Tag: Digital Securities

KorePartner Spotlight: Richard Johnson, CEO of Texture Capital

Posted on by Oscar Jofre

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

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

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

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

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

Q: What are your unique areas of expertise?

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

Q: What excites you about this industry?

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

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

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

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

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

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

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 is Two-Factor Authentication?

Posted on by Oscar Jofre

According to a recent report published by Microsoft, hackers make 921 attempts to steal a password every second. This means that accounts secured by weak passwords are at an increased risk of falling victim to a hack, which means there has been no better time to focus on securing vulnerable accounts. This is where two-factor authentication, also known as 2FA, comes in.

 

How Does Two-Factor Authentication Work?

 

2FA is a security process that requires two different forms of identification from the user to log in. In addition to your username and password, you’ll often be asked to provide a code that may be sent via text or email. By providing this code, you can gain access to your account. Without access to the physical device the code is sent to, the username and password alone are unable to grant you access to your account. This effectively prevents hackers since even if they successfully gained access to your password, that information is essentially useless without the code. 

 

However, there are also other types of 2FA, like using your fingerprint to log in or a physical device like a USB to access a digital code. 

 

Why Use Two-Factor Authentication?

 

Two-factor authentication is a vital security measure for online accounts because it adds an extra layer of protection beyond passwords. Passwords can be stolen or guessed, but the user cannot log in without access to the second factor. This makes it much more difficult for hackers to access your account.

 

2FA is also useful for preventing fraud. If someone else tries to log in with your username and password, they will not be able to get past the verification step without access to your device or code. This can help protect against phishing attacks and other types of fraud.

 

Benefits of Two-Factor Authentication

 

Two-factor authentication is a great way to increase the security of your online accounts. It gives you an extra layer of protection that makes it much more difficult for hackers to access your data. Here are some of the benefits of using two-factor authentication:

 

Increased Security: Two-factor authentication adds an extra layer of security to your accounts, making them much harder to break into. This is especially important if you have sensitive data stored in your account that you don’t want anyone else to access like banking and other financial information.

 

Easier Logins: Using two-factor authentication can make logging into your accounts easier. Instead of typing in a complex password every time, you can enter your username and a verification code. This makes it much faster to log in and access your account.

 

Improved User Experience: Two-factor authentication can improve the user experience by providing an extra layer of security without adding complexity. It’s easy to understand and use, and it also helps protect your data from unauthorized access.

 

Two-factor authentication is a great way to increase the security of your online accounts and protect your data from unauthorized access. It adds an extra layer of protection beyond passwords, making it much harder for hackers to access your account. Overall, two-factor authentication is an important security measure that can help keep your data and online accounts safe.

 

Digital Securities That Help You Navigate the Web Safely

Posted on by Oscar Jofre

The internet is often difficult to navigate. On one hand, many wonderful resources can be found for educational purposes, you can connect and communicate with anyone anywhere in the world, and new ways to manage financial investments are accessible at the tip of our fingers. But on the other hand, it can sometimes be difficult to determine the legitimacy of a website or investment opportunity. Fortunately, digital securities are changing the way these transactions are carried out, introducing new levels of transparency and trust when implemented correctly

 

Navigating the Web Safely

 

Some features that help people navigate the web safely include things like two-factor authentication (2FA) or blockchain-based identity management systems. 2FA is a critical security measure requiring users to provide two forms of identification to log into their accounts. This can be something like a password and a fingerprint or a one-time code that is sent to your phone. Blockchain-based identity management systems work similarly, but instead of using passwords, they use cryptographic keys that are stored on a blockchain. This makes it impossible for hackers to access your account unless they have your private key. Both solutions are important for ensuring that only the account holder can access the account. These tools also make it more difficult for hackers to steal your identity by masquerading as you online. By using 2FA or a blockchain-based identity management system, you can help navigate the web safely and protect your online information.

 

Digital securities are an essential part of the digital economy, and KoreConX is committed to making them more accessible and easy to use. Our KoreID feature is just one example of how we are innovating in the realm of digital securities. With KoreID, investors can easily and safely provide their information to regulated platforms. As a result, the need for investors to fill out the same information, again and again, is eliminated, saving them time and hassle. With this digital security innovation, when investors are making investments through JOBS Act exemptions, they are less susceptible to fraud. And for issuers, the KoreID gives them peace of mind knowing that they can easily prove that they are in good standing with FINRA and registered funding portals. Digital securities are an essential part of the digital economy, and KoreConX is committed to making them more accessible, safe, and easy to use.

 

Benefiting from the Innovation of KoreID

 

KoreID is a digital securities innovation that allows investors to navigate the web safely. The feature is an all-in-one platform that reduces the friction of investors spending time filling forms with the same data repeatedly. Users are allowed to provide certified information with one single click, facilitating a smoother investment or reinvestment. This also reduces the known issues in compliance that broker-dealers face when users “fat finger” their information, accidentally misentering their information. 

 

The KoreID is a blockchain-based digital identity that is stored on the user’s device and can be used to log in to any site that accepts KoreID. The user’s data is kept secure and only shared with sites that the user has authorized. KoreID is convenient, safe, and easy to use, making it the ideal solution for investors who want to navigate the web safely. Only verified, regulated participants can be allowed to add the KoreID, giving investors peace of mind and allowing companies to easily maintain compliance efforts.

 

Benefits of Digital Securities for Investors and Issuers

Posted on by Jason Futko

With the emergence and development of blockchain technology, digital securities have seen wider adoption by investors and investment firms. Arising from the need for protection against fraud and as a way for investors to ensure asset ownership, digital securities are a digital representation of traditional securities and follow the same regulatory rules. Since their first appearance, digital securities now include any debt, equity, or asset that is registered and transferred electronically using blockchain technology. 

Digital securities are made possible by blockchain, also known as “distributed ledger technology”. Distributed ledger technology is a database where transactions are continually appended and verified by multiple participants, ensuring that each transaction has a “witness” to validate its legitimacy. By the nature of the system, it is more difficult for hackers to manipulate, as copies of the ledger are decentralized or located across multiple different locations. Changes to one copy would be impossible, as the others would recognize it as invalid.

Distributed ledger technology allows digital securities to be incredibly secure. Ownership is easily recorded and verified through the distributed ledger, a huge benefit over traditional securities. Any transfer of digital securities is also recorded and with each copy of the transaction stored separately, multiple witnesses of the transaction exist to corroborate it. 

Traditional or digital

With traditional securities, investors can lose their certificate of ownership or companies can delete key files detailing who their investors are. Without a certificate, proving how many shares an investor owns would be incredibly challenging. In contrast, digital security ownership is immutable. Investors are protected and always able to prove their ownership since the record cannot be deleted or altered. Additionally, investors can view all information related to the shares they’ve purchased, such as their voting rights and their ability to share and manage their portfolios with both accuracy and confidence. 

