Transfer Agent Archives

Protecting shareholder rights: Can transfer agents save democracy?

Posted on January 31, 2024February 8, 2024 by Sara Hanks

In today’s article, we’ll talk about the key role of transfer agents in protecting shareholder rights and corporate governance. Especially when it comes to potential threats from powerful actors like oligarchs or governments.

Introduction

A long time ago in what seems like a different universe, I was working on an IPO for a company that will have to remain unidentified in a country that never experienced Enlightenment thinking.

The company’s CEO and majority owner decided to challenge the local dictator’s political leadership. Dictator X didn’t take kindly to that and decided that a change of ownership of the company was in order.

One of the ways he did that was to simply change the share register. “All your shares are belong to me”, he goes.

And the keeper of the register does not challenge that because at least one person has already shown up dead in a quarry at that point.

We need to talk about protecting shareholder rights.

It’s worth to consider

I’m not suggesting that anything like that is happening here yet. But I am worrying about the sanctity of the share register for a couple of reasons.

First, the political environment suggests that many places might be moving towards a more dirigiste system with more political interference into the conduct of companies, with companies being penalized for behavior or policies the political leadership disapproves of.

Second, in our own industry, I’ve seen instances where issuers and gatekeepers (including lawyers) are looking for easy solutions to the existence of inconvenient shareholders. For example, trying to “reverse” the sale of shares that has already taken place by returning the money because of some compliance failure in an offering. Or trying to “cash out” non-accredited shareholders in an acquisition transaction that runs into the “Rule 145 problem” where registering or finding an available exemption is impossible or inconvenient.

Protecting shareholder rights

Here’s the thing. A share is a bundle of economic and governance rights. Some of those rights are specified by the corporate laws of the state in which a company is incorporated. Some of those rights are set out in the bylaws. State law dictates how rights granted to shareholders may be modified. If a company (or a potential acquiror of the company) finds that having a large number of shareholders, or having non-accredited shareholders, is not part of its plan, then it can only remove them through prescribed means in accordance with corporate law. Neither they nor their agents can just wipe out a shareholder’s rights by throwing money at them if the ability to do so is not specified in law.

Transfer agents, please guard the share registers you are entrusted with. You may be the first line of defense against oligarchs. You are certainly the defender of retail investors.

You should be making sure that transfer of (or cancellation of) ownership is made according to the law. If someone wants to remove a shareholder on your register, make sure you have legal advice that says you can do that.

Also, does anyone have an opinion on whether a blockchain-only register would make this issue better or worse?

*This text was originally published on Crowdcheck.

How Does a Transfer Agent Protect Issuers and Investors?

Posted on November 22, 2021November 23, 2021 by Oscar Jofre

A transfer agent is responsible for the custody of securities and preserves books and records. They also keep up with who owns what investment, which can be especially important if a company goes bankrupt or merges with another entity. Transfer agents are a crucial part of the securities industry and something all investors and issuers should be aware of. They help protect companies and investors by ensuring that transactions go smoothly while maintaining accurate ownership records and paying dividends every quarter.

Without a qualified transfer agent who can complete these tasks efficiently, the risks for all parties increase; private issuers would be more vulnerable because they might not find errors, incorrect ownership information, or inaccurate assets. These inaccuracies may lead investors to incur higher costs, losses from missed market transactions, suffer from delayed payments, deliveries of dividends, and face unanticipated tax liabilities for unclaimed assets.

To protect issuers, transfer agents maintain an accurate and current record of share ownership and make sure that this information is reported accurately to them. Transfer agents provide issuers with a complete list of their shareholders and guarantee that these records are up-to-date. It is the job of the transfer agent to make sure that any changes in ownership are correctly recorded and reported to the issuer so both parties are protected from future complications or confusion. They are essential when issuers deal with investors, giving issuers a detailed account of who investors are and the amount of equity they have remaining.

Transfer agents protect investors by ensuring their brokerage account is accurate and up to date. Agents view new transactions to ensure they’re coming from the correct party, and they review brokers’ reports for mistakes or fraud. Without transfer agents, the ability to track ownership and transactions would be nonexistent. Perhaps more importantly: if we didn’t have transfer agents, it would become impossible for shareholders to trade their securities. This would severely limit liquidity in the secondary market since it would become impossible for anyone who wanted to sell a share to find anyone willing to buy it. By allowing investors to view accurate and complete information on the company they are investing in, investor confidence is increased by this transparency and availability.

Additionally, transfer agents maintain investor financial records and track investor account balances. These agents usually belong to a bank, trust company, or similar establishment. Agents record transactions, process investor mailings, cancel and issue certificates, and more. Transfer agents protect issuers and investors by ensuring records maintain correct ownership and credentials at all times, making transfer agents the security link between these two parties; all agents must be registered with the SEC.

Transfer agents are a vital part of the financial world. They provide a valuable service for issuers and investors by ensuring that trades happen smoothly, issuing new shares during an offering, or transferring ownership from one investor to another. They play a pivotal role in protecting issuers and investors by assuring that they have a reliable, efficient process for handling transfers and executing trades on behalf of their clients.

Using a Transfer Agent Doesn’t Mean You Have a Single Entry on Your Cap Table

Posted on February 22, 2021February 22, 2021 by Mark Roderick

Many issuers are concerned that “Crowdfunding will screw up my cap table.” In response, several Title III funding portals offer a mechanism they promise will leave only a single entry on the issuer’s cap table, no matter how many investors sign up.

The claim is innocuous, i.e., it doesn’t really hurt anybody. But it’s also false.

The claim begins with section 12(g) of the Securities Exchange Act. Under section 12(g), an issuer must register its securities with the SEC and begin filing all the reports of a public company if the issuer has more than $10 million of total assets and any class of equity securities held of record by more than 500 non-accredited investors or more than 2,000 total investors.

17 CFR §240.12g5-1 defines what it means for securities to be held “of record.” For example, under 17 CFR §240.12g5-1(a)(2), securities held by a partnership are generally treated as held “of record” by one person, the partnership, even if the partnership has lots of partners. Similarly, under 17 CFR §240.12g5-1(a)(4), securities held by two or more persons as co-owners (e.g., as tenants in common) are treated as held “of record” by one person.

With their eyes on this regulation, the funding portals require each investor to designate a third party to act on the investor’s behalf. The third-party acts as transfer agent, custodian, paying agent, and proxy agent, and also has the right to vote the investor’s securities (if the securities have voting rights). The funding portal then takes the position that all the securities are held by one owner “of record” under 17 CFR §240.12g5-1.

Two points before going further:

Title III issuers don’t need 17 CFR §240.12g5-1 to avoid reporting under section 12(g). Under 17 CFR §240.12g6(a), securities issued under Title III don’t count toward the 500/2,000 thresholds, as long as the issuer uses a transfer agent and has no more than $25 million of assets.
17 CFR §240.12g5-1(b)(3) includes an anti-abuse rule: “If the issuer knows or has reason to know that the form of holding securities of record is used primarily to circumvent the provisions of section 12(g). . . . the beneficial owners of such securities shall be deemed to be the record owners thereof.”

But put both those things to the side and assume that, by using the mechanism offered by the funding portal, the issuer has 735 investors but only one holder “of record.”

Does having one holder “of record” mean the issuer has only a single entry on its cap table? Of course not. At tax time, the issuer is still going to produce 735 K-1s.

