater assets in North Korea, Iran, Syria, and some other countries, they cannot invest here in the U.S. Again, you will need to check the OFAC website to see who is on the blocked persons list.

This is all part of getting to know your investors. It’s an enormous risk, but it can be potentially rewarding. You don’t want to take any money from people that you shouldn’t be because it can lead to problems beyond the scope of securities law.

Of course, these rules are implemented with good reason. They help ensure that you’re not taking money from a terrorist, helping someone launder money, for instance.

U.S. Securities Laws

We’ve touched on these briefly, but they bear deeper scrutiny. U.S. securities laws have a significant role to play when it comes to foreign investors. For instance, we have a law called “Regulation Asks,” which states that the securities laws for foreign investors don’t apply because they’re foreigners to the SEC. Regulation S states that if you investors are outside the country, most securities laws do not apply.

With that being said, if you commit fraud in any way, dealing with foreign investors will not prevent the SEC or any other authorities from investigating you and your investors. So it’s important to avoid the assumption that Regulation S protects criminal behavior – you should always do the right thing.

However, this brings up an important point. Since securities laws may not apply the same way to foreign investors that they do to U.S. investors, are you still required to provide disclosure? Absolutely, yes. The best path forward is to comply with Reg D as much as possible because then at least you’re providing proper disclosure to your investors and not taking advantage of the vulnerable out there.

Potential U.S. Tax Implications for Foreign Investment Deals

The tax situation is never simple, and adding foreign investors to the mix can muddy the waters a great deal. The tax consequences here can be substantial because when you add foreign investors to the mix and operate as an LLC, there’s pass-through taxation.

You will also have to deal with increased IRS scrutiny. The IRS is extremely worried about what your foreign investors will do – will they take their earnings and leave without paying taxes? Ultimately, you are responsible for their actions. This can mean that if a typical deal requires approximately 30% in withholdings, you should withhold the proper amounts from your investors’ earnings and pay it to the IRS on their behalf.

We also have FIRPTA, the Foreign Investment in Real Estate Property Tax Act of 1980. It requires you to withhold 15% from investors’ returns, although you should check with your tax specialists on the sale of real estate for any distributions that will go to foreign investors.

Avoiding Tax Complications with Foreign Investors

There are a lot of potential downsides to working with foreign investors. So how can you avoid them? Just don’t take on any. How do you avoid them, though?

It just comes down to requiring foreign investors to create their corporation or LLC within the U.S. This ensures that you’re able to let them into the deal, and you no longer have to worry about taking 45% of their returns and transmitting them to the IRS. You’ll also be able to deduct all of their expenses and losses against their income since they won’t be considered “pass-through” entities.

In addition, you can set up a separate bank account for each investor, and ensure that they only receive payments through that account. That way, you can keep track of who has paid what and make sure that everyone pays their fair share.

So, while it might seem like a good idea to work with foreign investors, you need to think twice before doing so. If you do decide to go ahead with it, you’ll need to consider these issues carefully and consult with a skilled attorney.

The Canadian Exemption

While the rules we’ve discussed here apply to investors from most nations, there is an exemption for Canadian investors under certain circumstances. The U.S. maintains a treaty with Canada that states these investors are not subject to the tax withholdings we just talked about. That means Canadian investors can be taken on without too much worry, at least about tax withholdings, with one caveat – you must have a limited partnership and cannot use an LLC or C corp or any other business formation option.

If you wish to work with Canadians, you’ll need to set up a limited partnership to receive their investment. If you choose to do so, make sure you understand all the risks involved with doing so.

The Big Questions to Consider When Taking on Foreign Investors

We’ve covered a lot of ground here in a short time. So, to sum up, let’s go over the big questions you’ll need to answer when you consider taking on foreign investors within your deal.

  • Are they from a country subject to sanctions, like North Korea, Syria, Iran, or Russia? Note that this list changes from time to time as sanctions are placed and lifted. Always check the OFAC list to ensure that your investors are clear about bringing their money into the U.S.
  • Are you following the securities laws of the other country? Are you doing enough business in that country that you need to be concerned about these laws?
  • Are you complying with U.S. tax rules as they pertain to your deal? For example, are you withholding the proper amount and remitting it to the IRS? If not, you’ll be held responsible unless your partners are American entities or have an exemption.

Do you understand all the risks involved in dealing with foreign investors? Do you know where to find information about each country? Is your legal team familiar with international law? These are all things you’ll need to think through before you sign off on any deals and it’s important to consult with an experienced attorney to help guide you

How Do I Get Foreign Investors Involved in My Deal?

If you want to attract foreign investors, you’ll need to make sure that you’re meeting their needs. To start with, you’ll need to understand why they would invest in your project. What are their goals? What are their motivations?

You’ll then need to determine if you can meet those goals and motivations. Can you provide them with something unique? Something that’s hard to find elsewhere? A good place to start is by looking at what you offer and comparing it to what others offer.

Once you’ve determined that you can meet their needs, you’ll need to figure out how to get them involved. There are two ways to approach this. One is to simply ask them to invest directly. They will likely require some sort of equity stake in your company. In exchange, they’ll receive a return on investment (ROI) based on the success of your venture.

Alternatively, you may choose to take a more traditional route. You can form a limited liability company or corporation, and invite them to join as shareholders. Their shares will be treated as income-generating assets, which means they’ll pay taxes on their share of profits. This is also known as “passive” investing.

In either case, you’ll need to know the law in both countries so that you don’t run afoul of local regulations. We’ve already touched on this briefly, but it bears repeating. Be aware that you may be required to register as a broker-dealer, and comply with all applicable federal and state securities laws.

What Happens After I Take On Foreign Investors?

Now that you’ve got investors, you’ll need a plan for managing them. How do you keep them happy while still keeping your own interests protected? You’ll need to set expectations early on. Make sure everyone understands what they’re getting into.

One thing to remember is that you’re dealing with people who have different levels of experience. Some may be new to investing, while others may have been around the block many times before. It’s important to make sure that everyone understands the risks involved.

As you go through the process, you’ll also want to make sure that you have a clear understanding of the terms of the agreement. For example, you should know whether you’re going to issue stock, sell debt, or use other financing methods. As we mentioned earlier, you’ll need to be prepared to deal with taxes. If you’re issuing stock, you’ll need to decide whether you’re going to treat the shares as long-term capital gains or short-term capital losses.

Finally, you’ll want to make sure that your business plan takes these things into account. You’ll need to consider how you’re going to finance the project, how you’re going to manage risk, and how you’re going to handle any potential legal issues.

In Conclusion

In the end, working with foreign investors is a tricky situation, but with proper guidance from both experienced tax and legal professionals, it can be profitable for both you and your investors.

Hosting Webinars For Your Equity Crowdfunding Campaign

Posted on by Jason Fishman

This article was originally written by our KorePartners at DNA. View the original post here. 

 

Why are webinars so important for your equity crowdfunding campaign?

Webinars are an incredible tool to help you connect with your investors, allowing them to ask any burning questions they may have. You can also repurpose these webinars to use for later content!

With everyone having access to the internet at their fingertips, there is no better time than now to start taking advantage of the many perks that webinars have to offer.

In today’s article, we are going to walk you through 8 important steps you need to know before hosting your first webinar!

Choose the Right Platform

Make sure your hosting platform (such as: Zoom, Google Meet, Vimeo) have all these qualifying features:

  • Event Registration Via Email

  • Q&A or Chat Features

  • Attendee’s Video and Audio Turned OFF

  • Screen Sharing

  • Automatic Email Reminders

  • Recordings

Set up a Registration Link

Keep your investors informed on what they’re signing up for, make sure to include the following in your registration page:

  • Date and Time of Event

  • Short Description of Event

  • Your Logo

  • The Speakers Attending the Event

 

Market Your Event

 

To encourage as many investors or potential investors as possible, it’s important to market your event across all channels (ad, social media, email, portal update)!

Make sure you’re sending out your initial announcement two weeks prior to the event, and follow up with a one week and one day out reminder.

Understand Compliance Rules

There are lots of things you are able to say and not able to say during your crowdfunding raise!

To ensure your webinar is compliant, you’ll want to have a firm understanding of the compliance rules based on what type of raise you’re running.

Create a Brief Pitch Deck Presentation

An important step in hosting your webinar, is creating a pitch deck presentation for the first 10-15 minutes of the event to get your audience engaged!

Things to include on your deck: team information, market opportunity, competitor analysis, unique differentiators, and existing traction.

Leave Enough Time for an Open Q&A Session

The purpose of these webinars is to allow existing and potential investors to learn more and ask their burning questions!

Be sure to encourage the audience to drop these questions in the chat, and then address them out loud. On the chance that your audience may be shy, come up with common questions before the event to keep them engaged.

Have a Call to Action

 

Every webinar needs a strong call to action.

 

Don’t forget to encourage investors to head over to your raise page and invest! Don’t be afraid to even point towards this call to action throughout the course of the event.

Post-Market the Event

 

For those who are unable to attend the event, make sure you share the recording!

 

You’ll want to post the video onto YouTube or Vimeo and share this link on your: blog, emails, portal updates, and social media!

The 4 Things You Can’t Do While Marketing a New Reg CF Fund

Posted on by Dawson Russell

This post was originally written by KorePartner Dawson Russell at Capital Raise Agency. View the original article here. 

 

Your Reg CF Marketing has qualified, and it’s time for the next step! As exciting as this is, there are several things to be aware of before throwing any marketing ‘out there.’ It all includes having a marketing professional, the verbiage and images used, and types of marketing. Now let’s take a closer look at each of these marketing aspects of a Reg CF Marketing to know better Reg CF meaning and Reg CF platforms. The following details apply to ‘test the waters’ (TTW) and marketing after your Reg CF qualification.

Use of Improper Verbiage and Images

Marketing in the general sense is to sell a product, sometimes with slight fabrications or indications of potential success or future opportunities. Keep a keen eye to separate Reg A vs Reg CF verbiage. With Reg CF platforms, these are common pitfalls that must be avoided. Did you know something as simple as the word amazing, promising, commit, or golden is considered improper in Reg CF Marketing? These words are over-the-top statements implying merit, interest, offering anything ‘special,’ or a return of any degree. As for images, it is similar in thinking to verbiage. No money, cash registers with overflowing tills, graphs with arrows pointing skyward, and the like are a no-go.

Lacking an Online and Digital Presence

Strategic digital and online marketing plans are no longer an option. Potential investors, especially new generations, will expect a significant digital presence including a well-structured website, social media presence, and more often than ever, a related app. Social media is essential because each follower gained is a potential investor (and their followers will see they’ve followed your Reg CF, which means more potential investors).

Making Investors Search for You

With any marketing plan, you have to stay top of mind. Potential investors will expect ‘face time’ to build a connection with your Reg CF mission and vision. The term ‘face time’ is about communication from you or your executive team through webcasts, online video events, and meet and greets with question-and-answer sessions. After all, they may be investing in your Reg CF, and it’s by far the least you can do.

Do-it-Yourself Reg CF Marketing

While setting up a website is an easy task in our digital world, it does take considerable time and effort to keep up with constant content. As seen above, ensuring your website complies with Reg CF advertising rules and regulations is another task altogether. To get your best return on investment hiring a professional who understands the Reg CF world is worth every penny. Professional marketers can provide the initial setup of a website, regular updates, social media posts, videos, regular email notices, and additional marketing pieces. Plus, it frees up your time to interact with potential investors.

Why Are Brand Ambassadors Valuable Investors?

Posted on by Oscar Jofre

 

When it comes to raising capital, it’s important to think outside the box. The JOBS Act created a new type of investor a “brand ambassador”, with whom companies should build strong relationships to help the business grow. This community of investors can be extremely valuable for your company, capital raise, or product. Brand ambassadors are often passionate and can connect with others, which can help promote a product or investment opportunity. Because of this, brand ambassadors can often be valuable investors, especially when it comes to RegA+ and RegCF offerings.

 

The value of brand ambassadors when raising capital

 

Brand ambassadors can be defined as individuals that have a vested interest in the success of a company or product. They are often passionate about the company and its mission, and they work to promote the company and its products to their friends, family, and online followers. Because of these attributes, they are also valuable investors, as they can help a company raise capital through their investment dollars and in-person or online networks.

 

They can use their social media platforms to promote the company, which can help drive sales and bring attention to capital raises. However, brand ambassadors themselves can be seen as value investors because of their connection to a brand and their willingness to invest in a company they already believe in. When a brand ambassador invests in a company through RegA+ or RegCF, they show not only their belief in the company but also their faith in its future success.

 

By investing their own money in the company, brand ambassadors can help it raise the capital it needs to grow and succeed. And as the company grows, so does the value of the brand ambassador’s investment, and they share this excitement and are often more willing to invest in subsequent offerings or drive others to invest. Brand ambassadors are thus extremely valuable investors for companies using RegA+ or RegCF to raise capital.

 

Increased capital raises with the help of ambassadors

 

Brand ambassadors help promote a company because of their affinity towards an organization, which can be just as helpful with raising capital. These individuals may often be the first to invest in your capital raise because they already believe in your company.

 

Ambassadors can also help a company by providing feedback, product testing, and market research to help improve the product before raising capital. Furthermore, they may already have an established relationship with key influencers in the same industry as the company they’re investing in. Some key benefits for companies when brand ambassadors invest in them are:

  • The brand ambassador brings not only money to the table but also invaluable social capital.
  • The powerful brand ambassadors can help the company save on marketing costs.
  • The brand ambassador can be a powerful voice in promoting the company to their networks.
  • The brand ambassador is invested in the company’s success and future.

 

While there are many different types of crowdfunding, one that has been particularly successful for early-stage companies is RegCF and RegA+. One of the benefits of raising capital through these methods is that they provide companies with access to a wider pool of potential investors. By seeking to build relationships with brand ambassadors, companies can tap into a new pool of potential investors and benefit from the social capital that brand ambassadors can provide.

 

The future of capital

 

Helping with everything from spreading awareness to bringing in new investors, brand ambassadors can be key players in a successful raise. As a good example, Piestro has effectively utilized brand ambassadors using the exemptions. This company was able to raise significant amounts of capital and grow its business with the help of passionate brand advocates.

 

Brand ambassadors are valuable investors because they have a personal stake in the company and its success. They can be influential in promoting the company to their social media followers, and other potential investors or simply contributing to capital raises themselves.

10 Years Later: How the JOBS Act Has Revolutionized Capital Raising

Posted on by Oscar Jofre

It’s been ten years since the JOBS Act was passed, enabling companies to raise capital in ways never before possible. What started in Washington, the brainchild of David Wield, is now a well-oiled machine that has funded thousands of companies and is constantly evolving. Ten years on, the various JOBS Act regulations have been put to great use, and we are only at the tip of the iceberg.

Looking Back Ten Years

The JOBS Act was passed in 2012 to help small businesses and startups raise capital. The main idea was to make it easier for private companies to raise money from investors, without requiring them to go through the cost-intensive process of going public. The JOBS Act did this by introducing new regulations, such as Reg D, Reg CF, and RegA+ for raising capital from accredited or non-accredited investors.

Before the JOBS Act, companies were limited in raising money. They could only raise money from accredited investors and eventually needed IPO to access such a hefty amount of capital. With recent expansions of regulations like RegA+ and CF, companies can now raise $75 million and $5 million, up from $50 to $1.07 million. On the tenth anniversary of this monumental legislation, we can look back and see how this legislation has impacted businesses and the economy as a whole.

A Monumental Success

The JOBS Act has been a monumental success in helping businesses raise significant capital. The various regulations have allowed companies to raise more money while remaining private and giving them more fundraising options.

One of the most popular regulations is Reg A+, allowing companies to raise up to $75 million from non-accredited investors. This has allowed thousands of companies to raise billions in capital, with an estimated $1.48 billion being raised with Reg A+ in 2021 alone. In addition, the exemption has been upgraded to make it significantly more usable and has seen a surge in businesses utilizing it.

Another popular exemption is Reg CF, which allows businesses to raise up to $5 million from non-accredited investors.

Reg D has also been popular, allowing businesses to raise capital from accredited investors only, and has been a popular option for companies looking to remain private.

Keeping Companies Private

The JOBS Act has many benefits for companies who want to raise capital, but staying private is one of the biggest advantages. Staying private is growing even more attractive to companies, especially considering they can make a secondary market available for shares bought under JOBS Act exemptions.

Plus, by raising capital through these methods, companies can continue to grow and expand without worrying about private equity firms or other investors taking control. This allows the company to maintain its independence and gives management the ability to make long-term decisions without worrying about short-term results.

The JOBS Act has made it easier for companies to stay private by increasing the amount of capital they can raise and reducing the regulatory burden. This has made these regulations a very popular option, evening the playing field and decreasing the reliance on IPOs to raise capital.

Continued Success for the JOBS Act

The JOBS act has been a resounding success in helping businesses raise capital. This is because the JOBS act allows businesses to raise money in new ways. Additionally, the JOBS act opens the market to a wider pool of potential investors, allowing even the everyday person to enjoy the opportunity to invest in a promising company on the ground floor. The success of the JOBS act has been a boon for the economy as well, helping to create jobs and spur innovation.

The JOBS Act has been a great success, benefiting entrepreneurs and investors alike. After ten years and the recent increase in the amount companies can raise, the JOBS Act has continued to be an attractive opportunity for private companies. But there is always room for improvement, some possible developments in the future include:

  • The SEC could raise the offer limit under Regulation CF, which would fill the current gap between Reg CF and Reg A+ Tier II.
  • The SEC could eliminate investment limits for retail investors, allowing people to assess opportunities and risk tolerance without limits.
  • The SEC could make the exemption from the 12(g) Rule permanent, which would remove a burden for many issuers who are not ready to face the rigors of registration.

While these suggestions would improve the JOBS Act, it is ultimately up to the SEC to show true vision by deregulating as per the suggestions above. Only time will tell what the future holds, but it is clear that it has been a success.

Overall, the JOBS Act has been a massive success in helping businesses raise capital and has increased the number of companies with access to capital. It has also helped enterprises stay private and given them more options for fundraising.

The JOBS Act has been in effect for ten years now, and it has completely revolutionized the way companies raise capital. Regulations like CF and RegA+ have made it significantly easier for companies to access capital, and KoreConX has been there every step of the way to help companies navigate these new waters.

A Look Back on the Last Year of RegA+

Posted on by Oscar Jofre

Marking a huge step forward in equity crowdfunding opportunities for entrepreneurs and investors alike, one year ago, the SEC’s game-changing decision went into effect that allowed businesses to raise $75 million through RegA+ and $5 million from RegCF. These new limits were a significant increase from the former $20 million and $1.07 million limits for RegA+ and RegCF, respectively. To celebrate this one-year anniversary, we take a look back at the progress that has been made and how this new fundraising avenue is benefiting startups and businesses of all sizes.

The History of RegA+ and RegCF

Regulation A+ and Regulation CF are securities offerings brought to life through the JOBS Act, passed in 2012. They allow companies to raise money from investors without going through the process of a complete initial public offering.

Regulation A+ was created by the US Securities and Exchange Commission (SEC) as an amendment to Regulation A of the Securities Act of 1933. It allowed companies to raise up to $50 million from unaccredited investors, a limit increase to $75 million in March 2021.

Benefiting from JOBS Act Regulation

The main benefit of Regulation A+ is that it allows companies to avoid some of the more demanding regulatory requirements that are usually associated with a public offering. It is also less costly, which is essential in creating more opportunities for issuers to take advantage of the exemption. For Tier I offerings, companies are required to file audited financial statements and ongoing reporting. On the other hand, Tier II offerings do not have requirements to register with state securities regulators.

RegCF allows companies to offer and sell their securities to the general public, including unaccredited investors, through crowdfunded ventures. Both Regulation A+ and RegCF are a way for companies to raise money without giving up significant equity or control of their company. The main drawback to both RegA+ and RegCF is that they are not as well-known as other fundraising methods, such as an IPO or private equity. As a result, it can be more challenging to find investors who are willing to invest in a company through either of these methods, but there are ways to be ready for this capital-raising journey.

Despite this, there has been a surge in companies using Regulation A+ and RegCF in the past year. This is likely because traditional fundraising methods are becoming increasingly difficult  and cost-prohibitive for startups and small businesses. Another main reason is the substantial increase in the amount a company could raise with these regulations, making it also an attractive way to raise capital for larger offerings like in real estate or Medtech.

Increase in Capital Raised

Once more reliable Q1 numbers become available, we can better estimate how much was raised in the year since the capital that RegA+ could raise was increased. In 2020 before the change in the amount of capital companies could raise, it is estimated $1.48 billion was raised from RegA+. In 2021, when the increased capital raise was available for most of the year, over 2 billion was raised.

In 2020, $239 million was raised using RegCF before the changes to how much capital could be raised. When the amount that RegCF could raise was increased from a little over a million to $5 million, the total amount raised in these campaigns soared to $1.1 billion in 2021. We do not have exact numbers yet on how much has been raised in the year since the capital increase, but this figure is expected to double in 2022. This would mean that in the three years since the increase in how much capital could be raised, over $3.5 billion has been raised with these methods. This number will continue to grow as people become more comfortable with these types of investment vehicles and as the infrastructure surrounding them becomes more robust.

By lowering the requirements for entry into capital raising with these regulations and increasing the amount that can be raised, the JOBS Act has allowed more people to invest in the growth of small businesses. This, in turn, is helping to create jobs and support the economy.

David Weild, Former Chairman of the NASDAQ and Father of the JOBS Act, had this to say about the increase in how much capital companies could raise; “It means more capital will be available for entrepreneurs, allowing their ideas to become realities and helping create living wage jobs across the U.S.”

This is a huge win for small businesses, investors, and the economy. The increase in how much capital can be raised has allowed more people to invest in small companies, which helps create jobs and support the economy.

In the past year, there has been a surge in the number of companies that have used Regulation A+ and RegCF to raise capital. This is likely due to these methods being less well-known than other forms of fundraising, such as an IPO or private equity. The increase in how much can be raised with RegA+ and RegCF has allowed entrepreneurs more access to capital without giving up ownership or control over their company.

The Importance of Private Capital for Female Founders

Posted on by Oscar Jofre

It’s no secret that women face unique challenges when starting and running a business, with women-led startups only receiving 2.3% of VC funding in 2020. From a lack of access to capital to the prevalence of bias in the business world, female entrepreneurs have a lot stacked against them. However, thanks to women’s movements and the push for further diversity in the workplace, more people are beginning to realize just how important it is to support women in business. With the rise of private capital raising through JOBS Act regulations, we are begging to close this gap.

In this blog post, we’ll look at the disparity in capital raised between male- and female-founded startups and explore some possible solutions.

Female-Led Private Capital

The lack of private capital for female-founded startups is a problem. Though women are starting to receive more capital funding, it is still disproportionately lower than male-founded companies. There are many reasons why this is the case. Still, one major factor could be that women tend to found smaller companies with more minor funding needs or investors who want to invest in specific industries where women are under-represented.

The Disparity in Capital Raised

When it comes to startup funding, female founders are at a disadvantage. In 2021, $456.6 million was invested in startups through crowdfunding. Of that total, female founders received 19.3%, and non-female founding teams received 80.7%. Everyday investors funded female founders 9x more than traditional VC funding in the same year, which poses a great opportunity for women raising capital through methods like RegA+ and RegCF.

One reason for this disparity is that fewer women-founded startups are raising capital. This is partly because women are still underrepresented in entrepreneurship. It will take time for them to catch up to their male counterparts. Another reason is that some investors might prefer to invest in specific sectors where women are still underrepresented. Or, it could be because sectors where women run businesses may have fewer funding needs.

Whatever the reasons for the disparity, it is clear that female-founded startups receive less funding than their male counterparts. This is a problem that needs to be addressed to promote equality in the startup world.

Improved Capital Raising Techniques

However, the online private market is challenging VC’s biases and progressing towards a more equitable funding model. Crowdfunding is one example of this, as it allows female-founded startups to raise capital from a wider pool of investors.

This is one of several ways to overcome the discrepancy between how much capital is raised by male-founded startups and female-founded startups. Another is to increase the number of women-led businesses by providing support and resources specifically for female entrepreneurs. This deficit is also overcome by investing more into industries that women are highly represented in or investing in getting more women into predominantly male-run industries.

We’ve looked at the disparity in capital raised by male- and female-founded startups, and we need to continue raising awareness and encouraging people to invest in female-founded businesses. With enough support, we can move closer towards an equal playing field for all entrepreneurs.

What are the Benefits of a Cap Table in Capital Raising?

Posted on by Oscar Jofre

If you’re running a business, then you know that keeping track of your finances is essential. And if you’re looking to raise money from investors, then you’ll need to create a cap table. But what is a cap table, and what are the benefits of having one? In this blog post, we’ll answer those questions and more. So keep reading to learn more about the benefits of a cap table for your business.

What is a cap table?

A cap table is a document that records all information regarding shareholders and the equity they own in a company. The purpose of a cap table is to provide transparency to shareholders, investors, and employees about the company’s current and future equity. A well-managed cap table can save time and can benefit companies and investors. The benefits of using a cap table include:

  • Records the voting rights of each shareholder.
  • It documents when shares are issued and diluted.
  • It keeps track of all equity holders, past and present.
  • It records who owns what percentage of the company.
  • Increases transparency among shareholders and investors.
  • Quicker and more efficient transactions due to up-to-date information.
  • It shows how much money each shareholder has invested in the company.

There are several ways in which a company can benefit from having a well-managed cap table. A cap table can help founders keep track of who owns what percentage of the company, allowing for transparency among shareholders and investors. This is essential Information when negotiating with investors or preparing for a capital raise.

Importance of Cap Tables

A well-managed cap table is an essential tool for any company, especially when looking to raise capital. A cap table allows transparency and clarity between shareholders, founders, and investors. Investors need to quickly and easily understand the company’s current equity structure to make informed decisions about investing in a capital raise. With the continual growth of regulations like A+ and CF, managing a cap table is crucial for success.

Improve Cap Table Management

When a company has already raised money from investors, the cap table becomes an even more important document. KoreConX’s cap table management software can help keep track of all shareholders and their respective equity. The software can also help manage voting rights and keep track of who invested when and how much. This information is crucial for companies as they undergo funding rounds because it allows them to be transparent with potential investors. Investors want to know who is in charge, what voting rights each person has, and what kind of leverage they have when negotiating. Having all of this information readily available in the KoreConX all-in-one platform will help avoid any delays in the investment process.

A well-organized and up-to-date cap table is an essential tool for any company looking to raise capital. It can help simplify the process for both the issuer and the investor and ensure that everyone is on the same page about ownership and valuation.

Can I Use My IRA for Private Company Investments?

Posted on by Oscar Jofre

Individual retirement accounts (commonly shortened to IRAs) allow flexibility and diversity when making investments. Whether investing in stocks, bonds, real estate, private companies, or other types of investments, IRAs can be useful tools when saving for retirement. While traditional IRAs limit investments to more standard options, such as stocks and bonds, a self-directed IRA allows for investments in things less standard, such as private companies and real estate. 

 

Like a traditional IRA, to open a self-directed IRA you must find a custodian to hold the account. Banks and brokerage firms can often act as custodians, but careful research must be done to ensure that they will handle the types of investments you’re planning on making. Since custodians simply hold the account for you, and often cannot advise you on investments, finding a financial advisor that specializes in IRA investments can help ensure due diligence. 

 

With IRA investments, investors need to be extremely careful that it follows regulations enforced by the SEC. If regulations are not adhered to, the IRA owner can face severe tax penalties. For example, you cannot use your IRA to invest in companies that either pay you a salary or that you’ve lent money to, as it is viewed by the SEC as a prohibited transaction. Additionally, you cannot use your IRA to invest in a company belonging to either yourself or a direct family member. If the IRA’s funds are used in these ways, there could be an early withdrawal penalty of 10% plus regular income tax on the funds if the owner is younger than 59.5 years old. 

 

Since the IRA’s custodian cannot validate the legitimacy of a potential investment, investors need to be responsible for proper due diligence. However, since some investors are not aware of this, it is a common tactic for those looking to commit fraud to say that the investment opportunity has been approved by the custodian. The SEC warns that high-reward investments are typically high-risk, so the investor should be sure they fully understand the investment and are in the position to take a potential loss. The SEC also recommends that investors ask questions to see if the issuer or investment has been registered. Either the SEC itself or state securities regulators should be considered trusted, unbiased sources for investors.

 

If all requirements are met, the investor can freely invest in private companies using their IRAs. However, once investments have been made, the investor will need to keep track of them, since it is not up to their custodian. To keep all records of investments in a central location, investors can use KoreConX’s Portfolio Management, as part of its all-in-one platform. The portfolio management tool allows investors to utilize a single dashboard for all of their investments, easily accessing all resources provided by their companies. Information including key reports, news, and other documents are readily available to help investors make smarter, more informed investments. 

 

Once investors have done their due diligence and have been careful to avoid instances that could result in penalties and taxes, investments with IRAs can be beneficial. Since it allows for a diverse investment portfolio, those who choose to invest in multiple different ways are, in general, safer. Additionally, IRAs are tax-deferred, and contributions can be deducted from the owner’s taxable income. 

KoreClient Spotlight: Manny Villafaña, CEO and Founder of Medical21

Posted on by Oscar Jofre

Manny Villafaña has a long track record of innovation in the medtech space, delivering solutions to improve cardiac care and surgical procedures. In his latest venture, Manny is creating a product that will change the way cardiac bypass surgeries are performed, improving patient outcomes.

 

We sat down with Manny to discuss his company, the medtech space, and how Reg A+ is helping Medical 21 raise money.

 

Q: Can you tell me a little about your company and how it impacts customers and the industry as a whole?

 

A: Medical 21 is the 8th company in a series of companies that I have formed since 1972. The first company I started was a company that made the first long-life pacemakers and was called CPI/Guidant, which was eventually sold to Boston Scientific. Each company has been focused on improving the technologies used in caring for cardiac patients.

 

Medical 21 has developed a small diameter coronary artery graft to be used in heart bypass surgery. Instead of harvesting blood vessels from a patient’s legs, arms, and chest, we developed this synthetic graft. Rather than pulling the needed vessel from elsewhere in the body, surgeons can pull it out of a package. This is an enormous market, larger than all the pacemakers, heart valves, and defibrillators combined. We are at the stage where we are seeking regulatory approvals to begin clinical trials domestically and internationally. 

 

Q: Besides not having to harvest blood vessels, what is the benefit of this synthetic graft?

 

A: Medical 21’s technology helps doctors not need to open up a patient’s body to take vessels out of the legs or arms during bypass surgery. For the patients, this can reduce pain while decreasing infections, and saving the hospital time and money. As a result, more patients can be safely treated in less time.

 

Q: How did you get into creating products for the cardiology field?

 

A: I answered an ad in the papers in the early ’60s for medical sales put out by the world’s largest x-ray company, Picker X-Ray. Their subsidiary, Picker International, was an export agent for small American companies exporting pulmonary, cardiac, and x-ray products. One of the products I was involved with was pacemakers made by Medtronic. Three years later, Medtronic’s CEO flew to New York and hired me.  I began to learn more and more about the heart through the transfer. With a history of heart attacks in my family, I’ve always been interested in the heart and was personally motivated since my father and brothers died from heart attacks. I am also self-taught. When I see a problem, I go after it. I am always aiming to create a product that can help others.

 

Q: What excites you most about this space you are in?

 

A: This is the most exciting work we’ve ever done because it covers so many people, surgeons, and types of surgeries. Our present work is focused on cardiac bypass, but the graft has the potential to be used throughout the body for a variety of applications. With about 800,000 to 1 million bypass surgeries on the heart each year and each patient receiving 3 to 4 grafts, there is a huge market where we can take care of so many patients globally. We are fortunate; because of our track record in the cardiac space, surgeons across the globe are excited to help us. We’re developing a product that’s incredibly needed.

 

Q: How do you see the LSI MedTech event having an impact on your company?

 

A: We were honored to be invited to the conference by Scott Pantel and his team. At the conference, there will be the best selection of financial people and young entrepreneurs looking to learn what the next step is. We are also bringing in one of our advisors, formerly with the Mayo Clinic, to talk about what is happening in the medtech field and what we are doing at Medical21. It’s an excellent opportunity for our company.

 

Q: Why do you think education on the topic of Regulation A+ plays such a vital role in expanding access to capital for MedTech companies?

 

A: In the environment of the 21st century, we must see how we can reach a wider audience for both financial needs and tap into the market of people who want to participate but are excluded by traditional private funding routes. Historically, these people could not invest until the company went public, leaving them unable to get in at an earlier stage. This provides everyday people the ability to invest in technology in the medtech space that will impact many people globally, especially when health is such a personal matter. The government gave these investors the ability to participate from the beginning, whether they were accredited or non-accredited individuals.

 

Q: Now that your company is using Regulation A+, how do you see that helping your company, and what impact do you think Reg A+ will have on other medtech companies?

 

A: We need capital, and it’s not easy to initially jump to IPO’s, even though I’ve done seven previous IPOs. Reg A+ can allow us to raise enough money to begin clinical trials. Reg A+ is a step in a company’s financing as it grows, and a successful offering shows that your company can get it done and raise a large sum of money by reaching a large audience. RegA+ is essential for the future of the medical device industry because medical companies need financing for an extended period of time before the product is approved and sold. Before it can get to the point of sales, medtech relies on private investors for development and clinical trials of life-saving products. 

 

Q: What advice would you give a young medtech entrepreneur as they begin their journey through capital raising and building their company?

 

A: I often give a talk entitled “The Trials and Tribulations of the Entrepreneur.” I offer many bits of advice, and one of those is that before you even begin, you need to overcome simple life challenges to become an entrepreneur. In the medtech space, you have to be a “superman or superwoman” because, in addition to developing new technology, you need to do clinical trials in a risk-averse regulatory environment that makes things difficult. However, at the same time, risk must be taken. The greatest hazard in life is not taking risks; you cannot achieve anything if you don’t take risks!  Thank you! Manny

 

Regulation A Disclaimer

This communication may be deemed to be a solicitation of interest under Regulation A under the Securities Act of 1933, in which case the following apply:

 

  • No money or other consideration is being solicited, and if sent in response, will not be accepted;
  • No offer to buy the securities can be accepted and no part of the purchase price can be received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and 
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

 

KoreConX and David Weild IV at LSI Emerging Medtech Summit 22

Posted on by Peter Daneyko

‘Father of the JOBS Act,’ Mr. Weild will join KoreConX to address a keynote on how Medtech is the new frontier to a successful capital raising

NEW YORK, February 8, 2022 – KoreConX and its partner, Life Science Intelligence, are bringing together top thought leaders in the private capital markets environment to the Emerging Medtech Summit 2022. This summit will be held on March 15-18, 2022, in Dana Point, California, USA. It is led by Life Science Intelligence (LSI) and will host one of the most important personalities of the JOBS Act scene, David Weild IV.

Mr. Weild, a former Vice Chairman of NASDAQ, is known as one of the key players in revolutionizing the democratization of capital in the United States. His work with the U.S. Congress and his testimonial to the U.S. House of Representatives Financial Services Committee on Capital Markets resulted in the signing of the JOBS Act into law by President Barack Obama in April 2012. Since the SEC introduced the framework for Regulation A+ and its subsequent amendments, companies are able to raise up to $75 million from both accredited and non-accredited investors.

“We understand the importance of the democratization of capital through Regulation A+. David Weild, in addition to being a game-changer in the JOBS Act, is also part of our advisory board. We are absolutely thrilled to be joining him in empowering the Medtech industry to benefit from the Reg A+ exemption,” says Oscar A. Jofre, Co-founder and CEO of KoreConX.

David Weild IV also highlights how the JOBS Act is changing the healthtech and pharmaceutical industry. “It’s gratifying to see so many Medtech companies using the JOBS Act since we created it in large part to fund innovative growth companies and social impact.”

Another seasoned speaker who will be present at the event is Manny Villafaña, who is Founder, Chairman, and CEO of Medical 21. He reinforces how this exemption is a change-maker to this sector. “Regulation A+ is the 21st Century way to raise capital.” Mr. Villafaña will be sharing his experience in using Regulation A+ for pharma and Medtech companies.

LSI Emerging Medtech Summit 2022 will take place on March 15-18, 2022, at Dana Point, California, USA.  Attendees can participate in person or online. KoreConX will be represented by its Co-founder and CEO, Oscar A Jofre, its Chief Scientist & CTO, Dr. Kiran Garimella, and its CRO, Peter Daneyko. Visit their website for more information:

https://www.lifesciencemarketresearch.com/medtech-summit-2022

About KoreConX

Founded in 2016, KoreConX is the first secure, All-In-One platform that manages private companies’ capital market activity and stakeholder communications. With an innovative approach and to ensure compliance with securities regulations and corporate law, KoreConX offers a single environment to connect companies to the capital markets and now secondary markets. Additionally, investors, broker-dealers, law firms, accountants and investor acquisition firms, all leverage our eco-system solution.

###

Media Contacts:
KoreConX
Carolina Casimiro
carolina@koreconx.com

What is Regulation S?

Posted on by Oscar Jofre

It is essential to be familiar with the different regulations that govern how companies can raise capital in today’s business world. One important rule is Regulation S. This article will give you a basic overview of Regulation S, how it affects businesses, and how companies can use it to raise capital.

 

What is Regulation S?

 

Regulation S is a set of rules that govern security offerings to offshore investors. It is an attempt by the SEC to clarify its role in regulating securities offerings sold by US companies outside the United States. The regulation allows companies to offer and sell securities without registering the offering with the SEC, as long as the securities are only offered and sold outside of the United States. This excludes investors within the US from participating in the offerings. If an offering is for foreign and domestic investors, it would not fall under Reg S exemptions because it would have to be registered with the SEC.

 

Benefits of Reg S

 

Regulation S is an important securities regulation because it allows companies to offer and sell securities offshore without registering with the SEC. This is important because it enables companies to raise money from investors worldwide, and it also protects investors because it ensures that all offerings are made lawfully. At the same time, it enables companies to have a greater reach for their security offerings, as they can now globally raise money from investors all over the world.

 

As it was designed, Reg S was always intended for large transactions made by large companies to sophisticated investors. The primary use case of Reg S is still the Euro bond or an extensive offering by a U.S. or foreign company that is made outside the United States. Because Reg S can be used for such a large-scale offering by large corporations, companies will always continue to use it as an option when they need to raise funds globally.

 

The Pitfalls of Regulation S

 

The problem is many companies do Reg S offerings incorrectly in this particular space of crowdfunding. Many think all they need to do is sell to somebody outside of the United States, but they ignore that Reg S has three separate categories. These categories are based on the likelihood of the transaction being made in the U.S. or the securities returning to the U.S. The most effortless use case of Reg S is a foreign company selling securities under their own rules. An intermediate use is a reporting company registered with the SEC. For startups, the rules of non-reporting U.S. companies are stricter, but many businesses are not complying with these rules.

How Can Companies Keep Their Offering Out of the US?