Since the record is unchangeable, it also serves as a risk management mechanism for companies, as the risk of a faulty or fraudulent transaction occurring is removed. Digital securities are also greatly beneficial to the company when preparing for any capital activity since the company’s records are transparent and readily available. With traditional securities, the company would typically hire an advisor to review all company documents. If the company has issued digital securities, this cost is eliminated, as it is already in an immutable form.  

Smart contracts made possible

The use of digital securities also makes smart contracts possible, which have preprogrammed protocols for the exchange of this kind of securities. Without the time-consuming paper process, companies can utilize digital securities to raise funds from a larger pool of investors, such as the case with crowdfunding. Rather than keeping manual records of each transaction, the smart contract automatically tracks and calculates funds and distributes securities to investors. 

Companies looking to provide their investors with the ability to trade digital securities must be aware that they are required to follow the same rules set by the SEC for the sale and exchange of traditional securities, such as registering the offering with the SEC. This ensures that potential investors are provided with information compliant with securities regulation worldwide. According to the SEC, investors must receive ongoing disclosures from the issuer so they can make informed decisions regarding ownership of their securities. Companies that are not compliant with the SEC can face severe penalties and may be required to reimburse investors who purchased the unregistered offerings. 

Besides the companies offering securities, broker-dealers must also register with the Financial Industry Regulatory Authority (FINRA). Similarly, platforms on which digital securities can be traded must register as an Alternative Trading System operator with the SEC. Both broker-dealers and ATS operators can face severe penalties if not properly registered. 

Secondary market (ATS) also benefits

Possibly the greatest benefit of digital securities is that it allows for smoother secondary market transactions. With records of ownership clear and unchangeable, an investor can easily bring their shares to a secondary market. Transactions are more efficient and parties have easy access to all necessary information regarding the securities being traded, removing the friction in traditional securities. 

At KoreConX, the KoreChain platform is a fully permissioned blockchain, allowing for companies to issue fully compliant digital securities. Records are updated in real-time as transactions occur, eliminating errors that would occur when transferring information from another source. The platform securely manages transactions, providing investors with support and portfolio management capabilities. Additionally, the KoreChain is not tied to cryptocurrencies, so it is a less attractive target for potential crypto thieves. KoreChain allows companies to manage their offerings and company data with the highest level of accuracy and transparency.

Since digital securities face the same regulatory rules as traditional ones, investors are protected by the SEC against fraudulent offerings. This, together with the security and transparency that blockchain allows, creates a form of investment that is better for investors and issuers alike. Since the process is simplified and errors are decreased without redundant paperwork, issuers have the potential to raise capital more efficiently. They will also be better prepared for future capital activity. For investors, a more secure form of security protects them from potential fraud and losses on their investments. With digital securities still in their infancy, it will be exciting to see how this method of investment changes the industry. 

What is the 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 

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

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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.

Security Tokens for RegA+

Posted on by Oscar Jofre

Although security tokens have been around for a while, they have started to gain popularity because they offer several advantages over traditional investment vehicles. In particular, security tokens can be used in RegA+ offerings, allowing companies to raise money from accredited and unaccredited investors. As a result, security tokens have quickly become one of the most popular ways to invest in startups and other high-growth businesses.

 

What are Security Tokens?

 

Security tokens, as the name implies, are securities. And much like traditional securities, they represent an ownership stake in a company or some other asset and are subject to the same SEC oversight as stocks, bonds, mutual funds, and other forms of investment vehicles. Because of this, they share a familiar structure and have regulatory protection that makes them attractive for companies and investors alike. There is a greater assurance for the issuer that their investment will be protected from the volatility often associated with unregulated cryptocurrencies. For the investor, there is the added security of knowing that an asset backs its investment with value outside of the blockchain. 

 

​​”Security tokens are the missing link between the traditional financial world and the blockchain,” says Andrew Bull, founding partner of Bull Blockchain Law and KorePartner. “They provide the benefits of both worlds: the security of regulated securities and the flexibility and opportunity of digital assets.”

 

However, are security tokens the same as digital securities? The short answer is: yes, security tokens are the same as digital securities. Both represent an ownership stake in an entity or property, subject to SEC regulations. Thus, the names can be used interchangeably. The key difference between security tokens and traditional securities is that the former are digital representations that move and exist on a blockchain. 

 

It is also important to consider that while security tokens are cryptocurrencies, they are different from coins. Coins represent value on their own, like Bitcoin or Ethereum, whereas tokens have a function other than storage or exchange alone. And unlike utility tokens, security tokens represent a stake in an asset that has value outside of the blockchain. 

 

“Because security tokens denominate a stake in an asset that already has value outside of the blockchain, their value is not necessarily domain or ecosystem specific, as is the case with utility tokens,” says Bull. “Instead, the assets apportioned through the security tokens exist in the traditional market, in public and private equities. This makes the security token a naturally more attractive investment to both issuers and investors, as it provides a connection between traditional and digital investment assets.”

 

Benefits of Security Tokens for Issuers and Investors

 

Security tokens offer many benefits to companies and investors. Perhaps most importantly, they provide a bridge between traditional and digital investment assets, making it easier for companies to raise money and investors to gain exposure to the blockchain ecosystem. Because security tokens are subject to SEC regulations, issuing companies may benefit from the reassurance that their investment might be protected to a certain extent. The same benefit goes to the investor.

 

“Both parties can expect their ownership stake to be preserved on the blockchain ledger, as well,” said Bull. Investors can benefit from security tokens because they connect traditional and digital investment assets. Security tokens also have the potential to help investors by providing regulatory protection. This is important because it can help to mitigate the risk associated with investing in more experimental, unregulated cryptocurrencies.

 

On the other hand, digital assets not subject to SEC regulation, like utility tokens, have proven vulnerable to volatility and, therefore, challenging to maintain conditions stable enough to run a company. In this case, the investor in the utility token is exposed to a great deal more risk than the investor in the security token.

 

In summary, security tokens offer several benefits to both companies and investors. They provide a bridge between traditional and digital investment assets, making it easier for companies to raise money and investors to gain exposure to the blockchain ecosystem. These characteristics make security tokens less vulnerable to volatility and a more stable form of investment. They are also subject to SEC regulations, which provide some protection for both companies and investors.

What are the Benefits of Digital Securities for Issuers and Investors?

Posted on by Oscar Jofre

With the emergence and development of blockchain technology, digital securities have seen wider adoption by investors and investment firms. Arising from the need for protection against fraud and as a way for investors to ensure asset ownership, digital securities are a digital representation of traditional securities and follow the same regulatory rules. Since their first appearance, digital securities have come to represent any debt, equity, or asset that is registered and transferred electronically using blockchain technology. 

