Tag: Capital Raising

Investor Acquisition in online capital raising

Posted on by Oscar Jofre

Let’s talk about Investor Acquisition in online capital raising.

There are over 4.7 Billion potential investors online, but finding the right people to invest in your company among that vast number can seem overwhelming. That is why it is important to understand the various Investor Acquisition (IA marketing) activities you can use to achieve your goal.

Online capital formation (OCF), also known as crowdfunding, refers to the process of raising capital for a business, project, or venture by soliciting small investments from a large number of individuals through the Internet. This is typically done through online platforms or direct listings on company websites that connect entrepreneurs and businesses with potential investors.

 

There are several types of Online Capital Formation (OCF), including:

 

  • Equity-based, in which investors receive an ownership stake in the business in exchange for their investment
  • Debt-based, in which investors lend money to the business and are repaid with interest
  • Token-based, similar to equity but the ownership is tracked and managed in a compliant blockchain technology

 

Online capital formation (OCF) allows businesses and entrepreneurs to access capital from a wider pool of potential investors, and it can also provide a way for individuals to invest in businesses and projects that they are passionate about.  Online capital formation can also help businesses to validate their ideas and to test the market before launching a full-scale fundraising campaign. However, it is important to note that crowdfunding may be subject to different regulations and laws in different jurisdictions.

 

Online capital formation refers to the process of raising funds for a business, project, or venture by soliciting investments from a large number of individuals over the Internet, typically through online platforms such as crowdfunding sites, or online investment platforms like angel networks, or private equity platforms.

 

Online capital formation can include various forms of fundraising, such as:

  • Private Placement Memorandums (PPMs)
  • Regulation A+ (RegA+) Offerings
  • Regulation CF  (RegCF)  Offerings
  • Regulation D (RegD) Offerings
  • Regulation S (RegS) Offerings
  • Regulation 45-106 Offerings
  • Regulation OM Offerings
  • Regulation 708 Offerings

 

Online capital formation allows companies to reach a wider pool of potential investors and to raise funds more efficiently and cost-effectively than traditional fundraising methods. It also provides investors with more opportunities to invest in startups and early-stage companies, and to diversify their portfolios. However, it is important to note that online capital raising may be subject to different regulations and laws in different jurisdictions. Additionally, online platforms that facilitate online capital raising need to be registered with regulatory bodies and comply with securities laws. Investors should also be aware of the risks associated with investing in start-ups and early-stage companies, as these investments are considered higher risk than traditional investments.

 

There is much we can learn from other types of marketing, to make sure best practices are applied.  One basic principle we feel has been severely overlooked by the entire online capital formation sector is their tactics involve no relationship, and no community building.

 

We describe this approach like this:  

 

The number of marketing touches it takes to get an online subscriber can vary greatly depending on a number of factors, such as the industry, target audience, and the type of content or offer being promoted. Typically, it may take several touches before a potential subscriber feels comfortable enough to provide their contact information. According to the rule of seven, the average number of marketing “touches” it takes to convert a lead into a sale is 7.  And depending on specific audiences, funnels, and strategies, this number may be different.

Investor acquisition (IA) refers to the process of identifying, reaching out to, and acquiring new investors for a company or an investment fund. The goal of investor acquisition is to raise capital, and to increase the number of shareholders in a company or the number of investors in a fund.  They do this by first starting in building your community of followers.

 

Investor Acquisition in online capital raising can take many forms, such as:

  • Cold-calling or emailing potential investors
  • Networking and building relationships with potential investors
  • Participating in roadshows and investor conferences
  • Using online platforms and social media to reach a wider audience
  • Using investor databases and investor targeting tools to identify and reach out to potential investors
  • Create online community of like-minded individuals who support your vision, product, service to make your brand ambassadors to champion your offering

 

Investor acquisition can be a complex and challenging process, as it requires a deep understanding of the target audience, the industry, and the investment opportunities. Companies or investment firms that are seeking new investors need to have a clear value proposition and a compelling pitch, as well as a strong track record of performance, to be able to convince potential investors to invest. Additionally, they also need to comply with securities regulations and laws when reaching out to potential investors.

 

At KoreConX our goal is to make sure you achieve yours.  We provide an eloquent way for you to access millions of potential followers, clients, affiliates, like-minded individuals who will want to be associated with your company, brand.

 

What is important is how this is achieved and we believe if you follow the principles of 7 you can achieve this goal.

 

The number of marketing touches it takes to get an online subscriber can vary greatly depending on a number of factors, such as the industry, target audience, and the type of content or offer being promoted. Typically, it may take several touches before a potential subscriber feels comfortable enough to provide their contact information. According to the rule of seven, the average number of marketing “touches” it takes to convert a lead into a sale is 7. And depending on specific audience, funnels, and strategies, this number may be different.

 

The strategy is simple.  

The process is challenging.  

The reward is achieving your goal

Stage 1

Build your community & affinity with your company utilizing the 7 touch process.

 

Romance the Journey

  • Bring relevant information
  • Bring relevant value to your audience
  • Educate
  • Gain trust
  • Ask to join the journey

TouchPoints  (1-7)

Each type of TOUCH Point is to build a relationship with the USER in building your community.  As you build your community, you create an affinity with each of the USER which allows you the opportunity to introduce them to your journey.

 

  • Create Landing Pages/Squeeze Pages 
  • Create Pop-ups
  • Create Target Ads
  • Create Investor Persona
  • Webinar
  • Podcast
  • Email Marketing
  • Newsletter
  • Download (book, information)

 

Stage 2

After they invested it’s just as important to be reaching out but it needs to be on an even more personal level.

 

  • Thank them, and welcome them to your family, and company
  • Meet the Team
  • Meet our partners
  • Follow us on Social Media
  • Progress update
  • Family & Friends Program
  • Invitation for special programs
  • Newsletter
  • Engage, keep engaging
  • Engage, Engage, Engage
  • Enage

 

Strategy

  • Do not call them Investors
  • They are:
    • Customers,
    • followers, 
    • clients, 
    • affiliates, 
    • like-minded individuals who will want to be associated with your company, or brand.
    • brand ambassadors
  • Investment Strategy for Your Journey
  • Business Plan
  • Budget
  • Sets the tone for all marketing activities

 

You are now set to engage with IA firms who can assist you with your goal for your company.  This ebook provides A-Z all the buzzwords and provides you the reasons why each of these IA tactics is important for your online capital raise.   You do not need to use all of them, but it’s important to understand each one, first look at what your company has and how you can complement what you need.   At the end of the book we also provide you with a great IA checklist so you can move through the process faster, so you can get started on building your company and your capital raising.

 

“Nothing in this world is easy, but for those who want to succeed, the journey will be easy” 

– Oscar A Jofre

 

Diversifying Capital Raising Strategies for Startups

Posted on by Oscar Jofre

Navigating the VC Winter: Diversifying Capital Raising Strategies for Startups

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

The Landscape of Raising Capital

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

Beyond VC: The JOBS Act and Other Avenues

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

Navigating Capital-Raising Challenges

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

Understanding Sources of Capital

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

Seven Steps to Raising Capital

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

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

 

 

Capital Raising Process: 4 Steps to Start Funding Now

Posted on by Oscar Jofre

In the dynamic world of private capital markets, raising capital is both an art and a science. We will demystify the capital raising process for private companies, outlining a four-step approach that harmonizes regulatory compliance, technology utilization, and strategic storytelling to attract and engage investors. From navigating the regulatory landscape to leveraging technology for efficient capital raises under the JOBS Act (RegCF, RegD, and RegA+), we explore how to transform the complex journey into a streamlined pathway to funding. By highlighting anecdotes from successful capital raises and the critical role of trusted partners, this guide aims to equip entrepreneurs with the knowledge and tools necessary to embark on their capital raising journey confidently.

Anecdotes of Successful Capital Raising

The journey of capital raising is punctuated with stories of entrepreneurs who turned their visions into reality. From tech startups that secured seed funding through strategic pitches to established companies that leveraged equity crowdfunding for expansion, these stories share a common thread: the ability to articulate a compelling narrative that resonates with investors. These anecdotes not only inspire but also illustrate the practical application of strategic planning and regulatory navigation in the capital raising process.

Leveraging Technology for Compliance and Efficiency

In today’s digital age, technology plays a pivotal role in streamlining the capital raising process. Platforms like KoreIssuance offer a seamless solution for companies to manage their capital raises, ensuring compliance with JOBS Act regulations (RegCF, RegD, RegA+). Post-offering, technologies for shareholder communication and online e-voting, such as Shareholder Communications tools, are invaluable for maintaining transparency and engagement. Additionally, cap table management software is essential for tracking equity ownership and ensuring accurate record-keeping. These technological tools not only simplify compliance but also enhance the investor experience, making it easier for the crowd to invest in promising companies.

Navigating Challenges in Capital-Raising

The path to successful capital raising is fraught with challenges, from understanding the regulatory landscape to attracting potential investors. Entrepreneurs must work with trusted partners, including FINRA Broker-Dealers and technology providers, to navigate these hurdles effectively. One of the most significant challenges is crafting a narrative that captures the essence of the business, reminding companies that investors invest in people first. The story behind the company, its mission, and its vision is what ultimately draws investors in, not just the potential financial returns.

Working with Trusted Partners

The importance of selecting trusted partners for the capital raising journey cannot be overstated. These partners, including regulatory experts, technology providers, and FINRA Broker-Dealers, ensure that the process remains compliant, efficient, and transparent. By providing essential information and guidance, they help companies navigate from start to finish, ensuring that the capital raising process is not only successful but also builds a strong foundation for future investor relations.

Four Steps to Raise Capital

For companies looking to embark on their capital-raising journey, the following four steps provide a roadmap to success:

  1. Understand Regulatory Requirements: Start by gaining a thorough understanding of the JOBS Act regulations (RegCF, RegD, RegA+) and how they apply to your capital raise. This knowledge will guide your strategy and help you select the right regulation for your investor target market.  Here is a great library to get started.
  2. Leverage Technology Platforms: Utilize technology platforms for issuance, shareholder communication, and cap table management. These tools will streamline your process, ensure regulatory compliance, and enhance investor engagement.
  3. Craft a Compelling Narrative: Develop a compelling story that communicates your company’s mission, vision, and value proposition. Remember, your narrative should resonate with potential investors on a personal level, showcasing the people behind the company.
  4. Select Trusted Partners: Work with trusted advisors, intermediaries, and partners who understand the private capital markets and can guide you through the regulatory and operational complexities of capital raising.

Raising capital for a private company, whether a nascent startup or an established entity, requires a blend of strategic planning, regulatory navigation, and genuine storytelling. Understanding the regulations is the first step, providing a framework within which to operate and target the right investors.

Leveraging technology and working with trusted partners streamline the process, ensuring compliance and efficiency. However, the heart of capital raising lies in the ability to connect with investors on a personal level, sharing a vision that inspires and motivates them to join your journey.

As the regulatory landscape and market conditions evolve, continuous education and adaptability remain key. Remember, there are no shortcuts to raising capital, but with the right approach, tools, and partners, your capital raising journey can be a successful and rewarding endeavor.

 

RegS SEC Reporting Obligations

Posted on by Oscar Jofre

Regulation S (RegS) is a Securities and Exchange Commission (SEC) regulation that provides a safe harbor from the registration requirements under the Securities Act of 1933 for certain offerings and sales of securities outside the United States. Regulation S applies to offerings that are conducted entirely outside of the United States, targeting non-U.S. persons.

Under Regulation S, there are no specific ongoing reporting requirements imposed by the SEC for companies conducting offerings and sales of securities to non-U.S. persons. However, there are certain provisions and considerations associated with Regulation S offerings:

  • Safe Harbor for Offshore Offerings: Regulation S provides a safe harbor exemption for securities offerings and sales that occur entirely outside of the United States. This exemption applies to both equity and debt securities and allows companies to conduct offshore offerings without registering with the SEC.
  • Restrictions on Resale of Securities: Securities sold in compliance with Regulation S have restrictions on their resale into the United States for a specific period. Typically, there’s a holding period of one year for restricted securities sold in offshore transactions under Regulation S.   The securities must be offered only to non-us citizens and the offering must be IP blocked if the company is raising its technology online.

 

  • Disclosure Requirements: While Regulation S exempts offerings from SEC registration, companies are still subject to anti-fraud provisions. Companies conducting offerings under Regulation S should provide all material information necessary for investors to make informed investment decisions.

 

  • Securities Act Compliance: Even though there are no specific ongoing reporting requirements to the SEC for Regulation S offerings, companies are required to comply with other provisions of the Securities Act of 1933, particularly regarding anti-fraud and anti-manipulation provisions.

 

  • Compliance with Foreign Jurisdictions: Companies conducting Regulation S offerings might need to comply with the securities laws and regulations of the foreign jurisdictions where the offerings are made. This may include filing requirements or compliance with local laws.  Companies need to make sure they are checking with local securities regulators or securities lawyers to ensure they are not offside with using Reg S.

It’s important for companies engaging in RegS offerings to understand the specific requirements of the regulation and ensure compliance not only with SEC regulations but also with the securities laws of the foreign jurisdictions involved. Companies should seek guidance from legal and financial professionals experienced in cross-border offerings to navigate the complexities and compliance obligations associated with Regulation S offerings.

Private Equity vs. Venture Capital

Posted on by Oscar Jofre

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

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

 

What is Private Equity?

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

 

What is Venture Capital?

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

 

Alternative Capital Raising Opportunities

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

 

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

What is a CIK Number?

Posted on by Oscar Jofre

Recently, we received a question from an issuer who asked what a CIK number is. If you have ever filed a form with the Securities and Exchange Commission (SEC), you have probably come across the term Central Index Key (CIK). The CIK number is a unique identifier used by the SEC’s computer systems to distinguish corporations, funds, and individuals who have filed disclosures with the SEC. 

 

A CIK number is a 10-digit code that is an essential part of the SEC’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system, which allows the SEC to collect, analyze and distribute financial information about companies and individuals. CIK numbers are assigned by the SEC and must be included in all filings made with the Commission. This allows the SEC’s computer system to quickly and efficiently identify companies and individuals and analyze their filings. It also helps to ensure that filings made by a particular company or individual are accurate and complete.

 

The easiest way to find a company’s CIK number is by using the SEC’s online database. You can search for CIK numbers using keywords such as the company name or ticker symbol. The search results will provide a list of entities matching your search criteria and their CIK numbers. Keep in mind, the entity’s name may be listed differently than expected.

 

It is also important to note that not all companies that offer stock for sale are required to file disclosures with the SEC, such as some companies raising capital through Regulation D. Small companies may be granted exemptions from regular SEC reporting and, therefore, may not have a CIK number. However, a CIK number is mandatory for companies that file disclosures.

 

CIK numbers are essential for the SEC to monitor and regulate the financial markets. By requiring companies and individuals to use CIK numbers when filing disclosures, the SEC can efficiently identify companies and detect potential fraud or other illegal activities to take appropriate action.

 

CIK numbers are also important for investors and other stakeholders. By providing a unique identifier for each company and individual, CIK numbers allow stakeholders to easily access relevant filings, financial data, and other information. This makes it easier for investors to make informed decisions and for regulators to enforce the rules and regulations that govern the financial markets.

 

In conclusion, CIK numbers are a critical component of the SEC’s regulatory framework. They are used to track and monitor companies and individuals that file disclosures with the SEC, and they enable investors and other stakeholders to access important financial data and other information. 

 

We believe that education is an essential part of the capital-raising process, so don’t hesitate to reach out to our team with any other questions that could help you along your capital-raising journey.

What is an Option?

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

What is a Burn Rate?

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

Why is Burn Rate Important?

 

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

 

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

 

Keeping Burn Rate Under Control

 

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

 

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

 

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

 

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

 

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

What is Phishing?

Posted on by Oscar Jofre

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

 

Where Did Phishing Come From?

 

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

 

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

 

How Phishing Works

 

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

 

Protecting Yourself

 

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

 

The Importance of Verification

 

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

 

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

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

Posted on by Oscar Jofre

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

 

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

 

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

 

Legal Requirements for Raising Capital Through RegCF in Canada

 

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

 

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

 

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

 

Using RegCF in Canada

 

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

 

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

 

Alternatives for Canadian Companies

 

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

 

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

April Investment Crowdfunding Sees Near-Record Levels

Posted on by Oscar Jofre

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

 

Investment Crowdfunding Proves Appetite for Deals

 

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

 

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

 

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

 

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

 

More Investors are Making Investment Decisions

 

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

 

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

 

What is an Escrow Provider?