 

No offer sold under Reg S should be advertised or be made known in the U.S. To this effect, companies should Geo-fence any offering site so individuals with U.S. IP Addresses can not see what you are offering. However, if you have Geo-fenced your offer and implemented the proper protections to ensure a US investor cannot invest, and someone found their way around it, it’s not on you. Companies do not need to police the internet, but they should ensure that their Reg S offerings are only available internationally with Geo-fencing. 

 

While Reg S does not have as wide of a use case as Reg A or Reg D, Reg S is helpful if you feel you will exceed the $75 million of Reg A and can capitalize on international investors. However, companies must be aware that Reg S only tells how to comply with the U.S. rules, not another countries regulation. With most countries having restrictions on making offerings to less sophisticated investors, you want to ensure you meet all these standards if raising capital internationally. 

 

The Regulation S exemption was implemented to help companies raise capital from non-US investors without SEC registration. It has its benefits, but it is not always accessible or appropriate for every company.

The Recipe for a Successful RegA+ Offering

Posted on by Oscar Jofre

If your company is looking to raise funding, you’ve probably considered many options for doing so. Since the SEC introduced the outlines for Regulation A+ in the JOBS Act in 2012 and its subsequent amendments, companies are able to raise amounts up to $75 million during rounds of funding from both accredited and non-accredited investors alike. If you’ve chosen to proceed with a RegA+ offering, you might be familiar with the process, but what do you need for your offering to be a success?

When beginning your offering, your company’s valuation will play a key role in the offering’s success. While it may be tempting to complete your valuation in-house, as it can save your company money in its early stages, seeking a valuation from a third-party firm will ensure its accuracy. Having a proper valuation will allow you to commence your offering without overvaluing what your company is worth, which can be more attractive to investors.

Since the SEC allows RegA+ offerings to be freely advertised, your company will need a realistic marketing budget to spread the word about your fundraising efforts. If no one knows that you’re raising money, how can you actually raise money? Once you’ve established a budget, knowing your target will be the next important step. If your company’s brand already has loyal customers, they are likely the easiest target for your fundraising campaign. Customers that already love your brand will be excited to invest in something that they care about.

After addressing marketing strategies for gaining investments in your company, creating the proper terms for the offering will also be essential. Since one of the main advantages of RegA+ is that it allows companies to raise money from everyday people, having terms that are easy for people to understand without complex knowledge of investments and finance will have a wider appeal. Potential investors can invest in a company with confidence when they can easily understand what they are buying.

For a successful offering, companies should also keep in mind that they need to properly manage their offering. KoreConX makes it simple for companies to keep track of all aspects of their fundraising with its all-in-one platform. Companies can easily manage their capitalization table as securities are sold and equity is awarded to shareholders, and direct integration with a transfer agent allows certificates to be issued electronically. Even after the round, the platform provides both issuers and investors with support and offers a secondary market for securities purchased from private companies.

Knowing your audience, establishing a marketing budget, creating simple terms, and having an accurate valuation will give your RegA+ offering the power to succeed and can help you raise the desired funding for your company. Through the JOBS Act, the SEC gave private companies the incredible power to raise funds from both everyday people and accredited investors, but proper strategies can ensure that the offering meets its potential.

How to Read a Startup’s Financial Statements

Posted on by StartEngine

This article was originally written by our KorePartners at StartEngine. View the original post here.

 

When considering which startups to invest in, there is some key information prospective investors would want to review and understand before making any investment decision. A lot of the information is presented to you on campaign pages, but if you want to review more detailed information about a company, you need to look at their:

  • Form C and “offering details” (for Regulation Crowdfunding offerings) or
  • Offering circular (for Regulation A+ offerings)

There are links to these documents on all of the campaign pages on StartEngine, so that you can review them, but they can contain a good deal of complex terminology that can be hard to understand.

One area that can be complicated to grasp is the company’s financial statement and the related analysis. It is one of the primary types of information prospective investors review to gain a glimpse into a company’s overall financial health.

Financial information can also help you identify trends of the business over time, so you get a better idea of the company’s potential future performance based on historical results. It can also provide you with a means of comparing a company’s performance to other companies in the same industry and stage of growth.

To make it easier for you to accomplish this, we have outlined some key terms and financial concepts to make it easier for you to review and understand a startup’s financial statements.

Note: a typical set of financial statements will include a balance sheet, income statement, statement of cash flow, statement of shareholder equity, and supplement notes. 

Income and Expenses

At some point in its lifecycle, a company must generate a sufficient amount of income to survive and grow (otherwise, it will continue to need outside sources of funding). So, how can you tell how much money a company is making, and how much it is spending? To determine this, you’ll need to take a look at the company’s Income Statement (for Regulation Crowdfunding’s offering details) or their “Statement of Operations” (for Regulation A+’s offering circular).

Gross Revenue

The first item presented on a company’s income statement is Gross Revenue. This is the amount of money the company has received by selling its goods and/or services. It is reported on the first line of the income statement, which is why you may come across people refer to gross revenue as “top line revenue” or simply “revenue.”

Cost of Goods Sold

After revenue, a company will deduct Cost of Goods Sold. This can also be called “Cost of Revenue” or “Cost of Services” and refers to all expenses that are directly related to the production of whatever products a company is selling or services it is performing. Sometimes a company may not have these costs on its income statement if it is an early stage pre-revenue startup that has not introduced its product/services to the market. These are also referred to as “variable costs” because they typically rise and fall in line with sales—simply put, producing more costs more.

Gross Profit

Once these costs are deducted, the resulting number is the company’s Gross Profit—the amount of money earned from the product or service sold. It is called a “Gross Loss,” if the sale of product or service loses money. In financial documents, losses are indicated by numbers in parenthesis, so for example ($200,000) would represent a loss of $200,000.

Operating Expenses

Operating Expenses, such as research and development expenses (money spent on innovation and technological advancement), “General and Administrative” expenses (day-to-day costs such as accounting, legal, utilities and rent) and many others are  deducted from gross profit or added to gross loss. These consist of all costs that are not directly attributable to the production of a product and/or service and are generally considered “fixed” costs because they do not rise or fall directly in line with sales.

Operating Profit/Loss

After considering these expenses, the resulting figure (gross profit minus operating expenses) is known as Operating Profit, or Earnings Before Interest and Taxes (EBIT). It is considered an “Operating Loss” or “Loss from Operations” when gross profit minus operating expenses results in a negative value.

Net Income

Once interest expense on outstanding debt and income taxes are deducted from Operating Profit/Loss, you arrive at Net Income. Conversely, if after deducting taxes and interest paid on the company’s debt results in a negative amount, it’s called a “Net Loss.”

This figure is referred to as a company’s “bottom line” due to the fact that it is typically the last item presented on the company’s income statement—much in the same way gross revenue is referred to as a company’s top line. Also, people will many times address a company’s net income or net loss as a percent of revenue, known as its “net profit margin,” which is used to measure a company’s overall profitability.

In the context of investing in startups, it’s worth noting that most companies will record gross losses, operating losses and net losses. Nearly all early-stage businesses are not profitable as funds are reinvested into growth and R&D. It’s why startups raise funding: to build the product that they can sell, to scale their operations to reach an economy of scale, to hire new employees, and a host of other reasons that help them grow towards that point of generating profit.

Net Worth: Understanding Balance Sheets

A company’s Balance Sheet presents their assets (anything the company owns that has value such as cash, inventory, accounts receivable, and real estate) and liabilities (what the company owes, such as unpaid invoices, taxes and debt). When you subtract all of the funds owed by the company from all of the assets it owns, you get the overall net worth (the book value of total assets minus total liabilities) of the company. Let’s start by looking at the asset side of the balance sheet.

Current Assets

The first category you will see is called, “Current Assets.” These are all assets that are considered cash or assets that the company expects will be converted into cash within a year. This includes cash and cash equivalents (any asset that can be immediately turned into cash, such as foreign currencies, short term government debt securities called Treasury Bills, and certificates of deposit), accounts receivable (the amount of money you are owed for products and services delivered that have not been paid for), inventory, prepaid expenses and other items.

Current assets are a major element of a company’s working capital (current assets minus current liabilities) that presents the amount of funds available to pay off short-term or current liabilities, which we will define later. The more working capital a company has, the greater its liquidity, which implies a more healthy financial position.

Long Term Assets

Next up on the balance sheet are Long Term Assets that consist of non-current assets that have a useful life of longer than 1 year. They include: property and equipment; long term investments; intangible assets such as patents, copyrights, trade names and goodwill; and software.

Long term assets are typically presented on the balance sheet at their cost value minus accumulated depreciation, which equals their net book value. Significant growth in this category can indicate that a company is focusing on or moving into or expanding lines of business that require a greater investment in fixed assets.

Current Liabilities

Current Liabilities consist of all expenses that are payable within 1 year, or sometimes within one operating cycle (the time period required to receive inventory, sell it and collect cash from the sale).

These short term liabilities include accounts payable (for example, unpaid invoices to suppliers), lines of credit, short term loans, accrued expenses (owed money for which no invoice has been submitted), taxes payable and payroll liabilities.

Current liabilities are also used in the calculation of working capital in order to ascertain a company’s level of liquidity as described above. This can provide important insight into the company and give you a sense of whether the company is generating enough revenue and cash in the short term to cover its bills.

Long Term Liabilities

Long Term Liabilities are made up of all obligations that are not due within 1 year of the date the balance sheet was prepared or during the company’s operating cycle. Examples of these liabilities are bonds payable, long term debt, deferred taxes, mortgage payable and capital leases.

A company is over burdened by excessive long term liabilities can equate to high monthly payments and lower cash flow, but some amount of long term obligations can be positive. This is due to the advantages that a company can gain through access to long term financing at low interest rates that can help it expand over a longer time period.

Net Worth

Finally, we come to Net Worth, which is most often referred to as “shareholders equity.” It is calculated by subtracting total liabilities from total assets and represents the amount of money a company would have if it ceased operations and paid off all of its debt. It is calculated the same way you would calculate your personal net worth—you would add the total value of everything you own then subtract all the money you owe.

Banks use this number as a metric for lending decisions because if a company’s assets far exceed its liabilities, it indicates a healthy financial position. On the flip side of the coin, if a company’s net worth is negative, it just means that the amount of money it owes exceeds the value of its assets. It should be noted that this is a common financial situation for an early stage startup that is trying to establish a foothold in its target market and continue to grow until its net worth is positive.

Cash Flow

The Statement of Cash Flows presents the net cash flow for a company over a given time period. It shows how cash enters and leaves a company from three main activities:

  • Operations (sales, inventory, accounts receivable, accounts payable)
  • Investing (buying and selling of assets and equipment)
  • Financing (selling of bonds, stock and paying off debt)

If an activity results in cash flowing into the company, it is shown as a positive number. If an activity causes cash to flow out of the company, it is shown as a negative number and placed in parentheses. E.g. $100,000 indicates a positive value, and ($100,000) indicates a negative value.

Cash Flows From Operating Activities

Cash flows from operating activities equates to how much cash has been spent or received from the company’s operations. One item is net income, which supplies cash to a company, or net loss, which indicates a flow of cash out of the company.

Depreciation expense (a yearly decrease in the value of a fixed asset over time resulting from normal wear and tear) and amortization expense (the yearly write-off of the value of an intangible asset over its useful life—e.g., a patent that is granted for 20 years has a 20 year useful life) are non-cash expenses subtracted from gross profit on the income statement. As such, they are added back since they are tax deductable expenses that do not deplete cash on hand.

Changes in working capital (current assets minus current liabilities) are also considered on the statement of cash flows. For example, if the company collects more cash from its receivables, cash increases. If it pays down its accounts payable, then that would reduce the amount of cash the company has on hand.

Investing Activities

Cash used for investing activities include cash spent on long term assets such as real estate, equipment (also called “capital expenditures”), patents, stocks and bonds. Conversely, gains on the sale of long term assets are recorded as cash received by the company. For example, if a company sold a warehouse, that would indicate a positive cash flow, whereas the purchase of stock in another company would constitute a negative cash flow.

Financing Activities

Finally, if a company raises money from investors by issuing securities such as convertible notes or stock, this would result in a positive cash flow to the company. When the company makes payments on its debts or buys back shares, it results in a negative cash flow.

Conclusion

And when all cash inflows and outflows are considered, the resulting amount of cash left over is a company’s net cash position. If a company shows an overall negative cash flow over time, the rate at which it is spending its cash reserves is known as its burn rate. The burn rate is usually quoted in terms of cash spent per month. 82% of startups fail due to the lack of cash flow necessary to survive and grow.

Based on the burn rate, you can figure out the company’s runway, which tells you how long a startup can survive before it will need to earn positive cash flow or raise additional capital (if the company’s finances remain unchanged). A startup’s runway is equal to its total cash reserves divided by its burn rate.

Understanding a company’s financials can help you make a more educated and informed decision when choosing the right startup to invest in. Once you have a good idea of what all of the terms mean, financial information will become easier to understand and faster to review, and in turn, investing will become a more enjoyable experience.

KoreConX Partners With LSI Emerging Medtech Summit 2022

Posted on by Peter Daneyko


Medtech and Life Sciences main event will be held next March in California. KoreConX is one of the supporting sponsors.

NEW YORK, January 26, 2022 – KoreConX is pleased to announce its partnership with LSI Emerging Medtech Summit 2022, which will be held March 15-18, 2022, in Dana Point, California, USA. This is a major event managed by Life Science Intelligence (LSI) in the Medtech environment and will bring together investors, strategic partners, and experts within the Medtech, Life Sciences ecosystem.

Oscar A Jofre, Co-founder and CEO of KoreConX, highlights the importance of this partnership and event to the sector: “We at KoreConX are delighted to be part of this huge event focused on an industry that is flourishing like Medtech. This sector is critical to saving lives with its innovative solutions and healthcare impact. We are confident that this particular segment will reap the biggest benefits from Regulation A+, and we are honored to sponsor this summit. Also, we will be there in-person for the first time after two years, so we are more than excited to join LSI and our partners to be part of this.”

“A major current trend in the medtech industry is the democratization of capital through programs like Reg A+. We are embarking during a monumental time where we can finally achieve this grand goal and bring companies to market that have a fundamental impact in our lives,” says Scott Pantel, CEO of Life Science Intelligence.

This event will also feature the participation of an icon of the JOBS Act movement, David Weild IV, considered the “Father of the JOBS Act”. He will be giving a keynote address to stimulate and encourage everyone in this industry who wants to raise money using Regulation A+.

LSI is part of the Medtech ecosystem of KoreConX’s partners focused on Life Sciences companies. They are an essential part of this vertical, as they offer valuable insights to help investors and executives make decisions based on data provided by their team of market researchers, economists, and analysts.

LSI Emerging Medtech Summit 2022 will take place March 15-18, 2022, and attendees can participate in person or online. KoreConX will be represented by its Co-founder and CEO, Oscar A Jofre, its Chief Scientist & CTO, Dr. Kiran Garimella, and its CRO, Peter Daneyko. Visit their website for more information: https://www.lifesciencemarketresearch.com/medtech-summit-2022

About KoreConX

Founded in 2016, KoreConX is the first secure, all-in-one platform that manages private companies’ capital market activity and stakeholder communications. With an innovative approach and to ensure compliance with securities regulations and corporate law, KoreConX offers a single environment to connect companies to the capital markets and now secondary markets. Additionally, investors, broker-dealers, law firms, accountants and investor acquisition firms, all leverage our eco-system solution.

###

Media Contacts:
KoreConX
Carolina Casimiro
carolina@koreconx.com

Investing in Startups 101

Posted on by StartEngine

This article was originally written by our KorePartners at StartEngine. You can view the post here. 

The high-speed world of startups, and the risks of investing in them, are well documented, but startup investing can be complicated and there is a lot of information you should know before making your first investment.

This article will try to answer the question “why should you invest in a startup?” by giving you information about the process and what to expect from investing in an early-stage business.

Why invest in startups?

Through equity crowdfunding, you can support and invest in startups that you are passionate about. This is different than helping a company raise capital via Kickstarter. You aren’t just buying their product or merch. You are buying a piece of that company. When you invest on StartEngine, you own part of that company, whether it’s one you are a loyal customer of, a local business you want to support, or an idea you believe in.

Investing in startups means that you get to support entrepreneurs and be a part of the entrepreneurial community, which can provide its own level of excitement. You also support the economy and job creation: in fact, startups and small businesses account for 64% of new job creation in the US.

In other words, you are funding the future. And by doing so, you may make money on your investment.

But here’s the bad news: 90% of startups fail. With those odds, you’re more than likely to lose the money you invest in a startup.

However, the 10% of startups that do succeed can provide an outsized return on the initial investment. In fact, when VCs invest, they are looking for only a few “home run” investments to make up for the losses that will compose the majority of their portfolio. Even the pros expect a low batting average when investing in startups.

This is why the concept of diversifying your portfolio is important in the context of startup investing. Statistically, the more startup investments you make, the more likely you are to see better returns through your portfolio. Data collected across 10,000 Angellist portfolios supports this idea. In other words, the old piece of advice “don’t put all your eggs in one basket” holds true when investing in startups.

Who can invest in startups?

Traditionally, startup investing was not available to the general public. Only accredited investors had access to startup investment opportunities. Accredited investors are those who:

  • Have made over $200,000 in annual salary for the past two years ($300,000 if combined with a spouse), or
  • Have over $1M in net worth, excluding their primary residence

That meant only an estimated 10% of US households had access to these opportunities. Equity crowdfunding changes all of that and levels the playing field. On platforms like StartEngine, anyone over the age of 18 can invest in early-stage companies.

What are you buying?

The Breakdown of Securities Offered via Reg CF as of December 31, 2020

When you invest in startups, you can invest through different types of securities. Those include:

  • Common stock, the simplest form of equity. Common stock, or shares, give you ownership in a company. The more you buy, the greater the percentage of the company you own. If the company grows in value, what you own is worth more, and if it shrinks, what you own is worth less.
  • Debt, essentially a loan. You, the investor, purchase promissory notes and become the lender. The company then has to pay back your loan within a predetermined time window with interest.
  • Convertible notes, debt that converts into equity. You buy debt from the company and earn interest on that debt until an established maturity date, at which point the debt either converts into equity or is paid back to you in cash.
  • SAFEs, a variation of convertible note. SAFEs offer less protection for investors (in fact, we don’t allow them on StartEngine) and include no provisions about cash payout, so you as an investor are dependent upon the SAFE converting into equity, which may or may not occur at some point in the future.

Most of the companies on StartEngine sell a form of equity, so the rest of this article will largely focus on equity investments.

How can a company become successful if they only raise $X?

Startup funding generally works in funding rounds, meaning that a company raises capital several times over the course of their life span. A company just starting out won’t raise $10M because there’s no indication that it would be a good investment. Why would someone invest $10M in something totally unproven?

Instead, that new company may raise a few hundred thousand dollars in order to develop proof-of-concept, make a few initial hires, acquire their first users, or reach any other significant business developments in order to “unlock” the next round of capital.

In essence, with each growth benchmark a company is able to clear, they are able to raise more money to sustain their growth trajectory. In general, each funding round is bigger than the previous round to meet those goals.

When do companies stop raising money? When their revenue reaches a point where the company becomes profitable enough that they no longer need to raise capital to grow at the speed they want to.

What happens to my equity investment if a company raises more money later?

If you invest in an early funding round of a startup and a year or two later that same company is raising more money, what happens to your investment? If things are going well, you will experience what is known as “dilution.” This is a normal process as long as the company is growing.

The shares you own are still yours, but new shares are issued to new buyers in the next funding round. This means that the number of shares you own is now a smaller percentage of the whole, and this is true for everyone who already holds shares, including the company’s founders.

However, this isn’t a problem in itself. If the company is doing well, in the next funding round, the company will have a higher valuation and possibly a different price per share. This means that while you now own a smaller slice of the total pie, the pie is bigger than what it was before, so your shares are worth more than they were previously too. Everybody wins.

If the company isn’t growing though, it leads to what is known as a down round. A down round is when a company raises more capital but at a lower valuation, which can increase the rate of dilution as well as reduce the value of investors’ holdings

How can I make money off a startup investment?

Traditionally, there are two ways investors can “exit” their investment. The first is through a merger/acquisition. If another company acquires the one you invested in, they will often offer a premium to buy your shares and so secure a controlling ownership percentage in the company. Sometimes your shares will be exchanged at dollar value for shares in the acquiring company.

The other traditional form of an exit is if a company does an initial public offering and becomes one of the ~4,000 publicly trading companies in the US. Then an investor can sell their shares on a national exchange.

Those events can take anywhere from 5-10 years to occur. This creates an important difference between startup investing and investing in companies on the public market: the time horizon is different.

When investing in a public company, you can choose to sell that investment at any time. However, startup investments are illiquid, and you may not be able to exit that investment for years.

However, equity crowdfunding can provide an alternative to both of these options: the shares sold through equity crowdfunding are tradable immediately (for Regulation A+) and after one year (for Regulation Crowdfunding) on alternative trading systems (ATS), if the company chooses to quote its shares on an ATS. This theoretically reduces the risk of that investment as well because the longer an investment is locked up, the greater the chance something unpredictable can happen.

Conclusion

Investing in startups is risky, but it is an exciting way to diversify your portfolio and join an entrepreneur’s journey.

KorePartner Spotlight: Andrew Bull, Founding Partner Bull Blockchain Law  

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners contributing to its ecosystem. 

 

During the capital raising journey, many components must be in place to increase the potential for success. One of these critical factors is ensuring that a capital raise meets regulatory compliance requirements. This means that having a knowledgeable securities lawyer on your team is vital to your capital raise.

 

Andrew Bull knows this as a founding partner of Bull Blockchain Law. He and the company assist investors and businesses by providing regulatory clarity across jurisdictions to ensure raises are compliant and efficient. Bull Blockchain Law is a blockchain and cryptocurrency law firm specializing in digital assets, broker-dealer services, FinTech, advising, and more, and is one of the few law firms entirely focused on this subject. 

 

Since discovering Bitcoin in 2011, Andrew has become an industry thought leader and ran one of the first cryptocurrency mining companies in the US. He began his firm in direct response to a lack of clarity around laws in the blockchain industry.

 

We took some time to speak with Andrew and learn more about himself, his firm, and his thoughts on cryptocurrency’s future.

 

Why did you become involved in this industry?

To provide legal clarity regarding the regulatory compliance requirements for accessing capital from all types of investors. The emerging world of Bitcoin and Cryptocurrency gives a new way to supply these things to the industry and assist a new style of investor.

 

What services does your company provide for RegA offerings?

Bull Blockchain Law provides legal guidance, document drafting, and regulatory filings to ensure our clients have the best possible chance to have their Reg A Offering approved by the SEC.

 

What are your unique areas of expertise?

Blockchain, tokenization of assets, NFTs, tokens, and any economic representation facilitated through digital issuances. My background in Blockchain includes extensive legal and academic experience, including running one of the first Cryptocurrency mining companies in the United States, which helps in the scope of legal expertise I can provide.

 

What excites you about this industry?

With the recent expansion of the fundraising thresholds in the U.S. and Canada, I’m excited to see the large influx of new projects access capital and provide more opportunities to retail investors.

 

How is a partnership with KoreConX the right fit for your company?

KoreConX leads the industry in practical compliant fundraising solutions. As a law firm, we emphasize compliance and regulatory compliant digital solutions that facilitate the most efficient path for our clients. Having this partnership undoubtedly benefits us as well as our clients.

How Does Social Media Impact RegCF Offerings?

Posted on by Oscar Jofre

Reg CF allows companies to raise up to $5 million through an SEC-registered intermediary.  Since increasing this limit from $1.07 million in 2021, private companies have raised over $1 billion in Reg CF offerings. This highlights Reg CF’s incredible success in opening the doors to capital for these issuers. For many of these offerings, social media is a key component to success by increasing investor awareness and conducting a successful offering.

 

Social Media’s Impact on Reg CF

 

Social media is essential for companies looking to make a Reg CF offering. It can build awareness and interest among institutional and retail investors and help generate traffic to their offering’s listing on a funding portal or the broker-dealer who hosts the offering. It can expand your crowdfunding campaign’s reach using social tools to raise more money.

 

As soon as companies file their Form C with the SEC, they can begin to communicate outside the funding platform about their offering. However, they must be careful about what they say. They are limited to communications that don’t mention the terms of the offering and “tombstone” communications. Issuers can continue marketing their product or service as usual, as securities regulations understand that the issuer still is running a business and trying to generate a profit. After the Form C has been filed, issuers can also increase the amount of marketing materials they create, as long as they follow SEC guidelines. Issuers are also subject to anti-fraud rules, even in non-terms communications.

 

Capitalizing on Campaigns

 

Building awareness and interest in your Reg CF offerings using social media, you reach investors who may have been unaware of opportunities to invest. Thanks to Reg CF,  startups and established companies alike can get started fundraising quickly with lower initial costs than traditional methods of raising capital. When combined with social media, the result is an effective way to get the word about the raise to many people hoping that they turn into an investor.

 

It has been made clear that social media and mobile marketing are necessary parts of Reg CF offerings. Social media marketing is an increasingly important part of any company’s digital strategy, so having these platforms as part of Reg CF efforts will give issuers the best chance for success with campaigns. It also helps businesses target their current audience to invest in their offering.

 

Social media is an excellent tool for companies to use when making Reg CF offerings. Whether you are looking to raise more money or get the word out about your company, social media can be used in various ways that will help your business grow and succeed with Reg CF.

How Have the JOBS Act Exemptions Impacted Company Founders?

Posted on by Oscar Jofre

Since the JOBS Act was passed in 2012, it has been easier for company founders to raise money with exemptions like Reg CF and Reg A+, changing the landscape of private capital investments. 

 

The JOBS Act provides exemptions from registration for private companies raising money with key benefits, like:

  • Ability to keep the company private
  • Not having to disclose everything publicly
  • Less regulatory burden when raising money
  • Access to accredited and non-accredited investors

 

Reg A+ & Reg CF

Regulation CF is an exemption outlined in the JOBS Act that lets companies raise a maximum of $5 million in any 12-month period by selling securities to accredited and non-accredited investors. Regulation A+ allows issuers to offer and raise up to $75 million in funding without having to comply with all the strict requirements of a traditional IPO. This has allowed company founders to bypass some of the red tape and paperwork associated with more traditional fundraising methods and raise millions of dollars for their organizations. 

 

With RegA+ and RegCF, private companies have increased opportunities to raise capital. Before the JOBS Act, private companies were only invested in by wealthy individuals and firms like venture capital or private equity, but now investment opportunities have been opened to the non-accredited investor as well. This increases the pool of available investors for any given deal since the number of non-accredited investors is immense, which is powerful for companies seeking capital with these methods. 

 

Impacting How Capital is Raised

WIth the doors the JOBS Act has opened up, entrepreneurs who have a great idea but no funding to realize their vision have the opportunities to raise the capital needed to grow their businesses. Companies in the private sector can connect with their investors in ways not typically seen in the public market; investors may be loyal customers or passionate about the cause or mission the company believes in. This is a unique opportunity for companies to build and maintain relationships with their shareholders that may be interested in investing in future offerings as well. 

 

Company founders can also retain more control over their company raising money through the JOBS Act exemptions, another significant benefit. There is a little more flexibility for founders to set the valuation they’re looking for and construct a deal more favorable. In other traditional funding scenarios, venture capital or private equity investors may seek more equity than the founder is hoping to give up or disagree with the valuation. 

 

The JOBS Act has created opportunities for companies to secure the funding they need to grow and sustain their businesses. Compared to traditional funding routes, RegA+ and RegCF are often more cost-effective and enable them to raise significant amounts of capital.

Why are Data and Research Key in the Private Capital Markets?

Posted on by Oscar Jofre

Data and research are essential pieces of the puzzle regarding the private capital markets. Investors can make informed decisions about where to put their money, and private markets can attract the best investors by having access to accurate and timely data. By conducting thorough research on potential investments, investors can mitigate risk and maximize return potential.

 

Importance of Data & Research

Private market data provides understanding and predictions of trends, allowing investors to look for companies on a trajectory towards growth and success. Data helps identify these trends and enables investors to make more informed decisions. For example, if a company has the data to demonstrate an upward trend in annual revenue and gross profit, it can be compelling to any potential investor. Investors stay informed of private markets and make informed decisions by private companies providing up-to-date data.

 

Research is necessary to understand the risks and opportunities of any investment. Research helps investors see that a product or service works as intended and solves a real problem or need. Even if the revenue and gross profit look good on paper, investors won’t go for a product that isn’t solving a real problem or helping people. This is because investors need to be aware of any investment’s potential dangers and benefits before putting their money into a private offering. To make an informed decision, private capital investors need to know all they can about the company they are investing in.

 

Conducting Market Research

Private capital investors conduct due diligence on potential investments by reviewing various data sets and conducting company research. This information allows investors to understand the risks and opportunities associated with each asset. Research that demonstrates the viability of a product or service helps investors understand the potential return on investment.

 

There are multiple methods for investors to conduct market research based on private company data. One way is a SWOT analysis, allowing investors to take an in-depth look at a business and its needs to succeed by comparing its strengths, weaknesses, opportunities, and threats. In a rapidly changing market, companies that can demonstrate a trend of growth and success with minimal weaknesses are more likely to attract investment. 

 

Benefiting from Private Capital Research

Investors need to make quick decisions, so having access to up-to-date data is critical. Data is essential for understanding how a company’s market performance affects private company growth. The current market performance also influences an investor’s decision on due diligence on potential investments.

 

Private market data helps paint a more accurate picture of the company and its operations, which can be helpful for both investors and company employees alike. With accurate data, investors can make better decisions regarding where to invest based on their ROI expectations, company performance, and management effectiveness. Presenting data and research provides private companies with feedback from the market, including information about how potential customers feel, what they think about a product, or how successful a product may be compared to the rest of the market.

 

The private capital markets are a haven for risk-averse, long-term investors. With the correct data and research, investors can make more informed decisions and reduce the risk of investing in a company that may not be a good fit for their portfolio. Private capital markets increase transparency by showcasing company data, drawing in potential investors, and allowing more investment opportunities. Whether looking for funding or an investment, it is vital to understand how data and research can help private capital markets grow.

 

What Franchisees and Franchisors Should Consider when Crowdfunding

Posted on by Oscar Jofre

With franchisees and franchisors looking to secure capital, a growing trend is using Regulation CF to raise capital from accredited and nonaccredited investors. Since RegCF’s expansion to $5M in early 2021, the updated limit provides even more potential for franchises to raise the money they need to fund operations and expansions. 

 

Here are some things franchisees and franchisors should consider:

 

Anyone Can Invest

 

Regardless of income, anyone can invest in a RegCF offering. This means that both wealthy accredited investors and everyday investors can also become shareholders. With this in mind, the pool of potential investors increases substantially compared to traditional private investments. 

 

Fees and Compliance

 

When conducting a RegCF offering, franchisees and franchisors should be prepared to pay portal fees, potential broker-dealer fees, and legal fees to prepare the offering documents, for example. There will also be a cost to engage with an investor acquisition firm to market the offering to potential investors. 

 

Building the Franchise 

 

While one of the most obvious advantages of a crowdfunding campaign is securing funding to grow, there are other benefits. For example, some investors may become franchisees while others are incentivized to become loyal customers. A successful RegCF campaign can also be useful for brand marketing. 

 

Alternative Financing

 

For some franchisees, getting a traditional bank loan is not possible. Some banks have requirements for how long a franchise has been open when applying, so this option is not feasible for newer franchises. Instead, crowdfunding can provide the necessary funding to open or expand to new locations. 

 

More Favorable Terms

 

Sometimes, offers from private investors like venture capital or private equity firms can be unattractive to franchisors. The investor may request too much control over the company that the owner would not want to give up, making the deal impossible. Instead, crowdfunding allows companies to dictate the deal and retain control over the company. 

Is Email Still King for Reg A, Reg CF, and Reg D Marketing?

Posted on by Dawson Russell

This article was originally written by KorePartner Dawson Russell of Capital Raise Agency. View the original post here.

 

Email marketing has been around for a while. You might even be surprised to read that email has been around since the ’70s — over 50 years ago!

 

You’d think that as fast as the digital world moves, such a dinosaur of a marketing strategy would be nothing more than a relic or extinct.

But it’s not.

In fact, email marketing is somewhere in the ballpark of 40 times more of an effective marketing strategy than social media marketing, according to a study conducted by McKinsey & Company.

So why is that?

How is email marketing still king when we now have search engine optimization (SEO), social media marketing, mobile marketing, pay-per-click, content marketing, and influencer marketing all at our fingertips?

Here’s are 3 of the main reasons:

1. It’s Highly Customizable

The most crucial and effective way to have success with your email marketing strategy is to implement what’s known as “customer segmentation.” This means you can use customers’ recent and relevant searches & interests to your advantage and generate custom-made emails for them in a way that is MUCH more effective than other approaches. Customer segmentation also allows you to be much more tactful with your email timing, so you can avoid spamming their inboxes.

Even better, you can pivot your customer segmentation strategy quickly by reviewing click rates, bounce rates, and subscribe & unsubscribe rates.

2. It Provides Better Conversion Rates

It doesn’t matter if your focus is on Reg A email marketing, Reg CF email marketing, or Reg D email marketing, it will still have a better conversion rate than any other method.

Email has been traditionally regarded as the most transactional part of a company or business.

Think about it.

You can generate traffic to your business and/or convert a visitor to an investor with just a single click of a link. They can reply directly, sign-up for other newsletters, forward the email to other potential investors, and more.

According to a study done by Statista, over 93% of Americans between the ages of 22-44 used email regularly, and over 90% of Americans between the ages 45-64. Even 84% of people 65+ were regular email users.

3. It’s a Cinch to Automate

Once you get everything written out and running properly, you can launch a highly effective Reg A, Reg CF, or Reg D marketing campaign, with minimal effort compared to other methods.

With the right automation tools to go along with your campaign strategy, you can create and deliver automated emails that are not only relevant to your subscriber list but generate leads and new investors at the same time.

In Conclusion…

Email marketing really is still the best way to reach out to potential investors and remains the king of the digital marketing world. When utilized and implemented properly, it can build leads to potential investors, and strengthen brand trust and loyalty in a way that enables your fund to grow more than you would’ve thought possible.

PS: did you know that adding PS to your email marketing campaigns could increase click-through rates by an extra 2%?

The Evolution of Reg A+

Posted on by Oscar Jofre

During the recent Dare to Dream KoreSummit, David Weild IV, the Father of the JOBS Act, spoke about companies going from public to private, access to capital Reg A+, the future of small businesses raising capital, and the future of the broker-dealer system. The following blog summarizes his keynote address and what Wield believes will be the future of raising capital for small businesses. 

 

Reg A+’s Creation

The JOBS Act, passed in 2012, helped address a significant decrease in America’s IPOs. “When I was vice-chairman of NASDAQ, I was very concerned with some of the market structure changes that went on with our public markets that dropped the bottom out of support for small-cap equities,” said Weild. “80% of all initial public offerings in the United States were sub $50 million in size. And in a very short period of time, we went from 80%, small IPOs to 20%, almost overnight.” The number of operating public companies decreased from about nine thousand to five thousand. The changes in the market significantly restricted smaller companies from growing, unable to go public because of prohibitive costs and other expenses. 

 

Effect on Small Business

After years of lobbying and the passage of the JOBS Act, only one of the seven titles went into effect instantaneously: RegA+. With this new option for raising capital, startups could raise $50 million in money without filing a public offering. The previous maximum was $5 million; this would eventually be increased to $75 million. It also expanded the number of shareholders a company can have before registering publicly, which is essential as companies can raise money from accredited and non-accredited investors through this regulation. RegA+ and the other rules have had a significant impact on the way startups do business. This has been a significant benefit for small businesses, as it has allowed them to raise more money without going through the hassle and expense of becoming a public company. 

 

Reg A+ into the Future

The capital raising process was digitized by taking the investment process and making it direct through crowdfunding, removing economic incentives for small broker-dealers who could not make their desired commission on transactions. This resulted in many of them consolidating out of business and leaving a gap in the private capital market ecosystem that supports corporate finance. Changes to the JOBS Act are beginning to reintroduce incentives for broker-dealers, which will continue to shape the future of private investments as it will continue to facilitate the growth of a secondary market. Wield’s thoughts on the future of capital raising marketing are that the market is not yet corrected, but it is on track. He said: “I would tell you that there’s a great appetite in Washington to do things that are going to improve capital formation.”

 

Getting more players like broker-dealers involved in the RegA+ ecosystem will do nothing but benefit the space. In his closing remarks, Wield said that this would provide for a “greater likelihood that we’re going to fund more earlier stage businesses, which in turn gives us the opportunity to create jobs and upward mobility. Hopefully, since much entrepreneurial activity is focused on social impact companies to solve great challenges of our time, whether it’s in life sciences, and medicine, or climate change, you know, I firmly believe that the solutions for climate change are apt to come from scientists and engineers who’ve cracked the code on cutting emissions or taking CO2 out of the atmosphere. And so from where I said, getting more entrepreneurs funded is going to be important to have a better chance of leaving a respectable environment for the next generation.”

Has RegA+ Killed the IPO?

Posted on by Oscar Jofre

Has RegA+ Killed the IPO?

 

Regulation A+ gives issuers the ability to raise $75 million in crowdfunding while remaining private. With RegA+ benefiting both companies and investors, does this mean the death of IPOs?

 

RegA+, part of the JOBS Act, allows companies to raise funds through the general public, not just accredited investors. With more and more IPOs delayed, unprecedented access to private capital is available to all organizations. With RegA+, anyone can invest in private companies, making it increasingly popular with companies seeking capital, primarily since they can raise a significant amount of funding.

 

The regulatory and monetary hurdles that come with entering an IPO in addition to RegA+ have led to delays in initial public offerings. Since the JOBS Act was passed in 2012, funding opportunities for private companies have improved, especially with the allowance of not-accredited investors opening up a previously untapped pool of prospective investors. Additionally, the secondary private investment market increases liquidity options, allowing investors to sell shares in private companies to others without waiting for the company to go public.

 

Pre-JOBS Act, many companies were forced to go public because they were limited to a certain number of shareholders. With RegA+, this limit is non-existent, allowing them to stay private longer. In 2011, companies stayed private for about five years on average; in 2020, companies were private for an average of 11 years. 

 

RegA+ brings renewed opportunities, especially to small-cap companies. Companies gain access to liquidity, investors, and significant capital growth that would not have otherwise occurred. RegA+ offers substantial advantages over the traditional IPO. As our KorePartners at Manhattan Street Capital have pointed out:

 

  • “Startups don’t need to spend as much time trying to win over large investors and can focus instead on getting the company ready for the next level. Since Regulation A+ options are still being realized by the people who are now able to tap this investment potential, there is enthusiasm and momentum that is certainly to the advantage of the startups and growth-stage companies.”
  • “Instead of large amounts of capital being raised from a few sources, Reg A+ funding collects smaller amounts from a bigger pool of investors. This means that no single investor will own enough shares to have a controlling stake in what the company does, meaning that the startup can continue to operate as it pleases.”
  • “Word-of-mouth marketing is still considered the most powerful of all promotions, whether it happens in-person or through online means like social media. Main street investors are committing hard-earned money and have more of an incentive to see a return on it. They are more likely to evangelize the brands they have invested in which means a much wider marketing reach than if the company was spreading the word on its own.”
  • “Just as the investors will want to tell other people about the brand, they will also likely want to test out the products or services themselves. This can lead to feedback that improves what the company offers to the public.”

