Category: KorePartner

Form C-AR filing time again!

Posted on by Sara Hanks

Hi everyone; a reminder that we are just over a month away from the deadline to file Form C-AR by May 1.*

We wanted to flag some issues:

  • If you sold any securities under your Form C, even if you didn’t sell them until this year, and even if you didn’t sell them until April 30, a Form C-AR with 2022 financials is due by May 1.
  • Even if your current Form C already includes 2022 financial statements, a Form C-AR is due by May 1.
  • If you do not have an open offering or otherwise have audited or reviewed statements available, the financial statements do not have to be audited or reviewed, but they do need to be in US GAAP format. This means balance sheet (as at December 31, 2021 and 2022), P&L, cash flow and changes in equity (for 2021 and 2022) as well as footnotes.
  • QuickBooks is not US GAAP.
  • If you used a “crowdfunding special purpose vehicle, it is an “issuer” under Rule 202 (the rule that says you have to file annual reports) and must file its own financial statements too. (See General Instructions to Form C.)

As a reminder:  if with this filing you are eligible to exit the Regulation CF ongoing reporting regime, remember, you must file your Form C-TR within 5 business days of the due date to notify investors, otherwise you may get to do this all over again next year!

As always, this isn’t legal advice, but feel free to call us if you need advice.

*If you do not have a fiscal year ending on December 31, your Form C-AR is due 120 after the end of your fiscal year, and dates above should be adjusted accordingly.

This article was originally written by our KorePartners at CrowdCheck. You can view the original article here.

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!

Partnership in the Private Markets: “Who Pays?”

Posted on by Oscar Jofre

Way back in March 2020, our values as a company were tested.  At the time, I began to write this blog post but with my schedule, I totally forgot to complete it. But, with recent events, I felt it was important to publish.

 

With companies in any sector, you are approached for partnership opportunities and in most cases, the partnership is a win-win when each company stays in its lanes.  When partnerships get really muddy is when there is a financial gain for one party at the expense of another or the clients they serve.

 

Our potential partner had a great service that we, as a company, were happy to send introductions to. After many meetings and demonstrations, the CEO reached out to discuss a partnership.  We provided an overview of our ecosystem, our governance standards, and our ethics, and explained that since its inception, our company has had no financial relationship with any of our KorePartners anywhere in the world. This did not stop this CEO from offering us an incentive to send their firm business, which we respectfully declined.  Our response was and remains: “We are happy that you provide this service, and we want you to provide the best service to our clients and all we ask in return is you take good care of them, and do your very best”.

 

The response was shocking:  “I can’t partner with a company that is not financially motivated to send me business”.  We respond, we understand that is how this business might have been done in the past but today it’s different for many reasons.

 

First, we are in a regulated sector. That means the securities regulators monitor all activities by Issuers (companies), Investors, Broker-Dealers, and Internediarities who are participating in a regulated offering for private companies.

 

As an example of how securities regulators monitor and catch those who try to circumvent the rules to get rich, on 30 September 2022 the SEC charged six individuals and two companies for a fraudulent scheme to promote securities in a RegA offering. Some of the charges were for failing to disclose precisely the kind of payment we declined to accept two years ago.

 

On 03 October 2022, the SEC charged influencer and celebrity Kim Kardashian for failing to disclose she was paid a fee to promote a cryptocurrency.  She was paid $250,000 USD to promote a company and the fine issued by the SEC was $1.26M and included a 3-year ban from promoting any crypto asset securities.  

 

You would think with these two SEC announcements, everyone would be reviewing their programs to make sure they are onside with regulators and more importantly, ethical and transparent to the clients we serve.

 

BUT NO!!!

 

On 07 October 2022, many of the Broker-Dealers and intermediaries were offered a carrot via email to be rewarded up to $13,000.00 USD by a provider if they brought them a client.  

 

So who actually pays these premiums?

 

The answer is very simple: the Client “Issuer (Company)”.  Make no mistake–it will be the client paying for this big incentive fee because it will ultimately come out of the proceeds of the raise. 

 

Will this fee be disclosed to the client?  Will both parties disclose their finders fee in this regulated transaction?

 

You may be thinking this is how it’s always been done, so why are we all spending so much time disrupting the current way things are?   

 

Because there is a better way.

 

We need to conduct ourselves the same way we are telling the current establishment that they should behave. Sometimes disruption of the old ways is good. New innovations (and the revival of some good old ones) are disrupting the world in so many areas, including banking, insurance, auto, and capital markets. The JOBS Act was aimed at democratizing capital, and a big part of this was making it safer for new investors

 

So let’s not stop with just how they operate; let’s also disrupt the way we conduct ourselves in operating our companies. Let’s strive always to conduct ourselves more ethically, more transparently, and always compliantly 

 

We at KoreConX never have and never will take any type of fees from anything, anyone, or any company for something we have not created.  We have many partnerships with companies that see how a relationship can be formed that becomes a win-win: the better they serve the clients we introduce to them, the better we look, and the more people will want to use our platform. Our clients need to know we’re serving their interests when we point them at a KorePartner, not sending them to the highest bidder for their business. 