Posted on by Oscar Jofre

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

 

What is an Escrow Provider?

 

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

 

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

 

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

 

The process when utilizing an escrow provider generally includes:

 

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

 

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

 

JOBS Act and Escrow

 

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

 

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

 

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

Shedding Light on the Secondary Market

Posted on by Oscar Jofre

The private capital market is an important component of the economy and has seen considerable growth since the JOBS Act exemptions came into play. However, the public markets have the advantage of a strong underlying infrastructure, one that existed long before the advent of the Internet (the first public company was the Dutch East India Company which began stock trading in the early 1600s). In contrast, the private markets historically have fewer options for liquidity other than an exit or an IPO. 

 

Technological advancements have had a profound impact on the secondary market, transforming the way trading is conducted through the use of electronic systems for order delivery and execution. On the public side, entities like the New York Stock Exchange and Nasdaq have automated many functions that streamline the process of buying and selling stocks. In addition, broker-dealers and institutional investors have been leveraging powerful computer systems and sophisticated applications to manage inventory, order flow, and risk while receiving market data, research reports, and company information electronically. 

 

In the private market, alternative trading systems (ATSs) have emerged to let investors sell or buy shares on a secondary market. For example, anyone who has invested through RegA+ is then able to transact on the secondary market if the issuer has permitted that option. Still, there are many issues that face the private market. The unfortunate reality is that while a fragmented regulatory environment does allow for some secondary market transactions, issuers are not pre-empted from state securities regulations. 

 

The private capital market is beginning to catch up with the public market in terms of technological advancements, with companies seeking to create digital infrastructure and platforms for the private market. However, to truly unlock liquidity in the secondary markets of the private capital market, there needs to be an overarching system that enables buyers and sellers to identify potential trades quickly, securely, and with full transparency on the secondary market.

 

The lack of visibility in information is a key issue inhibiting secondary marketing trading in the private capital markets. Solving these issues will unlock a huge opportunity for buyers and sellers. To do this, there needs to be an underlying infrastructure similar to that which exists in the public market, allowing companies to quickly and securely connect with potential buyers and sellers, as well as gain access to real-time information about the secondary market. With the right technology in place, this could open up unprecedented opportunities for liquidity in the private capital markets that have long been “dark”.

Why the Private Capital Markets are Outpacing the Public Markets

Posted on by Oscar Jofre

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

 

Large Pool of Capital

 

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

 

Growth & Flexibility

 

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

 

The Shift from Public Markets to Private Capital Markets

 

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

 

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

 

Private vs Public Market Size

 

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

 

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

What is a Board of Directors?

Posted on by Oscar Jofre

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

 

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

 

  • Strategic direction
  • Corporate governance
  • Independence and accountability

 

What is a Board of Directors?

 

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

 

The Need for a Board of Directors

 

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

 

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

 

Early-Stage Companies and the Single-Person Corporation

 

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

 

Tools to Mitigate Risk When Raising Capital

 

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

 

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

How Do I Build a Community for My Company?

Posted on by Oscar Jofre

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

 

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

 

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

 

Recognizing the Benefits of a Strong Community

 

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

 

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

 

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

 

6 Tips for Building a Community

 

1. Understand Your Audience

 

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

 

2. Focus on Transparency and Communication

 

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

 

3. Leverage Technology

 

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

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

 

4. Create Meaningful Content

 

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

 

5. Foster and Incentivize Engagement

 

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

 

6. Gather Around a Cause

 

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

 

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

 

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

 

Small Businesses and Their Economic Success

Posted on by Oscar Jofre

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

 

The Role of Small Businesses in the Economy

 

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

 

Small Business Challenges and Successes

 

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

 

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

 

The Impact of JOBS Act Regulations on Small Business Success

 

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

 

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

 

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

5 Things You Need to Know About Transfer Agents

Posted on by Oscar Jofre

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

 

1. Protecting Issuers and Investors

 

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

 

2. Issuing and Canceling Certificates

 

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

 

3. Managing the Cap Table

 

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

 

4. Legal Compliance

 

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

 

5. Investor Relations

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

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

Approaching the 11th Anniversary of the JOBS Act

Posted on by Oscar Jofre

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

 

David Wield: The Father of the JOBS Act

 

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

 

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

 

Benefitting from the JOBS Act

 

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

 

For companies they were initially allowed to raise:

 

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

 

These numbers have grown significantly since 2012, with:

 

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

 

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

 

How Much has Been Raised with JOBS Act Regulations?

 

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

 

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

 

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

 

Insights from Industry Leaders

 

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

Reforms to RegD

Posted on by Oscar Jofre

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

 

Current Regulations Under RegD

 

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

 

Commissioner Crenshaw’s Proposed Reforms

 

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

 

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

 

Effects of These Changes

 

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

 

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

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

 

7 Things You Need to Raise Capital Online in 2023

Posted on by Oscar Jofre

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

 

1. Know Your Options

 

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

 

2. Plan for a Higher Cost of Capital

 

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

 

3. Find the Best Online Capital-Raising Platform

 

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


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

 

4. You’re Responsible for Marketing

 

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

 

5. Launch with an Announcement and Target Multiple Investors

 

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

 

6. Focus on Marketing and Platforms

 

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

 

7. Get a Valuation Report and a Securities Attorney

 

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

 

5 Tips for Frictionless Capital Raising

Posted on by Oscar Jofre

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

Use Mobile Apps for Online Investments

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

Utilize Affinity Marketing

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

Seek the Crowd

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

Have a Plan and Tailor Your Pitch

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

Prioritize Compliance

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

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

 

What is TradeCheck?

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

What is Affinity Marketing?

Posted on by Oscar Jofre

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

 

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

 

Using the JOBS Act and Affinity Marketing

 

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

 

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

 

Tips For Implementing Affinity Marketing Effectively

 

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

 

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

 

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

 

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

 

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

 

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

 

How Do I Know if My Cap Table is Ready?

Posted on by Oscar Jofre

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

 

Must-Haves for Proper Cap Table Management

 

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

 

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

 

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

 

Cap Table Dos: 

 

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

 

Cap Table Don’ts 

 

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

 

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

 

Best Practices for Managing a Cap Table

 

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

 

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

 

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

Who Does Due Diligence on Companies using RegA+?

Posted on by Oscar Jofre

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

 

What Is Due Diligence?

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Why Use RegCF for Real Estate?

Posted on by Oscar Jofre

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

 

What is Reg CF for Real Estate?

 

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

 

Benefits of Reg CF for Real Estate

 

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

 

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

 

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

 

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

 

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

 

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

What is Tokenization in Real Estate?

Posted on by Oscar Jofre

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

 

What is Real Estate Tokenization?

 

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

 

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

 

Distributed Ledger Technology

 

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

 

Smart Contracts

 

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

 

Implications of Real Estate Tokenization

 

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

 

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

 

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

What Are the Costs for a RegCF Issuance?

Posted on by Oscar Jofre

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

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

Estimated Reg CF Costs for US-Based Companies:

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

Closing fees TBD
Investor Acquisition

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

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

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

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

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

SEC Transfer Transfer Agent as required to file your Form C

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

 

Looking Ahead at the Growth of Private Equity

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

Marketing Strategies for Raising Capital

Posted on by Oscar Jofre

When a company is looking to raise capital, there are many marketing strategies to get the word out. With any method, the primary goal is to convey what your company does and inform investors about the potential opportunities that their investment will create. Marketing strategies for raising capital are important to all companies and issuers.

 

Creating a Compelling Opportunity Set

 

The first step in any marketing strategy is creating a compelling opportunity set, which should position the company as a subject matter expert. A white paper can do it, which should answer all the “whys” for potential investors. It’s important to provide this information clearly and concisely, as potential investors will likely have a lot of questions. This document can serve as a launching pad for further content like blogs or videos. By providing all the relevant information upfront, companies can set themselves apart from the competition and make it more likely that potential investors will take the time to learn more about the opportunity.

 

Partnering With a Marketing Firm

 

To free up time to focus on other aspects of the business, companies should consider partnering with a marketing firm. This will allow someone else to handle the creation and dissemination of content, freeing up the company’s employees to focus on other tasks. This is an especially good idea for companies that are not experienced in marketing, as it can be a complex and time-consuming endeavor. By partnering with a firm, companies can ensure that their message is getting out there in the most effective way possible. You can also team up with a company that has experience with JOBS Act raises. This can help you improve your online presence while meeting all the requirements for compliance.

 

Creating Engaging Content

 

Once you have a plan in place, it’s important to focus on creating engaging content. You can do this in many ways, but one of the most effective is through video. Videos can capture attention and communicate information in a way that is easy for people to understand. They can also be shared easily, which helps to spread the word about your company and its capital-raising efforts. In addition to videos, companies should also consider creating bite-sized content, such as infographics or blog posts. This content can be easily digestible and can help to generate interest in your company.

 

When a company is looking to raise capital, it must employ an effective marketing strategy to reach potential investors. By taking the time to develop a well-rounded marketing strategy, companies increase their chances of successfully raising capital. Raising capital is not a one-time thing, but an ongoing process for many companies. Solid marketing strategies for raising capital can ensure that your company can reach its goals and continue to grow. 

Looking Back on KoreSummits in 2022

Posted on by Oscar Jofre

Throughout 2022, KoreConX has hosted a variety of live, educational events designed to shed light on essential topics in the private capital markets. The KoreSummit event is a leading industry event that brings together industry thought leaders to provide valuable insight for companies looking to raise capital and investors looking to explore opportunities in the private markets. This year, three virtual KoreSummits were held, offering an incredible array of topics.

 

What you need to know about the Pros and Cons of Equity Crowdfunding

 

In March, the year’s first KoreSummit covered topics related to equity crowdfunding, specifically in a franchise scenario. The event kicked off with the story of a company that was successfully utilizing Reg CF to raise capital. The event continued with discussions on how to plan the raise, what partners you’ll need, and how to build an investor base that is also excited to be brand ambassadors. And more importantly, we covered topics including legal considerations and what happens once an offering is live. 

 

How to do a Successful RegA+ for a MedTech Company

 

This year’s June KoreSummit was focused on how to do a successful RegA+ for a MedTech company. The summit began with an introduction to the process of registering a MedTech company with the SEC and then moved on to cover topics such as preparation of Form 1A, going live preparations, the importance of selling the story, and the value of a secondary market. These presentations and conversations provided attendees with a comprehensive overview of how to navigate the process successfully of raising capital for a MedTech company with RegA+.

 

Empowering Growth in Cannabis

 

The October KoreSummit was a unique, multi-day event for cannabis entrepreneurs and industry experts alike. This event was focused on this exciting new market, providing an opportunity to hear from leaders in the field, learn about best practices, and explore investment opportunities in cannabis. KoreSummit Empowering Growth was a cannabis-centric summit designed to inform attendees of the requirements, regulations, and best practices when it comes to fundraising with RegA+ and RegCF.

 

Videos from these and other KoreSummits can be found on the KoreConX website. In the end, these events were an invaluable resource for anyone looking to learn more about how to do a successful RegA+ or Reg CF offering. With expert guidance from some of the top industry professionals in the field, the KoreSummits from 2022 and beyond will continue to provide valuable insights and expertise in the world of capital raising.

 

What You Need to Know About Cap Table Management

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

 

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

How Does Technology Improve Transparency and Sustainability?

Posted on by Oscar Jofre

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

 

Improving Transparency

 

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

 

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

 

Improving Sustainability

 

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

 

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

 

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

 

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

Posted on by Oscar Jofre

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

 

Regulation A+

 

Offering size per year: Up to $75 million

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

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

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

 

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

 

Regulation CF

 

Offering size per year: $5 million

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

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

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

 

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

 

Regulation D

 

Offering size per year: Unlimited

Number of investors allowed: 2000

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

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

 

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

 

Regulation S

 

Offering size per year: Unlimited

Number of investors allowed: 2000

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

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

 

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

 

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

How is Equity Crowdfunding Different Than Kickstarter?

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

 

Ensuring Your Crowdfunding Platform Is Compliant

 

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

 

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

 

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

 

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

Call Centers for RegA+

Posted on by Oscar Jofre

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

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

 

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

 

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

 

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

 

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

 

Howey Test: What is it?

Posted on by Oscar Jofre

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

 

Utilizing the Howey Test

 

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

 

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

 

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

 

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

 

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

 

Bringing it All Together

 

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

 

How Does Tech Allow People to Make Smaller Investments?

Posted on by Oscar Jofre

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

 

Making Investments Accessible

 

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

 

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

 

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

 

A Technology-Driven Evolution

 

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

 

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

 

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

 

Global Cannabis Sales are Projected to Skyrocket

Posted on by Oscar Jofre

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

 

Changing Views on Cannabis Globally

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

 

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

 

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

 

Industry Growth in the US

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

 

Expanding Capital Access for Cannabis Companies

 

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

Labor Day: Democratization and Opportunities to Create Jobs

Posted on by Oscar Jofre

The growth in Regulation A+ and Regulation CF offerings fuels entrepreneurship and job growth in the United States. Since 2016, there have been over 4,600 capital offerings utilizing Reg A+ or CF, with over $500 million raised in 2021 alone. This capital helps companies grow, create jobs, and positively impact their local communities. Crowdfunding is a robust tool for businesses to secure funding, with an average of 43.8% of pre-revenue startups successfully using this method.

 

Crowdfunded Capital and Democratization

 

When businesses utilize crowdfunding, they can access a much larger customer base, allowing them to have a more significant impact on their local communities. it is particularly well-suited for getting loyal customers, employees, suppliers, and other stakeholders to become investors in your company. Crowdfunding enables the democratization of the private capital market by giving these parties an opportunity to participate in the investment process, something that has not been practical before with traditional investing. For many companies, this unlocks a powerful opportunity and  42% of raises reach their goal in 3 days. 

 

Creating Job Opportunities

 

With over $1 billion in capital raised through Reg CF at an average of $1.3 million per raise, these businesses create innovation and bring economic change to local communities in the form of spending and jobs. An estimated $2.5 billion went into local communities from crowdfunded companies in 2021 alone, with money changing hands as much as six times before leaving the local economy. This demonstrates how crowdfunding directly impacts many communities across the country. It brings money to a community by creating jobs; companies that utilize regulated crowdfunding support over 250,000 American jobs across 466 industries. That number is expected to grow as the private market continues to expand. 

 

Crowdfunding allows all types of businesses to access the capital they need to grow and create jobs through Reg A+ and Reg CF. Between 2000 and 2019,  small businesses created 10.5 million US jobs, while large companies only created 5.6 million, according to 2020 data from the US Small Business Administration. This highlights the importance of small businesses within the economy. However, many small businesses have not traditionally had the same access to capital as large ones. This changed with the JOBS Act, increasing the availability of capital for these small businesses and leveling the playing field. As these companies continue to receive capital from the JOBS Act exemptions, the economy continues to benefit from the democratization of capital. 

 

It’s not only the number of jobs that are important but also the quality of those positions. Good jobs lead to a better living standard. When people have good jobs, they can afford to make purchases, give their children better access to education, access healthcare whenever needed, and many other positive benefits for these individuals. At the same time, they support businesses within their community, which helps those grow as well. A strong economy also attracts business investment from other parts of the country and the world. All of these factors lead to more jobs, and the cycle continues.

 

Investing in the Future

 

The expansion of crowdfunding presents opportunities for anyone interested in becoming an investor, with a chance to get in on the ground floor of the next big thing, while also supporting businesses and creating jobs. It’s a win-win for everyone involved, and it all starts with the democratization of capital. When you invest in a company through crowdfunding, you can invest in your community. The money that is raised through these offerings stays local, and as the businesses grow, they pump even more money back into the economy.

 

Crowdfunding is an excellent way to support businesses and create jobs, but it’s also a great way to invest in the future. With the industry expected to continue to grow, now is the time to get involved. With opportunities for everyone, from accredited to retail investors, there has never been a better time to get involved in the democratization of capital. So this Labor Day, remember that when you support businesses through crowdfunding, you also help create jobs and create a brighter economic future.

