Tag: RegA+

What do I need for a Reg A+ Offering to be successful?

Posted on by Scarlett Duarte

A successful Regulation A+ (Reg A+) offering requires careful planning and execution. Understanding the key components needed for a successful RegA+ offering is crucial for companies seeking to raise capital.

The comprehension of these components and how to utilize them effectively is a game changer.  This way, the future issuer can significantly increase its chances of making a compelling and successful offer.

In this blog post, we will explore key aspects for companies seeking growth through RegA+, providing valuable insights for companies navigating this fundraising strategy.

 

Hands-on: Reg A+ Offerings

If your company is looking to raise funds, you’ve probably considered many options for doing so. One notable development in the financial landscape is the introduction of Regulation A+ by the Securities and Exchange Commission (SEC) through the JOBS Act.

This regulatory framework has empowered companies to raise substantial amounts of up to $75 million in funding rounds, with participation open to both accredited and non-accredited investors. This expansion presents a significant opportunity for businesses to access capital from a wider range of potential backers.

If you have decided to move forward with a RegA+ offering, you’ve probably become familiar with the proces. However, what are the essential components that will contribute to the success of your offering?

Companies that are using RegA+ as a way to raise capital for their companies are successful.  However, in 2022 and 2023 we saw increased activity by the SEC targeting RegA+ companies.  So, to be truly successful, you need to read the items below so you do not fall victim to the SEC.

 

Compliance: Secure Your Reg A+ Offering

It’s important to understand you can have the best company ever and the most successful offering, but if you do not follow the regulations while you are raising the funds, your company might be sanctioned by the SEC or the company will need to refund investors.  

To be 100% compliant you need to be working with partners (legal, audit, FINRA Broker-Dealer, technology, marketing and PR) that can assure you that none of their RegA+ clients have been penalized by the SEC. This is a major Red Flag if they are associated.

Remember this, your partners for your offering do not get the penalties from the SEC. Rather, you and your company do! You get listed as a “Bad-Actor”. Now you need to do your homework and only work with partners who will not introduce risk into your offering.

 

* Bad Actor: (…) those who seek to evade regulatory requirements and harm investors for their own personal gain.

Font: Financial Industry Regulatory Authority (FINRA)

 

Marketing strategies for issuers 

Since the SEC allows RegA+ offerings to be freely advertised, your company will need a  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 who already love your brand will be excited to invest in something that they care about. 

After addressing marketing strategies for attracting investments in your company’s offering, 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 them 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. 

 

Cost of Raising Capital

The cost of doing an offering for RegA+ has spiked once again in the past few years. Here is what you need to know and watch out for.  It’s the small items that add up.  Do not be fooled by statements like “you are high risk.” Remember, you are NOT high risk.  You have been qualified by the SEC to raise your capital compliantly

Description Costs
Legal Form 1 A Preparations $35,000 – $75,000 (unchanged for the past 4 years)
Audit $2,500+ (unchanged for the past 4 years)
FINRA Broker-Dealer 1-3% (some firms offer capabilities beyond compliance)
FINRA 5110 Fees unchanged
Escrow $1,000 (fees decreasing; paying more is excessive)
Credit Card Max 2.8% (no company qualified for RegA+ should pay more)
ACH Max 0.80% (no ACH NSF fees)
ID, AML Investor screening for US citizens <= $1.50 per investor
eSignature No fees for adding eSignature to subscription agreements
Wire Transfers Flat fee from a bank; percentage charges are a red flag

Pay attention to the above in blue. In many cases, this is where some providers will take from 4-10% or even more of your capital raise amount.

After completing a Reg A+ offering

For a successful offering, companies should also keep in mind that they need to properly manage all their regulatory obligations once the offering is completed.
KoreConX makes it simple for companies to keep track of all aspects of their fundraising with its all-in-one platform.

The platform enables companies to easily manage their capitalization table, selling securities, and awarding equity to shareholders. Integration with a transfer agent facilitates the issuance of electronic certificates.

Even after the round, the platform provides both issuers and investors with support and offers a secondary market for securities purchased from private companies.

Final thoughts

Knowing your audience, establishing a marketing budget, creating simple terms, and having an accurate valuation will give your Regulation A+ 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. 

Successful companies are those who are 100% compliant with their offering and have partners who are not only 100% compliant but also protect you and your investors..

 

Reg A+ SEC Reporting Obligations (part 2)

Posted on by Scarlett Duarte

Introduction

Welcome back to our RegA+ reporting journey! In the first part we decoded SEC reporting obligations, highlighting Tier 1 and Tier 2 offerings. We also broach crucial forms and compliance essentials. If you didn’t read, click here and learn all about the beginning of this special content that envelops Reg A+ compliance.

What to expect in part 2 regarding SEC forms for Reg A+?

In this article, we’ll delve into specific SEC forms vital for Regulation A+ compliance.

From Form 1-POS to Form 1-U, we’re decoding each form’s purpose, filing process, and significance in your RegA+ journey.

We will also discuss the yearly audit of Form 1-K, the semi-annual reports of Form 1-SA, and Investigate the role of Form 1-U.

 

SEC forms for Reg A+: Form 1-POS

When the subject is SEC forms for Reg A+, it’s essential to understand some of the key forms involved in the process, let’s begin with SEC Form 1-POS.

Also known as Form 1-POS AM, is a filing used by companies that are registering securities under Regulation A of the Securities Act of 1933. It is a part of the registration process for securities offerings conducted under Regulation A, which provides an exemption from the full registration requirements of the Securities Act.

Form 1-POS is a “post-qualification amendment” to an offering statement filed on SEC Form 1-A. It is submitted after the initial filing of Form 1-A but before the offering is finalized. This form contains information updates or amendments to the previously filed offering statement (Form 1-A) that reflect changes or additional details related to the securities offering.

Key aspects of Form 1-POS include:

Aspect Description
Amendments and Updates The form includes updates, corrections, or revisions to the information in the initial Form 1-A filing. It covers changes in offering terms, financial information, business operations, risk factors, or other material information.
Filing Process Companies file Form 1-POS through the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The form is subject to SEC review and comments, similar to the original Form 1-A filing.
Timing Form 1-POS is filed after the initial Form 1-A but before the SEC qualifies the offering statement. It allows issuers to provide updated or corrected information to potential investors and the SEC during the review process.
Purpose The primary purpose of Form 1-POS is to keep the offering statement current and accurate by disclosing any changes or additional material information that has arisen since the initial filing of Form 1-A.
 

Unlocking Reg A+ : Form 1-POS

Form 1-POS is part of the regulatory process involved in offering and selling securities under Regulation A. Companies intending to conduct offerings under Regulation A should work closely with legal and financial professionals to ensure compliance with SEC regulations and to provide accurate and up-to-date disclosures to potential investors and regulatory authorities.

 

Form 1-K – Annual Audit

Annual audit on Form 1-K requires disclosure and discussion of information regarding business operations, related party transactions,  compensation data, beneficial ownership of voting securities, identification of directors, executive officers, and significant employees, management discussion and analysis (MD&A), and the audited financial statements for the year ended (at the US GAAP level). The  Annual Audits must include updated information about Regulation A+ offerings conducted in the year covered.

Being a part of SEC forms for REG A+, Form 1-K must be filed within 120 days after the issuer’s fiscal year-end. 

Semi-Annual Reports on Form 1-SA (for companies that are not listed on the NASDAQ or NYSE) require disclosure and discussion of financial statements covering the applicable six-month period, including MD&A using the US-GAAP format. No audit is required on the financial statements included in a Form 1-SA.

The  Form 1-SA must be filed within 90 days after the end of the first six months of the issuer’s fiscal year-end.

Reg A+ compliance: Form 1-U – Current Report

SEC Form 1-U, also known as the Exit Report Under Regulation A, is a filing submitted by issuers to the Securities and Exchange Commission (SEC) to report certain events and information upon the conclusion or termination of a Regulation A offering.

Key points about SEC Form 1-U include:

    • Reporting Certain Events: Form 1-U is used to report specific events or material changes that occur after the qualification of the offering circular under Regulation A but before the termination or completion of the offering.
    • Information Included: The form typically includes details about the occurrence of events such as a fundamental change in the nature of the business, a change in control of the issuer, bankruptcy, the departure of directors or executive officers, or any other significant events that could affect the company.
    • Filing Process: Companies file Form 1-U electronically through the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The Form 1-U must be filed within 4 business days after the event. 
    • Purpose: The primary purpose of Form 1-U is to promptly notify the SEC and the public about significant events or material changes that could impact the issuer or the offering.

Form 1-U is an essential filing that issuers must submit to the SEC to fulfill their reporting requirements under Regulation A. Companies engaging in Regulation A offerings should work with legal and financial professionals to ensure compliance with SEC regulations and to promptly report any material events or changes that occur during the offering process.

Reg A+ reporting: Form 1-Z – Exit Report

SEC Form 1-Z is a filing used by issuers to report the termination or completion of an offering of securities under Regulation A of the Securities Act of 1933. Regulation A provides an exemption from the full registration requirements for certain securities offerings, allowing smaller companies to offer and sell securities to the public without undergoing the traditional and more extensive registration process.

Form 1-Z, officially titled “Exit Report Under Regulation A,” is filed by issuers to notify the Securities and Exchange Commission (SEC) about the conclusion or termination of a Regulation A offering. This form serves as a final report to the SEC, providing information about the completion of the offering.

Key points about SEC Form 1-Z include:

Termination Report Form 1-Z is used to report the conclusion or termination of a Regulation A offering, indicating that the offering is no longer ongoing.
Filing Requirement Issuers who have conducted a Regulation A offering that has concluded must file Form 1-Z with the SEC within 30 days after the termination or completion of the offering.
Information Included The form typically includes basic details about the offering, such as the issuer’s information, details about the securities offered, the offering amount, the offering start and end dates, and other relevant information related to the completion or termination of the offering.
Filing Process Companies file Form 1-Z electronically through the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
Purpose The primary purpose of Form 1-Z is to inform the SEC and the public that the Regulation A offering has concluded or been terminated. It helps maintain transparency and compliance with reporting obligations under Regulation A.

Best practices for Reg A+ : Form 1-Z

Form 1-Z is an essential filing that issuers must submit to the SEC to fulfill their reporting requirements upon the conclusion or termination of a Regulation A offering. Companies engaging in Regulation A offerings should work with legal and financial professionals to ensure compliance with SEC regulations and to fulfill their reporting obligations accurately and in a timely manner.

At least, for best practices for Reg A+ reporting, it’s important to understand all the details and requirements when using the JOBS Act regulations such as RegA+ to make sure you on always compliant.

Reg A+ SEC Reporting Obligations (part 1)

Posted on by Scarlett Duarte

Regulation A+ offers great fundraising chances for companies, but understanding SEC reporting obligations might be confusing sometimes.

This guide highlights the key forms, deadlines, and compliance measures associated with Tier 1 and Tier 2 offerings. Essential info to empower you to navigate the landscape of SEC reporting obligations for Reg A+ with more clarity.

No more deciphering cryptic acronyms or wrestling with mountains of paperwork. We’ll demystify Forms 1-K, 1-SA, and 1-U, providing a clear roadmap for accurate and timely filings. Whether you’re a budding Tier 1 startup or a seasoned Tier 2 company seeking expansion, this guide equips you with the knowledge and tools to build investor trust, ensure regulatory compliance, and unlock the full potential of your RegA+ offering.

Ready to step into a world of informed decision-making? In this article you’ll discover:

  • A comprehensive breakdown of essential SEC reporting forms for Tier 1 and Tier 2 offerings.
  • Clear explanations of filing deadlines and compliance requirements.
  • Practical tips and best practices for optimizing your RegA+ reporting strategy.
  • Insights about investor trust and transparency through effective reporting.

Keep reading and join us on the first part of this journey.

Contents

Reg A+ SEC Reporting obligations

With all the talk about Regulation A+, we often overlook what a company (Issuer) must comply with in order to use the regulation. There are a number of  mandatory requirements that an Issuer must comply with when using Regulation A+ (RegA+).

RegA+ reporting requirements entail periodic and ongoing reporting for companies that have conducted offerings under RegA+ of the Securities Act of 1933. These requirements differ depending on whether a company has completed a Tier 1 or Tier 2 offering under RegA+.

Here are the general reporting requirements for RegA+:

 

Tier 1 Offerings

  • Companies that conduct Tier 1 offerings (up to $20 million within a 12-month period) are subject to fewer ongoing reporting requirements.

 

  • Following the offering, Tier 1 issuers must file a Form 1-Z exit report within 30 days after the offering is terminated or completed. This form includes information on the termination or completion of the offering and the proceeds received.

 

  • It should be noted that there have been zero (0) companies using this Tier.

 

Tier 2 Offerings

Companies conducting Tier 2 offerings (up to $75 million within a 12-month period) are subject to more extensive ongoing reporting requirements.