 

Digital securities are made possible by blockchain, also known as “distributed ledger technology”. Distributed ledger technology is a database where transactions are continually appended and verified across by multiple participants, ensuring that each transaction has a “witness” to validate its legitimacy. By the nature of the system, it is more difficult for hackers to manipulate, as copies of the ledger are decentralized or located across multiple different locations. Changes to one copy would be impossible, as the others would recognize it as invalid.

 

Distributed ledger technology allows digital securities to be incredibly secure. Ownership is easily recorded and verified through the distributed ledger, a huge benefit over traditional securities. Any transfer of digital securities is also recorded and with each copy of the transaction stored separately, multiple witnesses of the transaction exist to corroborate it. 

 

With traditional securities, investors can lose their certificate of ownership or companies can delete key files detailing who their investors are. Without a certificate, proving how many shares an investor owns would be incredibly challenging. In contrast, digital security ownership is immutable. Investors are protected by always being able to prove their ownership since the record cannot be deleted or altered by anyone. Additionally, investors can view all information that is related to the shares they’ve purchased, such as their voting rights and their ability to share and manage their portfolios with both accuracy and confidence. 

 

Since the record is unchangeable, it also serves as a risk management mechanism for companies, as the risk of a faulty or fraudulent transaction occurring is removed. Digital securities are also greatly beneficial to the company when preparing for any capital activity since the company’s records are transparent and readily available. With traditional securities, the company would typically hire an advisor to review all company documents. If the company has issued digital securities, this cost is eliminated, as it is already in an immutable form.  

 

Also making digital securities possible are smart contracts that eliminate manual paperwork, creating an automated system on which digital securities can be managed. Integrated into the securities is the smart contract, which has preprogrammed protocols for the exchange of digital securities. Without the time-consuming paper process, companies can utilize digital securities to raise funds from a larger pool of investors, such as the case with crowdfunding. Rather than keeping manual records of each transaction, the smart contract automatically tracks and calculates funds and distributes securities to investors. 

 

Companies that are looking to provide their investors with the ability to trade digital securities must be aware that they are required to follow the same rules set by the SEC for the sale and exchange of traditional securities such as registering the offering with the SEC. This ensures that potential investors are provided with information compliant with securities regulation worldwide. According to the SEC, investors must receive ongoing disclosures from the issuer so they can make informed decisions regarding ownership of their securities. Companies that are not compliant with the SEC can face severe penalties and may be required to reimburse investors who purchased the unregistered offerings. 

 

Besides the companies offering securities, broker-dealers must also register with the Financial Industry Regulatory Authority (FINRA). Similarly, platforms on which digital securities can be traded must register as an Alternative Trading System operator with the SEC. Both broker-dealers and ATS operators can face severe penalties if not properly registered. 

 

Possibly the greatest benefit of digital securities is that it allows for smoother secondary market transactions. With records of ownership clear and unchangeable, an investor can easily bring their shares to a secondary market. Transactions are more efficient and parties have easy access to all necessary information regarding the securities being traded, removing the friction that is typically seen with traditional securities. 

 

At KoreConX, the KoreChain platform is a fully permissioned blockchain, allowing for companies to issue fully compliant digital securities. Records are updated in real-time as transactions occur, eliminating errors that would occur when transferring information from another source. The platform securely manages transactions, providing investors with support and portfolio management capabilities. Additionally, the KoreChain is not tied to cryptocurrencies, so it is a less attractive target for potential crypto thieves. KoreChain allows companies to manage their offerings and company data with the highest level of accuracy and transparency.

 

Since digital securities face the same regulatory rules as traditional ones, investors are protected by the SEC against fraudulent offerings. This, together with the security and transparency that blockchain technology allows, creates a form of investment that is better for investors and issuers alike. Since the process is simplified and errors are decreased without redundant paperwork, issuers have the potential to raise capital more efficiently. They will also be better prepared for future capital activity. For investors, a more secure form of security protects them from potential fraud and losses on their investments. With digital securities still in their infancy, it will be exciting to see how this method of investment changes the industry. 

How KoreChain Helps Companies Raise Capital Compliantly

Posted on by Oscar Jofre

Recently, KoreConX’s CEO Oscar Jofre was a guest on Fintech.TV’s Digital Asset Report to discuss the KoreChain Infrastructure. Watch the full video on YouTube.

 

What is KoreChain?

The KoreChain infrastructure is a blockchain technology that can be leveraged by companies qualified with the SEC to help them raise capital. It is the first fully SEC-compliant blockchain technology to connect broker-dealers, investors, companies, secondary market alternative trading systems, banking whales,  and all stakeholders in private capital markets.

 

KoreChain overview:

  • KoreChain is a permissioned blockchain.
  • KoreChain is built on enterprise-class industrial-strength hyper ledger fabric.
  • KoreChain is safe and secure: hosted on IBMs servers with the highest level of security (FIPS 140-2 level 4).
  • KoreChain is wholly focused on tokenized securities for global private capital markets. 

 

The technology enables a roadmap that others can adopt as long as they go through the qualification process to create fully SEC-compliant stable coins, NFTs, or other blockchain offerings. By being fully SEC-compliant, KoreChain offered by KoreConX is putting best practices forward, supplying the industry with standardization about market infrastructure, regulation, and how the latest and best technology can collaborate for the best outcome.

 

Why Utilize KoreChain?

The new SEC commissioner is not against cryptocurrencies; instead, he wants these offerings to utilize regulations instead of accessing these technologies through the side or back door. Using SEC regulations provides efficiency, transparency, and secondary liquidity, particularly helpful in private markets. The KoreChain technology allows you to offer all of this when creating assets on the blockchain.

 

The characters that differentiate KoreChain from other blockchains are: 

  • Permissioned 
  • Governed (including separate audit chain)
  • Complete lifecycle management of contracts
  • Event management
  • Artificial Intelligience 
  • Modular
  • APIs that integrate with the ecosystem

 

The KoreChain is the first fully SEC-compliant blockchain that meets regulations, encouraging understanding of SEC rules, regulations, and participants. The blockchain provides added confidence, so those using blockchain technologies find the process more efficient, from the investor to everyone involved. The KoreChain is a transparent solution that shortens the cycle of creation for anyone involved because investors can follow a fully SEC-compliant playbook through the entire process. 

What is an NFT?

Posted on by Oscar Jofre

A non-fungible token, more commonly known as NFTs, is a unique cryptographic asset that cannot be replicated and stored on a blockchain. By definition, fungibility is when an asset can be exchanged with more of the same good or asset–think of a dollar that can be easily exchanged into pennies or nickels and retain the same value. This means that by being non-fungible, NFTs cannot be traded or exchanged for an identical asset; one NFT cannot be exchanged for another NFT.

Throughout 2021, we have seen the meteoric rise in popularity of NFT, which can represent assets from artwork to videos and even real estate. In the case of artwork, it may be hard for someone to understand the value of buying a digital asset. The importance is ownership; the blockchain on which the NFT is stored verifies the identity of the asset’s owner in an immutable ledger. 