 

Opportunities to Invest in the Private Capital Market

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

How to Manage Investment Information

Posted on by Oscar Jofre

For entrepreneurs, it’s crucial to understand the private capital market well. Companies no longer need to go public to raise capital, enabling entrepreneurs to maintain more control of their companies. With regulations such as RegA+ and RegCF, accredited and non-accredited investors can be part of capital raising. Plus, the available pool of capital is expected to reach up to $30 trillion by 2030, making it a promising resource for companies. At the same time, investment management has become even easier with online services and platforms coming that provide end-to-end management for private companies to streamline the process.

 

Understanding KYC and KYP

 

It is vital for investors and issuers alike to know who they are dealing with. This is where KYC (Know Your Customer) and KYP (Know Your Product) come into play. Before making any investment decisions or accepting an investment, you should always know the issuer or investor’s identity. 

 

KYC is an essential component of risk management. As an issuer, it can help you to understand who your investors are and determine whether they would be a risk to your company. KYC can be complicated but helps to protect against money laundering and fraud.

 

KYP is most applicable to broker-dealers and is all about understanding the investment products or services you are offering to your customers. This includes knowing something about the issuing company, and understanding the structure of investment products, eligibility requirements, and other information that can help a broker-dealer determine whether an investment opportunity is right for an investor.

 

Remain Compliant

 

Compliance is another crucial aspect to consider regarding private capital raising. The Securities and Exchange Commission (SEC) has enacted many rules and regulations to protect investors. These include the requirements for disclosure, registration, and filing. In addition, there are restrictions on who can invest and how much they can invest. All of these requirements are designed to protect investors and issuers from fraud.

 

It’s important to note that certain compliance issues must be considered when raising capital privately. For example, under RegA+, companies must file a Form 1-A with the SEC. This form provides information about the company, the offering, and the risks involved. In addition, companies must provide audited financial statements and disclose any material changes that have occurred since the last filing. Under RegCF, companies are required to file a Form C with the SEC, requiring similar information to that of Form 1-A. 

 

Compliance may seem like an inconvenient chore, but in fact, it offers issuers many benefits, including avoiding unnecessary costs and delays, understanding the shareholder base, identifying potential high-risk investors, and encouraging best practices in record-keeping generally. By taking a proactive and whole-hearted approach to compliance, issuers will not only have an easier time completing their raise, but lay a better foundation for more efficient and smoother operations going forward

 

When managing your investments and staying compliant with the law, it is important to have a solid grasp of KYC and KYP processes. KoreConX can help you with your compliance needs with our complete end-to-end solution for private companies and broker-dealers. Our platform includes a KYC/KYP tool and a compliance management system to help you efficiently and securely manage compliance activities.

 

RegA+ Offers Stability for Issuers

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

4 Ways to Build Better Shareholder Relationships

Posted on by Oscar Jofre

As a business owner, you know that communication is key to success. But when it comes to shareholders, shareholder communications can sometimes take a backseat. They’ve already invested, so customer communications to generate revenue often steal the show. However, it’s essential to keep shareholders in the loop since they own a piece of the company and are entitled to know what you’re doing with it. After all, the more involved they are, the more willing and able they will be to help, reinvest, or promote the brand. So how can you build strong relationships with your shareholders? While email has been the go-to method for shareholder communication in the past, other options may be more effective in building relationships with your shareholders. Here are four ways to enhance the way you communicate with shareholders, and a good communication strategy will make use of several of these strategies.

 

1. Webinars

Webinars are a great way to connect with shareholders and provide them with valuable information about your company. You can use webinars to give updates on your progress, share financial information, and answer questions from shareholders. Plus, webinars allow shareholders to get to know you and your team better and help put a face to the company. Since webinars can feel like you’re talking with rather than just to your audience, they can help build a powerful connection and establish trust, as well as give you valuable feedback from people who care about the company.

 

2. LinkedIn Page

Having an updated and informative LinkedIn page is a great way to connect with shareholders online. Use your page to share company updates, industry news, and other relevant information that shareholders might find useful. You can also use your LinkedIn page to answer shareholder questions and build relationships with them. By maintaining an active presence on LinkedIn, you can show shareholders that you’re committed to keeping them updated on your company. By providing value on your LinkedIn page, you can also attract new shareholders who may be interested in investing in your company.

 

3. Podcasts

Podcasts are a great way to share detailed information about your company with shareholders. You can use podcasts to give updates on your progress, share financial information, and answer questions from shareholders. By providing valuable information in your podcasts, you become an industry influencer by providing this information and can more easily build trust with shareholders that are listening. You can also interview other industry leaders whose thoughtful insights into your industry your audience may find informative.

 

4. Shareholder Management Tools

After your successful RegA+ or RegCF offering, you can anticipate many new shareholders to welcome on board. As shareholders, they have a vested interest in how your company performs. Thankfully, shareholder management is streamlined when you eliminate Excel sheets, CRM, or email. The Shareholder Management solution from KoreConX sets the new standard, empowering you and shareholders with transparency, compliance, and confidence. Keep shareholder documents secure and engage shareholders with portfolio management tools that allow them to see detailed information about their investments. To learn about the many great features of the KoreConX platform, get in touch with our team for a demo or any additional information. 

 

The most important thing you can do to build relationships with shareholders is to maintain communication with them. Whether you’re using email, webinars, podcasts, or blogs, make sure to keep shareholders updated on your progress and answer any questions they might have. By maintaining regular communication with shareholders, you can show them that you’re committed to keeping them informed and building trust with them.

Why RegA+ Offerings Fail

Posted on by Oscar Jofre

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

 

Compliance for RegA+ Raises

 

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

 

Budgeting for a RegA+ Raise

 

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

 

Affinity Marketing

 

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

 

Technology and Expertise

 

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

 

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

 

What is the Estimated Budget for RegA+ Issuance?

Posted on by Jason Futko

Navigating the fundraising process and understanding how much to budget from a financial standpoint is one of the most frequent questions we receive. In the process of conducting a RegA+ offering ourselves, KoreConX has researched the estimated budget for a RegA+ offering.

 

While the budget varies based on several factors, you need to keep in mind the size of your raise and sector. As a general rule of thumb, it is a good idea to be ready to spend at least $250,000 on a successful RegA+ offering, $50,000 of which should be dedicated to getting your investor acquisition started. Most of your budget will be spent on Investor Acquisition. Now, this will not apply to every company but should serve as a general guide as to what you should expect a RegA+ offering to cost depending on the amount raised. 

 

Estimated Costs for USA-Based Companies:

What Why/ Work to be done When How much
USA Lawyer To file your SEC Form 1A and state filings First step in moving forward $35-$75k 
Auditors Are required to be filed with your Form 1A   First step requirement $3,500 +
SEC/State Filings Required regulatory Filings    $5k 
FINRA Broker-Dealer 8 States require you to have a Broker-Dealer to sell securities to investors  Begin engagement when you start with lawyer  1-3% fees 
Investor Acquisition

  • PR Firm
  • IR Firm
  • Video
  • Social media
  • Media Firm
  • Advertising
  • Webinar
  • Newsletter
  • Publishers
 These firms prefer to be engaged right after you file, as the clock begins and gives them only 45-60 days when you go live.  Depending on size of offering you will spend up to $200k-$400k. Before you file your Form 1A  $25-50k at the beginning to start
Investor Relations Director Hire an internal resource to manage incoming inquiries from potential investors.  Handle outbound calls from investor leads. $4,500/month
KoreConX All-In-One platform End-to-end solution $4,500/month
Investment Platform Requires 45-60 days to set up After you retain your lawyer  Included with your KoreConX All-in-one platform 
Live Offering During the live offering you will have to pay for ID, AML fees required   Ranges from $0.58/person, these fees are provided at cost
Live Offering During the live offering you will have to pay for your Payment processors ( Credit Card, ACH, EFT,  Crypto, WireTransfer, IRA)   These fees are provided at cost
SEC-Transfer Agent Required as part of your Form 1A filings  After you sign up with lawyer  Included with your KoreConX All-in-one platform 
Secondary Market Ability for Shareholders to trade private company shares. Included with your KoreConX All-in-one platform 
TradeCheck Report Ability to trade in all 50 states, include Blue Sky registration, and listing National Securities Manual Included with your KoreConX All-in-one platform 

 

 

Estimated Costs for Canada-Based Companies:

What Why/ Work to be done When How much
USA Lawyer To file your SEC Form 1A and state filings First step in moving forward $35-$75k 
Canada Lawyer $5k-$10k
Auditors Are required to be filed with your Form 1A   First step requirement $3,500 +
SEC/State Filings Required regulatory Filings    $5k 
FINRA Broker-Dealer 8 States require you to have a Broker-Dealer to sell securities to investors  Begin engagement when you start with lawyer  1-3% fees 
Investor Acquisition These firms prefer to be engaged right after you file, as the clock begins and gives them only 45-60 days when you go live.  Depending on size of offering you will spend up to $200k-$400k Before you file your Form 1A  $25-50k at the beginning to start
Investor Relations Director Hire an internal resource to manage incoming inquiries from potential investors.  Handle outbound calls from investor leads. $4,500/month 
KoreConX All-in-one platform $4,500/month 
Investment Platform Requires 45-60 days to set up After you retain your lawyer  Included with your KoreConX All-in-one platform  
Live Offering During the live offering you will have to pay for ID, AML fees required   Ranges from $0.58/person these fees are provided at cost
Live Offering During the live offering you will have to pay for your Payment processors ( Credit Card, ACH, EFT,  Crypto, WireTransfer, IRA)   These fees are provided at cost
Transfer Agent Required as part of your Form 1A filings  After you sign up with lawyer  Included with your KoreConX All-in-one platform 
Secondary Market Included with your KoreConX All-in-one platform 
KoreTrade Report Ability to trade in all 50 states, published in the Securities Manual Included with your KoreConX All-in-one platform 

KorePartner Spotlight: Richard Heft, President of Ext. Marketing

Posted on by Oscar Jofre

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

 

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

 

Q: Why did you become involved in this industry?

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

 

Q: What services does your company provide for offerings?

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

 

Q: What are your unique areas of expertise?

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

 

Q: What excites you about this industry?

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

 

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

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

 

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

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

 

Potential and Impact of the Cannabis Sector on Jobs Creation

Posted on by Oscar Jofre

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

 

Expected Job Creation Growth in the Cannabis Industry

 

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

 

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

 

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

 

What This Means for Employment

 

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

 

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

 

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

 

Oscar Jofre Speaks at Franchising Event in Denver, CO

Posted on by Oscar Jofre

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

 

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

 

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

 

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

Examining RegCF Trends

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

Is Equity Crowdfunding Immune to Market Volatility?

Posted on by Oscar Jofre

In a recent TechCrunch article, author Rebecca Szkutak asserts, “With the fundraising climate now showing cloudy skies, equity crowdfunding is getting ready for a field day.” The stigma associated with crowdfunding is reversing; once viewed as a fundraising method for companies “not good enough” for venture capital, it has grown substantially in the past few years. Better yet, 2022 is “​​poised to be monumental for equity crowdfunding.” From the start of this year to the end of May, companies have raised $215 million through this method of capital raising, an increase of $200 million from the same period last year. Favorable evolutions to regulations in this space are only contributing to this growth. 

It will be exciting to see how these trends continue to develop and enable companies to raise capital through to the end of the year. To read the full article on TechCrunch, click here.

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.

Trends We Believe Will Shape Investment Crowdfunding

Posted on by Oscar Jofre

In the first half of the year, a great deal has happened in investment crowdfunding. We’ve seen several trends emerge that are worth looking at as we move into 2022. These trends can impact everything from how you raise capital, structure your investments, and what kinds of companies you invest in. Here are three trends that we believe will shape investment crowdfunding in the coming year:

 

More support for Alternative Trading Systems (ATSs)

 

Alternative Trading Systems (ATSs) have been around for a while, but they’ve been slow to catch on in the investment crowdfunding space. That’s starting to change, though, as more and more platforms are beginning to see the benefits of using an ATS. An ATS is a platform that allows for the secondary trading of securities, which means that it can be used to buy and sell shares of companies not listed on a traditional stock exchange. One of the benefits of using an ATS is that it gives investors more liquidity for their investments. This means that investors will be able to sell their shares more efficiently and at a better price. ATS will also be a significant player as digital securities continue to evolve and see wider adoption.

 

Another benefit of using an ATS is that it can help to level the playing field for issuers. By using an ATS, issuers will be able to list their securities on a platform that is open to a broader range of investors. We believe that the increased use of ATSs will positively impact crowdfunding investments in the coming year. That’s because ATSs can help make the market more efficient, giving issuers and investors more options, but sweeping regulations are being proposed for alternative trading systems.

 

More focus on Environmental, Social, and Governance (ESG) factors

 

ESG investing is an investment strategy that considers environmental, social, and governance factors. This investing style has been gaining in popularity in recent years, as more and more investors are looking for ways to invest in companies that positively impact the world. We believe that the focus on ESG factors will continue to grow in the coming year as more investors look for ways to align their investments with their values, and crowdfunding can make the most out of this.

 

There are several reasons why we believe that the focus on ESG will continue to grow in the coming year:

  • A recent Gallups study showed that nearly half of the respondents polled are interested in sustainable investments, yet only 25% had heard about it. This could be a significant opportunity for companies looking to raise capital for ESG-focused businesses.
  • We also expect to see more regulation around ESG investing in the coming year. The SEC proposed a rule in March of 2022 requiring any SEC-registered companies to add specific disclosures on periodic reports and registration statements. Companies must also share information on climate-related risks that may impact business. While companies using JOBS Act exemptions are not SEC-registered, this may be an interesting development as investor demand continues to rise.
  • We also expect to see more interest from retail investors in ESG investing. A recent survey by Morgan Stanley found that 75% of millennial investors are interested in sustainable investments. This is a trend that we expect to continue in the coming year as more and more retail investors look for ways to invest in companies that positively impact the world.

 

Impact on Minority Companies

 

The past couple of years have been challenging for many businesses, but it has been especially challenging for minority-owned companies. That’s because the pandemic had a disproportionate impact on minority communities. For example, Black and Latino households have lost more wealth than white households during the pandemic, with 55% of households facing major financial problems. This has led to many people of color rethinking their investment strategies.

 

In addition, traditional financial institutions have long underserved minority-owned companies. Of venture capitalists, only 2% of their portfolio companies had a Latino founder, and 1% were led by a black person in 2017. 2020 data has shown little improvement The pandemic has highlighted just how important it is for minority communities to have access to capital. That’s why we predict that investment crowdfunding will become an increasingly popular way for minority-owned businesses to raise capital in the coming years.

 

Closing Thoughts

 

These three trends we believe will shape investment crowdfunding in the coming years. By understanding these trends, issuers and investors will be better positioned to take advantage of their present opportunities, allowing investors to connect more with businesses that they are passionate about and that align with their values. At the same time, it is also important for us to continue pushing the industry forward, enabling wider access to capital for businesses and more investment opportunities for investors.

Quarterbacks: Their Role and Why They’re Essential for Your RegA+ Raise

Posted on by Peter Daneyko

In the world of Reg A+, quarterbacks are essential to a successful offering. They play a critical role in the overall success of an offering, and their importance should not be underestimated. This article will explore the role of the quarterback and explain why they are so crucial for Reg A+. 

 

What is a Reg A+ Quarterback?

 

A quarterback works with issuers to advise and bring the necessary players to the table in a RegA+ offering. They are essential to ensure everything goes smoothly, lending their capital raising expertise to aid issuers on their capital raising journey. Without a quarterback, a company can easily overlook the nuances and complexities of securities regulations. A quarterback’s role is to manage and monitor the entire process. Doug Ruark, founder and president of Regulation D Resources Enterprises, Inc., defines the role of the quarterback as someone who has got to “work with clients that are looking to execute a securities offering, and need to get everything structured. Companies need to get all of their offering documents drafted, they need to go through the filing process with the SEC. And then, typically, a quarterback provides compliance support as they, company and quarterback, move forward and execute their offering”.