General reporting requirements 
Form 1-K (Annual Report): Tier 2 issuers are required to file an annual report on Form 1-K within 120 days after the end of the fiscal year covered by the report. Includes: audited financial statements, management’s discussion and analysis (MD&A), information about the issuer’s business operations, and other disclosures.
Form 1-SA (Semiannual and Quarterly Reports): Tier 2 issuers must file semiannual reports on Form 1-SA within 90 days after the end of the first six months of the issuer’s fiscal year. Quarterly reports on Form 1-SA are not required.
Current Event Reports: Tier 2 issuers must also submit certain “current event” reports on Form 1-U to report specified events promptly, such as fundamental changes, changes in control, or bankruptcy proceedings.

These reporting obligations aim to provide investors with timely and relevant information about the issuer’s financial condition, business operations, and material events that could impact their investment decisions.

It’s essential for companies that have conducted Regulation A+ offerings to comply with these reporting requirements to maintain regulatory compliance and transparency with investors.

Additionally, the specific reporting requirements and deadlines may vary, and companies should ensure they adhere to the regulations outlined by the Securities and Exchange Commission (SEC). To help in this process is important to seek guidance from legal and financial professionals to navigate these obligations effectively.

SEC Reporting Requirements – Form 1-A

SEC Form 1-A is an offering statement that companies use to register certain securities offerings with the U.S. Securities and Exchange Commission (SEC) under Regulation A of the Securities Act of 1933. Regulation A offers an exemption from full SEC registration requirements and allows smaller companies to offer and sell securities to the public without going through the traditional and more extensive registration process.

 

Form 1-A consists of three distinct parts, each serving a specific purpose:

  • Part I – Notification: This section includes basic information about the issuer, the type of securities being offered, and the intended use of proceeds from the offering. It provides an overview of the offering and the company’s business operations.

 

  • Part II – Offering Circular: This section contains the detailed disclosure document, often referred to as the offering circular. The offering circular includes comprehensive information about the company, its management, business operations, financial statements, risks, intended use of proceeds, and other material information relevant to potential investors. It is similar to a simplified prospectus and aims to provide investors with enough information to make informed investment decisions.

 

  • Part III – Exhibits: This part includes various exhibits and additional documents that support the information provided in Parts I and II. It may include financial statements, legal agreements, consents, and other relevant documents that help to substantiate the disclosures made in the offering circular.

 

Companies planning to offer and sell securities to the public under Regulation A must file Form 1-A electronically through the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. After the SEC reviews and qualifies the offering statement, the company can proceed with the public offering.

Form 1-A filings are subject to SEC review and comments, similar to the registration process for larger offerings. However, Regulation A offerings generally have less stringent disclosure requirements compared to traditional registered offerings, allowing smaller companies to access the capital markets more easily.

It’s important to note that Form 1-A is specifically tailored for Regulation A offerings and differs from other SEC forms used for different types of offerings and securities registrations. Companies seeking to conduct Regulation A offerings should work closely with legal and financial professionals to ensure compliance with SEC regulations and to prepare the required disclosures accurately and effectively.

Today, we’ve wrapped up the first part of our journey into SEC reporting obligations under Regulation A+. We’ve covered some crucial points regarding REG A+ SEC reporting obligations. So, what’s next?  In the upcoming article, we’ll dive deeper into the intricacies of these reporting requirements. We’ll help you navigate the waters of Regulation A+ and gain a better understanding of its implications for companies.

Stay tuned for Part 2!

Online Capital Formation for Private Companies

Posted on by Andressa

In the fast-paced private company landscape, understanding Online Capital Formation dynamics is not just a strategic advantage – it’s imperative. As we commemorate the twelfth anniversary of the JOBS Act in 2024, it’s evident that evolving capital-raising regulations have paved the way for a transformative approach to business financing. In this ever-changing scenario, everyone in the private market needs to grasp the significance of Online Capital Formation to unlock myriad opportunities for their ventures.

Table of Contents

  1. Making Capital Formation Accessible for Private Enterprises
  2. The Complexity of RegCF and RegA+
  3. Beyond Conventional Crowdfunding
  4. Seizing the Future with Online Capital Formation
  5. Final Insights

 

Making Capital Formation Accessible for Private Enterprises

At its core, the democratization of capital is a driving force behind Online Capital Formation. Gone are the days when crowdfunding merely conjured images of Kickstarter campaigns. Today, it has evolved into a sophisticated financial tool, especially with the maturation of Regulation CF (RegCF) and Regulation A+ (RegA+) over the past decade.

RegCF and RegA+ are two sets of rules established by the U.S. Securities and Exchange Commission (SEC) to govern equity crowdfunding. They were both introduced as part of the JOBS Act (Jumpstart Our Business Startups Act) and their primary goal is to make it easier for businesses and startups (from small to enterprises) to raise capital by offering and selling securities online.

The concept of digital securities involves representing traditional financial instruments (such as stocks or bonds) in digital form using blockchain technology. Digital securities enable more efficient and transparent transactions, and they can be traded on digital securities exchanges.

The Complexity of RegCF and RegA+

RegCF and RegA+ transcend the traditional crowdfunding model, where entrepreneurs pitch ideas for product launches. Instead, they empower companies to transform investors into shareholders. The focus has shifted from merely selling stories to selling stock – a nuanced shift that goes beyond the conventional understanding of crowdfunding.

In order to fit in each of these regulations, companies must pass the eligibility criteria for each of them and provide certain disclosures to investors, including information about their business, financial condition, and the terms of the offering. The level of disclosure required is less extensive compared to traditional IPOs, but it aims to provide investors with enough information to make informed investment decisions.

Beyond Conventional Crowdfunding

These regulations are more than regulatory frameworks; they’re a paradigm shift that offers private companies a more expansive and flexible avenue for raising capital. They allow them to raise capital from both accredited and non-accredited investors, which includes their own clients and employees. RegCF allows them to raise up to 5 million dollars while with RegA+, it’s possible to raise up to 75 million dollars.

Equity Crowdfunding is an alternative pathway to access capital markets, offering a more cost-effective and less burdensome option than a full IPO. It has helped more people invest in early-stage funding, making investment opportunities available to a wider range of investors. With these regulations, you can leverage the internet and technology to connect with more investors and grow the business.

Seizing the Future with Online Capital Formation

While the term “crowdfunding” remains rooted in popular imagination, it falls short of encapsulating the depth and complexity of RegCF and RegA+. We must recognize these exemptions have matured into a robust mechanism that demands a more nuanced understanding. They must carefully navigate the regulatory requirements and considerations as this is monitored by the SEC aiming to ensure investor protection and maintain market integrity.

To shed light on this evolution, we have collaborated with industry experts, including Sara Hanks, CEO/Founder of CrowdCheck, and Douglas Ruark, President of Regulation D Resources, now known as Red Rock Securities Law. Together, we aim to redefine the landscape by emphasizing what we believe heralds a new era in crowdfunding: Online Capital Formation. 

Additionally, success in equity crowdfunding often depends on effective marketing, transparent communication, and a compelling value proposition for investors.  From accessing diverse investors to increasing brand visibility, this overview highlights seven key benefits. Take a look at the chart.

# Top 7 Benefits of Democratizing Capital Formation
1 Access to Diverse Investors
2 Engagement of Customers
3 Increased Brand Visibility
4 Flexibility in Fundraising
5 Gathering Early Feedback
6 Cost-Effectiveness
7 Potential for Liquidity

A Closer Look at the Top 7 Benefits of Democratizing Capital Formation

Final insights

As private company owners and managers, the onus is on you to comprehend the evolving dynamics of Online Capital Formation. It’s not merely a trend. Embrace the opportunities, stay informed, and position your venture at the forefront of this new era in crowdfunding. The journey begins with understanding. If you’re looking to raise capital and want to know more about your company’s suitability and which steps to take first, book a call with one of our specialists.

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

Posted on by Oscar Jofre

The Importance of Compliance in Private Capital Market Regulations

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

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

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

Regulation A+ and the SEC’s Oversight

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

Private Capital Market Regulations: Protecting Investors and Market Integrity

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

The Consequences of Non-Compliance

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

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

How not to fall into the wrong with the regulators checklist

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

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

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

Small Businesses Need Capital

Posted on by Oscar Jofre

Small businesses are essential to the economic well-being of a country, but unfortunately, many find it challenging to obtain the capital they need. It is expensive to access the public capital markets at the best of times, but in times of economic hardship and uncertainty,  traditional financing options become especially scarce as well. Fortunately, private capital markets have emerged as a viable and advantageous solution for small businesses to raise the funds they need to grow, sustain jobs, and contribute to their communities. 

 

Raising Capital is Expensive

 

Small businesses are often faced with tedious and expensive processes when trying to access traditional capital sources. Raising capital for companies when going public compared to private can be expensive and complicated. The costs associated with this type of fund-raising include:

 

  • Underwriting fees
  • Exchange listing fees to launch on the stock exchange or other public markets
  • Professional fees for attorneys, accountants, and other financial advisors
  • Printing and distribution costs for prospectus and registration statements
  • Costs associated with filing regulatory paperwork such as the SEC Form S-1

 

These costs can add up, and the process of going public is also typically long and complicated, requiring a great deal of time and energy from company founders. In addition, many banks impose strict guidelines limiting the amount of capital small business owners can borrow, and it might not be enough to cover the cost of going public.  For small startups especially, the possibility of going public may be decades away, if it exists at all. For organizations that need to raise capital more immediately, the private market is a much more viable option than raising capital publicly.

 

The Solution: Private Capital Markets

 

Fortunately, private capital markets provide a viable solution for small businesses during tough economic times. With private businesses able to use JOBS Act regulations like RegA+, RegD, and RegCF to raise millions in capital from accredited and nonaccredited investors, they need not rely on traditional lenders. The cost of raising capital privately using JOBS Act regulations compared to taking a company public is significantly lower. This is because:

 

  • Although there are still securities regulations to protect investors, the reporting requirements are much lower and less costly.
  • Private capital markets avoid the lengthy legal process involved in taking a company public, thereby saving time and legal fees.
  • Private capital markets offer more flexibility than traditional financing sources, allowing businesses to craft more creative and advantageous terms for the capital they need.

 

This makes it easier for small businesses to access the funds they need without having to worry about high costs and long wait times. Furthermore, leveraging private capital markets provides an opportunity for small business owners to cultivate relationships with investors who can provide valuable insights and advice that they may not be able to access through traditional lenders. And that can open more doors.

Approaching the 11th Anniversary of the JOBS Act

Posted on by Oscar Jofre

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

 

David Wield: The Father of the JOBS Act

 

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

 

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

 

Benefitting from the JOBS Act

 

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

 

For companies they were initially allowed to raise:

 

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

 

These numbers have grown significantly since 2012, with:

 

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

 

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

 

How Much has Been Raised with JOBS Act Regulations?

 

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

 

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

 

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

 

Insights from Industry Leaders

 

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

7 Things You Need to Raise Capital Online in 2023

Posted on by Oscar Jofre

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

 

1. Know Your Options

 

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

 

2. Plan for a Higher Cost of Capital

 

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

 

3. Find the Best Online Capital-Raising Platform

 

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


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

 

4. You’re Responsible for Marketing

 

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

 

5. Launch with an Announcement and Target Multiple Investors

 

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

 

6. Focus on Marketing and Platforms

 

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

 

7. Get a Valuation Report and a Securities Attorney

 

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

 

5 Tips for Frictionless Capital Raising

Posted on by Oscar Jofre

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

Use Mobile Apps for Online Investments

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

Utilize Affinity Marketing

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

Seek the Crowd

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

Have a Plan and Tailor Your Pitch

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

Prioritize Compliance

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

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

 

Seeking Opportunities in Times of Crisis

Posted on by Oscar Jofre

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

The Innovation Opportunity

 

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

 

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

 

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

 

Raising Capital During a Crisis

 

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

 

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

 

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

 

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

 

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

What is Affinity Marketing?

Posted on by Oscar Jofre

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

 

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

 

Using the JOBS Act and Affinity Marketing

 

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

 

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

 

Tips For Implementing Affinity Marketing Effectively

 

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

 

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

 

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

 

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

 

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

 

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

 

Addressing the Decrease in VC Funding to Women-Led Startups

Posted on by Oscar Jofre

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

 

What are the Causes of this Gender Gap?

 

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

 

How Does This Affect Female Entrepreneurs?

 

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

 

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

 

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

 

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

 

What Can Female Entrepreneurs Do To Combat this Gender Gap?

 

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

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

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

Who Does Due Diligence on Companies using RegA+?

Posted on by Oscar Jofre

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

 

What Is Due Diligence?

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Understanding the JOBS Act for Real Estate

Posted on by Oscar Jofre

Real Estate has become increasingly popular as an asset class in recent years and investors are eager to put their money into this space. However, the high capital requirements associated with real estate investments have been a large barrier for many individuals. From February 27th to March 3rd, the KoreSummit event “Real Estate + JOBS Act + Tokenization = Liquidity” will discuss the potential of blockchain technology and tokenization for transforming this industry.

 

Day 1

 

On day one of the summit, the discussion will be centered around why real estate is an attractive asset class and what steps can be taken to help make it more accessible to a wider range of investors. Douglas Ruark, Frank Bellotti, Nathaniel Dodson, and Oscar Jofre will speak during the first day’s panel, which is sure to provide valuable insight into the industry as well as the potential opportunities that could arise with the use of tokenization and blockchain technology.