 

Most of our KorePartners find this is actually to their own advantage; they know that when we recommend them to a client, it’s because they’re the best equipped to meet that particular client’s needs. 

Everyone wins when the client wins.

RegA and RegCF issuers: time to count your shareholders!

Posted on by Sara Hanks

RegA and RegCF 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.

 

This article was originally written by our KorePartners at CrowdCheck. You can view the original post here.

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.

 

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.

 

Partnership Strengthens Growing Industries Raising Private Capital

Posted on by Jason Futko

In another strategic move, KoreConX All-In-One Platform announces partnership with Fundopolis, an online investment bank specializing in exempt offerings and private placement capital allocation, as a way to keep creating more opportunities for entrepreneurs.

At first, Fundopolis was a KoreClient, attracted by its industry leading state of the art platform dedicated to processing and recordkeeping issuer and investor transactions in Exempt Capital-Raising Offerings, specifically RegCF and RegA+ offerings. Fundopolis uses KoreConX´s technology for their capital market activities.

As KorePartners, Fundopolis, a FINRA Broker-dealer registered in all 50 states, is eager to make their expertise available to the whole private capital ecosystem. With expertise in sectors such as real estate and cannabis, the online bank offers experience in these ever-expanding industries, guiding private companies as they navigate the complex regulatory space while introducing them to investors who share their vision for the future. Fundopolis is also part of the ecosystem for RegD, RegCF, and RegA+ offerings providing the FINRA broker dealer services to help companies raise capital.

“Beyond that, we understand that the investment landscape is constantly changing, and we pride ourselves on approaching the entire process with an eye on what is possible. As a recordkeeping transfer agent and escrow platform, we believe KoreConX is the perfect partner for Fundopolis, providing access to a vast ecosystem of investors and issuers,” says Bert Pearsall, CEO & Managing Principal at Fundopolis.

Co-founder and CEO at KoreConX, Oscar A. Jofre, acknowledges Fundopolis as a highly rated KorePartner. “When we first met, as a KoreClient, we saw a great potential and a lot of opportunities ahead of us. Since our solution unites tools to securely and efficiently manage business data and facilitate compliance during all the capital raising process regardless of where they are in this cycle, it was only natural to add them to our valuable team of KorePartners.”

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. For investor relations and fundraising, the platform enables private companies to share and manage corporate records and investments: it assists with portfolio management, capitalization table and shareholder management, virtual minute book, security registration, transfer agent services, and virtual deal rooms for raising capital.

KoreConX All-In-One Platform announces partnership with Fundopolis. Read more in our blog.

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.

The Medtech A+ Team: An Upcoming KoreSummit Event

Posted on by Oscar Jofre

KoreConX is excited for the upcoming KoreSummit event on Thursday, June 23rd. Our second event focused on the Medtech vertical, Thursday is a half-day event that dives into how Medtech companies can conduct a successful RegA+ offering. Kicking off at 1 PM EST, we’re excited for our KorePartners to join us in covering this exciting topic. Let’s dive into the schedule more below.

 

At 1 PM EST, KoreConX CEO Oscar Jofre will introduce the event with a warm welcome. The first panel at 1:10 PM will begin with an introduction to Reg A+ for a MedTech company. This opening panel features Oscar Jofre, Scot Pantel, and Stephen Brock.

 

Up next at 1:40 PM, five experts will take the virtual stage to talk about the preparation phase including what a Form 1A is and the regulatory requirements you need to complete the filing. Douglas Rurak, Matthew McNamara, Peter Danyeko, Nick Antaki, and Shari Noonan will be speaking on this panel. 

 

At 2:15 PM, the third panel kicks off with a discussion about going live. This panel will cover everything you need to know when preparing your live offering to ensure it is a success and will feature Kiran Gramiella, Shari Noonan, John Hayes, and broker-dealer Amanda Grange. From investor acquisition and issuance tech to broker-dealers, this panel will ensure participants will be prepared for their next capital raise.

 

The fourth panel takes place at 3:00 PM and is about how, when raising capital, it is vital to sell your company’s story, not just the stock. By learning how to tell a story, MedTech companies looking to raise capital will be able to connect with investors on a personal level and have a much better chance of success. Panelists will include Scott Pantel, Andy Angelos, John Hayes, Andrew Corn, and Dawson Russell sharing their wealth of experience on this topic.

 

At 3:40 PM, the 5th panel discusses the importance of a secondary ATS, what it is, and how to pick one that will best suit your needs. Lee Saba, Kiran Garimella, and Peter Danyeko will discuss their experience with ATSs and help you understand why having one is so important. 