 

For a company to file with the SEC under RegA+, it must go through qualified testing. This is where a company’s financials, management team, and other factors are analyzed. A quarterback is essential in this process as they can provide valuable insight and knowledge about the company. Without a quarterback, a company may be at risk of not being fully prepared for this vital step.

 

The Importance of a Quarterback

 

A quarterback is a crucial part of any capital raising activity. They will be a valuable asset in the process and can help you avoid any costly mistakes. Some key QB responsibilities include:

  • Provide non-legal advisory services to management teams
  • Coordinate fundraising efforts with online platforms or crowdfunding portals
  • Facilitate communication between issuers and financial professionals like broker-dealers
  • Assist with due diligence
  • Work with marketing teams to establish marketing strategies
  • Other services to streamline the offering

 

Reg A+ Raises and QBs

 

By preparing well for a Reg A+ offering with a quarterback, companies can put their best foot forward and make a strong impression on potential investors. Having a well-coordinated team in place is critical, as is having all the necessary documentation and financials. Quarterbacks play an essential role in ensuring all the pieces are in place and working together smoothly so that when it comes time to present to investors, companies can do so with confidence. Quarterbacks can help their companies make a successful Reg A+ offering and attract the funding they need to grow by taking the time to do things right from the start.

 

Can Cannabis Companies Use RegCF?

Posted on by Oscar Jofre

In recent years, public perception of cannabis is gaining positive momentum. As of April 2021, 35 states have made medical marijuana legal, with 18 of them legalizing it recreationally. This growth has been tremendous, raising the industry’s value to over $13 billion and directly supporting 340,000 jobs. Additionally, 91% of Americans believe that regulators should legalize cannabis for medical and recreational use.

 

These factors have created an excellent opportunity for companies in this space. As public perceptions continue to rise, investments in cannabis companies may become more attractive to retail and accredited investors. Projections show that by 2028, cannabis will be an industry worth $70.8 billion globally. 

 

The passing of the JOBS Act in 2012, and its subsequent amendments, have made it easier for companies to raise money from investors. But can cannabis companies use RegCF to raise money? The answer is yes, but there are a few things they need to keep in mind. In this blog post, we’ll take a closer look at how cannabis companies can use RegCF to raise money and how it can benefit companies and investors alike.

 

RegCF and Cannabis

 

Crowdfunding has become a popular way to raise money, especially for small businesses and startups. It’s a way to get funding from a large pool of investors, each contributing a small amount of money. This can be helpful for companies looking to forego traditional funding sources, like venture capitalists or angel investors. Another factor contributing to the growing popularity of RegCF for cannabis companies is the growing legalization of cannabis products, especially across the United States and Canada.

 

RegCF is an exemption from securities laws that companies use to raise money from the public, without having to be registered as a publicly-traded company. This allows greater access to capital, without having to go through the arduous and expensive process of going through an IPO. 

 

So far, RegCF has been a successful way for cannabis companies to raise money, especially in an industry where traditional loans or going public may not be an option. The benefits of cannabis companies using RegCF to raise capital are:

 

  • Raising money from accredited and non-accredited investors.
  • Reaching a large number of potential investors through online platforms.
  • Enabling founders to retain more ownership of their company, while raising needed capital.

 

RegCF is a flexible way for all-sized companies to get funding, and it’s helping to fuel the growth of the cannabis industry. 

 

Growing with RegCF

 

The premise of the JOBS Act was to fuel the economy, create jobs, and allow startups to flourish. Cannabis companies can now capitalize on the success other companies have had using RegCF over the past decade and cannabis companies are seeing exciting potential in this ability. This democratization of capital will help fuel the industry’s growth and create jobs. In addition, RegCF provides a cost-effective way to raise money, which is critical for early-stage companies. The future looks bright for RegCF and cannabis companies as more states legalize marijuana and businesses continue to enter the space. The industry is still in its early stages, and RegCF provides an excellent opportunity for companies to raise the capital they need to grow.

Credit Cards, Escrow, and Broker-Dealers for RegA+ = $75 Million for Cannabis Companies

Posted on by Peter Daneyko

 

“It’s About Time”

 

Up until now, it was a real challenge for Cannabis companies to take advantage of Reg A+ exemptions that allow private companies to raise up to $75 million from the crowd; accredited and non-accredited investors alike.  So you have the investor community’s appetite, the table is set and they are ready, willing, and able; but what else do you need?

 

FINRA Broker-dealer

 

The regulation is meant to create jobs, allow private companies another way to raise capital, and allow for the investor community at large to participate. Before RegA+ exemptions, many potential investors were left looking into the candy store without any way to invest.  So with the democratization of capital and the ability of an untapped investor community to now have a seat at the table, the broker-dealer becomes an all-important intermediary.  In a highly regulated environment, the Broker-dealer takes the onerous task of KYC, ID verification, and AML ( anti-money laundering) off the issuer’s shoulder;  so you, the Issuer, can run your business without worrying about this important compliance requirement. As a result, you not only have the opportunity to gain large groups of investors but also develop brand advocates who share in your story.

 

Escrow Agent 

After the broker-dealer, you need an escrow agent that can hold funds from investors in all 50 states and territories and only charge you one flat fee. 

 

This key intermediary holds the investors’ funds on behalf of the Issuer until the broker-dealer completes the ID, KYC, and AML verification. Once these checks are complete, the escrow agent can release the funds. Until recently, a couple of historical challenges for industry sectors such as cannabis included the inability to get Escrow for their capital raises. Not only is Escrow now available but also at a cost-effective price point and with normalized fees, which is really the way it should have always been.  

 

Credit Cards 

 

Now below 2.9%  allowing both cannabis companies and their shareholders to be fairly treated when investing in the growth of their companies;  bringing jobs to communities and opportunities to those that believe in the company. Being responsible with your credit cards is common sense. Still, the ease of use and points as an added bonus is certainly one of the nice perks and perhaps a big reason for their high usage via crowd participation in private capital raises.

 

If you’re part of the Cannabis ecosystem looking to learn more about how KoreConX can help you on your capital raising journey, please fill out the form here.

Accredited Vs. Non-Accredited Investors: What’s the difference?

Posted on by Oscar Jofre

There is a big difference between accredited and non-accredited investors. Understanding the difference is key to knowing which type of investor you are or understanding the type of investor your offering is targeting. Let’s look at each type of investor and find out more about their specific benefits and limitations.

 

Accredited Investors

 

An accredited investor is an individual or institution that has been approved by the Securities and Exchange Commission (SEC) to invest in certain types of securities. These investments are typically unavailable to the retail investor, as they are considered high-risk and high-return. Historically, accredited investors have been able to:

 

  • Access to exclusive investment opportunities: Traditionally, many startups and early-stage companies will only accept investments from accredited investors, as they were considered to be more sophisticated and able to handle the higher risk.
  • Invest in private companies: Many accredited investors choose to invest in private companies, as they can offer higher returns than public companies. Before the JOBS Act, only accredited were able to invest in these companies.

 

To become an accredited investor, an individual must meet certain criteria set forth by the SEC. These include:

  • Entities that have assets of $5 million.
  • Earning an annual income of $200,000 (or $300,000 for couples) for the past two years.
  • Having a net worth of $1 million (excluding their primary residence).

 

Investing in private companies is often considered a high-risk investment, as there is often less information available about these companies than public companies. However, accredited investors are typically seen as more sophisticated and able to handle the higher risk.

 

Non-accredited Investors

 

A non-accredited investor is an individual who does not have the financial qualifications to be deemed an accredited investor. This can be due to a low net worth or a lack of investment experience. Historically, many non-accredited investors may have missed out on beneficial investment opportunities, especially in the private market. However, with the rise of JOBS Act exemptions, we are seeing more companies looking toward nonaccredited investors. The benefits of being a nonaccredited investor include:

 

  • No SEC qualification: Anyone with the desire to invest can be a non-accredited investor. There are no criteria set by the SEC that must be met. 
  • Access to new and exciting companies: Companies can tap into a new pool of potential investors by marketing toward non-accredited investors. These investors can also tap into a broader range of investment opportunities that may have been unavailable before the JOBS Act was passed into law.
  • The ability to invest smaller amounts of money: For non-accredited investors, the minimum investment amount is often lower than it is for accredited investors. This can be helpful for those who want to get started in investing but don’t have a large sum of money to put towards it.

 

As the private market continues to grow, both non-accredited and accredited investors alike can take advantage of exciting opportunities to invest in growing companies. The JOBS Act has also done an incredible job leveling the playing field for investors, which will only incentive more companies to tap into the growing pool of potential investors.

How Does A Convertible Note Work?

Posted on by Raise Green

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

A Cornerstone of Regulation Crowdfunding

Convertible notes are a form of debt that converts to equity over time; said simply, convertible notes allow investors to loan money to a startup or early stage venture and receive equity in return, instead of their principal loan plus interest.

The greatest advantage of convertible notes is that investors and the note issuer do not have to finalize a valuation of the company at an early stage, which is especially important for companies that don’t have comprehensive data or time that allows an accurate valuation. Instead, investors “loan” their money to the business and in return will receive equity when an event, such as a future financing round, where the company’s valuation becomes more concrete. This type of security is very popular with Silicon Valley technology companies that have great interest from angel investors at an early stage, but lack the ability to make a proper valuation of the company’s worth.

Investing In A Convertible Note

So you’ve identified a compelling company that’s offering the sale of convertible notes for early stage fundraising. You’re interested in purchasing one or some of these convertible notes, but where do you start? It’s important to understand the terms of a convertible note before you invest.

Here’s the main aspects of a convertible note to know before you make any investment decisions.

Discount Rate

The discount rate represents the discount that you receive when purchasing a note relative to investors in a later round of funding, compensating investors for their additional risk taken by investing at an earlier point.

Valuation Cap

The valuation cap is an extra bonus for taking on risk by investing early. This tool limits the price at which your debt notes convert to equity, allowing investors to receive a greater return on their investment if the issuing company grows quickly.

Interest rate

As a convertible note acts as a loan from you (the investor) to the company issuing the note, there will be interest that accrues on the principal amount you invest. Instead of being paid out to investors in cash, this accrued interest converts to equity, increasing the total number of shares the investor receives upon the note’s conversion to equity.

Maturity date

This is the “due date” for the convertible note, signifying the date on which the issuing company must repay their investors.

Why Purchase a Convertible Note?

Convertible notes allow you to invest in early stage companies and projects that you believe have the opportunity to grow exponentially. By getting in at the ground floor and purchasing a convertible note, individual investors stand to earn a higher return on their investment. Whereas investing in early stage startups and projects has historically been off limits to the wider public, Regulation Crowdfunding now allows almost everyone to invest in companies that have the possibility to grow exponentially. Convertible notes carry risk like all forms of investing, but offer early investors bonuses for their willingness to accept this risk. As many companies and projects in the climate space are young and need funding, convertible notes provide a simple way for these businesses to raise capital that they desperately need, while offering their early believers a way to get them off the ground.

Online is Proving Successful for Minority Founders

Posted on by Oscar Jofre

Minority-owned startups are proving to be incredibly successful in gaining exposure on online platforms, growing their customer base and raising capital. In 2021, funding from crowd raising grew 33.7%, showing the increasing use of online fundraising.

A Lack of Diversity in Traditional Capital 

Online platforms for startup investing are more inclusive than traditional options. They don’t rely as heavily on already established personal relationships and networks between founders and investors. Instead, they provide a level playing field for all types of founders online.

These entrepreneurs can now get the funding to launch or expand their businesses through RegA+ and RegCF. Online startup investing platforms are also transparent, allowing founders to see which startups are doing well and which ones aren’t. This information was often hidden from view by traditional VCs, which could lead to bias. 

The Internet is Improving Equity Crowdfunding for Minorities

In 2020, only 2.6% of VC dollars were invested in minority-founded businesses. However, over $486 million were invested through online startups in 2021 – a significantly higher sum than traditional VC investment. Through regulations like RegA+ and RegCF, investors have the opportunity to invest in promising startups led by underrepresented founders. These online platforms level the playing field, allowing minority founders to receive the support and capital funding they need to succeed.

As more investors engage with these platforms and more promising startups seek funding through regulations, we will see continued growth in minority-founded companies receiving the support they deserve. Overall, online startup investing has the potential to create a more diverse and dynamic VC landscape – one that better reflects the diversity of several markets.

The Future of Online Funding

There are several reasons why online fundraising is such a valuable tool for minority entrepreneurs. In the past, minority entrepreneurs have often been shut out of traditional funding sources. Also, they have often been pigeon-holed into stereotypes by the mainstream media. But with online fundraising, they can bypass the traditional gatekeepers and structural obstacles, speaking directly to potential investors. They can tell their own stories and showcase the unique strengths of their businesses.

As the world becomes more digital, so too does entrepreneurship. This is especially apparent in how online fundraising is helping businesses of all sizes to raise money. It’s also becoming an increasingly important tool for these minority entrepreneurs.

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.

 

10 Years Later: How the JOBS Act Has Revolutionized Capital Raising

Posted on by Oscar Jofre

It’s been ten years since the JOBS Act was passed, enabling companies to raise capital in ways never before possible. What started in Washington, the brainchild of David Wield, is now a well-oiled machine that has funded thousands of companies and is constantly evolving. Ten years on, the various JOBS Act regulations have been put to great use, and we are only at the tip of the iceberg.

Looking Back Ten Years

The JOBS Act was passed in 2012 to help small businesses and startups raise capital. The main idea was to make it easier for private companies to raise money from investors, without requiring them to go through the cost-intensive process of going public. The JOBS Act did this by introducing new regulations, such as Reg D, Reg CF, and RegA+ for raising capital from accredited or non-accredited investors.

Before the JOBS Act, companies were limited in raising money. They could only raise money from accredited investors and eventually needed IPO to access such a hefty amount of capital. With recent expansions of regulations like RegA+ and CF, companies can now raise $75 million and $5 million, up from $50 to $1.07 million. On the tenth anniversary of this monumental legislation, we can look back and see how this legislation has impacted businesses and the economy as a whole.

A Monumental Success

The JOBS Act has been a monumental success in helping businesses raise significant capital. The various regulations have allowed companies to raise more money while remaining private and giving them more fundraising options.

One of the most popular regulations is Reg A+, allowing companies to raise up to $75 million from non-accredited investors. This has allowed thousands of companies to raise billions in capital, with an estimated $1.48 billion being raised with Reg A+ in 2021 alone. In addition, the exemption has been upgraded to make it significantly more usable and has seen a surge in businesses utilizing it.

Another popular exemption is Reg CF, which allows businesses to raise up to $5 million from non-accredited investors.

Reg D has also been popular, allowing businesses to raise capital from accredited investors only, and has been a popular option for companies looking to remain private.

Keeping Companies Private

The JOBS Act has many benefits for companies who want to raise capital, but staying private is one of the biggest advantages. Staying private is growing even more attractive to companies, especially considering they can make a secondary market available for shares bought under JOBS Act exemptions.

Plus, by raising capital through these methods, companies can continue to grow and expand without worrying about private equity firms or other investors taking control. This allows the company to maintain its independence and gives management the ability to make long-term decisions without worrying about short-term results.

The JOBS Act has made it easier for companies to stay private by increasing the amount of capital they can raise and reducing the regulatory burden. This has made these regulations a very popular option, evening the playing field and decreasing the reliance on IPOs to raise capital.

Continued Success for the JOBS Act

The JOBS act has been a resounding success in helping businesses raise capital. This is because the JOBS act allows businesses to raise money in new ways. Additionally, the JOBS act opens the market to a wider pool of potential investors, allowing even the everyday person to enjoy the opportunity to invest in a promising company on the ground floor. The success of the JOBS act has been a boon for the economy as well, helping to create jobs and spur innovation.

The JOBS Act has been a great success, benefiting entrepreneurs and investors alike. After ten years and the recent increase in the amount companies can raise, the JOBS Act has continued to be an attractive opportunity for private companies. But there is always room for improvement, some possible developments in the future include:

  • The SEC could raise the offer limit under Regulation CF, which would fill the current gap between Reg CF and Reg A+ Tier II.
  • The SEC could eliminate investment limits for retail investors, allowing people to assess opportunities and risk tolerance without limits.
  • The SEC could make the exemption from the 12(g) Rule permanent, which would remove a burden for many issuers who are not ready to face the rigors of registration.