The fact is, how many holders an issuer has “of record” for purposes of section 12(g) of the Exchange Act has nothing to do with cap tables. The leap from section 12(g) to cap tables is a rhetorical sleight-of-hand.

As I said in the beginning, the sleight-of-hand is mostly harmless. Except for some additional fees, neither the issuer nor the investors are any worse off. And the motivation is understandable: too many issuers think Crowdfunding will get in the way of future funding rounds, even though that’s not true.

Even so, as a boring corporate lawyer and true believer in Crowdfunding, I’m uncomfortable with the sleight-of-hand. When SPVs become legal on March 15^th perhaps the market will change.

What is Secondary Market Trading?

Posted on January 11, 2021January 11, 2021 by Oscar Jofre

Even if you’re unfamiliar with the term secondary market, you’re likely familiar with the concept. Companies sell securities to investors, who in exchange own a piece of the company. The investor can then decide they would rather not own that security any longer, so they sell it to someone else who does. For public companies, this typically happens on the NASDAQ and the New York Stock Exchange, where people freely sell and purchase stock in publicly traded companies.

The exchange is considered secondary because the transaction is not done with the original company that offered the security. An example of a primary market transaction would be an initial public offering, or IPO, during which a company is offering securities directly to investors for the first time. For any security sold through a secondary market, the funds go to the investor selling, and not the company that originally offered the security. This is one of the major distinctions between the primary and secondary markets.

Securities in private companies can also be sold through a secondary market, similar to stocks in public companies traded on the stock market. The investor, with the help of their broker, can offer their securities for saler. Once the offer has been accepted, the company that originally offered the securities must be contacted to approve the deal. Once approved, both the buyer and the seller complete the paperwork for the transaction and complete the deal.

Without the secondary market, investors would be unable to trade the securities they have purchased, leaving them without any options for their investments. Importantly, access to a secondary market allows employees of the issuer to sell their securities that they may have been awarded. Without a secondary market, these investors and employees would not have any option to sell their shares unless the company was to go public during an IPO.

Despite the straightforward logic behind the process, secondary market trading has been relatively fragmented, with not all processes occurring in the same place. This increases the potential for errors and any increases in transaction time that they may cause. To combat this, platforms on which securities can be traded through the secondary market have been developed as secondary market trading has become commonplace in the world of investing.

KoreConX has developed an all-in-one platform, which includes a secondary market as one of its features. On the platform, every important authorization that is deemed necessary for the transaction to occur is kept in one place, allowing for information to be easily tracked and recorded. Buyers, sellers, brokers, and the transaction itself are brought together in one place to prevent errors that may have occurred otherwise. Additionally, the KoreConX Secondary Market eliminates central clearinghouses from the process, allowing for real-time confirmation and availability of funds once the transaction is complete.

Secondary market trading allows investors to sell securities they’ve purchased from private companies to other interested investors, similar to trading public stocks. Even though their sale is decentralized, platforms such as KoreConX allow for people to easily and securely sell their securities, creating a more efficient and streamlined process.

What is the Role of a Transfer Agent for a Private Company?

Posted on January 1, 2021January 1, 2021 by Oscar Jofre

For companies issuing securities to investors, a transfer agent plays an important role in the process. If your company has yet to issue securities but will be doing so soon, a clear understanding of the purpose of a transfer agent is necessary when choosing the best one to fit your company’s needs.

Throughout a company’s rounds of funding, investors will purchase their share of the company to fund the company’s growth. These purchases come in the form of securities and a careful record of them must be kept. Knowing the number of shares each investor owns will be essential in future business deals. In the past, investors were issued paper certificates by a transfer agent, denoting their share of ownership. Now, it is more common for them to issue certificates electronically, which saves the issuer both time and money.

Not only does the transfer agent issue certificates, but they keep a record of who owns what, pays distributions to shareholders, and serves as an intermediary for the company for all transactions related to securities. In this capacity, they provides support to both the issuer and the investor. They are tasked with the responsibility of maintaining accurate records regarding all securities issued by the company.

For a private company, a transfer agent is incredibly important when dealing with investors. When utilized alongside a capitalization table (usually called a cap table), a transfer agent can help the company provide a precise record of who their investors are and how much equity they have remaining, which becomes essential in future rounds of investments. When both current and potential investors can view accurate and complete information on the companies they are investing in, the transparency and availability of information increases the investors’ confidence.

When choosing a transfer agent for your company, the one that eliminates unnecessary costs and time is the most logical option. Through its all-in-one platform, KoreConX offers just that. Completely integrated with the rest of the platform, the KoreConX Transfer Agent is SEC-registered and can be used with other features, such as cap table management and access to a secondary market. Since the KoreConX Transfer Agent manages paperwork and issues certificates electronically, the lengthy process of manual filing is eliminated, creating an experience that is both streamlined and faster. Through the KoreConX Transfer Agent, any change made is reflected in the cap table in real-time, reducing any errors that could be caused by the manual transfer of the data.

Private companies can benefit immensely by employing the use of a transfer agent. Allowing them to manage their securities more efficiently, companies can keep a more detailed record of transactions. As it is the transfer agent’s responsibility to maintain the records of securities, it is essential that companies carefully consider when they’re making their choice.

A good transfer agent must be able to handle many forms of securities instruments, such as equity, debt (bonds, debentures), convertibles, options, warrants, promissory notes, crowdfunding, etc. All of this should be done as efficiently as possible in a fully compliant way in multiple jurisdictions. Ideally, they should provide both the company and its shareholders information in real-time without additional expenses. Most importantly, transfer agent services that are easily integrated with other capabilities, such as portfolio management, shareholder management, minute book, investor relations, and so on, provide companies with a more inclusive and efficient way of maintaining their financials.

409A – A Guide for Startups

Posted on December 14, 2020December 14, 2020 by Daniel Eyman

We “Get It”

We understand that the last thing any start-up wants to worry about is tax compliance, especially when you have so many other things to worry about. Like product development, sales, recruiting, etc.… But it is wise for a start-up to think about compliance early on to avoid potential penalties and distracting complications from lack of compliance later down the road. If you don’t know about an issue ask a professional like your lawyer, accountant, etc.…here is a little background on 409A valuations and choosing the right 409A provider.

What is 409A?

409A refers to Section 409A of the Internal Revenue Code for the Internal Revenue Service (IRS) of the United States of America. This code governs the taxation of non-qualified deferred compensation. Section 409A was added to the Internal Revenue Code in January of 2005 and issued final regulations in 2009.

Stock options give employees, consultants, etc. (any grantee) the right to buy stock at a predetermined price (the strike price). But you first need to determine what the strike price should be. The IRS 409A regulation stipulates the strike price must be equal to the Fair Market Value (FMV) of your company’s common stock.

But how do you value the company stock, especially if the company has a complex capital structure (i.e. has raised money via equity or debt)? Third party valuation firms with experience in these valuations are your best bet for staying compliant. But be careful. Not all firms are created equal.

There are three “safe harbor” methodologies provided by the IRS regarding setting the fair market value (FMV) of common stock for privately held companies. Almost all VC or angel-backed startups follow will use a third-party firm and follow the Independent Appraisal Presumption: A valuation performed by a qualified third-party appraiser. The valuation is presumed reasonable if the valuation date is set no more than 12 months prior to an applicable stock option grant date and there is no material change from the valuation date to the grant date. If these requirements are met, the burden is on the IRS to prove the valuation was “grossly unreasonable.” If the valuation does not fall under “safe harbor” then the burden of truth falls on the taxpayer.