 

These are significant advantages over an IPO that will allow an issuer to secure the capital they need to grow, create jobs, and provide investment opportunities. Especially with everyday investors able to participate, RegA+ does a great job of leveling the playing field and opening opportunities up to those who would have been traditionally excluded from private investment deals.

KorePartner Spotlight: Jonathan Stidd, Co-Founder and CEO of Ridge Growth Agency

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners contributing to its ecosystem. 

During the capital raising journey, many components must be in place to increase the potential for success. One of these critical factors is ensuring that a raise is marketed to get an issuer’s message in the right place to get in front of the right eyes. 

Ridge Growth Agency is an expert in equity crowdfunding and direct-to-consumer marketing, dedicated to building the brands of tomorrow. The company positions brands to introduce them to new, high-value customers and investors. When the company started, it was first a digital marketing agency that helped eCommerce brands scale online. Jonathan Stidd said, “When we got introduced to equity crowdfunding, we quickly realized we could apply these same tactics to acquiring investors online.” Since introducing this service, the agency has helped its clients raise over $330 million through Regulation A+ offerings. 

Ridge Growth Agency provides a wide range of digital marketing services for its clients. These include website design and development; newsletter and sponsored content creation; paid media management; budgeting, planning, and forecasting; video production and editing; graphic design; copywriting; and email marketing. Jonathan feels this is what sets them apart from other firms offering similar services, saying, “nobody seems to offer [them all].”

After receiving his education in economics, Jonathan himself entered into this field and has since developed expertise in management consulting, venture capital, entrepreneurship, and the growth strategies to launch and scale brands. He feels passionate about this industry because of the ability to “help cutting-edge companies raise capital in a relatively new way!” Additionally, he feels that a partnership with KoreConX was just the right fit. He said: “as a technology provider for the pipe system of these raises, KoreConX is a crucial tool to move the investors through the funnel.”

End to End for RegCF

Posted on by Oscar Jofre

When the JOBS Act was signed into law in 2012, it brought about many changes in the private capital markets, namely, the dramatic increase in the availability of capital from more expansive pools of investors. Later on, 2016 saw Regulation Crowdfunding, also known as Title III or RegCF, go live. At that point, US-based issuers could raise up to $1.07 million from both accredited and nonaccredited investors. Additionally, companies in the startup stage through to full operating companies across all industries can take advantage of this exemption to raise capital. 

 

However, due to the comparatively low limit of RegCF in the early days when the regulation was introduced RegCF was largely overlooked by many companies seeking to raise capital. Now, it continues to gain momentum due to the limit of RegCF increasing to $5 million in March of 2021. Since then, RegCF has reached a significant milestone. In October 2021, companies surpassed a cumulative total of $1 billion raised under the regulation. Now that the limit has increased nearly five times from where it started, we expect the adoption of Reg CF to continue to grow much faster than the half-decade it took to reach $1B.

 

Getting Started with RegCF

 

For issuers looking to use Regulation CF for their offering, it is relatively straightforward for those looking to raise up to $1.07 million. For raises of this size, the issuer is not required to submit audited financial statements to the SEC. They must retain a securities lawyer to complete their Form C and obtain a CrowdCheck Due Diligence report. Next, the issuer must find an SEC-registered transfer agent to manage corporate books and cap tables, a requirement under the regulation. Additionally, the issuer must also select a FINRA-registered broker-dealer to raise capital directly from the issuer’s website. 

 

The process for raising up to $5 million is pretty similar. However, the main difference is that issuers require an audit. With this being the only difference, there is not much in terms of the change to the regulatory and compliance requirements.

 

What do RegCF Broker-Dealers Need?

 

For broker-dealers working on RegCF raises, it is something different than anything else they’ve done; they need to be prepared to handle things they may not have needed to consider in other types of capital raising activities. These things include:

  • Investment Landing Page: Once the landing page is created and ready to go live (a step sometimes done by investor acquisition firms), the broker-dealer must manage it. This includes taking over or registering the domain name. This ensures the broker-dealer is in total control, with the ability to shut it down or change/amend things as needed. 
  • Back Office: After an issuer signs up with a broker-dealer, the broker-dealer provides them with the escrow and payment rails. For the escrow account, the broker-dealer is on title as a broker-dealer so that they handle all payment components like credit cards, ACH, wire, cryptocurrency, and IRA. Typically, the bank or trust providing the escrow account will also offer wire and ACH. Since broker-dealers currently cannot hold any crypto, crypto payment options allow issuers to submit crypto that gets exchanged into fiat USD. 
  • Due Diligence: The broker-dealer will be able to rely on the CrowdCheck report, an industry standard. 
  • Registration: The broker-dealer must be registered in all 50 states to be able to provide the best help to an issuer.

 

What Compliance is Needed?

 

The compliance officer also has responsibilities they need to meet for a successful RegCF raise. This included performing ID, AML, KYC, and suitability on each investor who is investing in the offering. Plus, while accredited investors aren’t restricted to the amount of money they can invest through RegCF, the compliance officer can request an individual to go through verification, but it is not necessary. The compliance officer must also manage the KYC process through the entire offering until the money is released to the issuer. Another new change to RegCF is that companies can have rolling closes, which means that they can start closing each time they hit their minimum. When it comes to closing, the broker-dealer must ensure that the company has filed its Form C amendment.

 

What Does an Issuer Do to Prepare?

 

While the broker-dealer fills their component of the RegCF raise, an issuer will typically work closely with an investor acquisition firm to bring the eyeballs to the website. The issuer is responsible for meeting their regulatory requirements, like preparing their audit if raising over $1.07 million. Even if an issuer does not have their audit ready, they can still start their raise up to the $1.07 million amount. Once the audit is done, the offering can be amended to go to $5 million instead. Since securities are being sold directly on the issuer’s website, the traffic they’re driving there is only for them. Previously, when RegCF offerings could only be done on a registered funding portal, traffic would be directed to a site with many other offerings as well. 

 

This is not to say that funding portals don’t serve a purpose; instead, some issuers (especially those who have grown out of the startup phase) prefer more direct traffic. Currently, there are over 70 funding portals (and more on the way). Each option has pros and cons depending on the issuer and the raise that must be considered when launching RegCF. Additionally, some investor acquisition firms prefer an individualized landing page because it directs traffic and attention solely to the issuer.

 

Investment Process for RegCF

 

When the investor (or potential investor) goes to the landing page and begins the investment process, the first thing collected is their email address. This allows the investor acquisition firm to remarket to the individual if they left the page before completing an investment. Every day, a report of drop-offs will be provided that details which stage of the investment process the investor left. Plus, data is provided as to where each investor is coming from.

 

 After the initial stage of the process, the investor will proceed to enter their information, like how much they want to invest, their income, how they want to invest, and other data necessary to complete the investment. Once all of the information is entered, the investor will review and sign the subscription agreement before submitting their investment. 

 

Once the subscription agreement has been submitted, the investor receives an email allowing them to register their account with the issuer’s private label page to manage the investment they’ve made. Even though the broker-dealer manages the website, the investors’ experience end-to-end is with the issuer. Once the investment is completed, the investor will be able to find it in their portfolio. Through the portfolio, the SEC-registered transfer agent and the company manage the cap table and provide individual investors access to their investments.  For each investment, the investor can view all of its details rather than keeping that information in paper documents. They can see what rights they have for each security, how much they invested, how they paid, etc. 

 

Through the entire investment process, not only is the investor involved but there are many other parties involved. Beyond helping the company set up the investment, the broker-dealer also helps to ensure that the issuer has everything ready in their platform. The broker-dealer is then responsible for ensuring that the offering and investors are vetted into the platform as well. Additionally, the compliance officer will also have to verify the investors through the platform’s compliance management system. Once the investor is approved, their funds are sent to escrow, which the broker-dealer monitors to make sure they’ve all arrived. When the minimum is met, the broker-dealer closes, allowing the company to receive their funds and the cap table to be updated. 

 

For 2022, we anticipate that RegCF will be a game-changer. The amount of capital raised under the regulation makes it a perfect fit for seed and Series A companies that may have otherwise used RegD. Like RegD, issuers can target accredited investors, but they can also target nonaccredited as well. This significantly increases the potential pool of investors and opportunities available to raise capital. While there are an estimated 8.5 million accredited investors, only 110,000 have been verified. When considering nonaccredited as well, this number grows substantially to 233 million individuals. 

What is Impact Investing?

Posted on by Oscar Jofre

Impact investing is the allocation of investments in companies, organizations, and funds to generate social and environmental impact alongside financial returns. Impact investments can be made in developing and developed markets and target various social and environmental issues, including poverty alleviation, climate change, education, and healthcare.

These types of investments come in various forms, each with varying levels of risk and potential returns. Investors should consider the kind of risk they are willing to take and their personal beliefs when considering what kind of impact investments to put their money in.

Some spaces where impact investing is prominent are healthcare, education, and energy, especially renewable energy. There are three main categories of impact investments; debt financing, equity, or mezzanine financing, which involves investors purchasing shares in a company, and direct investments such as buying land for conservation purposes. These represent just a small number of possibilities; there is no one-size-fits-all approach to this style of investing.

Thoughts on Impact Investing

More and more, socially and environmentally responsible practices attract investors, benefiting companies that commit to those practices. Impact investing appeals mainly to younger generations, such as millennials, who want to give back to society; this will likely expand as these investors gain more influence in the market. However, because impact investments are often profitable, they are also attractive for traditional investors looking for ways to make their money work for good without compromising their principles. In 2020, the Global Impact Investing Network released a survey that found more than 88% of impact investors had their financial expectations met or exceeded. 

Since the popularity of impact investments has grown, there have been asset management companies, banks, etc., who have tailored funds to meet the demands of socially responsible investors. Another form of investments, called socially responsible investments, or SRIs, are a subset of impact investments. However, the investment focus of SRIs are more narrow, with an affinity towards companies that align with their views of human rights, responsibility to consumers, and environmental protection.

How Impact Investing Works

Generally speaking, impact investors enjoy an ROI that falls just below the average market rates. But, some instances can see impact investments outperform. Recent data from the University of California shows impact investments have a median return rate of 6.4%, which was one percentage point lower than non-impact focused funds. There are a few significant examples of impact investing in the real world. One example is the work that the Gates Foundation does in developing countries. The Foundation’s initiatives are focused on areas like healthcare and education, creating a positive impact on the people who receive the services and having a ripple effect throughout the community.

Another example is Acumen’s work in Africa, focusing on issues centered around clean water and affordable housing, which significantly impact the quality of life for people in poverty-stricken areas. Finally, Kiva is an organization that allows individuals to loan money on their website at 0% interest. The lender receives tokens every month, which hopefully will turn into capital gains when they are sold. While impact investing is helpful to the planet, it differs from philanthropy in that it requires measurable social or environmental impact and profits. Philanthropy is help given with no expectation of any repayment or benefit. Impact investing must positively impact society and make financial gains for investors; it can’t just be money donated with no return.

Crowdfunding SAFE vs. Traditional SAFE – Key Differences

Posted on by Brian Belley

This blog was originally written for our KorePartner Bian Belley at Crowdwise. View the original article here. 

 

Since its creation in 2013, the use of the SAFE has proliferated as an early-stage financing instrument and is now used everywhere from Silicon Valley VC deals to online crowdfunding rounds. However, not all SAFEs are created equal.

The SAFEs used in VC rounds and in angel SPVs can be quite different from SAFEs on crowdfunding platforms. Even SAFEs between crowdfunding platforms (e.g. Republic vs. Wefunder) will have key differences that investors should be aware of.

In this article, we will review the basics of the SAFE and discuss key differences between crowdfunding SAFEs and traditional SAFEs.

What is a SAFE?

A Simple Agreement for Future Equity (SAFE) is a type of early-stage investment security that converts to equity at a specified conversion event in the future. It is roughly equivalent to a Convertible Note, only without a maturity date or interest rate.

History of the SAFE

The famed accelerator Y-Combinator originated the pre-money SAFE in 2013. Its use was adopted in Silicon Valley and quickly spread throughout the world. Today, SAFEs are used everywhere from Silicon Valley to online crowdfunding portals, though specific deal terms still vary.

In 2018, YC updated their boilerplate SAFE to be a “post-money” SAFE, which means that it now converts based on post-money valuation instead of pre-money valuation. Another notable update included adding in provisions that explicitly treat the SAFE as equity for purposes of taxes under IRC Section 1202.

The latest post-money YC SAFE templates can be found here; however, many SAFEs on crowdfunding portals still use the pre-money SAFE as of late 2021. Also, conversion triggers in crowdfunding SAFEs are usually different than those found in the standard YC SAFE used in accredited deals, as we will discuss below.

SAFE Deal Term Basics

The two most important deal terms associated with a SAFE are its discount rate and valuation cap.

Some examples of SAFE terms include:

  • SAFE with $5 million valuation cap and a 15% discount
  • Uncapped SAFE (i.e. no valuation cap) with a 25% discount
  • SAFE with a $15 million valuation cap and no discount

As you can see, both the discount rate and the valuation cap will vary between each SAFE. Furthermore, both terms are optional, so a SAFE may have both, or just one or the other (rarely will a SAFE have neither).

SAFE Conversion Examples

A SAFE will convert to equity at the better of either the valuation cap or the discount rate.

Let’s say you invest in a SAFE with a $5 million valuation cap and a 20% discount. Here are some different conversion examples.

  • If the startup raises a follow-on financing round at a $6 million post-money valuation:
    • The valuation cap would be $5 million.
    • The 20% discount would be at an effective $4.8 million valuation ($6M*0.8 = $4.8M).
    • Since the discount rate ($4.8 million) is better than the valuation cap ($5 million), your SAFE would convert under the 20% discount at an effective valuation of $4.8 million.
    • So if current investors in the $6 million post-money round were investing at $1 per share, SAFE investors would get a $4.8/$5*1 = $0.96 per share.
  • If the startup raises a follow-on financing round at a $10 million post-money valuation:
    • The 20% discount would be an effective $8 million valuation.
    • Since the $5 million valuation cap on the original SAFE is a better deal for investors, the SAFE would convert at the valuation cap of $5 million.
    • So if current investors in the $10 million post-money round were investing at $1 per share, SAFE investors would get a $5/$10*1 = $0.50 per share.

Discount rates will give a better conversion price if the follow-on round is similar to the prior round (up to the amount of the discount). For rounds and exits that have much steeper increases in valuation, the valuation cap will give the more favorable terms.

When do SAFEs Convert to Equity?

A SAFE converts to equity at a specified conversion event in the future. Typical conversion scenarios may include an exit (e.g. acquisition, IPO, etc.) or a future financing round, such as a Series A round after an initial Seed round.

Especially on crowdfunding portals, conversion triggers will vary from SAFE to SAFE. Investors should always read the subscription agreement for each deal in its entirety.

The three types of conversion events typically specified in a SAFE include:

  1. Equity Financing Event (e.g. follow-on financing round – e.g. Series A, Series B, etc.)
  2. Liquidity Event (e.g. if there is a merger, acquisition, IPO, or other liquidity event prior to the conversion of the SAFE, that may trigger a conversion to equity)
  3. Dissolution Event (e.g. the company shuts down operations)

Converting into Common vs. Preferred Equity

While the standard Y-Combinator SAFE converts to Preferred Equity, crowdfunding SAFEs — such as those used on Republic and Wefunder — will vary in terms of whether they convert to Common Stock or Preferred Stock.

Common Stock is the type of equity held by founders and employees of a company, while Preferred Stock is the type of equity typically held by investors. Among other differences, Preferred Stock typically comes with a liquidation preference (e.g. 1X, 2X, etc.), meaning Preferred shareholders will be paid back prior to Common shareholders should the company be liquidated.

Both Common and Preferred shareholders are paid after debt-holders and creditors, and that’s only if there is anything left to be paid.

SAFEs that Convert to Shadow Series Shares

Some crowdfunding SAFEs, such as the Republic Crowd Safe, may convert to “Shadow Series” shares.

This essentially means that Crowd Safe holders will receive the same class of shares (e.g. Common or Preferred), only those shares will have limited voting and information rights.

What Happens When a SAFE Company Fails?

If a startup fails, investors will be paid out based on the “dissolution event” provisions of the SAFE terms and the “liquidation priority” order.

In general, investors should not expect to receive any capital back when a company fails, since the proceeds of the failure, if any, will first be paid to debt holders.

In the standard Y-Combinator post-money SAFE terms, a SAFE is paid out:

  • junior to payments of outstanding indebtedness and creditor claims,
  • on par with other SAFEs and Preferred Stock, and
  • senior to Common Stock.

This is typically found under the “Liquidation Priority” section of the SAFE terms.

Summary of Crowdfunding SAFE Differences

Now that we have a solid understanding of the deal terms and basics of the SAFE, we can review the most common differences between crowdfunding SAFEs and traditional SAFEs:

  1. Crowdfunding SAFEs may have optional conversions: in some crowdfunding SAFEs (such as Republic’s Crowd Safe), shares convert at the next equity financing round at the discretion of the issuer (i.e the startup). While most traditional SAFEs are forced to convert at the next qualified financing round, many crowdfunding SAFEs give the company the option to either convert to equity or defer conversion until a later time.
    1. While this may sound like a bad thing for investors at first, we’ll discuss in a future article why this can be a win-win for both the company and the investors.
  2. Crowdfunding SAFEs may convert to Shadow Series shares: in the Republic Crowd Safe, the SAFE may convert to shadow shares, which means the same class of shares (e.g. Common vs. Preferred) as other investors, but with limited voting and information rights.
  3. Crowdfunding SAFEs Investing via an SPV: When you invest in a SAFE on Wefunder, you’ll often be investing in a Special Purpose Vehicle (SPV). While this is typical for angel investors on sites like AngelList, this means you’ll actually be investing in the SPV (e.g. “Company X, a Series of Wefunder SPV LLC”), and not be directly investing in the company itself.
    1. Investing in an SPV may have potential tax implications (because the SPV is an LLC). Furthermore, investing in an SPV may have implications in terms of the potential future liquidity of that investment due to complications when listing SPV shares on a secondary market.
  4. Many Crowdfunding SAFEs are still Pre-Money: while the standard Y-Combinator SAFE was changed to convert based upon post-money valuation in 2018, many of the SAFEs used on crowdfunding sites today are still using pre-money valuation for the conversion price.
  5. Some Crowdfunding SAFEs may have repurchase rights: something that most VCs and angel SAFEs would never have is a “repurchase rights” or “redemptive clause”. These terms allow the company to buyback SAFE investors at the company’s discretion, which typically happens if a later-stage VC wants to “clean up” the cap table (i.e. get more control and ownership for themselves) or when the company is doing well and wants to buy out early investors. As we’ll discuss in a future article, investors should avoid SAFEs with these terms. These terms put the company’s best interests at odds with that of the investors’.
    1. The good news is that I have not seen any SAFEs recently with these repurchase terms (although I have seen some Common Stock offerings on some platforms with repurchase rights, so be careful!). It seems that crowdfunding portals have realized that these repurchase rights often end poorly for investors and are used by issuers who might not have their crowdfunding investors’ best interests at heart.

Why Digital Marketing is The Key to “Always Raising” Capital

Posted on by Jason Fishman

In a recent webinar with StartEngine, Kevin O’Leary succinctly said, “great companies that are growing need money, and they should get it.”

 

With today’s unparalleled changes, raising capital in many ways is much easier said than done. Many great ideas are having a uniquely difficult time raising the money to fuel their vision.

 

Radical economic change due to COVID vastly disrupted the venture capital markets by 57%—a start-up’s traditional source of funding.

 

Rather than making new investments, Kevin summed, “venture capital firms are focused on making life and death decisions within their own portfolio.” Which means venture opportunity is sparse, and entrepreneurs are left wondering, “where can I turn for funding?”

 

The good news is there’s a silver lining and it’s called equity crowdfunding.

Traditional Venture Capital is Shifting Towards Online Equity Crowdfunding Platforms

 

Equity crowdfunding, or selling small shares of a company to the everyday (non-accredited) investor started not too long ago when the Title III section of the JOBS Act was passed in 2017.

 

Now, when venture capital is failing, more entrepreneurs are looking to the crowd of the everyday investors to fund their business in exchange for offerings like promissory notes, convertible notes, SAFE agreements, and revenue shares.

 

Everyday investors can invest in businesses through one of many equity crowdfunding platforms such as Wefunder, StartEngine, and MicroVentures. Since the platforms and investors are solely online, it means that businesses must have a strong online presence and digital marketing plan to meet their raise goals.

 

It means a brand trying to disrupt the market with a game-changing idea, must have an equally innovative online marketing strategy. For instance, say you’re trying to raise the full Reg CF cap of one million dollars when on average an everyday investor invests a minimum of $150 into your company. You’ll need to be backed by 6,667 investors.

 

But the real question is how do I drive awareness and attract the number of investors in the first place?

 

That’s where digital marketing comes in.

 

Digital Marketing Lets You Tap Into the Growing Everyday Investor Community

 

Most entrepreneurs make the mistake of believing that if they post a raise video, write engaging copy, post an interesting graphic, and that the investors will flood in from the crowdfunding platform. Wrong.

 

As an expert in digital marketing for crowdfunding campaigns, I see this mindset often. When entrepreneurs ask why their equity crowdfunding campaign failed, the answer is always the same—the offering was not marketed enough and the brand did not have a strong enough presence online.

 

Digital marketing mitigates both and helps drive accredited and everyday investors to their raise page with proper testing, optimation, and scaling.

Because here’s the thing:

 

Equity crowdfunding platforms are digitally native, which means new everyday investors that are not a part of your existing network or family, must be found online. Thus, failing to target and nurture an online audience with a closely managed digital marketing strategy is not only failing to plan, but it’s also planning to fail.

 

Accredited Investors Want to See a Strong Digital Marketing Strategy

 

The beauty of equity crowdfunding is that any campaign can still pique the interest of accredited investors and inspire them to fund you. We all know that a single large investment can take your campaign to the next level, thus it’s paramount to make your campaign as attractive as possible to them.

 

One of the best ways to do so is to show a strong digital marketing strategy that drives investor interest and audience growth. Your marketing strategy not only shows investors why you’ll succeed, but also highlights your ability to find, capture, and convert your target audience.

 
 

Digital Marketing Can Turn $1K into $1M During an Equity Crowdfunding Campaign

 

As more of the world log online to cope with the new norm and as venture capital slowly recovers, private investing is dramatically shifting

 

Equity crowdfunding is in the spotlight, giving everyday people the power to invest in potentially the next Uber or Instagram but also back the problems they’re passionate about—all while helping entrepreneurs keep their business growing and their dreams alive.

 
 

If equity crowdfunding is the door to always raising capital through and beyond this pandemic, then digital marketing is the key.

 

With its native abilities to connect people, build trust, and tell stories, digital marketing is uniquely positioned to help any start-up looking to scale, find new users and investors from around the world.

 

Thus, digital marketing is an essential part of your campaign, and it’s important to work with the right professionals who know how to create the right strategy, target the right investors, and find the right message.

 

Remember, turning on some ads and writing a few blog posts won’t cut it. Scaling your business with digital marketing takes time, constant testing, monitoring, and creativity. From experience we can’t emphasize enough that you start early in your campaign, don’t give up, and always be raising

How Does a Transfer Agent Protect Issuers and Investors?

Posted on by Oscar Jofre

A transfer agent is responsible for the custody of securities and preserves books and records. They also keep up with who owns what investment, which can be especially important if a company goes bankrupt or merges with another entity. Transfer agents are a crucial part of the securities industry and something all investors and issuers should be aware of. They help protect companies and investors by ensuring that transactions go smoothly while maintaining accurate ownership records and paying dividends every quarter.  

 

Without a qualified transfer agent who can complete these tasks efficiently, the risks for all parties increase; private issuers would be more vulnerable because they might not find errors, incorrect ownership information, or inaccurate assets. These inaccuracies may lead investors to incur higher costs, losses from missed market transactions, suffer from delayed payments, deliveries of dividends, and face unanticipated tax liabilities for unclaimed assets.

 

To protect issuers, transfer agents maintain an accurate and current record of share ownership and make sure that this information is reported accurately to them. Transfer agents provide issuers with a complete list of their shareholders and guarantee that these records are up-to-date. It is the job of the transfer agent to make sure that any changes in ownership are correctly recorded and reported to the issuer so both parties are protected from future complications or confusion. They are essential when issuers deal with investors, giving issuers a detailed account of who investors are and the amount of equity they have remaining. 

 

Transfer agents protect investors by ensuring their brokerage account is accurate and up to date. Agents view new transactions to ensure they’re coming from the correct party, and they review brokers’ reports for mistakes or fraud. Without transfer agents, the ability to track ownership and transactions would be nonexistent. Perhaps more importantly: if we didn’t have transfer agents, it would become impossible for shareholders to trade their securities. This would severely limit liquidity in the secondary market since it would become impossible for anyone who wanted to sell a share to find anyone willing to buy it. By allowing investors to view accurate and complete information on the company they are investing in, investor confidence is increased by this transparency and availability.

 

Additionally, transfer agents maintain investor financial records and track investor account balances. These agents usually belong to a bank, trust company, or similar establishment. Agents record transactions, process investor mailings, cancel and issue certificates, and more. Transfer agents protect issuers and investors by ensuring records maintain correct ownership and credentials at all times, making transfer agents the security link between these two parties; all agents must be registered with the SEC. 

 

Transfer agents are a vital part of the financial world. They provide a valuable service for issuers and investors by ensuring that trades happen smoothly, issuing new shares during an offering, or transferring ownership from one investor to another.  They play a pivotal role in protecting issuers and investors by assuring that they have a reliable, efficient process for handling transfers and executing trades on behalf of their clients.

Crowdfunding with IRAs

Posted on by New Direction Trust Co.

This blog is was written by our KorePartners at New Direction Trust Co. View the original article here. 

 

It would be an understatement to say the financial landscape has changed in the past decade. Businesses accept payments with Square, investors buy stocks through apps while listening to podcasts, and cryptocurrency went from geek niche to cultural phenomena overnight. Alongside these is another monumental shift: crowdfunding.

What is crowdfunding?

Crowdfunding is a type of investment in a business or venture. However, unlike angel investing or stock purchases, crowdfunding typically involves smaller sums from a large group.

There are multiple types of crowdfunding, each with a slightly different purpose:

  • Rewards-based crowdfunding: This type of crowdfunding is the most well-known, thanks to Kickstarter. In rewards-based crowdfunding, people invest in a company in exchange for a reward, typically a discounted final product or service.
  • Donation-based crowdfunding: This is charitable crowdfunding, in which people donate their money expecting nothing in return. Donation-based crowdfunding is typically used by charities looking to fund a project or to help with medical bills or recovery expenses via sites like GoFundMe.
  • Debt-based crowdfunding: This type of crowdfunding is used when a company needs a large sum of money to cover some kind of expense or acquisition. In exchange for donations, the recipient typically promises some kind of repayment to those donating.
  • Equity-based crowdfunding: In equity-based crowdfunding, investors put their money into a company in exchange for shares. This type of crowdfunding gives startups the chance to grow through funding, and investors the opportunity for a potential return on their investment.
  • Real estate crowdfunding: This type of crowdfunding involves multiple people pooling their money together to fund any kind of real estate project. Real estate crowdfunding can be as simple as buying a rental property with multiple people or funding a new building entirely.

Beyond the above-listed types, there are other types of crowdfunding that offer different returns and possibly perks for investors.

How does crowdfunding with an IRA work?

Crowdfunding with a self-directed account is surprisingly straightforward, thanks largely to the 2011 JOBS Act. Crowdfunding with a self-directed account involves only a few simple steps.

  • Verify you have the right kind of tax-advantaged account. Crowdfunding through your IRA or Solo 401k requires a self-directed IRA or Solo 401k.
  • Choose a trust company specializing in self-directed IRAs or Solo 401ks to custody the asset you’re interested in. This company will handle the details of ensuring your assets are used to crowdfund the asset of your choice.
  • Open and fund your account. This is typically done via a transfer or rollover of existing funds from an IRA or Solo 401k, or you can choose to contribute new funds subject to contribution limits.
  • Select what kind of investments you’d like to make, real estate crowdfunding or another type of crowdfunding.
  • Complete the investment process and monitor your account for performance.

If the above process sounds simple, good, it should be. The right trust company will take care of the transactions while leaving you in the driver’s seat.

Four Red Flags When Crowdfunding

Crowdfunding can make for great investment opportunities and generate excellent returns. But, like all investing, crowdfunding involves risks.

  • The company has no online footprint. If you Google the company or founders and find nothing, this is a big red flag. Any enterprise trying to raise money should have some level of awareness around their product or opportunity. And if nothing else, the founders should have some kind of presence online. If you’re unable to find any history about the opportunity or those behind it, proceed with caution and look for other opinions.
  • The opportunity guarantees returns. Some opportunities really are too good to be true. Language like “guaranteed returns” or “double your investment” and so on is a sign the company is trying to mislead you. There are few guarantees in life, and investments are far from them. While some investments, like government-backed certificates of deposit, are safer than others, you won’t find a guarantee on a crowdfunding opportunity.
  • The math is funky. This point is especially relevant when you’re dealing with real estate crowdfunding. Closely examine the numbers when looking at investment properties. If the account holder claims you’ll make a certain amount but you’re not arriving at the same number after expenses, taxes, and other costs are factored in, double check the math. You may need to move on.
  • The valuation is inflated. When you’re looking at crowdfunding a startup, pay close attention to the valuation. It’s not unheard of for companies or crowdfunding platforms to inflate the valuation of a startup to draw more investors. If a company is brand new with no backing, it’s unlikely they’re worth $600 million. If the deal feels too good to be true, it might be.

An Overview of Digital Securities for the Private Capital Market

Posted on by Oscar Jofre

Understanding digital securities begin with blockchain, distributed ledger technology that has revolutionized the way records and information are stored. Rather than data being stored in a central database, blockchain technology works because the data is continually appended and verified by many participants. This gives blockchain strength and security because it makes it significantly more challenging for hackers to manipulate records. If one copy were to be changed, it would be immediately be recognized as invalid by the other participants on the blockchain. 

 

This is the technology that powers emerging financial technologies. Bitcoin is perhaps one of the most recognizable forms of blockchain technology today, with over 46 million Americans owning some of the cryptocurrency. This same technology is being applied to securities to improve upon the ways traditional securities have been managed. 

 

Ownership is easy to record and validate through digital securities because the transaction is stored on the blockchain. This eliminates the problem of an investor losing their certificate of ownership or the company losing their records of shareholders. Since the record is unchangeable, it also serves as a risk management mechanism for companies, as the risk of a faulty or fraudulent transaction is removed. Digital securities are also incredibly beneficial to the company when preparing for any capital activity since the company’s records are transparent and readily available. With traditional securities, the company would typically hire an advisor to review all company documents. If the company has issued digital securities, this cost is eliminated, as it is already in an immutable form.  

 

With digital securities, investors may receive “tokens,” which are registered investment vehicles and represent ownership in a company. This is often referred to as tokenization, a coin termed in 2010, but has since become less popular in favor of the term digital securities. The reason is that digital securities and digital assets became the preferred term to accurately convey the time, effort, and reliability in this form of investment.

 

There has also been an increase in the discussion surrounding another blockchain-based asset, NFTs. Non-fungible tokens (NFTs) are unique cryptographic assets that cannot be replicated and stored on a blockchain. However, it is essential to remember that not all digital assets meet digital security requirements. However, if an NFT can meet the digital security requirements, they can be offered through raises under exemptions like Regulation A+.

 

If you would like to learn more about how issuers can leverage digital securities for RegCF offerings, be sure to check out the upcoming KoreSummit event on November 18th, 2021, starting at 12 PM EST.

KorePartner Spotlight: Paul Karrlsson-Willis, CEO of JUSTLY

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners contributing to its ecosystem. 

 

Paul Karrlsson-Willis is the CEO of JUSTLY, a registered broker-dealer designed for companies to promote their ESG profiles as the demand for socially conscious businesses continues to skyrocket. Nearly a quarter of the $400 billion investments ESG-focused private capital between 2015 and 2020 was invested last year alone. Paul has over 30 years of experience in financial services businesses and has expertise in building out a company’s global footprint.

 

We took some time to speak with Paul to learn more about himself and his firm. Here’s what he had to say. 

 

Why did you become involved in this industry?  

 

When I left school there was major unemployment in the UK so the government came up with the “youth opportunity scheme” which was an intern program at various companies which the government-funded. I was fortunate to be accepted into this program by the London Stock Exchange who placed me with a broker-dealer, Capel-Cure Myers, and never looked back.

 

What services does your company provide for RegA+ offerings? 

 

We can offer everything from front to back for Reg A+, Reg CF, and Reg. D as a result of having great partners such as KoreConX. Our true value is in our ability to work with the issuers and understand their businesses and needs. Our parent company–Ideanomics (NASDAQ: IDEX)–started no different from the issuers we support and still invests in private equity companies. It’s in our DNA.  

 

What are your unique areas of expertise? 

 

Over my 30+ career, I have continually been given various businesses, products, and groups to build or rejuvenate, many have gone on to be leaders in their space. A good example was when Fidelity hired me in the UK to build a global trading product for their retail clients base, knowing I had no experience in foreign equities and this was after 3 previous attempts had failed. We were up and running in 3 months and when they asked me to come to the US to do the same, the UK business was profitable. At Fidelity Capital Markets (US) we went from being only able to do everything in USD, to being fully multi-currency, able to trade in over 47 countries in real-time. As a result, Fidelity retail was the first retail US broker-dealer to offer global trading in real-time. I’ve been very fortunate to have worked my way up through the business and therefore know how things get from A to Z and the issues you will come across.  I love to learn; I hate being the smartest person in the room, which is why I try to make sure I have a team that is knowledgeable and feels empowered. I’m very passionate and treat everything I build as part of me, as I believe it reflects on me personally.

 

What excites you about this industry? 

 

Up until now, not very much. It’s been a job I have always put more than 100% into to support my wonderful family. JUSTLY has given me the ability to build something that can genuinely make an impact and help others. Every day, I think about making a difference and not feeding the machine or massaging someone’s ego. Don’t get me wrong, my job is to generate revenue and make JUSTLY profitable, but by making that difference, we will as they go hand-in-hand.

 

How is a partnership with KoreConX the right fit for your company?  

 

KoreConX has the complete platform, amazing expertise and therefore enables JUSTLY to focus on making an IMPACT! True success is never achieved on your own; you need a team and great partners. There is no better partner in this space than KoreConX.

 

What are the Benefits of Digital Securities for Issuers and Investors?

Posted on by Oscar Jofre

With the emergence and development of blockchain technology, digital securities have seen wider adoption by investors and investment firms. Arising from the need for protection against fraud and as a way for investors to ensure asset ownership, digital securities are a digital representation of traditional securities and follow the same regulatory rules. Since their first appearance, digital securities have come to represent any debt, equity, or asset that is registered and transferred electronically using blockchain technology. 

 

Digital securities are made possible by blockchain, also known as “distributed ledger technology”. Distributed ledger technology is a database where transactions are continually appended and verified across by multiple participants, ensuring that each transaction has a “witness” to validate its legitimacy. By the nature of the system, it is more difficult for hackers to manipulate, as copies of the ledger are decentralized or located across multiple different locations. Changes to one copy would be impossible, as the others would recognize it as invalid.

 

Distributed ledger technology allows digital securities to be incredibly secure. Ownership is easily recorded and verified through the distributed ledger, a huge benefit over traditional securities. Any transfer of digital securities is also recorded and with each copy of the transaction stored separately, multiple witnesses of the transaction exist to corroborate it. 

 

With traditional securities, investors can lose their certificate of ownership or companies can delete key files detailing who their investors are. Without a certificate, proving how many shares an investor owns would be incredibly challenging. In contrast, digital security ownership is immutable. Investors are protected by always being able to prove their ownership since the record cannot be deleted or altered by anyone. Additionally, investors can view all information that is related to the shares they’ve purchased, such as their voting rights and their ability to share and manage their portfolios with both accuracy and confidence. 

 

Since the record is unchangeable, it also serves as a risk management mechanism for companies, as the risk of a faulty or fraudulent transaction occurring is removed. Digital securities are also greatly beneficial to the company when preparing for any capital activity since the company’s records are transparent and readily available. With traditional securities, the company would typically hire an advisor to review all company documents. If the company has issued digital securities, this cost is eliminated, as it is already in an immutable form.  

 

Also making digital securities possible are smart contracts that eliminate manual paperwork, creating an automated system on which digital securities can be managed. Integrated into the securities is the smart contract, which has preprogrammed protocols for the exchange of digital securities. Without the time-consuming paper process, companies can utilize digital securities to raise funds from a larger pool of investors, such as the case with crowdfunding. Rather than keeping manual records of each transaction, the smart contract automatically tracks and calculates funds and distributes securities to investors. 

 

Companies that are looking to provide their investors with the ability to trade digital securities must be aware that they are required to follow the same rules set by the SEC for the sale and exchange of traditional securities such as registering the offering with the SEC. This ensures that potential investors are provided with information compliant with securities regulation worldwide. According to the SEC, investors must receive ongoing disclosures from the issuer so they can make informed decisions regarding ownership of their securities. Companies that are not compliant with the SEC can face severe penalties and may be required to reimburse investors who purchased the unregistered offerings. 

 

Besides the companies offering securities, broker-dealers must also register with the Financial Industry Regulatory Authority (FINRA). Similarly, platforms on which digital securities can be traded must register as an Alternative Trading System operator with the SEC. Both broker-dealers and ATS operators can face severe penalties if not properly registered. 

 

Possibly the greatest benefit of digital securities is that it allows for smoother secondary market transactions. With records of ownership clear and unchangeable, an investor can easily bring their shares to a secondary market. Transactions are more efficient and parties have easy access to all necessary information regarding the securities being traded, removing the friction that is typically seen with traditional securities. 

 

At KoreConX, the KoreChain platform is a fully permissioned blockchain, allowing for companies to issue fully compliant digital securities. Records are updated in real-time as transactions occur, eliminating errors that would occur when transferring information from another source. The platform securely manages transactions, providing investors with support and portfolio management capabilities. Additionally, the KoreChain is not tied to cryptocurrencies, so it is a less attractive target for potential crypto thieves. KoreChain allows companies to manage their offerings and company data with the highest level of accuracy and transparency.

 

Since digital securities face the same regulatory rules as traditional ones, investors are protected by the SEC against fraudulent offerings. This, together with the security and transparency that blockchain technology allows, creates a form of investment that is better for investors and issuers alike. Since the process is simplified and errors are decreased without redundant paperwork, issuers have the potential to raise capital more efficiently. They will also be better prepared for future capital activity. For investors, a more secure form of security protects them from potential fraud and losses on their investments. With digital securities still in their infancy, it will be exciting to see how this method of investment changes the industry. 

What is the Difference Between the Public and Private Capital Markets?