While these suggestions would improve the JOBS Act, it is ultimately up to the SEC to show true vision by deregulating as per the suggestions above. Only time will tell what the future holds, but it is clear that it has been a success.

Overall, the JOBS Act has been a massive success in helping businesses raise capital and has increased the number of companies with access to capital. It has also helped enterprises stay private and given them more options for fundraising.

The JOBS Act has been in effect for ten years now, and it has completely revolutionized the way companies raise capital. Regulations like CF and RegA+ have made it significantly easier for companies to access capital, and KoreConX has been there every step of the way to help companies navigate these new waters.

Tremendous Growth in Investments in Online Startups

Posted on by Oscar Jofre

Online startup investing has become more prevalent in recent years as the JOBS Act exemptions continue to evolve and grow more popular as a way of raising capital for private companies. This is evidenced by the growth seen in the number of new raises occurring each year and the amount of money raised. These trends are incredibly positive for the future development of the online private equity markets. JOBS Act exemptions are incredibly powerful in allowing businesses to raise needed capital while providing investment opportunities to investors that would not have been possible otherwise. This blog will discuss why this is growing in popularity and its benefits.

The Growth of Online Startup Investments

Online startup investing has grown significantly in the past few years, with more money being raised for private companies through an online portal. From 2018 to mid-2021, there was a 327% increase in the number of companies raising funds and a 472% increase in money raised. This trend is only projected to continue in the coming years as online private equity markets grow. This number of new raises is exciting; it will only continue to open new opportunities for investors and companies alike, create jobs, and leave a positive impact on the economy.

There are a few factors that have contributed to this rapid growth. Firstly, the new $75 million and $5 million raise limit that went into effect in March 2021 for Reg A+ and Reg CF has made it easier for companies to raise capital and expand capital raising to companies for whom previous limits weren’t high enough. Looking forward, the increasing number of raises is an incredibly positive trend for the private capital market.

An Increase in Online Business Investment

In 2021, the amount of money raised through Regulation CF surpassed $1 billion, a figure expected to exceed $5 billion raised because it is a promising opportunity for companies and investors. For companies, regulation crowdfunding is an efficient way to raise money as allows companies to retain more control than traditional methods. At the same time, investors can benefit by getting involved in early-stage startups and have the potential to see a return on their investment if the company is successful. This is one of the key benefits of JOBS Act exemptions; no longer are the everyday investor locked out of deals in the private market. Regulation CF offerings are open to non-accredited and accredited investors alike, removing the barrier to entry in this space.

While the number of raises is quickly increasing, growth in the amount of money raised from the beginning of 2018 to the first quarter of 2021 is similarly astonishing. The amount of capital raised in this period increased by 627%, from $15.5 million in 2018 to $112.8 million in 2021.

Equity crowdfunding is proving to be a promising opportunity for companies looking to raise capital and for investors looking to get involved on the ground floor of young startups. The steady increase in the number of raises and amount raised is an extremely positive indicator for future growth in the online private equity markets. For these reasons, we expect the amount invested in online startups to continue through 2022 and beyond.

Additional knowledge sources

https://kingscrowd.com/online-startup-investments-have-grown-by-470/

What are the Benefits of a Cap Table in Capital Raising?

Posted on by Oscar Jofre

If you’re running a business, then you know that keeping track of your finances is essential. And if you’re looking to raise money from investors, then you’ll need to create a cap table. But what is a cap table, and what are the benefits of having one? In this blog post, we’ll answer those questions and more. So keep reading to learn more about the benefits of a cap table for your business.

What is a cap table?

A cap table is a document that records all information regarding shareholders and the equity they own in a company. The purpose of a cap table is to provide transparency to shareholders, investors, and employees about the company’s current and future equity. A well-managed cap table can save time and can benefit companies and investors. The benefits of using a cap table include:

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

There are several ways in which a company can benefit from having a well-managed cap table. A cap table can help founders keep track of who owns what percentage of the company, allowing for transparency among shareholders and investors. This is essential Information when negotiating with investors or preparing for a capital raise.

Importance of Cap Tables

A well-managed cap table is an essential tool for any company, especially when looking to raise capital. A cap table allows transparency and clarity between shareholders, founders, and investors. Investors need to quickly and easily understand the company’s current equity structure to make informed decisions about investing in a capital raise. With the continual growth of regulations like A+ and CF, managing a cap table is crucial for success.

Improve Cap Table Management

When a company has already raised money from investors, the cap table becomes an even more important document. KoreConX’s cap table management software can help keep track of all shareholders and their respective equity. The software can also help manage voting rights and keep track of who invested when and how much. This information is crucial for companies as they undergo funding rounds because it allows them to be transparent with potential investors. Investors want to know who is in charge, what voting rights each person has, and what kind of leverage they have when negotiating. Having all of this information readily available in the KoreConX all-in-one platform will help avoid any delays in the investment process.

A well-organized and up-to-date cap table is an essential tool for any company looking to raise capital. It can help simplify the process for both the issuer and the investor and ensure that everyone is on the same page about ownership and valuation.

The Recipe for a Successful RegA+ Offering

Posted on by Oscar Jofre

If your company is looking to raise funding, you’ve probably considered many options for doing so. Since the SEC introduced the outlines for Regulation A+ in the JOBS Act in 2012 and its subsequent amendments, companies are able to raise amounts up to $75 million during rounds of funding from both accredited and non-accredited investors alike. If you’ve chosen to proceed with a RegA+ offering, you might be familiar with the process, but what do you need for your offering to be a success?

When beginning your offering, your company’s valuation will play a key role in the offering’s success. While it may be tempting to complete your valuation in-house, as it can save your company money in its early stages, seeking a valuation from a third-party firm will ensure its accuracy. Having a proper valuation will allow you to commence your offering without overvaluing what your company is worth, which can be more attractive to investors.

Since the SEC allows RegA+ offerings to be freely advertised, your company will need a realistic marketing budget to spread the word about your fundraising efforts. If no one knows that you’re raising money, how can you actually raise money? Once you’ve established a budget, knowing your target will be the next important step. If your company’s brand already has loyal customers, they are likely the easiest target for your fundraising campaign. Customers that already love your brand will be excited to invest in something that they care about.

After addressing marketing strategies for gaining investments in your company, creating the proper terms for the offering will also be essential. Since one of the main advantages of RegA+ is that it allows companies to raise money from everyday people, having terms that are easy for people to understand without complex knowledge of investments and finance will have a wider appeal. Potential investors can invest in a company with confidence when they can easily understand what they are buying.

For a successful offering, companies should also keep in mind that they need to properly manage their offering. KoreConX makes it simple for companies to keep track of all aspects of their fundraising with its all-in-one platform. Companies can easily manage their capitalization table as securities are sold and equity is awarded to shareholders, and direct integration with a transfer agent allows certificates to be issued electronically. Even after the round, the platform provides both issuers and investors with support and offers a secondary market for securities purchased from private companies.

Knowing your audience, establishing a marketing budget, creating simple terms, and having an accurate valuation will give your RegA+ offering the power to succeed and can help you raise the desired funding for your company. Through the JOBS Act, the SEC gave private companies the incredible power to raise funds from both everyday people and accredited investors, but proper strategies can ensure that the offering meets its potential.

KoreConX Partners With LSI Emerging Medtech Summit 2022

Posted on by Peter Daneyko


Medtech and Life Sciences main event will be held next March in California. KoreConX is one of the supporting sponsors.

NEW YORK, January 26, 2022 – KoreConX is pleased to announce its partnership with LSI Emerging Medtech Summit 2022, which will be held March 15-18, 2022, in Dana Point, California, USA. This is a major event managed by Life Science Intelligence (LSI) in the Medtech environment and will bring together investors, strategic partners, and experts within the Medtech, Life Sciences ecosystem.

Oscar A Jofre, Co-founder and CEO of KoreConX, highlights the importance of this partnership and event to the sector: “We at KoreConX are delighted to be part of this huge event focused on an industry that is flourishing like Medtech. This sector is critical to saving lives with its innovative solutions and healthcare impact. We are confident that this particular segment will reap the biggest benefits from Regulation A+, and we are honored to sponsor this summit. Also, we will be there in-person for the first time after two years, so we are more than excited to join LSI and our partners to be part of this.”

“A major current trend in the medtech industry is the democratization of capital through programs like Reg A+. We are embarking during a monumental time where we can finally achieve this grand goal and bring companies to market that have a fundamental impact in our lives,” says Scott Pantel, CEO of Life Science Intelligence.

This event will also feature the participation of an icon of the JOBS Act movement, David Weild IV, considered the “Father of the JOBS Act”. He will be giving a keynote address to stimulate and encourage everyone in this industry who wants to raise money using Regulation A+.

LSI is part of the Medtech ecosystem of KoreConX’s partners focused on Life Sciences companies. They are an essential part of this vertical, as they offer valuable insights to help investors and executives make decisions based on data provided by their team of market researchers, economists, and analysts.

LSI Emerging Medtech Summit 2022 will take place March 15-18, 2022, and attendees can participate in person or online. KoreConX will be represented by its Co-founder and CEO, Oscar A Jofre, its Chief Scientist & CTO, Dr. Kiran Garimella, and its CRO, Peter Daneyko. Visit their website for more information: https://www.lifesciencemarketresearch.com/medtech-summit-2022

About KoreConX

Founded in 2016, KoreConX is the first secure, all-in-one platform that manages private companies’ capital market activity and stakeholder communications. With an innovative approach and to ensure compliance with securities regulations and corporate law, KoreConX offers a single environment to connect companies to the capital markets and now secondary markets. Additionally, investors, broker-dealers, law firms, accountants and investor acquisition firms, all leverage our eco-system solution.

###

Media Contacts:
KoreConX
Carolina Casimiro
carolina@koreconx.com

How Does Social Media Impact RegCF Offerings?

Posted on by Oscar Jofre

Reg CF allows companies to raise up to $5 million through an SEC-registered intermediary.  Since increasing this limit from $1.07 million in 2021, private companies have raised over $1 billion in Reg CF offerings. This highlights Reg CF’s incredible success in opening the doors to capital for these issuers. For many of these offerings, social media is a key component to success by increasing investor awareness and conducting a successful offering.

 

Social Media’s Impact on Reg CF

 

Social media is essential for companies looking to make a Reg CF offering. It can build awareness and interest among institutional and retail investors and help generate traffic to their offering’s listing on a funding portal or the broker-dealer who hosts the offering. It can expand your crowdfunding campaign’s reach using social tools to raise more money.

 

As soon as companies file their Form C with the SEC, they can begin to communicate outside the funding platform about their offering. However, they must be careful about what they say. They are limited to communications that don’t mention the terms of the offering and “tombstone” communications. Issuers can continue marketing their product or service as usual, as securities regulations understand that the issuer still is running a business and trying to generate a profit. After the Form C has been filed, issuers can also increase the amount of marketing materials they create, as long as they follow SEC guidelines. Issuers are also subject to anti-fraud rules, even in non-terms communications.

 

Capitalizing on Campaigns

 

Building awareness and interest in your Reg CF offerings using social media, you reach investors who may have been unaware of opportunities to invest. Thanks to Reg CF,  startups and established companies alike can get started fundraising quickly with lower initial costs than traditional methods of raising capital. When combined with social media, the result is an effective way to get the word about the raise to many people hoping that they turn into an investor.

 

It has been made clear that social media and mobile marketing are necessary parts of Reg CF offerings. Social media marketing is an increasingly important part of any company’s digital strategy, so having these platforms as part of Reg CF efforts will give issuers the best chance for success with campaigns. It also helps businesses target their current audience to invest in their offering.

 

Social media is an excellent tool for companies to use when making Reg CF offerings. Whether you are looking to raise more money or get the word out about your company, social media can be used in various ways that will help your business grow and succeed with Reg CF.

Why are Data and Research Key in the Private Capital Markets?

Posted on by Oscar Jofre

Data and research are essential pieces of the puzzle regarding the private capital markets. Investors can make informed decisions about where to put their money, and private markets can attract the best investors by having access to accurate and timely data. By conducting thorough research on potential investments, investors can mitigate risk and maximize return potential.

 

Importance of Data & Research

Private market data provides understanding and predictions of trends, allowing investors to look for companies on a trajectory towards growth and success. Data helps identify these trends and enables investors to make more informed decisions. For example, if a company has the data to demonstrate an upward trend in annual revenue and gross profit, it can be compelling to any potential investor. Investors stay informed of private markets and make informed decisions by private companies providing up-to-date data.

 

Research is necessary to understand the risks and opportunities of any investment. Research helps investors see that a product or service works as intended and solves a real problem or need. Even if the revenue and gross profit look good on paper, investors won’t go for a product that isn’t solving a real problem or helping people. This is because investors need to be aware of any investment’s potential dangers and benefits before putting their money into a private offering. To make an informed decision, private capital investors need to know all they can about the company they are investing in.

 

Conducting Market Research

Private capital investors conduct due diligence on potential investments by reviewing various data sets and conducting company research. This information allows investors to understand the risks and opportunities associated with each asset. Research that demonstrates the viability of a product or service helps investors understand the potential return on investment.

 

There are multiple methods for investors to conduct market research based on private company data. One way is a SWOT analysis, allowing investors to take an in-depth look at a business and its needs to succeed by comparing its strengths, weaknesses, opportunities, and threats. In a rapidly changing market, companies that can demonstrate a trend of growth and success with minimal weaknesses are more likely to attract investment. 

 

Benefiting from Private Capital Research

Investors need to make quick decisions, so having access to up-to-date data is critical. Data is essential for understanding how a company’s market performance affects private company growth. The current market performance also influences an investor’s decision on due diligence on potential investments.

 

Private market data helps paint a more accurate picture of the company and its operations, which can be helpful for both investors and company employees alike. With accurate data, investors can make better decisions regarding where to invest based on their ROI expectations, company performance, and management effectiveness. Presenting data and research provides private companies with feedback from the market, including information about how potential customers feel, what they think about a product, or how successful a product may be compared to the rest of the market.

 

The private capital markets are a haven for risk-averse, long-term investors. With the correct data and research, investors can make more informed decisions and reduce the risk of investing in a company that may not be a good fit for their portfolio. Private capital markets increase transparency by showcasing company data, drawing in potential investors, and allowing more investment opportunities. Whether looking for funding or an investment, it is vital to understand how data and research can help private capital markets grow.

 

Cannabis: An Emerging Market for RegA+

Posted on by Oscar Jofre

Despite remaining illegal at the federal level, the idea of legalizing cannabis is continuing to gain public acceptance, especially in recent years. As of April 2021, 35 states have made medical marijuana legal, with 18 of them legalizing it recreationally. This growth has been tremendous, raising the industry’s value to over $13 billion and directly supporting 340,000 jobs. As of 2019, 67% of Americans believe that regulators should legalize marijuana, an astounding 20% increase from a decade ago.

These factors have created an excellent opportunity for companies in this space. As public perceptions continue to rise, investments in cannabis companies may become more attractive to retail and accredited investors. In 2019, cannabis companies received nearly $117 billion in investments, displaying some of the investors’ significant interest in the space. Opportunities will only continue to increase as the industry progresses. Projections show that by 2028, cannabis will be an industry worth $70.8 billion globally. In the US alone, cannabis sales in the US in 2021 alone are predicted to reach $21 billion. 

The combination of investor interest and industry valuation could mean that raising capital through exemptions like Regulation A+ could prove to be an incredible opportunity for companies and investors alike. Already, many cannabis companies are seeing success through these opportunities. Early this year, Gage Cannabis closed their Regulation A+ offering after securing $50 million in funding and adding 1,000 shareholders to their cap table. This one success is not an outlier, as other issuers have been seeing success as well. 

It will be interesting to see how the industry and investment opportunities within cannabis will expand with the upward trend of public perception. Additionally, as more states continue to legalize, more businesses will emerge, jobs will form, and investors will invest in an emerging market.

Along with our partners, KoreConX hosted a webinar on why RegA+ may be the perfect fit for companies in the cannabis space. If you missed the live event or want to rewatch it, visit our YouTube channel to access the full recording of the event. If you would like to contact any of our speakers or view the full schedule, please visit our KoreSummit site.