There are severe penalties for Section 409A violations which include, immediate tax on vesting, additional 20% tax penalty, and penalty interest.

So why is safe harbor important and how you can get it?

Ideally, safe harbor insulates you from persecution. Luckily, IRS has provided avenues for companies to safely offer deferred compensations. If you have a safe harbor, IRS will only reject the valuation if they can prove that it is grossly unreasonable. The burden of proof is with IRS to prove that you are in error. However, this burden of proof is shifted to the company and BOD if don’t have safe harbor. In this case, you are treated as having granted cheap stock unless you can prove otherwise and defend your strike price.

For the valuation to be treated as safe harbor valuation, it must be done in any of the following ways, but we will focus on the first two.

Valuation be done internally by a qualified staff

Valuation be done by a qualified third-party valuation company

Stock be offered through a generally acceptable repurchasing formula

Using Internal Value

In this option, the company will appoint a qualified individual from the internal team to conduct the valuation. This can be one of the easiest and cheapest options, but it has several other conditions attached to it. The individual doing the valuation and the company must meet set standards.

The individual appointed to do the valuation must have at least five years’ experience in a field related to valuation. This includes business valuation, private equity, investment banking, secured lending, or financial accounting. This can be tricky because there is room for subjectivity. IRS, upon its discretion, may determine that the individual who did the valuation did not meet the required standards. Further, what we have seen too often is the internal valuation results in values way to high or just plain wrong. Experience matters.

Moreover, a company can only use this option if it can meet the following requirements:

It is a private company
Has no publicly traded stock
Is less than ten years old
Has no stock that is considered as a call, put, or similar derivative

Appointing a Third-Party Firm

While this may be the most expensive option, it is also the safest. The only condition is that the firm should follow consistent methodologies in the valuation. So, it is important to supply the firm with all the necessary information to carry out the valuation. The information includes the following.

With the requested information, a qualified firm can do a reasonable valuation. In some instance, a third-party firm may arrive at a favorable fair market value without going too low to raise alarm. The advantage of working with a third-party firm is that you get double protection. Most firms will be interested in saving their reputation, so they are more likely to protect you. Moreover, the burden of proof lies with IRS.

The Dangers of Working with Non-independent Valuation Firms

For a company to be deemed as independent, in IRS context, it should only provide you with valuation services. Some companies may be tempted to register a separate LLC company to handle valuations, but the conflict of interest is their regardless.

To qualify for a safe harbor, valuers must be seen to be independent. They should also employ objective judgment in arriving at their conclusion. In this case, there should not be any conflict of interest, and valuation should be based on merit, free of bias. Therefore, if a valuation company receives other forms of income that are not related to valuation from your company, then that amounts to a conflict of interest. There is even a bigger conflict of interest if the valuation firm offers liquidity to the same shares it is valuing.

Legally, conflict of interest indicates the presence of economic benefit. In that case, IRS requires valuation firms to declare that there have no relations with their clients. On top of this, they should also attest that the compensation is not based on the results they deliver. The bottom line is that you will not achieve safe harbor if is there is a conflict of interest.

So, when can you say you have fully achieved safe harbor?

If your valuation has respected all the requirements for achieving a safe harbor, then you are almost guaranteed of protection, but you are not off the hook yet.

The following caveats need to be taken into consideration:

If there is material change that might have a direct impact on the value of the company, then the valuation will become invalid
The valuation is valid for 1 year, so if you are issuing additional shares after 12 months, then you should do a new valuation
IRS still has room to determine if the valuation was grossly unreasonable

It may seem like a daunting task to do 409A valuation the right way, but it is worth the effort because the consequences for violations are severe. Remember that safe harbor is the best way to protect yourself against harsh penalties.

How Do I Get a 409A Valuation?

In order to get a 409A valuation you want to work with a reputable firm that has experience in rendering valuation opinions. We recommend staying away from 409A only shops, firms that are not independent, or are “giving away” in conjunction with a software sale.

How Much Will a 409A Valuation Cost?

409As are relatively new. When they were first introduced in 2005, everyone scrambled to comply. Valuation firms were born into a world where they were desperately needed but without a precedent to set a price for their services. Since then, with more options becoming available, the costs have decreased. The DIY and qualified individual methods are typically more cost-effective, but significantly riskier, so if you want safety and a good deal, keep reading…

It can be difficult to know what market or fair prices for valuation services are if you have not had experience with these services before. Below we are presenting what we feel are middle of the road prices for quality service and reports with technical rigor that would pass a big four auditor. You can find cheaper, but you run all kinds of risk for your company, employees, and board.

No matter what, make sure you choose a valuation firm you trust and that you can see yourself having a good relationship with because that relationship may be a long one. If you’re ready to get your 409A valuation and start issuing stock options to employees.

The SEC proposes expanding the “accredited investor” definition

Posted on June 9, 2020October 6, 2020 by Sara Hanks

The SEC has proposed amending the definition of “accredited investors.” Accredited investors are currently defined as (huge generalization here) people who have net worth of $1 million (excluding principal residence) or income of $200,000 ($300,000 with spouse) or entities that have assets of $5 million. Here’s the full definition.

The whole point of the accreditation definition was that it was it was supposed to be a way to determine whether someone was able to “fend for themself” in making investment decisions, such that they didn’t need the protection that SEC registration provides. Those people may invest in private placements. The thinking at the time the definition was adopted was that a financial standard served as a proxy for determining whether an investor could hire a professional adviser. Financial standards have never been a particularly good proxy for investment sophistication, though, and some people who are clearly sophisticated but not rich yet have been excluded from being able to invest in the private markets.

The proposal would:

Extend the definition of accredited investor to natural persons (humans) who hold certain certifications or licenses, such as the FINRA Series 7 or 65 or who are “knowledgeable employees” of hedge funds;
Extend the definition of accredited investors to entities that are registered investment advisers, rural business investment companies, LLCs (who honestly we all assumed were already included), family offices, and other entities meeting an investments-owned test;
Do some “housekeeping” to allow “spousal equivalents” to be treated as spouses and tweak some other definitions; and
Create a process whereby other people or entities could be added to the definition by means of a clear process without additional rulemaking.

We are generally in favor of these proposals. However, we worry that the more attractive the SEC makes the private markets, the more that people of modest means will be excluded from the wealth engine that is the American economy. We also believe that the concerns raised about the integrity of the private markets by the two dissenting Commissioners, here and here, should be taken seriously. The real solution to all of this is to make the SEC registration process more attractive, and better-scaled to early-stage companies.

In the meantime, read the proposals and the comments, and make up your own minds. The comment period ends 60 days after publication in the Federal Register, which hasn’t happened yet.

Equity Crowdfunding Platforms (RegCF)

Posted on June 1, 2020October 9, 2020 by Oscar Jofre

As of 02 JUNE 2020, there are 51 active RegCF Equity Crowdfunding Platforms helping companies raise up to $1.0M USD.

We are all anticipating that RegCF is going to be potentially increased to a $5 million funding cap. The SEC has proposed this increase, along with some other changes, and many observers expect the Commission to move forward with a higher funding cap.

We recently did a Q&A with Wefunder on what RegCF companies require.

We have compiled the list of 51 Active Equity Crowdfunding Platforms along with the sectors they serve.