 

Day 2

 

The second day of the summit will be focused on fractional ownership, a concept that makes it possible for multiple investors to own a single asset, and attracting the right investors. Laura Pamatian, Oscar Jofre, Peter Daneyko, Richard Johnson, Tyler Harttraft, Andrew Cor, and Jillian Bannister will be leading these discussions, which will provide attendees with an understanding of how fractional ownership can help to make real estate investments more affordable and accessible while attracting the right investors.

 

Day 3

The third day of the summit will be all about identifying which SEC exemption is right for raising Capital. Douglas Ruark, Peter Daneyko, Chris Norton, Nathaniel Dodson, Oscar Jofre, and Louis Bevilacqua will explain how to make the offering to retail, institutional, and accredited investors. These sessions will provide a great opportunity to learn from the experts and gain insight into how to ensure that your projects reach the right investors.

 

Day 4

 

The fourth day of the summit will focus on what companies should do once their real estate offerings are live. Panelists will include Kim LaFleur, Mona DeFrawi, Andrew Corn, Peter Daneyko, Amanda Grange, and Ryan Frank. This session is sure to provide attendees with valuable information about understanding what steps to take once their offering is live.

 

Day 5

 

The final day of the summit will look at private real estate shares and how they can be traded. Peter Daneyko, Kiran Garimella, Lee Saba, James Dowd, Frank Bellotti, and Laura Pamatian will provide insight into the concept of tokenization for private shares and how it can help to bring liquidity to this sector.

 

The upcoming KoreSummit is sure to provide invaluable insight into real estate and how blockchain technology and tokenization can help to make this asset more accessible and liquid. Attendees will have the opportunity to learn from industry leaders and gain valuable knowledge on how to successfully launch and promote their offerings. With the JOBS Act paving the way for real estate tokenization, this summit is an ideal way to get ahead of the curve in what is sure to be a huge market in the years to come. 

 

Sign up for the upcoming KoreSummit here. 

 

Selling Shareholders for RegA+

Posted on by Oscar Jofre

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

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

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

What is a Selling Shareholder?

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

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

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

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

Selling Shares with a Reg A+ Offering

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

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

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

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

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

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

Call Centers for RegA+

Posted on by Oscar Jofre

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

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

 

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

 

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

 

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

 

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

 

If you aren’t current in your Reg A reporting, you could still be violating securities laws even if qualified by the SEC

Posted on by Sara Hanks

It’s 1-SA filing season again for Regulation A filers, and time to make some observations about the consequences of not filing.

We have encountered more than three companies in the last three months that have not filed all (or in one case, any) of their ongoing filings, and yet have requalified their offerings or qualified new offerings. This is a problem.

Let’s start with the ongoing reporting requirements. Assuming a Reg A filer has a December year-end, under Rule 257 it has to file its annual Form 1-K by April 30 and its semi-annual 1-SA by September 28 (subject to adjustments for leap years and weekends). It may also need to file “current” reports on Form 1-U. We’ve posted previously about what to do if you miss these deadlines.*

Rule 251 says the exemption for offers and sales under Regulation A is available for companies that have made all the filings required under Rule 257 for the last two years.

If an issuer makes offers and sales supposedly under Regulation A while it is not in compliance with Rule 257, those offers and sales are not made in compliance with Regulation A and unless the issuer can fit them into another exemption from registration (unlikely), the issuer has made unregistered sales of securities in violation of Section 5 of the Securities Act and those sales are subject to rescission (having to buy the securities back).

“Hold on a minute,” our non-compliant companies might say, “we might have missed making these filings, but we filed a new Regulation A offering on Form 1-A or a PQA and the SEC qualified us, so they must reckon our filings are in order, yes?”

Nope.

Older securities lawyers among us (maybe it’s just me these days) will remember the “Tandy” language that we used to have to put in effectiveness or qualification requests. That says, in effect, that just because the SEC says you are ok to proceed with your offering, it doesn’t mean it can’t come after you later for some issue with your filing. While we don’t have to put that language in qualification requests anymore, that is still the SEC’s position, and they remind us that the issuer is responsible for the adequacy of its filings “notwithstanding any review, comments, action or absence of action by the staff”. Moreover, on any Reg A filing, right there on the cover, we have the mandated statement:

THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

So no, the SEC qualifying your offering does not mean that anyone has signed off on the adequacy of your filing history. (I wish they would, but that’s not what that “QUALIF” posted on EDGAR means).

Issuers, before filing PQAs or new 1-As, check that you are up to date with your ongoing reporting. Brokers and lawyers, you are gatekeepers, so I don’t know how you think you are meeting your professional responsibilities if you don’t check an issuer’s filing history before making those filings. That should be at the top of your due diligence list.

 

 

*If an offering is open for over a year, the issuer also has to file post-qualification amendments (“PQAs”) to its filing to add its ongoing disclosure to the offering circular, but that’s a topic for a future blog post.

 

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

Labor Day: Democratization and Opportunities to Create Jobs

Posted on by Oscar Jofre

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

 

Crowdfunded Capital and Democratization

 

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

 

Creating Job Opportunities

 

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

 

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

 

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

 

Investing in the Future

 

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

 

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

 

The SEC Can Stop Your Regulation A Offering At Any Time

Posted on by Mark Roderick

The SEC has two powerful tools to stop your Regulation A offering anytime.

Rule 258

Rule 258 allows the SEC to immediately suspend an offering if

  • The exemption under Regulation A is not available; or
  • Any of the terms, conditions, or requirements of Regulation A have not been complied with; or
  • The offering statement, any sales or solicitation of interest material, or any report filed pursuant to Rule 257 contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in light of the circumstances under which they are made, not misleading; or
  • The offering involves fraud or other violations of section 17 of the Securities Act of 1933; or
  • Something happened after filing an offering statement that would have made Regulation A unavailable had it occurred before filing; or
  • Anyone specified in Rule 262(a) (the list of potential bad actors) has been indicted for certain crimes; or
  • Proceedings have begun that could cause someone on that list to be a bad actor; or
  • The issuer has failed to cooperate with an investigation.

If the SEC suspends an offering under Rule 258, the issuer can appeal for a hearing – with the SEC – but the suspension remains in effect. In addition, at any time after the hearing, the SEC can make the suspension permanent.

Rule 258 gives the SEC enormous discretion. For example, the SEC may theoretically terminate a Regulation A offering if the issuer fails to file a single report or files late. And while there’s lots of room for good-faith disagreement as to whether an offering statement or advertisement failed to state a material fact, Rule 258 gives the SEC the power to decide.

Don’t worry, you might think, Rule 260 provides that an “insignificant” deviation will not result in the loss of the Regulation A exemption. Think again: Rule 260(c) states, “This provision provides no relief or protection from a proceeding under Rule 258.”

Rule 262(a)(7)

Rule 262(a)(7) is even more dangerous than Rule 258.

Rule 258 allows the SEC to suspend a Regulation A offering if the SEC concludes that something is wrong. Rule 262(a)(7), on the other hand, allows for suspension if the issuer or any of its principals is “the subject of an investigation or proceeding to determine whether a. . . . suspension order should be issued.”

That’s right: Rule 262(a)(7) allows the SEC to suspend an offering merely by investigating whether the offer should be suspended.

Effect on Regulation D

Suppose the SEC suspends a Regulation A offering under either Rule 258 or Rule 262(a)(7). In that case, the issuer is automatically a “bad actor” under Rule 506(d)(1)(vii), meaning it can’t use Regulation D to raise capital, either.

In some ways, it makes sense that the SEC can suspend a Regulation A offering easily because the SEC’s approval was needed in the first place. But not so with Regulation D, and especially not so with a suspension under Rule 262(a)(7). In that case, the issuer is prevented from using Regulation D – an exemption that does not require SEC approval – simply because the SEC is investigating whether it’s done something wrong. That seems. . . .wrong.

Conclusion

As all six readers of this blog know, I think the SEC has done a spectacular job with Crowdfunding. But what the SEC giveth the SEC can taketh away. I hope the SEC will use discretion exercising its substantial power under Rule 258 and Rule 262(a)(7).

 

This post was written by KorePartner Mark Roderick and the original post can be found here. Mr. Roderick is an attorney at Lex Nova Law, where he leads the firm’s Crowdfunding and Fintech practice. He writes a widely-read blog at CrowdfundingAttorney.com and is a featured speaker at Crowdfunding and Fintech events across the country, including New York, Texas, Chicago, and Silicon Valley. Mark is one of the most prominent Crowdfunding and Fintech lawyers in the United States. He represents portals, issuers, and others across the country and around the world.

Opportunities to Invest in the Private Capital Market

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

RegA+ Offers Stability for Issuers

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

KoreClient Spotlight: Bruce Lewis of BulletID

Posted on by Oscar Jofre

Bruce Lewis is a serial entrepreneur who has had his share of successes and failures. He is now 82 years old and has started a new company that he’s made his life’s mission. Through this venture, BulletID, Lewis aims to reduce gun violence by tracking ammunition. We recently got to sit down and speak with him about his work with BulletID and how JOBS Act regulations will help his company grow.

 

With his years of experience growing companies and his entrepreneurial spirit, Bruce Lewis is confident that BulletID will be able to make a difference in the fight against gun violence. Lewis is no stranger to hard work and determination, and he hopes his latest venture will be successful in positively impacting the world. As an entrepreneur since childhood, Lewis has always had a knack for starting and scaling businesses. He has tried various ventures, some of which have been more successful than others. However, he has never given up and always maintained the entrepreneurial spirit he received from his father and grandfather. 

 

One of Lewis’ earliest and most successful businesses came from a restaurant equipment supply company that he owned and operated after he married his high school sweetheart. By acquiring the 45 companies that supplied his restaurant supply company with unique products, Lewis was able to create a company that would eventually grow to 100 million in sales and over 1,000 employees by 1988. One of these companies was an early adopter of placing UPC barcodes on items, and his partners put it out in the rest of the world, while Lewis implemented it in Canada. BulletID would eventually utilize this barcode concept. 

 

Lewis was devastated after hearing the heartbreaking story about a four-year-old killed by a stray bullet at a birthday party; he knew he had to make a difference. In 2016, Lewis started BulletID to reduce gun violence by tracking ammunition using the same barcode technology originally designed to let supermarkets better manage their inventory. Through this company, law enforcement and military personnel can instantly track essential information about a bullet, such as inventory, ownership history, manufacturer, and type. This is done through a barcode printed into the brass cartridge. With this information, it will be easier for authorities to trace a bullet back to its owner and determine if it was used in a crime. Additionally, it makes it easier for the military to track their ammunition, especially when hundreds of millions of dollars worth of ammo is scrapped each year because of poor tracking capabilities. With BulletID, the process is as easy as scanning the cartridge on a smartphone, and from anywhere in the world, law enforcement and military can see available details within 10 seconds. 

 

“Criminals never leave the gun behind, but they do leave the shell cases behind. A homicide detective can scan [the casing] and it tells them who owns it. It’s a miracle but it works,” said Lewis of how BulletID can be used by law enforcement. Lewis hopes that by tracking ammunition, law enforcement and military personnel will be able to reduce gun violence by keeping ammunition out of the hands of criminals or easily identifying suspects in a gun-related incident. 

 

Lewis is hopeful that BulletID will successfully make a positive impact on the world and plans to make this his mission for the rest of his life. He, and his team, are filled with energy and excitement for what they’re building. And, with the help of JOBS Act regulations like Reg A+, BulletID continues to raise the necessary capital to accomplish this goal. As he says, “the technology is there. Governments just need to embrace the technology.”

 

Regulation A Disclaimer

 

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

 

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

Why RegA+ Offerings Fail

Posted on by Oscar Jofre

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

 

Compliance for RegA+ Raises

 

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

 

Budgeting for a RegA+ Raise

 

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

 

Affinity Marketing

 

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

 

Technology and Expertise

 

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

 

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

 

What is the Estimated Budget for RegA+ Issuance?

Posted on by Jason Futko

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

 

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

 

Estimated Costs for USA-Based Companies:

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

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

 

 

Estimated Costs for Canada-Based Companies:

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

Private Capital Trends for the Cannabis Industry

Posted on by Oscar Jofre

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

 

The Constantly Growing Industry of Cannabis

 

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

 

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

 

Investing in the Private Cannabis Market

 

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

 

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

 

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

 

For cannabis companies looking to raise capital, the process begins by identifying the team that will help you reach your goals, such as experienced securities lawyers, broker-dealers, investor acquisition firms, transfer agents, and other parties critical to your success. However, you should also consider how you can turn customers into investors and brand ambassadors as they will be essential throughout your capital-raising journey.

 

Cannabis Industry Trends in 2022

 

Cannabis companies are benefiting from increasing consumer acceptance of the product in 2022. In states where cannabis is legal, tax revenue from sales has been significantly higher than predicted. This trend will likely continue as more states legalize cannabis, and the industry becomes more mainstream. It could also remove many barriers to entry for potential investors and entrepreneurs looking to enter the space.

 

Despite the current political environment, which is generally unfavorable to cannabis companies, several bills are making their way through Congress that could positively impact the industry. The SAFE Banking Act, for example, would allow FDIC-insured banks to offer their services to cannabis companies, providing much-needed financial infrastructure. 