In the discussion on NFTs, it is essential to consider that not all digital assets are classified as securities. Based on the Supreme Court’s Howey case, the Howey Test helps determine whether an investment contract exists and is used to classify digital assets. With this test, an investment contract typically exists “there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” If a digital asset meets these requirements and is classified as a digital security, it must be registered with the SEC or exempt from registration. With registration, issuers are required to disclose certain complete, non-misleading information to investors. 

If an NFT can meet the digital security requirements, they can be offered through raises that happen under exemptions like Regulation A+. NFTs are not bound by federal securities laws and pose a potential investment risk without meeting these requirements. 

What makes an NFT a good investment is its resale potential. If there is no market for the asset and it cannot be resold, it loses its value. It is not like other digital attests like cryptocurrencies, where one bitcoin is always equal in value to another. As the landscape of cryptocurrencies, NFTs, and digital securities continue to evolve, it will be interesting to see their role in the future private capital markets.

 

What Impact Will Blockchain Have on Private Markets?

Posted on by Oscar Jofre

Blockchain has become a familiar buzzword, especially as things such as cryptocurrency grow in popularity. Currently, 46 million Americans now own Bitcoin. However, blockchain has many more industry-changing applications. Nearly any asset, both tangible and intangible, can be tracked and traded through blockchain. 

 

Blockchain, also known as distributed ledger technology, is a database where transactions are continually appended and verified across by multiple participants, ensuring that each transaction has a “witness” to validate its legitimacy. Blockchain transactions are immutable, meaning that they cannot be changed, making it difficult for hackers to manipulate. Copies of the ledger are decentralized, not stored in one location, so any change to one copy would immediately make it invalid, as the other copies would recognize that it had been altered. 

 

In private markets, blockchain technology has the potential to become a powerful tool, replacing manual inefficiencies with secure, digital processes. Everything from issues certificates to shareholders and preparing for audits becomes easier with transparent, readily available records. While public blockchains, like those that host Bitcoin transactions, enable anyone to participate, companies can also establish private and permissioned blockchains. In these forms of blockchain, the ledger is still decentralized, only access is controlled and only authorized individuals are allowed to participate. 

 

Rather than traditional securities, private companies can use distributed ledger technology to offer shareholders digital securities instead. These securities are still SEC-registered or fall under exemptions like Regulation A and Regulation CF. Digital securities protect investors, enabling them to always be able to prove their ownership, and companies are protected from the possibility of losing records of their shareholders. Private companies also benefit from blockchain as records are already transparent and readily available. Rather than hiring an advisor to review company documents, private companies employing blockchain technology will have records ready to go when conducting any capital market activity. Blockchain also dramatically reduced the amount of manual paperwork, since digital securities can be governed by smart contracts that preprogram protocols for their exchange. In addition, blockchain makes it easier for private companies to share information and data, while shareholders can feel confident that records are immutable and unable to be tampered with. 

 

Many companies are still in the early stages of adopting blockchain or are just beginning to consider its possibilities. Blockchain will only continue to be adopted by private companies both in the United States and around the world, improving the processes associated with private market transactions. The private market will benefit from increased transparency and efficiency, making transactions smoother for both companies and their shareholders.

KorePartner Spotlight: 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 Regulation A+?

Posted on by Oscar Jofre

Regulation A+ (RegA+) was passed into law by the SEC in the JOBS Act, making it possible for companies to raise funding from the general public and not just from accredited investors. With the implementation of Title IV of the act, the amount that companies can raise was increased to $50 million (since increased to $75 million), offering companies the ability to pursue equity crowdfunding without the complexity of regular offerings. So, what investments does RegA+ allow?

 

Outlined in the act, companies can determine the interest in RegA+ offerings by “testing the waters.” While testing the waters allows investors to express their interest in the offering, it does not obligate them to purchase once the Offering Statement has been qualified by the SEC. Also allowed by the Act, companies can use social media and the internet to both communicate and advertise the securities. However, in all communications, links to the Offering Statement must be provided and must not contain any misleading information. 

 

It is important to understand the two tiers that comprise RegA+. Tier I offerings are limited to a maximum of $20 million and calls for coordinated review between the SEC and individual states in which the offering will be available. Companies looking to raise capital through Tier I are required to submit their Offering Statement to both the SEC and any state in which they are looking to sell securities. This was a compromise for those who opposed the preemption that is implemented in Tier II.

 

For offerings that fall under Tier II, companies can raise up to $75 million from investors. For these offerings, companies must provide the SEC with their offering statement, along with two years of audited financials for review. Before any sales of securities can take place, the SEC must approve the company’s offering statement, but review by each state is not required. It is also important to note that for Tier II offerings, ongoing disclosure is required unless the number of investors was to fall below 300.

 

In contrast to typical rounds of fundraising, investors are not required to be accredited, opening the offering up to anyone for purchase. Under Tier I, there are no limits that are placed on the amount a sole person can invest. For unaccredited investors under Tier II, limits are placed on the amount they can invest in offerings. The maximum is placed at ten percent of either their net worth or annual income, whichever amount is greater. To certify their income for investing, unaccredited investors can be self-certified, without being required to submit documentation of their income to the SEC. Additionally, there is no limit placed upon the company as to the number of investors to whom it can sell securities.

 

Once investors have purchased securities through RegA+ investments, the trading and sale of these securities is not restricted. Only the company that has created the offering can put limits on their resale. This allows investors to use a secondary market for trading these securities.

 

Through Regulation A+, companies are given massive power to raise funds from anyone looking to invest. With the Act allowing for up to $75 million to be raised, this enables companies to raise capital from a wide range of people, rather than only from accredited investors. With two tiers, companies have the freedom to choose the one that best fits their needs. Regulation A+ and the JOBS Act have the potential to drastically change the investment landscape.

What is Secondary Market Trading?

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

 

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

What is Investor Relations?

Posted on by Oscar Jofre

No matter the size of the company, investor relations (IR) should be a key component of conducting business. It’s never too early to implement a solid investor relations approach, but if your company has never tackled this issue, the term may seem confusing. Understanding what investor relations entail will allow your company to begin implementing strategies that will help your company succeed. 

 

Simply put, investor relations provide all investors with accurate information about the company. IR plays a key role in communication between investors and company executives. Rather than shareholders contacting the company’s CEO or other executives directly, the IR department acts as an intermediary, determining when it is important to involve the CEO.  If company executives were continually contacted by investors with requests, they would have to devote their already limited time to manage these requests. However, it is also up to IR teams to still ensure that company executives are still available for shareholders, so they must find a balance that works best. 