Company Name	URL	City	State	Sector
Bioverge Portal, LLC	https://www.bioverge.com/	San Francisco	CA	Healthcare
Buy the Block	https://buytheblock.com/	Denver	CO	Community
CollectiveSun, LLC	http://collectivesun.market/	San Diego	CA	Social Ventures
Crowd Ignition	https://crowdignition.com/	New York	NY	General
CrowdsourcedFunded	https://crowdsourcefunded.com/	Chicago	IL	General
EnergyFunders Marketplace	http://www.energyfunders.com/	Houston	TX	Energy
EnrichHER Funding, LLC	https://ienrichher.com/	Atlanta	GA	Loans
Equifund Crowd Funding Portal Inc.	www.equifundcfp.com	Kanata	ON	General
EquityDoor, LLC	https://equitydoor.com/	Austin	TX	Real Estate
Flair Portal ( Flair Exchange)	https://www.flairexchange.com/	Vancouver	BC	Gaming
Flashfunders Funding Portal	www.flashfunders.co	Sherman Oaks	CA	General
Funders USA	https://www.fundersusa.com/	Newport Beach	CA	Technology
Fundit	http://fundit.com/	Fairfield	NJ	General
Fundme.com, Inc.	www.fundme.com	Murray	UT	Technology
Fundopolis Portal LLC	https://www.fundopolis.com	Boston	MA	General
GrowthFountain Capital	www.growthfountain.com	New York	NY	General
Honeycomb Portal	www.honeycombcredit.com	Pittsburgh	PA	General
Hycrowd	https://www.hycrowd.com/	Jersey City	NJ	General
Indie Crowd Funder	www.indiecrowdfunder.com	Los Angeles	CA	Film
Infrashares Inc.	https://infrashares.com	San Francisco	CA	Infrastructure
IPO Wallet LLC	https://ipowallet.com/ https://invest.ipowallet.com/	Sachese	TX	General
Jumpstart Micro	www.jumpstartmicro.com	Bedford	MA	General
Ksdaq	https://www.mrcrowd.com	Monterey Park	CA	General
MainVest, Inc.	https://mainvest.com/	Newburyport	MA	General
Merging Traffic Portal llc	www.mergingtrafficportal.com	Orlando	FL	General
MinnowCFunding	www.minnowcfunding.com	Pasadena	CA	Real Estate
MiTec, PBC (Crowdfund Main Street)	https://www.crowdfundmainstreet.com/	Fremont	CA	Impact
NetCapital Funding Portal	www.netcapital.com	Lewes	DE	General
NSSC Funding Portal (SmallChange)	www.smallchange.com	Pittsburgh	PA	Real Estate
OpenDeal (Republic)	www.republic.co	New York	NY	General
Pitch Venture Group LLC	https://letslaunch.com/	Houston	TX	General

Raise Green, Inc.	http://www.raisegreen.com	Somerville	MA	Impact
Razitall	www.razitall.com	Basking Ridge	NJ	General
SeriesOne	https://seriesone.com/	Miami	FL	General
SI Portal (SeedInvest)	www.seedinvest.com	New York	NY	General
Silicon Prairie Holdings, Inc.	https://sppx.io/	St. Paul	MN	General

SMBX	https://www.thesmbx.com/	San Francisco	CA	Bonds
Sprowtt Crowdfunding, Inc.	https://www.sprowttcf.com/	Tampa	FL	General

StartEngine Capital	www.startengine.com	Los Angeles	LA	General
STL Critical Technologies JV I, LLC (nvested)	www.nvstedwithus.com	St. Louis	MO	General

Title3Funds	www.title3funds.com	Laguna Beach	CA	General
Trucrowd	www.us.trucrowd.com https://fundanna.com https://cryptolaunch.us https://musicfy.us	Chicago	IL	General
VedasLabs Inc.	https://vedaslabs.io/	New York City	NY	General
Vid Angel Studios (VAS Portal LLC)	https://studios.vidangel.com/	Provo	UT	Film
Wefunder Portal	https://www.wefunder.com	San Francisco	CA	General
Wunderfund	www.wunderfund.co	Cincinnati	OH	General
WWF Funding Portal LLC	https://www.waterworksfund.com/	Detroit	MI	Water

If you have any questions about how we can help you with your RegCF contact us

lily@koreconx.io

Wefunder Interviews Oscar Jofre co-founder KoreConX

Posted on May 4, 2020May 4, 2020 by Oscar Jofre

WeFunder the #1 Equity Crowdfunding platform in the USA interviews Oscar Jofre co-founder of KoreConX.

(1) What is a Transfer Agent?

This a great question. As each entrepreneur enters the world of raising capital, new responsibilities are brought on. In many instances, the company will need to engage with a registered transfer agent to manage the corporate records of the company. This can seem like a disconnect since as entrepreneurs know their business best. However, in order to bring confidence to investors, you appoint a third party Transfer Agent, to ensure your book of records are up to date and accurate.

So what is a Transfer Agent?

A stock transfer agent or share registry is a third party company, which records all entries and manages all transactions of the company’s equities. We are holding the book of records for the company and to make sure all trades, transfers and corporate actions are undertaken properly.

(2) What are the requirements for companies that run Regulation Crowdfunding campaigns, with respect to Transfer Agents.

Once you decide to do a Regulation Crowdfunding (RegCF) or RegA+ you will need to undertake a number of regulatory activities before you can get started first, you will need to apply and receive regulatory approval from the SEC. Wefunder provides you all the guidance you need to make sure it’s done correctly and timely.

As you prepare for your offering, you need to start planning for how you will manage and report to all your new shareholders post your capital raise. This can seem overwhelming but we are here to provide you the platform that will help you with all that.

Since you need to appoint a transfer agent, here is what really sets us apart from a traditional transfer agent. We not only provide you the services as mandated, but we also provide a whole platform where you can manage your shareholders, communicate with them, report to them, send them updates, hold your annual shareholders meeting including an included evoting feature and has a free portfolio management feature for your equity and debt holders to always see their investment information and updates. So you can pick a traditional transfer agent that will operate in a silo with none of the above features, or you can select KoreConX that not only meets your regulatory obligations, but also provides you access to an all-in-one platform to help you manage your business.

(3) What are the other services provided by KoreConX?

When we launched KoreConX to serve the JobsAct. It was designed by founders to help founders of a business and to bring everyone together, thus giving companies more control while spending less time doing redundant paperwork.

KoreConX provides the world’s first all-in-one platform providing companies: cap table management, document management, boardroom tools, investor relations, AGM planner, eVoting for shareholders, dealroom, reporting, valuations, and for their shareholders’ a free portfolio management to manage the investments in the company.

The KoreConX all-in-one platform is for by entrepreneurs, CEO, President, CFO, COO, CCO, board of directors, corporate secretary, investor relations, legal counsel, auditors, and shareholders.

One platform to serve the entire company.

(4) What are some of the biggest mistakes you have seen companies make with respect to Transfer Agents?

Having spent over 20 years in the public listed company world, it was not a surprise for us to see some of the issues private companies are facing. For private companies today adding the role of Transfer Agent can be very difficult.

The biggest mistake we see is not disclosing the full captable of the company. This is often because of the way securities have been issued to other shareholders, founders, etc. As the Transfer Agents, the only way to provide proper records is to have all the securities that the company has issued: shares, options, warrants, debentures, SAFE, Digital Assets, Loans, Promissory Notes, etc.