 

The industry will almost certainly continue to grow because of the acceptance of cannabis and its use in a variety of products. The cannabis plant produces several compounds with medical, industrial and commercial applications, with THC and CBD only the most well-known.  Developing these products and bringing them to market is creating more jobs, stimulating the economy, and becoming more accepted by people from all walks of life.

 

Growth in the cannabis industry is not likely to slow down anytime soon. Investors and companies interested in the industry should keep a close eye on developments at the state and federal levels and the financial health of companies in the space. With the right mix of factors, the cannabis industry could achieve even greater heights in the years to come.

 

Recapping Our All-Star June Podcast Guests

Posted on by Oscar Jofre

Throughout June, we were happy to host another set of excellent speakers to add to our KoreTalkX series, covering timely topics like digital securities, RegA+ for cannabis, and the potential RegA+ unlocks for companies in the Medtech space. Keep reading to explore each episode in more depth. 

 

KoreTalkX #5: Digital securities matter; tokens, coins, and regulations.

 

The June lineup of KoreTalks kicked off with episode #5, during which Andrew Bull discussed the future of digital assets and their impact on the financial industry. As digital securities enter the mainstream, their potential to protect issuers and create opportunities for investors grows with the transparency they can offer. However, education will continue to be an important factor in driving the expansion of the digital asset space. This conversation is helpful for anyone interested in learning more about digital assets and their impact on the financial industry. With their experience in traditional finance and digital assets, Andrew Bull and Dr. Garimella provide valuable insights into this growing industry based on their observations of the industry’s development. 

 

KoreTalkX #6: Cannabis businesses need capital. Let’s raise it.

 

Reg A+ is a powerful tool for companies in the private sector, and it is no different for those in the cannabis industry. In KoreTalkX #6, Brianna Martyn of Big Stock Tips discussed the importance of due diligence when investing in the cannabis industry, advising investors to research and understand each company’s fundamentals before investing. Brianna spoke with Jessica Trapani of KoreConX about our role in helping private companies raise up to $75 million from brand advocates and customers without going public. 

 

KoreTalk #7: The MedTech ecosystem is booming.

 

The JOBS Act was signed into law two decades ago, yet we are just beginning to see more Medtech companies utilize the RegA+ exemption to raise capital. In the last KoreTalkX episode for June, Stephen Brock and Peter Daneyko discussed the benefits of the Jobs Act and how it will help businesses grow and create jobs. Especially in the Medtech space, which is traditionally capital-intensive, RegA+ provides a tremendous opportunity for companies to raise needed capital while retaining more ownership of their company. Additionally, the speakers also discuss new, game-changing opportunities for investors, who are now able to invest in companies that align with deeply personal values. 

 

If you’d like to watch any of these episodes in full, you can catch them on your favorite podcast platform. Click here to view episodes on Spotify, Amazon, or iTunes.

It is time to meet your MedTech A+ Team

Posted on by Oscar Jofre

With our KoreSummit on RegA + for Medtech companies quickly approaching, we’d like to introduce the speakers we are thrilled to have for this informative event an exciting and life-changing industry. It is time to meet your MedTech A+ Team.

 

Dawson Russel
A branding and marketing expert with over ten years of experience in the industry. He has helped over 100 companies build their brands and tell their stories to the right audience thanks to his specialty in creative storytelling. His company, Capital Raise Agency, provides full-scale branding, marketing strategy, website design and development, video production, lead generation, social media, email, native ad campaign management, and more. At the upcoming Medtech KoreSummit event, Dawson will be speaking about how to build a brand and tell a story that captivates an audience.

 

Scott Pantel
President and founder of Life Science Intelligence, a company that ​​provides deep knowledge of the healthcare industry, guiding clients with actionable data to identify significant trends in medical devices, diagnostic, and digital health technologies that are rapidly evolving in the industry. At the upcoming KoreSummit, Scott will be discussing where Medtech companies can begin when embarking on their capital-raising journey. His wealth of knowledge on the topic will help entrepreneurs better understand the potential of Regulation A+ and how it can be used to grow their businesses. 

 

Stephen Brock
CEO of Medical Funding Professionals, a company that helps innovative companies in the healthcare field gain access to capital. Stephen is also passionate about ensuring founders, early employees, and investors retain control of their companies. For many companies in Medtech, this means introducing them to the potential of Regulation A+, which is just beginning to see more adoption by companies in this space. Stephens’s expertise in the Medtech field will shine through in his participation in the event’s panels.

 

Douglas Ruark
A corporate finance expert who has been involved in the securities industry for over two decades. He has experience with SEC-exempt securities offerings and provides advisory services for clients preparing and executing Regulation D, Regulation CF, and Regulation A+ offerings. We are excited for Douglas to share his knowledge at the KoreSummit event, where he will be speaking about Form 1A and the regulatory requirements for filing. 

 

Shari Noonan
CEO and Co-Founder of Rialto Markets, has over 20 years of experience in financial services, giving her unique insight into the private market. Shari will be joining the event to discuss the topic: “Form 1A: What is it, the regulatory requirements, and all you need to complete the filling and go live.” This makes her a valuable speaker at the upcoming event as she can offer information on the topic from both a regulatory and technological perspective for MedTech companies. 

 

Andrew Corn
Founder and CEO of E5A, a marketing firm specializing in RegA+ offerings. With over 25 years of experience in the industry, Andrew has a unique perspective on raising capital through marketing. He will be speaking at the upcoming KoreSummit on how Medtech companies can sell the story, not the stock. Through marketing, companies can reach a wider pool of potential investors, including those who are not accredited investors. Andrew brings his world-class knowledge of marketing Regulation A+ offers and acquiring the right investors for a company’s raise.

 

Nick Antaki
Corporate attorney with experience in securities offerings and private placements, providing legal services to small and medium-sized businesses, including entity structuring, regulatory strategy, trademarks, copyrights, and trade secrets. Nick’s experience will be valuable to KoreSummit attendees as they look to raise money for their businesses, and he joins his colleague Doug Ruark from Reg D Resources.

 

Joel Steinmetz
COO and co-founder of Rialto Markets, with over 20 years of experience in the financial services field. He saw the many obstacles issuers and investors faced in the private placement market, opening up the opportunity to bring efficiency to inefficient markets, and inspiring him to co-found Rialto Markets.

 

Lee Saba
CTO and Head of Market Structure at Rialto with over 20 years of experience in financial services. We are excited to hear Lee share his thoughts in this growing Reg A+ vertical.

 

Matthew McNamara
Managing Partner at Assurance Dimensions and has over 20 years of experience as a Certified Public Accountant. He specializes in SEC and private company audits, focusing on technology, manufacturing, retail, construction, nonprofit, and transportation industries. Given his broad experience in accounting and auditing, McNamara is well-positioned to provide valuable insights on financial reporting for MedTech businesses.

 

Andy Angelos
President of Forward Progress, a company that provides end-to-end solutions for investor marketing, lead generation, and customer acquisition campaigns. Their battle-tested strategies connect you with accredited and nonaccredited investors to provide growth capital for your business. Andy will be speaking at a talk on “sell the story, not the stock” at the upcoming KoreSummit, sharing his expertise on connecting with investors and delivering sustained growth. With his vast experience in marketing and capital acquisition, Andy will surely give an insightful discussion that will be valuable for anyone in attendance.

 

John Hayes
Co-founder and CEO of Raising Stakes Media, a company that provides marketing and advertising services for businesses hoping to raise capital through a Reg A+ offering. With over 25 years of experience in the media industry, John brings a wealth of knowledge to the table for effectively telling a company’s story.

 

Oscar Jofre
Co-founder, president, and CEO of KoreConX. He has long been a passionate advocate for expanding the private capital market to increase opportunities for companies and investors alike. Part of his mission at KoreConX is to establish an ecosystem of trusted partners that can help investors and issuers succeed through the JOBS Act exemptions. 

 

Peter Daneyko
KoreConX’s CRO and brings a wealth of knowledge to the table regarding business development, startups, and sales. He will be speaking at the KoreSummit about Secondary ATS and Form 1A: What is it, the regulatory requirements, and all you need to complete the filling. This is essential information for anyone in the MedTech industry looking to go live with Reg A+, as it can be challenging to navigate the regulatory landscape. 

 

Dr. Kiran Garimella
Chief Scientist & CTO at KoreConX, is a world-renowned expert in artificial intelligence and machine learning, with over 20 years of experience in the technology industry. His experience and expertise make him a valuable asset to the KoreSummit, and he will talk about preparing for your live offering and secondary ATS.

 

Amanda Grange
Transfer specialist with KoreConX and returning for the upcoming KoreSummit event. She brings her experience to the table to discuss what issuers should be aware of when going live and the preparations they need to make to set themselves up for potential success.

 

It’s not too late to sign up for the event. You can register for the half-day webinar event here. It’s completely free to attend! 

 

Private Equity’s Primetime Has Arrived

Posted on by Oscar Jofre

Private equity’s primetime has arrived! This stems from a number of reasons, including favorable economic conditions for the private capital market. In fact, 42% of private equity limited partners report a 16% net return in this space. Here are three factors in particular that have caused private equity to outperform public equity in 2022.

 

1) Interest Rates:

A survey found that 71% of global private equity investors have indicated that their equity investments have outperformed their public equity portfolios since the global financial crisis. This is in part because private equity firms are less reliant on debt financing than public companies. Higher borrowing costs will hit public companies harder, putting them at a competitive disadvantage over private companies with rising interest rates.

 

2) Economic Uncertainty:

Some degree of uncertainty characterizes current economic environment. This can be attributed to the ongoing trade conflicts between the United States and China, Brexit, and the coronavirus pandemic. These factors have made it difficult for public companies to make long-term plans and invest for the future. Private equity firms, on the other hand, are better suited to deal with economic uncertainty. This is because they can take a longer-term view and are not as reliant on short-term results.

 

3) Regulation:

The increased regulation of public companies has made it more difficult and expensive for them to operate. Private companies are not subject to the same level of regulation, giving them a competitive advantage. Additionally, private companies can benefit from registration exemptions, like RegA+ and RegCF, which allow them to raise capital from everyday investors without the need to go public. This provides private companies a significant tool they can use to their advantage and fuel their growth.

 

These combined factors show that private equity has arrived and is here to stay. This will likely continue in the future, making private equity an attractive investment for investors. More individuals are involved in the private markets with the rise in forms of private investment for regulated and non-regulated investors, such as the JOBS Act regulations. This means more capital is flowing into private markets, which drives up valuations. With the current market conditions, investors would be wise to allocate a portion of their portfolio to private equity to protect and grow their wealth and prepare their portfolios for the future.

How Can a Foreign Company use RegA+

Posted on by Oscar Jofre

For many issuers outside of the United States, the ability to raise capital from a wide pool of investors, including “the crowd” is immensely compelling. However, for foreign issuers to be able to use RegA+, there are some important considerations to keep in mind.

 

First and foremost is whether the company would be eligible to offer securities to U.S. investors. Foreign companies should seek the advice of qualified legal counsel to ensure compliance with all applicable U.S. laws and regulations. Additionally, foreign companies should consider the costs associated with making a public offering under RegA+ and the ongoing reporting requirements imposed on the company if it elects to use this securities exemption.

 

Benefit from RegA+ as a Foreign Company

 

The benefits of using Reg A+ for foreign companies are tremendous. Perhaps most importantly, RegA+, as a securities exemption, allows companies to raise $75 million from non-accredited investors. The exemption also enables issuers to “test the waters” concerning interest in their securities before officially launching the offering

 

Using RegA+ as a Foreign Company

 

It is vital first to understand the process and what is required when looking to do a RegA+ raise. Foreign companies should be aware of the following when using RegA+:

 

  • The company must be registered as a US company with a principal place of business in the US.
  • The company must have two years of audited financial statements.

 

While RegA+ offers a foreign company a simplified path to raising capital in the United States, several requirements still need to be met for the offering to be successful. These requirements include:

 

  • Filing a Form 1-A with the SEC.
  • Passing an SEC review process.
  • Engaging a US-based registered broker-dealer.
  • Disclosing all material information about the company and the offering.

 

However, like any method of raising capital, RegA+ may not be suitable for all foreign issuers. This makes it incredibly important to engage a knowledgeable team that can guide issuers through the process.

 

What Does ATS Mean in Trading

Posted on by Oscar Jofre

Many investors are turning to the private capital market to make long-term investments in light of the current market conditions. This has increased alternate trading systems and secondary market trading for RegA+, RegCF, and RegD securities. An alternate trading system (ATS) is a non-exchange trading venue that matches buyers and sellers to trade securities. In the United States, an ATS must be registered with the Securities and Exchange Commission (SEC) and must comply with specific regulations.

 

Different Forms of ATSs

 

There are many benefits to using an ATS, such as increased liquidity, lower costs, and greater flexibility. For example, an ATS can provide more liquidity for a security by providing shareholders with a means to sell private company shares. In addition, an ATS may offer lower costs than an exchange, such as no membership fees or listing requirements. In addition, an can often be categorized as an electronic communication network, dark pool, crossing network, or call market.