 

The event concludes with the final panel at 4:00 PM with a short panel that covers takeaways from the event as well as allows for networking. With this panel, we hope to give event attendees the chance to meet and greet the KoreConX ecosystem of partners, members, and service providers that work with Reg A+ daily. This will include Oscar Jofre, Scot Pantel, Joel Steinmetz, Matthew McNamara, Douglas Ruark, and Stephen Brock.

 

Join us for MedTech A+ Team: How to do a successful Reg A+ for a MedTech company on Thursday, June 23rd, 2022. This event is online and free to attend, which you can register for here. This event is perfect for all MedTech companies that are new or unfamiliar with Reg A+ and those that have completed Reg A+ raises in the past.

5 Key Players To Know For Your 401k Audit

Posted on by Assurance Dimensions

This blog was originally written by our KorePartners at Assurance Dimensions. View the original post here.

 

Your 401k audit requires the work of multiple key players with different roles and responsibilities. It’s a team effort to ensure your benefit plan audit is seamless, timely, and accurate. Let’s outline the service providers and how you will work with them for your next 401k audit.

 

Custodian

The custodian of a 401k plan has the legal obligation to act in the sole interest of the plan participants. The custodian will make fund decisions in the best interest of the plan participants, without regard to the interests of the employer or plan sponsor.

 

Third-Party Administrator (TPA)

The 401k plan sponsor hires a TPA to run the day-to-day operations of the retirement plan. The TPA is responsible for calculating vested returns and filing reports to the DOL, IRS, and other government agencies. Overall, the TPA plays a critical role in a 401k audit, as they prepare the annual Form 5500 and have access to the required financial documents necessary for the audit.

 

Financial or Investment Advisor

Due to the complex nature of 401k plans, many companies employ a 401k advisor or financial advisor to help employers develop and maintain a 401k plan. Their role can involve several responsibilities, including:

  • Retirement plan design
  • Plan implementation and management
  • Oversee quarterly investment meetings
  • Provide 401k advice to plan participants
  • Assist with the annual 401k audit
  • Administrative support related to finances
  • Track regulatory and legislative updates that may affect the 401k audit

 

Recordkeeper

The recordkeeper is the most visible to provider participants. This role is primarily associated with enrolling participants and providing them access to their retirement assets. The role of the recordkeeper is to track the data required for the 401k audit (including contributions and earnings.) The recordkeeper also communicates data to the required parties.

 

Auditor

The Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code require employers and plan administrators to hire an outside audit firm for an independent 401k plan audit. The auditor will be in charge of administering your 401k audit and preparing audited financial statements of your plan. They should be experienced CPAs who have detailed processes to ensure your benefit plan audit is completed correctly and promptly.

 

Coordinate and Communicate During Your 401k Audit

Once you have established that your benefit plan needs a 401k audit, the audit team will need to work in sync with all key players of the 401k plan. Since the auditor must collect information from the plan’s service providers and ensure that it is accurate and detailed, this requires coordination and clear communication across all roles in the 401k plan audit. Failure to coordinate could lead to missed 401k plan audit deadlines and compliance penalties.

 

Hire A Trusted Audit Team For Your 401k Audit

A 401k audit is time-sensitive and has extensive requirements. Hire qualified, certified public accountants to help your benefit plan maintain compliance.

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 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!

KorePartner Spotlight: Nate Dodson, Managing Member at Crowdfunding Lawyers

Posted on by Oscar Jofre

Nate Dodson has over 15 years of experience helping clients with securities, financing, real estate, asset protection, and mergers and acquisitions. Not only has he served as an advisor in real estate transactions, financing, and investments, but he has also successfully developed ground-up commercial properties and participated on the GP side of approximately 4,000 multifamily units over the years.

Before his legal career, Nate worked as a stockbroker, giving him unique experience in investment sales, structures, and asset protection. By leveraging his industry expertise and the help from his long list of trusted connections, he has personally represented over $2 billion in real estate and business funding transactions over the years. While Nate’s full-time efforts are focused on the securities practice with and management of Crowdfunding Lawyers, he remains a partner at his diversified namesake law firm Dodson Legal Group, founded in 2007 and focusing on transactional, litigation, and family law work. Between both firms, their experienced legal teams have represented more than $5 billion in transactions.

Crowdfunding Lawyers is a boutique law firm focusing exclusively on representing securities transactions across the United States. As a specialty-focus law firm, the firm works with investment sponsors/operators and their advisors to develop capital funding strategies, investment offerings, and securities platforms. By taking a unique team-based approach to the firm’s client services, their clients work with a multitude of experienced, dedicated securities attorneys in the representation of Regulation D, Regulation A, Regulation CF, and S1/S3 public (IPO) offerings. The firm has provided services to 1,000+ clients, and its attorneys have, with CFL or through prior engagements, many billions in capital transactions over their respective careers. Because Crowdfunding Lawyers’ focus is limited to federal securities laws, they regularly coordinate with local attorneys and tax counsel to ensure well-rounded representation for clients. However, the firm’s attorneys have considerable experience in real estate, business, regulatory, and finance transactions and activities.