Posted on by Oscar Jofre

 

The public and private capital markets work differently, but both sectors play essential roles in supporting economic growth. Companies raise funds for long-term growth and acquisitions in the public capital market, usually through debt instruments like bonds or stock, while private companies raise capital through private investments.  This article provides an overview of the differences between the two types of capital markets, including how they function and their role in economic development. 

 

Public Capital Markets

Public capital markets consist of equity and debt markets where buyers and sellers trade with each other daily. Many companies use this type of market to raise new capital or sell their existing stocks. It is typically easier for publicly traded companies to use these markets than private ones because traditionally, a wider pool of investors is available, and shares provide a significant amount of liquidity. Most investors use public markets to invest in companies, which buys them a partial interest in a company. It is also where many companies go when they want to raise new capital to fund their business operations. 

 

Private Capital Markets

Private capital markets are where privately-held companies can sell equity to investors like private equity, venture capital firms, and even individuals. This sale of securities is typically exempt from registration with the SEC and may come in the form of a Reg A, Reg CF, or Reg D offering. Before the JOBS Act, these types of investments were limited to high net-worth individuals and institutional investors. Post JOBS Act, even everyday investors can get a piece of a private company, which may offer a significant return if that company ever goes public through an IPO. Additionally, offerings in the private sector typically cost less to the issuer than an IPO, which makes JOBS Acts exemptions a very attractive form of fundraising. 

 

Because of the history of the private capital markets, there are misconceptions that it is expensive to invest. However, Reg A and Reg CF offerings can be affordable for investors, with investments for hundreds of dollars or less. However, non-accredited investors are limited to the amount they can invest each year by their annual income or net worth. The same restrictions don’t apply to private companies. Additionally, investors in the private capital markets have the potential for liquidity through alternative trading systems. 

 

Publicly traded companies are listed on an exchange so that anyone can buy their stocks. This means they have to follow specific guidelines set by the SEC to maintain listing requirements. Private company stock is not publicly available for trading, but there are still ways you may be able to get your hands on some shares. It’s important to note that different securities trade differently depending on where they’re bought from, and choosing the public or private capital market is the first step in any investment.

 

 

 

How KoreChain Helps Companies Raise Capital Compliantly

Posted on by Oscar Jofre

Recently, KoreConX’s CEO Oscar Jofre was a guest on Fintech.TV’s Digital Asset Report to discuss the KoreChain Infrastructure. Watch the full video on YouTube.

 

What is KoreChain?

The KoreChain infrastructure is a blockchain technology that can be leveraged by companies qualified with the SEC to help them raise capital. It is the first fully SEC-compliant blockchain technology to connect broker-dealers, investors, companies, secondary market alternative trading systems, banking whales,  and all stakeholders in private capital markets.

 

KoreChain overview:

  • KoreChain is a permissioned blockchain.
  • KoreChain is built on enterprise-class industrial-strength hyper ledger fabric.
  • KoreChain is safe and secure: hosted on IBMs servers with the highest level of security (FIPS 140-2 level 4).
  • KoreChain is wholly focused on tokenized securities for global private capital markets. 

 

The technology enables a roadmap that others can adopt as long as they go through the qualification process to create fully SEC-compliant stable coins, NFTs, or other blockchain offerings. By being fully SEC-compliant, KoreChain offered by KoreConX is putting best practices forward, supplying the industry with standardization about market infrastructure, regulation, and how the latest and best technology can collaborate for the best outcome.

 

Why Utilize KoreChain?

The new SEC commissioner is not against cryptocurrencies; instead, he wants these offerings to utilize regulations instead of accessing these technologies through the side or back door. Using SEC regulations provides efficiency, transparency, and secondary liquidity, particularly helpful in private markets. The KoreChain technology allows you to offer all of this when creating assets on the blockchain.

 

The characters that differentiate KoreChain from other blockchains are: 

  • Permissioned 
  • Governed (including separate audit chain)
  • Complete lifecycle management of contracts
  • Event management
  • Artificial Intelligience 
  • Modular
  • APIs that integrate with the ecosystem

 

The KoreChain is the first fully SEC-compliant blockchain that meets regulations, encouraging understanding of SEC rules, regulations, and participants. The blockchain provides added confidence, so those using blockchain technologies find the process more efficient, from the investor to everyone involved. The KoreChain is a transparent solution that shortens the cycle of creation for anyone involved because investors can follow a fully SEC-compliant playbook through the entire process. 

What is an NFT?

Posted on by Oscar Jofre

A non-fungible token, more commonly known as NFTs, is a unique cryptographic asset that cannot be replicated and stored on a blockchain. By definition, fungibility is when an asset can be exchanged with more of the same good or asset–think of a dollar that can be easily exchanged into pennies or nickels and retain the same value. This means that by being non-fungible, NFTs cannot be traded or exchanged for an identical asset; one NFT cannot be exchanged for another NFT.

Throughout 2021, we have seen the meteoric rise in popularity of NFT, which can represent assets from artwork to videos and even real estate. In the case of artwork, it may be hard for someone to understand the value of buying a digital asset. The importance is ownership; the blockchain on which the NFT is stored verifies the identity of the asset’s owner in an immutable ledger. 

In the discussion on NFTs, it is essential to consider that not all digital assets are classified as securities. Based on the Supreme Court’s Howey case, the Howey Test helps determine whether an investment contract exists and is used to classify digital assets. With this test, an investment contract typically exists “there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” If a digital asset meets these requirements and is classified as a digital security, it must be registered with the SEC or exempt from registration. With registration, issuers are required to disclose certain complete, non-misleading information to investors. 

If an NFT can meet the digital security requirements, they can be offered through raises that happen under exemptions like Regulation A+. NFTs are not bound by federal securities laws and pose a potential investment risk without meeting these requirements. 

What makes an NFT a good investment is its resale potential. If there is no market for the asset and it cannot be resold, it loses its value. It is not like other digital attests like cryptocurrencies, where one bitcoin is always equal in value to another. As the landscape of cryptocurrencies, NFTs, and digital securities continue to evolve, it will be interesting to see their role in the future private capital markets.

 

Things to Consider When Choosing Your Equity Crowdfunding Portal

Posted on by Jason Fishman

Written by KorePartner Jason Fishman at DNA. See the original post here.

 

Before the new SEC regulations, about 20% of Reg CF campaigns hit the seven-figure level. In other words, most campaigns simply do not achieve their full cap.

They’re are many reasons why campaigns don’t hit the max, and many would sum it up to lack of marketing and business development.

However, many people don’t consider the portal themselves. Sometimes a portal and issuer don’t fit, and I’ve seen campaigns that were underperforming on one portal, achieve high success on another.

 

Thus, picking the right portal for your campaign is an extremely important component of your raise. While DNA can not advise you which portal will best suit your needs, we can give you some tips and our top five things to consider when choosing your equity crowdfunding portal.

 

So, we should explore anything you can do to set yourself up for a win and within the desired period. This is a critical component of your round.

Investor Audience Size

One benefit of using a filing with a portal is to leverage their existing investor audience. Typically as campaigns raise more, the portal’s audience takes more notice, and are more are likely to invest.

From firsthand experience, I can say that as portal technology and user experience improves, the larger these investor communities are growing. Pick a portal with a large, engaged, and active audience. Don’t forget to ask the portal how they leverage their audience during the course of your campaign for more success.

Vertical Focuses

As equity crowdfunding grows in popularity, more and more portals are emerging, dedicated to a specific focus. For example, Bioverge, is specifically tailored to healthcare startups, while Waterworks, is geared towards technologies advancing water solutions.

Not only do these platforms attract a very specific and engaged industry audience in that industry, but they typically have an experienced team that has a strong portfolio of niche-specific deals, and understands the nuances around their specific area of focus. If a platform can show a list of campaigns they have done successfully in that industry and have a high volume of investors attached to it, they will be valuable resources for an issuer.

A niche-specific could be a great option for your campaign, however take into consideration many are still in development and growing compared to the more-established and well known portals.

Success Rates

The data you need is out there.

I highly recommend starting at KingsCrowd, as most of their information is available for free or a very light subscription fee. On KingsCrowd you can do due diligence on each portal and their success rates.

You can also look at their analyst reports to see top deals, deals for an industry, deals per portal, and how much they have raised. Set a benchmark for yourself, and note which campaigns and platforms hit your benchmarks.

You may find that the volume of campaigns these portals have taken on has dropped in the past months, especially when you are looking at entry-level or mid-tier portals. You may find that it has skyrocketed. How many campaigns are below or above a milestone level may also stand out to you.

The numbers don’t lie. Take in as much data as you can to see how successful campaigns are currently doing on their platform.

Customer Service

Equity crowdfunding campaigns have a lot of ups and downs, and when your campaign isn’t performing you have to rely on your portals team to support and provide white-glove customer service..

You can get a sense of what the experience will be during your meet and greet. I recommend asking the following questions and paying attention to the working experience:

  • Who will be your day-to-day point of contact is?

  • What does the working process together look like during the pre-stages of your live campaign?

  • How do you optimize when things are not going according to plan?

  • Is the portal going to disappear and be afraid to talk to you?

  • Are they going to come to the table with constructive recommendations?

  • Is there anything they can do to go the extra mile among promotions to their existing audience?

  • When the campaign is going according to plan and ramping up at speed, how can you scale and get there quicker?

  • What will their partnership with you look like at those stages?

 

I would also recommend speaking to three or more portals, and look to intuition about who is committed to your deal and confident in the success of it among their investor audience on their platform.

Added Value

This is a bit of a controversial topic because the SEC requires portals to treat each issuer the same. But they have different benchmarks that once you hit the increments of capital funding, they promote you to their email audience.

But if any groups show so much confidence in your deal that they will bring more to the table, I would note that in the review process. Some of these things include:

  • Private investor groups

  • Special placement on the site

  • Additional promotions

  • Introductions to different accelerators or different VC groups that back the deal beforehand

  • Introductions to various types of angel investors, strategic partners, industry experts, and more

 

However, I would not shape my selection merely on this factor, but be cognizant of it. Crowdfunding is essentially a team sport that occurs within a small window of time. The more resources you bring to the table, the better.

So, if there is any portal giving you additional value beyond their standard package because of how they envision it equating to your success, it could be a factor in your decision-making process.

Pick Your Portal Carefully!

Listing your deal will not ensure ANY results.

Setting up and managing a successful campaign takes careful planning and forethought, especially when it comes to picking your portal. Having a strong understanding of the top portals available is going to be an educational and helpful process across the board.

Here are some of the top portals available for you to consider:

 

 

You may get tips from one portal that you apply to another, and it is important to become part of the entire equity crowdfunding ecosystem rather than selecting a partner and move on. These relationships continue, so I encourage you to map out what a relationship could look like with each portal, and nurture it.

Cannabis: An Emerging Market for RegA+

Posted on by Oscar Jofre

Despite remaining illegal at the federal level, the idea of legalizing cannabis is continuing to gain public acceptance, especially in recent years. As of April 2021, 35 states have made medical marijuana legal, with 18 of them legalizing it recreationally. This growth has been tremendous, raising the industry’s value to over $13 billion and directly supporting 340,000 jobs. As of 2019, 67% of Americans believe that regulators should legalize marijuana, an astounding 20% increase from a decade ago.

These factors have created an excellent opportunity for companies in this space. As public perceptions continue to rise, investments in cannabis companies may become more attractive to retail and accredited investors. In 2019, cannabis companies received nearly $117 billion in investments, displaying some of the investors’ significant interest in the space. Opportunities will only continue to increase as the industry progresses. Projections show that by 2028, cannabis will be an industry worth $70.8 billion globally. In the US alone, cannabis sales in the US in 2021 alone are predicted to reach $21 billion. 

The combination of investor interest and industry valuation could mean that raising capital through exemptions like Regulation A+ could prove to be an incredible opportunity for companies and investors alike. Already, many cannabis companies are seeing success through these opportunities. Early this year, Gage Cannabis closed their Regulation A+ offering after securing $50 million in funding and adding 1,000 shareholders to their cap table. This one success is not an outlier, as other issuers have been seeing success as well. 

It will be interesting to see how the industry and investment opportunities within cannabis will expand with the upward trend of public perception. Additionally, as more states continue to legalize, more businesses will emerge, jobs will form, and investors will invest in an emerging market.

Along with our partners, KoreConX hosted a webinar on why RegA+ may be the perfect fit for companies in the cannabis space. If you missed the live event or want to rewatch it, visit our YouTube channel to access the full recording of the event. If you would like to contact any of our speakers or view the full schedule, please visit our KoreSummit site.

$1 Billion Raised Through RegCF

Posted on by Oscar Jofre

It seems 2021 is the year where we continue to break new ground for the JOBS Act, and today marks a momentous milestone in its history. Fundamentally, the act was designed to empower businesses and democratize capital. Not only has it succeeded in this goal, but it has also allowed companies to create jobs and return ownership to company founders. Recently, the amount of capital raised under Regulation CF offerings has reached an amazing milestone: $1 Billion USD over the lifetime of the exemption. 

 

This tremendous achievement would not have been achieved without the great work done by those in this sector. As of June 2020, there were 51 active RegCF funding platforms, a number that continues to grow as we see continued expansion on offering limits from regulators to make this funding method even more powerful. Now, over a year later, and after RegCF offering limits increased to $5M USD, we see nearly 70 regulated crowdfunding portals registered with FINRA.

 

We would not be arriving at this milestone today without the great work our of KorePartners in the industry, many of which have the same mission of creating equal access to the private capital markets for the everyday investor and include:

 

 

And perhaps most importantly, we would like to thank you: the investors who have poured capital into causes and businesses you are passionate about. Without your investments, we would be a long road away from the milestone we celebrate today. You have made the JOBS Act a reality and a phenomenal success that we could not have achieved without you. The everyday investors have been the lifeblood of this industry, fueling innovation, company growth, and job creations with your investments.

 

With more capital poured into private companies through these regulations, there is more opportunity than ever before for companies to succeed and investors to get involved with innovative, industry-changing companies. Such opportunities were previously unavailable to Main Street investors, but the JOBS Act has radically changed this landscape. After the incredible growth over the last nine years since the JOBS Act’s initial passage, it will be exciting to see how the space progresses over the next decade. 

 

Hooray to $1 Billion USD and counting!

 

As we move into the future, this is the group that will advance RegCF to raise $5 Billion USD for private companies:

Reflecting on Canadian Small Business Week

Posted on by Oscar Jofre

As Small Business Week comes to a close in Canada, KoreConX reflects on the role small businesses play in the economy. Our mission has long been to empower the private capital markets with the tools needed to take advantage of innovative capital raising opportunities. 

 

Earlier this week, Canadian Prime Minister Justin Trudeau shared his statement on Small Business Week. He said, “As we mark the start of Small Business Week in Canada, we recognize that the past year and a half have been difficult for small businesses, their owners, and their employees. Small businesses across the country were asked to make countless sacrifices to protect the health and safety of people and communities. Through it all, they have shown incredible courage and resilience, and an unprecedented ability to adapt and innovate. And while some businesses have now reopened their doors, many still need support as they continue to grapple with the impacts of the pandemic.”

 

This idea comes jointly with unprecedented access to capital raising opportunities. In March 2021, updated to offering limits under Regulation CF increase to $5 million USD, which small businesses can use to fuel innovation and job creations. When RegCF was first signed into law through the JOBS Act in 2012, the mission was to democratize capital to allow anyone to invest, give company ownership back to founders, and create jobs.

 

With 8.4 million individuals or 68.8% of the Canadian workforce employed by small businesses, it is clear to see their vitally important role in the economy. Similarly, small businesses were responsible for 35.8% of the employment growth between 2014 and 2019. “Small businesses drive our economy by creating the goods and services we need while employing millions of Canadians,” added Trudeau in his statement. 

 

Even as small businesses continue to recover from the global pandemic, capital raising opportunities like RegCF, which are cost-effective, can provide needed relief. Additionally, they can be incredibly successful, especially for small businesses with dedicated and loyal customers willing to invest. 

 

Tokenization in RegA+

Posted on by Oscar Jofre

As the private capital market continues to undergo a digital transformation, ideas like blockchain, digital securities, and tokenization continue to be discussed by regulators, issuers, and investors. “Tokens” represent actual ownership in a security and is a registered investment vehicle. However, when the term was coined in the mid-2010s, tokens became thought of as unable to support the compliance, regulations, and legal requirements of a security. Instead, digital securities and digital assets became the preferred term to accurately convey the time, effort, and reliability in this form of investment.

 

Digital securities will have a transformative impact on the capital markets. For example, when the public market was built more than 100 years ago, the technological tools of today were unavailable. As the system has aged, it has become antiquated. These new forms of securities will result in a more efficient, equitable, and accessible capital market system for both issuers and investors. However, since the technology is so new, the educational component will be the next hurdle because many still are unaware of what digital securities are. 

 

It is important to consider that digital securities are not about disintermediation, but instead intermediation with the right efficiency and focus, bringing together the right parties like broker-dealers, lawyers, and transfer agents. Unlike other digital assets, digital securities are regulated by securities laws, and having the right processes in place ensures that raises are done compliantly. If a RegA+ raise is structured improperly, it could mean the company has to refund investors of their investment. 

 

Because many investors don’t want to hear the term tokenization or digital asset, the educational component will be essential for the widespread adoption of digital securities. However, as digital securities make investment processes frictionless, we will continue to see how digital securities for RegA+ continue to evolve.

Meet the KorePartners: Adrian Alvarez, CEO and Co-Founder of InvestReady

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

For the last seven years, Adrian Alvarez has been involved in the securities space, coming to know it like the back of his hand. He has received both his law degree and a Master’s in Business Administration.

Before InvestReady, Adrian Alvarez was the Assistant Director at the University of Miami’s launchpad program, consulting early-stage businesses and entrepreneurs. During this time, he grew very attuned to crowdfunding as became incorporated into the JOBS Act. As crowdfunding platforms emerged, Adrian noticed both potential problems and opportunities in the space. Being an attorney, he felt like he could solve some of these challenges, which lead to InvestReady.

As investments have become increasingly digitals, issuers needed a verification tool to match. With InvestReady, investors can securely and confidentially verify their identity so they can invest in crowdfunding offerings. Issuers and funding platforms are empowered by a tool that makes this processes secure and seamless. The result is SEC-compliant crowdfunding investors.

Ensuring investors meet requirements as crowdfunding continues to evolve. Just this year, the SEC increased investment limits for Regulation A+ and Regulation CF, allowing even more investors to participate in each offering. Plus, as RegCF removes accredited investor limits, ensuring these investors meet the requirements of accredited investors is essential.

Adrian has felt that working with KoreConX has been a great partnership, as it helps to bridge to other service providers like broker-dealers.

RegA+ for Real Estate

Posted on by Oscar Jofre

Since the JOBS Act was first passed in 2012, it has vastly changed the way private companies can raise money. One particular industry making use of the Regulation A+ exemption is real estate. In the pre-JOBS Act economy, real estate investment deals were often limited to private equity or family offices that could afford large price tags associated with commercial real estate deals. However, the JOBS Act has done something incredible for the everyday investor; created opportunities for real estate investments that did not previously exist.

 

Traditionally, real estate investments have been capital-intensive, so managing smaller deals were too challenging to make effective. This limited who could participate. 

 

Since updates to offering limits that went live in early 2021, issuers can now raise up to $75 million for Reg+ offerings, making the exemption even more attractive to issuers in real estate. Additionally, the availability of online platforms for these offerings also contributes to their success. 

 

Through RegA+, offerings usually come in the form of a real estate investment trust or REIT to be more efficient, rather than an offering for a single property, due to the length of the SEC approval process. While investors have been able to invest in REITs for a while now, commissions and fees were usually too high and lowered returns. RegA+ for real estate has been able to introduce efficiencies that lower fees, thus, increasing returns that investors may see. 

 

In a report published by the SEC in March 2020, insurance, finance, and real estate accounted for 53% of qualified RegA+ offerings and 79% of the funds raised through the exemption. This indicates that real estate investments are incredibly attractive to investors and seeing significant success through RegA+ offerings. With the recent increase to RegA+ limits, we will only continue to see more real estate investment opportunities through the exemption. 

 

Meet the KorePartners: Eric Fischgrund of FischTank PR

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem. 

 

For nearly 15 years, Eric Fischgrund has been involved in the communications and marketing industry. He says: “ I have a degree in Communications Journalism and have always been a writer at heart, so public relations was a natural career match for me.” Continuing to learn every day from his clients has always enticed him to continue in his career path, as “constantly learning client subject matter and determining how to deliver their message to the market, provides me with an ongoing (and free!) education.” He prides himself on his ability to understand his clients’ businesses and apply a unique skill set to achieve results.

 

Passionate about both the public relations industry and investment space, Eric is excited about the future and the opportunities it will bring for both companies and investors. He says: “Entrepreneurs need capital and main street investors deserve high growth opportunities, so this is two birds and one stone. I also enjoy working in emerging industries, such as sustainability, renewables, cleantech, IIoT and IoT, healthcare tech, cannabis, and others. So many innovators in these sectors are utilizing equity crowdfunding to grow their business.” 

 

Through the introduction of RegA+, companies have access to a fundraising route that is favorable to small startups as well and allows a wider pool of investors access to high-growth investment opportunities. Eric says: “Historically, it’s taken significant capital, legal costs, marketing and communications requirements, and more to raise capital. Similarly, the venture capitalists, private equity firms and individual high net worth investors are the ones presented with the highest growth investment opportunities.” RegA+ levels the playing field, eliminating these problems. “It enables entrepreneurs to raise capital online, grow their brand simultaneously,” while allowing main street investors to make investments for as low as a few hundred or thousand dollars. 

 

Despite the incredible opportunity RegA+ presents, Eric feels that there is much misinformation circulating about how to raise capital. He says: “Professionals that don’t understand the nuances of the regulation can too easily take advantage of entrepreneurs, innovators, and investors, which hurts all of us. This is why I’m encouraged by the KoreConX platform bringing the experts together.” Establishing a partnership with KoreConX was a perfect fit, as FischTank works to partner with strong businesses and companies. “We also strive to make the world a better place, and many of the innovators and companies we work with are developing technologies and services that do just that,” Eric said.

 

For companies that are looking to raise capital, working with a PR agency is important for their success. When potential investors are looking to learn more about a company they have an interest in investing in, one of the first things they will do is Google it. “If there is plenty of editorial search results, especially on the first page, and constant news, the company is going to appear credible and appealing,” Eric said. Additionally, effective PR can also be utilized from a marketing perspective. “Press coverage not only attracts attention but it can be used as sales/marketing tools for investor outreach and relations functions.” At FischTank, they provide a wide variety of public relations and marketing services to their clients. They take care of media and press coverage, email marketing, social media, and content writing so that you can raise capital effectively and successfully. 

 

The 1% Broker-dealer & What you need to ask!

Posted on by Oscar Jofre

When working with FINRA Broker-dealer, it’s not enough that they simply have the required licenses that are necessary, so make sure to ask some questions:

  • Are you registered in all 50 states
  • Are you register for RegA+

It is also key to understand what they actually do when you are raising capital. These are some of the basic questions you need to ask of them:

  • Who contacts the investor if payment does not go through?
  • Who contacts the investor if there is a problem with KYC (Know Your Client information)?
  • Who contacts the investor for IRA payments?
  • Who contacts the joint investors?
  • Who contacts the investor if there are problems with sub agreement?
  • Who contacts the investor if there are problems during the investment process?

Bottom line:  

As a company, do you need to do anything once the investor clicks submit to make their investment?

Answers is:   NO

You should be focusing on raising capital and the FINRA Broker-dealer (who charges 1% for compliance services) is responsible for doing all of the above compliance and +.

 

What is a Securities Manual?

Posted on by Oscar Jofre

For companies to raise capital under the exemptions allowed by the JOBS Act, there are different requirements to maintain compliance with state and federal securities laws. For example, a company looking to raise capital through Regulation A+ must adhere to Blue Sky Laws in each state they are conducting the offering. 

 

Similarly, for a company to allow its shareholders to transact on a secondary market, Blue Sky Laws also must be met. Since each state may have very different compliance requirements, an issuer can file what is referred to as a manual exemption. With the manual exemption, the issuer is required to be listed in a nationally recognized securities manual. 

 

Securities manuals are publications that include specific information and financial statements of an issuer. Examples of securities manuals include Mergent’s and Standard & Poor’s. Listing in these manuals allows issuers to sell securities in a particular state without registration as long as the manual is recognized by the state. The issuer must include:

 

  • The names of issuers, directors, and officers
  • The balance sheet
  • A profit and loss statement from the most recent fiscal year

 

As such, a securities manual is a collection of this data from many companies. For example, Mergent’s has a database of over 25,000 active and inactive companies. By being listed in a similar, nationally recognized manual, an issuer can be a step closer to maintaining compliance for their offering.

KorePartner Spotlight: Bill Humphrey, CEO and Co-Founder of New Direction Trust Company

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners contributing to its ecosystem. 

 

Bill Humphrey has over 20 years of experience as a CPA, focusing his career on income tax, auditing, tax-related real estate issues, and forensic accounting. In 2003, Bill and Catherine Wynne began New Direction IRA to offer a service-based solution for self-directed investors to diversify their retirement portfolios. Fifteen years later, New Direction IRA became New Direction Trust Company.

 

Under traditional securities firms, Bill noticed that investors could only make investments on Wall Street but didn’t agree with that idea. Instead, he believed that people should have the opportunity to invest in something they understand, they just needed a custodian. Bill has a passion for education and empowering his clients to invest in what they want. He is driven to make self-direction intuitive, modern, and digitally powered.

 

At New Direction Trust Company, the firm acts as a custodian for IRAs, HSAs, and 401K accounts. These types of plans are uniquely suited for investments; there is more money in an IRA than in the pockets of the account holders. Through Regulation A+, investors can use IRAs to make investments in private offerings, creating more opportunities for people to invest. Such opportunities allow investments in companies that may evolve into large companies. Traditionally, these opportunities were only available to accredited investors, leaving the retail investors out of the significant return of an IPO.

 

The firm places a large emphasis on automating the processes of making these investments. Historically, paperwork has been slow and unattractive to investors. Instead, the experience should be similar to investing on Wall Street. This is one of the reasons a partnership with KoreConX makes sense; both companies are aimed at many of the same things. KoreConX and New Direction Trust Company are committed to making private investment transact smoothly and through automated processes.

Join the new American Revolution – financial markets equality for all

Posted on by Oscar Jofre

This post originally appeared on the Rialto Markets blog and was written by Lee E. Saba, Head of Market Structure at Rialto Markets.

 

Very few people understand the revolution now taking place in financial markets.

It is to do with private markets and has been sparked by new regulations allowing investment and trading access to the masses.

For the first time, you and me, mom and pop, can invest in early-stage companies once exclusive to the elite investor. You know the investors I refer to: those with deep pockets that always seem to get in early, make a fortune when the company goes public, then exit the position as fast as possible to lock in significant gains.

Well, those days my friends are now a thing of the past.

Access to the best private company offerings

Retail investors now have access to some of the best private companies available at the early stage. Imagine investing in Tesla, Amazon or Coinbase before they listed on the “big” boards like the NYSE and Nasdaq, you know, during that high growth period where the real money can be made.

Accessing private markets is not in any way a guarantee for future gains however, because everyone who can pass anti-money-laundering (AML) and know your client (KYC) can get access to these companies now.

Hundreds of thousands private investors are joining the crowdfunding revolution

But how did we get this much wider access? It’s due to the JOBS Act of 2012 creating two new ways for private companies to raise money – Regulation A+ and Regulation CF (CF is short for crowd funding).

These two new rules (or exemptions as they are formally known) allow private companies to raise up to $75 million via Regulation A+ or up to $5 million via Regulation CF.

And anyone can invest in them. You no longer have to be a high-net-worth investor to get access – you can just be you. It’s a revolutionary development now gaining rapid adoption across the private markets’ landscape, allowing everyday citizens and traditional large financial institutions to invest side by side.

Gaining access to these previously inaccessible assets is a huge step in the right direction, but there is one more exciting angle to these assets. Drum roll, please….

Secondary Market for RegA+

Secondary markets mean if you bought a private placement security, say a Regulation A+, in the primary market (when the private company is open to outside investors) and want more of it or need the money you originally invested to pay off student loans or put a down payment on a home, you can now monetize that investment and get your money well before the company sells or goes public.

And there is an SEC regulated marketplace to buy and sell private placement securities. This means investors in private securities have a government regulator looking out for them, not some fly-by-night unregulated crypto operation run by novice entrepreneurs but a full-blown marketplace to match any buyers to the sellers and any sellers to the buyers.

This regulated matching facility is called an ATS (Alternative Trading System) and the professional investors on Wall Street have used these for years to get the best price and least amount of market impact as possible. But now anyone can access the world of private placements through a regulated ATS like ours at Rialto Markets.

Rialto’s team has built numerous Alternative Trading Systems in the traditional capital markets arena and has now leveraged that huge experience to launch its new ATS for private securities, enabling all investors – from retail to high end institutions – to participate in secondary markets for private securities.

Secondary trading for private securities? Yup. It’s a whole new and brave new world.

What is a Company’s Duty to its Shareholders?

Posted on by Oscar Jofre

For many companies, raising capital often marks a major milestone. With increased sources of capital, the company can grow, hire new employees, and develop new products that can leave a lasting impact on the world. With the continuing developments of exemptions like Regulation A+ and Regulation CF, companies have a powerful mechanism to raise this needed capital without the costly expense of going public through an IPO.

 

However, this increased access to capital does not come without great responsibilities. Any company taking investments from shareholders are obligated to carry out their duties to their shareholders.

 

By definition, shareholders own a portion of the company depending on how much they have invested. With that ownership, shareholders are granted rights such as voting, access information, and participate in meetings. As a company that has taken investments from these individuals, the company must ensure that these rights are maintained.

 

First, companies are required to hold an annual general meeting, sometimes called an annual shareholder meeting. During these meetings, companies must present information on the company and allow shareholders to vote on company matters. It is the company’s duty to shareholders to conduct this meeting within 150 days of the end of their fiscal year, notifying shareholders no less than 20 days before and no more than 50 days before the meeting is scheduled to be held. If a shareholder is not able to attend, they should be able to cast their vote by proxy.

 

Additionally, companies must allow shareholders to access the information they are permitted to view. Such information includes the company’s articles of incorporation, bylaws, financial statements, meeting minutes, and corporate stock ledgers. The company must provide this information to its shareholders when requested.

 

Beyond these duties, it is also the duty of the company, its directors, and leadership to make business decisions with good judgment. In transactions, the directors should not personally benefit from any decision at the company’s expense. Officers should also conduct themselves the same way, decisions should be made so that they are in the best interest of the company.

 

Any company with shareholders is responsible for conducting business in the best interest of the shareholders and the company itself. Shareholders must be required to vote on significant decisions, while the company must provide shareholders with important company information they are permitted to have access to. Maintaining these duties is essential to good and legal business practices.

As a Canadian Company, can Canadians Invest in Your RegA+?

Posted on by Oscar Jofre

We have extensively discussed how Americans can invest in securities offered under Regulation A+. However, Canadian companies can also use the exemption to raise capital to fund their businesses. Despite the ability for Canadian companies to use Reg A+, this was a decision made by US regulators, as the JOBS Act is a US, not Canadian, law.

 

Because Reg A+ is a US regulation, it makes it incredibly simple for Canadian companies to raise money from investors based in the United States. They go through the standard procedures for Tier 1 or 2 offerings before making the offering available to investors. On the other hand, Canadians investing in Canadian companies through Reg A+ is a little more challenging to be done.

 

In theory, it is possible. The issuer would need to be qualified in each Canadian province they are conducting the offering in. They can seek a Canadian equivalent of a broker-dealer to structure the offering so that investors can invest. In practice, this is not done very often, as meeting compliance requirements for all Canadian provinces is challenging in addition to US compliance requirements. In addition, the cost would be far more than the potential upside. Interestingly enough, Canadian regulators have created rules for secondary trading that give Canadian investors more opportunities to invest. Canadian investors can “hop the border,” so to speak, and buy securities in a secondary market transaction. This allows Canadians to purchase securities in a Canadian company.

 

Even though Canadian companies could technically raise money from Canadians under Reg A+, it is often cost-prohibitive. That does not mean investors are out of luck. Through secondary market transactions, Canadian investors can purchase securities in Canadian companies, allowing them to become shareholders.

Why do I need Blue Sky registration for Secondary Trading?

Posted on by Oscar Jofre

Through the Regulation A+ exemption, securities issuers can raise up to $75 million as of March 2021. This creates a significant opportunity for the everyday investor to make investments in private companies and for the companies to benefit from the large number of investors that exist within this space. Unlike securities purchased on a national securities exchange, like the NASDAQ or New York Stock Exchange, investors in private companies have been somewhat limited in their options for liquidity.

 

This created the need for a secondary market on which investors could sell shares to other interested buyers, rather than waiting for the company to go public through an IPO to sell their shares. However, when it comes to enabling investors to be able to access secondary market platforms for their shares, there are a few things issuers need to consider.

 

First, just as the original offering has to comply with the Blue Sky laws in the states they choose to do business in, secondary market trading falls under the same requirements. For offerings that fall under the Tier 1 Reg A+, offerings are required to meet the blue sky requirements in each state and must be reviewed and registered by the state and the SEC. For Tier 2 offerings, the offering preempts Blue Sky laws and does not require review and registration. Some states also require issuers to work with a broker-dealer for the offering, so issuers should pay careful attention to that requirement when preparing their offering.

 

Similarly to complying with the laws governing raising capital, issuers must also comply with the laws that govern secondary trading markets in the states they are looking to make secondary trading available in. Since Blue Sky laws vary between jurisdictions, it can be difficult for issuers to maintain compliance with the laws in each state. In this case, issuers can file for “manual exemption” of the Blue Sky laws, accepted in numerous states. This means that issuers can qualify for secondary trading as long as they meet disclosure requirements, like meeting financial standards and ensuring that key company information is listed in a national securities manual.

 

While meeting compliance requirements to offer secondary trading to investors may seem like a challenging task, working with a broker-dealer can ensure you are meeting all requirements. As an issuer, once you can offer secondary trading, your investors will benefit from liquidity options for their shares.

How often do I need to hold an AGM?

Posted on by Oscar Jofre

Every year, Warren Buffet hosts the Berkshire Hathaway Annual Shareholders Meeting. This meeting is an Annual General Meeting (AGM), widely viewed with many people in attendance. The reason for this is that it is often more than the typical AGM, which we will detail below, as Buffet often talks about more than just Berkshire Hathaway. This year, on Saturday, May 1st in Los Angeles, Buffet was joined by, as Yahoo Finance reported, “Vice Chairman Charlie Munger and both shared their unscripted views on Berkshire Hathaway, the markets, the economy, corporate governance, and a lot more.”

 

This example is only one of what an AGM can be. First, these meetings are required by regulations imposed by the Securities and Exchange Commission (SEC). An AGM, as the name suggests, is a meeting held every year for shareholders. This is the time for a company’s board of directors to present information to the shareholders and a chance for shareholders to exercise their right to vote, given to them by owning a share, after hearing the vision and direction of the company.

 

Some specific requirements are defined by each state in which a public or private company is incorporated, however, they follow a general set of what should happen at each. This variance comes from the company’s articles of incorporation, bylaws, and state requirements. The typical AGM breaks down as follows: 

 

  • Reading and approval of the minutes of the previous meeting 
  • Financial statements
  • Ratification of the director’s actions
  • Election of the board of directors
  • Concerns and questions from Shareholders

 

While shareholders are the focus of this meeting, they are not always available for the meeting. For this reason, they can vote by proxy via an online avenue or by mail. In addition, the SEC requires public companies to make meeting information available online for shareholders, so that they can be informed of their votes. Meeting information is also submitted to the SEC for regulatory compliance and sets the specific date and time for the meeting. These reporting requirements are a means to provide transparency for shareholders and the accountability of company management. 

 

The question of how often to hold an annual general meeting is every year. More specifically, from Cornell Law:

 

“An annual meeting of the shareholders of the subsidiary holding company for the election of directors and for the transaction of any other business of the subsidiary holding company shall be held annually within 150 days after the end of the subsidiary holding company’s fiscal year.”

 

Shareholders will also need to be notified a minimum of 20 days and a maximum of 50 days before the event. Outside of this yearly meeting for shareholders, if there is an action that the company needs shareholder votes for and cannot wait for the next annual meeting, they can call an Extraordinary General Meeting. EGMs are meant for urgent matters that cannot wait.

Why do I need a FINRA Broker-Dealer?

Posted on by Oscar Jofre

Broker-dealers are an essential part of the fundraising process. These entities can be small, independent firms or part of a large investment bank. However, regardless of a broker-dealer’s size, they are in the business of buying or selling securities. In this sense, whenever a broker-dealer executes orders for clients, they act as a broker, while trading for its own account means they are acting as a dealer. 

 

In the United States, Congress has granted the Financial Industry Regulatory Authority (FINRA) authorization to protect American investors by ensuring that brokers operate fairly and honestly. The organization is non-governmental and non-profit, acting independently to ensure that the rules governing brokers are adhered to. The organization states: “Every investor in America relies on one thing: fair financial markets.” FINRA oversees over 624,000 brokers across the country, ensuring that their activities adhere to all necessary rules. 

 

As a company engaged in capital market activities, choosing a broker-dealer to work with is critical to your success. For example, under Regulation A+, some states require issuers to work with a broker-dealer to offer securities in that jurisdiction. This allows issuers to maintain compliance with the SEC and other regulatory entities. Additionally, working with a FINRA-registered broker-dealer will give potential investors more confidence in the compliance of your operations. FINRA registration ensures that your broker-dealer partner has:

 

  • Been tested, qualified, and licensed;
  • Every securities product is listed truthfully;
  • Securities are suitable for an investor;
  • And investors receive complete disclosure.

 

This information ensures that broker-dealers are operating in the best interests of the investors, ensuring that the issuer provides all necessary and required information to make good investment decisions. In addition, investors (and issuers) can verify a broker-dealer’s status through BrokerCheck, a service provided by FINRA. BrokerCheck gives information on a broker-dealer’s licensing status, whether they are registered to give investment advice or registered to sell securities. Additionally, the service allows people to see regulatory actions against brokers, complaints, and employment history. Through this information, investors can validate the status of a broker to ensure they are dealing with legitimate firms. 

 

As an issuer, a FINRA broker-dealer improves compliance measures. The broker-dealer will be required to perform regulatory checks on investors such as KYC, AML, and investor suitability to ensure investors are appropriate for the company. Additionally, they will perform due diligence on you so that they can be assured that your company is operating in a manner compliant with securities laws so that they do not present false information to investors. Failing to meet compliance standards can result in the issuer being left responsible for severe penalties, such as returning all money raised to investors. 

 

Working with a FINRA-registered broker-dealer ensures that, as a company, you are meeting all legal requirements when offering securities for sales. FINRA makes sure that broker-dealers, and the issuers they work with, act transparently and honestly to keep the private capital market fair for investors.

 

How Does RegA+ Impact the Life Sciences Industry?