 

IR departments also have a responsibility to ensure that the company is compliant when reporting to investors. For public companies, the Public Company Accounting Reform and Investor Protection Act, passed by the US government in 2002, increased reporting requirements and set standards for companies to follow. With the bill in place, IR departments are required to distribute financial information to investors accurately. For private companies, ensuring they are meeting compliance early will save them time if they were to go public. The transparency increases confidence in the company for investors and ensures that the business is being run the right way. 

 

As a key line of communication between the company and investors, investor relations departments are typically responsible for communicating any changes or initiatives that the company will be undergoing. Being included in discussions with the executive team will help the IR team understand why decisions are being made so that they can communicate the reasoning effectively with investors. 

 

For private companies, software such as KoreConX’s all-in-one platform can help easily manage relationships with their shareholders. The KoreConX IR feature allows companies to work seamlessly with investors by providing them online opportunities to vote and access company financial information and news releases. By giving investors a secure platform on which they can both nominate and vote on company matters, they can feel confident in the way voting is held. Additionally, the investor relations feature allows the company to easily organize meetings with its investors. 

 

By maintaining transparent investor relations, private companies can prepare themselves for success. Keeping investors up to date on important company information allows them to have confidence in the company’s leadership and their investment. Having a track record of good relationships and transparency with current investors may also be beneficial when it comes to raising future capital, as it could help to attract potential ones. 

What is Needed for a Successful RegA+ Offering

Posted on by Oscar Jofre

If your company is looking to raise funding, you’ve probably considered many options for doing so. Since the SEC introduced the outlines for Regulation A+ in the JOBS Act, companies have been able to raise amounts up to $50 million (which increases to $75 million in January 2021) during rounds of funding from both accredited and non-accredited investors alike. If you’ve chosen to proceed with a RegA+ offering, you’ve probably become familiar with the process, but what do you need for your offering to be a success?

 

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

 

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

 

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

 

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

 

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

Regulation A Offering Limits Increased to $75 Million

Posted on by Oscar Jofre

On Monday, November 2, exciting news was announced by the SEC regarding Regulation A offerings. The Securities and Exchange Commission approved long-awaited amendments to offering limits to “promote capital formation and expand investment opportunities.” These amendments, going into effect on January 2, 2021, drastically increase the amount of capital that issuers can raise through RegA+ offerings.

 

Before the Jumpstart Our Business Startups Act (JOBS Act) of 2012, Regulation A was a relatively obscure and underutilized regulation since adherence to Blue Sky Laws in all 50 states made it time-consuming and costly. The JOBS Act transformed RegA into a company-friendly law allowing businesses to raise millions of dollars. Broken down into two tiers, Tier 1 allows companies to raise a maximum of $20 million after meeting compliance with Blue Sky Laws in each state, while Tier 2 previously allowed up to $50 million to be raised after the offering statement has been reviewed and accepted by the SEC. While neither tiers place limits on the amount an accredited investor can invest, Tier 2 limits individual investors to either 10% of their net worth or annual income.

 

With this latest amendment to Regulation A, companies will now be able to raise a maximum of $75 million under Tier 2 offerings. This comes as great news for companies looking to raise capital through RegA offerings since Tier 2 offerings comprise the majority of those conducted, with 73% of qualified offerings falling under this tier. This substantial increase allows issuers to raise larger sums of capital to fund their business and its development. In addition, the updated Regulation A raises the offering limit of secondary sales from $15 million to $22.5 million. With Tier 2 offerings preempting Blue Sky Laws in each state, it offers companies an efficient tool for efficiently raising capital on a nationwide scale. 

 

With an increase of $25 million, this drastic improvement to Regulation A offerings will empower more companies to raise the capital they need for success.

SEC Approves Increases to RegCF Maximum Offering and Investor Limits

Posted on by Oscar Jofre

On Monday, November 2, 2020 the SEC approved updates to Regulation Crowdfunding significantly increasing the limits of offering under this regulation. These changes will go into effect at the beginning of the coming year, January 2, 2021. This move will introduce new business opportunities to companies looking to raise capital. In their Monday press release, the SEC stated that “today’s amendments are the next step in the Commission’s efforts to improve the exempt offering framework for the benefit of investors, emerging companies, and more seasoned issuers.”

At the introduction of RegCF in Spring 2016, companies could raise a maximum of $1.07 million within 12 months.  Sherwood Ness, the principal of Crowdfund Capital Advisors, said: “When we began lobbying for Reg CF, we artificially set a low maximum target of $1 million so that we could test the model and make sure there was no fraud. Under those limits, more than 2,800 companies in 430 industries, across 50 states have raised over 500 million dollars in just 4 years, with no fraud.  The model is working incredibly well.” Now, this limit has increased to $5 million, which will allow more business access to the capital they need to grow, create jobs, and launch innovative products and services.

In RegCF’s initial form, the total amount of securities sold to an individual investor could not exceed $107,000 within 12 months. For accredited investors, this limit has been removed. For investors with either a net worth or annual income less than $107,000, investments in RegCF offerings were limited to $2,200 or 5% of the lesser of their annual income or net worth. With the November amendments to the regulation, for non-accredited investors, the limit was changed to the greater of their annual income or net worth.

In addition, companies raising capital through RegCF offerings are now permitted to “test-the-waters” before filing their offering with the SEC. “Demo day” communications are also now permitted and are not deemed to be a general solicitation or general advertising. Lastly, through this update to the regulation, Special Purpose Vehicles are permitted to facilitate investments in RegCF issuers. 

This update comes at a critical time in the US economy. For companies around the country, turning to their customers to invest the funds necessary to keep their doors open, the increase to RegCF will enable them to raise larger sums of capital in the new year.

FINRA BD Requirements for RegA+ & Digital Securities

Posted on by Oscar Jofre

FINRA BD Requirements for RegA+ & Digital Securities

The private markets are receiving a much updated revamp by the SEC which is having a major impact on registered FINRA Broker-dealer firms.  Here are two (2) of the most common activities for which FINRA Broker-dealers (BD) are approached by companies.  Most BD’s are not aware that in order to help companies raise capital utilizing these regulations, there is a registration they must first do with FINRA.

We went to the source that has been helping many FINRA Broker-dealers and put the responses in a simple way.  Ken Norensberg, Managing Director, Luxor Financial provides the answers to which all BDs need to pay extra attention to make sure you are fully compliant.

RegA+ (Regulation A)

Broker-dealers today have the ability to help companies that are using either Regulation D (RegD) or regulation A(RegA+).  Now what they are not aware of is that in order to allow them to help companies with RegA+ they do need to be registered with FINRA. If that registration isn’t done, they are not allowed to proceed in offering those services. This process can take anywhere from 60 to 90 days or it could happen sooner.  Most firms are not aware that when they take on a RegA+ client, they must apply to FINRA to represent them in the offering. This is done at the same time the company is filing their Form 1A with the SEC for their RegA+ offering.