Nate’s experience with crowdfunding makes him a valuable addition to the KoreConX ecosystem. He is passionate about providing regulatory clarity across jurisdictions to ensure raises are compliant and efficient. His ultimate goal is to help investors and businesses succeed in the digital age.

We took some time to speak with Nate and learn more about himself, his organization, and his thoughts on the future of crowdfunding.

What services do Crowdfunding Lawyers provide for Regulation A offerings?

We handle the legal process from beginning structuring throughout the qualification process for Regulation A offerings. We never expect our clients to come to the table with anything other than their plans and ideas. After structuring, we draft all the documents and form any needed entities. Our goal is to file Form 1-A with the SEC within 45 days of engagement.

Because our services are comprehensive, we’ll start with consulting on our client’s business plans and advise the best strategies and structure for funding through a Reg A offering. We also introduce our clients to great vendor partners and team members, like KoreConx.

To meet our self-imposed 45-day timeline, we ensure that we have complete information, including broker-dealers, if involved, or financial audits and introductions are made when appropriate.

How is a partnership with KoreConX the right fit for your company?

We love working with KoreConX and refer to them regularly to serve as the transfer agent for our Reg A offerings. It is essential to have a good transfer agent system involved, as they manage your investors and investment opportunity administration.

KoreConX is not an attorney. Crowdfunding Lawyers is not a transfer agent. Both are necessary for your success with your Regulation A offering.

What excites you about this industry?

Our entire team has a passion for the investment industry, but we’re not a diversified firm. We have a team of very qualified attorneys that solely focus on securities transactions. All of our attorneys come from prestigious law schools and have worked in the legal field for years. If they are newer in the securities realm, it’s only because they have so much experience in startups, entrepreneurship, real estate, investing, and corporate law. Our attorneys have similar impressive pasts and a drive for our client’s success. 

As an example, I worked as a stockbroker until the internet stock bubble burst around 2000, selling investments on the phones before crowdfunding became available after the JOBS Act of 2012.

What services do Crowdfunding Lawyers provide that are different?

We always spend substantial time in the initial stages of representation, where we get to know our clients and their business. We strive to structure your opportunity so that you can meet both market expectations as well as investor expectations, and our client’s primary goal is to get funded faster.

While we focus heavily on real estate funds and syndications, approximately one-third of our clients are focused on business and investment funds. With our real estate fund representations, we often represent Regulation A offerings for REITs (Real Estate Investment Trusts) and series LLC offerings. Our clients can replicate their traditional syndication model with Reg A series offerings by breaking down the Regulation A offerings into unique project-specific classes. This is where our clients can continue to offer a real estate syndication model with all the benefits of placing offerings through Regulation A, which is a different twist on setting up a $75 million blind-pool fund.

 

KoreConX and Medtech-Ecosystem Together at LSI Emerging Medtech Summit 2022

Posted on by Peter Daneyko

Experts in the life sciences sector will teach investors how to use Regulation A+ for successful capital raising

 

NEW YORK, February 23, 2022 – KoreConX is thrilled to announce its participation at LSI Emerging Medtech Summit – USA 2022. This event will be held on March 15-18, 2022, in Dana Point, California, USA. It is led by Life Science Intelligence (LSI) and will bring together an ecosystem of experts who support medtech and life science companies to raise capital.

LSI is part of the Medtech ecosystem of KoreConX’s partners focused on Life Sciences companies. LSI offers insights to help investors and executives make decisions based on data provided by experts on their team. This vertical includes Medical Funding Professionals, a company that specializes in consulting to raise capital for pharmaceutical and medical businesses.

The group has built a value-added offering around Regulation A+ fundraising they call the Capital Planning Valuation Strategy™ (CPVS). The purpose of the CPVS approach, beyond a successful Reg A+ raise, is to help companies develop a strategic plan for their long-term capital needs that protects the interests of the founders and other early investors as these capital-intensive businesses go through R&D, clinical trials, FDA approval, and go-to-market execution.

Stephen Brock, CEO of Medical Professionals, highlights the impact of this sector: “One of the major trends in the financial world right now is impact investing. Life science—medtech, biotech, and pharma—is the ultimate impact investment. These companies are saving lives and limbs and brains—saving quality of life, as well. That’s why we do what we do.”

“In the many years I’ve been working with medtech innovators, I can’t count the number of great products I’ve seen that never make it to market for no other reason than lack of access to capital. That’s why I’m so excited about the possibility Reg A+ brings—with the new higher limits,” says Scott Pantel, CEO of LSI.

This vertical includes  FINRA Broker-Dealer (Rialto Markets), Offering Preparation (Regulation D Resources) and KoreConX, with its All-In-One Platform to support all stages of the offerings.

This team will be together at LSI Emerging Medtech Summit 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.