Reflecting on Canadian Small Business Week

Posted on by Oscar Jofre

As Small Business Week comes to a close in Canada, KoreConX reflects on the role small businesses play in the economy. Our mission has long been to empower the private capital markets with the tools needed to take advantage of innovative capital raising opportunities. 

 

Earlier this week, Canadian Prime Minister Justin Trudeau shared his statement on Small Business Week. He said, “As we mark the start of Small Business Week in Canada, we recognize that the past year and a half have been difficult for small businesses, their owners, and their employees. Small businesses across the country were asked to make countless sacrifices to protect the health and safety of people and communities. Through it all, they have shown incredible courage and resilience, and an unprecedented ability to adapt and innovate. And while some businesses have now reopened their doors, many still need support as they continue to grapple with the impacts of the pandemic.”

 

This idea comes jointly with unprecedented access to capital raising opportunities. In March 2021, updated to offering limits under Regulation CF increase to $5 million USD, which small businesses can use to fuel innovation and job creations. When RegCF was first signed into law through the JOBS Act in 2012, the mission was to democratize capital to allow anyone to invest, give company ownership back to founders, and create jobs.

 

With 8.4 million individuals or 68.8% of the Canadian workforce employed by small businesses, it is clear to see their vitally important role in the economy. Similarly, small businesses were responsible for 35.8% of the employment growth between 2014 and 2019. “Small businesses drive our economy by creating the goods and services we need while employing millions of Canadians,” added Trudeau in his statement. 

 

Even as small businesses continue to recover from the global pandemic, capital raising opportunities like RegCF, which are cost-effective, can provide needed relief. Additionally, they can be incredibly successful, especially for small businesses with dedicated and loyal customers willing to invest. 

 

Tokenization in RegA+

Posted on by Oscar Jofre

As the private capital market continues to undergo a digital transformation, ideas like blockchain, digital securities, and tokenization continue to be discussed by regulators, issuers, and investors. “Tokens” represent actual ownership in a security and is a registered investment vehicle. However, when the term was coined in the mid-2010s, tokens became thought of as unable to support the compliance, regulations, and legal requirements of a security. Instead, digital securities and digital assets became the preferred term to accurately convey the time, effort, and reliability in this form of investment.

 

Digital securities will have a transformative impact on the capital markets. For example, when the public market was built more than 100 years ago, the technological tools of today were unavailable. As the system has aged, it has become antiquated. These new forms of securities will result in a more efficient, equitable, and accessible capital market system for both issuers and investors. However, since the technology is so new, the educational component will be the next hurdle because many still are unaware of what digital securities are. 

 

It is important to consider that digital securities are not about disintermediation, but instead intermediation with the right efficiency and focus, bringing together the right parties like broker-dealers, lawyers, and transfer agents. Unlike other digital assets, digital securities are regulated by securities laws, and having the right processes in place ensures that raises are done compliantly. If a RegA+ raise is structured improperly, it could mean the company has to refund investors of their investment. 

 

Because many investors don’t want to hear the term tokenization or digital asset, the educational component will be essential for the widespread adoption of digital securities. However, as digital securities make investment processes frictionless, we will continue to see how digital securities for RegA+ continue to evolve.

RegA+ for Real Estate

Posted on by Oscar Jofre

Since the JOBS Act was first passed in 2012, it has vastly changed the way private companies can raise money. One particular industry making use of the Regulation A+ exemption is real estate. In the pre-JOBS Act economy, real estate investment deals were often limited to private equity or family offices that could afford large price tags associated with commercial real estate deals. However, the JOBS Act has done something incredible for the everyday investor; created opportunities for real estate investments that did not previously exist.

 

Traditionally, real estate investments have been capital-intensive, so managing smaller deals were too challenging to make effective. This limited who could participate. 

 

Since updates to offering limits that went live in early 2021, issuers can now raise up to $75 million for Reg+ offerings, making the exemption even more attractive to issuers in real estate. Additionally, the availability of online platforms for these offerings also contributes to their success. 

 

Through RegA+, offerings usually come in the form of a real estate investment trust or REIT to be more efficient, rather than an offering for a single property, due to the length of the SEC approval process. While investors have been able to invest in REITs for a while now, commissions and fees were usually too high and lowered returns. RegA+ for real estate has been able to introduce efficiencies that lower fees, thus, increasing returns that investors may see. 

 

In a report published by the SEC in March 2020, insurance, finance, and real estate accounted for 53% of qualified RegA+ offerings and 79% of the funds raised through the exemption. This indicates that real estate investments are incredibly attractive to investors and seeing significant success through RegA+ offerings. With the recent increase to RegA+ limits, we will only continue to see more real estate investment opportunities through the exemption. 

 

What is a Securities Manual?

Posted on by Oscar Jofre

For companies to raise capital under the exemptions allowed by the JOBS Act, there are different requirements to maintain compliance with state and federal securities laws. For example, a company looking to raise capital through Regulation A+ must adhere to Blue Sky Laws in each state they are conducting the offering. 

 

Similarly, for a company to allow its shareholders to transact on a secondary market, Blue Sky Laws also must be met. Since each state may have very different compliance requirements, an issuer can file what is referred to as a manual exemption. With the manual exemption, the issuer is required to be listed in a nationally recognized securities manual. 

 

Securities manuals are publications that include specific information and financial statements of an issuer. Examples of securities manuals include Mergent’s and Standard & Poor’s. Listing in these manuals allows issuers to sell securities in a particular state without registration as long as the manual is recognized by the state. The issuer must include:

 

  • The names of issuers, directors, and officers
  • The balance sheet
  • A profit and loss statement from the most recent fiscal year

 

As such, a securities manual is a collection of this data from many companies. For example, Mergent’s has a database of over 25,000 active and inactive companies. By being listed in a similar, nationally recognized manual, an issuer can be a step closer to maintaining compliance for their offering.

How Does RegA+ Impact the Life Sciences Industry?

Posted on by Oscar Jofre

Since dramatic improvements to Regulation A that went into effect in 2015, the exemption has become a tremendous tool allowing private companies to raise significant capital. Unlike other funding methods, RegA+ allows companies to raise capital more efficiently with less hassle at a lower cost. 

 

Companies in diverse industries can benefit from the power exemptions like RegA+ give them to raise unprecedented capital in the private market. Before the JOBS Act, private investments were limited to wealthy, accredited investors, private equity firms, venture capital, and other players. However, when the legislation opened up investment opportunities to retail investors, companies were suddenly able to tap into a new pool of potential investors. In addition to making investment opportunities more accessible, the JOBS Act was also created to create jobs and foster innovation in America. 

 

These factors make RegA+ particularly well-suited for the life sciences industry. Retail investors typically make investments in companies they support and believe in. Life science companies aim to develop innovative treatments for medical conditions, make life easier for those with chronic conditions, and discover new medicines that can dramatically improve a patient’s life. Through RegA+, the ability of the everyday individual to invest in these deals is powerful. People will want to invest in a company developing treatments for conditions that have personally affected their lives or a loved one. 

 

Recent research has found that, in the post-JOBS Act economy, there has been a 219% increase in biotech companies going public in an IPO. Many of these companies are focused on developing treatments for rare conditions and cancers. Funding received through JOBS Act exemptions has significantly reduced the time to IPO after benefiting from raising earlier capital at a lower cost. Not only does this have beneficial economic implications, the advancement and funding of life sciences companies will positively impact humanity itself. Being able to identify treatments to life-threatening conditions can extend lifespans and enhance the quality of life significantly. Instead of certain conditions having terminal diagnoses, patients would have options to recover and treat their illnesses. 

 

However, companies in the life sciences space typically require significant capital to fund research and development, clinical trials, and regulatory approval. Since the increase of RegA+ to a maximum of $75 million in March 2021, even more companies will likely begin to explore this capital raising route. If companies can raise needed capital sooner and easier, they can bring their innovative medical treatments, devices, and medications to market sooner as well. This means that patients would begin to benefit from new, lifesaving options even sooner. 

 

How the Unaccredited Investor Benefits from RegA+

Posted on by Oscar Jofre

The passage of the JOBS Act in 2012 set in motion a significant change for the private capital markets. For so long, investments in private companies could only be done by wealthy accredited investors who would benefit immensely if the company was ever to go public during an IPO. While the everyday person has long been able to buy stocks of a public company, the potential for such a significant return on their investment was low. It was thought that this was to protect investors from the risk of a private company. 

However, the JOBS Act has rewritten this narrative, allowing anyone to invest in private companies raising capital through exemptions like Regulation A+. When the act was first passed into law, companies could raise up to $5 million. However, it has since undergone a few notable changes that transformed it from an infrequently used exemption to one that allows companies to raise a significant amount of capital. The first came in 2015 when Title IV amended the JOBS act to allow companies to raise up to $20 million and $50 million from tier 1 and tier 2 offerings, respectively. Again in 2020, the SEC announced further amendments allowing companies to raise up to $75 million through tier 2 offerings, which went into effect March 15, 2021. 

The amendment increased the availability of capital for private companies and created incredible investment opportunities for non-accredited investors. For investments in tier 1 offerings, there are no limits placed on investors, while tier 2 offerings limit non-accredited investors to a maxim of 10% of the greater of their net worth or annual income.

Since the change in 2015, SEC data shows the impact it has had on the number of offerings under this exemption. In 2015, only 15 companies had qualified for either tier 1 or tier 2 offerings. In 2019, this number had increased to 487 companies. With so many companies conducting offerings under Regulation A, and the number increasing year over year, there are more opportunities than ever for the non-accredited investor. They are free to research investment opportunities, deciding if the investment fits with their investment goals and risk tolerance. They are free to identify companies that align with their philosophies, values, and causes that are important to them. For example, an investor may have a strong affinity for reducing their environmental impact. They can choose to invest in a company that also upholds this same value. 

In addition, the emergence of a secondary market for private company investments opens up a new possibility for liquidity. Previously, private company shares could only be sold or traded once a company had gone public. However, now investors have the opportunity to sell their shares to other interested investors.

The JOBS Act has allowed non-accredited investors to enter the playing field in the private capital market. Just as the companies who can now use RegA+ to raise capital, investors can use the offerings as an opportunity to make a profit and support companies they believe in. 

Stock Options for Employees

Posted on by Oscar Jofre

Stock exchanges have a long history within America. The first was the Philadelphia Stock Exchange, originally the Board of Brokers of Philadelphia, founded in 1790 and was followed by the New York Stock Exchange two years later. For nearly as long as the United States has been a country, they have had brokers buying and selling stocks. 

 

Since the latter half of the 20th century, however, the idea of stock options for employees has been popular as an incentive tool for employees to have a vested interest in the company’s success. For both publicly traded and private companies, offering employees the opportunity to be awarded or purchase shares is a powerful incentive. This practice has continued into the modern-day, as grantees (the employee or executive of a company) can receive the option to buy stock in the company for a fixed price in a finite time. This process also includes a vesting period, which is a period of time that a grantee will need to wait before they can exercise their stock options.

 

There are two main types of stock options, Incentive stock options (ISOs) and Non-qualified stock options (NSOs). The difference between these types is that the former is usually offered to top talent and executives while being treated as capital gains when taxed, while the latter is granted to employees of all levels and considered income when taxed after being exercised. For example, as an incentive to continue excellent performance, a company can give an employee or executive the option to buy 500 shares in the company at $5. As the name indicates, this is an option that an employee is granted the right to do, but it is not an obligation. If the employee buys the stock at $5 over the period designated by the company, the employee will then have the option to sell the share after the vesting period has passed. 

 

Most plans for employee stock options allow a percentage of stock to be sold each year. In our example, if the company allows for 20% of the stock to be vested each year, after one year, an employee will have the ability to sell the 100 shares of their stock options, and so on for each year as the stocks continue in the vesting process. The advantage for employees granted the right to exercise stock options in the company that they are working for is that they will, in most cases, receive that stock at or lower than the market price. The purpose of this is to make an employee feel like the company’s success is tied to their success as well. If they can work to further the company’s goals and raise the price of the company’s stock on the stock market, the employee can sell their stock options and make a profit. 

 

Continuing our example, if the employee has $2500 in shares in the company and the market price increases, they will make the difference. So, if the company reaches $8 per share by the time the employees’ stock is fully vested, they can sell it for $4000, for a $1500 profit. 

 

The typical scenarios for this type of stock option are in start-up companies or as incentives to bring the best talent to a larger company. For the company, the incentive does not come from the operating budget but helps to involve employees in the company’s success. The success of the company is a success for all. 

 

Using RegCF to Raise Money for a Non-US Business

Posted on by Mark Roderick

To use Reg CF (aka Title III Crowdfunding), an issuer must be “organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.” That means a Spanish entity cannot issue securities using Reg CF. But it doesn’t mean a Spanish business can’t use Reg CF.

First, here’s how not to do it.

A Spanish entity wants to raise money using Reg CF. Reading the regulation, the Spanish entity forms a shell Delaware corporation. All other things being equal, as an entity “organized under, and subject to, the laws of a State or territory of the United States,” the Delaware corporation is allowed to raise capital using Reg CF. But all other things are not equal. If the Delaware corporation is a shell, with no assets or business, then (i) no funding portal should allow the securities of the Delaware corporation to be listed, and (ii) even if a funding portal did allow the securities to be listed, nobody in her right mind would buy them.

Here are two structures that work:

  • The Spanish business could move its entire business and all its assets into a Delaware corporation. Even with no assets, employees, or business in the U.S., the Delaware corporation could raise capital using Reg CF, giving investors an interest in the entire business.
  • Suppose the Spanish company is in the business of developing, owning, and operating health clubs. Today all its locations are in Spain but it sees an opportunity in the U.S. The Spanish entity creates a Delaware corporation to develop, own, and operate health clubs in the U.S. The Delaware corporation could raise capital using Reg CF, giving investors an interest in the U.S. business only.

NOTE:  Those familiar with Regulation A may be excused for feeling confused. An issuer may raise capital using Regulation A only if the issuer is managed in the U.S. or Canada. For reasons that are above my pay grade, the rules for Reg CF and the rules for Regulation A are just different.

 

This blog was written by Mark Roderick of Lex Nova Law, a KorePartner. The article was originally published on Mark’s blog, The Crowdfunding Attorney.

Warrants for RegA+

Posted on by Oscar Jofre

For private companies looking to raise capital through exemptions such as Regulation A+, Regulation CF, or Regulation D, there are many forms of securities that they may be able to issue to investors. Lately, there has been much buzz around warrants for RegA+ offerings and we are seeing them issued to investors as an equivalent to a perk. With the growing interest in this type of security, let’s explore what a warrant for RegA+ is. 

 

When a shareholder purchases a warrant, they are entering into a contract with the issuer. They purchase securities at a set price but are given the right to buy more securities at a fixed price. For example, if an investor was to buy a security at $1 apiece, but their warrant allows the shareholder to buy securities at a future point for $2 instead. If the company was to significantly increase in value, and securities were valued at $5 instead of the initial $1 they were purchased at, the warrant could be exercised and new securities can be purchased for the price specified in the contract. Such securities are typically sought after by investors who think the company they’ve invested in will significantly increase in value, allowing them to increase their ownership in the company without having to buy securities at a new, higher price. Typically, warrants have an expiration date, but they can be exercised anytime on or before that date. 

 

Warrants for RegA+ work no differently. 

 

For companies offering warrants to shareholders, many will choose to enlist a warrant agent to oversee the management of warrants. Much like a transfer agent, warrant agents maintain a record of who owns warrants as well as the exercising of the warrants. When there is a significant number of warrant holders, warrant agents maintain the administrative duties of ensuring warrant holders can exercise their rights and are issued additional securities when they are looking to do so. Just as KoreConX is an SEC-registered transfer agent, KoreConX can serve as your warrant agent as well. This allows you and your shareholders to perform all transactions, from the initial purchase to the exercising of the warrant, through the RegA+ end-to-end platform. Fully compliant, KoreConX helps you to ensure that all your capital market activities meet the necessary regulatory requirements.

 

For warrant holders looking to exercise their warrants, they can contact the warrant agent (if they bought shares directly from the company) or their broker-dealer to inform them that they would like to purchase additional securities. At the time of the purchase, the warrant holder would pay to exchange their warrants and be issued the appropriate amount of new securities. 