Digital Securities

Digital Securities are now becoming main street language and most Broker-dealers want to offer this to investors. Unfortunately, if they do not have FINRA approval for digital securities, it’s not a product they can represent or offer to investors.  Digital Securities require registration. The process is like putting a full new member application, and it will take anywhere up to four (4) months.  Your firm must file with FINRA for each of the exemptions you want to use for Digital Securities (RegD and or RegA+.  Here is what your firm will be required to answer to FINRA in its application.

  • You will need a detail business plan
  • What entities are the holders of the “private keys” in the DLT network that would be required to gain access to the digital securities, cash-backed digital securities holdings or digital currency? 
  • Are multiple keys needed to gain access or is a single key sufficient?
  • Who controls or has access to the DLT network where the assets are held?
  • What happens in the event of a loss or destruction of assets (either due to fraud or technological malfunction) on the network?
  • If the broker-dealer was to fail and is liquidated in a proceeding under the Securities Investor Protection Act of 1970, as amended, how would customers’ securities and funds be treated, and how would customers access their assets?
  • In instances where firms have established partnerships with other firms to serve as their back-ups and to carry out critical functions in the event of emergencies, what type of access would those back-up firms have to the private keys?
  • How will customers or the Securities Investor Protection Corporation (SIPC) trustee access the customers’ assets in the event of a defaulted broker-dealer? What parties will be involved, and what are their roles and responsibilities?
  • How does the use or application of the DLT network affect the market risk, liquidity or other characteristics of the asset?
  • What information is maintained using the DLT network?
  • What will be deemed as the physical location of the firm’s records maintained on a node of a DLT network that may extend over multiple countries?
  • What parties have control or access to the firm’s records? What are their rights, obligations and responsibilities related to those records, and how are they governed?
  • What is the firm’s (and other participants’) level of access to the data, and in what format would it be able to view the data?
  • How does the DLT network interact with the firm’s own systems for recordkeeping purposes?
  • How would the records be made available to regulators?
  • How will the firm’s traditional exception reporting, used to supervise transactions, be generated from a DLT network?
  • How will the firm protect any required records from tampering, loss or damage?
  • Clearance & Settlement?
  • Anti-Money Laundering (AML) Procedures & Know Your Customer (KYC) Rules?
  • Customer Data and Privacy?
  • Trade & Order Reporting Requirements?
  • Supervision & Surveillance of Transactions?
  • Fees & Commissions?
  • Customer Confirmations & Account Statements?
  • Anticipated Customer Base?
  • Facilities, Hosting?
  • Licensed & Qualified Staff

As the market is evolving to provide more alternatives to companies and investors, FINRA Broker-dealers need to also make sure their licenses are up to date to be able to offer these updated alternatives.  It’s not enough that you are registered with FINRA.

Thank you to Ken Norensberg, Managing Director of Luxor Financial, who provided this valuable information to assist Broker-dealers to stay compliant.  Ken has been helping FINRA Broker-dealers manage these new registration requirements. 

About Ken Norensberg & Luxor

Luxor Financial Group, Inc. a NY based Broker-Dealer Consulting Firm that specializes in setting up Independent Broker-Dealers. We are experts in New Member Applications, Continuing Membership Applications, Expansion Filings, FINRA and SEC Audits, Anti Money Laundering Reviews, Business Development and general compliance and business development services. www.luxorbd.com

Ken is a former Member of the FINRA Board of Governors. FINRA oversees the regulatory activities and business practices of over 4,500 Broker-Dealers, 163,000 Branch offices, 630,000 registered representatives and 3,500 employees and consultants with annualized revenues and a budget of approximately $800,000,000 (Eight hundred million dollars.)

The Board contends with many complex issues that affect large organizations from generating revenues, managing expenses, personnel, legal, regulatory, political and operational issues.

Additionally, Ken was a Member of the following committees and subcommittees:

  • Regulatory Policy Committee
  • Emerging Regulatory Issues (Subcommittee)
  • Financial, Operations & Technology Committee
  • Pricing (Subcommittee)
  • Ex-Officio of the Small Firms Advisory Board (SFAB)

Understanding Digital Assets

Posted on by Jason Futko

There has been a lot of talk in recent years about crypto, tokens, blockchain, ICOs, STOs, Digital Securities, etc.  What does it all mean and why should you care?  In order to navigate the new financial digital world, it is important to first understand the terminology.  Below, I have broken down the typical terms being used in this current digital environment.   In certain sections, I have provided the example of the USA, and its primary regulator, but this is globally applicable.

Distinguishing the types of secondary markets or exchanges where you can trade digital or traditional assets also seems to be confusing.  I have created the following chart to try to distinguish these.

Now, why should you care?  What does this mean to you?  Despite what some people say in the press, blockchain is here to stay.  So understanding the types of digital assets that it hosts is going to be important in making business and investment decisions.

As a co-founder of a company that is focused on revolutionizing the private capital markets, I am not going to get into cryptocurrencies as this is not my area of expertise.  This is for currency experts to discuss.  Similarly, while I know the public listed markets well and how they operate, there are plenty of people who know these markets far better than I.

My background is geared towards the issues faced by private companies. Thus, I will elaborate on the fragmented ecosystem of the private capital markets that sorely need solutions.

Since the SEC and other government regulators around the world started stepping in to ban ICO’s, other alternatives have evolved.  The security token offering or STO is one such term that got some wings in 2018. However, the institutional and traditional investment communities were still leary of the idea of a token or blockchain solution being provided by people without an appropriate understanding of the entire market they are trying to disrupt. Many people from the ICO space were just changing the name and using STO as a new hype to sell the same ideas.

Many of the players (intentional choice of word) in the ICO space were trying to circumvent securities regulations saying they know better how the ecosystem should work.  After decades of scams, the securities regulators know that the current system has built-in checks and balances for a reason.  We all understand there are issues and inefficiencies in the private capital markets, but in order to change securities rules you better have a big budget and strong case for it. As an example, the JOBS Act took well over five and likely closer to ten years to come into place.  The use of blockchain has valuable applications that can certainly provide more efficient and cost-effective solutions to current private capital markets, as long as you work within the existing securities regulations.

There is a lot of exciting stuff being built with blockchain technology. I believe that if you are looking at this as a solution to the private capital markets, you need to consider a few things if you are looking at public chains as a potential solution:

  1. Use of private wallets for sole custody of financial instruments will not work. Securities law requires the use of transfer agents in many situations and transfer agents need to have custody of assets in order to manage them. If the digital securities are being held by individuals in their own wallet, there is no way the transfer agents can have custody of them. Think of public markets: you do not hold the securities (share certificates) yourself, they are digitally represented in your brokerage account and held by transfer agents.
  2. Mining of securities: It is generally not acceptable for unknown miners to verify transactions; even known miners must be eligible to perform business validation of a transaction either because they are parties to the transaction, have fiduciary responsibility, or certified subject matter credentials or otherwise registered and regulated entities.