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Media Contacts:
KoreConX
Carolina Casimiro
carolina@koreconx.com

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.

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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.

Private Securities and Crowdfunding Surge is Forecast to Continue in 2022

Posted on by Rialto Markets

This article was written by our KorePartners at Rialto Markets. View the original post here.

 

Crowdfunding had another record year in 2021 and is forecast to soar even higher in 2022.

According to Pitchbook data, global crowdfunding exploded from $8.61 billion in 2020 to $113.52 billion last year – a 1,021% increase. The US market alone doubled year on year through Regulation CF and A+, with much higher numbers being raised and over 32% oversubscribed, according to SEC (Securities & Exchange Commission) filings.

Recent analysis of key US private equity crowdfunding platforms such as Wefunder and Republic, showed their top 50 most invested Regulation CF (raises of up to $5 million) crowdfunding offerings raised more than $171 million in November alone from over 113,000 investors – an average of $1,315 per investor – while December tracked at similar levels going into the holiday season.

In the Regulation A+ category, where private companies can raise up to $75 million annually, SEC EDGAR filings for 2021 show 343 US-based high growth private issuers raised $8.6 billion in total.

The peak months for Regulation A+ capital raises were November and December, suggesting that 2022 will double the amount raised last year.

The market is also expected to expand significantly in 2022 and 2023 as regulated alternative secondary market trading platforms, known as ATSs, start to offer more potential liquidity in a private securities market set to grow from $7 trillion in 2021 to $30 trillion in 2030, according to Forbes.

Innovative US-based broker-dealer and a leading ATS provider specializing in private securities, Rialto Markets, predicts this trend will continue as more and more ambitious private companies in the US and worldwide apply this approach to their fundraising, leading to future secondary share trading.

Rialto Markets’ COO and Co-founder Joel Steinmetz said: “There were record months in the US crowdfunding sector during the first half of 2021 – with May being the highest – but there was a much steeper growth curve in the second half of the year, with record investment levels in the final quarter.

“We see Regulation CF and Regulation A+ public offerings complementing each other and while April was the lowest capital raising month, the sector surged in late summer, and November closed as the highest month.

“December in the US now looks like it may have matched or exceeded November, which sets the tone for a buoyant 2022, according to our research, and data coming from the major crowdfunding platforms and authorities like Pitchbook.

“We are seeing this pattern ourselves with over $730 million in signed contracts for Rialto Markets at the start of 2022 alone from high growth private companies in the primary market, using our broker-dealer infrastructure and technology.

“Additionally, in the secondary market, we are being swamped with requests from high growth private companies and marketplaces that offer fractionalized securities wishing to offer regulated trading to their investors through our SEC and FINRA regulated ATS secondary trading platform.”

Digital Twin pioneer Cityzenith, a company with three successful crowdfunding raises in three years, saw a big upsurge in investment during December and early January towards the 1st quarter 2022 close of its final $15 million crowdfunding raise.

It will then move onto funding from institutions that have followed the company’s rise during this process.

Cityzenith CEO and Founder Michael Jansen said: “Crowdfunding isn’t for the faint-hearted. You must have a strong strategy, a large following, and investors who are going to back the offerings from the outset.

“But it’s also about positioning the brand to win new partnerships and potential larger institutional investors due to the momentum you build through these Regulation CF and Regulation A+ investment offerings.”

The electric vehicle company Atlis Motors had one of the fastest and most over-subscribed Regulation CF raises of 2021, attracting its full $5 million in just a few weeks with 4,123 new investors, further illustrating the importance of building a community of investors and advocates for the future of your brand.

Shari Noonan, CEO and Co-founder of Rialto Markets – the broker-dealer for both Cityzenith and Atlis Motors – responded: “These are impressive and ambitious private companies who know what it takes to prepare and build a community for either a smaller Regulation CF raise or a much larger Regulation A+ offering.”

“2022 is going to be a massive year for the private securities market, especially Regulation CF and Regulation A+ capital raising campaigns for high growth private companies.

“We are especially excited about movement in secondary trading for private companies, and by providing a platform to potentially unlock value for investors much earlier through a regulated ATS such as our own Rialto Markets secondary trading platform.”

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%?

What is Sustainable Investing?

Posted on by Raise Green

This blog was originally written by our KorePartners at Raise Green. View the original post here. 

OK, How Does Sustainable Investing Work?

Some investors seek to make a positive social and environmental impact with their investments and thus, they don’t simply look at the companies who will make them the most money from the get-go. Rather, they seek those companies who are working tirelessly to address a vast array of societal problems. As a result, sustainable investing is also referred to as socially responsible investing (SRI) or ESG investing, as it encompasses the idea that the investor is strongly influenced by environmental, societal, or governmental factors, before contributing money to a particular company. With this type of investment, people are seeking not a short-term financial return, but a longer-term financial return in which their money is being used as a medium for societal progress, environmental impact, and corporate responsibility. In fact, financial return goes hand in hand with ESG progress, as companies with stronger ESG profiles may generate more sustainable profit and cash flow because they tend to be more competitive than their peers (“ESG factors and equity returns – a review of recent industry research,” 2021). Sustainable investing places increasing emphasis on how investments contribute to the good of society, irrespective of how much money was made in the short run.