 

  • Electronic Communication Network: An ECN allows buyers and sellers to exchange shares without a middleman. Trades can also happen outside of business hours, which means that hours are not tied to the traditional stock market.
  • Dark Pools: A dark pool is a type of ATS that does not publicly display the prices or orders of its participants. Dark pools are typically used by institutional investors, such as hedge funds, to trade large blocks of shares without moving the market.
  • Crossing Network: A crossing network is very similar to a dark pool, meaning that the details of a trade are not made publicly available 
  • Call Markets: In a call market, trades are only executed once a certain number of orders has been reached, often at a set interval of time. 

 

Secondary market trading of RegA+, RegCF, and RegD securities can take place on an ATS, which is typically a registered broker-dealer platform. These platforms allow investors to buy and sell these securities even if the buyer did not invest in the initial offering. The secondary market for RegA+ securities is the most developed due to the long history of these securities. The main difference is that RegCF and RegD shareholders are required to own their securities for a longer period of time before they can be traded in a secondary market.

 

What is the Difference Between an ATS and Exchange?

Many people are familiar with the concept of an exchange; whenever you buy stocks in publicly traded companies, you go through a stock exchange like the New York Stock Exchange or NASDAQ. National securities exchanges are self-regulatory and their members, or listed companies, must meet the requirements established by the exchange. Exchanges are also SEC-registered

 

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

 

The Impact of Liquidity on Investing

 

Liquidity is an important concept to understand when trading securities and refers to the ability of a security to be bought or sold quickly and at a fair price. A security that is easy to buy and sell is said to be liquid. A security that is difficult to buy or sell is said to be illiquid. An investor might consider the liquidity of a security when making an investment decision. For example, an investor might choose to invest in a liquid security if they plan on selling it quickly. An investor might choose to invest in an illiquid security if they are willing to hold it for a more extended time. When trading securities on an ATS, it is crucial to consider the security’s liquidity. A security that is not liquid may be challenging to sell, and worth considering the liquidity of a security before investing in it.

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

Posted on by Peter Daneyko

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

 

What is a Reg A+ Quarterback?

 

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

 

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

 

The Importance of a Quarterback

 

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

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

 

Reg A+ Raises and QBs

 

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

 

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

Posted on by Peter Daneyko

 

“It’s About Time”

 

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

 

FINRA Broker-dealer

 

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

 

Escrow Agent 

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

 

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

 

Credit Cards 

 

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

 

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

What Due Diligence Do I Need for My RegA+ Offering?

Posted on by Oscar Jofre

If you’re thinking of conducting a RegA+ offering, you’ll need to do some due diligence first. This blog post will outline what you should investigate before proceeding with your offering. We’ll cover the key areas you need to look at, including the company’s financials, management, and business strategy. So if you’re ready to take the plunge into RegA+, make sure to read this post first.

Be a Diligent Issuer

Due diligence is an essential part of the securities offering process. Issuers must carefully examine all aspects of their business and operations to comply with securities laws and regulations. Due diligence aims to identify and assess any risks associated with the offering, including reviewing the company’s financial statements, business plan, and disclosures. Issuers must also consider potential risks related to proceeds, insider trading, and other potential conflicts of interest. Due diligence is vital for RegA+ issuers because it helps to ensure that the offering is compliant with securities laws and regulations. It also helps to protect the company and the investors by identifying any potential risks associated with the offering.

When it comes to RegA+, issuers must conduct significant due diligence to ensure a successful offering to protect their interests and stakeholders. The first step in due diligence is the review of all documentation, including the offering circular and any other related materials. The goal is to get a complete understanding of the offering and to identify any potential risks. They can protect their interests and those of their stakeholders by doing so.

The next step is the assessment of activities. Issuers must assess their actions and identify any potential risks so they can ensure they meet regulatory requirements. They must also be clear in their marketing materials to ensure that they are not misleading potential investors.

The final step in due diligence is the review of marketing materials. Issuers must ensure that their marketing materials are not misleading and that they comply with all regulations. They can protect their interests and those of their stakeholders by doing so. If information is not accurate or is contradictory with information the issuer has published elsewhere, it can cause problems for the offerings.

Tips for Issuers

When you’re looking to conduct due diligence on your own business, it’s essential to have a clear plan of attack. Here are five things to keep in mind when preparing to complete due diligence for a RegA+ offering:

  1. Start by reviewing your business plan and finances. Make sure you understand your company’s goals and how it is making money.
  2. Look at your management team and Board of Directors. Ensure they are qualified and have the experience to run a successful business.
  3. Conduct a thorough review of your company’s operations. Make sure you understand your manufacturing process, marketing strategy, and sales channels.
  4. Keep your cap table up to date; ensuring it documents who holds shares in your company.
  5. Ensure you do not have information on your website that contradicts information in your offering documents.

These are just a few aspects that help you conduct due diligence more effectively and efficiently. Due diligence is an integral part of any business transaction, so it’s worth getting it done right.

Be Diligent with your Offering

When working with an attorney, you must provide them with all of the relevant information about your company and the offering. This includes both the business and financial aspects of your company and any legal issues or risks that you may be aware of. Attorneys will then use this information to help assess the offering and to identify any potential risks.

Auditors will also need access to all relevant information about your company and the offering. They will use this information to verify that everything is in order and that there are no financial risks associated with the offering. Auditors will also work with the attorney to identify any potential legal risks.

Working with both an attorney and an auditor during the due diligence process will help to ensure that your RegA+ offering is successful. By providing them with all of the relevant information, you can help reduce the risk of mistakes being made and help to keep everyone on track.

A Look Back on the Last Year of RegA+

Posted on by Oscar Jofre

Marking a huge step forward in equity crowdfunding opportunities for entrepreneurs and investors alike, one year ago, the SEC’s game-changing decision went into effect that allowed businesses to raise $75 million through RegA+ and $5 million from RegCF. These new limits were a significant increase from the former $20 million and $1.07 million limits for RegA+ and RegCF, respectively. To celebrate this one-year anniversary, we take a look back at the progress that has been made and how this new fundraising avenue is benefiting startups and businesses of all sizes.

The History of RegA+ and RegCF

Regulation A+ and Regulation CF are securities offerings brought to life through the JOBS Act, passed in 2012. They allow companies to raise money from investors without going through the process of a complete initial public offering.

Regulation A+ was created by the US Securities and Exchange Commission (SEC) as an amendment to Regulation A of the Securities Act of 1933. It allowed companies to raise up to $50 million from unaccredited investors, a limit increase to $75 million in March 2021.

Benefiting from JOBS Act Regulation

The main benefit of Regulation A+ is that it allows companies to avoid some of the more demanding regulatory requirements that are usually associated with a public offering. It is also less costly, which is essential in creating more opportunities for issuers to take advantage of the exemption. For Tier I offerings, companies are required to file audited financial statements and ongoing reporting. On the other hand, Tier II offerings do not have requirements to register with state securities regulators.

RegCF allows companies to offer and sell their securities to the general public, including unaccredited investors, through crowdfunded ventures. Both Regulation A+ and RegCF are a way for companies to raise money without giving up significant equity or control of their company. The main drawback to both RegA+ and RegCF is that they are not as well-known as other fundraising methods, such as an IPO or private equity. As a result, it can be more challenging to find investors who are willing to invest in a company through either of these methods, but there are ways to be ready for this capital-raising journey.

Despite this, there has been a surge in companies using Regulation A+ and RegCF in the past year. This is likely because traditional fundraising methods are becoming increasingly difficult  and cost-prohibitive for startups and small businesses. Another main reason is the substantial increase in the amount a company could raise with these regulations, making it also an attractive way to raise capital for larger offerings like in real estate or Medtech.

Increase in Capital Raised

Once more reliable Q1 numbers become available, we can better estimate how much was raised in the year since the capital that RegA+ could raise was increased. In 2020 before the change in the amount of capital companies could raise, it is estimated $1.48 billion was raised from RegA+. In 2021, when the increased capital raise was available for most of the year, over 2 billion was raised.

In 2020, $239 million was raised using RegCF before the changes to how much capital could be raised. When the amount that RegCF could raise was increased from a little over a million to $5 million, the total amount raised in these campaigns soared to $1.1 billion in 2021. We do not have exact numbers yet on how much has been raised in the year since the capital increase, but this figure is expected to double in 2022. This would mean that in the three years since the increase in how much capital could be raised, over $3.5 billion has been raised with these methods. This number will continue to grow as people become more comfortable with these types of investment vehicles and as the infrastructure surrounding them becomes more robust.

By lowering the requirements for entry into capital raising with these regulations and increasing the amount that can be raised, the JOBS Act has allowed more people to invest in the growth of small businesses. This, in turn, is helping to create jobs and support the economy.

David Weild, Former Chairman of the NASDAQ and Father of the JOBS Act, had this to say about the increase in how much capital companies could raise; “It means more capital will be available for entrepreneurs, allowing their ideas to become realities and helping create living wage jobs across the U.S.”

This is a huge win for small businesses, investors, and the economy. The increase in how much capital can be raised has allowed more people to invest in small companies, which helps create jobs and support the economy.

In the past year, there has been a surge in the number of companies that have used Regulation A+ and RegCF to raise capital. This is likely due to these methods being less well-known than other forms of fundraising, such as an IPO or private equity. The increase in how much can be raised with RegA+ and RegCF has allowed entrepreneurs more access to capital without giving up ownership or control over their company.

Secondary Market Trading for RegA+, RegCF, and RegD

Posted on by Oscar Jofre

As more and more companies look to raise capital in the private capital market, it’s essential to understand the different exemptions available for this purpose. In this blog post, we’ll look at three common types of capital raises; Reg A+, Reg CF, and Reg D. We’ll discuss the critical differences between each one and how they are traded on the secondary market. By understanding the nuances of each type of raise, you’ll be better equipped to make informed investment decisions.

If you are raising capital, three main exemptions will be used in the private market. Before we discuss the differences, let’s cover what each regulation does:

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

There are a few key differences between the three types exemptions but today we’re focusing on those differences as they pertain to the secondary market. The important thing to consider is the time an investor is required to hold the security before selling it on a secondary trading platform. Reg A+ is the closest to an IPO, and assets can be sold the next day, and there is no lockout period. On the other hand, securities sold under RegCF cannot be sold for the first 12 months after buying it unless it’s sold to an accredited investor, back to the issuing company, or a family member. With Reg D, investors can not sell these assets for six months to a year unless they are registered with the SEC.

We’ve covered other differences between the three exemptions in a previous article, including the number of investors and the amount they can invest. However, once the raise ends, the secondary market is the next important difference to be aware of so that shareholders can be properly informed before, during, and after the raise is complete.

Attracting Impact Investors

Posted on by Matt Foley

Founders and executives of startup and early-stage healthcare companies seeking funding historically were limited to appeals to Venture Capital firms, Angels, and bootstrapping – struggling to survive by internal growth alone. In many cases, the founders resort to selling their businesses for values well below their potential. Fortunately, their options have increased due to

1. The Emergence of the Impact Investor

The economic devastation from the coronavirus and its evolving variants is a once-in-a-lifetime event that super-charged the nascent trend of individuals and institutions to invest in ventures intended to improve the quality of life. The dollar value of “impact investing” – experienced “remarkable growth over the past ten years, reaching $2.1 trillion in 2020, according to the International Finance Corporation (IFC).[i] Impact investments are investments made to generate positive, measurable social and environmental impact with a financial return. The bottom line is that impact investors look to help a business or organization complete a project, develop a new life-saving treatment, or do something positive to benefit society.

2. Exposure of Venture Capital Myths

For years, companies seeking funds avoided the tag of “social responsibility,” afraid that investors would avoid any company whose profit objective is compromised by non-financial returns. Nobel Prize-winning economist Milton Friedman ridiculed the idea that business has a “social conscience” and asserted that businessmen who believed such ideas were “unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.” [ii] Consequently, company leaders and investors unwittingly accepted

  • Myth #1 that impact investing produces lower financial returns that take years to materialize. A report by McKinsey & Company in 2018 found that investments in socially beneficial organizations produced returns comparable or exceeding those dedicated to profits only. Furthermore, the median holding period before exit (IPO or M&A) was about the same as conventional VC investments.
  • Myth #2 – An article in the 1998 Harvard Business Review[iii] challenged the belief that VC funding is the underlying force of invention and innovation in economic systems, finding that only a tiny percentage of VC capital (6%) invested in startups or research and development. A VC’s investment focus is on companies that have proven success and need funds for scaling.

Doing Well by Doing Good

Healthcare — where success is measured in improvements in disease progression and quality of life – is the focus of my firm. We promote Impact investing because the strategy provides an avenue in which people can do well by doing good, i.e., buying the securities of companies that positively affect the health of themselves, their families, and others. From the discovery of bacteria to the first artificial organs, significant medical discoveries have extended the quality and length of humans’ lives. Take a look at some of my clients and how they’re positively impacting the world of health and medicine.       