Gas prices are not acceptable when it comes to securities.  In order for a token to move on some blockchains, a gas price needs to be paid to miners. Transaction fees must be contractually fixed in advance and cannot be uncertain or subject to an auction style of payment (which leads to a form of ad-hoc discrimination). For individual investors, transaction prices need to be certain  and follow execution guarantees.

KoreConX launches $15M Digital Securities Offering using its own Fully-Compliant KoreProtocol

Posted on by Oscar Jofre

KoreConX is excited to announce its Digital Securities Offering that will utilize its own KoreProtocol. The KoreProtocol is the world’s first complete end-to-end protocol that has built-in AI to manage the entire lifecycle for tokenized securities, from issuance, trading, and all types of corporate actions.

The global securities marketplace is changing, and the future is tokenization. Combining corporate and securities law with tokenization facilitates efficient liquidity and fully-compliant transactions in multiple jurisdictions.

“We are thrilled about developing and launching our Digital Securities Offering on our KoreChain. KoreConX’s AI-enabled blockchain, based on Hyperledger Fabric and hosted at IBM, provides the highest level of security. The KoreProtocol handles the complete lifecycle of the security token, from issuance, secondary trading, and all types of corporate actions,” said Dr. Kiran Garimella, KoreConX’s Chief Scientist and CTO.

KoreConX will be working with established broker-dealers worldwide to make this initial offering of $15 million USD available to accredited investors in multiple jurisdictions (countries).

KoreConX believes in complying with securities regulation and corporate law to protect investors, issuers, and other participants in the global capital markets.

“KoreConX has been a fully operational all-in-one platform for several years helping many clients worldwide with compliance activities. The opportunities are tremendous for using tokenized securities to create efficiencies, reduce costs, and provide stronger governance for private companies. Our unrelenting focus is on ensuring the safety, security, and investor protection in global private capital markets,” said Oscar Jofre, co-founder, CEO of KoreConX.

For more information visit www.koreconx.io

Minimizing Failure Vector Surfaces for Digital Securities

Posted on by Kiran Garimella

Modern capitalists and ancient Chinese may disagree on many things, but the one thing they do seem to agree on relates to security of the realm. George Washington, back in 1799, said, “…offensive operations, often times, is the surest, if not the only (in some cases) means of defence.” A similar sentiment can be seen in Sun Tzu’s writings. It is now a common saying in football: The best defense is a good offense.

If digital securities are to play an innovative and differentiating role in modern capital markets, the one thing they have to support is the trend towards democratization of capital. Ironically, Main Street retail investors have been sidelined in the ‘public’ markets that ostensibly were designed with the general public in mind. 90% of households are generally unaffected by the gyrations of the stock market.

Decentralization of capital brings with it several risks. Inefficiencies aside, some of the financial risks are poor governance, insecure transactions, hacking, and architectural instabilities in the financial platforms. The general public will never be able to store their own private keys safely. Public blockchains are still too new and fragile to support widespread adoption by the vast majority.

The most important lens through which we need to look at this is that of the lay investor, whose primary need is safety. They may not say it, but they definitely think it. For financial systems and in particular digital securities, we need to minimize the number of ways in which the security of digital securities is compromised. Security experts have a fancy term for this, ‘attack surface’, which is the entire set of vulnerabilities possible through all the ‘attack vectors’, each of which is one method of attacking applications or networks.

Unlike the usual attack vectors such as phishing, email, pop-ups, attachments, chats, etc., digital securities can be compromised by non-traditional vectors such as forking, hacking, and adverse selection by miners’ activities, and commingling of cryptocurrencies and digital securities. Adverse selection, in particular, is not criminal activity, but the net effect is that retail investors suffer the consequences since concentration of mining power centralizes points of failure or throttles securities transactions.

All of the ways in which digital securities can fail are the ‘failure vectors’. The collective magnitude of these failure vectors defines a failure vector surface. The surface area, in some intuitive sense, captures the magnitude of potential failures. The larger the surface area, the higher the risk. (Move your mouse onto the various surfaces for color highlights.)

The spider chart above shows various failure vectors, some of which are outright attack vectors, while others represent potential failures not from attacks but due to the inherent nature of the underlying blockchain. Such a visualization is useful only when comparing two or more subjects of evaluation and that too in a relative way and by ignoring the actual values.

One caution: Do not conclude from this chart that public blockchains are necessarily bad. This chart is not an evaluation of the technology or the competence of the developers. It just speaks to the potential problems that developers and users must keep in mind when using it for this particular use case, that of digital securities.

Can public blockchains systematically reduce the magnitude of all these failure vectors? There is certainly awareness of these failure vectors. However, all current reengineering in public blockchains, such as the ERC20-based protocols, is a defensive strategy.

Keeping to the wisdom of the ages about offense being the best defense, another approach is to start with a blockchain that has been engineered from the ground up to specifically minimize the failure vector surface as much as possible.

For this reason, we chose Hyperledger Fabric as the base blockchain on which we built the digital securities platform. The risk of failure is mitigated because some of these failure vectors either don’t apply or they are considerably minimized due to the nature of the Fabric blockchain. We prefer to let Fabric deal with a number of these failure vectors, while we focus only on those failure vectors that are specific to KoreChain, the digital securities blockchain application.

Meet the KorePartners: David Benizri, Rivver

Posted on by Oscar Jofre

This post is part of a series of short interviews about the companies and faces that are part of the KorePartners Ecosystem*.

We believe that behind every great company there are people, and behind every person, there is a story to tell.

KorePartner: David Benizri, CEO & Co-Founder at Rivver

Born in: Montreal, Canada
Based in: Tel Aviv, Israel

What was your first job?
 Ice hockey referee

How and when did you get involved in the tech industry?

July 2016, I was hired as a sales associate in an e-commerce startup in Montreal. I then fell in love with the dynamic nature of the Hi-Tech field and began launching my own ventures in both Canada and Israel.

How do you see the Tech industry today, especially when it comes to the new Digital securities wave? In that aspect, is it possible to have an idea of what the next five years will bring?

To me what is beautiful about the tech industry as a whole is the fact that there are always new technologies being discovered, which by association ensures that there is always room for startups to build applications on top of that new technology and monetize. The last big innovation which we knew was technologically unprecedented was Blockchain, so we decided to apply it to securities. Within 5 years time, we see a securities industry where the use of distributed ledger technology is a given.

What does your company bring to the KorePartners Ecosystem?

Rivver brings the first blockchain-based fund issuance and administration platform, specialized for Private Equity funds. By building the first fund administration platform for the digitized fund ecosystem, Rivver’s goal is to ensure that KorConX Private Equity clients and the entire Digitized Fund ecosystem can scale.