The second biggest mistake we see is that there is no documentation for the securities that have been issued prior to the RegCF offering.

(5) What advice would you have for founders using Transfer Agents?

Like any relationship your company needs to have in the growth of your company, a Transfer Agent is very important.

Find a Transfer Agent firm that not only serves your needs but the needs of your shareholders, and provides you a way to be connected to them in a very effective and efficient manner so you don’t have to keep duplicating your efforts.

A Transfer Agent of the 21st Century needs to grow with you and understand the private company, and how you are going to use regulations to raise your capital.

(6) Why is KoreConx better than Carta?

The major difference with KoreConX and companies like Carta, we design and built KoreConX from the ground up from the founders and the company’s perspective. Most people in the finance industry build products from a transactional and/or a dealermaker perspective.

KoreConX emerged from the creation of the JobsAct and we knew the demands for Transfer Agents would be very difficult to undertake, given the size of the new shareholder bases and that capital raises would be too small to support the added cost of compliance.

We created a platform to help a company who is just getting started through to full maturity.

The KoreConX all-in-one platform is there to help companies of all sizes and providing a journey for an entrepreneur to grow on the platform.

(7) How much does KoreConX cost?

Understanding the Regulation Crowdfunding (RegCF) and RegA+ we knew that pricing for this service would need to be aligned with the company. The service of transfer agent should not be based on the metrics of the past but rather what the companies of today need to operate and meet their regulatory obligations

Our pricing model is there to help companies not punish them.

For RegCF we have a 3 tier pricing model, and this is not based on how many shareholders they will have but rather how much capital they raised:

$0-$250k $25.00/month
$250-$500k $50.00/month
$500k- $1M $75.00/month

All our programs include all the same features:

Dedicated Agent
No onboarding fees
Unlimited transactions
Investor Relations
- Ability to send reports to shareholders
- Ability to send news releases to shareholders
- Manage your Annual Shareholders Meeting
- Give your shareholders the opportunity to vote online for company Annual Shareholders Meeting
Free Training for you and your shareholders

What is Reg A plus versus Reg A?

Posted on April 5, 2020April 14, 2020 by Kendall Almerico

The simple answer is that today, Regulation A (Reg A) and Regulation A+ (Reg A+) are the exact same law. There is no difference, and the two terms may be used interchangeably.

Some confusion stems from the two similar terms, and there is much misleading information about this online. I’ve even spoken at events where I’ve heard other lawyers claim the two laws are different. They are not.

Historically, there was no Reg A+, there was only Reg A. Regulation A was an infrequently used law that allowed a company to raise up to $5,000,000 from the general public, but with the company still having to go state-by-state to get Blue Sky law approval for their offering. This expensive and time-consuming process of dealing with review of an offering by 50+ state regulators made Regulation A far too expensive and time-consuming for most issuers to only be allowed to raise $5,000.000.

In 2012, the Jumpstart Our Business Startups Act (JOBS Act) became law, and Title IV of that act amended Regulation A in many ways, most notably (a) doing away with the state by state blue sky law requirement and (b) raising the limit from $5,000,000 to $20,000,000 or $50,000,000, depending on which “tier” of the law is used. Congress took a virtually worthless law, and turned it into an excellent and company friendly law that has allowed many companies since to raise millions.

Interestingly, since in 2012 when the law went into effect, and even since 2015 when the SEC passed its rules allowing the law to actually be used, the law is still officially called Regulation A. But, both the SEC, and commentators also started simultaneously calling the law “Regulation A+” or “Reg A+” to note that it was a supercharged version of the old Regulation A law.

Finally, to get super-lawyer-nerdy here, the official name of the law is Regulation A – Conditional Small Issues Exemption, and is part of the Securities Act of 1933, found at 17 CFR §§ 230.251 – 230.300-230.346.

What are investor limits on investment size of both?

As noted in my other blog article, these is no difference between Regulation A (Reg A) and Regulation A+ (Reg A+). They are the exact same law. The two terms may be used interchangeably. Therefore, investor limits on investment size are the same for either term.

However, there are investor limits on how much an investor may invest in Regulation A. These limits depend on which “tier” of the law is being used.

Tier 1 of Regulation A allows a company to raise up to $20,000,000, but the company must go through Blue Sky law compliance in every state in which it plans to offer its securities. There are no limitations on whether someone can invest, or how much someone can invest, in a Tier 1 offering.

As a side note, Tier 1 offerings tend to be limited to one state, or a small number of states, because of the added cost of Blue Sky compliance. The SEC does not limit the amount of investment, but states may have limitations in their securities laws, so an analysis of each state’s securities laws is necessary if doing a Tier 1 offering.

Tier 2 of Regulation A allows a company to raise up to $50,000,000, and the company does not have to go through Blue Sky law compliance in any state in which it plans to offer its securities. However, there are limitations on how much someone can invest, in a Tier 2 offering if the offering is not going to be listed on a national securities exchange when it is qualified by the SEC. If the Tier 2 offering is going to be listed on such an exchange, there are no investor limitations.

For a Tier 2 offering that is not going to be listed on a national exchange, individual investors are limited in how much they can invest to no more than 10% of the greater of the person’s (alone or together with a spouse) annual income or net worth (excluding the value of the person’s primary residence and any loans secured by the residence (up to the value of the residence).

There are no limitations on how much an accredited investor can invest in either a Tier 1 or a Tier 2 Regulation A offering.

Why is my cap table so important for my company?

Posted on March 10, 2020February 3, 2021 by Oscar Jofre

It’s never too early in the process of building a company to start managing your capitalization table (otherwise known as a cap table). As a detailed document recording all information regarding shareholders and the equity owned in the company, a well-managed cap table will become essential to long term success. Even if you’re thinking that your company does not need to keep such detailed records early on, understanding its importance may change your mind.

At first, keeping track of equity might be a simple task. In the early stages, perhaps equity had only been distributed amongst cofounders. However, as the company grows, equity might be given out to key team members and employees, which all needs to be recorded accurately. Without numbers correctly recorded, it will likely be hard to know exactly how much equity is remaining for the future. Also, with proper recording, it will allow founders to easily determine how certain deals may affect the equity distribution of the company.

For potential investors, the cap table will be a key resource. Before investing in a company, investors will want to become familiar with current shareholders and the equity that each one possesses. The transparency a well-managed cap table allows will help avoid delays and increase investor confidence. During rounds of funding, the founder should also be concerned with how awarding investors with equity will affect their ownership in their company. For both parties during investor negotiations, the cap table will be essential.

Once the company has received investments from investors, managing shareholders will also become an important task, which can be done in the cap table. The cap table will typically include investor information, such as who they are, their voting rights, and the number of shares that they own. With this information in one centralized place, if voting was to take place, the cap table ensures that all investors would be included as necessary.

One major benefit of starting to manage a cap table as soon as possible is that it will save time and resources in the long run. As the company begins to seek funding, the cap table would be already prepared and up to date. If the company did not already begin to keep records in their cap table, they would need to go back and create one, which could increase the chances for errors since it could be possible for them to have lost documents or records that they would need.

So what is the best way to manage your company’s cap table? Even though you can make a simple spreadsheet in Excel, using software such as KoreConX’s all-in-one platform might be more beneficial for long-term success. As deals occur, the cap table is automatically updated, eliminating errors that could result from manual changes. The platform also provides investors with the transparency they need to feel confident in their investments. Companies will benefit immensely from the increased transaction speeds and expedited due diligence that results from a properly managed cap table.