Sustainable Investing Objectives

Sustainable investing, as a catalyst for societal change, has seen it’s popularity rise in recent years in the face of the climate crisis and compounding social issues. Impact investing serves as one of the catalysts, alongside millennial investors driven by principles, that is lighting a fire under investors to invest their money in companies whose “intrinsic values” drive positive change (“What is Sustainable Investing?,” HBS). Sustainable investing pushes companies to embrace sustainable principles, which can lead to more impactful social and financial returns later on. With respect to Raise Green, sustainable investing is particularly crucial, especially within the context of environmental factors that investors look for in companies to contribute to money. The realm of environmental factors focuses on the impact that a company will have on the environment, such as its carbon footprint, waste, water use and conservation, and clean technology.

Growing Investment Opportunities

Furthermore, this marketplace for sustainable investing is only growing. The United States’ Forum for Sustainable and Responsible Investment identified $17.1 trillion in total assets under management at the end of 2019 using one or more sustainable investing strategies, a 42 percent increase from the $12.0 trillion identified two years prior (“Sustainable Investing Basics,” USSIF). This type of investing has become more desirable because “investors do not have to pay more to align their investments with their values, or to avoid companies with poor environmental, social or governance practices” (“Sustainable Investing Basics,” USSIF). Therefore, with sustainable investing, investors can propagate social impact without losing money. As a whole, sustainable investing is important because it can help contribute to vast infrastructure changes needed in our society to tackle the challenges we face. It allows us to move towards a better and more sustainable future.

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.”

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

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.

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.

 

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.

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.

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. 

 

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.

KorePartner Spotlight: Scott Allen, CEO of InvestAcq

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. 

Scott Allen is the CEO of InvestAcq, a firm of investor acquisition specialists. For companies looking to raise capital in the private markets, InvestAcq identifies the best potential investors for RegA+, RegCF, and RegD 506(c) raises to effectively target investors and attract them to the offering. The firm’s specialty is working with companies in the medical industry, such as biotech, medtech, pharma, and life sciences, or those who intend to use RegA+. 

We took some time to speak with Scott to learn more about himself and his firm. Here’s what he had to say. 

 

Q: Why did you become involved in this industry?

 

A: I’ve worked in and with startups and entrepreneurs most of my career. I believe in entrepreneurship—it’s the lifeblood of our economy. And I know startups need access to capital. I’ve seen the downsides of the whole cycle: insufficient capital, insurmountable debt, VCs taking control of companies, spectacular IPOs that went bust within a year.

So when my long-time friend, client, and collaborator Stephen Brock, founder of Medical Funding Professionals, told me about Regulation A+ and his vision for bringing it to the medical innovation sector, I was in. It addresses perhaps the biggest need, in probably the highest impact industry. What could be better than helping put money to good use saving lives and improving quality of life?

 

Q: What services does your company provide for RegA offerings?

 

A: We are investor acquisition specialists. We use the latest marketing techniques to help companies find the best potential investors for your offering, effectively tell them your story, and make it as easy as possible for them to invest.

Our company offers a complete multi-channel integrated marketing solution, including marketing strategy, web design, email marketing, content marketing, social media, digital advertising, public relations, and investor relations. We particularly focus on the idea of “Sell the story, not the stock” — we see strong brand marketing as the foundation of everything else. Research shows that strong brands achieve a higher return on ad spend and ultimately higher market caps. In a Regulation A+ offering, telling the company’s story well attracts the investors you want—impact investors who believe in your vision and will become advocates for your business.

 

Q: What are your unique areas of expertise?

 

A: One thing that’s unique to our firm is our experience in the healthcare sector. In addition to the SEC and other regulatory compliance issues, we also have to deal with FDA regulations and guidelines. While compliance is still ultimately up to the issuer and their attorneys, having a communications team that’s experienced in those issues reduces a lot of back-and-forths, and really speeds up the process. We even occasionally catch things that the attorneys miss, so having another set of experienced eyes on that content adds an extra layer of protection.

Personally, I have over 25 years of experience in digital marketing and several more in traditional marketing before that. While I have a broad range of experience, my unique area of expertise is social media, and more broadly, virtual business relationships. I got into social media in 2002, before it was even called social media. I co-authored the first book on social media marketing, The Virtual Handshake: Opening Doors and Closing Deals Online, and have trained or consulted with hundreds of clients over the past 19 years.

 

Q: What excites you about this industry?

 

A: Five things:

1. Getting capital in the hands of people with products that can impact people’s lives and change the world. They can only have that big impact if they can get the money they need to complete their research and development, go to market, and scale.