What is it about the partnership with KoreConX that most aligns with your company strategy?

For Digital Securities to achieve adoption, industry leaders will have to provide a solution which is adoptable for legacy players today and not just in 10 years. By us both building on top Hyplerledger Fabric, we at Rivver saw obvious synergies and are certain that our partnership with KorConX will help materialize this mission.

*The KorePartners Ecosystem is a group of organizations that follows our governance standards and share with us the same goal: to provide entrepreneurs with the tools they need to grow their business.

Webinar sheds light on Digital Securities Terrain

Posted on by Oscar Jofre

The regulator’s message is clear: there’s no room for tampering with the regulation when it comes to capital raising, and many companies that invested time and energy on ICOs (Initial Coin Offering) are now facing the consequences.

But that doesn’t mean that the private capital markets are dead when it comes to digital assets, on the contrary. Companies have been tirelessly researching to find an alternative to ICOs that is compliant with regulations.

The private market industry is now being inundated by terms such as Digital Securities, Tokenization, STOs, ICOs. To decide the fate of their business in the digital arena, entrepreneurs need to be on top of the game and know the concepts, the differences, and who are the stakeholders behind every new term.

Having all this in mind we, at KoreConX, put together a Webinar “An Industry Evolving: Digital Securities, Tokenization, STOs, ICOs… What are they? How do they differ? Who’s regulating them?“.

To provide the public with the most up-to-date information about the topic, we invited two experts in the field. Oscar Jofre, CEO and Co-Founder of KoreConX, and Darren Marble, CEO and Founder of Issuance, will discuss the landscape for traded securities utilizing different forms of distributed ledger technology.

The webinar will happen this Wednesday, April 17th, at 11 am EDT.

Click here to register for free.

Click on the link below to watch our previous webinars:
Marketing Your Raise From Traditional Capital to Digital Securities

Meet the KorePartners: Peter Woodard, DLTMI

Posted on by Oscar Jofre

This post is part of a series of short interviews about the companies and faces that are part of the KorePartners Ecosystem*.

We believe that behind every great company there are people, and behind every person, there is a story to tell.

KorePartner: Peter Woodard, DLTMI

Born in: Toronto, Canada
Based in: London, UK

What was your first job?

My first proper job was for a London based Adtech startup which went onto be supported by Google Ventures

How and when did you get involved in the business industry?

Moving to London in my early 20’s I quickly needed to get moving. I luckily found my footing in the startup world and progressed into Fintech

How do you see the Digital Security’s scene today? In that aspect, is it possible to have an idea of what the next five years will bring?

There is a lot of noise in the industry currently and (rightly so) not a lot of action. Once regulators and ecosystem partners come online we will see an uptick in promising issuances. Next 5 years I see debt products focused at institutional players as the major winner. Biggest hurdle to this happening is getting said institutions comfortable, most importantly their compliance departments.

What does your company bring to the KorePartners Ecosystem?

DLTMI provides information disclosure and market intelligence framework which is then hosted on our closed-loop platform for select sponsors. We are backed by vertical agnostic capital groups in the EU  and APAC region focused on blockchain and digital securities. Both demand and supply side are leveraging our experience to ultimately see a successful issuance life cycle.

What is it about the partnership with KoreConX that most aligns with your company strategy?

I have worked in proxy with KoreConX during my Fintech days and am very happy to see them enter the digital security ecosystem. They have laid a lot of the necessary groundwork to be a compliant and successful player. Exactly the type of company we are wanting to partner with.

*The KorePartners Ecosystem is a group of organizations that follows our governance standards and share with us the same goal: to provide entrepreneurs with the tools they need to grow their business.

The Right Technology – The Case of Mercury Cash

Posted on by Kiran Garimella

Nothing proves the wisdom of choosing the right technology for the right job than the case of Mercury Cash, a hosted-wallet solution for real-time liquidation and transfer of cryptocurrency and fiat assets. Recognizing the importance of being prepared for a new cryptoworld, Mercury Cash set out to explore various blockchain protocols to find the one that can stand the test of the real world.

The real world is full of messy complexities. We may think the mess is unnecessary and we should sweep it all away and usher in a new world order, but we do have to recognize that regulation and corporate law make it possible to protect investors and shareholders.

As someone pointed out regarding the tragic debacle of QuadrigaCX, Canada’s own Mt. Gox, “When was the last time your banker died and you lost access to your money?”

I’d add, “When was the last time you forgot your bank account password and your money became irretrievable?”

Can regulation and corporate legal processes be more efficient? Yes.

Are some of the regulatory requirements onerous or unnecessary? Yes.

But pretending that all regulation is unnecessary is like pretending that protections are unnecessary. Disruption with technology is good, as long as it doesn’t lead to destruction!

Click here to download Mercury Cash Case Study.

Many issuers are finding out the hard way two fundamental truths about how the real world works:

One, transactions don’t exist in atomic silos, least of all in securities; every transaction is connected with others and impacts multiple entities at various points in time in an ever-expanding ripple effect. One buy/sell securities trade requires validation of participants, ensuring protection for all parties, recording changes to captables, distribution of dividends, exercise of rights, filing reports, getting notifications of corporate events, voting, etc., all of it over a long time cycle.

Two, choosing a technology based on hype, popularity, and promise is not the way to go; instead, understand the characteristics of the problem and then identify the technology to solve it effectively.

In the case study, Mercury Cash describes the capabilities that will keep their business processes humming in a fully compliant manner. Most importantly, they found that ERC20-based protocols are inadequate for full lifecycle management of securities. This is not a knock against Ethereum, which is a fine platform for many types of DApps; much of the technology work is praiseworthy. But a Ferrari, no matter how shiny or powerful, cannot sail the high seas.

Many of our clients are coming to the same realization. Interestingly enough, a company could conduct its main business using public blockchain, while managing its security tokens on KoreChain. There is nothing wrong with that – it’s just like transporting a car on a ship. In many conversations with some of these technologists, I point out that the issue is not that ERC is inadequate for securities, just that it’s not the right tool. The same can be said if someone tries to use KoreChain for building cryptokitties.

When many companies are coming to us abandoning ERC20 protocols for various reasons, it validates our own approach to technology: first understand the problem you are trying to solve, then carefully pick the technology stack to solve it. In doing so, some of us have to leave our technology egos behind to move forward.

Click here to download Mercury Cash Case Study.

KoreChain & KoreContract

Posted on by Oscar Jofre

What is the KoreConX blockchain strategy & why choose KoreChain?

In this video, KoreConX Co-Founder and CEO, Oscar Jofre, and our Chief Scientist/CTO, Kiran Garimella, share the details of our permissioned blockchain. Built on the Hyperledger Fabric, it is secure and governed with the ability to have full lifecycle management of contracts for tokenized securities for global private capital markets.

 

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.

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