Global Crypto Twins one on one with Oscar Jofre co-founder of KoreConX

Posted on November 9, 2019November 11, 2019 by Oscar Jofre

The Crypto Twins are well-recognized faces in the blockchain space and have been advocates and the voice for those who are supporting the global ecosystem of digital securities formation.

This was a great interview by the Crypto Twins to gain insight from a global leading authority on where the market is moving towards. What is the private capital markets, this is one interview if you are looking for insight you want to make sure you watch.

Difference between Crypto and Security Token

Posted on October 11, 2018October 11, 2018 by Oscar Jofre

Is there a difference between cryptocurrency and a security token?

The answer is yes, there is a big difference. And it is time we get these right so the thick fog around this topic can begin to clear up. It is very important to understand how each of them is very different from each other.

You probably read or hear these two words every day and in most cases in the wrong context. Before we get into the difference lets make one thing clear.

Crypto or Cryptocurrency is an alternate (i.e., non-fiat) CURRENCY
Security Token is an EQUITY POSITION IN A COMPANY

All over the web, there are many discussions, blogs, articles, and tweets on using blockchain. Of course, many of them follow to the extraordinary words “Crypto”, or “Cryptocurrency” and “Security Token”.

I am amazed by the number of people who use these two words interchangeably, yet they are so different as stated above. Let’s have a look at each one in more detail.

What is Crytpo or Cryptocurrency?
Wikipedia has a clear definition: “A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.”

Crypto or Cryptocurrency is just a currency. Other examples of currency are Dollars, Euros, Pesos, etc. These currencies are traded worldwide by currency traders. Nowadays we have the introduction of digital currencies such as Bitcoin, Ethereum, Litecoin, etc. Wikipedia has put together a list of these digital currencies.

Currencies are regulated by a securities commission or foreign exchange agencies. The rules around who can purchase currency and trade them are very simple. In most cases, it is required to be 18 years or older. ID Verification, AML (Anti Money Laundering), and some basic KYC (Know Your Customer) will be done. Not more than this is required to purchase a currency.

For trading, the platforms will need to be registered with commissions and/or regulators in their country to legally operate the exchange. This financial regulator is regulating the currency, transfer, and trading business.

What is Security Token?
In 2017 we saw the emergence of companies issuing tokens to raise capital. In countries such as USA and Canada, regulators have been very clear on this form of capital raising.

When a company offers a token from their company for an investor to invest in, the goal is for the token to trade and gain in value. Security agencies, including the SEC in the USA and the CSA in Canada, have made it clear that when companies are conducting a token offering in which the token has the ability to trade and gain in value, it must be issued as a security token.

Security Token is a tokenized security that is issued by a company. The security represents an equity position in the company. In order to issue the security, the company must comply with regulations as to how it can market the offering, who it can attract to invest in their company, reporting requirements, trading restrictions, and custodianship (Transfer Agent) requirements.

For a company to issue a security token it must:

Determine what jurisdiction (countries) it wants to attract investors from
Determine what exemption to use to offer their security token to investors (accredited or non-accredited investors)
Determine trading restrictions per jurisdiction and exemption
Determine reporting requirements per jurisdiction and exemption
Determine Transfer Agent requirements per jurisdiction and exemption
Determine if Broker Dealer is required per jurisdiction
Determine what regulated ATS Secondary Market is available for trading

As you can see it’s clear how different these two are from each other and there should be no confusion going forward.

Here is how the two can come together and be used in the proper context. You can use cryptocurrency to invest in a security token offering by a company. But that can only happen as long as the company has agreed to accept this form of digital currency, the investor meets regulatory requirements, the company can offer their securities in the country (Jurisdiction) of residence of the investor, and if the company is using a broker-dealer, the dealer is also prepared to accept that form of payment.

Life of a Company

Posted on September 6, 2018September 6, 2018 by Oscar Jofre

I know, the title is odd. But the goal is to show how a company is formed and what is required for it to be maintained. What most of the public sees is only related to sales or marketing, never the insides of the corporate structure or management.

The first step each of us make is to incorporate our organization, and we are provided with the company’s papers, also known as the “Minute Book”.

The Minute Book
For entrepreneurs, board directors, management, lawyers, auditors, shareholders, and broker dealers, the Minute Book is a lifeline. It is the historical log of all the key decisions and corporate actions made in the company. Now, some of you will go to your lawyer and get a Minute Book binder, and some will go online and construct your binder.

One very important thing about your company’s Minute Book is that there is only ONE original and you must protect it. At the same time, you are required to provide access to your lawyers, auditors, board directors, shareholders, and anyone who is doing due diligence on your company.

What do you get in your Minute Book:

- - - Certificate of incorporation – this provides a unique number to your company
    - The official date of incorporation in your jurisdiction
    - Bylaws: the rules you must follow in operating your company, such as
      - Number of directors
      - How many shares you can issue and class of shares
      - How to conduct board meetings
      - How to conduct shareholders meetings
      - Quorum for board and shareholders meetings
The Minute Book also has many other tabs for you to insert the ongoing corporate actions in the company.
The Minute Book is a living document and it requires that you update it as you are conducting your corporate actions. Those actions need to be recorded in your Minute Book and properly documented, so in the future when you are going through due diligence—for financing, acquisitions, going public, or opening a bank account—this information will be ready so you can move forward.Here is a list of some of the corporate actions your Minute Book needs to have. Some of these corporate actions will be in different sections of your Minute Book depending on how many documents are created.
- - - - Appointing director
      - Appointing officers
      - Notice of Shareholders Meeting
      - Opening a commercial bank account
      - Appointing auditors
      - Granting options
      - Accepting new shareholders
      - Accepting a loan, debenture, SAFE
      - Name change
      - Merger
      - Acquisition
  For each of these corporate actions, you will need directors’ resolution and/or shareholders’ resolutions and, in some cases, agreements, government filings, and regulatory filings. All of these documents will need to be stored in different sections within the Minute Book.
  
  This is important to know because as your company grows, more and more of these documents start to add up and the historical tracking becomes even more challenging to maintain.
  
  If your records are not up to date or properly recorded you will spend thousands and thousands of dollars to get those completed so that you can proceed with a transaction such as raising capital, loan, merger, acquisition, going public, etc.
  
  Along with managing all the corporate documents, you are also required to manage, report, and track all your shareholders on a timely basis. Depending on which exemption you used, the company would be required to provide quarterly,semi-annual, or annual reporting to your shareholders.
  
  I know all this might seems overwhelming. Welcome to being an entrepreneur! There are no shortcuts, but there is a way to do it so you are not burdened by all this and end up spending thousands of your hard earn money to fix issues when they emerge.
  
  As a fellow entrepreneur, I felt this pain. Having all these documents and no central place that everyone (board directors, shareholders, lawyers, auditors, regulators, etc.) could access 24/7, created further strain on my time.
  
  For a long time, I found apps that did only one thing but were not able to do all that I needed to meet my fiduciary obligations as an officer and director of my company. It was very frustrating, but finally, in 2015 we launched the world’s first all-in-one platform—yes, an all-in-one platform—that takes care of everything I described above and so much more.
  