Posted on by Oscar Jofre

Since dramatic improvements to Regulation A that went into effect in 2015, the exemption has become a tremendous tool allowing private companies to raise significant capital. Unlike other funding methods, RegA+ allows companies to raise capital more efficiently with less hassle at a lower cost. 

 

Companies in diverse industries can benefit from the power exemptions like RegA+ give them to raise unprecedented capital in the private market. Before the JOBS Act, private investments were limited to wealthy, accredited investors, private equity firms, venture capital, and other players. However, when the legislation opened up investment opportunities to retail investors, companies were suddenly able to tap into a new pool of potential investors. In addition to making investment opportunities more accessible, the JOBS Act was also created to create jobs and foster innovation in America. 

 

These factors make RegA+ particularly well-suited for the life sciences industry. Retail investors typically make investments in companies they support and believe in. Life science companies aim to develop innovative treatments for medical conditions, make life easier for those with chronic conditions, and discover new medicines that can dramatically improve a patient’s life. Through RegA+, the ability of the everyday individual to invest in these deals is powerful. People will want to invest in a company developing treatments for conditions that have personally affected their lives or a loved one. 

 

Recent research has found that, in the post-JOBS Act economy, there has been a 219% increase in biotech companies going public in an IPO. Many of these companies are focused on developing treatments for rare conditions and cancers. Funding received through JOBS Act exemptions has significantly reduced the time to IPO after benefiting from raising earlier capital at a lower cost. Not only does this have beneficial economic implications, the advancement and funding of life sciences companies will positively impact humanity itself. Being able to identify treatments to life-threatening conditions can extend lifespans and enhance the quality of life significantly. Instead of certain conditions having terminal diagnoses, patients would have options to recover and treat their illnesses. 

 

However, companies in the life sciences space typically require significant capital to fund research and development, clinical trials, and regulatory approval. Since the increase of RegA+ to a maximum of $75 million in March 2021, even more companies will likely begin to explore this capital raising route. If companies can raise needed capital sooner and easier, they can bring their innovative medical treatments, devices, and medications to market sooner as well. This means that patients would begin to benefit from new, lifesaving options even sooner. 

 

How the Unaccredited Investor Benefits from RegA+

Posted on by Oscar Jofre

The passage of the JOBS Act in 2012 set in motion a significant change for the private capital markets. For so long, investments in private companies could only be done by wealthy accredited investors who would benefit immensely if the company was ever to go public during an IPO. While the everyday person has long been able to buy stocks of a public company, the potential for such a significant return on their investment was low. It was thought that this was to protect investors from the risk of a private company. 

However, the JOBS Act has rewritten this narrative, allowing anyone to invest in private companies raising capital through exemptions like Regulation A+. When the act was first passed into law, companies could raise up to $5 million. However, it has since undergone a few notable changes that transformed it from an infrequently used exemption to one that allows companies to raise a significant amount of capital. The first came in 2015 when Title IV amended the JOBS act to allow companies to raise up to $20 million and $50 million from tier 1 and tier 2 offerings, respectively. Again in 2020, the SEC announced further amendments allowing companies to raise up to $75 million through tier 2 offerings, which went into effect March 15, 2021. 

The amendment increased the availability of capital for private companies and created incredible investment opportunities for non-accredited investors. For investments in tier 1 offerings, there are no limits placed on investors, while tier 2 offerings limit non-accredited investors to a maxim of 10% of the greater of their net worth or annual income.

Since the change in 2015, SEC data shows the impact it has had on the number of offerings under this exemption. In 2015, only 15 companies had qualified for either tier 1 or tier 2 offerings. In 2019, this number had increased to 487 companies. With so many companies conducting offerings under Regulation A, and the number increasing year over year, there are more opportunities than ever for the non-accredited investor. They are free to research investment opportunities, deciding if the investment fits with their investment goals and risk tolerance. They are free to identify companies that align with their philosophies, values, and causes that are important to them. For example, an investor may have a strong affinity for reducing their environmental impact. They can choose to invest in a company that also upholds this same value. 

In addition, the emergence of a secondary market for private company investments opens up a new possibility for liquidity. Previously, private company shares could only be sold or traded once a company had gone public. However, now investors have the opportunity to sell their shares to other interested investors.

The JOBS Act has allowed non-accredited investors to enter the playing field in the private capital market. Just as the companies who can now use RegA+ to raise capital, investors can use the offerings as an opportunity to make a profit and support companies they believe in. 

The Role of Investor Acquisition in Capital Raising Activities

Posted on by Oscar Jofre

The goal of any capital raising activity is to secure capital for the growth and development of the business. Without needed capital, it can often be challenging to expand; whether that means hiring more employees to keep up with demand, improving production facilities to manufacture a product, or funding research and development to bring more products or services to the market. However, in order to actually raise the capital required, potential investors need to be made aware of the offering and the opportunities becoming a shareholder entails. This requires marketing.

 

When it comes to RegA+ and RegCF offerings, the potential to sell securities to the everyday investor is powerful, opening up the market to a vast pool of potential investors not available to private companies before the 2012 JOBS Act. However, this also creates the need for companies to find the best way to reach their target audience and make them aware of the investment opportunity. Through marketing, you are able to inform prospective investors of the opportunity to invest in your company. 

 

More than ever before, social media has become an integral part of marketing activities across all business sectors. It allows you to reach your audience where they’re at, and as nearly seven in ten Americans are on social media, that place is online. Through social media, businesses can tell their story and use that to drive investors (and even new customers) to support their brand. Beyond social media, marketing becomes a key component of investor acquisition. Through investor acquisition, a company is able to target investors based on demographics; whether that is people who exhibit similar behaviors to shareholders, by age, by location, or by any other meaningful factor that allows you to identify the right investor for your company. The methods to target these prospects are just as diverse. While we’ve already mentioned social media, email marketing is still an effective media channel, along with online advertising, and many more channels of marketing. The importance is to use whichever channels allow you to best reach your target audience. 

 

The key to marketing is that it helps publicize your offering and find the best investors for your company. Successfully marketing an offering, as long as advertisements are truthful and not misleading, can make a significant difference in the raise’s success. Similarly, finding the right investor acquisition partner with experience in marketing capital raising activities can help ensure you meet compliance and use the most effective strategies for reaching the right audience. 

KorePartner Spotlight: Jake Gallagher, Director of Business Development at North Capital

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners contributing to its ecosystem.

 

Jake Gallagher has always been interested in business. He wanted to know how they worked and why some were sustainable while others were not. On top of that, the private market for company offerings has presented challenges to businesses entirely separate from those faced by public offerings.

 

This has no doubt been part of the reason he works with North Capital Private Securities as the Director, Business Development. There, he works directly with issuers and helps with transactional compliance, but beyond that is the use of RegTech to streamline broker-dealer processes like KYC (Know Your Client) and accredited investor verification. 

 

The difference that makes North Capital Private Securities and Jake unique is their work in both primary issuance and the secondary market for private market shares. Jake is well versed in both, having worked with many sectors and exemptions including, Reg A and D, VC, and hedge funds. In addition, PPEX, the ATS platform that North Capital Private Securities operates, makes trading on the secondary market easier for investors and provides options for liquidity in the private capital market.

 

The most exciting thing about the current climate of the private sector is that these options have provided for extreme growth, as more investors are ready and able to participate in the offerings of private companies. While it is a small ecosystem, the changes that have come in the last few years for who can participate in private market offerings are fueling the growth of many companies that would have otherwise been on the public market before they were ready. 

 

Jake is thrilled about the partnership with KoreConX. He anticipates they will work together on primary offerings and secondary trading, bringing together a significant experience that can only benefit all involved. 

Stock Options for Employees

Posted on by Oscar Jofre

Stock exchanges have a long history within America. The first was the Philadelphia Stock Exchange, originally the Board of Brokers of Philadelphia, founded in 1790 and was followed by the New York Stock Exchange two years later. For nearly as long as the United States has been a country, they have had brokers buying and selling stocks. 

 

Since the latter half of the 20th century, however, the idea of stock options for employees has been popular as an incentive tool for employees to have a vested interest in the company’s success. For both publicly traded and private companies, offering employees the opportunity to be awarded or purchase shares is a powerful incentive. This practice has continued into the modern-day, as grantees (the employee or executive of a company) can receive the option to buy stock in the company for a fixed price in a finite time. This process also includes a vesting period, which is a period of time that a grantee will need to wait before they can exercise their stock options.

 

There are two main types of stock options, Incentive stock options (ISOs) and Non-qualified stock options (NSOs). The difference between these types is that the former is usually offered to top talent and executives while being treated as capital gains when taxed, while the latter is granted to employees of all levels and considered income when taxed after being exercised. For example, as an incentive to continue excellent performance, a company can give an employee or executive the option to buy 500 shares in the company at $5. As the name indicates, this is an option that an employee is granted the right to do, but it is not an obligation. If the employee buys the stock at $5 over the period designated by the company, the employee will then have the option to sell the share after the vesting period has passed. 

 

Most plans for employee stock options allow a percentage of stock to be sold each year. In our example, if the company allows for 20% of the stock to be vested each year, after one year, an employee will have the ability to sell the 100 shares of their stock options, and so on for each year as the stocks continue in the vesting process. The advantage for employees granted the right to exercise stock options in the company that they are working for is that they will, in most cases, receive that stock at or lower than the market price. The purpose of this is to make an employee feel like the company’s success is tied to their success as well. If they can work to further the company’s goals and raise the price of the company’s stock on the stock market, the employee can sell their stock options and make a profit. 

 

Continuing our example, if the employee has $2500 in shares in the company and the market price increases, they will make the difference. So, if the company reaches $8 per share by the time the employees’ stock is fully vested, they can sell it for $4000, for a $1500 profit. 

 

The typical scenarios for this type of stock option are in start-up companies or as incentives to bring the best talent to a larger company. For the company, the incentive does not come from the operating budget but helps to involve employees in the company’s success. The success of the company is a success for all. 

 

How to Select a Crowdfunding Platform for Your Capital Raise

Posted on by Oscar Jofre

One of the significant advancements brought to the financial sector in recent years was the enaction of the JOBS Act signed into law by President Obama on April 5th of 2012. Within that legislation contained a form of raising capital for private companies available to any American, whether they were accredited investors or not. This was Regulation CF or regulated crowdfunding.

When Reg CF was implemented, it limited the amount an unaccredited investor could invest and how much a private company could raise. In March 2021, the limit a company can raise increased to a maximum of $5 million within 12 months. Previously, before the introduction of Reg CF, it was challenging for the average investor to invest in a private company, as they did not have the capital to do so. This is now possible through Reg CF, which uses equity crowdfunding platforms to connect investors and private companies. 

Funding portals are regulated by FINRA, which imposes compliance on the organizations that provide the service and includes regulatory oversight and reporting requirements. FINRA has a list of funding portals registered and regulated by FINRA, which is the first thing to check when considering a funding portal. 

Part of the value of crowdfunding platforms for private companies is establishing demand and a proof of concept. If people are willing to invest in a Reg CF offering, it shows that people want a product or service to succeed. So, choosing the correct equity crowdfunding portal for you depends on the user base of that platform. For example, let’s look at three portals to see the differences of who is investing on those platforms. 

FanVestor is a platform predominantly for celebrities looking to raise money for a product or a charity. If, as a private company, you are among this group of people, this would be an effective platform, as investors would look here for you. In contrast, if you are a startup, you would be looking at portals like Republic or WeFunder. These two portals focus on startups, with Republic focused on real estate, video games, and crypto, and WeFunder, focused on giving small businesses and startups an alternative to venture capital and banks; their focus is “fixing capitalism.”

Look at where the investors are and what they are excited about, and then match that with your goals and vision. This is the best way to choose the right funding portal. It puts your company in the best place to raise the most capital and take your vision from dream to reality, with the backing of investors that believe in you. 

Beyond that, look to see which platform is the most beneficial for your situation. Consider how much they will charge and help you with the campaign. The purpose of working with a funding portal is to put your company, product, or service in the best possible position for success. The right crowdfunding platform will balance your weaknesses with their strength. 

KorePartner Spotlight: Dean DeLisle, Founder and CEO of Forward Progress

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners contributing to its ecosystem.

Dean DeLisle has been raising capital for the past 35 years both for himself and for other companies. He has made the transition from roadshows and bound pitch decks to sophisticated online marketing funnels. Dean’s experience has resulted in a unique approach to Investor Acquisition Marketing with his firm Forward Progress.

“People know they want to invest but need to understand more, so we place a high priority on education throughout our Investor Acquisition campaigns,” says Dean. Forward Progress helps clients build the necessary digital footprint to educate prospective investors in Regulation CF, Regulation A+, and Regulation D offerings. The building of the footprint requires many of the same strategic elements you would see in a revenue-focused campaign–content, thought leadership, advertising, and marketing automation.

The Forward Progress team stays at the forefront of digital marketing trends by participating as speakers on capital raising, marketing automation, and marketing strategy. The company boasts certifications with leading platforms like Hubspot CRM, Facebook Ads, Google Analytics, and more to make sure the issuers they support are at the bleeding edge.

The partnership with KoreConX makes sense for Dean, as both companies are dedicated to investor education and businesses alike. It fits with the DNA of both companies.

Nominee vs. Direct: How does this affect investors?

Posted on by Oscar Jofre

Today, there are many ways to buy and sell securities. For publicly traded companies, 75% of Americans are familiar with investing apps or online accounts. For private companies, many investors in companies invest with a broker-dealer and or maintain their own investments. In the first situation, an investor deals with a broker-dealer who holds the investors’ assets in a nominee account, while the second is a direct investing method controlled entirely by the investor. Both accomplish the same goal, buying or selling securities for profit or dividends, but the effect on an investor varies. 

 

A nominee is an account held by a broker-dealer, and securities owned by an investor are held as a means of separation between the broker’s business and the assets owned by the nominee account. This separation established a level of protection for the investor. In the event of the broker’s business failing, the securities held in the nominee account cannot be ascertained by any creditor claiming assets. The stocks will still be the asset of the investor, regardless of what happens to the broker. 

 

The issue that comes forth in this model is that, while regulators and exchanges review these accounts periodically, they do not get checked daily, which opens the door for a bad actor to commit fraud and move the assets without permission. For example, fraud could occur if the broker-dealer ‘borrows’ a client’s assets to keep them afloat, potentially. An even more extreme example would be if a broker was to take all of the money and run, though this is less likely. 

 

The main thing to consider is that while the investor is the beneficiary of the stock, the broker has the authority to move it and sell it on the investor’s behalf. This is why it is important to look into the investor compensation programs with a broker, and for further protection, separate your assets between multiple brokers. While this option comes with risks, the broker will ultimately handle the operations of the account. If you are working through direct investing, account operations are maintained by the investor. 

 

With direct investments, the trade-off for increased security is that an investor is responsible for buying and selling decisions. A direct stock plan can allow you to buy or sell stock in some companies directly through them without using a broker. However, according to Inverstor.gov, “Direct stock plans usually will not allow you to buy or sell shares at a specific market price or at a specific time. Instead, the company will buy or sell shares for the plan at set times — such as daily, weekly, or monthly — and at an average market price.” Both options have merit, but the choice is between complete security at the cost of time and energy. 

Using RegCF to Raise Money for a Non-US Business

Posted on by Mark Roderick

To use Reg CF (aka Title III Crowdfunding), an issuer must be “organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.” That means a Spanish entity cannot issue securities using Reg CF. But it doesn’t mean a Spanish business can’t use Reg CF.

First, here’s how not to do it.

A Spanish entity wants to raise money using Reg CF. Reading the regulation, the Spanish entity forms a shell Delaware corporation. All other things being equal, as an entity “organized under, and subject to, the laws of a State or territory of the United States,” the Delaware corporation is allowed to raise capital using Reg CF. But all other things are not equal. If the Delaware corporation is a shell, with no assets or business, then (i) no funding portal should allow the securities of the Delaware corporation to be listed, and (ii) even if a funding portal did allow the securities to be listed, nobody in her right mind would buy them.

Here are two structures that work:

  • The Spanish business could move its entire business and all its assets into a Delaware corporation. Even with no assets, employees, or business in the U.S., the Delaware corporation could raise capital using Reg CF, giving investors an interest in the entire business.
  • Suppose the Spanish company is in the business of developing, owning, and operating health clubs. Today all its locations are in Spain but it sees an opportunity in the U.S. The Spanish entity creates a Delaware corporation to develop, own, and operate health clubs in the U.S. The Delaware corporation could raise capital using Reg CF, giving investors an interest in the U.S. business only.

NOTE:  Those familiar with Regulation A may be excused for feeling confused. An issuer may raise capital using Regulation A only if the issuer is managed in the U.S. or Canada. For reasons that are above my pay grade, the rules for Reg CF and the rules for Regulation A are just different.

 

This blog was written by Mark Roderick of Lex Nova Law, a KorePartner. The article was originally published on Mark’s blog, The Crowdfunding Attorney.

What is KYP?

Posted on by Oscar Jofre

Previously, we have talked about KYC or Know Your Client. KYC is a rule from the non-profit Financial Industry Regulatory Authority (FINRA), created in the United States in 2007, in response to the growing fears of economic collapse that could come from underregulated securities firms. One part of the FINRA rule set created in 2012 is KYC (Rule 2090). Another is Rule 2111 (Suitability). It is important to mention both of these rules, as the topic for today, KYP, or Know Your Product, directly relates to them in their effort to protect investors. 

 

The KYC rule dictates that in the event of opening or maintaining an account for an investor, a broker-dealer is required to verify the investor’s identity by matching the provided material from the investor to government records. This aids the government in fighting money laundering and other financial crimes, as a broker-dealer must also review their finances for evidence of these types of crime. It also allows potential customers to evaluate broker-dealers as FINRA tracks the brokers in good standing with their organization. Finally, with suitability, a broker-dealer must use reasonable effort to understand the risk tolerance and facts about a potential customer’s financial position. This means understanding the types of products and plans an investor is comfortable making, as people of different ages and levels of wealth have different plans for their money. For instance, younger adults typically have a higher risk tolerance as they have a longer-term time horizon to work with their money. On the other end, older adults have lower risk tolerance. There is no one type of investing that works for every person, as each person has a different set of circumstances dependent on their life experiences. 

 

Where KYP comes in is a further step past just KYC and suitability. You may know the client their investment preferences, but if you do not understand the product you are investing in for your client, that information is essentially useless. Under KYP, a broker-dealer, “must understand the structure and features of each investment product they recommend. This includes costs, risks, and eligibility requirements. The KYP requirement applies to both the firm and the individual.“

 

KYP expands on the suitability requirement from FINRA by requiring a full understanding of each investment so that it fits an investor and their specific risk tolerance more effectively. This involves:

 

  • The risk level of the investment, meaning its liquidity, “price volatility, default risk, and exposure to counterparty risk” 
  • Any costs associated with fees or embedded costs
  • The financial history and reputation of the issuer or parties involved
  • Any legal and regulatory framework that applies

 

Just as it is important to know your client and understand what types of investments are suitable for regulatory and business purposes, it is important to understand the products you recommend. 

What is the Difference Between Fiduciary Responsibility and Regulatory Requirement?

Posted on by Oscar Jofre

By definition, a fiduciary is a person or an organization who holds a legal or ethical relationship of trust with another person or organization. Typically, this has to do with the responsibility or duty in a financial sense. As an adjective, it gets defined by the Oxford dictionary as “involving trust, especially with regard to the relationship between a trustee and a beneficiary.” The word gets most commonly used when stating that a company has a fiduciary duty to its shareholders. In practice, this means that the company has an ethical and legal responsibility to act in the best interest of its investors. For example, the company and its executives need to protect a shareholder’s financial investment in that company and is an example of a duty of loyalty. Included also is a duty of care, which indicates that a fiduciary will not back away from their responsibility.

 

Fiduciary duties do not just relate to the financial sector. For example, a lawyer has a fiduciary duty to their client to act in their best interest, but we will focus on the financial sector. Fiduciary responsibility in finance is a relationship between two non-governmental entities. In contrast, a regulatory requirement is a rule that a government or government-related organization imposes and enforces onto an organization.

 

Many governmental organizations impose regulations on the financial sector, like the Office of the Comptroller of the Currency or the Federal Reserve Board. The governmental-related organizations are the Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission (SEC). We have previously discussed the regulations passed by both FINRA and the SEC in preceding blogs, which detail those processes well.

 

Both fiduciary responsibility and regulatory requirements can result in legal action if there is a breach in conduct, but the actors and stage are different. With fiduciary responsibility, the beneficiary of the fiduciary duty would file suit against the trustee in civil court who knowingly or unknowingly failed in their duty. This is a relationship between non-governmental actors, so in this case, a person litigating against an organization or vice versa.

 

On the other side, regulatory requirement gets dictated by a government entity like the SEC or OCC suing a company or individual for failing to comply with the law. This suit would land in criminal court, with punitive fines, damage to their reputation, and sanctioning. For example, in California, you need to be a registered broker-dealer for a Regulation A+ offering. If you decide as a company to ignore this law, the state regulator can, and will, require you to return all money raised, and you can get barred from raising money in the state. You will get labeled as a bad actor, which will damage the reputation of your business.

 

While fiduciary duty and regulatory requirements are different in terms of the responsibilities, actors, and negative consequences involved when failing to comply, they are critical to follow and maintain.

What are Options?

Posted on by Oscar Jofre

Like warrants, options are a form of security called a derivative. As a derivative’s name suggests, these securities gain their value from an underlying asset. In the case of options, this is the underlying security. 

 

There are typically two primary forms of options; call options and put options. Both are governed by contracts; a call option allows the holder to buy securities at a set price while a put option allows them to sell. However, options contracts do not come for free. They can be bought for a premium, which is a non-refundable payment due upfront. Once options have been purchased, the holder has a certain amount of time during which they can exercise their options. On the other hand, options do not require the holder to purchase the shares contracts allow. When options are exercised, the price paid is referred to as the strike price.

 

In buying call options, the holder is guaranteed to buy securities at a certain price, even if the underlying security significantly increases in price. A put option works more like an insurance policy, protecting the holder’s portfolio from potential downturns. If a security was to decrease in price, the shareholder would be able to sell at a set price specified by their option contract, even if the market price was to fall lower than what the option allows it to be sold at.

 

In addition to being a way to minimize investment risks and maximize profits, options are becoming a popular incentive for employees, especially in startup companies when looking to attract employees. In addition to options that can be bought, options also refer to the ones issued to employees by their employer. This gives employees the chance, but not the obligation, to buy shares within a specified time. Employee stock options either come as an Incentive Stock Option or Nonqualified Stock Options, with the difference being the tax incentives that go along with exercising the options. 

 

Whether you have call or put options, they are a useful way to protect your portfolio from downsides or benefit from being able to purchase more shares at a discounted price. They are just one of the many forms of securities available, which should be considered carefully when making investment decisions.

What is a Virtual Data Room?

Posted on by Oscar Jofre

Every way that we do business is changing on what seems a daily basis. In just the last year, we have seen a public health crisis push everyone into their homes to work in the interest of public safety. Along with that change, there was also a change needed in the IT departments to ensure that remote connections were secure. What we have seen in the time of the pandemic is that cyberattacks have increased as remote access has created openings. We have seen two notable attacks already this year, one on Colonial Pipeline and another on the South Korean Nuclear institute, KAERI.

 

However, this is not to say the whole world is doom and gloom on the cybersecurity side, as there are ways to protect yourself, especially as companies continue going virtual. Previously, in the event of an M&A transaction, loan syndication, or private equity and venture capital transactions, the actors in these transactions would meet in a physical, secured room to do the due diligence process and access important documents. In this physical room, extensive surveillance and logs track who has been in and out and what they viewed, costing money and time. In addition, parties outside the company that owns the documents would need to arrive at the physical location to view them, again, costing time and money. 

 

The answer to this, as the business world tends to find, is a move towards virtual storage options called a virtual data room. Virtual data rooms have become a widespread solution to the problems detailed above. Through an extranet or a virtual private network (VPN), these systems are secure by limiting access via the internet to specific users at specific times. If a deal falls through or a specified task gets completed, access can easily be revoked.

 

Highly sensitive data usually gets stored in a Virtual Data Room, a level of protection necessary as cyber threat numbers escalate. Beyond the security, these data repositories generally include a log that details each person’s activities with the sensitive files. Like the move to remote work, which has increased the availability of skilled employees, virtual private rooms open up a business to a global market of potential deals. No longer are businesses limited by their ability to feasibly transport a person and their team to a physical room and then have a place for them to stay while discussing a deal. 

 

The main goal of a Virtual Data Room is to provide a centralized access point to a large volume of sensitive and secure documents needed for the most paperwork-intensive processes. While a physical room removes the chances of a cybersecurity attack completely, it also poses certain disadvantages that contrast the wealth of opportunity created by a Virtual Data Room.

What is KYC?

Posted on by Oscar Jofre

In 2007, the SEC approved the founding of the non-profit Financial Industry Regulatory Authority (FINRA). FINRA was created in the wake of a failing economy to consolidate the regulation of securities firms operating in the United States. The authority’s responsibilities include “rule writing, firm examination, enforcement, arbitration, and mediation functions, plus all functions previously overseen solely by NASD, including market regulation under contract for NASDAQ, the American Stock Exchange, the International Securities Exchange, and the Chicago Climate Exchange.”

The mission is to safeguard the investing public against fraud and bad practices. To fulfill this mission, FINRA added two rules in 2012: Rule 2090 (KYC or Know Your Client) and Rule 2111 (Suitability). 

KYC works in conjunction with suitability to protect both the client and the broker-dealer and help maintain fair dealings between the parties. The Know Your Client rule is a regulatory requirement for those responsible for opening and maintaining new accounts. This rule requires broker-dealers to access the client’s finances, verify their identity, and use reasonable effort to understand the risk tolerance and facts about their financial position. 

KYC is an important rule as it governs the relationship between customer and broker-dealer and safeguards the proceedings. At the heart of this rule is the process that verifies the customer’s identity (or any other account owners) and assesses their risk level. Part of FINRA’s goal is to eliminate financial crime, which means that when a broker is accessing a potential customer, they are looking for evidence of money laundering or similar crimes. This process goes both ways as FINRA allows a customer to verify the identity of brokers in good standing with the organization.

KYC also goes hand-in-hand with the Anti-Money Laundering (AML) rule, which seeks to identify suspicious behavior, outlined under FINRA rule 3310. Crimes such as terrorist financing, market manipulation, and securities fraud are illegal acts that KYC, AML, and other rules aim to prevent.

Another part of the Know Your Client rule is the requirement of a broker-dealer to use reasonable effort to understand a client’s risk tolerance, investment knowledge, and financial position. For example, accredited investors can make Regulation CF and A+ investments without facing restrictions, while the everyday investor is limited based on their net worth and income. 

When making recommendations for a client, a broker-dealer must comply with Rule 2111, the suitability rule, which means that they must have reasonable grounds for this suggestion based on a review of the client’s financial situation.

Compliance with these rules is maintained by following policies and best practices that govern risk management, customer acceptance, and transaction monitoring. Due diligence is done to know a client needs to be recorded, retained, and maintained so that broker-dealers can continuously monitor for suspicious or illegal activity. In 2020, FINRA processed 79.7 billion market events every day and imposed $57 million in fines. 

What Forms of Alternative Finance are Available?

Posted on by Oscar Jofre

Starting a business can be difficult. Most young companies enter the scene with little capital to help them grow. Taking a loan out from the bank is a good start, but some options can end in higher rewards without a loan hanging over your head. These are alternative finance options, like raising seed capital from friends and family, angel investors, or crowdfunding. Today, we will explore forms of alternative finance available to you as a private company and where in the life cycle of your business they may appear. 

Friends and Family

In the early stages of your company’s business life cycle, raising capital from family and friends is a great place to start securing safe, additional funding if you are able. When your family and friends are early investors, they are not required to register as such, making it easy for them to help your growing company. In this stage of your company’s development, entrepreneurs will want to retain as much equity as possible. Friends and family investors make this possible without needing to give up part of a growing company. 

As you begin to accelerate your business plans, there are several avenues available that can help you raise significant capital and increase your valuation if (or when) you plan to offer your company later on the public market.

Angel Investors or Venture Capital Firms

As a private company, one of the traditional ways for you to raise capital is through an angel investor, a wealthy individual, or a venture capital firm, a group of investors that invest in companies on behalf of their clients to make them money. Both of these investors will generally invest early, requiring equity and hoping for a successful return on investment later on. 

Peer-to-Peer Lending 

Peer-to-peer lending is a pretty straightforward form of alternative finance. Typically, through online platforms, investors can enter a pool of lenders, which a borrower can pull from and then repay. This form of investment cuts out the bank as the middleman, which opens up access to companies that may not have good credit. 

Crowdfunding

Crowdfunding is a great mechanism for investments that build a company’s proof of concept because crowdfunding success relies on having a product or service people want or believe in. As the name would imply, crowdfunding is sourcing small investments from a large number of investors and falls into one of two categories rewards-based or equity-based offerings. 

Rewards-Based Crowdfunding

Rewards-based crowdfunding is an investment that expects compensation in the form of the product a company is producing. A good platform for this form of crowdfunding is Kickstarter. You will often see independent video game developers or small business owners looking to raise capital for a particular product and offer rewards based on how much an investor invests. 

Equity-Based Crowdfunding or Regulation CF

Regulation CF is a crowdfunding tool regulated by the SEC signed into law in 2012. However, it has recently expanded to allow more investing opportunities. The JOBS Act allows non-accredited investors to invest in private companies in exchange for equity in the company. More specifically, for investors with either a net worth or annual income less than $107,000, investments in Reg CF offerings are limited to $2,200 or 5% of the greater of their annual income or net worth. 

This tool allows companies to raise as much as $5 million in 12 months from many investors. In 2020, 358,000 investors participated in Reg CF campaigns. 

Regulation A+

Another method of allowing companies to have non-accredited investors invest in their companies is Regulation A+, by exempting the offering from SEC registration. Many companies have begun to offer securities through the RegA+ exemption following a successful RegCF raise. Proceeding this way will elevate your chances of raising more money, up to $75 million annually, because the Regulation CF will show potential investors that the products or services offered by the company are of great interest to many individuals. It is important to note that non-accredited investors are limited to investing 10% of their annual income or net worth, whichever is greater.

 

There are many avenues of alternative finance to investigate before going to a traditional financing option as a private company. We encourage you to look into all of these types and see which is right for you and your business. 

 

Warrants for RegA+

Posted on by Oscar Jofre

For private companies looking to raise capital through exemptions such as Regulation A+, Regulation CF, or Regulation D, there are many forms of securities that they may be able to issue to investors. Lately, there has been much buzz around warrants for RegA+ offerings and we are seeing them issued to investors as an equivalent to a perk. With the growing interest in this type of security, let’s explore what a warrant for RegA+ is. 

 

When a shareholder purchases a warrant, they are entering into a contract with the issuer. They purchase securities at a set price but are given the right to buy more securities at a fixed price. For example, if an investor was to buy a security at $1 apiece, but their warrant allows the shareholder to buy securities at a future point for $2 instead. If the company was to significantly increase in value, and securities were valued at $5 instead of the initial $1 they were purchased at, the warrant could be exercised and new securities can be purchased for the price specified in the contract. Such securities are typically sought after by investors who think the company they’ve invested in will significantly increase in value, allowing them to increase their ownership in the company without having to buy securities at a new, higher price. Typically, warrants have an expiration date, but they can be exercised anytime on or before that date. 

 

Warrants for RegA+ work no differently. 

 

For companies offering warrants to shareholders, many will choose to enlist a warrant agent to oversee the management of warrants. Much like a transfer agent, warrant agents maintain a record of who owns warrants as well as the exercising of the warrants. When there is a significant number of warrant holders, warrant agents maintain the administrative duties of ensuring warrant holders can exercise their rights and are issued additional securities when they are looking to do so. Just as KoreConX is an SEC-registered transfer agent, KoreConX can serve as your warrant agent as well. This allows you and your shareholders to perform all transactions, from the initial purchase to the exercising of the warrant, through the RegA+ end-to-end platform. Fully compliant, KoreConX helps you to ensure that all your capital market activities meet the necessary regulatory requirements.

 

For warrant holders looking to exercise their warrants, they can contact the warrant agent (if they bought shares directly from the company) or their broker-dealer to inform them that they would like to purchase additional securities. At the time of the purchase, the warrant holder would pay to exchange their warrants and be issued the appropriate amount of new securities. 

 

Warrants are also able to be traded or transferred. For example, warrant holders could transfer their securities to a child or relative if they were looking to pass them down. Alternatively, warrant holders can sell them to an interested buyer. If the company’s value has yet to exceed the warrant price, they are typically less valuable because shares may still be able to be purchased at a lower price. 

KorePartner Spotlight: Douglas Ruark, Founder and President of Regulation D Resources

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

 

Douglas Ruark, the Founder and President of Regulation D Resources, has always been fascinated by the mechanisms and document structure used to syndicate capital. Starting his career nearly 30 years ago in corporate finance when he co-founded Heritage Finance, Inc. in 1992. Seven years later, he served as a primary founder of Regulation D Resources. The firm works primarily within the real estate, energy, tech, and manufacturing industries.

 

With Regulation D Resources, Ruark uses his expertise to help raise money for those industries through the Reg D and Reg A+ exemptions. This experience makes a difference when crafting SEC-required disclosures, evaluating proper exposure on the market, and analyzing clients’ business positions.

 

The fun part for Ruark is the deals with entrepreneurs that have developed technology that can have a significant impact and be a game-changer. He said: “I love seeing what entrepreneurs have developed.” That is why his company focuses on Reg D and Reg A+, helping companies structure their securities offering, and drafting offering documents. The company is determined to help entrepreneurs cross the line into the market so they can grow and succeed.

 

What Ruark enjoys about his partnership with KoreConX is the responsiveness of the staff. He said: “Oscar immediately reached out and set up a call to introduce services.” KoreConX has the same drive and vision that Ruark sees in other entrepreneurs. Plus, KoreConX’s application of tech to streamline compliance aligns with the goal he set out when developing Regulation D Resources’ Investor Portal Compliance Management application.

What is RegTech?

Posted on by Oscar Jofre

In the wake of the 2008 economic crisis and the subsequent recession that followed, there was a push to create new regulations to govern financial institutions in the United States. With these regulations came requirements that businesses had to follow to be compliant with the new laws. What followed the new regulations was a rise in companies offering services to help companies manage compliance easily and efficiently, both in time and cost. This is the purpose and application of RegTech.

RegTech, or Regulatory Technology, is more specifically the use of technology to manage regulatory processes within the financial industry. The goal of companies that offer RegTech is to use cloud computing, machine learning, and big data to drive automation and lift a majority of the burden of complicated compliance requirements of the compliance teams in businesses, to reduce human error, and accomplish difficult tasks more efficiently. As regulations become more robust and regulators are demanding more transparency in the forms of auditability, traceability, and automation, a company that is required to comply with a lot of regulations cannot easily subsist without some form of RegTech to help them avoid the risk of sanctions.

RegTech services help to compile large amounts of data in secured and compliant ways, as well as comb that data for risks to the organization. While these services affect the budget of a company, it is arguably canceled out by the amount of time and energy saved by simplifying the complex processes. 

For example, let’s say a bank was previously doing all of their regulation audits manually, scanning the compliance law and solving what pertains to them, what they need to do, and how they need to do it to be compliant. While they could feasibly do this, it will take a considerable amount of time if the compliance officer tasked with this job is not a master of the laws pertaining to their enterprise. Then, following that long process, the bank will need to show the reporting, who did the reporting, when it was pulled, and keep the information secured. 

This type of manual process is solved by RegTech. Not only will your data be secured, but it will also be accessible and timestamped, so you can demonstrate who complied, how they complied, and when they complied by logging all of the actions a user takes and creating a trail.

This is one example of how RegTech helps in a compliance situation, but it is also used by regulators to help reduce the time it takes to investigate compliance issues. While these are the more well-known aspects of RegTech, it also helps in many more categories within the financial sector, such as:

  1. Reporting
  2. Anti-money Laundering 
  3. Compliance
  4. Governance
  5. Risk Management
  6. Management and Control 
  7. Transaction Monitoring

As the financial industry continues to rely more and more on data and technology, RegTech will continue to grow to keep up with the demand for more applications from companies and regulators alike. 

What is Regulated Crowdfunding

Posted on by Oscar Jofre

On April 5th of 2012, President Obama signed into law legislation called the JOBS Act. Four years after that act was signed, Title III of the JOBS Act was enacted. This was Regulation CF, which allows for private companies in their early stages to use crowdfunding to raise money from any American, not just accredited investors. This opened the doors with funding portals for companies to trade securities to a larger pool of investors to raise needed growth capital and allow average people to benefit from the possibility of investing in an early-stage company.

When it was first implemented in Spring 2016, Reg CF allowed companies to raise a maximum of $1.07 million within 12 months. Now, with new amendments added to the law by the SEC that went into effect in March 2021, companies can raise a maximum of $5 million. You may be familiar with the idea of crowdfunding with the success of websites like Kickstarter, and this works similarly. Instead of donation tiers that would award you merchandise from the campaign, investing in a private company with Reg CF will give you securities or equity in the companies. Previously, the barrier for entry into this investment type was very high, as you needed a lot of capital to invest in a private company. 

The new amendments still have a limit on how much a particular individual can invest when it comes to non-accredited investors but removed the limits on accredited investors. More specifically, for investors with either a net worth or annual income less than $107,000, investments in Reg CF offerings are limited to $2,200 or 5% of the greater of their annual income or net worth.

Reg CF is typically used for early-stage startups to build capital and has significantly changed the road map for entrepreneurs, allowing them to look to crowdfunding options before venture capital investments. Because the cost and barrier to entry for Regulation CF lower than with Reg A, many companies are using this after their first round of funding to prove the viability of their concepts and build a business. Then after a successful Reg CF, raising up to $5 million, this proves that there is interest in what you are building. In turn, this improves your valuation and allows for a much more successful Reg A campaign that could help you raise even more capital. 

There is a significant benefit to everyone involved in a Reg CF. The companies running the campaign are raising money to prove their viability, fuel the growth, and democratizes capital, allowing everyday Americans to participate in a system that was until recently closed to them. In 2020, 358,000 investors participated in Reg CF campaigns, a significant increase from the 15,000 investors participating in 2019. RegCF is a way for Americans to diversify their investment portfolio. They can grow as an investor by investing in a private company with a much lower entry cost.

With Reg CF garnering much success for both investors and issuers alike, it will be exciting to see how it continues to evolve in the future. We may see even higher raise limits, further expanding access to capital, increasing the number of American jobs, and further democratizing investment opportunities.

 

What is the role of a board director?

Posted on by Oscar Jofre

When thinking about corporate governance, the first roles that often come to mind are the executive officers like the CEO or CCO. These roles are often responsible for the day-to-day operations of the company, keeping things running smoothly, with other roles reporting to them. However, the board of directors is just as important as they look out for the interests of shareholders. 