  • EyeMarker: developer of non-invasive assessment and tracking devices for traumatic brain injury (TBI) improving the speed, accuracy, and consistency of concussion detection and diagnosis.  
  • Facible: developer of revolutionary biodiagnostics technology for infectious disease which simplifies the diagnostic testing process while increasing the accuracy of results, empowering patients to better understand their personal health and the quality of products treating their wellness.
  • HealthySole: disrupting the infection prevention market with ultraviolet shoe sanitizer technology clinically proven to kill 99.99% of infections, contaminations, and pathogens in only 8 seconds. 
  • Kurve Therapeutics: provider of compact liquid drug delivery devices significantly enhancing the efficacy and safety of formulations treating Alzheimer’s, Parkinson’s LBD, and ALS. 
  • McGinley Orthopedics: manufacturer of orthopedic surgical devices employing cutting-edge sensing and navigation technology reducing surgical time and cost while improving patient outcomes. 
  • Medical 21: reshaping the future of cardiac bypass surgery with an artificial graft which eliminates the harvesting of blood vessels, significantly decreasing procedure time and cost as well as the risk of infection, scarring, and pain for patients.

The recently updated JOBS Act of 2017[iv] offers founders of healthcare companies an alternative channel for fundraising to running the gauntlet of impersonal VC managers focused solely on extraordinary growth as quickly as possible. Using a Regulation A+ offering in place of venture capital allows company management to target those investors who believe in the company’s objectives and want to support them. For healthcare companies, the potential investors include the

  • doctors who work in the company’s field and know first-hand the impact your solution could have,
  • patients who have been affected and their family members and friends, and
  • people who support the non-profit organizations around those you help diagnose/treat.

Founders of healthcare companies will find a wide variety of investors eager to help them reach their objectives, according to the Global Impact Investing Network 2020 Annual Impact Investor Survey.[v] Their research estimates the current market size at $715 billion, attracting a wide variety of individual and institutional investors:

  • Fund Managers
  • Development finance institutions
  • Diversified financial institutions/banks
  • Private foundations
  • Pension funds and insurance companies
  • Family Offices
  • Individual investors
  • NGOs
  • Religious institutions

Rather than having one or more VC shareholders anxious to make a profit and move on to the next deal, Regulation A+ offers access to thousands of potential advocates – a legitimate community of people with a shared sense of purpose — for your business.

A Reg A+ offering allows investors to contribute to life-saving research, clinical trials, or tools and technology to assist victims in returning to everyday life, possibly within their families. For example, small biotechs are more likely to invest in research, spending up to 60% of their revenue on R&D.[vi] They account for up to 80% of the total pharmaceutical development pipeline in 2018,[vii] making small companies the driving force behind innovative new therapies, and 64% of all new drugs approved by the FDA in 2018 originated from small pharma.

Final Thoughts

Founders seeking new funding should ask, “Do I want a group of shareholders that focus solely on my bottom lines or investors who care about our company’s objectives for the full community – patients as well as shareholders?” The question is especially pertinent since an alternative process is available with less hassle, cost, and time. We believe that Regulation A+ offerings should be in the toolbox of every founder, owner, CFO, and Treasurer in the United States. Their use provides excellent upside potential with little downside risk.

 

Resources:

[i] Gregory, N. and Volk, A. (2020) GROWING IMPACT New Insights into the Practice of Impact Investing. International Finance Corporation. (June 2020) Access through https://www.ifc.org/wps/wcm/connect/8b8a0e92-6a8d-4df5-9db4-c888888b464e/2020-Growing-Impact.pdf?MOD=AJPERES&CVID=naZESt9

[ii] Friedman, M. (1970) A Friedman doctrine‐- The Social Responsibility Of Business Is to Increase Its Profits. New York Times. (September 13, 1970) Accessed through https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html

[iii] Zider, B.(1998) How Venture Capital Works. Harvard Business Review. (November-December, 1998) Access through https://hbr.org/1998/11/how-venture-capital-works

[iv] Littman, N. (2021) Healthcare-Focused Impact Investing: Another Way To Invest For Change. Forbes Magazine. (April 28, 2020) Access through https://www.forbes.com/sites/forbesfinancecouncil/2021/04/28/healthcare-focused-impact-investing-another-way-to-invest-for-change/?sh=3f4c7f501e5c

[v] Staff. (2021) WHAT YOU NEED TO KNOW ABOUT IMPACT INVESTING. Global Impact Investing Network. (August 25, 2021) Access through https://thegiin.org/impact-investing/need-to-know/

[vi] Coskun, M. (2020) How is R&D spending affecting Biotech company growth? Data-Driven Investor. (May 11, 2020) Access through https://www.datadriveninvestor.com/2020/05/11/how-is-rd-spending-affecting-biotech-company-growth/#

[vii] Kurji, N. (2019) The Future of Pharma: The Role Of Biotech Companies. Forbes Magazine. (May 29, 2019) Access through https://www.forbes.com/sites/forbestechcouncil/2019/05/29/the-future-of-pharma-the-role-of-biotech-companies/?sh=43d88c5f6bb3

KorePartner Spotlight: Scott Pantel, President & CEO of Life Science Intelligence

Posted on by Oscar Jofre

With the launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners contributing to its ecosystem. 

 

During the capital raising journey, many things must be in place to increase the potential for success. One of these critical factors is having the right team to assist with gaining information on your demographic is vital to a successful capital raise.

 

As the President and CEO of LSI, Scott Pantel knows the importance of this, which is why Life Science Intelligence was formed. Scott knows that the most important and strategic business decisions must be made based on data and insights from trusted advisors. LSI is proud to be the go-to-market research firm to support those making these big decisions because of their experience in the Medtech field. With a team of economists, analysts, and market researchers, LSI provides deep knowledge of the healthcare industry, guiding clients with actionable data to identify significant trends in medical devices, diagnostic, and digital health technologies that are rapidly evolving in the industry.

 

We took some time to speak with Scott to learn more about him, his company, and his thoughts on the future of market research, advisory, and raising capital.

 

Q: What does your company do, and how are you making a difference?

A: We’re a Medtech-focused market research and advisory company. We help early-stage companies all the way up to the largest healthcare companies in the world, and their investors, make the best strategic decisions possible. We do this through independent research, consulting, advisory and partnering events.

 

Q: What excites you about the Medtech, Life Sciences, and Biotech Industries?

A: The thing that excites me most about Medtech is that we get to have an impact on people’s lives. The innovators in our space save lives and reduce suffering. To borrow a quote from our 2020 Keynote Speaker and Co-Founder of Auris Health (acquired by J&J for $5.8B), “Medtech is the best and original impact investment sector.”  The innovators in our sector are literally changing and saving lives.  I also get excited to see that patients are increasingly becoming more involved in their healthcare decisions. The convergence of medical devices, data, and smart technologies improves patient outcomes and is slowly but surely making our healthcare system more efficient. We have a long way to go, but I believe we are on the right track, and we will see some quantum leaps in medical technology over the coming years.  

 

Q: How do you see the LSI Medtech event impacting your company and industry?

A: This event connects the innovators with the capital sources they need to commercialize life-changing and saving technologies.  Innovations need capital and strategic partners to scale and get to the market.  Our event connects all of the stakeholders in the Medtech ecosystem so that good things can happen and we can get technologies to market faster.

 

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

A: Most of the companies we work with are totally unaware of what is available in terms of tapping the private markets and leveraging equity crowdfunding. The market is slowly but surely catching up, and we believe inside of the next 12-18 months, we’ll be seeing a huge uptick of healthcare companies taking advantage of the various Regulations that came from the JOBS Act. Specifically, we believe Reg A+ will see exponential growth within healthcare/Medtech companies.

 

Q: What impact do you think RegA+ can have on Medtech companies?

A: It is already having a huge impact. Companies are starting to jump in. In the last six months, I’ve personally gotten involved in supporting five Medtech companies that collectively raised over $200M. And it is just beginning – we are at a turning point, and the markets have a huge appetite for impact investment opportunities. This is a perfect setup for CEOs and founders that are running Medtech startups that are building solutions that can save a life or reduce suffering.

 

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

A: Do your homework and see if a Regulation A+ capital raise path makes sense for you. Surround yourself with talented people that are committed to your vision. Stay positive and be willing to adjust as you go. 

 

The Recipe for a Successful RegA+ Offering

Posted on by Oscar Jofre

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

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

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

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

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

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

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. Since March 2021, companies have been able to take advantage of the limit’s increase to $75 million. This provides 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 call 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 a 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 are 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.

Investing in Startups 101

Posted on by StartEngine

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

The high-speed world of startups, and the risks of investing in them, are well documented, but startup investing can be complicated and there is a lot of information you should know before making your first investment.

This article will try to answer the question “why should you invest in a startup?” by giving you information about the process and what to expect from investing in an early-stage business.

Why invest in startups?

Through equity crowdfunding, you can support and invest in startups that you are passionate about. This is different than helping a company raise capital via Kickstarter. You aren’t just buying their product or merch. You are buying a piece of that company. When you invest on StartEngine, you own part of that company, whether it’s one you are a loyal customer of, a local business you want to support, or an idea you believe in.

Investing in startups means that you get to support entrepreneurs and be a part of the entrepreneurial community, which can provide its own level of excitement. You also support the economy and job creation: in fact, startups and small businesses account for 64% of new job creation in the US.

In other words, you are funding the future. And by doing so, you may make money on your investment.

But here’s the bad news: 90% of startups fail. With those odds, you’re more than likely to lose the money you invest in a startup.

However, the 10% of startups that do succeed can provide an outsized return on the initial investment. In fact, when VCs invest, they are looking for only a few “home run” investments to make up for the losses that will compose the majority of their portfolio. Even the pros expect a low batting average when investing in startups.

This is why the concept of diversifying your portfolio is important in the context of startup investing. Statistically, the more startup investments you make, the more likely you are to see better returns through your portfolio. Data collected across 10,000 Angellist portfolios supports this idea. In other words, the old piece of advice “don’t put all your eggs in one basket” holds true when investing in startups.

Who can invest in startups?

Traditionally, startup investing was not available to the general public. Only accredited investors had access to startup investment opportunities. Accredited investors are those who:

  • Have made over $200,000 in annual salary for the past two years ($300,000 if combined with a spouse), or
  • Have over $1M in net worth, excluding their primary residence

That meant only an estimated 10% of US households had access to these opportunities. Equity crowdfunding changes all of that and levels the playing field. On platforms like StartEngine, anyone over the age of 18 can invest in early-stage companies.

What are you buying?

The Breakdown of Securities Offered via Reg CF as of December 31, 2020

When you invest in startups, you can invest through different types of securities. Those include:

  • Common stock, the simplest form of equity. Common stock, or shares, give you ownership in a company. The more you buy, the greater the percentage of the company you own. If the company grows in value, what you own is worth more, and if it shrinks, what you own is worth less.
  • Debt, essentially a loan. You, the investor, purchase promissory notes and become the lender. The company then has to pay back your loan within a predetermined time window with interest.
  • Convertible notes, debt that converts into equity. You buy debt from the company and earn interest on that debt until an established maturity date, at which point the debt either converts into equity or is paid back to you in cash.
  • SAFEs, a variation of convertible note. SAFEs offer less protection for investors (in fact, we don’t allow them on StartEngine) and include no provisions about cash payout, so you as an investor are dependent upon the SAFE converting into equity, which may or may not occur at some point in the future.

Most of the companies on StartEngine sell a form of equity, so the rest of this article will largely focus on equity investments.

How can a company become successful if they only raise $X?

Startup funding generally works in funding rounds, meaning that a company raises capital several times over the course of their life span. A company just starting out won’t raise $10M because there’s no indication that it would be a good investment. Why would someone invest $10M in something totally unproven?

Instead, that new company may raise a few hundred thousand dollars in order to develop proof-of-concept, make a few initial hires, acquire their first users, or reach any other significant business developments in order to “unlock” the next round of capital.

In essence, with each growth benchmark a company is able to clear, they are able to raise more money to sustain their growth trajectory. In general, each funding round is bigger than the previous round to meet those goals.

When do companies stop raising money? When their revenue reaches a point where the company becomes profitable enough that they no longer need to raise capital to grow at the speed they want to.

What happens to my equity investment if a company raises more money later?

If you invest in an early funding round of a startup and a year or two later that same company is raising more money, what happens to your investment? If things are going well, you will experience what is known as “dilution.” This is a normal process as long as the company is growing.

The shares you own are still yours, but new shares are issued to new buyers in the next funding round. This means that the number of shares you own is now a smaller percentage of the whole, and this is true for everyone who already holds shares, including the company’s founders.

However, this isn’t a problem in itself. If the company is doing well, in the next funding round, the company will have a higher valuation and possibly a different price per share. This means that while you now own a smaller slice of the total pie, the pie is bigger than what it was before, so your shares are worth more than they were previously too. Everybody wins.

If the company isn’t growing though, it leads to what is known as a down round. A down round is when a company raises more capital but at a lower valuation, which can increase the rate of dilution as well as reduce the value of investors’ holdings

How can I make money off a startup investment?

Traditionally, there are two ways investors can “exit” their investment. The first is through a merger/acquisition. If another company acquires the one you invested in, they will often offer a premium to buy your shares and so secure a controlling ownership percentage in the company. Sometimes your shares will be exchanged at dollar value for shares in the acquiring company.

The other traditional form of an exit is if a company does an initial public offering and becomes one of the ~4,000 publicly trading companies in the US. Then an investor can sell their shares on a national exchange.

Those events can take anywhere from 5-10 years to occur. This creates an important difference between startup investing and investing in companies on the public market: the time horizon is different.