 

Warrants are also able to be traded or transferred. For example, warrant holders could transfer their securities to a child or relative if they were looking to pass them down. Alternatively, warrant holders can sell them to an interested buyer. If the company’s value has yet to exceed the warrant price, they are typically less valuable because shares may still be able to be purchased at a lower price. 

KorePartner Spotlight: Douglas Ruark, Founder and President of Regulation D Resources

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

 

Douglas Ruark, the Founder and President of Regulation D Resources, has always been fascinated by the mechanisms and document structure used to syndicate capital. Starting his career nearly 30 years ago in corporate finance when he co-founded Heritage Finance, Inc. in 1992. Seven years later, he served as a primary founder of Regulation D Resources. The firm works primarily within the real estate, energy, tech, and manufacturing industries.

 

With Regulation D Resources, Ruark uses his expertise to help raise money for those industries through the Reg D and Reg A+ exemptions. This experience makes a difference when crafting SEC-required disclosures, evaluating proper exposure on the market, and analyzing clients’ business positions.

 

The fun part for Ruark is the deals with entrepreneurs that have developed technology that can have a significant impact and be a game-changer. He said: “I love seeing what entrepreneurs have developed.” That is why his company focuses on Reg D and Reg A+, helping companies structure their securities offering, and drafting offering documents. The company is determined to help entrepreneurs cross the line into the market so they can grow and succeed.

 

What Ruark enjoys about his partnership with KoreConX is the responsiveness of the staff. He said: “Oscar immediately reached out and set up a call to introduce services.” KoreConX has the same drive and vision that Ruark sees in other entrepreneurs. Plus, KoreConX’s application of tech to streamline compliance aligns with the goal he set out when developing Regulation D Resources’ Investor Portal Compliance Management application.

What is Regulated Crowdfunding

Posted on by Oscar Jofre

On April 5th of 2012, President Obama signed into law legislation called the JOBS Act. Four years after that act was signed, Title III of the JOBS Act was enacted. This was Regulation CF, which allows for private companies in their early stages to use crowdfunding to raise money from any American, not just accredited investors. This opened the doors with funding portals for companies to trade securities to a larger pool of investors to raise needed growth capital and allow average people to benefit from the possibility of investing in an early-stage company.

When it was first implemented in Spring 2016, Reg CF allowed companies to raise a maximum of $1.07 million within 12 months. Now, with new amendments added to the law by the SEC that went into effect in March 2021, companies can raise a maximum of $5 million. You may be familiar with the idea of crowdfunding with the success of websites like Kickstarter, and this works similarly. Instead of donation tiers that would award you merchandise from the campaign, investing in a private company with Reg CF will give you securities or equity in the companies. Previously, the barrier for entry into this investment type was very high, as you needed a lot of capital to invest in a private company. 

The new amendments still have a limit on how much a particular individual can invest when it comes to non-accredited investors but removed the limits on accredited investors. More specifically, for investors with either a net worth or annual income less than $107,000, investments in Reg CF offerings are limited to $2,200 or 5% of the greater of their annual income or net worth.

Reg CF is typically used for early-stage startups to build capital and has significantly changed the road map for entrepreneurs, allowing them to look to crowdfunding options before venture capital investments. Because the cost and barrier to entry for Regulation CF lower than with Reg A, many companies are using this after their first round of funding to prove the viability of their concepts and build a business. Then after a successful Reg CF, raising up to $5 million, this proves that there is interest in what you are building. In turn, this improves your valuation and allows for a much more successful Reg A campaign that could help you raise even more capital. 

There is a significant benefit to everyone involved in a Reg CF. The companies running the campaign are raising money to prove their viability, fuel the growth, and democratizes capital, allowing everyday Americans to participate in a system that was until recently closed to them. In 2020, 358,000 investors participated in Reg CF campaigns, a significant increase from the 15,000 investors participating in 2019. RegCF is a way for Americans to diversify their investment portfolio. They can grow as an investor by investing in a private company with a much lower entry cost.

With Reg CF garnering much success for both investors and issuers alike, it will be exciting to see how it continues to evolve in the future. We may see even higher raise limits, further expanding access to capital, increasing the number of American jobs, and further democratizing investment opportunities.

 

What is 409(a) and Why Does My Company Need it?

Posted on by Oscar Jofre

Whether your company is a new startup or an established private company, understanding and proper use of a 409(a) is essential to your company’s success. Thinking about it early will help you avoid potential setbacks and challenges later on, giving you more time to focus on growing your company, rather than tackling penalties. If that doesn’t convince you that a 409(a) is something that your company needs, a better understanding of what it is will convince you. 

 

To start with the basics, what is a 409(a)? First added to the Internal Revenue Code (IRC) in 2005, 409(a) outlines the taxation on “non-qualified deferred compensation,” which includes common stock options for employees. For companies to be able to offer their employees the ability to purchase stock in the company, they must complete a 409(a) valuation to determine the “strike price,” or the predetermined price at which employees can purchase the stocks. 

 

Undergoing a 409(a) valuation ensures that the strike price is at or above the fair market value and that the company remains compliant with the IRC. For companies who the IRS find to be noncompliant with the code, some penalties include an additional 20% tax penalty and penalty interest. 

 

So, how do you ensure that your company accurately determines the fair market value of your common stock? This can be done a couple of ways, either by someone within the company or by a third-party valuation firm. Whether you’re planning on completing 409(a) valuation in-house or hiring a firm, there are a few key things to keep in mind. 

 

For valuations done in-house, whoever is chosen must have at least five years of experience related to valuation. Since this can be subjective, the IRS could rule that the individual did not meet the requirements and that the valuation is inaccurate. Additionally, only private companies that are less than 10 years old can choose to complete their valuation in-house. It is also important to remember that if the IRS were to investigate, it would be the company’s responsibility to prove their valuation was correct. 

 

Hiring an outside firm, while often the more costly option, is usually more reliable. As long as the firm maintains a consistent approach to valuations and is independent, meaning that the firm is only providing the company with valuation, the company is given “safe harbor” protection. A safe harbor protects both the company and its employees, as it would be the IRS’s responsibility to prove that the valuation was inaccurate. 

 

Once your company has received its 409(a) valuation, how long does that last? It is considered to be valid for one year after the valuation. After that, it must be redone to ensure compliance. If your company closes a round of funding or undergoes any material changes before that period is up, a new 409(a) valuation would be required. 

 

Armed with the knowledge of what exactly a 409(a) is, you can help your company achieve success and maintain IRC compliance. Even early on, being compliant with tax codes ensures you avoid severe penalties and expensive delays should the IRS decide to audit your company as it begins generating revenue. 

 

What is Due Diligence?

Posted on by Oscar Jofre

When it comes to investments of any kind, due diligence is essential for both issuers and investors alike. Do so what exactly is due diligence?

 

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

 

In the process of investing, investors should review all information available to them. Investors should ask questions such as:

 

  • Company Business Plans: What are the issuer’s current and future plans? Do their projections seem reasonable given their current financial reports?
  • Company Management: Who are the company’s officers, founders, and board members? What is their previous experience in business and have they had success? Does the management team pass a Bad Actors check?
  • Products/Services: What does the company offer? Is it something that you would use or does there seem to be a wide appeal for the product or service in the market? 
  • Documentation: Is the company’s bylines, articles of incorporation, meeting minutes, and other related documents available to review?
  • Revenue: What does the company’s revenue look like? Does it make sense considering the demand for their products? What do revenue projections look like?
  • Debt: Does the company have debt? Is it comparable to other companies in the industry?
  • Competition: What does the company’s competition look like and how do they plan to deal with it? Has the company properly protected intellectual property through trademarks, patents, copyrights, etc.?
  • Funding: Why is the company raising funding and what are the plans for the money raised?

 

While these are important questions to ask, there are other factors that investors should think about. Investors should consider whether they are financially able to take on the risk of investment. While investing in private companies can lead to a huge return, success is not guaranteed. Investors should ask themselves if they would be able to afford to lose their investment or not immediately being able to make a profit. They should also ensure that they are qualified to invest. If they are a non-accredited investor, have they already made investments that could alter the amount they can invest?

 

Issuers should make sure that all information investors need to make an educated decision to invest is adequately provided. They do not want to risk potential lawsuits down the road for failing to disclose certain information. Issuers can ensure that they are meeting all due diligence requirements by using a broker-dealer as an intermediary for their investment.

What is Investor Acquisition?

Posted on by Oscar Jofre

If you’re a company that is in the process of raising funds for your business, you’re likely looking to do so with the help of investors. By trading a piece of your company in exchange for some much-needed capital, you can fund your ideas and the growth of your business. With Regulation A+ opening up the investor pool to include those who would not be regularly included in a traditional IPO, it is essential to choose the right investors with whom you are going to grow your business. As investors become shareholders that often have some kind of say in the company, it will be important to choose investors that will aid you on your journey to grow your company. But how exactly do you find the right investor for you and your company’s vision?

 

Investor acquisition is targeting the best investors for the offering based on their demographics. Are you trying to raise money from your customers or people with similar behaviors? Are you targeting investors based on location, age, or other demographics? With investor acquisition, it allows companies to find and target the investors that will be best suited for the offering. If companies are targeting the investors that are most likely to invest, less time is wasted and more money is raised by eliminating the need to interact with those who aren’t going to invest.

 

Additionally, through investor acquisition, you can turn current customers into investors and investors into customers. With the addition of RegA+ to issuers’ toolbox, the ability to raise money from customers is now easier than ever. The customers who already know and support you can turn into important advocates for your company, which in turn can entice either more investors or customers to support your company.  Through RegA+, investors are not required to be accredited, so everyday people now have the opportunity to invest in companies that they believe in and support.

 

Once you’ve found investors to invest in your offering, keeping proper records of them will be essential to long-term success. Issuers need to manage their cap table, maintain investor relations, perform securities transfers in a compliant way, transfer agent, and more. With the KoreConX all-in-one platform, companies can securely manage who their investors are, issue shareholder certificates, and maintain their cap table in real-time, as changes occur. For investors, they can securely manage their portfolio of investments, receive important company information, and vote on company matters. With the platform, companies can maintain compliance and manage their information seamlessly.

 

Once you’ve decided to raise capital for your company, the next most important should be who you are going to raise the money from. With the help of investor acquisition, you can analyze information about your target so that you can best understand their behavior and what will get them to invest. Making smarter decisions about who you want investment from will help your company grow in the direction that you see best.

Are You Ready to Raise Capital?

Posted on by Oscar Jofre

Whether you’ve raised capital in the past or are preparing for your first round, being properly prepared will help your company secure the funding it needs. Proper preparation will make investors confident that you are ready for their investments and have a foundation in place for the growth and development of your company. So if you’re looking to raise money, what must you do to be ready for raising capital?

 

From the start, any company should keep track of shareholders in its capitalization table(commonly referred to as the cap table). Even if you have not yet raised any funds, equity distributed amongst founders and key team members should be accurately recorded. With this information kept up-to-date and readily available, negotiations with investors will be smoother, as it will be clear how much equity can be given to potential shareholders. If this information is unclear, deals will likely come with frustrations and delays.

 

Researching and having knowledge of each investor type will also help prepare your company to raise money. Will an angel investor, venture capital firm, crowdfunding, or other investment method be suited best for the money that is being raised? Having a clear answer to this question will help you better understand the investors you’re trying to reach and will help you prepare a backup option if needed.

 

Once your target investors have been decided and you have a firm grasp on the equity you’re able to offer, preparing to pitch your company to them will be a key step. Having a pitch deck containing information relevant to your company and its industry will allow you to convince investors why your business is worth investing in. Additionally, preparing for any questions that they may ask will ensure investors that you are knowledgeable and have done the research to tackle difficult problems.

 

Before committing to raising capital, you should make sure that your company has an established business model. Investors want to see that you have a market for your product and are progressing. If investors are not confident that the product you’re marketing has a demand, it will be less likely they will invest. Investors will also want proof that the company is heading in the right direction and the money they invest will help it get there faster.

 

Once you have determined that your company is ready for investors, managing the investmentsand issuing securities will be essential. To streamline the process and keep all necessary documents in one location, KoreConX’s all-in-one platform allows companies to manage the investment process and give investors access to their securities and a secondary market after the funding is completed. With cap table management, the all-in-one platform will help companies keep track of shareholders and is updated in real-time, ensuring accuracy as securities are sold.

 

Ensuring that your company has prepared before raising capital will help the process go smoothly, with fewer headaches and frustrations than if you went into it unprepared. Investors want to know that their money is going to the right place, so allowing them to be confident in their investments will ensure your company gets the funding that it needs to be a success.

How a Member of the Crowd Made Crowdfunding Easier

Posted on by Sara Hanks

A while back, one of our favorite start-up clients called me and asked me to speak to a potential investor. Paul Efron, a resident of Arizona, wanted to invest in the company’s Regulation A offering. However, when he went onto the company’s website to invest, his subscription was rejected. The company was accepting subscriptions from investors in every state but Arizona and Nebraska.

Why Arizona and Nebraska, asked Paul?

The reason was that while federal law and most states’ laws say that a company selling its own securities is exempt from broker-dealer registration, that’s not the case in a handful of states. These states say that if a company isn’t using a registered broker-dealer to sell in their state, the company has to register itself as an “issuer-dealer.” Depending on the state, that can involve letters to the regulators showing that the company and its officers are familiar with securities regulations, fingerprints, and, in the case of Arizona, a requirement that the company comply with “net capital” requirements as if they were an actual broker. Start-ups, of course, very rarely have any excess capital sitting around. So our client decided just not to sell in Arizona. (There were similar issues in Nebraska, which has since changed its rules.)

Paul could have done several things at this point. He could have pretended he lived somewhere else. He could have given up and invested in something else. But, being an entrepreneur himself, he decided the law needed to be changed, and set about changing it.

He reviewed the Arizona legislature website and saw that every legislator gets an email address on the website.  The way the website email system is setup, doing a mass email campaign with individual emails was possible.  Paul sent out an email to every one of the 30 Senators and 60 Representatives which took about an hour of click, click, cut and paste.  He found the autofill function very helpful.  Republican Senator Tyler Pace and Democratic Representative Aaron Lieberman replied to the email.  Having a member of both parties from both houses was perfect for this nonpartisan bill.  He brought me in to explain the issue to the legislators, their staff and the relevant committee staff. They listened, understood, and drafted. The first attempt at getting the legislation through was derailed because of COVID.  Paul contacted the legislators again.  The bill was reintroduced, passed this session, and the Governor signed it into law last week.

Start-ups (and Arizona investors) owe Paul. Not just for getting this roadblock removed, but for setting an example of what can happen when a citizen looks at a regulation and says “Well that doesn’t make any sense; how do I fix that?”

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.

KorePartner Spotlight: Sara Hanks, CEO of CrowdCheck

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

 

With over 30 years in the corporate and securities law field, Sara Hanks has a wealth of experience. Before CrowdCheck began, Sara and one of the firm’s co-founders (whose husband became the other cofounder) served on the Congressional Oversight Panel where they spent 18 months in DC investigating the Troubled Asset Relief Program. Shortly after this time, the bills that became the JOBS Act were passing through Congress and Sara’s interest in the private capital markets grew.

 

Sara and the CrowdCheck co-founders began to discuss due diligence and the implication crowdfunding would have. With their combined legal and entrepreneurial experience, they knew they could help investors make good investment decisions and walk entrepreneurs through the compliance process. These conversations led to CrowdCheck, which Sara says was “founded on the back of a cocktail napkin.”

 

CrowdCheck and its affiliated law firm, CrowdCheck Law, provides clients with a complete range of legal and compliance services for issuers and investors. As a “weapon against potential fraud,” CrowdCheck does due diligence for investors, letting them see the results themselves in a report that is easy to understand. The firm also helps entrepreneurs through the complex process of compliance, making sure that they have met all legal requirements. Sara and CrowdCheck have tremendous experience applying exciting securities laws to the online capital environment, a skillset valuable in the crowdfunding space.

 

One of the things that excites Sara most about this space is that there are “so many cases of first impressions.” Raising capital isn’t new, but with crowdfunding, new questions arise every day and there is the opportunity for innovative delivery of information.

 

A partnership with KoreConX is exciting for Sara and CrowdCheck because KoreConX values and understands how essential compliance is. “This environment won’t work without compliance,” Sara Hanks said, so it was valuable finding a partner that did not need convincing when it came to compliance.