The role of a board of directors is to provide company oversight, ensuring that the company is operating in the best interests of shareholders. Decisions that the board of directors is responsible for include hiring or firing company executives, creating policies for dividends and options, and determining executive compensation. The board also generally ensures that the company has the right resources in place to operate effectively. The board of directors is governed by company bylaws, which include the process for selecting directors and what their duties entail.

The board is made of elected members called board directors. The shareholders must elect directors as voting rights are generally included as part of their rights as a shareholder. Shareholders are allowed to vote on board directors during annual shareholder meetings. Generally, board director terms are staggered so that only a few are elected each year, rather than needing to elect an entirely new board whenever elections are required.

Board directors are responsible for upholding the foundational rules outlined in company bylaws. Failure to do so can result in their removal from the board. Actions that may necessitate a director’s removal may include using inside information for personal gain, making deals that are a conflict of interest to shareholders, using their powers as a director for things other than the financial benefit of the company, and other actions that would be detrimental to shareholders.

There are typically three types of directors; inside, outside, and independent directors. Inside directors are typical representatives of company management and shareholders and may include company executives or major shareholders. Outside directors are not involved in the company’s day-to-day decisions, making them more objective and help strike a balance between inside directors but are generally compensated for attending board meetings and carrying out their duties. Independent directors are required to not have any ties to the company; for example, a relative of a company executive would be ineligible for this role.

It is important to ensure that board directors diligently follow the bylaws that govern them to ensure they always are acting in the best interests of the company’s shareholders. The board serves as a check and balance with the company’s management. Shareholders should also take their right to vote seriously, executing whenever possible to ensure that they are protecting their investment in the company. 

 

Reg A and Reg CF Issuers: Time to Count Your Shareholders!

Posted on by Sara Hanks

Reg A and Reg CF have been around for a few years now and we are finding that some of our clients, especially those that have made multiple offerings, are getting to the point where they need to consider the implications of Section 12(g) of the Securities Exchange Act, which requires companies to become registered with the SEC when they meet certain asset and investor number thresholds.

Let’s start with the requirements of Section 12(g). It says that if, on the last day of its fiscal year, an issuer has assets of $10 million and a class of equity securities held of record by either 2,000 persons or 500 persons who are not accredited investors, it has to register that class of securities with the SEC.

Drilling down on each of those elements:

  • Assets: This is gross, not net, and it will include any cash that a company has raised in an offering but not spent yet.
  • Class of equity securities: Issuers with multiple series of preferred stock or multiple series in a series LLC will need to talk to their lawyers about what constitutes a separate “class.”
  • Held of record: Brokers or custodians holding in “street name” count as a single holder of record. Crowdfunding SPVs created under the SEC’s new rules also count as one holder, and as discussed below, there are special, conditional, rules for counting Reg A and Reg CF investors.  But check with your lawyers whether you need to “look through” SPVs formed for the purpose of investing in Reg D offerings.
  • Accredited status: Issuers are probably going to have to make assumptions as to the accredited status of their investors unless they maintain that information separately, and assume investors in Reg D offerings are accredited, and investors in Reg A and Reg CF offerings are not.
  • Registering a class of securities in effect means filing a registration statement with all relevant information about the company and becoming a fully-reporting company. This includes PCAOB audits, quarterly filings, proxy statements, more extensive disclosure and all-round more expensive legal and accounting support.

Since becoming a fully-reporting company is not feasible for early-stage companies, both Reg A and Reg CF are covered by conditional exemptions from the requirements of Section 12(g). The conditions for each are different.

Issuers need not count the holders of securities originally issued in Reg A offerings (even if subsequently transferred) as “holders of record” if:

  • The company has made all the periodic filings required of a Reg A company (Forms 1-K, 1-SA and 1-U);
  • It has engaged a registered transfer agent; AND
  • It does not have a public float (equity securities held by non-affiliates multiplied by trading price) of $75m, or if no public trading, had revenues of less than $50m in the most recent year.

Issuers need not count the holders of securities issued in Reg CF offerings (even if subsequently transferred) as “holders of record” if:

  • The company is current in its annual filing (Form C-AR) requirements;
  • It has engaged a registered transfer agent; AND
  • It has total assets of less than $25m at the end of the most recent fiscal year.

It’s important that the issuer’s transfer agent keep accurate records of which exemption securities were issued under, even when they are transferred. As of March 15, 2021, Reg CF also allows the use of “crowdfunding vehicles”, a particular kind of SPV with specific requirements for control, fees, and rights of the SPV in order to put all of the investors in a Reg CF offering into one holder of record. This is not available for Reg A, and still comes with administrative requirements, which may make use of a transfer agent still practical.

If an issuer goes beyond the asset or public float requirements of its applicable conditional exemption, it will be eligible for a two-year transition period before it is required to register its securities with the SEC. However, if an issuer violates the conditional exemption by not being current in periodic reporting requirements, including filing a report late, then the transition period terminates immediately, requiring registration with the SEC within 120 days after the date on which the issuer’s late report was due to be filed.

It’s good discipline for companies who have made a few exempt offerings and had some success in their business to consider, on a regular basis, counting their assets and their shareholders and assess whether they may be about to lose one or both of the conditional exemptions and whether they need to plan for becoming a public reporting company.

What Impact Will Blockchain Have on Private Markets?

Posted on by Oscar Jofre

Blockchain has become a familiar buzzword, especially as things such as cryptocurrency grow in popularity. Currently, 46 million Americans now own Bitcoin. However, blockchain has many more industry-changing applications. Nearly any asset, both tangible and intangible, can be tracked and traded through blockchain. 

 

Blockchain, also known as distributed ledger technology, is a database where transactions are continually appended and verified across by multiple participants, ensuring that each transaction has a “witness” to validate its legitimacy. Blockchain transactions are immutable, meaning that they cannot be changed, making it difficult for hackers to manipulate. Copies of the ledger are decentralized, not stored in one location, so any change to one copy would immediately make it invalid, as the other copies would recognize that it had been altered. 

 

In private markets, blockchain technology has the potential to become a powerful tool, replacing manual inefficiencies with secure, digital processes. Everything from issues certificates to shareholders and preparing for audits becomes easier with transparent, readily available records. While public blockchains, like those that host Bitcoin transactions, enable anyone to participate, companies can also establish private and permissioned blockchains. In these forms of blockchain, the ledger is still decentralized, only access is controlled and only authorized individuals are allowed to participate. 

 

Rather than traditional securities, private companies can use distributed ledger technology to offer shareholders digital securities instead. These securities are still SEC-registered or fall under exemptions like Regulation A and Regulation CF. Digital securities protect investors, enabling them to always be able to prove their ownership, and companies are protected from the possibility of losing records of their shareholders. Private companies also benefit from blockchain as records are already transparent and readily available. Rather than hiring an advisor to review company documents, private companies employing blockchain technology will have records ready to go when conducting any capital market activity. Blockchain also dramatically reduced the amount of manual paperwork, since digital securities can be governed by smart contracts that preprogram protocols for their exchange. In addition, blockchain makes it easier for private companies to share information and data, while shareholders can feel confident that records are immutable and unable to be tampered with. 

 

Many companies are still in the early stages of adopting blockchain or are just beginning to consider its possibilities. Blockchain will only continue to be adopted by private companies both in the United States and around the world, improving the processes associated with private market transactions. The private market will benefit from increased transparency and efficiency, making transactions smoother for both companies and their shareholders.

KorePartner Spotlight: Brian Belley, Founder and CEO of Crowdwise

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

 

Brian Belley, founder and CEO of Crowdwise, has always been passionate about investing and alternative investments. By training, Brian is an aerospace engineer, but the JOBS Act represented the culmination of his interests. He took this as a great opportunity to build a platform providing a wealth of information centered around crowdfunding.

 

At Crowdwise, the primary service is free educational material for investors through courses and industry data on crowdfunding and early-stage investing. From his own experience and education on private investments, Brian understood what was most applicable to investors. The goal is to make this information easily digestible, translating data into the essentials that can be understood by new investors. Brain’s specialty lies in tech and early-stage startups, as well as analyzing industry data and trends. 

 

The private capital market is particularly existing for Brian because of the opportunities he foresees. In two to five years, the space will likely look completely different as it continues to be democratized and open to new investors. There are increasing opportunities for investors to build a diversified portfolio with broad investment types. At the same time, more investment opportunities for the everyday investor will lead to more access to capital, and new businesses will be able to come into existence because of it. 

 

Brian is excited about Crowdwise’s partnership with KoreConX, saying that it is completely about cooperation and building an ecosystem. He said: “not everyone has to be a competitor.” As more people continue to drive the private market forward, it will benefit everyone in the space, both investors and companies alike.

What is Portfolio Management?

Posted on by Oscar Jofre

Portfolio management, at its most basic level, is the way that an investment portfolio is designed to align with the wants and needs of the investor. Portfolio management focuses on creating an investment strategy that factors in the goals set by the investor, the timeframe involved in the investment, and the risk tolerance of the investor.

 

This is done by picking a variety of kinds of investments like stocks, bonds, and other funds and monitoring and adjusting them as needed. There are two ways that portfolios are managed: actively and passively. Often, this will be decided by the risk tolerance that a specific investor has. With Regulation A+ and Regulation CF, the everyday investor can choose to invest in private companies as well, which significantly expand opportunities to be a part of new and exciting investments.

Active portfolio management is a hands-on approach that involves hiring portfolio managers who buy and sell stocks intending to outperform investment benchmarks. To try and outperform these benchmarks, portfolio managers have to take some risks in the investments they make. Some of these risks lead to big rewards, but as with all risks, they can also lead to large losses to the investor. Portfolio managers have a fiduciary responsibility to act in good faith regarding the investment, and also have fees attached to them based on the size of the portfolio and the return on investment of the portfolio. 

 

Passive portfolio management is a mostly hands-off approach where the investor is trying to match investment benchmarks rather than trying to outperform them. Portfolios that are managed passively are frequently managed by the investor, so no fees are going to a portfolio manager. Instead of buying and selling specific stocks, passive portfolios are usually invested in exchange-traded funds, index funds, or mutual funds. This is a very low-risk approach that values slow and consistent growth over time, making it a great long-term investment strategy.

 

There are four pillars in portfolio management: asset allocation, diversification, rebalancing, and tax minimization. Asset allocation is the practice of spreading your investment into a variety of different assets like stocks, bonds, and mutual funds. Good asset allocation means that an investor takes on a smaller amount of risk because investments are protected due to the various places that assets are allocated. Diversification is about making sure that investors don’t put all of their eggs in one basket, because if that investment fails, there is a lot of money to be lost.

 

Rebalancing is done every so often as a way to hit the reset button on asset allocation. Over time, some investments might be doing very well, while others might be doing very poorly. To maintain a low-risk nature, it is important to sell both assets that are doing well and ones that are not. Over time, market fluctuations might cause a portfolio to get off course from the goals that were originally set, so rebalancing keeps the train going down the right track. Tax minimization focuses on trying to keep as much of the money that your investment made as possible. Capital gains get taxed differently depending on what investments they came from and where. Investments in exchange-traded funds or mutual funds, for example, get taxed at a much lower rate than investments in stocks. The goal is to keep as much money as possible!

 

Whether you’re saving for your first house or saving for your dream house, good portfolio management will result in investors being able to set, meet, and surpass their financial goals. The right portfolio management strategies will help to build a worthwhile return.

 

What is a Minute Book and Why is it Important?

Posted on by Oscar Jofre

Unlike the name suggests, a minute book is by no means minute. As a business grows, a well-kept minute book becomes an essential record of all important company meetings and allows for the information to be easily accessed when required. With an up-to-date minute book, it makes it easier for companies to keep track of resolutions that affect financial transactions. If the company is ever audited, the minute book provides all the necessary information and references to documents in one place. Let’s break down what exactly you should find in a proper minute book.

 

A minute book should have the company’s certificate of incorporation that serves as proof of the company’s registration. This includes information such as the business’s address, company directors, voting rights, and the company’s purpose. The minute book should also have the company’s bylaws or the rules and regulations that the company and its officers must adhere to. Maintaining a record of bylaws ensures that the company is following the rules they have set to operate by.

 

The minute book typically contains the criteria by which the company’s Board of Directors and officers are chosen. For the Board of Directors, this may include how many are on the board and how long they are to serve.  For officers, it may include which ones are required for the company. In this section of the record, documents can also maintain a record of those who have previously served as a director or officer for the company. Additionally, the minute book should keep track of any meetings or communication with board members.

 

Maintained in the minute book is a record of shares and shareholders. Stock options granted to employees are kept track of, along with the number of shares the company is authorized to sell. Ensuring the company knows the limit to the shares they are legally allowed to sell is very important and is outlined in the certificate of incorporation. Additionally, companies usually maintain a record of any documents they’ve filed in their minute book. Having all documents filed in a common location makes them easier to track and refer back to when needed. Kept in this collection of documents are also various reports, whether they’re annual or special, so that they are easily accessed by authorized parties.

 

While keeping track of all of this information may seem like a daunting task, it is made easier by companies such as KoreConX. Integrated into its all-in-one platform, the KoreConX Minute Book ensures that all company documents are easily located and kept up-to-date. With all documents in a central location, both legal and board members can edit the material directly, without worrying about various versions that might exist offline. This consistency provides companies the ability to better manage their documents, ensuring that everything is accurate and easily accessed when needed.

 

An understanding of what goes into a proper minute book can help your company achieve success and transparency in business. In any situation where essential company documents are necessary, having them readily available cuts down on delays and frustration, making it a smoother process for everyone involved.

What is 409(a) and Why Does My Company Need it?

Posted on by Oscar Jofre

Whether your company is a new startup or an established private company, understanding and proper use of a 409(a) is essential to your company’s success. Thinking about it early will help you avoid potential setbacks and challenges later on, giving you more time to focus on growing your company, rather than tackling penalties. If that doesn’t convince you that a 409(a) is something that your company needs, a better understanding of what it is will convince you. 

 

To start with the basics, what is a 409(a)? First added to the Internal Revenue Code (IRC) in 2005, 409(a) outlines the taxation on “non-qualified deferred compensation,” which includes common stock options for employees. For companies to be able to offer their employees the ability to purchase stock in the company, they must complete a 409(a) valuation to determine the “strike price,” or the predetermined price at which employees can purchase the stocks. 

 

Undergoing a 409(a) valuation ensures that the strike price is at or above the fair market value and that the company remains compliant with the IRC. For companies who the IRS find to be noncompliant with the code, some penalties include an additional 20% tax penalty and penalty interest. 

 

So, how do you ensure that your company accurately determines the fair market value of your common stock? This can be done a couple of ways, either by someone within the company or by a third-party valuation firm. Whether you’re planning on completing 409(a) valuation in-house or hiring a firm, there are a few key things to keep in mind. 

 

For valuations done in-house, whoever is chosen must have at least five years of experience related to valuation. Since this can be subjective, the IRS could rule that the individual did not meet the requirements and that the valuation is inaccurate. Additionally, only private companies that are less than 10 years old can choose to complete their valuation in-house. It is also important to remember that if the IRS were to investigate, it would be the company’s responsibility to prove their valuation was correct. 

 

Hiring an outside firm, while often the more costly option, is usually more reliable. As long as the firm maintains a consistent approach to valuations and is independent, meaning that the firm is only providing the company with valuation, the company is given “safe harbor” protection. A safe harbor protects both the company and its employees, as it would be the IRS’s responsibility to prove that the valuation was inaccurate. 

 

Once your company has received its 409(a) valuation, how long does that last? It is considered to be valid for one year after the valuation. After that, it must be redone to ensure compliance. If your company closes a round of funding or undergoes any material changes before that period is up, a new 409(a) valuation would be required. 

 

Armed with the knowledge of what exactly a 409(a) is, you can help your company achieve success and maintain IRC compliance. Even early on, being compliant with tax codes ensures you avoid severe penalties and expensive delays should the IRS decide to audit your company as it begins generating revenue. 

 

What is Alternative Finance?

Posted on by Oscar Jofre

By definition, alternative finance includes any financing source outside of the traditional realm of the traditional finance systems like regulated banks and stock markets. Such methods include raising seed capital from friends and family, angel investors, venture capital firms, peer-to-peer lending, or crowdfunding. In contrast, traditional finance options require companies to apply for loans from a regulated bank or publicly offer stocks for sale to the public.

For companies in their earliest stages, raising capital from family and friends is often a safe way to secure additional funding. Friend and family investors are not required to register as investors, unlike traditional investors, making it easy for them to contribute to a growing company. Often founders do not need to relinquish equity to friend and family investors, allowing founders to retain as much equity as possible through their early stages.

If a company requires more financial resources, its next options may be angel investors and venture capital firms. With angel investors, wealthy individuals invest using their own money and meet the SEC’s accredited investor requirements. It is quite common for angel investors to act as a mentor to the companies they invest in, anticipating that it will help them secure a return on their investment. Venture capital firms often invest in startup companies that display the potential for a successful return and are SEC-registered and regulated. Rather than investing their own money, they invest money from other investors to generate profits for the investor. Typically, venture capital firms request equity so that they can have a share in the company’s development.

Another alternative form of financing is through peer-to-peer lending. Typically through online platforms, applicants are matched with lenders who are typically individual people. Interest rates are usually low and are not regulated by traditional banks. Platforms assess borrowers for risk to determine if they are eligible to invest.

One of the fastest-growing forms of alternative finance is crowdfunding and can include both rewards-based and equity-based offerings. With rewards-based crowdfunding, investors invest to be compensated with products that the company offers. Equity crowdfunding allows investors to exchange their investments for equity in the company. Equity crowdfunding is supported by Regulation CF, which allows private companies to raise up to $5 million from non-accredited investors, usually done online through the various crowdfunding portals presently available or a broker-dealer. Crowdfunding is extremely valuable in that it allows avid brand supporters to become investors and become an advocate for the companies they love. For non-accredited investors, the maximum investment per year is either $2,200 or 5% of their annual income, whichever is greater.

Regulation A+ is another method allowing companies to receive investments from non-accredited investors by exempting the offering from SEC registration. Companies can secure up to $75 million annually through this method of funding. Non-accredited investors are limited to investing 10% of their annual income or net worth, whichever is greatest.

The variety of alternative finance options are attractive to companies who would like to go routes other than a traditional bank loan or those who may not be eligible for one.

What is Due Diligence?

Posted on by Oscar Jofre

When it comes to investments of any kind, due diligence is essential for both issuers and investors alike. Do so what exactly is due diligence?

 

Due diligence is ensuring that a potential investment comes with the accurate disclosure of all offering details. The Securities Act of 1933, a result of the stock market crash years earlier, introduced due diligence as a common practice. The purpose of the act was to create transparency into the financial statements of companies and protect investors from fraud. While the SEC requires the information provided to be accurate, it does not make any guarantees to its accuracy. However, the Securities Act of 1933 for the first time allowed investors to make informed decisions regarding their investments. 

 

In the process of investing, investors should review all information available to them. Investors should ask questions such as:

 

  • Company Business Plans: What are the issuer’s current and future plans? Do their projections seem reasonable given their current financial reports?
  • Company Management: Who are the company’s officers, founders, and board members? What is their previous experience in business and have they had success? Does the management team pass a Bad Actors check?
  • Products/Services: What does the company offer? Is it something that you would use or does there seem to be a wide appeal for the product or service in the market? 
  • Documentation: Is the company’s bylines, articles of incorporation, meeting minutes, and other related documents available to review?
  • Revenue: What does the company’s revenue look like? Does it make sense considering the demand for their products? What do revenue projections look like?
  • Debt: Does the company have debt? Is it comparable to other companies in the industry?
  • Competition: What does the company’s competition look like and how do they plan to deal with it? Has the company properly protected intellectual property through trademarks, patents, copyrights, etc.?
  • Funding: Why is the company raising funding and what are the plans for the money raised?

 

While these are important questions to ask, there are other factors that investors should think about. Investors should consider whether they are financially able to take on the risk of investment. While investing in private companies can lead to a huge return, success is not guaranteed. Investors should ask themselves if they would be able to afford to lose their investment or not immediately being able to make a profit. They should also ensure that they are qualified to invest. If they are a non-accredited investor, have they already made investments that could alter the amount they can invest?

 

Issuers should make sure that all information investors need to make an educated decision to invest is adequately provided. They do not want to risk potential lawsuits down the road for failing to disclose certain information. Issuers can ensure that they are meeting all due diligence requirements by using a broker-dealer as an intermediary for their investment.

What is Investor Acquisition?

Posted on by Oscar Jofre

If you’re a company that is in the process of raising funds for your business, you’re likely looking to do so with the help of investors. By trading a piece of your company in exchange for some much-needed capital, you can fund your ideas and the growth of your business. With Regulation A+ opening up the investor pool to include those who would not be regularly included in a traditional IPO, it is essential to choose the right investors with whom you are going to grow your business. As investors become shareholders that often have some kind of say in the company, it will be important to choose investors that will aid you on your journey to grow your company. But how exactly do you find the right investor for you and your company’s vision?

 

Investor acquisition is targeting the best investors for the offering based on their demographics. Are you trying to raise money from your customers or people with similar behaviors? Are you targeting investors based on location, age, or other demographics? With investor acquisition, it allows companies to find and target the investors that will be best suited for the offering. If companies are targeting the investors that are most likely to invest, less time is wasted and more money is raised by eliminating the need to interact with those who aren’t going to invest.

 

Additionally, through investor acquisition, you can turn current customers into investors and investors into customers. With the addition of RegA+ to issuers’ toolbox, the ability to raise money from customers is now easier than ever. The customers who already know and support you can turn into important advocates for your company, which in turn can entice either more investors or customers to support your company.  Through RegA+, investors are not required to be accredited, so everyday people now have the opportunity to invest in companies that they believe in and support.

 

Once you’ve found investors to invest in your offering, keeping proper records of them will be essential to long-term success. Issuers need to manage their cap table, maintain investor relations, perform securities transfers in a compliant way, transfer agent, and more. With the KoreConX all-in-one platform, companies can securely manage who their investors are, issue shareholder certificates, and maintain their cap table in real-time, as changes occur. For investors, they can securely manage their portfolio of investments, receive important company information, and vote on company matters. With the platform, companies can maintain compliance and manage their information seamlessly.

 

Once you’ve decided to raise capital for your company, the next most important should be who you are going to raise the money from. With the help of investor acquisition, you can analyze information about your target so that you can best understand their behavior and what will get them to invest. Making smarter decisions about who you want investment from will help your company grow in the direction that you see best.

Are You Ready to Raise Capital?

Posted on by Oscar Jofre

Whether you’ve raised capital in the past or are preparing for your first round, being properly prepared will help your company secure the funding it needs. Proper preparation will make investors confident that you are ready for their investments and have a foundation in place for the growth and development of your company. So if you’re looking to raise money, what must you do to be ready for raising capital?

 

From the start, any company should keep track of shareholders in its capitalization table(commonly referred to as the cap table). Even if you have not yet raised any funds, equity distributed amongst founders and key team members should be accurately recorded. With this information kept up-to-date and readily available, negotiations with investors will be smoother, as it will be clear how much equity can be given to potential shareholders. If this information is unclear, deals will likely come with frustrations and delays.

 

Researching and having knowledge of each investor type will also help prepare your company to raise money. Will an angel investor, venture capital firm, crowdfunding, or other investment method be suited best for the money that is being raised? Having a clear answer to this question will help you better understand the investors you’re trying to reach and will help you prepare a backup option if needed.

 

Once your target investors have been decided and you have a firm grasp on the equity you’re able to offer, preparing to pitch your company to them will be a key step. Having a pitch deck containing information relevant to your company and its industry will allow you to convince investors why your business is worth investing in. Additionally, preparing for any questions that they may ask will ensure investors that you are knowledgeable and have done the research to tackle difficult problems.

 

Before committing to raising capital, you should make sure that your company has an established business model. Investors want to see that you have a market for your product and are progressing. If investors are not confident that the product you’re marketing has a demand, it will be less likely they will invest. Investors will also want proof that the company is heading in the right direction and the money they invest will help it get there faster.

 

Once you have determined that your company is ready for investors, managing the investmentsand issuing securities will be essential. To streamline the process and keep all necessary documents in one location, KoreConX’s all-in-one platform allows companies to manage the investment process and give investors access to their securities and a secondary market after the funding is completed. With cap table management, the all-in-one platform will help companies keep track of shareholders and is updated in real-time, ensuring accuracy as securities are sold.

 

Ensuring that your company has prepared before raising capital will help the process go smoothly, with fewer headaches and frustrations than if you went into it unprepared. Investors want to know that their money is going to the right place, so allowing them to be confident in their investments will ensure your company gets the funding that it needs to be a success.

How a Member of the Crowd Made Crowdfunding Easier

Posted on by Sara Hanks

A while back, one of our favorite start-up clients called me and asked me to speak to a potential investor. Paul Efron, a resident of Arizona, wanted to invest in the company’s Regulation A offering. However, when he went onto the company’s website to invest, his subscription was rejected. The company was accepting subscriptions from investors in every state but Arizona and Nebraska.

Why Arizona and Nebraska, asked Paul?

The reason was that while federal law and most states’ laws say that a company selling its own securities is exempt from broker-dealer registration, that’s not the case in a handful of states. These states say that if a company isn’t using a registered broker-dealer to sell in their state, the company has to register itself as an “issuer-dealer.” Depending on the state, that can involve letters to the regulators showing that the company and its officers are familiar with securities regulations, fingerprints, and, in the case of Arizona, a requirement that the company comply with “net capital” requirements as if they were an actual broker. Start-ups, of course, very rarely have any excess capital sitting around. So our client decided just not to sell in Arizona. (There were similar issues in Nebraska, which has since changed its rules.)

Paul could have done several things at this point. He could have pretended he lived somewhere else. He could have given up and invested in something else. But, being an entrepreneur himself, he decided the law needed to be changed, and set about changing it.

He reviewed the Arizona legislature website and saw that every legislator gets an email address on the website.  The way the website email system is setup, doing a mass email campaign with individual emails was possible.  Paul sent out an email to every one of the 30 Senators and 60 Representatives which took about an hour of click, click, cut and paste.  He found the autofill function very helpful.  Republican Senator Tyler Pace and Democratic Representative Aaron Lieberman replied to the email.  Having a member of both parties from both houses was perfect for this nonpartisan bill.  He brought me in to explain the issue to the legislators, their staff and the relevant committee staff. They listened, understood, and drafted. The first attempt at getting the legislation through was derailed because of COVID.  Paul contacted the legislators again.  The bill was reintroduced, passed this session, and the Governor signed it into law last week.

Start-ups (and Arizona investors) owe Paul. Not just for getting this roadblock removed, but for setting an example of what can happen when a citizen looks at a regulation and says “Well that doesn’t make any sense; how do I fix that?”

Managing Your Investments in Private Companies

Posted on by Oscar Jofre

For investors, investing in private companies can be a beneficial way to diversify their investment portfolios. Whether the investment was made through private equity or RegA+, proper management can contribute to long-term success. However, once the investment is made, investors need to ensure that they are correctly managing their shares. With this in mind, how should investors manage their investments once they have been made?

 

Investments made in private companies can often come with voting rights. Being a part of company decisions is an important aspect of being an investor and helps to elect company directors and resolve issues. Investors exercising their voting rights can be a major aspect of managing their portfolio.

 

Whether information is provided directly to the investors by the company or through a transfer agent, as companies release reports and other key information, shareholders should maintain current knowledge of the information. Understanding the company’s direction and changes that are occurring can give investors a picture of the future so they can determine how their shares will affect their portfolio. The investor should also know where the data can be found so that they are easily able to access and assess it.

 

Additionally, investors should monitor the liquidity of the shares. Since some private company shares can be traded in a secondary market, understanding the value and the option to trade is important for investors. If they know how much their shares are worth, and they have the ability to sell them, investors can freely trade their shares. This is key if they decide that they no longer want to be a shareholder in a particular private company.

 

However, for investors who own shares in multiple different companies, managing this information can become a burdensome task. With an all-in-one platform that incorporates portfolio management for investors, KoreConX streamlines and simplifies the process. KoreConX Portfolio Management allows investors to manage their investments from a centralized dashboard. Investors are easily able to see the shares that they own in each private company they’ve invested in. Through the platform, investors can access critical company information and performance data in one place, eliminating the need to remember where each piece of information is kept. Investors are also notified of upcoming shareholder meetings and can exercise their voting rights through the KoreConX platform. When companies and investors utilize the KoreConX platform, they can achieve higher success rates by maintaining compliance with necessary regulations. Utilizing KoreConX Portfolio Management is a powerful tool for investors to make informed decisions regarding their investments.

 

When dealing with private company investments, it is incredibly important that investors properly manage their portfolios. Remaining up-to-date on company decisions and performance can help them plan for the future of their shares while allowing them to make decisions to increase the success of their investments. When investors understand their voting rights, company developments, and the liquidity of their shares, they can be an active participant in their financial success.

KoreConX CEO Oscar Jofre was Recently Interviewed on DNA Podcast

Posted on by Oscar Jofre

Recently, KoreConX President and CEO Oscar Jofre had the pleasure of joining Jason Fishman on the Digital Niche Agency podcast. Jason and DNA are valued KorePartners and their podcast Test. Optimize. Scale. feature actionable insight for industry leaders on how to grow and optimize brands. 

 

In this episode, Jason and Oscar discuss how he was able to test, optimize, and scale KoreConX. In addition, they discuss the growing potential of Regulation Crowdfunding (RegCF) and the impact it will have on the private capital markets. 

 

The full episode can be listened to on Spotify or YouTube. 

KorePartner Spotlight: Jonny Price, Vice President of Fundraising at Wefunder

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

 

Jonny Price has always had an interest in economic development and a passion for economic justice and equity. In his first role in the fundraising sector, he worked for a company called Kiva, which provided crowdfunded micro-loans to US entrepreneurs. With his experience as the head of Kiva US, it was a natural transition to Wefunder, where he serves as VP of Fundraising.

 

For too long, investments in private companies have been limited to only accredited investors. For the average person, their only chance to invest was once the company went public. Wefunder makes it so that private investments are not just limited to wealthy investors – through Wefunder, anyone can become an angel investor for as little as $100.

 

Jonny is excited about how this is changing the private investment space. When ordinary people can invest in brands they care about, more capital is available for founders and entrepreneurs to grow their businesses. Especially in minority and women-run businesses, there is a great disparity in access to capital. Only 1% of VC funding goes to black founders, and 3% goes to female-only founding teams. Crowdfunding helps to level the playing field tremendously.

 

Partnering with KoreConX was the right fit for Wefunder. Jonny said: “I have known Oscar for a while and am impressed with the services they offer. A number of Wefunder clients have used the platform, and had very positive things to say about the KoreConX team.”

The State of the Jobs Act 2021 KoreSummit Webinar

Posted on by Oscar Jofre

The JOBS Act was signed into law just nine years ago, in April of 2012. Since then, thousands of companies have taken advantage of the Act’s exemptions to raise capital for their companies.  More than half a million investors have participated, providing funding to these companies—and it’s just getting started!

 

The JOBS Act’s fundamentals are simple:

  • Democratize capital so everyone can invest
  • Give ownership back to the owners
  • Create jobs

 

The proof of momentum is in the numbers and there now exists real tangible growth in the private markets.

 

The JOBS Act’s Impact by the Numbers for 2020

Total Funding Portals: 51

Total Companies Funded: 1,100

Total Companies Raising $1M USD: 229

Number of States: 48

Total Raised: $239.4M

Total Number of Investors: 358,000

Average Raise: $308,978

 

On November 2, 2020, SEC Commissioner Jay Clayton announced an amendment to two regulations that have truly expanded investors’ access to the funding of startups, emerging growth companies, and affinity-based projects online.  Companies can now use Reg CF to raise up to $5M USD, and RegA+ to raise up to $75M USD.

 

On March 15, 2021, our webinar brings together two individuals who began this journey more than a decade ago. You will hear them reflect on their experiences and, more importantly, what lies ahead for the next version of the JOBS Act and the following chapter on capital raising for entrepreneurs.

 

David Weild IV is a stock market expert best known for his position as Vice Chairman of NASDAQ. He is currently the Founder, Chairman, and CEO of Weild & Co. Inc., the parent company of the investment banking firm Weild Capital, LLC (dba Weild & Co.). Weild is also known as the “father” of the JOBS Act and has been involved in drafting legislation for the US Congress.

 

Sara Hanks, CEO of CrowdCheck and Managing Partner of CrowdCheck Law, is an attorney with over 30 years of experience in the corporate and securities field. CrowdCheck and CrowdCheck Law together provide a wide range of legal, compliance, and due diligence services for companies and intermediaries engaged in online capital formation, with a focus on offerings made under Regulations A, CF, D, and S, whether traditional or digitized securities.

 

Sara’s prior position was General Counsel of the bipartisan Congressional Oversight Panel, the overseer of the Troubled Asset Relief Program (TARP). Prior to that, Sara spent many years as a partner at Clifford Chance, one of the world’s largest law firms. While at Clifford Chance, she advised on capital markets transactions and corporate matters for companies throughout the world. Sara began her career with the London law firm Norton Rose. She later joined the Securities and Exchange Commission and as Chief of the Office of International Corporate Finance, she led the team drafting regulations that put into place a new generation of rules governing the capital-raising process.

 

Sara received her law degree from Oxford University and is a member of the New York and DC bars and a Solicitor of the Supreme Court of England and Wales. She serves on the SEC’s Small Business Capital Formation Advisory Committee. She holds a Series 65 securities license as a registered investment advisor. Sara is an aunt, Army wife, skier, cyclist, gardener, and animal lover.

 

This fireside discussion will be hosted by Vincent Molinari, co-founder and CEO of Molinari Media (Fintech.TV), who has followed the industry and is using the JOBS Act to raise capital for his own firm.

Regulation A+ Is Even Better After Passage Of The Economic Growth Act

Posted on by Lahdan Rahmati

On May 24, 2018, President Trump signed the Economic Growth, Regulatory Relief and Consumer Protection Act (the Act) into law. The Act was introduced by Senator Mike Crapo, a Republican Senator from Idaho, in the United States Senate Committee on Banking, Housing and Urban Affairs on November 16, 2017. The 73-page-long Act contains a short and sweet Section 508 entitled “Improving Access To Capital” that changes Regulation A in a big way.

Some Background

In mid-2015, the U.S. Securities and Exchange Commission (Commission) amended Regulation A in order to expand the exemption from registration under the Securities Act of 1933, as mandated by the Jumpstart Our Business Startups (JOBS) Act, to enhance the ability of smaller companies to raise money. Regulation A allows companies to offer and sell securities to the public, but with more limited disclosure requirements than those that apply to full reporting companies under the Securities Exchange Act of 1934 (Exchange Act). In comparison to registered offerings, smaller companies in earlier stages of development are able to use this rule to more cost-effectively raise money.

Why Is This A Big Deal?

(1) Reporting Companies Will Be Able to Rely on Regulation A: Prior to the Act, reporting companies were prohibited from utilizing Regulation A to raise capital. The Act requires the Commission to finalize rules that amend 17 C.F.R. Section 230.251 to remove the requirement that the issuer not be subject to Section 13 or 15(d) of the Exchange Act immediately before the offering. Therefore, reporting companies will be able to rely on Regulation A to raise capital.

(2) Reporting Companies Will Not Be Required To File Additional Reports: The Act requires that the Commission finalize rules that amend 17 C.F.R. 230.257 to deem reporting companies as having met the requirements of 17 C.F.R. 230.257. Therefore, reporting companies that already meet the reporting requirements of Section 13 or 15(d) of the Exchange Act do not need to file additional reports required under 17 C.F.R. 230.257.

When Will The Rules Be Finalized?

Rulemaking is the process by which federal agencies implement legislation by Congress that is then signed into law by the President. Rulemaking generally involves the following steps:

(1) Concept Release: The Commission issues a concept release when an issue is unique and complicated such that the Commission wants public input before issuing a proposed rule. The Act is very straightforward so the Commission will probably not issue a concept release and go straight to the next step.
(2) Rule Proposal: When approved by the Commission, a rule proposal is published for public notice and comment for a specified period of time, typically between 30 and 60 days. A rule proposal typically contains the text of the proposed new or amended rule along with a discussion of the issue or problem the proposal is designed to address. The public’s input on the proposal is considered as a final rule is drafted.
(3) Rule Adoption: When approved by the Commission, the new rule or rule amendment becomes part of the official rules that govern the securities industry. The new rule or rule amendment is in the form of an adopting release that reflects the Commission’s consideration of the public comments.

 

See the original article, published on our KorePartner’s blog here.

Why Does My Company Need a 409(a)?

Posted on by Oscar Jofre

Whether your company is a new startup or an established private company, understanding and proper use of a 409(a) is essential to your company’s success. Thinking about it early will help you avoid potential setbacks and challenges later on, giving you more time to focus on growing your company, rather than tackling penalties. If that doesn’t convince you that a 409(a) is something that your company needs, a better understanding of what it is will convince you.

 

To start with the basics, what is a 409(a)? First added to the Internal Revenue Code (IRC) in 2005, 409(a) outlines the taxation on “non-qualified deferred compensation,” which includes common stock options for employees. For companies to be able to offer their employees the ability to purchase stock in the company, they must complete a 409(a) valuation to determine the “strike price,” or the predetermined price at which employees can purchase the stocks. 

 

Undergoing a 409(a) valuation ensures that the strike price is at or above the fair market value and that the company remains compliant with the IRC. For companies who the IRS find to be noncompliant with the code, some penalties include an additional 20% tax penalty and penalty interest. 

 

So, how do you ensure that your company accurately determines the fair market value of your common stock? This can be done a couple of ways, either by someone within the company or by a third-party valuation firm. Whether you’re planning on completing 409(a) valuation in-house or hiring a firm, there are a few key things to keep in mind. 

 

For valuations done in-house, whoever is chosen must have at least five years of experience related to valuation. Since this can be subjective, the IRS could rule that the individual did not meet the requirements and that the valuation is inaccurate. Additionally, only private companies that are less than 10 years old can choose to complete their valuation in-house. It is also important to remember that if the IRS were to investigate, it would be the company’s responsibility to prove their valuation was correct. 

 

Hiring an outside firm, while often the more costly option, is usually more reliable. As long as the firm maintains a consistent approach to valuations and is independent, meaning that the firm is only providing the company with valuation, the company is given “safe harbor” protection. A safe harbor protects both the company and its employees, as it would be the IRS’s responsibility to prove that the valuation was inaccurate. 

 

Once your company has received its 409(a) valuation, how long does that last? It is considered to be valid for one year after the valuation. After that, it must be redone to ensure compliance. If your company closes a round of funding or undergoes any material changes before that period is up, a new 409(a) valuation would be required. 

 

Armed with the knowledge of what exactly a 409(a) is, you can help your company achieve success and maintain IRC compliance. Even early on, being compliant with tax codes ensures you avoid severe penalties and expensive delays should the IRS decide to audit your company as it begins generating revenue. 

KorePartner Spotlight: Sara Hanks, CEO of CrowdCheck

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

 

With over 30 years in the corporate and securities law field, Sara Hanks has a wealth of experience. Before CrowdCheck began, Sara and one of the firm’s co-founders (whose husband became the other cofounder) served on the Congressional Oversight Panel where they spent 18 months in DC investigating the Troubled Asset Relief Program. Shortly after this time, the bills that became the JOBS Act were passing through Congress and Sara’s interest in the private capital markets grew.