  Once you have a secure and centralized platform to bring your stakeholders, you have the assurance to meet your obligations and focus on growing the business rather than managing paper.
  
  No more duplicating your efforts – only do it once and KoreConX takes care of the rest.
  
  As you grow, the platform provides even further enhancement, so if you are a one person company or a company with 500,000 shareholders or more, KoreConX is your all-in-one platform.

A Big Lesson from the Delaware Blockchain Amendments

Posted on July 9, 2018June 12, 2019 by Kiran Garimella

Andrea Tinianow, the founding director of the Delaware Blockchain Initiative (and ‘Blockchain Czarina’), recently published a very insightful article on the significant gap in the mainstream protocols for security tokens. The gap is in the way the Delaware Blockchain Amendments are interpreted by the mainstream security token platforms.

The Delaware Blockchain Amendments were an outcome of the Delaware Blockchain Initiative. The Amendments were introduced in the Delaware Senate Bill 69 and signed by the Governor on July 21, 2017. This landmark legislation allows Delaware corporations to maintain their stock ledgers on a blockchain. In making this provision, what the Delaware Bill meant was that all of the stock ledger data should be maintained on the chain, rather than only a portion of the data.

The more accurate interpretation of the provision bumps up against one limitation that public blockchains face. As the number of nodes in the chain grows dramatically—as it should in a truly decentralized system—the performance of the chain suffers. Validation, consensus, and finality take longer and longer. The problem becomes significant when security tokens are involved, since the data payload of securities transactions is much larger than the normal token payment data within Bitcoin and other payment-oriented cryptocurrencies and tokens. More importantly, contract execution is much more complicated than technical (or cryptographic) validation of transactions. Even simple contracts can generate a multitude of mini-transactions that need to follow a labyrinth of complex processes in the securities world. All this activity generates more data, exacerbating a problem that currently has no clean solution in fully decentralized public blockchains.

One way around this problem is to put securities data off-chain and store the keys on-chain. This can provide some relief on storage but probably not as much impact on performance. Even with the limited payload, the Bitcoin blockchain has grown from around 1 MB in 2010 to more than 170 GB eight years later! Transactions speeds are even less impressive. Hardcore fans of Bitcoin deem it unfair to compare its 7 transactions per second with that of Visa (which conducts around 20,000-30,000 or even more transactions per second), since Visa had over 60 years to improve its technology. Presumably, Bitcoin fans predict that Bitcoin’s transaction speed would match that of Visa if the Bitcoin network too had a couple of decades of improvements. But these arguments miss the point: by the time Bitcoin achieves Visa’s throughput, Visa itself could double or treble its own performance. Ethereum too is facing similar issues and currently experimenting with various approaches, including sharding and proof-of-stake.

In any case, putting securities data off-chain violates the provisions of the Amendments. “Thus, although the ERC-884 is designed to transfer shares of stock, the share ownership information is captured in an off-chain database,” says Andrea Tinianow, alluding to a derivative of the ERC-20 protocol. “This arrangement is in stark contrast to what was contemplated by the Delaware Blockchain Amendments….”

In contrast, the KoreChain maintains all information on the chain. Scalability and performance are not issues precisely because this is a permissioned chain with functional sharding (a topic for another blog) but no mining, proof-of-work, or proof-of-stake. The KoreToken protocol also addresses the full ecosystem of participants in securities transactions. The implementation of services is too important to leave it to interpretations and all the subsequent hassle of reconciling varied interpretations. For example, even the most basic partial sale of security tokens on a secondary market exchange requires a minimum of twenty-five separate sub-transactions involving upto five participants. In order to be robust, real-life implementations have many more steps. Currently, all these steps do take place, but the majority of them happen after the primary sale transaction occurs. These tasks fall into various groups of activities such as clearance, settlement, reporting, disclosure, and corporate record-keeping.

There is no debate that the whole process is inefficient, costly, and error-prone. This makes the process an excellent candidate for true smart contracts on the blockchain. But this does not imply that the blockchain makes these tasks unnecessary. From the context of a naive security token protocol, Andrea Tinianow points out in her article, “Tokenized shares do not eliminate many of the types of errors that are symptomatic of a system that relies on third-party intermediaries to manage and control shareholder databases.” KoreChain, engineered carefully to be fully compliant with all the complexities of securities regulation and corporate law, mitigates errors and creates efficient end-to-end securities transactions without ignoring the risks. The KoreChain implements all tasks that are mandated by securities regulation and corporate law.

Capital Raising “Capital markets point of view” dealer

Posted on June 4, 2018June 25, 2018 by Jonathan Heymann

For private issuers, raising capital is the next natural step once you have exhausted other traditional forms of financing. It becomes even more enticing when you read about other firms doing it, and thinking why shouldn’t that be us.

However, being prepared to take the issuer to the next level can be a source of frustration if you’re not ready for it. Nobody is willing to just hand out money; you have to make a convincing case based on fact and incomplete due diligence documentation can leave you out in the cold.

Issuers must prepare comprehensive information which covers who the guiding minds behind the issuer are, who the current shareholders are, business continuity planning, company financials, what is it that makes you unique and a comparison with competitors in the same industry.

Dealers are bombarded by people who claim to have the next best thing, but if you can’t boil it down to facts and figures, they won’t spend much time looking at you. Using up to date technology to gather all the corporate information is critical to your success. Using a platform to house your cap table management, minute book, financials, investor relations and corporate data in electronic format means you can walk into a meeting prepared for whatever they throw at you.

For dealers, having a platform whereby issuers can login and input all the relevant information that you need from them, allows you to control the process and weed out the unprepared ones before you devote a lot of time to analysing potential deals. A controlled mechanism whereby issuers know what information they need to provide and where to put it, saves everyone significant time and effort.

Taking it one step further, for registered dealers to have the ability to easily showcase their approved products online, along with pertinent information about the issuer – corporate biographies, financial information, information about the proposed raise – helps dealers to bring their proposed offerings to potential investors. From a compliance perspective, it means having all of your due diligence in one place, for when the regulators come to visit.

Taking it two steps further, for investors to b able to view potential offerings, input their Know Your Client (KYC) information to determine their eligibility, answer questions to determine the suitability of the investment, have the platform conduct the necessary AML checks and then provide an efficient method for payment, once approved by the CCO, and you have an efficient and cost effective ecosystem which helps issuers, dealers and investors communicate.

KoreConX has an all-in-one platform to accomplish this and ensures that all parties are acting in compliance with securities regulations. Issuers can effectively connect with dealers who in turn can connect with investors all while ensuring that they have the necessary KYP/KYC processes and documentation in place, should they get audited.

Shareholders = Customers = Ambassadors

Posted on November 9, 2017June 13, 2018 by Oscar Jofre

Each interview I’ve had in the past two weeks has asked a question about how some companies or outsiders believe that having a large pool of investors is not good for a company and is distracting. I pondered my response on a number of occasions and then I reflected on comments from the founders of the JOBS Act (Sherwood Neis, Jason Best and Douglas Ellenoff) that crowdfunding is the democratization of capital and the “publification” of private companies. They went on to state that when investors invest in companies through these equity crowdfunding portals, the investors become the best ambassadors to the company.

So the creators of the JOBS Act envisioned what really was going to happen, and for it to work, the relationship between the company and its shareholders would change. Since the entire world is being disrupted by this new crowdfunding sector, it makes sense that even the roles of companies and the relationships they have with shareholders would fundamentally change.