2. Helping those innovators stay in control of their company so they can execute their vision.

3. Making sure those founders, early investors, and early hires reap fair rewards for their vision and efforts. To me, late money should never be as valuable as early sweat.

4. Helping CEOs stay focused on executing their business plan. With traditional angel / VC / private equity, the CEO basically has to take 6 months to a year away from their company to focus on fundraising. “Run your raise, or run your company. You can’t do both.” A typical VC round requires 100+ investor meetings, on average, plus countless hours of due diligence, emails, and other support. With Reg A+, much of the activity is shifted to an investor acquisition firm like us. And much of the time the CEO spends is leveraged — one webinar to hundreds of potential investors, one video that lasts for months and every potential investor will see — not hundreds of one-on-one meetings.

5. Reg A+ is good for investors. GREAT for investors. We believe everyone should be able to invest in early-stage and growth-stage companies. Until recently, most people could only invest in companies listed on the public stock exchanges. Main Street investors couldn’t get in on IPOs. Now nearly any investor can get in on innovative companies before they go public. It’s your money—you should be able to invest it where and how you want—have an impact on the world with how you choose to invest.

 

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

 

A: KoreConX is the industry leader for private market fintech. It’s been years in development and has more real-world testing than any other solution.

Also, as a marketer, I love the fact that KoreConX allows us to control the investor relationship from start to finish. We have visibility into every step of the process that you don’t get on the equity crowdfunding platforms.

Most of all, though, KoreConX has been an enthusiastically proactive partner; joining us for sales calls, building custom branded demos for our prospects, promoting us through the partner program, and even working with us to put on a KoreSummit focused on our industry niche.

 

Watch Scott’s KoreSummit panel on Investor Acquisition in Medtech and Life Sciences here.

 

KorePartner Spotlight: Stephen Brock, CEO of Medical Funding Professionals

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.

 

There are two things that Stephen Brock is incredibly passionate about in the business world; gaining access to capital for innovative companies to make their products for the benefit of patients in the world and making sure that those company’s founders, early employees, and investors retain control. If that seems like a tough challenge, you have not met Stephen. What he said in an interview with Yahoo News was that “if we truly want to support innovation, let’s make sure the innovators see the just rewards for their efforts.”

 

Stephen does this by introducing companies that may not have heard of the tremendous amount of opportunity there is in the healthcare field for innovative companies using the Regulation A+ exemption under the JOBS Act. Now, companies can raise up to $75 million per year outside of the usual avenue of bank and accredited investors through Reg A+. While those in the private capital space understand this opportunity, Stephen brought something shocking to light, “80% of the people I talk to have never heard of Reg A+. And of those that have, only one or two have actually known anything about it. So, it’s on us to educate them, and that’s what we do—show them exactly what it could do for their company.”

 

This change is huge for those in the fields that require high costs to get their products to market. This, in combination with the stricter lending from the usual channels during the pandemic, makes what Stephen and his company, Medical Funding Professionals, are doing so important. They are helping innovators in the medical field bring new and life-changing technology to patients while retaining control for their technology.

 

As a registered investment advisor with over 20 years of experience in securities and finance, Stephen knows the field and is excited about the partnership with KoreConX, which has also been educating people on this powerful new financial tool.

KorePartner Spotlight: Steve Distante, Founder and Chairman of Vanderbilt Financial Group

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.

 

Steve Distante is an entrepreneur and has been his entire life. As a graduate of St. Johns University with a degree in accounting and finance, he intimately knows their struggles and success. Before starting his own business, Steve ran an Office of Supervisory Jurisdiction (OSJ), where he learned the experience from the regulatory side. It was a great use of his degree and his intrinsic skill for planning. 

 

Steve’s journey began when his father told him to look at financial services as a career path. What he found was the rewarding business of empowering entrepreneurs to create impactful products and services for good. That is at the core of the business he founded and is the CEO, Vanderbilt Financial Group, “an investment firm disrupting traditional finance by focusing on socially and environmentally responsible, ethical, and impactful investments.” With Steve at the helm, the ship is set up to ensure that entrepreneurs do not have to go through the same struggles he did as he grew his business. 

 

As if it was not already clear that helping entrepreneurs is a driving factor in his life, Steve is also the CDO for Impact U, an educational community for students, investors, and financial advisors on impact investing. He has made two documentary films for it and is currently writing a book about Impact Investing. In addition, Steve is a former president of the Entrepreneurs’ Organization and served as the UN Ambassador for EO for nearly three years. He is very passionate about helping entrepreneurs building impactful companies with missions to better the world. 

 

Steve is thrilled about the partnership with KoreConX to streamline business processes so he can continue his excellent work for the community of entrepreneurs around the world. 

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. 

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.

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.

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.

Meet the KorePartners: Louis Bevilacqua of Bevilacqua PLLC

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 the ecosystem. 