 

Sara and the CrowdCheck co-founders began to discuss due diligence and the implication crowdfunding would have. With their combined legal and entrepreneurial experience, they knew they could help investors make good investment decisions and walk entrepreneurs through the compliance process. These conversations led to CrowdCheck, which Sara says was “founded on the back of a cocktail napkin.”

 

CrowdCheck and its affiliated law firm, CrowdCheck Law, provides clients with a complete range of legal and compliance services for issuers and investors. As a “weapon against potential fraud,” CrowdCheck does due diligence for investors, letting them see the results themselves in a report that is easy to understand. The firm also helps entrepreneurs through the complex process of compliance, making sure that they have met all legal requirements. Sara and CrowdCheck have tremendous experience applying exciting securities laws to the online capital environment, a skillset valuable in the crowdfunding space.

 

One of the things that excites Sara most about this space is that there are “so many cases of first impressions.” Raising capital isn’t new, but with crowdfunding, new questions arise every day and there is the opportunity for innovative delivery of information.

 

A partnership with KoreConX is exciting for Sara and CrowdCheck because KoreConX values and understands how essential compliance is. “This environment won’t work without compliance,” Sara Hanks said, so it was valuable finding a partner that did not need convincing when it came to compliance.

What is Cap Table Management?

Posted on by Oscar Jofre

More than a simple spreadsheet, a cap table (short for capitalization table) records detailed data regarding the equity owned by shareholders.  For companies at any stage, proper cap table management is essential for good business practices. For founders and shareholders alike, it is important to fully grasp the concept of cap tables. So, what exactly is cap table management?

 

A clear and well-managed cap table paints a detailed picture of exactly who owns what in the company. Whether a founder is looking to raise additional capital or offer incentives to employees, the cap table, when managed correctly, will show the exact break down of shares, digital securities, options, warrants, loans, SAFE, Debenture etc. This information enables founders to understand how the equity distribution is impacted by business decisions.

 

Proper cap table management ensures that all transactions are accounted for and that potential investors are easily able to see the equity structure during funding rounds. Founders are also able to better negotiate the terms of a deal when they have the entire picture of their company’s structure available for reference. Without a cap table, companies can face challenges when it comes to raising capital, due to a lack of transparency in the ownership of the company.

 

Once the cap table is created, it must be maintained properly, updated each time the company or the assigned registered transfer agent/share registry provider who performs equity-based transactions. In the early stages of the company, the cap table will be relatively simple to manage but as rounds of funding progress, it becomes more complex as shares are distributed amongst investors and employees.

 

While simple cap tables can be created in programs such as Excel, a cap table management software may provide a better solution as it becomes more complex.  As part of its all-in-one platform, KoreConX provides companies with the tools to properly record every transaction in their cap table. Encouraging transparency of shareholders, every type of security (digital securities, shares, options, warrants, loan, SAFE, Debenture) that may be offered is accounted for and kept up to date as deals occur. By maintaining transparent records, companies can benefit from both shorter transaction times and expedited due diligence.

 

With an understanding of the importance of keeping a properly managed cap table, founders can arm themselves with the ability to make well-informed business decisions. The detailed insight into a company’s financial structure allows potential investors to feel confident in their investments, secure with the knowledge that their share is accurately accounted for. Even if the task of creating a cap table may seem daunting, it is simplified with a cap table management software so that everyone is on the same page.  

KorePartners Spotlight: Rod Turner, Founder, Chairman, and CEO of Manhattan Street Capital

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

Rod Turner is the founder, chairman, and CEO of Manhattan Street Capital, an online fundraising platform allowing companies to cost-effectively raise capital using Regulation A+, Regulation D, and other regulations, supporting them throughout the entire capital raising journey. The goal is to make it easier for investors to invest and for issuers to list their offerings. The popular term for the services provided by Manhattan Street Capital is “quarterbacking”; they are not the company raising money, but they bring all necessary services providers together and advise the company and marketing agencies on the nuances of raising money successfully. These services combine with the company’s offering platform which separates Issuer Clients into their own offering pages with rich features and deep instrumentation and integration with all marketing.

Before founding Manhattan Street Capital, Rod Turner founded 6 other successful tech startups. He has had extensive experience in the capital markets, from securing VC funding, IPOs listed on the NASDAQ, mergers and acquisitions, as well as building a VC fund with a colleague. This experience has led him to understand the power of RegA+ as a fundraising tool for startups and mid-sized companies.

“I recognized pretty quickly that RegA+ is a phenomenally good fundraising instrument and that the regulations are really well-written, very pragmatically written, when it comes to implementing them. Which I was just really excited to see.”

Rod has seen many mature startups and mid-sized  companies  that are “strangled by the lack of access to growth capital” and sees RegA+ as very attractive solution for many of these companies Rod estimates that the scale of capital raised via Reg A+ may amount to $50-60 billion raised per year when it hits full stride. By getting involved in the industry, Rod wants to help solve this issue faced by companies and help them to secure the funding they need. “I want the whole industry to be very successful,” Rod said. RegA+ is continuing to expand rapidly, which will continue to open more opportunities for companies throughout the US.

At Manhattan Street Capital, Rod deeply analyzes the RegA+ industry to solve problems for his company and its clients. Each year, Rod and the Manhattan Street Capital team go through all the EDGAR filings with the SEC to assess the scale of RegA+. Rod likes to take a bigger picture approach so that he can solve problems that are not noticed by those that only focus on their specialty. 

Bringing Private Placements into the Digital Age

Posted on by Lee E. Saba

How blockchain-based technology will transform private markets

 

Remember the first time you drove a car with a rear-facing camera? The first time you streamed an on-demand movie at home via the Internet, or used GPS instead of a fold-out paper map to find your way on a trip? Similarly, emerging digital technologies have the potential to significantly streamline the cumbersome process of issuing and trading private securities, while automating regulatory compliance and enhancing secondary-market liquidity, transparency, and price discovery. The best part? All these benefits can be captured within existing market structures.

 

The growing popularity of private placements over public listings in recent years is a well-documented phenomenon, driven by tightened regulatory requirements for public issuers and a widening search for returns among investors in a low-interest-rate world.

 

Strong Growth in Private Markets

Acknowledging that raising capital in private markets is simpler than floating public offerings, the path to private issuance is still lengthy and complex. After capital is raised, issuers incur ongoing costs for stock transfers, escheatment, dividend payouts, and compliance. Meanwhile, participants in secondary markets must cope with complexities in making legal and transfer arrangements. Indeed, the timeline for executing trades in privates is currently calculated not in hours or days, but in weeks and months. Throughout, the process is larded with paper, paper, and more paper, stuffed into a file cabinet or residing on email servers.

 

Contrast that with the way new digital mechanisms can transform how private markets operate.

Source: Preqin

 

Blockchain based technologies help ensure that regulated securities are allowed for trading, execute and track payment and receipt of dividends, and validate that transactions have been executed solely with approved investors.  Post-trade processes leverage blockchain’s single “source of truth” — that is, the immutability of a blockchain ledger — working with SEC registered transfer agents.  Alternative trading systems (ATS) are now live for secondary trading of private yet regulated digital securities.

This is no pie-in-the-sky, far-in-the-future scenario. Industry standard-setting bodies like the FIX Trading Community (aka FIX), the Digital Chamber of Commerce, and the Global Digital Asset & Cryptocurrency Association, operating within the framework of the International Standardization Organization (ISO), are at work developing ways to integrate trading of digital securities into existing market structures. For example, FIX has a globally represented working group focused on adapting its widely used messaging standards to communicate and trade digital assets.

 

In short, digitization of private securities can ease capital raises, streamline compliance, improve liquidity and transparency, and save issuers and investors money — all within a regulated ecosystem. In future articles, we’ll explore what the emerging digital trading landscape means specifically for issuers and investors.

 

Continue reading “Bringing Private Placements into the Digital Age”

How Can a Company Raise Capital?

Posted on by Oscar Jofre

For companies looking to raise capital, there are many different options. While not every option may be best suited for every company, understanding each will help companies choose which one is best for them.

 

In the early stages of raising capital, seeking investments 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 for your company. 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 and angel groups can also be a source of capital. Angel investors are wealthy individuals that meet the SEC requirements of accredited investors, who invest their own money. 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 in their investment. 

 

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 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. 

 

For some companies, crowdfunding may be useful for raising funds. 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. Through the JOBS Act, the SEC passed Regulation A+ crowdfunding, which allows companies to raise up to $75 million in capital from both accredited and non-accredited investors. Crowdfunding gives companies 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 companies 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 November 2020 update to the regulation, investment limits for accredited investors were removed and investment limits for non-accredited investors were revised to be $2,200 or 5% of the greater of annual income or net worth. It is also important to note that now, companies looking to raise capital using RegCF are permitted to “test the waters,” to gauge interest in the offering before it’s registered with the SEC. The SEC also permits the use of SPVs in RegCF offerings as well. 

 

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, companies choosing to raise capital through RegD 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  

 

Companies can also 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. 

 

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. 

 

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 its own account or those of its 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 brokers-dealer. 

 

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 method of raising capital a company chooses, 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. 

What is Regulation A+?

Posted on by Oscar Jofre

Regulation A+ (RegA+) was passed into law by the SEC in the JOBS Act, making it possible for companies to raise funding from the general public and not just from accredited investors. With the implementation of Title IV of the act, the amount that companies can raise was increased to $50 million (since increased to $75 million), offering companies the ability to pursue equity crowdfunding without the complexity of regular offerings. So, what investments does RegA+ allow?

 

Outlined in the act, companies can determine the interest in RegA+ offerings by “testing the waters.” While testing the waters allows investors to express their interest in the offering, it does not obligate them to purchase once the Offering Statement has been qualified by the SEC. Also allowed by the Act, companies can use social media and the internet to both communicate and advertise the securities. However, in all communications, links to the Offering Statement must be provided and must not contain any misleading information. 

 

It is important to understand the two tiers that comprise RegA+. Tier I offerings are limited to a maximum of $20 million and calls for coordinated review between the SEC and individual states in which the offering will be available. Companies looking to raise capital through Tier I are required to submit their Offering Statement to both the SEC and any state in which they are looking to sell securities. This was a compromise for those who opposed the preemption that is implemented in Tier II.

 

For offerings that fall under Tier II, companies can raise up to $75 million from investors. For these offerings, companies must provide the SEC with their offering statement, along with two years of audited financials for review. Before any sales of securities can take place, the SEC must approve the company’s offering statement, but review by each state is not required. It is also important to note that for Tier II offerings, ongoing disclosure is required unless the number of investors was to fall below 300.

 

In contrast to typical rounds of fundraising, investors are not required to be accredited, opening the offering up to anyone for purchase. Under Tier I, there are no limits that are placed on the amount a sole person can invest. For unaccredited investors under Tier II, limits are placed on the amount they can invest in offerings. The maximum is placed at ten percent of either their net worth or annual income, whichever amount is greater. To certify their income for investing, unaccredited investors can be self-certified, without being required to submit documentation of their income to the SEC. Additionally, there is no limit placed upon the company as to the number of investors to whom it can sell securities.

 

Once investors have purchased securities through RegA+ investments, the trading and sale of these securities is not restricted. Only the company that has created the offering can put limits on their resale. This allows investors to use a secondary market for trading these securities.

 

Through Regulation A+, companies are given massive power to raise funds from anyone looking to invest. With the Act allowing for up to $75 million to be raised, this enables companies to raise capital from a wide range of people, rather than only from accredited investors. With two tiers, companies have the freedom to choose the one that best fits their needs. Regulation A+ and the JOBS Act have the potential to drastically change the investment landscape.

KoreConX CEO Oscar Jofre’s Interview on Recent EINBLICK Podcast

Posted on by Oscar Jofre

Recently, KoreConX President, CEO, and Co-Founder Oscar Jofre had the pleasure of joining Christian Klepp, Co-Founder of EINBLICK Consulting, on their podcast B2B Marketers on a Mission. 

 

With Christian, Oscar discusses empowering and transforming the private capital markets through pivotal regulations enabling them to better raise capital. Along with these changes, companies need the education and tools to manage their data and shareholders. No longer are private companies limited to a VC or fund to raise capital, they have the power to leverage their customers and shareholders to raise needed capital. However, they need to keep learning to understand their options and responsibilities. 

 

You can listen to the full interview with Oscar Jofre here.

 

Effective Date of the Amendments to Reg CF and Reg A

Posted on by Andrew Stephenson

The amendments to Reg CF, Reg A, and other rules relating to capital formation utilizing exempt offerings have finally been published in the Federal Register, with an effective date of March 15, 2021.

Meet the KorePartners: Andrew Corn, CEO of E5A Integrated Marketing

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

 

From the first project he worked on while still in college, Andrew Corn has been involved in financial marketing. After his first analyst’s presentation, “and then second, and then fifth, I decided to drop out of college and focus on that full time. Soon after, I wrote my first IPO roadshow, built a company around that, and a few years later, also started working for money managers,” Andrew said. After selling that company, Andrew went to work for a publishing company specializing in investingas the chief marketing officer.

 

Then, for 9 years, Andrew left the marketing industry and created a multi-factor model used to analyze the stocks available on US exchanges to select them for separately managed accounts, and he and his team designed the index behind six ETFs, eventually selling that company to a bank, where he served as the chief investment officer. “When E5A was born, it was born as an investment house, and then I got sucked back into marketing in 2012 and switched E5A over into a marketing firm in 2013,” Andrew recounted. At E5A, they acquire investors through systematic, data-driven marketing.

 

For companies that are looking to raise capital, marketing plays an incredibly important role. For RegA+ offerings, a company’s first target is typically its existing network of customers. However, a marketing firm such as E5A can help companies to understand the behavior and demographics of current customers. Knowing how customers behave will allow companies to targetpeople that are demographically and behaviorally just like their current customers.

 

With RegA+ offerings, the majority of the money will be raised through marketing. “The beauty of that is that it’s passive,” Andrew says, “we can look at entirely new groups of prospects who are the most likely people who would be interested in investing in a company like yours. Sometimes we can find them through behavior or demographics, hopefully, it’s a combination of both.” Once potential investors have been found, marketing agencies can come up with the messaging platform that will raise money through these investors. Companies are often surprised that their existing network raises little money, but the investors they can gain through marketing helps them reach their goals.

 

Through the use of marketing, Andrew is excited about how companies benefit from acquiring investors at scale. “If you’re a restaurant chain, you want as many people to know about it as possible. If you have a direct-to-consumer product, you want many people to know about it. So a byproduct of raising capital is promoting the brand or the business.” Both investors and the companies get more engaged as information is put out regularly.

 

With RegA+ allowing investors of all wealth, income and experience levels to participate, the restriction allowing only accredited investors is lifted. Additionally, Andrew believes that increasing the limit from $50 to $75 million will greatly improve the regulation since oftentimes companies require more funding. With IPOs on both the New York Stock Exchange or the NASDAQ often over $100 million, he believes increasing the cap to as much as $200 million in a few years would be better for companies looking to utilize RegA+.

 

For its clients, E5A is a “turnkey marketing company, so we do everything from messaging platforms to data-targeting to media buying and optimization, message testing, web development, etc.” Andrew expects that E5A will be held to a standard of success being measured by the amount of money raised. While looking to maintain as much control of the outcome, E5A also understands that many of the companies they work with have their own marketing or IT departments, and try to share as much work with them as possible and include them in the process.

 

E5A looks to work with companies that have a high probability of success, which requires an ecosystem of legal, accounting, technology, broker/dealer, consulting, and marketing services. Andrew says, “We feel that Oscar and the KoreConX team are putting together a world-class network of service providers who are experts in each of their individual tasks. We are glad to participate.”

Warrant Issuers, Keep Your Offering Statement Evergreen

Posted on by Jeanne Campanelli

An increasing number of issuers have been using Regulation A to make continuous offerings of units, consisting of a combination of equity, often common stock, and warrants to purchase the same equity at a future date.  Under the Securities Act, the units, the shares of stock, the warrants and the shares of stock issuable upon exercise of the warrants are separate securities whose offer and sale must be registered on a registration statement or covered by an exemption from registration such as Regulation A.  That is why offering statements under Regulation A list each of these individually and why the SEC requires the validity opinion filed as an exhibit to the offering statement to cover all of them (See Staff Legal Bulletin No. 19, available at https://www.sec.gov/interps/legal/cfslb19.htm ).

 

Most warrants that are part of these structures are exercisable for more than a year after their date of issuance, often up to 18 months.  Since the exercise of the warrant and payment of the exercise price for the underlying shares is a new investment decision by the warrant holder, the offering statement covering the underlying warrant shares must continue to be qualified under Regulation A in order for the new shares to be covered by the exemption from registration. That means that an issuer must keep the offering statement “evergreen,” or qualified for at least 2 to 3 years to cover those exercises, even if the offering of the units is completed before the first anniversary of qualification.   Most Regulation A offerings permit rolling closings.  The effective date of a warrant is typically the date on which a closing is held and a warrant is issued to an investor.  For example, if an issuer commences a Regulation A offering on the date its offering statement is qualified (let’s say February 1, 2021) and holds its first closing of units on March 1, the warrants issued in that closing are exercisable until September 1, 2022, well past the anniversary of qualification.  Assuming the offering stays open for at least 9 months and the final closing is held on November 1, 2021, the warrants issued in that final closing are exercisable until May 1, 2023.

 

Under the securities laws, registration statements for continuous offerings are kept updated, or “evergreen,” when an issuer complies with its reporting obligations under the Exchange Act by filing timely periodic reports such as their annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.  However, since the analogous periodic reports under Regulation A are filed under the Securities Act, their filing does not keep the offering statement evergreen.  If an offering is to extend more than one year from qualification, issuers conducting continuous offerings need to file post qualification amendments (“PQA”)  in accordance with Rule 252(f)(i) every 12 months after the qualification date to update the offering statement, which includes incorporating the financial statements from the periodic reports filed during the previous 12 months.  If the original offering statement was scheduled to terminate before the warrant exercise period ended, the PQA would also need to extend the termination date. A PQA in those circumstances renders the offering statement un-qualified and subject to a possible new SEC review, which means an issuer may continue to make offers (so long as the financials are not stale yet) but may not make sales, such as the issuance of warrant shares upon exercise of warrants, until the SEC re-qualifies the offering statement (See our blog post on updating continuous offerings: https://www.crowdcheck.com/blog/updating-continuous-offerings-under-regulation).  Using our example above, the issuer of units would need to at a minimum file a PQA in sufficient time before February 1, 2022 to allow for a possible Staff review and comment period to meet the annual requirement under Rule 252.  Moreover, if the unit offering lasts more than 6 months after the original qualification date, an issuer should anticipate having to file a second PQA in early 2023 to cover the exercise of warrants issued in the last closing of the offering.

 

Warrant issuers should also keep in mind some additional steps they will need to take.   The subscription agreement and the warrants themselves will need to include additional reps, warranties and covenants, such as a covenant to keep the offering statement evergreen.  Plus, even after qualifying the PQA with the SEC, the issuer will need to insure that it is current with state notice filings, which typically need to be renewed every 12 months as well.

What is Secondary Market Trading?

Posted on by Oscar Jofre

Even if you’re unfamiliar with the term secondary market, you’re likely familiar with the concept. Companies sell securities to investors, who in exchange own a piece of the company. The investor can then decide they would rather not own that security any longer, so they sell it to someone else who does. For public companies, this typically happens on the NASDAQ and the New York Stock Exchange, where people freely sell and purchase stock in publicly traded companies. 

 

The exchange is considered secondary because the transaction is not done with the original company that offered the security. An example of a primary market transaction would be an initial public offering, or IPO, during which a company is offering securities directly to investors for the first time. For any security sold through a secondary market, the funds go to the investor selling, and not the company that originally offered the security.  This is one of the major distinctions between the primary and secondary markets. 

 

Securities in private companies can also be sold through a secondary market, similar to stocks in public companies traded on the stock market. The investor, with the help of their broker, can offer their securities for saler. Once the offer has been accepted, the company that originally offered the securities must be contacted to approve the deal. Once approved, both the buyer and the seller complete the paperwork for the transaction and complete the deal. 

 

Without the secondary market, investors would be unable to trade the securities they have purchased, leaving them without any options for their investments. Importantly, access to a secondary market allows employees of the issuer to sell their securities that they may have been awarded. Without a secondary market, these investors and employees would not have any option to sell their shares unless the company was to go public during an IPO. 

 

Despite the straightforward logic behind the process, secondary market trading has been relatively fragmented, with not all processes occurring in the same place. This increases the potential for errors and any increases in transaction time that they may cause. To combat this, platforms on which securities can be traded through the secondary market have been developed as secondary market trading has become commonplace in the world of investing. 

 

KoreConX has developed an all-in-one platform, which includes a secondary market as one of its features. On the platform, every important authorization that is deemed necessary for the transaction to occur is kept in one place, allowing for information to be easily tracked and recorded. Buyers, sellers, brokers, and the transaction itself are brought together in one place to prevent errors that may have occurred otherwise. Additionally, the KoreConX Secondary Market eliminates central clearinghouses from the process, allowing for real-time confirmation and availability of funds once the transaction is complete. 

 

Secondary market trading allows investors to sell securities they’ve purchased from private companies to other interested investors, similar to trading public stocks. Even though their sale is decentralized, platforms such as KoreConX allow for people to easily and securely sell their securities, creating a more efficient and streamlined process. 

KorePartner Spotlight: Etan Butler, Chair of Dalmore Group

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the KorePartners that contribute to its ecosystem. 

 

Etan Butler is Chairman of Dalmore Group, a FINRA registered national Broker-Dealer, founded in 2005. Dalmore provides a full range of investment banking services and specializes in assisting companies that seek to raise investment capital online through the SEC’s Regulation D, Regulation A+, and Regulation CF.  Etan is recognized as a pioneer in the Regulation A+ industry and is an active participant in industry summits, panels, interviews, and publications. 

 

Dalmore is among the most active Broker-Dealers for Reg A+ offerings, having been involved in more than 85 such offerings in 2020 – including some of the most successful listed and private Reg A+ offerings in history. A number of Dalmore’s Reg A+ clients have met their offering goals and have pursued follow on Reg A+ offerings to raise even more.  Some of Dalmore’s clients have gone on to be listed on Canadian and US public exchanges.

 

“From our wide and varied experience as the broker-dealer on these offerings, we share what we have seen work well (and not so well) with our new issuer clients.  This experience is particularly valuable to the entrepreneur who is approaching a Reg A+ capital raise for the first time, and who can tap into our network of quality service providers, including legal, marketing, and syndication specialists.  We also offer our clients potential alternative trading solutions, and otherwise provide our issuers with the tools they require to enter the field equipped to have the greatest chance of success.”

 

Dalmore Group also provides business planning, development, and capital introduction services to public and private companies in a range of industries, and has participated in various capacities in significant investment, development, and other structured transactions. Over the course of their 15 years of investment banking activity, Etan and his team have been involved in the development of cutting edge, regulatory compliant approaches for the management of business development – including the raising of funds — and the oversight of complex due diligence activities in the heavily regulated area of U.S. and multinational transactions. 

 

“What drew me to investment banking and the buildout of the Reg A+ division at Dalmore was the excitement of working with other entrepreneurs in cutting edge industries, and assisting them in the pursuit of their dreams.  The recent launch of Dalmore’s DirectCF platform, which offers Reg CF issuers a direct, cost-effective, and open access solution for their Reg CF offering – untethered to a marketplace that lists other, competing offerings — reflects Dalmore’s obsession with giving issuers full control of their capital raising activities.” 

 

Etan is also President of EMB Capital, LLC, which invests in early-stage ventures with a focus on real estate acquisition and financial services.

Foreign Issuers Using Regulation A and Regulation CF

Posted on by Sara Hanks

For some reason, this issue has been coming up a lot lately. Our usual response to the question “Can non-US issuers make a Regulation A or Reg CF offering?” is to point to the rules:

  • Rule 251(b)(1) says Regulation A can only be used by “an entity organized under the laws of the United States or Canada, or any State, Province, Territory or possession thereof, or the District of Columbia, with its principal place of business in the United States or Canada.”
  • Reg CF Rule 100(b) says Reg CF may not be used by any issuer that “is not organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.”

Slightly different formulations, as you can see, and note that Reg CF doesn’t say that the company needs to have its primary place of business here. But both exclude non-US or Canadian companies.

But we are getting a lot of pushback and “what if?” questions, so here are responses to a few of the most common:

  • What if we redomicile to the US? Well ok, that might work for Reg CF. It might work for Reg A too, if your management changes their domicile too (you need a bona fide principal place of business here). However, have you considered the tax consequences in your original home jurisdiction? Also, note that you’ll still need two years audited or reviewed financial statements, in US GAAP and audited or reviewed in accordance with US auditing requirements (US GAAS).

 

  • What if we form a subsidiary and it makes the offering? Yes, you can form a subsidiary here (it’ll have to have its principal place of business here too, for Reg A) and it can raise money under Regulation CF. But the money it raises here has to be legit used for the sub’s own purposes. It can’t be upstreamed to the parent, because that would likely make the parent a “co-issuer” that needs to also file a Form C or 1-A and can’t. So the sub needs to be planning to undertake its genuine own business. Even then, if it’s not a new business but just taking over some part of the parent’s business, then the sub might need to produce financials (again, using US GAAP and US GAAS) from the parent’s business or the part of business it’s taking over, because that’s a “predecessor.”

 

  • What if we create a holding company in the US? Yes, although the same issues come up. If using Reg A, you need to move your principal place of business here. For either exemption, the foreign company that is now your subsidiary will be the “predecessor” company and so again we have the need for two years’ audited or reviewed financials using US GAAP and US GAAS.

 

  • What if we create a new company that licenses the foreign company’s product or service? This may be the most promising option, but it’s really going to depend on facts and circumstances. Proceeds of the offering have to be used for the new company’s operations, in the case of Regulation A the company’s primary place of business has to be here, and you’ll have to look carefully at whether there are any predecessor issues.

What is the Role of a Transfer Agent for a Private Company?

Posted on by Oscar Jofre

For companies issuing securities to investors, a transfer agent plays an important role in the process. If your company has yet to issue securities but will be doing so soon, a clear understanding of the purpose of a transfer agent is necessary when choosing the best one to fit your company’s needs.

 

Throughout a company’s rounds of funding, investors will purchase their share of the company to fund the company’s growth. These purchases come in the form of securities and a careful record of them must be kept. Knowing the number of shares each investor owns will be essential in future business deals. In the past, investors were issued paper certificates by a transfer agent, denoting their share of ownership. Now, it is more common for them to issue certificates electronically, which saves the issuer both time and money. 

 

Not only does the transfer agent issue certificates, but they keep a record of who owns what, pays distributions to shareholders, and serves as an intermediary for the company for all transactions related to securities. In this capacity, they provides support to both the issuer and the investor. They are tasked with the responsibility of maintaining accurate records regarding all securities issued by the company. 

 

For a private company, a transfer agent is incredibly important when dealing with investors. When utilized alongside a capitalization table (usually called a cap table), a transfer agent can help the company provide a precise record of who their investors are and how much equity they have remaining, which becomes essential in future rounds of investments. When both current and potential investors can view accurate and complete information on the companies they are investing in, the transparency and availability of information increases the investors’ confidence. 

 

When choosing a transfer agent for your company, the one that eliminates unnecessary costs and time is the most logical option. Through its all-in-one platform, KoreConX offers just that. Completely integrated with the rest of the platform, the KoreConX Transfer Agent is SEC-registered and can be used with other features, such as cap table management and access to a secondary market. Since the KoreConX Transfer Agent manages paperwork and issues certificates electronically, the lengthy process of manual filing is eliminated, creating an experience that is both streamlined and faster. Through the KoreConX Transfer Agent, any change made is reflected in the cap table in real-time, reducing any errors that could be caused by the manual transfer of the data. 

 

Private companies can benefit immensely by employing the use of a transfer agent. Allowing them to manage their securities more efficiently, companies can keep a more detailed record of transactions. As it is the transfer agent’s responsibility to maintain the records of securities, it is essential that companies carefully consider when they’re making their choice. 

 

A good transfer agent must be able to handle many forms of securities instruments, such as equity, debt (bonds, debentures), convertibles, options, warrants, promissory notes, crowdfunding, etc. All of this should be done as efficiently as possible in a fully compliant way in multiple jurisdictions. Ideally, they should provide both the company and its shareholders information in real-time without additional expenses. Most importantly, transfer agent services that are easily integrated with other capabilities, such as portfolio management, shareholder management, minute book, investor relations, and so on, provide companies with a more inclusive and efficient way of maintaining their financials. 

Click “RESET”

Posted on by Oscar Jofre

In the future, 5 or 10 years from now, we will see an evolution in business and a paradigm shift occurring all due to the global COVID-19 pandemic. Many of us have been advocating that the business world has been operating ineffectively, but not until now has everyone been able to see it and experience it first hand. There are many examples where the chain is broken.

American Stimulus Checks (Banking)

Before the first round of stimulus checks issued to the American people, the US President told everyone that their checks would be deposited within 48 hours. However, a few hours later, the IRS issued a contradictory news release that only about 50% of Americans would receive the aid within 48 hours. For the rest of the population, without direct deposit set up, the process would take months and lacked the potential for setting up direct deposit only. Plus, since the pandemic began to close businesses and eliminate jobs, there has been no additional aid to the American people besides a smaller sum approved by Congress in December.

Opening Commercial Business Accounts (Banking)

Anyone with a business account has experienced the process of setting up a commercial bank account. Applicants need to bring their books, ID, etc., and set up an appointment with the bank to open a business account.  The banker collects all the information and begins the onboarding process. However, this process is often variable and inefficient depending on the financial institution. 

Broker-Dealer Transacting

Broker-dealers in the alternative investment sector, such as those who work with investors for private companies, are accustomed to meeting investors face-to-face to bring them opportunities and perform regulatory compliance. This often makes it more than just a service—it is a personal relationship built between investors and their broker-dealers. However, with face-to-face appointments becoming a way of the past in favor of virtual meetings, the process needs to be improved to support this fundamental change.

Post COVID-19 RESET

The last time we had a reset of any significant magnitude in business was at 11:59 PM on 31 December 1999.  For those who remember the 12 months before this date and time, everyone knew that the future was going to be different, and we saw the next phase of the computer and software introduction to business.

 

Despite this, since 11:59 PM on 31 December 1999, all we have seen is more development but no “reset” and small uptake to really make a difference.  These businesses on which we rely for our financial services have been noticing the signs that change is coming.  Most of them would say, nothing to worry about because my business is very personal with my clients.  Some have attributed that the only way you can offer a personal touch to your business is by not adopting technology to operate your business efficiently.

 

For those who understand and are already seeing this as an opportunity to lead the business world, this “RESET” will create new leaders in many areas as we move to end-to-end processes that have no broken links in these areas:

    • Banking
      • Banks that will be fully online, including onboarding customers and transacting. No more PDF’s but fully integrated with your corporate activities
      • End-to-End integrated with companies  
    • Broker-Dealers
      • The personal touch extended to all clients to pursue opportunities and able to invest by simply updating their profile and from the comfort of their home, office, vacation.
      • End-to-End integrated with investors, compliance, companies, banking
    • Companies
      • Managing all corporate records for C-level onward to be connected to their shareholders, access to capital, banking, insurance, and M&A, regardless of the size of a company
      • End-to-End integration with Broker-dealers, Banking, Secondary Market, and all stakeholders (management, board directors, shareholders, investors, legal, auditors)

 

Why Them?

We rely on them (Banking, Broker-Dealers) to transact to keep our businesses operational. If they are no longer changing the way a service is delivered or integrated or a company or stakeholders are onboarded, companies will pivot to make rapid, fundamental changes to keep their business operational. 

 

There will be holdouts as we saw on 31 December 1999. In the end, they will be the ones complaining that it was Covid-19 that destroyed their businesses, but in reality, their businesses were adversely affected by not pivoting when all indicators pointed to the need for change.  

Real-Time Success

We are seeing clear indicators already that we must pivot our way of doing business.  Companies are raising capital online from registered funding portals or via their website, and the data is showing strong growth in online investing. This is one clear sign that those who have pivoted are getting rewarded versus those waiting and hoping for the good old days to come back.

 

11:59 PM 31 December 2020

RESET

 

How to be Ready for Raising Capital

Posted on by Oscar Jofre

Whether you’ve raised capital in the past or are preparing for your first round, being properly prepared will help your company secure the funding it needs. Proper preparation will make investors confident that you are ready for their investments and have a foundation in place for the growth and development of your company. So if you’re looking to raise money, what must you do to be ready for raising capital?

 

From the start, any company should keep track of shareholders in its capitalization table (commonly referred to as the cap table). Even if you have not yet raised any funds, equity distributed amongst founders and key team members should be accurately recorded. With this information kept up-to-date and readily available, negotiations with investors will be smoother, as it will be clear how much equity can be given to potential shareholders. If this information is unclear, deals will likely come with frustrations and delays. 

 

Researching and having knowledge of each investor type will also help prepare your company to raise money. Will an angel investor, venture capital firm, crowdfunding, or other investment method be suited best for the money that is being raised? Having a clear answer to this question will help you better understand the investors you’re trying to reach and will help you prepare a backup option if needed. 

 

Once your target investors have been decided and you have a firm grasp on the equity you’re able to offer, preparing to pitch your company to them will be a key step. Having a pitch deck containing information relevant to your company and its industry will allow you to convince investors why your business is worth investing in. Additionally, preparing for any questions that they may ask will ensure investors that you are knowledgeable and have done the research to tackle difficult problems. 

 

Before committing to raising capital, you should make sure that your company has an established business model. Investors want to see that you have a market for your product and are progressing. If investors are not confident that the product you’re marketing has a demand, it will be less likely they will invest. Investors will also want proof that the company is heading in the right direction and the money they invest will help it get there faster. 

 

Once you have determined that your company is ready for investors, managing the investments and issuing securities will be essential. To streamline the process and keep all necessary documents in one location, KoreConX’s all-in-one platform allows companies to manage the investment process and give investors access to their securities and a secondary market after the funding is completed. With cap table management, the all-in-one platform will help companies keep track of shareholders and is updated in real-time, ensuring accuracy as securities are sold. 

 

Ensuring that your company has prepared before raising capital will help the process go smoothly, with fewer headaches and frustrations than if you went into it unprepared. Investors want to know that their money is going to the right place, so allowing them to be confident in their investments will ensure your company gets the funding that it needs to be a success. 

Can I Use My IRA for Private Company Investments?

Posted on by Oscar Jofre

Individual retirement accounts (commonly shortened to IRAs) allow flexibility and diversity when making investments. Whether investing in stocks, bonds, real estate, private companies, or other types of investments, IRAs can be useful tools when saving for retirement. While traditional IRAs limit investments to more standard options, such as stocks and bonds, a self-directed IRA allows for investments in things less standard, such as private companies and real estate. 

 

Like a traditional IRA, to open a self-directed IRA you must find a custodian to hold the account. Banks and brokerage firms can often act as custodians, but careful research must be done to ensure that they will handle the types of investments you’re planning on making. Since custodians simply hold the account for you, and often cannot advise you on investments, finding a financial advisor that specializes in IRA investments can help ensure due diligence. 

 

With IRA investments, investors need to be extremely careful that it follows regulations enforced by the SEC. If regulations are not adhered to, the IRA owner can face severe tax penalties. For example, you cannot use your IRA to invest in companies that either pay you a salary or that you’ve lent money to, as it is viewed by the SEC as a prohibited transaction. Additionally, you cannot use your IRA to invest in a company belonging to either yourself or a direct family member. If the IRA’s funds are used in these ways, there could be an early withdrawal penalty of 10% plus regular income tax on the funds if the owner is younger than 59.5 years old. 

 

Since the IRA’s custodian cannot validate the legitimacy of a potential investment, investors need to be responsible for proper due diligence. However, since some investors are not aware of this, it is a common tactic for those looking to commit fraud to say that the investment opportunity has been approved by the custodian. The SEC warns that high-reward investments are typically high-risk, so the investor should be sure they fully understand the investment and are in the position to take a potential loss. The SEC also recommends that investors ask questions to see if the issuer or investment has been registered. Either the SEC itself or state securities regulators should be considered trusted, unbiased sources for investors.

 

If all requirements are met, the investor can freely invest in private companies using their IRAs. However, once investments have been made, the investor will need to keep track of them, since it is not up to their custodian. To keep all records of investments in a central location, investors can use KoreConX’s Portfolio Management, as part of its all-in-one platform. The portfolio management tool allows investors to utilize a single dashboard for all of their investments, easily accessing all resources provided by their companies. Information including key reports, news, and other documents are readily available to help investors make smarter, more informed investments. 

 

Once investors have done their due diligence and have been careful to avoid instances that could result in penalties and taxes, investments with IRAs can be beneficial. Since it allows for a diverse investment portfolio, those who choose to invest in multiple different ways are, in general, safer. Additionally, IRAs are tax-deferred, and contributions can be deducted from the owner’s taxable income. 

Wait a Minute, What is a Minute Book?

Posted on by Oscar Jofre

Unlike the name suggests, a minute book is by no means minute. As a business grows, a well-kept minute book becomes an essential record of all important company meetings and allows for the information to be easily accessed when required. With an up-to-date minute book, it makes it easier for companies to keep track of resolutions that affect financial transactions. If the company is ever audited, the minute book provides all the necessary information and references to documents in one place. Let’s break down what exactly you should find in a proper minute book. 

 

A minute book should have the company’s certificate of incorporation that serves as proof of the company’s registration. This includes information such as the business’s address, company directors, voting rights, and the company’s purpose. The minute book should also have the company’s bylaws or the rules and regulations that the company and its officers must adhere to. Maintaining a record of bylaws ensures that the company is following the rules they have set to operate by. 

 

The minute book typically contains the criteria by which the company’s Board of Directors and officers are chosen. For the Board of Directors, this may include how many are on the board and how long they are to serve.  For officers, it may include which ones are required for the company. In this section of the record, documents can also maintain a record of those who have previously served as a director or officer for the company. Additionally, the minute book should keep track of any meetings or communication with board members. 

 

Maintained in the minute book is a record of shares and shareholders. Stock options granted to employees are kept track of, along with the number of shares the company is authorized to sell. Ensuring the company knows the limit to the shares they are legally allowed to sell is very important and is outlined in the certificate of incorporation. Additionally, companies usually maintain a record of any documents they’ve filed in their minute book. Having all documents filed in a common location makes them easier to track and refer back to when needed. Kept in this collection of documents are also various reports, whether they’re annual or special, so that they are easily accessed by authorized parties. 

 

While keeping track of all of this information may seem like a daunting task, it is made easier by companies such as KoreConX. Integrated into its all-in-one platform, the KoreConX Minute Book ensures that all company documents are easily located and kept up-to-date. With all documents in a central location, both legal and board members can edit the material directly, without worrying about various versions that might exist offline. This consistency provides companies the ability to better manage their documents, ensuring that everything is accurate and easily accessed when needed. 