When investing in a public company, you can choose to sell that investment at any time. However, startup investments are illiquid, and you may not be able to exit that investment for years.

However, equity crowdfunding can provide an alternative to both of these options: the shares sold through equity crowdfunding are tradable immediately (for Regulation A+) and after one year (for Regulation Crowdfunding) on alternative trading systems (ATS), if the company chooses to quote its shares on an ATS. This theoretically reduces the risk of that investment as well because the longer an investment is locked up, the greater the chance something unpredictable can happen.

Conclusion

Investing in startups is risky, but it is an exciting way to diversify your portfolio and join an entrepreneur’s journey.

Using RegA+ For Collectibles

Posted on by Oscar Jofre

RegA+ is a securities exemption that allows companies to raise capital from accredited and unaccredited investors. There has been a lot of interest around Regulation A+ and its potential uses for companies outside of the traditional tech and biotech sectors. In this post, we’ll take a look at how RegA+ could be used to offer equity crowdfunding opportunities for those in the collectibles space.

 

A Difference in Fundraising

RegA+ funding for collectibles is game-changing and different from the traditional process of raising capital, similar to real estate. This possibility allows issuers to offer collectibles in niche markets to a wide variety of investors who can usually not afford them on their own. Still, these offerings allow passionate audiences to invest in “holy grail” pieces of collecting with the hopes of the collectible appreciating in value. Even in this space, RegA+ for collectibles is closely tied to the theme of democratizing capital and investments. Anyone can participate in an offering and get their share of the pie.

 

Using RegA+ for Collectibles

Using RegA+ to offer equity funding opportunities for those in the collectibles space allows companies to raise up to $75 million per year from accredited and unaccredited investors. Opening up the opportunity to a much larger pool of investors can be crucial for businesses in the collectibles space, especially when seeking investments for high-worth assets.

 

However, the entire process is somewhat new and being figured out. For example, some items like autographs and music memorabilia are more tedious to ensure authenticity compared to something like cars, which have easily trackable and verifiable VINs. With almost anything able to be classified as a collectible, it is an interesting thing that the SEC will need to look at. 

 

Considerations of Collectibles Through RegA+

Collectibles are an interesting application of the RegA+ exemption, and there are a few things to keep in mind:

 

  • It allows investors to take part in collections they may not be able to otherwise.
  • RegA+ provides a high level of transparency and disclosure for investors.
  • More investment opportunities enable the value of collectibles to go up.
  • It may be challenging to find interested investors who have the capital to invest in high-value items.

 

Regulation A+ has opened the doors for a diverse range of companies to receive funding, from real estate to biotech and everything in between. Interestingly enough, one of these opportunities is collectibles. In these scenarios, an issuer will form a company around a collection of certain assets, whether cars, watches, or luxury handbags. Their offerings allow interested investors to own a piece of a collection they’re passionate about that they would not be otherwise able to be a part of.

Is Email Still King for Reg A, Reg CF, and Reg D Marketing?

Posted on by Dawson Russell

This article was originally written by KorePartner Dawson Russell of Capital Raise Agency. View the original post here.

 

Email marketing has been around for a while. You might even be surprised to read that email has been around since the ’70s — over 50 years ago!

 

You’d think that as fast as the digital world moves, such a dinosaur of a marketing strategy would be nothing more than a relic or extinct.

But it’s not.

In fact, email marketing is somewhere in the ballpark of 40 times more of an effective marketing strategy than social media marketing, according to a study conducted by McKinsey & Company.

So why is that?

How is email marketing still king when we now have search engine optimization (SEO), social media marketing, mobile marketing, pay-per-click, content marketing, and influencer marketing all at our fingertips?

Here’s are 3 of the main reasons:

1. It’s Highly Customizable

The most crucial and effective way to have success with your email marketing strategy is to implement what’s known as “customer segmentation.” This means you can use customers’ recent and relevant searches & interests to your advantage and generate custom-made emails for them in a way that is MUCH more effective than other approaches. Customer segmentation also allows you to be much more tactful with your email timing, so you can avoid spamming their inboxes.

Even better, you can pivot your customer segmentation strategy quickly by reviewing click rates, bounce rates, and subscribe & unsubscribe rates.

2. It Provides Better Conversion Rates

It doesn’t matter if your focus is on Reg A email marketing, Reg CF email marketing, or Reg D email marketing, it will still have a better conversion rate than any other method.

Email has been traditionally regarded as the most transactional part of a company or business.

Think about it.

You can generate traffic to your business and/or convert a visitor to an investor with just a single click of a link. They can reply directly, sign-up for other newsletters, forward the email to other potential investors, and more.

According to a study done by Statista, over 93% of Americans between the ages of 22-44 used email regularly, and over 90% of Americans between the ages 45-64. Even 84% of people 65+ were regular email users.

3. It’s a Cinch to Automate

Once you get everything written out and running properly, you can launch a highly effective Reg A, Reg CF, or Reg D marketing campaign, with minimal effort compared to other methods.

With the right automation tools to go along with your campaign strategy, you can create and deliver automated emails that are not only relevant to your subscriber list but generate leads and new investors at the same time.

In Conclusion…

Email marketing really is still the best way to reach out to potential investors and remains the king of the digital marketing world. When utilized and implemented properly, it can build leads to potential investors, and strengthen brand trust and loyalty in a way that enables your fund to grow more than you would’ve thought possible.

PS: did you know that adding PS to your email marketing campaigns could increase click-through rates by an extra 2%?

The Evolution of Reg A+

Posted on by Oscar Jofre

During the recent Dare to Dream KoreSummit, David Weild IV, the Father of the JOBS Act, spoke about companies going from public to private, access to capital Reg A+, the future of small businesses raising capital, and the future of the broker-dealer system. The following blog summarizes his keynote address and what Wield believes will be the future of raising capital for small businesses. 

 

Reg A+’s Creation

The JOBS Act, passed in 2012, helped address a significant decrease in America’s IPOs. “When I was vice-chairman of NASDAQ, I was very concerned with some of the market structure changes that went on with our public markets that dropped the bottom out of support for small-cap equities,” said Weild. “80% of all initial public offerings in the United States were sub $50 million in size. And in a very short period of time, we went from 80%, small IPOs to 20%, almost overnight.” The number of operating public companies decreased from about nine thousand to five thousand. The changes in the market significantly restricted smaller companies from growing, unable to go public because of prohibitive costs and other expenses. 

 

Effect on Small Business

After years of lobbying and the passage of the JOBS Act, only one of the seven titles went into effect instantaneously: RegA+. With this new option for raising capital, startups could raise $50 million in money without filing a public offering. The previous maximum was $5 million; this would eventually be increased to $75 million. It also expanded the number of shareholders a company can have before registering publicly, which is essential as companies can raise money from accredited and non-accredited investors through this regulation. RegA+ and the other rules have had a significant impact on the way startups do business. This has been a significant benefit for small businesses, as it has allowed them to raise more money without going through the hassle and expense of becoming a public company. 

 

Reg A+ into the Future

The capital raising process was digitized by taking the investment process and making it direct through crowdfunding, removing economic incentives for small broker-dealers who could not make their desired commission on transactions. This resulted in many of them consolidating out of business and leaving a gap in the private capital market ecosystem that supports corporate finance. Changes to the JOBS Act are beginning to reintroduce incentives for broker-dealers, which will continue to shape the future of private investments as it will continue to facilitate the growth of a secondary market. Wield’s thoughts on the future of capital raising marketing are that the market is not yet corrected, but it is on track. He said: “I would tell you that there’s a great appetite in Washington to do things that are going to improve capital formation.”

 

Getting more players like broker-dealers involved in the RegA+ ecosystem will do nothing but benefit the space. In his closing remarks, Wield said that this would provide for a “greater likelihood that we’re going to fund more earlier stage businesses, which in turn gives us the opportunity to create jobs and upward mobility. Hopefully, since much entrepreneurial activity is focused on social impact companies to solve great challenges of our time, whether it’s in life sciences, and medicine, or climate change, you know, I firmly believe that the solutions for climate change are apt to come from scientists and engineers who’ve cracked the code on cutting emissions or taking CO2 out of the atmosphere. And so from where I said, getting more entrepreneurs funded is going to be important to have a better chance of leaving a respectable environment for the next generation.”

Has RegA+ Killed the IPO?

Posted on by Oscar Jofre

Has RegA+ Killed the IPO?

 

Regulation A+ gives issuers the ability to raise $75 million in crowdfunding while remaining private. With RegA+ benefiting both companies and investors, does this mean the death of IPOs?

 

RegA+, part of the JOBS Act, allows companies to raise funds through the general public, not just accredited investors. With more and more IPOs delayed, unprecedented access to private capital is available to all organizations. With RegA+, anyone can invest in private companies, making it increasingly popular with companies seeking capital, primarily since they can raise a significant amount of funding.

 

The regulatory and monetary hurdles that come with entering an IPO in addition to RegA+ have led to delays in initial public offerings. Since the JOBS Act was passed in 2012, funding opportunities for private companies have improved, especially with the allowance of not-accredited investors opening up a previously untapped pool of prospective investors. Additionally, the secondary private investment market increases liquidity options, allowing investors to sell shares in private companies to others without waiting for the company to go public.

 

Pre-JOBS Act, many companies were forced to go public because they were limited to a certain number of shareholders. With RegA+, this limit is non-existent, allowing them to stay private longer. In 2011, companies stayed private for about five years on average; in 2020, companies were private for an average of 11 years. 

 

RegA+ brings renewed opportunities, especially to small-cap companies. Companies gain access to liquidity, investors, and significant capital growth that would not have otherwise occurred. RegA+ offers substantial advantages over the traditional IPO. As our KorePartners at Manhattan Street Capital have pointed out:

 

  • “Startups don’t need to spend as much time trying to win over large investors and can focus instead on getting the company ready for the next level. Since Regulation A+ options are still being realized by the people who are now able to tap this investment potential, there is enthusiasm and momentum that is certainly to the advantage of the startups and growth-stage companies.”
  • “Instead of large amounts of capital being raised from a few sources, Reg A+ funding collects smaller amounts from a bigger pool of investors. This means that no single investor will own enough shares to have a controlling stake in what the company does, meaning that the startup can continue to operate as it pleases.”
  • “Word-of-mouth marketing is still considered the most powerful of all promotions, whether it happens in-person or through online means like social media. Main street investors are committing hard-earned money and have more of an incentive to see a return on it. They are more likely to evangelize the brands they have invested in which means a much wider marketing reach than if the company was spreading the word on its own.”
  • “Just as the investors will want to tell other people about the brand, they will also likely want to test out the products or services themselves. This can lead to feedback that improves what the company offers to the public.”

 

These are significant advantages over an IPO that will allow an issuer to secure the capital they need to grow, create jobs, and provide investment opportunities. Especially with everyday investors able to participate, RegA+ does a great job of leveling the playing field and opening opportunities up to those who would have been traditionally excluded from private investment deals.

Tokenization in RegA+

Posted on by Oscar Jofre

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

 

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

 

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

 

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

RegA+ for Real Estate

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

As a Canadian Company, can Canadians Invest in Your RegA+?

Posted on by Oscar Jofre

We have extensively discussed how Americans can invest in securities offered under Regulation A+. However, Canadian companies can also use the exemption to raise capital to fund their businesses. Despite the ability for Canadian companies to use Reg A+, this was a decision made by US regulators, as the JOBS Act is a US, not Canadian, law.

 

Because Reg A+ is a US regulation, it makes it incredibly simple for Canadian companies to raise money from investors based in the United States. They go through the standard procedures for Tier 1 or 2 offerings before making the offering available to investors. On the other hand, Canadians investing in Canadian companies through Reg A+ is a little more challenging to be done.

 

In theory, it is possible. The issuer would need to be qualified in each Canadian province they are conducting the offering in. They can seek a Canadian equivalent of a broker-dealer to structure the offering so that investors can invest. In practice, this is not done very often, as meeting compliance requirements for all Canadian provinces is challenging in addition to US compliance requirements. In addition, the cost would be far more than the potential upside. Interestingly enough, Canadian regulators have created rules for secondary trading that give Canadian investors more opportunities to invest. Canadian investors can “hop the border,” so to speak, and buy securities in a secondary market transaction. This allows Canadians to purchase securities in a Canadian company.

 

Even though Canadian companies could technically raise money from Canadians under Reg A+, it is often cost-prohibitive. That does not mean investors are out of luck. Through secondary market transactions, Canadian investors can purchase securities in Canadian companies, allowing them to become shareholders.

KorePartner Spotlight: Stephen Brock, CEO of Medical Funding Professionals

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

How Does RegA+ Impact the Life Sciences Industry?

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

How the Unaccredited Investor Benefits from RegA+

Posted on by Oscar Jofre

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

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

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

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

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

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

The Role of Investor Acquisition in Capital Raising Activities

Posted on by Oscar Jofre

The goal of any capital raising activity is to secure capital for the growth and development of the business. Without needed capital, it can often be challenging to expand; whether that means hiring more employees to keep up with demand, improving production facilities to manufacture a product, or funding research and development to bring more products or services to the market. However, in order to actually raise the capital required, potential investors need to be made aware of the offering and the opportunities becoming a shareholder entails. This requires marketing.