What is Cap Table Management?

Posted on by Oscar Jofre

More than a simple spreadsheet, a cap table (short for capitalization table) records detailed data regarding the equity owned by shareholders.  For companies at any stage, proper cap table management is essential for good business practices. For founders and shareholders alike, it is important to fully grasp the concept of cap tables. So, what exactly is cap table management?

 

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

 

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

 

Once the cap table is created, it must be maintained properly, updated each time the company or the assigned registered transfer agent/share registry provider who performs equity-based transactions. In the early stages of the company, the cap table will be relatively simple to manage but as rounds of funding progress, it becomes more complex as shares are distributed amongst investors and employees.

 

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

 

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

KorePartners Spotlight: Rod Turner, Founder, Chairman, and CEO of Manhattan Street Capital

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

Rod Turner is the founder, chairman, and CEO of Manhattan Street Capital, an online fundraising platform allowing companies to cost-effectively raise capital using Regulation A+, Regulation D, and other regulations, supporting them throughout the entire capital raising journey. The goal is to make it easier for investors to invest and for issuers to list their offerings. The popular term for the services provided by Manhattan Street Capital is “quarterbacking”; they are not the company raising money, but they bring all necessary services providers together and advise the company and marketing agencies on the nuances of raising money successfully. These services combine with the company’s offering platform which separates Issuer Clients into their own offering pages with rich features and deep instrumentation and integration with all marketing.

Before founding Manhattan Street Capital, Rod Turner founded 6 other successful tech startups. He has had extensive experience in the capital markets, from securing VC funding, IPOs listed on the NASDAQ, mergers and acquisitions, as well as building a VC fund with a colleague. This experience has led him to understand the power of RegA+ as a fundraising tool for startups and mid-sized companies.

“I recognized pretty quickly that RegA+ is a phenomenally good fundraising instrument and that the regulations are really well-written, very pragmatically written, when it comes to implementing them. Which I was just really excited to see.”

Rod has seen many mature startups and mid-sized  companies  that are “strangled by the lack of access to growth capital” and sees RegA+ as very attractive solution for many of these companies Rod estimates that the scale of capital raised via Reg A+ may amount to $50-60 billion raised per year when it hits full stride. By getting involved in the industry, Rod wants to help solve this issue faced by companies and help them to secure the funding they need. “I want the whole industry to be very successful,” Rod said. RegA+ is continuing to expand rapidly, which will continue to open more opportunities for companies throughout the US.

At Manhattan Street Capital, Rod deeply analyzes the RegA+ industry to solve problems for his company and its clients. Each year, Rod and the Manhattan Street Capital team go through all the EDGAR filings with the SEC to assess the scale of RegA+. Rod likes to take a bigger picture approach so that he can solve problems that are not noticed by those that only focus on their specialty. 

Bringing Private Placements into the Digital Age

Posted on by Lee E. Saba

How blockchain-based technology will transform private markets

 

Remember the first time you drove a car with a rear-facing camera? The first time you streamed an on-demand movie at home via the Internet, or used GPS instead of a fold-out paper map to find your way on a trip? Similarly, emerging digital technologies have the potential to significantly streamline the cumbersome process of issuing and trading private securities, while automating regulatory compliance and enhancing secondary-market liquidity, transparency, and price discovery. The best part? All these benefits can be captured within existing market structures.

 

The growing popularity of private placements over public listings in recent years is a well-documented phenomenon, driven by tightened regulatory requirements for public issuers and a widening search for returns among investors in a low-interest-rate world.

 

Strong Growth in Private Markets

Acknowledging that raising capital in private markets is simpler than floating public offerings, the path to private issuance is still lengthy and complex. After capital is raised, issuers incur ongoing costs for stock transfers, escheatment, dividend payouts, and compliance. Meanwhile, participants in secondary markets must cope with complexities in making legal and transfer arrangements. Indeed, the timeline for executing trades in privates is currently calculated not in hours or days, but in weeks and months. Throughout, the process is larded with paper, paper, and more paper, stuffed into a file cabinet or residing on email servers.

 

Contrast that with the way new digital mechanisms can transform how private markets operate.

Source: Preqin

 

Blockchain based technologies help ensure that regulated securities are allowed for trading, execute and track payment and receipt of dividends, and validate that transactions have been executed solely with approved investors.  Post-trade processes leverage blockchain’s single “source of truth” — that is, the immutability of a blockchain ledger — working with SEC registered transfer agents.  Alternative trading systems (ATS) are now live for secondary trading of private yet regulated digital securities.

This is no pie-in-the-sky, far-in-the-future scenario. Industry standard-setting bodies like the FIX Trading Community (aka FIX), the Digital Chamber of Commerce, and the Global Digital Asset & Cryptocurrency Association, operating within the framework of the International Standardization Organization (ISO), are at work developing ways to integrate trading of digital securities into existing market structures. For example, FIX has a globally represented working group focused on adapting its widely used messaging standards to communicate and trade digital assets.

 

In short, digitization of private securities can ease capital raises, streamline compliance, improve liquidity and transparency, and save issuers and investors money — all within a regulated ecosystem. In future articles, we’ll explore what the emerging digital trading landscape means specifically for issuers and investors.

 

Continue reading “Bringing Private Placements into the Digital Age”

How Can a Company Raise Capital?

Posted on by Oscar Jofre

For companies looking to raise capital, there are many different options. While not every option may be best suited for every company, understanding each will help companies choose which one is best for them.

 

In the early stages of raising capital, seeking investments from family and friends can be both a simple and safe solution. Since family members and friends likely want to see you succeed, they are potential sources of funding for your company. Unlike traditional investors, family and friends do not need to register as an investor to donate. It is also likely that through this method, founders may not have to give up some of their equity. This allows them to retain control over their company. 

 

Angel investors and angel groups can also be a source of capital. Angel investors are wealthy individuals that meet the SEC requirements of accredited investors, who invest their own money. Angel groups are multiple angel investors who have pooled their money together to invest in startups. Typically, angel investors invest capital in exchange for equity and may play a role as a mentor, anticipating a return in their investment. 

 

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

 

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

 

For some companies, crowdfunding may be useful for raising funds. With this method, companies can either offer equity or rewards to investors, the latter allowing the company to raise the money they need without giving up control of the company. Through the JOBS Act, the SEC passed Regulation A+ crowdfunding, which allows companies to raise up to $75 million in capital from both accredited and non-accredited investors. Crowdfunding gives companies access to a wider pool of potential investors, making it possible to secure the funding they need through this method. 

 

Alternatively, Regulation CF may be a better fit. Through RegCF, companies can raise up to $5 million, during a 12-month, period from anyone looking to invest. This gives companies an important opportunity to turn their loyal customers into shareholders as well. These types of offerings must be done online through an SEC-registered intermediary, like a funding portal or broker-dealer. In the November 2020 update to the regulation, investment limits for accredited investors were removed and investment limits for non-accredited investors were revised to be $2,200 or 5% of the greater of annual income or net worth. It is also important to note that now, companies looking to raise capital using RegCF are permitted to “test the waters,” to gauge interest in the offering before it’s registered with the SEC. The SEC also permits the use of SPVs in RegCF offerings as well. 

 

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

 

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

 

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

 

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

 

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

 

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

KoreConX CEO Oscar Jofre’s Interview on Recent EINBLICK Podcast

Posted on by Oscar Jofre

Recently, KoreConX President, CEO, and Co-Founder Oscar Jofre had the pleasure of joining Christian Klepp, Co-Founder of EINBLICK Consulting, on their podcast B2B Marketers on a Mission. 

 

With Christian, Oscar discusses empowering and transforming the private capital markets through pivotal regulations enabling them to better raise capital. Along with these changes, companies need the education and tools to manage their data and shareholders. No longer are private companies limited to a VC or fund to raise capital, they have the power to leverage their customers and shareholders to raise needed capital. However, they need to keep learning to understand their options and responsibilities. 

 

You can listen to the full interview with Oscar Jofre here.

 

Effective Date of the Amendments to Reg CF and Reg A

Posted on by Andrew Stephenson

The amendments to Reg CF, Reg A, and other rules relating to capital formation utilizing exempt offerings have finally been published in the Federal Register, with an effective date of March 15, 2021.

Meet the KorePartners: Andrew Corn, CEO of E5A Integrated Marketing

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.

 

From the first project he worked on while still in college, Andrew Corn has been involved in financial marketing. After his first analyst’s presentation, “and then second, and then fifth, I decided to drop out of college and focus on that full time. Soon after, I wrote my first IPO roadshow, built a company around that, and a few years later, also started working for money managers,” Andrew said. After selling that company, Andrew went to work for a publishing company specializing in investingas the chief marketing officer.

 

Then, for 9 years, Andrew left the marketing industry and created a multi-factor model used to analyze the stocks available on US exchanges to select them for separately managed accounts, and he and his team designed the index behind six ETFs, eventually selling that company to a bank, where he served as the chief investment officer. “When E5A was born, it was born as an investment house, and then I got sucked back into marketing in 2012 and switched E5A over into a marketing firm in 2013,” Andrew recounted. At E5A, they acquire investors through systematic, data-driven marketing.

 

For companies that are looking to raise capital, marketing plays an incredibly important role. For RegA+ offerings, a company’s first target is typically its existing network of customers. However, a marketing firm such as E5A can help companies to understand the behavior and demographics of current customers. Knowing how customers behave will allow companies to targetpeople that are demographically and behaviorally just like their current customers.

 

With RegA+ offerings, the majority of the money will be raised through marketing. “The beauty of that is that it’s passive,” Andrew says, “we can look at entirely new groups of prospects who are the most likely people who would be interested in investing in a company like yours. Sometimes we can find them through behavior or demographics, hopefully, it’s a combination of both.” Once potential investors have been found, marketing agencies can come up with the messaging platform that will raise money through these investors. Companies are often surprised that their existing network raises little money, but the investors they can gain through marketing helps them reach their goals.

 

Through the use of marketing, Andrew is excited about how companies benefit from acquiring investors at scale. “If you’re a restaurant chain, you want as many people to know about it as possible. If you have a direct-to-consumer product, you want many people to know about it. So a byproduct of raising capital is promoting the brand or the business.” Both investors and the companies get more engaged as information is put out regularly.

 

With RegA+ allowing investors of all wealth, income and experience levels to participate, the restriction allowing only accredited investors is lifted. Additionally, Andrew believes that increasing the limit from $50 to $75 million will greatly improve the regulation since oftentimes companies require more funding. With IPOs on both the New York Stock Exchange or the NASDAQ often over $100 million, he believes increasing the cap to as much as $200 million in a few years would be better for companies looking to utilize RegA+.

 

For its clients, E5A is a “turnkey marketing company, so we do everything from messaging platforms to data-targeting to media buying and optimization, message testing, web development, etc.” Andrew expects that E5A will be held to a standard of success being measured by the amount of money raised. While looking to maintain as much control of the outcome, E5A also understands that many of the companies they work with have their own marketing or IT departments, and try to share as much work with them as possible and include them in the process.

 

E5A looks to work with companies that have a high probability of success, which requires an ecosystem of legal, accounting, technology, broker/dealer, consulting, and marketing services. Andrew says, “We feel that Oscar and the KoreConX team are putting together a world-class network of service providers who are experts in each of their individual tasks. We are glad to participate.”

KorePartner Spotlight: Etan Butler, Chair of Dalmore Group

Posted on by Oscar Jofre

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the KorePartners that contribute to its ecosystem. 

 

Etan Butler is Chairman of Dalmore Group, a FINRA registered national Broker-Dealer, founded in 2005. Dalmore provides a full range of investment banking services and specializes in assisting companies that seek to raise investment capital online through the SEC’s Regulation D, Regulation A+, and Regulation CF.  Etan is recognized as a pioneer in the Regulation A+ industry and is an active participant in industry summits, panels, interviews, and publications. 

 

Dalmore is among the most active Broker-Dealers for Reg A+ offerings, having been involved in more than 85 such offerings in 2020 – including some of the most successful listed and private Reg A+ offerings in history. A number of Dalmore’s Reg A+ clients have met their offering goals and have pursued follow on Reg A+ offerings to raise even more.  Some of Dalmore’s clients have gone on to be listed on Canadian and US public exchanges.

 

“From our wide and varied experience as the broker-dealer on these offerings, we share what we have seen work well (and not so well) with our new issuer clients.  This experience is particularly valuable to the entrepreneur who is approaching a Reg A+ capital raise for the first time, and who can tap into our network of quality service providers, including legal, marketing, and syndication specialists.  We also offer our clients potential alternative trading solutions, and otherwise provide our issuers with the tools they require to enter the field equipped to have the greatest chance of success.”

 

Dalmore Group also provides business planning, development, and capital introduction services to public and private companies in a range of industries, and has participated in various capacities in significant investment, development, and other structured transactions. Over the course of their 15 years of investment banking activity, Etan and his team have been involved in the development of cutting edge, regulatory compliant approaches for the management of business development – including the raising of funds — and the oversight of complex due diligence activities in the heavily regulated area of U.S. and multinational transactions. 

 

“What drew me to investment banking and the buildout of the Reg A+ division at Dalmore was the excitement of working with other entrepreneurs in cutting edge industries, and assisting them in the pursuit of their dreams.  The recent launch of Dalmore’s DirectCF platform, which offers Reg CF issuers a direct, cost-effective, and open access solution for their Reg CF offering – untethered to a marketplace that lists other, competing offerings — reflects Dalmore’s obsession with giving issuers full control of their capital raising activities.” 

 

Etan is also President of EMB Capital, LLC, which invests in early-stage ventures with a focus on real estate acquisition and financial services.

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

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

 

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

How to be Ready for Raising Capital

Posted on by Oscar Jofre

Whether you’ve raised capital in the past or are preparing for your first round, being properly prepared will help your company secure the funding it needs. Proper preparation will make investors confident that you are ready for their investments and have a foundation in place for the growth and development of your company. So if you’re looking to raise money, what must you do to be ready for raising capital?

 

From the start, any company should keep track of shareholders in its capitalization table (commonly referred to as the cap table). Even if you have not yet raised any funds, equity distributed amongst founders and key team members should be accurately recorded. With this information kept up-to-date and readily available, negotiations with investors will be smoother, as it will be clear how much equity can be given to potential shareholders. If this information is unclear, deals will likely come with frustrations and delays. 

 

Researching and having knowledge of each investor type will also help prepare your company to raise money. Will an angel investor, venture capital firm, crowdfunding, or other investment method be suited best for the money that is being raised? Having a clear answer to this question will help you better understand the investors you’re trying to reach and will help you prepare a backup option if needed. 

 

Once your target investors have been decided and you have a firm grasp on the equity you’re able to offer, preparing to pitch your company to them will be a key step. Having a pitch deck containing information relevant to your company and its industry will allow you to convince investors why your business is worth investing in. Additionally, preparing for any questions that they may ask will ensure investors that you are knowledgeable and have done the research to tackle difficult problems. 

 

Before committing to raising capital, you should make sure that your company has an established business model. Investors want to see that you have a market for your product and are progressing. If investors are not confident that the product you’re marketing has a demand, it will be less likely they will invest. Investors will also want proof that the company is heading in the right direction and the money they invest will help it get there faster. 

 

Once you have determined that your company is ready for investors, managing the investments and issuing securities will be essential. To streamline the process and keep all necessary documents in one location, KoreConX’s all-in-one platform allows companies to manage the investment process and give investors access to their securities and a secondary market after the funding is completed. With cap table management, the all-in-one platform will help companies keep track of shareholders and is updated in real-time, ensuring accuracy as securities are sold. 

 

Ensuring that your company has prepared before raising capital will help the process go smoothly, with fewer headaches and frustrations than if you went into it unprepared. Investors want to know that their money is going to the right place, so allowing them to be confident in their investments will ensure your company gets the funding that it needs to be a success. 

The SEC proposes expanding the “accredited investor” definition

Posted on by Sara Hanks

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

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

The proposal would:

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

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

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

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

Free forever, KoreConX makes it easy for participants in private capital markets to manage their investment portfolios, raise capital, and meet global compliance standards along every step of the way.

Sign up, it's free! Book a call