 

For the past 25 years, Louis Bevilacqua has served as a corporate and securities lawyer. After spending the majority of his time at large, international law firms, Louis discovered his passion for “representing entrepreneurs and helping them accomplish their goals.” Noticing that it was often more difficult to help small or microcap companies, Louis began his firm to eliminate the prohibitive costs typically associated with large law firms. 

 

Utilizing technology to allow lawyers to work virtually, Bevilacqua’s savings are passed onto its clients. Now, small companies can access the same top-tier resources that previously only large ones may have been able to afford. “Since most of our attorneys, like me, have decades of experience at big firms, we know how deals are supposed to be done and can provide excellent representation at lower price points,” Louis said. 

 

Not only is Bevilacqua’s team comprised of experienced lawyers, but many are also entrepreneurs. Understanding first-hand the challenges that small companies face, they are experienced problem solvers that are both flexible and proactive. Also, Louis says that “we also have a vast network of contacts with investors, broker-dealers, transfer agents, Edgar printers, audit firms and other service providers in the industry and can easily make the right referrals to anyone that the company needs.”

 

Through the JOBS Act and RegA+, investors have access to investments that they may not have had previously. Since the SEC requires substantial disclosure for RegA+ offerings, investors are provided more detailed disclosures than other private offerings. Companies also benefit from the lower costs associated with RegA+. Since it is more flexible and cheaper than a traditional IPO, the cost is not prohibitive. One of the primary reasons that Louis supports the regulations is that it “helps facilitate the raising of capital for smaller issuers, who always need capital and do not have as many avenues to obtain it.”

 

However, Louis also thinks that the resale market could be improved. Currently, companies looking to allow their shares to be traded “must identify a market maker willing to file a 211 application with FINRA”, which can be a difficult process. Making this process easier will allow more people to trade the shares purchased through a RegA+ offering. Additionally, for investors to deposit the shares they’ve purchased into a brokerage account, they typically must incur the fees associated, as the brokerage is generally required to perform their due diligence. 

 

For companies looking to raise money through RegA+, Bevilacqua provides clients with the legal services they need for a successful offering. Whether they need help “testing the waters,” filing the offering statement, drafting shareholder agreements, etc., Louis and his team provide expert guidance. Also, “ having a platform like KoreConX that brings all the components necessary to accomplish a Reg A offering in one easy to use platform is a fantastic tool to help us help entrepreneurs raise capital.” 

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.

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?”

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.”

Conducting 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, the amount companies are able to raise was increased 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.

Tax Alert for Sponsors and Fund Managers: IRS Issues Final Regulations for Carried Interests

Posted on by Mark Roderick

Every real estate syndication and private investment fund involves a “carried interest” for the sponsor, also known as a “promoted interest.” The IRS just issued final regulations on how those interests are taxed.

A carried interest is what the sponsor gets for putting the deal together. For example, a typical waterfall might provide that on sale of the project investors receive a preferred return, then investors receive a return of their capital, then the balance is divided 70% to investors and 30% to the sponsor. That 30% is the sponsor’s carried interest.

For as long as anyone can remember the sponsor’s 30% carry has been taxed as capital gain. This favorable tax treatment has been the subject of considerable controversy given that the carry is paid to the sponsor not for an investment of capital but for the performance of services. Why should fund managers and deal sponsors be taxed at capital gain rates while hardworking Crowdfunding lawyers are taxed at ordinary income rates? Or so the issue has often been posed.

As a gesture in the egalitarian direction, the Tax Cuts and Jobs Act of 2017 – the same law that gave us qualified opportunity zones – added section 1061 to the Internal Revenue Code. Section 1061 provides that while carried interests are still taxed at capital gain rates, the threshold for long-term rates is three years rather than 12 months.

That means if an investment fund buys stock in a portfolio company and flips it at a profit after two years, the investors are taxed at long-term capital gain rates while the sponsor is taxed at ordinary income rates, a big difference.

IMPORTANT NOTE:  In the real estate world section 1061 applies to vacant land or a triple-net lease, but not to a typical multifamily rental project. (The issue is whether the asset constitutes “property used in a trade or business” under Code section 1231.)

The final regulations just issued by the IRS clarify a few points:

  • They clarify that the three-year holding period doesn’t apply to an interest the sponsor acquires by investing capital along with other investors.
  • They clarify that if the sponsor receives a distribution with respect to its carried interest and reinvests the distribution, the interest the sponsor receives as a result of the reinvestment is not subject to the three-year holding period.
  • They provide that if the sponsor sells its carried interest, you “look through” the partnership to determine the holding period of the partnership’s assets.
  • They provide that if the sponsor transfers the carried interest to a related party, the sponsor can recognize taxable phantom gain.
  • They deal with in-kind distributions of assets to the sponsor with respect to the carried interest.

Section 1061 is one more tripwire for deal sponsors and their advisors. Be aware!

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.

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.

Join the all-in-one platform empowering private capital markets.

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