 

An understanding of what goes into a proper minute book can help your company achieve success and transparency in business. In any situation where essential company documents are necessary, having them readily available cuts down on delays and frustration, making it a smoother process for everyone involved.

Reg CF Investment Vehicles: What Are They Good For?

Posted on by Andrew Stephenson

In its recent rulemaking, the SEC added new Rule 3a-9 under the Investment Company Act to allow for the use of “crowdfunding vehicles” for Reg CF investments. It is important to recognize that crowdfunding vehicles are quite limited, and not at all similar to the special purpose vehicles (“SPVs”) used to aggregate accredited investors in angel or venture capital funding rounds.

In that type of SPV, there is often a lead investor or manager who may act on behalf of the investors in the SPV. Those persons could be exempt reporting advisers under the Investment Advisers Act, or even fully registered investment advisers. In this way, SPVs create real separation between the investors and the underlying issuer, with some person or entity acting as an intermediary when making decisions or providing information to investors.

For crowdfunding vehicles, on the other hand, the SEC requires that investors receive the same economic exposure, voting power, ability to assert claims under law, and receive the same disclosures as if they invested directly in the issuer itself. In particular, a crowdfunding vehicle:

  1. Is organized and operated for the sole purpose of directly acquiring, holding, and disposing of securities issued by a single Reg CF issuer;
  2. Does not borrow money and uses the proceeds from the sale of its securities solely to purchase a single class of securities of a single Reg CF issuer;
  3. Issues only one class of securities in one or more offerings under Reg CF in which the crowdfunding vehicle and the Reg CF issuer are deemed to be co-issuers;
  4. Receives a written undertaking from the Reg CF issuer to fund or reimburse the expenses associated with its formation, operation, or winding up, receives no other compensation, and any compensation paid to any person operating the vehicle is paid solely by the Reg CF issuer;
  5. Maintains the same fiscal year-end as the crowdfunding issuer;
  6. Maintains a one-to-one relationship between the number, denomination, type and rights of Reg CF issuer securities it owns and the number, denomination, type and rights of its securities outstanding;
  7. Seeks instructions from the holders of its securities with regard to:
    1. The voting of the Reg CF issuer securities it holds and votes the crowdfunding issuer securities only in accordance with such instructions; and
    2. Participating in tender or exchange offers or similar transactions conducted by the Reg CF issuer and participates in such transactions only in accordance with such instructions;
  8. Receives, from the Reg CF issuer, all disclosures and other information required under Reg CF and the crowdfunding vehicle promptly provides such disclosures and other information to the investors and potential investors in the crowdfunding vehicle’s securities and to the relevant intermediary; and
  9. Provides to each investor the right to direct the crowdfunding vehicle to assert the rights under State and Federal law that the investor would have if he or she had invested directly in the Reg CF issuer and provides to each investor any information that it receives from the Reg CF issuer as a shareholder of record of the crowdfunding issuer.

The result is that no lead investor or manager can be used, and investors will have the same rights and responsibilities as if they invested in the issuer directly.

The biggest practical effect is that Reg CF investors will appear on one line on the issuer’s cap table (addressing the “messy cap table” issue), and that line will represent the full number of beneficial owners, who each must still be notified by the issuer in the event of any decisions requiring investor action. The issuer could hire an administrator to handle communications with the investors in the crowdfunding vehicle, but there was nothing preventing an issuer from doing that previously.

However, by only existing as one line on the issuer’s cap table, and confirmed in its rulemaking, crowdfunding vehicles will count as one “holder of record” for the purposes of Section 12(g) of the Securities Exchange Act. This is the provision that says that a company has to register with the SEC and become fully-reporting when it reaches a specified asset and number-of-shareholder threshold. Up to now, crowdfunding companies have relied on a conditional exemption from Section 12(g) but some companies have worried about what will happen when they no longer comply with those conditions.

The SEC further opined that with these changes, it is possible that issuers will provide greater voting rights than has been common in Reg CF offerings. I am not sure that will be the case, as use of crowdfunding vehicles will not simplify obtaining votes for any necessary corporate consents unless the rights of investors are curtailed by the use of drag-alongs or similar provisions.

Setting up a crowdfunding vehicle will require documentation tailored to follow the terms of the securities being sold in the crowdfunding offering, and arranging for administrative tasks such as issuance of K-1s to the investors.  CrowdCheck is available to talk through the implications of using crowdfunding vehicles and whether it makes sense for your Reg CF offering.

Why is a Broker-Dealer Important for Private Company Offerings?

Posted on by Oscar Jofre

If you’re looking to raise money for your private company, chances are that you’ve at least heard the term “broker-dealer.” However, if you’re new to the process, you might not be too familiar with what they do and why they are a key component of the fundraising process. 

 

Simply put, a broker-dealer is an agent that assists you in raising capital for your private company.  Broker-dealers can be small, independently working firms or ones that operate as part of large banks and investment firms. Both are subject to registration with the SEC and must join a “self-regulatory organization” such as FINRA. If a broker-dealer is not registered they can face penalties enforced by the SEC.  You can check a broker-dealer’s registration here: https://brokercheck.finra.org/. 

 

For private companies looking to raise money, working with a broker-dealer will be a key part of their capital raising activities. 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. Ensuring that issuers are compliant with all regulations is essential to a successful round of capital raising and good business practices. If issuers are not compliant, they can face penalties from the SEC including returning the money raised.

 

Broker-dealers are intermediaries in a fundraise transaction between the private company and the investors.  As such, they are mandated to perform a variety of compliance activities.  If you retain a broker-dealer, they will first be responsible for performing due diligence on your private company. This is important so that there are no false representations to investors.  Investor protection is one of the main responsibilities of the SEC, so the broker-dealers must ensure they are performing appropriate steps to ensure the information presented to investors is accurate, appropriate, and not misleading.

 

Once the broker-dealer has completed the due diligence, they work with private companies to prepare appropriate information to share with investors and set timelines.  This can involve liaising with your legal counsel to ensure the offering documents are complete and to ensure what type of investors they can approach with your offering.  Each country has its own regulations around how you can approach investors, which is why it is important to have a good broker-dealer and legal counsel in each region you intend to offer your securities. 

 

There are different types of investors that can be approached depending on jurisdiction and securities regulations. They include Venture Capital, Private Equity firms, Institutional investors, or individuals. While most of these are professional investors, the individual investor group is further broken down into accredited/sophisticated investors and the general public.  Accredited investors have to meet income or wealth criteria to invest in accredited investor offerings (Regulation D type of offerings in the USA).  The popular mechanisms in the USA to present your offering to the non-accredited or general population (over 18 years) are Regulation CF and Regulation A+.

 

As the broker-dealers reach out to investors and find interested participants, there are steps that they have to perform to ensure that the investor is appropriate for the company.  Typical checks that broker-dealers have to conduct on investors can include performing identification verification, anti-money laundering checks, assessing the suitability of the investment to the investor, and doing accreditation checks. 

 

With the help of a broker-dealer, companies can raise the funding their company needs while being confident that they are maintaining compliance with the regulations that are in place. With over 3,700 registered broker-dealers in the United States alone, every issuer looking to raise capital can be confident of finding at least one well-suited broker-dealer that meets their needs.

SEC Proposes Relief for “Finders”

Posted on by Sara Hanks

I have long (oh so long) been one of those urging the SEC to give some clarity with respect to the status of “finders.” See here for the latest piece.

Early-stage companies raising funds very often reach out to a guy who knows some guys who have money and have invested in startups in the past. If the first guy wants to be compensated by reference to the amount of money his contacts are able to invest, he may well have violated the broker registration requirements of the Securities Exchange Act of 1934. And it’s not only him who needs to be worried; if a startup raises funds through someone who should have been registered as a broker and wasn’t, their sales of securities may be subject to rescission – buying the securities back, with interest.

Nonetheless, startups are so strapped for money (and often don’t understand the requirements of the law) that they do this all the time.

Industry participants have been asking the SEC for guidance in this area for decades, and now the SEC has come up with some simple proposals that should be of use to the startup community.

The SEC is proposing to exempt two classes of finders, Tier I Finders and Tier II Finders, based on the types of activities in which they are permitted to engage, and with conditions tailored to the scope of their activities. The proposed exemption for Tier I and Tier II Finders would be available only where:

  • The issuer is not a reporting company under the Exchange Act;
  • The issuer is seeking to conduct the securities offering in reliance on an applicable exemption from registration under the Securities Act;
  • The finder does not engage in general solicitation;
  • The potential investor is an “accredited investor” as defined in Rule 501 of Regulation D or the finder has a reasonable belief that the potential investor is an “accredited investor”;
  • The finder provides services pursuant to a written agreement with the issuer that includes a description of the services provided and associated compensation;
  • The finder is not an associated person of a broker-dealer; and
  • The finder is not subject to statutory disqualification at the time of his or her participation.

Tier I Finders. A “Tier I Finder” is defined as a finder who meets the above conditions and whose activity is limited to providing contact information of potential investors in connection with only one capital raising transaction by a single issuer within a 12-month period, provided the Tier I Finder does not have any contact with the potential investors about the issuer. A Tier I Finder that complies with all of the conditions of the exemption may receive transaction-based compensation (in other words, compensation based on the amount raised) for the limited services described above without being required to register as a broker under the Exchange Act.

Tier II Finders. The SEC is also proposing an exemption that would permit a finder, where certain conditions are met, to engage in additional solicitation-related activities beyond those permitted for Tier I Finders. A “Tier II Finder” is defined as a finder who meets the above conditions, and who engages in solicitation-related activities on behalf of an issuer, that are limited to:

  • Identifying, screening, and contacting potential investors;
  • Distributing issuer offering materials to investors;
  • Discussing issuer information included in any offering materials, provided that the Tier II Finder does not provide advice as to the valuation or advisability of the investment; and
  • Arranging or participating in meetings with the issuer and investor.

A Tier II Finder wishing to rely on the proposed exemption would need to satisfy certain disclosure requirements and other conditions: First, the Tier II Finder would need to provide a potential investor, prior to or at the time of the solicitation, disclosures that include: (1) the name of the Tier II Finder; (2) the name of the issuer; (3) the description of the relationship between the Tier II Finder and the issuer, including any affiliation; (4) a statement that the Tier II Finder will be compensated for his or her solicitation activities by the issuer and a description of the terms of such compensation arrangement; (5) any material conflicts of interest resulting from the arrangement or relationship between the Tier II Finder and the issuer; and (6) an affirmative statement that the Tier II Finder is acting as an agent of the issuer, is not acting as an associated person of a broker-dealer, and is not undertaking a role to act in the investor’s best interest. The Commission is proposing to allow a Tier II Finder to provide such disclosure orally, provided that the oral disclosure is supplemented by written disclosure and satisfies all of the disclosure requirements listed above no later than the time of any related investment in the issuer’s securities.

The Tier II Finder must obtain from the investor, prior to or at the time of any investment in the issuer’s securities, a dated written acknowledgment of receipt of the Tier II Finder’s required disclosure.

A Tier II Finder that complies with all of the conditions of the proposed exemption may receive transaction-based compensation for services provided in connection with the activities described above without being required to register as a broker under the Exchange Act.

A finder could not be involved in structuring the transaction or negotiating the terms of the offering. A finder also could not handle customer funds or securities or bind the issuer or investor; participate in the preparation of any sales materials; perform any independent analysis of the sale; engage in any “due diligence” activities; assist or provide financing for such purchases; or provide advice as to the valuation or financial advisability of the investment.

This exemption would not affect a finder’s obligation to continue to comply with all other applicable laws, including the antifraud provisions of federal and state law. Additionally, regardless of whether or not a finder complies with this exemption, it may need to consider whether it is acting as another regulated entity, such as an investment adviser.

The exemption is really aimed at the guy at the golf club who has accredited buddies he can introduce the startup to. It would be available to natural persons only (not companies) and the finder couldn’t undertake general solicitation (he should know the people he is introducing to the startup; if he has to go searching for them, he’s essentially acting as a broker. The “no general solicitation” and “natural person” conditions means that the proposed exemption doesn’t help clarify the regulatory status of non-broker online platforms.

We are a little disappointed that so many of the comment letters on the proposal have been negative. We do understand that there is a great deal of clarification needed with respect to what it means to be in the business of a broker. And the SEC needs to work closely with the states in this area. But we at CrowdCheck are pleased that the SEC has provided some clarity in this area.

How to Manage Investments in Private Companies

Posted on by Oscar Jofre

For investors, investing in private companies can be a beneficial way to diversify their investment portfolios. Whether the investment was made through private equity or RegA+, proper management can contribute to long-term success. However, once the investment is made, investors need to ensure that they are correctly managing their shares. With this in mind, how should investors manage their investments once they have been made?

 

Investments made in private companies can often come with voting rights. Being a part of company decisions is an important aspect of being an investor and helps to elect company directors and resolve issues. Investors exercising their voting rights can be a major aspect of managing their portfolio. 

 

Whether information is provided directly to the investors by the company or through a transfer agent, as companies release reports and other key information, shareholders should maintain current knowledge of the information. Understanding the company’s direction and changes that are occurring can give investors a picture of the future so they can determine how their shares will affect their portfolio. The investor should also know where the data can be found so that they are easily able to access and assess it. 

 

Additionally, investors should monitor the liquidity of the shares. Since some private company shares can be traded in a secondary market, understanding the value and the option to trade is important for investors. If they know how much their shares are worth, and they have the ability to sell them, investors can freely trade their shares. This is key if they decide that they no longer want to be a shareholder in a particular private company. 

 

However, for investors who own shares in multiple different companies, managing this information can become a burdensome task. With an all-in-one platform that incorporates portfolio management for investors, KoreConX streamlines and simplifies the process. KoreConX Portfolio Management allows investors to manage their investments from a centralized dashboard. Investors are easily able to see the shares that they own in each private company they’ve invested in. Through the platform, investors can access critical company information and performance data in one place, eliminating the need to remember where each piece of information is kept. Investors are also notified of upcoming shareholder meetings and can exercise their voting rights through the KoreConX platform. When companies and investors utilize the KoreConX platform, they can achieve higher success rates by maintaining compliance with necessary regulations. Utilizing KoreConX Portfolio Management is a powerful tool for investors to make informed decisions regarding their investments. 

 

When dealing with private company investments, it is incredibly important that investors properly manage their portfolios. Remaining up-to-date on company decisions and performance can help them plan for the future of their shares while allowing them to make decisions to increase the success of their investments. When investors understand their voting rights, company developments, and the liquidity of their shares, they can be an active participant in their financial success. 

What is Investor Relations?

Posted on by Oscar Jofre

No matter the size of the company, investor relations (IR) should be a key component of conducting business. It’s never too early to implement a solid investor relations approach, but if your company has never tackled this issue, the term may seem confusing. Understanding what investor relations entail will allow your company to begin implementing strategies that will help your company succeed. 

 

Simply put, investor relations provide all investors with accurate information about the company. IR plays a key role in communication between investors and company executives. Rather than shareholders contacting the company’s CEO or other executives directly, the IR department acts as an intermediary, determining when it is important to involve the CEO.  If company executives were continually contacted by investors with requests, they would have to devote their already limited time to manage these requests. However, it is also up to IR teams to still ensure that company executives are still available for shareholders, so they must find a balance that works best. 

 

IR departments also have a responsibility to ensure that the company is compliant when reporting to investors. For public companies, the Public Company Accounting Reform and Investor Protection Act, passed by the US government in 2002, increased reporting requirements and set standards for companies to follow. With the bill in place, IR departments are required to distribute financial information to investors accurately. For private companies, ensuring they are meeting compliance early will save them time if they were to go public. The transparency increases confidence in the company for investors and ensures that the business is being run the right way. 

 

As a key line of communication between the company and investors, investor relations departments are typically responsible for communicating any changes or initiatives that the company will be undergoing. Being included in discussions with the executive team will help the IR team understand why decisions are being made so that they can communicate the reasoning effectively with investors. 

 

For private companies, software such as KoreConX’s all-in-one platform can help easily manage relationships with their shareholders. The KoreConX IR feature allows companies to work seamlessly with investors by providing them online opportunities to vote and access company financial information and news releases. By giving investors a secure platform on which they can both nominate and vote on company matters, they can feel confident in the way voting is held. Additionally, the investor relations feature allows the company to easily organize meetings with its investors. 

 

By maintaining transparent investor relations, private companies can prepare themselves for success. Keeping investors up to date on important company information allows them to have confidence in the company’s leadership and their investment. Having a track record of good relationships and transparency with current investors may also be beneficial when it comes to raising future capital, as it could help to attract potential ones. 

What is Needed for a Successful RegA+ Offering

Posted on by Oscar Jofre

If your company is looking to raise funding, you’ve probably considered many options for doing so. Since the SEC introduced the outlines for Regulation A+ in the JOBS Act, companies have been able to raise amounts up to $50 million (which increases to $75 million in January 2021) during rounds of funding from both accredited and non-accredited investors alike. If you’ve chosen to proceed with a RegA+ offering, you’ve probably become familiar with the process, but what do you need for your offering to be a success?

 

When beginning your offering, your company’s valuation will play a key role in the offering’s success. While it may be tempting to complete your valuation in-house, as it can save your company money in its early stages, seeking a valuation from a third-party firm will ensure its accuracy. Having a proper valuation will allow you to commence your offering without overvaluing what your company is worth. 

 

Since the SEC allows RegA+ offerings to be freely advertised, your company will need a realistic marketing budget to spread the word about your fundraising efforts. If no one knows that you’re raising money, how can you actually raise money? Once you’ve established a budget, knowing your target will be the next important step. If your company’s brand already has loyal customers, they are likely the easiest target for your fundraising campaign. Customers that already love your brand will be excited to invest in something that they care about. 

 

After addressing marketing strategies for gaining investments in your company, creating the proper terms for the offering will also be essential. Since one of the main advantages of RegA+ is that it allows companies to raise money from everyday people, having terms that are easy for people to understand without complex knowledge of investments and finance will have a wider appeal. Potential investors can invest in a company with confidence when they can easily understand what they are buying. 

 

For a successful offering, companies should also keep in mind that they need to properly manage their offering. KoreConX makes it simple for companies to keep track of all aspects of their fundraising with its all-in-one platform. Companies can easily manage their capitalization table as securities are sold and equity is awarded to shareholders, and direct integration with a transfer agent allows certificates to be issued electronically. Even after the round, the platform provides both issuers and investors with support and offers a secondary market for securities purchased from private companies. 

 

Knowing your audience, establishing a marketing budget, creating simple terms, and having an accurate valuation will give your RegA+ offering the power to succeed and can help you raise the desired funding for your company. Through the JOBS Act, the SEC gave private companies the incredible power to raise funds from both everyday people and accredited investors, but proper strategies can ensure that the offering meets its potential.

Regulation A Offering Limits Increased to $75 Million

Posted on by Oscar Jofre

On Monday, November 2, exciting news was announced by the SEC regarding Regulation A offerings. The Securities and Exchange Commission approved long-awaited amendments to offering limits to “promote capital formation and expand investment opportunities.” These amendments, going into effect on January 2, 2021, drastically increase the amount of capital that issuers can raise through RegA+ offerings.

 

Before the Jumpstart Our Business Startups Act (JOBS Act) of 2012, Regulation A was a relatively obscure and underutilized regulation since adherence to Blue Sky Laws in all 50 states made it time-consuming and costly. The JOBS Act transformed RegA into a company-friendly law allowing businesses to raise millions of dollars. Broken down into two tiers, Tier 1 allows companies to raise a maximum of $20 million after meeting compliance with Blue Sky Laws in each state, while Tier 2 previously allowed up to $50 million to be raised after the offering statement has been reviewed and accepted by the SEC. While neither tiers place limits on the amount an accredited investor can invest, Tier 2 limits individual investors to either 10% of their net worth or annual income.

 

With this latest amendment to Regulation A, companies will now be able to raise a maximum of $75 million under Tier 2 offerings. This comes as great news for companies looking to raise capital through RegA offerings since Tier 2 offerings comprise the majority of those conducted, with 73% of qualified offerings falling under this tier. This substantial increase allows issuers to raise larger sums of capital to fund their business and its development. In addition, the updated Regulation A raises the offering limit of secondary sales from $15 million to $22.5 million. With Tier 2 offerings preempting Blue Sky Laws in each state, it offers companies an efficient tool for efficiently raising capital on a nationwide scale. 

 

With an increase of $25 million, this drastic improvement to Regulation A offerings will empower more companies to raise the capital they need for success.

The SEC proposes expanding the “accredited investor” definition

Posted on by Sara Hanks

The SEC has proposed amending the definition of “accredited investors.” Accredited investors are currently defined as (huge generalization here) people who have net worth of $1 million (excluding principal residence) or income of $200,000 ($300,000 with spouse) or entities that have assets of $5 million. Here’s the full definition.

The whole point of the accreditation definition was that it was it was supposed to be a way to determine whether someone was able to “fend for themself” in making investment decisions, such that they didn’t need the protection that SEC registration provides. Those people may invest in private placements. The thinking at the time the definition was adopted was that a financial standard served as a proxy for determining whether an investor could hire a professional adviser. Financial standards have never been a particularly good proxy for investment sophistication, though, and some people who are clearly sophisticated but not rich yet have been excluded from being able to invest in the private markets.

The proposal would:

  • Extend the definition of accredited investor to natural persons (humans) who hold certain certifications or licenses, such as the FINRA Series 7 or 65 or who are “knowledgeable employees” of hedge funds;
  • Extend the definition of accredited investors to entities that are registered investment advisers, rural business investment companies, LLCs (who honestly we all assumed were already included), family offices, and other entities meeting an investments-owned test;
  • Do some “housekeeping” to allow “spousal equivalents” to be treated as spouses and tweak some other definitions; and
  • Create a process whereby other people or entities could be added to the definition by means of a clear process without additional rulemaking.

We are generally in favor of these proposals. However, we worry that the more attractive the SEC makes the private markets, the more that people of modest means will be excluded from the wealth engine that is the American economy. We also believe that the concerns raised about the integrity of the private markets by the two dissenting Commissioners, here and here, should be taken seriously. The real solution to all of this is to make the SEC registration process more attractive, and better-scaled to early-stage companies.

In the meantime, read the proposals and the comments, and make up your own minds. The comment period ends 60 days after publication in the Federal Register, which hasn’t happened yet.

Equity Crowdfunding Platforms (RegCF)

Posted on by Oscar Jofre

As of 02 JUNE 2020, there are 51 active RegCF Equity Crowdfunding Platforms helping companies raise up to $1.0M USD.

We are all anticipating that RegCF is going to be potentially increased to a $5 million funding cap.   The SEC has proposed this increase, along with some other changes, and many observers expect the Commission to move forward with a higher funding cap.    

We recently did a Q&A with  Wefunder on what RegCF companies require.

We have compiled the list of 51 Active Equity Crowdfunding Platforms along with the sectors they serve.

Company Name URL City State Sector
Bioverge Portal, LLC https://www.bioverge.com/ San Francisco CA Healthcare
Buy the Block https://buytheblock.com/ Denver CO Community
CollectiveSun, LLC http://collectivesun.market/ San Diego CA Social Ventures
Crowd Ignition https://crowdignition.com/ New York NY General
CrowdsourcedFunded https://crowdsourcefunded.com/ Chicago IL General
EnergyFunders Marketplace http://www.energyfunders.com/ Houston TX Energy
EnrichHER Funding, LLC https://ienrichher.com/ Atlanta GA Loans
Equifund Crowd Funding Portal Inc. www.equifundcfp.com Kanata ON General
EquityDoor, LLC https://equitydoor.com/ Austin TX Real Estate
Flair Portal ( Flair Exchange) https://www.flairexchange.com/ Vancouver BC Gaming
Flashfunders Funding Portal www.flashfunders.co Sherman Oaks CA General
Funders USA https://www.fundersusa.com/ Newport Beach CA Technology
Fundit http://fundit.com/ Fairfield NJ General
Fundme.com, Inc. www.fundme.com Murray UT Technology
Fundopolis Portal LLC https://www.fundopolis.com Boston MA General
GrowthFountain Capital www.growthfountain.com New York NY General
Honeycomb Portal www.honeycombcredit.com Pittsburgh PA General
Hycrowd https://www.hycrowd.com/ Jersey City NJ General
Indie Crowd Funder www.indiecrowdfunder.com Los Angeles CA Film
Infrashares Inc. https://infrashares.com San Francisco CA Infrastructure
IPO Wallet LLC https://ipowallet.com/ https://invest.ipowallet.com/ Sachese TX General
Jumpstart Micro www.jumpstartmicro.com Bedford MA General
Ksdaq https://www.mrcrowd.com Monterey Park CA General
MainVest, Inc. https://mainvest.com/ Newburyport MA General
Merging Traffic Portal llc www.mergingtrafficportal.com Orlando FL General
MinnowCFunding www.minnowcfunding.com Pasadena CA Real Estate
MiTec, PBC (Crowdfund Main Street) https://www.crowdfundmainstreet.com/ Fremont CA Impact
NetCapital Funding Portal www.netcapital.com Lewes DE General
NSSC Funding Portal (SmallChange) www.smallchange.com Pittsburgh PA Real Estate
OpenDeal (Republic) www.republic.co New York NY General
Pitch Venture Group LLC https://letslaunch.com/ Houston TX General
         
Raise Green, Inc. http://www.raisegreen.com Somerville MA Impact
Razitall www.razitall.com Basking Ridge NJ General
SeriesOne https://seriesone.com/ Miami FL General
SI Portal (SeedInvest) www.seedinvest.com New York NY General
Silicon Prairie Holdings, Inc. https://sppx.io/ St. Paul MN General
         
SMBX https://www.thesmbx.com/ San Francisco CA Bonds
Sprowtt Crowdfunding, Inc. https://www.sprowttcf.com/ Tampa FL General
         
StartEngine Capital www.startengine.com Los Angeles LA General
STL Critical Technologies JV I, LLC (nvested) www.nvstedwithus.com St. Louis MO General
         
Title3Funds www.title3funds.com Laguna Beach CA General
Trucrowd www.us.trucrowd.com https://fundanna.com
https://cryptolaunch.us
https://musicfy.us		 Chicago IL General
VedasLabs Inc. https://vedaslabs.io/ New York City NY General
Vid Angel Studios (VAS Portal LLC) https://studios.vidangel.com/ Provo UT Film
Wefunder Portal https://www.wefunder.com San Francisco CA General
Wunderfund www.wunderfund.co Cincinnati OH General
WWF Funding Portal LLC https://www.waterworksfund.com/ Detroit MI Water

If you have any questions about how we can help you with your RegCF contact us

lily@koreconx.io

FINRA BD Requirements for RegA+ & Digital Securities

Posted on by Oscar Jofre

FINRA BD Requirements for RegA+ & Digital Securities

The private markets are receiving a much updated revamp by the SEC which is having a major impact on registered FINRA Broker-dealer firms.  Here are two (2) of the most common activities for which FINRA Broker-dealers (BD) are approached by companies.  Most BD’s are not aware that in order to help companies raise capital utilizing these regulations, there is a registration they must first do with FINRA.

We went to the source that has been helping many FINRA Broker-dealers and put the responses in a simple way.  Ken Norensberg, Managing Director, Luxor Financial provides the answers to which all BDs need to pay extra attention to make sure you are fully compliant.

RegA+ (Regulation A)

Broker-dealers today have the ability to help companies that are using either Regulation D (RegD) or regulation A(RegA+).  Now what they are not aware of is that in order to allow them to help companies with RegA+ they do need to be registered with FINRA. If that registration isn’t done, they are not allowed to proceed in offering those services. This process can take anywhere from 60 to 90 days or it could happen sooner.  Most firms are not aware that when they take on a RegA+ client, they must apply to FINRA to represent them in the offering. This is done at the same time the company is filing their Form 1A with the SEC for their RegA+ offering.

Digital Securities

Digital Securities are now becoming main street language and most Broker-dealers want to offer this to investors. Unfortunately, if they do not have FINRA approval for digital securities, it’s not a product they can represent or offer to investors.  Digital Securities require registration. The process is like putting a full new member application, and it will take anywhere up to four (4) months.  Your firm must file with FINRA for each of the exemptions you want to use for Digital Securities (RegD and or RegA+.  Here is what your firm will be required to answer to FINRA in its application.

  • You will need a detail business plan
  • What entities are the holders of the “private keys” in the DLT network that would be required to gain access to the digital securities, cash-backed digital securities holdings or digital currency? 
  • Are multiple keys needed to gain access or is a single key sufficient?
  • Who controls or has access to the DLT network where the assets are held?
  • What happens in the event of a loss or destruction of assets (either due to fraud or technological malfunction) on the network?
  • If the broker-dealer was to fail and is liquidated in a proceeding under the Securities Investor Protection Act of 1970, as amended, how would customers’ securities and funds be treated, and how would customers access their assets?
  • In instances where firms have established partnerships with other firms to serve as their back-ups and to carry out critical functions in the event of emergencies, what type of access would those back-up firms have to the private keys?
  • How will customers or the Securities Investor Protection Corporation (SIPC) trustee access the customers’ assets in the event of a defaulted broker-dealer? What parties will be involved, and what are their roles and responsibilities?
  • How does the use or application of the DLT network affect the market risk, liquidity or other characteristics of the asset?
  • What information is maintained using the DLT network?
  • What will be deemed as the physical location of the firm’s records maintained on a node of a DLT network that may extend over multiple countries?
  • What parties have control or access to the firm’s records? What are their rights, obligations and responsibilities related to those records, and how are they governed?
  • What is the firm’s (and other participants’) level of access to the data, and in what format would it be able to view the data?
  • How does the DLT network interact with the firm’s own systems for recordkeeping purposes?
  • How would the records be made available to regulators?
  • How will the firm’s traditional exception reporting, used to supervise transactions, be generated from a DLT network?
  • How will the firm protect any required records from tampering, loss or damage?
  • Clearance & Settlement?
  • Anti-Money Laundering (AML) Procedures & Know Your Customer (KYC) Rules?
  • Customer Data and Privacy?
  • Trade & Order Reporting Requirements?
  • Supervision & Surveillance of Transactions?
  • Fees & Commissions?
  • Customer Confirmations & Account Statements?
  • Anticipated Customer Base?
  • Facilities, Hosting?
  • Licensed & Qualified Staff

As the market is evolving to provide more alternatives to companies and investors, FINRA Broker-dealers need to also make sure their licenses are up to date to be able to offer these updated alternatives.  It’s not enough that you are registered with FINRA.

Thank you to Ken Norensberg, Managing Director of Luxor Financial, who provided this valuable information to assist Broker-dealers to stay compliant.  Ken has been helping FINRA Broker-dealers manage these new registration requirements. 

About Ken Norensberg & Luxor

Luxor Financial Group, Inc. a NY based Broker-Dealer Consulting Firm that specializes in setting up Independent Broker-Dealers. We are experts in New Member Applications, Continuing Membership Applications, Expansion Filings, FINRA and SEC Audits, Anti Money Laundering Reviews, Business Development and general compliance and business development services. www.luxorbd.com

Ken is a former Member of the FINRA Board of Governors. FINRA oversees the regulatory activities and business practices of over 4,500 Broker-Dealers, 163,000 Branch offices, 630,000 registered representatives and 3,500 employees and consultants with annualized revenues and a budget of approximately $800,000,000 (Eight hundred million dollars.)

The Board contends with many complex issues that affect large organizations from generating revenues, managing expenses, personnel, legal, regulatory, political and operational issues.

Additionally, Ken was a Member of the following committees and subcommittees:

  • Regulatory Policy Committee
  • Emerging Regulatory Issues (Subcommittee)
  • Financial, Operations & Technology Committee
  • Pricing (Subcommittee)
  • Ex-Officio of the Small Firms Advisory Board (SFAB)

What is Reg A plus versus Reg A?

Posted on by Kendall Almerico

The simple answer is that today, Regulation A (Reg A) and Regulation A+ (Reg A+) are the exact same law. There is no difference, and the two terms may be used interchangeably.

Some confusion stems from the two similar terms, and there is much misleading information about this online. I’ve even spoken at events where I’ve heard other lawyers claim the two laws are different. They are not.

Historically, there was no Reg A+, there was only Reg A. Regulation A was an infrequently used law that allowed a company to raise up to $5,000,000 from the general public, but with the company still having to go state-by-state to get Blue Sky law approval for their offering.  This expensive and time-consuming process of dealing with review of an offering by 50+ state regulators made Regulation A far too expensive and time-consuming for most issuers to only be allowed to raise $5,000.000. 

 In 2012, the Jumpstart Our Business Startups Act (JOBS Act) became law, and Title IV of that act amended Regulation A in many ways, most notably (a) doing away with the state by state blue sky law requirement and (b) raising the limit from $5,000,000 to $20,000,000 or $50,000,000, depending on which “tier” of the law is used. Congress took a virtually worthless law, and turned it into an excellent and company friendly law that has allowed many companies since to raise millions.

Interestingly, since in 2012 when the law went into effect, and even since 2015 when the SEC passed its rules allowing the law to actually be used, the law is still officially called Regulation A. But, both the SEC, and commentators also started simultaneously calling the law “Regulation A+” or “Reg A+” to note that it was a supercharged version of the old Regulation A law.

Finally, to get super-lawyer-nerdy here, the official name of the law is Regulation A – Conditional Small Issues Exemption, and is part of the Securities Act of 1933, found at 17 CFR §§ 230.251 – 230.300-230.346.

What are investor limits on investment size of both?

As noted in my other blog article, these is no difference between Regulation A (Reg A) and Regulation A+ (Reg A+). They are the exact same law.  The two terms may be used interchangeably. Therefore, investor limits on investment size are the same for either term.

However, there are investor limits on how much an investor may invest in Regulation A. These limits depend on which “tier” of the law is being used.

Tier 1 of Regulation A allows a company to raise up to $20,000,000, but the company must go through Blue Sky law compliance in every state in which it plans to offer its securities. There are no limitations on whether someone can invest, or how much someone can invest, in a Tier 1 offering. 

As a side note, Tier 1 offerings tend to be limited to one state, or a small number of states, because of the added cost of Blue Sky compliance. The SEC does not limit the amount of investment, but states may have limitations in their securities laws, so an analysis of each state’s securities laws is necessary if doing a Tier 1 offering.

Tier 2 of Regulation A allows a company to raise up to $50,000,000, and the company does not have to go through Blue Sky law compliance in any state in which it plans to offer its securities. However, there are limitations on how much someone can invest, in a Tier 2 offering if the offering is not going to be listed on a national securities exchange when it is qualified by the SEC.  If the Tier 2 offering is going to be listed on such an exchange, there are no investor limitations.

For a Tier 2 offering that is not going to be listed on a national exchange, individual investors are limited in how much they can invest to no more than 10% of the greater of the person’s (alone or together with a spouse) annual income or net worth (excluding the value of the person’s primary residence and any loans secured by the residence (up to the value of the residence).

There are no limitations on how much an accredited investor can invest in either a Tier 1 or a Tier 2 Regulation A offering.

Why is my cap table so important for my company?

Posted on by Oscar Jofre

It’s never too early in the process of building a company to start managing your capitalization table (otherwise known as a cap table). As a detailed document recording all information regarding shareholders and the equity owned in the company, a well-managed cap table will become essential to long term success. Even if you’re thinking that your company does not need to keep such detailed records early on, understanding its importance may change your mind. 

At first, keeping track of equity might be a simple task. In the early stages, perhaps equity had only been distributed amongst cofounders. However, as the company grows, equity might be given out to key team members and employees, which all needs to be recorded accurately.  Without numbers correctly recorded, it will likely be hard to know exactly how much equity is remaining for the future. Also, with proper recording, it will allow founders to easily determine how certain deals may affect the equity distribution of the company. 

For potential investors, the cap table will be a key resource. Before investing in a company, investors will want to become familiar with current shareholders and the equity that each one possesses. The transparency a well-managed cap table allows will help avoid delays and increase investor confidence. During rounds of funding, the founder should also be concerned with how awarding investors with equity will affect their ownership in their company. For both parties during investor negotiations, the cap table will be essential. 

Once the company has received investments from investors, managing shareholders will also become an important task, which can be done in the cap table. The cap table will typically include investor information, such as who they are, their voting rights, and the number of shares that they own. With this information in one centralized place, if voting was to take place, the cap table ensures that all investors would be included as necessary.

One major benefit of starting to manage a cap table as soon as possible is that it will save time and resources in the long run. As the company begins to seek funding, the cap table would be already prepared and up to date. If the company did not already begin to keep records in their cap table, they would need to go back and create one, which could increase the chances for errors since it could be possible for them to have lost documents or records that they would need.

So what is the best way to manage your company’s cap table? Even though you can make a simple spreadsheet in Excel, using software such as KoreConX’s all-in-one platform might be more beneficial for long-term success. As deals occur, the cap table is automatically updated, eliminating errors that could result from manual changes. The platform also provides investors with the transparency they need to feel confident in their investments. Companies will benefit immensely from the increased transaction speeds and expedited due diligence that results from a properly managed cap table.

SEC changes to RegA+ and RegCF

Posted on by Oscar Jofre

On 04 March 2020, the US Securities Exchange Commission (SEC) has laid out the proposed changes that are going to have a major impact on the private capital markets.  This is very positive for the market. These changes have been in the works for a number of years and many in the industry have advocated for these changes that are now materializing.

The Commission proposed revisions to the current offering and investment limits for certain exemptions. 

Regulation Crowdfunding (RegCF): 

  • raise the offering limit in Regulation Crowdfunding from $1.07 million to $5 million;

This is going to benefit the 44+ online RegCF platforms such as;  Republic, Wefunder, StartEngine, Flashfunders, EquityFund, NextSeed.   These online platforms have paved the way and now more US-based companies will be able to capitalize on this expanded RegCF limit.  

Regulation A (RegA+) 

  • raise the maximum offering amount under Tier 2 of Regulation A from $50 million to $75 million; and
  • raise the maximum offering amount for secondary sales under Tier 2 of Regulation A from $15 million to $22.5 million.

As you saw in our recent announcement of our RegA+ all-in-one investment platform, we expect more companies to now start using RegA+ for their offerings and they need a partner that can deliver an end-to-end solution.   www.koreconx.io/RegA

These two changes are momentous and will have far-reaching consequences in democratizing capital and make it very efficient for companies to raise capital. This also increases the shareholder base, which makes it even more important for companies to have a cost-effective end-to-end solution that can manage the complete lifecycle of their securities.

If you want to learn more please visit:

www.KoreConX.io/RegA

Here is the complete news release by the SEC

https://www.sec.gov/news/press-release/2020-55?utm_source=CCA+Master+List&utm_campaign=40105b558a-EMAIL_CAMPAIGN_2020_01_02_09_01_COPY_01&utm_medium=email&utm_term=0_b3d336fbcf-40105b558a-357209445

Join the all-in-one platform empowering private capital markets.

Free forever, KoreConX makes it easy for participants in private capital markets to manage their investment portfolios, raise capital, and meet global compliance standards along every step of the way.

Sign up, it's free! Book a call