Let’s Look at the Attributes of the “Customer” from a Company Perspective

A company cannot survive without customers. In fact, it’s often said the first customer the company receives is really investing in the company. Wow – “investing”.

So how does the company go about getting this customer, attracting new ones and managing them? The company employs a sales and marketing team to attract and maintain customers, and will also provide customer support. I only need look at our own company. At KoreConX we have invested heavily on attracting the best for each of these roles.

These individuals are responsible for learning about the needs of the customers today and tomorrow. Understanding what customers are looking for in a company and where the customers can be found is crucial to effectively marketing to them. It is important to demonstrate your thought leadership in your sector and why your product or service is better or unique.

All the work we do to attract customers and maintain them is truly amazing. All of these activities are being managed by a number of tools such as HubSpot, Salesforce and Lynkos that can manage all your activities with the customers and documents you send, tracking tools to see if they read it, etc. Companies around the world spend billions in this area because they understand that the more automation we add, the better we are at serving our customers.

The justification for the cost or investment by the company is simple. Companies do all this so the customers will keep buying, in essence re-investing in the company.

Great companies like Google, Inc. ($GOOG) have shown the world that every person is a customer and a shareholder that can eventually become your ambassador, and that is priceless to your brand and company.

The New View of a “Shareholder”

The first investor in a company is often a customer who sees the great opportunity and vision the company is building.

The problem is that companies see shareholders as a burden, and make no effort to apply the same logic or business sense as they do for their customer acquisition and maintenance. In reality, shareholders are even bigger brand ambassadors than customers, and should be afforded the same care and consideration. Since shareholders identified the company as being worthy of investment, and they have a vested interest in the success of the business, they will always be the best brand ambassadors.

Yes, I said Shareholder = Customers = Ambassador!

Think of a time when you have either heard from a friend or told a friend the following: “Wow, Apple ($AAPL) iPhone and Apple Watch is a great combo, and see all the great things it does? If you use it so often and talk about it so much you must own shares.” This implies that if you are a true brand ambassador you must be a shareholder.

Equity Crowdfunding and the Growth of your Brand Ambassadors

In today’s social media driven world, people are connecting on a much more personal level to businesses and/or products that they are interested in. The emergence of equity crowdfunding presents an amazing opportunity for companies to capitalize by turning their loyal and dedicated ambassadors into shareholders and vice versus.

Because in today’s world, they will be connected with you and your company and your team using all the social media properties that they can find you in so they can feel connected. They want to be cheerleaders for your company because they believe in what you are doing.

The interesting thing that companies have severely overlooked with shareholders is that these individuals invested in their company and did not receive a product, and that these individuals will sell more of your products/services than any new customer you attract to your business.

Companies need to apply the same principles they have for operating the front lines of their business to the way they deal with their shareholders. Spending time cultivating, converting, empowering and managing shareholders will yield exponential returns. Which means you need to see both customers and shareholders as equally vital to the company’s success and be vigorous in using tools like KoreConX.

KoreConX provides you with the missing piece to efficiently and effectively bring the companies together with their shareholders, to manage them, empower them, connect them, and make them the best ambassadors of your company. Equity Crowdfunding is about disrupting how things have been done, not just for raising capital, but for creation of legal documents, due diligence processes, and most importantly how you manage those valuable new shareholders/ambassadors.

So embrace the 50, 100, 1000, or 4000 new shareholders! I’ve never known any company that does not want customers to help them grow their business. What is great about equity crowdfunding is that the more shareholders you have, the more ambassadors for your brand, and the more new customers they will drive to you to help you grow your business.

I say welcome and embrace equity crowdfunding, and make it work to your advantage.

https://koreconx.com/user_signups/new_signup

How should I manage my shareholders?

Posted on July 3, 2017June 13, 2018 by Jason Futko

Just raised money via crowdfunding? Have you raised money traditionally several times and have lots of shareholders to manage? So, what is the best way to manage all your shareholders?

Managing one’s shareholders via equity crowdfunding is something that gets raised a lot. It is a hot topic because now companies are finding they have shareholder bases of well over 50 shareholders and find this burdensome. This can also be the case if you have raised money outside of crowdfunding also. Are your shareholders a burden? If you answered yes, then there is a problem. Shareholders are and should be your biggest advocates. They believe so much in what you are doing they invested their money in your business. There are fewer bigger advocates then those willing to stick their necks out with the founders and help your business grow. See Oscar Jofre’s article on making shareholders your business champions….

The quickest way to turn a shareholder into a burden is by avoiding them. Keeping them in the dark, failing to communicate, and waiting for them to harass you for an update turns them from champion to burden. Remember that the customer that has a bad experience is 10 times more vocal than the happy customer, well the same applies to shareholders. We believe that frequent updates and transparency on how your business is doing is the best approach to keep the engine running smoothly and the engage your shareholders.

But my business isn’t going as well as I had planned and I’m afraid to tell my shareholders. If this is your concern, it is a common one. However, by not telling them you are failing to give them a chance to help you. Your shareholders bought into your business because they like it. Some of them may have run businesses themselves and may have valuable input or advice for you. Proper engagement will bring you advice and the possibility of more financing if the well has run dry. In my experiences, shareholders can be understanding and helpful even if you give them the opportunity.

To manage the shareholders in an optimal manner requires firstly that the entrepreneur knows his investors. Knowing the investors or shareholders goes far beyond just sending them updates or asking for more money. It involves building a professional relationship where the worries and struggles of the company are shared by all and not by one.

The entrepreneur also needs to regularly e-mail about the progress of the company so that trust, transparency and openness within the boundaries of the company are norms that are expected of everyone. Having a proactive attitude and taking the initiative to sharing new updates regarding internal accounting and auditing, financial information, product and manufacturing, research and development, marketing strategies and sales forecasts should happen regularly.

The entrepreneur should also reach out to collect shareholder feedback via polls and personal communication in a way that makes shareholders feel as though their views are really being taken into consideration. Obtaining feedback and keeping abreast of shareholders in a personal way can significantly affect their willingness to support you when the going gets tough, and makes for a better experience for everyone!

Hopefully you now agree that keeping your shareholders engaged is important. Now, what is the best way of doing that? There are many tools to help and I bet many people started with an excel list and outlook, maybe even progressing to mailchimp or some other mail program. While this is a common approach it is rot with inefficiencies and risk. What if a shareholder moves or changes their contact details? Did you know email is NOT secure and that once you send it from your server it becomes in the public domain? Are you comfortable with your private information being publicly available? How are you tracking their engagement?

There is one tool that can help you do all of this and much more. At KoreConX all-in-one free platform have been building tools to help small and medium sized businesses operate more efficiently and save money in the process. For instance, did you know that our free version allows you to: Manage your boardroom activities, manage your Cap Table, manage your due diligence processes using our deal room, provide portfolio management to your shareholders, and much much more. Check out www.koreconx.com to learn more.

By providing portfolio management to your shareholders for free in KoreConX you are allowing them to stay connected with you at all times within a secure environment. When they move or change any of their contact details in the system that information automatically updates your records so you are always up to date. Our Investor Relations module allows you to communicate and engage directly through the platform and track the results. It offers a variety of other features to manage meetings, perform and tally evotes for shareholder meetings, perform outreach to potential investors, etc. This is the true way of optimizing your shareholder value.

Category: Transfer Agent