 

When it comes to RegA+ and RegCF offerings, the potential to sell securities to the everyday investor is powerful, opening up the market to a vast pool of potential investors not available to private companies before the 2012 JOBS Act. However, this also creates the need for companies to find the best way to reach their target audience and make them aware of the investment opportunity. Through marketing, you are able to inform prospective investors of the opportunity to invest in your company. 

 

More than ever before, social media has become an integral part of marketing activities across all business sectors. It allows you to reach your audience where they’re at, and as nearly seven in ten Americans are on social media, that place is online. Through social media, businesses can tell their story and use that to drive investors (and even new customers) to support their brand. Beyond social media, marketing becomes a key component of investor acquisition. Through investor acquisition, a company is able to target investors based on demographics; whether that is people who exhibit similar behaviors to shareholders, by age, by location, or by any other meaningful factor that allows you to identify the right investor for your company. The methods to target these prospects are just as diverse. While we’ve already mentioned social media, email marketing is still an effective media channel, along with online advertising, and many more channels of marketing. The importance is to use whichever channels allow you to best reach your target audience. 

 

The key to marketing is that it helps publicize your offering and find the best investors for your company. Successfully marketing an offering, as long as advertisements are truthful and not misleading, can make a significant difference in the raise’s success. Similarly, finding the right investor acquisition partner with experience in marketing capital raising activities can help ensure you meet compliance and use the most effective strategies for reaching the right audience. 

What is the Difference Between Fiduciary Responsibility and Regulatory Requirement?

Posted on by Oscar Jofre

By definition, a fiduciary is a person or an organization who holds a legal or ethical relationship of trust with another person or organization. Typically, this has to do with the responsibility or duty in a financial sense. As an adjective, it gets defined by the Oxford dictionary as “involving trust, especially with regard to the relationship between a trustee and a beneficiary.” The word gets most commonly used when stating that a company has a fiduciary duty to its shareholders. In practice, this means that the company has an ethical and legal responsibility to act in the best interest of its investors. For example, the company and its executives need to protect a shareholder’s financial investment in that company and is an example of a duty of loyalty. Included also is a duty of care, which indicates that a fiduciary will not back away from their responsibility.

 

Fiduciary duties do not just relate to the financial sector. For example, a lawyer has a fiduciary duty to their client to act in their best interest, but we will focus on the financial sector. Fiduciary responsibility in finance is a relationship between two non-governmental entities. In contrast, a regulatory requirement is a rule that a government or government-related organization imposes and enforces onto an organization.

 

Many governmental organizations impose regulations on the financial sector, like the Office of the Comptroller of the Currency or the Federal Reserve Board. The governmental-related organizations are the Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission (SEC). We have previously discussed the regulations passed by both FINRA and the SEC in preceding blogs, which detail those processes well.

 

Both fiduciary responsibility and regulatory requirements can result in legal action if there is a breach in conduct, but the actors and stage are different. With fiduciary responsibility, the beneficiary of the fiduciary duty would file suit against the trustee in civil court who knowingly or unknowingly failed in their duty. This is a relationship between non-governmental actors, so in this case, a person litigating against an organization or vice versa.

 

On the other side, regulatory requirement gets dictated by a government entity like the SEC or OCC suing a company or individual for failing to comply with the law. This suit would land in criminal court, with punitive fines, damage to their reputation, and sanctioning. For example, in California, you need to be a registered broker-dealer for a Regulation A+ offering. If you decide as a company to ignore this law, the state regulator can, and will, require you to return all money raised, and you can get barred from raising money in the state. You will get labeled as a bad actor, which will damage the reputation of your business.

 

While fiduciary duty and regulatory requirements are different in terms of the responsibilities, actors, and negative consequences involved when failing to comply, they are critical to follow and maintain.

What Forms of Alternative Finance are Available?

Posted on by Oscar Jofre

Starting a business can be difficult. Most young companies enter the scene with little capital to help them grow. Taking a loan out from the bank is a good start, but some options can end in higher rewards without a loan hanging over your head. These are alternative finance options, like raising seed capital from friends and family, angel investors, or crowdfunding. Today, we will explore forms of alternative finance available to you as a private company and where in the life cycle of your business they may appear. 

Friends and Family

In the early stages of your company’s business life cycle, raising capital from family and friends is a great place to start securing safe, additional funding if you are able. When your family and friends are early investors, they are not required to register as such, making it easy for them to help your growing company. In this stage of your company’s development, entrepreneurs will want to retain as much equity as possible. Friends and family investors make this possible without needing to give up part of a growing company. 

As you begin to accelerate your business plans, there are several avenues available that can help you raise significant capital and increase your valuation if (or when) you plan to offer your company later on the public market.

Angel Investors or Venture Capital Firms

As a private company, one of the traditional ways for you to raise capital is through an angel investor, a wealthy individual, or a venture capital firm, a group of investors that invest in companies on behalf of their clients to make them money. Both of these investors will generally invest early, requiring equity and hoping for a successful return on investment later on. 

Peer-to-Peer Lending 

Peer-to-peer lending is a pretty straightforward form of alternative finance. Typically, through online platforms, investors can enter a pool of lenders, which a borrower can pull from and then repay. This form of investment cuts out the bank as the middleman, which opens up access to companies that may not have good credit. 

Crowdfunding

Crowdfunding is a great mechanism for investments that build a company’s proof of concept because crowdfunding success relies on having a product or service people want or believe in. As the name would imply, crowdfunding is sourcing small investments from a large number of investors and falls into one of two categories rewards-based or equity-based offerings. 

Rewards-Based Crowdfunding

Rewards-based crowdfunding is an investment that expects compensation in the form of the product a company is producing. A good platform for this form of crowdfunding is Kickstarter. You will often see independent video game developers or small business owners looking to raise capital for a particular product and offer rewards based on how much an investor invests. 

Equity-Based Crowdfunding or Regulation CF

Regulation CF is a crowdfunding tool regulated by the SEC signed into law in 2012. However, it has recently expanded to allow more investing opportunities. The JOBS Act allows non-accredited investors to invest in private companies in exchange for equity in the company. More specifically, for investors with either a net worth or annual income less than $107,000, investments in Reg CF offerings are limited to $2,200 or 5% of the greater of their annual income or net worth. 

This tool allows companies to raise as much as $5 million in 12 months from many investors. In 2020, 358,000 investors participated in Reg CF campaigns. 

Regulation A+

Another method of allowing companies to have non-accredited investors invest in their companies is Regulation A+, by exempting the offering from SEC registration. Many companies have begun to offer securities through the RegA+ exemption following a successful RegCF raise. Proceeding this way will elevate your chances of raising more money, up to $75 million annually, because the Regulation CF will show potential investors that the products or services offered by the company are of great interest to many individuals. It is important to note that non-accredited investors are limited to investing 10% of their annual income or net worth, whichever is greater.

 

There are many avenues of alternative finance to investigate before going to a traditional financing option as a private company. We encourage you to look into all of these types and see which is right for you and your business. 

 

Warrants for RegA+

Posted on by Oscar Jofre

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

 

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

 

Warrants for RegA+ work no differently. 

 

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

 

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

 

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

Meet the KorePartners: Louis Bevilacqua of Bevilacqua PLLC

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

 

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

Shareholder Rights and Why They’re Important to Know

Posted on by Oscar Jofre

The first thought that comes to mind when someone says “shareholder,” is Wall Street, understandably, as Wall Street is home to the New York Stock Exchange and NASDAQ, the two largest stock exchanges in the world. In this sense, becoming a shareholder is dependent on owning stock. A common word in the financial industry, a stock is a unit of measure for how much of a company a shareholder owns. When it comes to the stock market found on Wall Street, those are stocks being traded in public companies, like Apple, Microsoft, and Amazon. These are household names, but there are also privately-owned companies that you would know by name, like Koch Industries, Bloomberg, Staples, and Petsmart. These private companies also have shareholders, who have rights associated with their ownership in a private company. For private company shareholders, there are three major rights; access to information, voting rights, and the ability to attend and participate in meetings.

 

One quick comparison we can make between private and public companies is the number of shareholders they have. Because a public company has shares available on the stock market, there is a greater opportunity for everyday people to grab at least one share, while private companies traditionally have far fewer shareholders because there is less access. However, the JOBS Act is changing the landscape, allowing the everyday investor to access more investment opportunities in private companies through Regulation A+ and Regulation CF. These regulations allow investors to invest smaller amounts of money in exchange for shares of a private company. No longer are these types of investments limited to accredited, angel, and venture capital investors. 

 

However, this plays a role in the rights of shareholders due to the volume of your voice in meetings and decisions. One right that shareholders have is the ability to attend meetings on major decisions in the company. When there are fewer investors in a company, the louder your voice will be in the room. This is important because by owning a part of that company, shareholders gain the right to participate and attend meetings to protect their investment from decisions that they feel would misuse their funds.

 

As a shareholder, you have the right to vote on major decisions being made by the company that could very well change the direction of the company. This again goes back to protecting your investment, as investing in a private company is often a long-term investment. Private company earnings can be paid out to shareholders, but the more likely scenario for a shareholder in a private company, especially if it is not a particularly large company, is a liquidity event, such as going public, buying out shareholders, or by being able to offer shares for sale on a secondary market alternative trading system. Making sure that your investment is safe is why you have the right to vote on major decisions. The same is true for your access to information. As a shareholder in a private company, you have a right to know how the company is doing, to see how your investment is playing out.

 

It is important to know your rights as an investor whether it is in a public or private company because you have put your money in the hands of others with the expectation that they will use it to grow and make more money for you in the future. As an investor in a private company, you have more say than an investor in a public company by the fact that you are one of few as opposed to one of many. Use that power and protect your investment; remember that if you own stock, you own part of the company and have rights. 

What is Portfolio Management?

Posted on by Oscar Jofre

Portfolio management, at its most basic level, is the way that an investment portfolio is designed to align with the wants and needs of the investor. Portfolio management focuses on creating an investment strategy that factors in the goals set by the investor, the timeframe involved in the investment, and the risk tolerance of the investor.

 

This is done by picking a variety of kinds of investments like stocks, bonds, and other funds and monitoring and adjusting them as needed. There are two ways that portfolios are managed: actively and passively. Often, this will be decided by the risk tolerance that a specific investor has. With Regulation A+ and Regulation CF, the everyday investor can choose to invest in private companies as well, which significantly expand opportunities to be a part of new and exciting investments.

Active portfolio management is a hands-on approach that involves hiring portfolio managers who buy and sell stocks intending to outperform investment benchmarks. To try and outperform these benchmarks, portfolio managers have to take some risks in the investments they make. Some of these risks lead to big rewards, but as with all risks, they can also lead to large losses to the investor. Portfolio managers have a fiduciary responsibility to act in good faith regarding the investment, and also have fees attached to them based on the size of the portfolio and the return on investment of the portfolio. 

 

Passive portfolio management is a mostly hands-off approach where the investor is trying to match investment benchmarks rather than trying to outperform them. Portfolios that are managed passively are frequently managed by the investor, so no fees are going to a portfolio manager. Instead of buying and selling specific stocks, passive portfolios are usually invested in exchange-traded funds, index funds, or mutual funds. This is a very low-risk approach that values slow and consistent growth over time, making it a great long-term investment strategy.

 

There are four pillars in portfolio management: asset allocation, diversification, rebalancing, and tax minimization. Asset allocation is the practice of spreading your investment into a variety of different assets like stocks, bonds, and mutual funds. Good asset allocation means that an investor takes on a smaller amount of risk because investments are protected due to the various places that assets are allocated. Diversification is about making sure that investors don’t put all of their eggs in one basket, because if that investment fails, there is a lot of money to be lost.

 

Rebalancing is done every so often as a way to hit the reset button on asset allocation. Over time, some investments might be doing very well, while others might be doing very poorly. To maintain a low-risk nature, it is important to sell both assets that are doing well and ones that are not. Over time, market fluctuations might cause a portfolio to get off course from the goals that were originally set, so rebalancing keeps the train going down the right track. Tax minimization focuses on trying to keep as much of the money that your investment made as possible. Capital gains get taxed differently depending on what investments they came from and where. Investments in exchange-traded funds or mutual funds, for example, get taxed at a much lower rate than investments in stocks. The goal is to keep as much money as possible!

 

Whether you’re saving for your first house or saving for your dream house, good portfolio management will result in investors being able to set, meet, and surpass their financial goals. The right portfolio management strategies will help to build a worthwhile return.

 

Are You Ready to Raise Capital?

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

 

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

Can IRAs Be Used for Private Companies Investments?

Posted on by Oscar Jofre

Individual retirement accounts (commonly shortened to IRAs) allow flexibility and diversity when making investments. Whether investing in stocks, bonds, real estate, private companies, or other types of investments, IRAs can be useful tools when saving for retirement. While traditional IRAs limit investments to more standard options, such as stocks and bonds, a self-directed IRA allows for investments in things less standard, such as private companies and real estate.

 

Like a traditional IRA, to open a self-directed IRA you must find a custodian to hold the account. Banks and brokerage firms can often act as custodians, but careful research must be done to ensure that they will handle the types of investments you’re planning on making. Since custodians simply hold the account for you, and often cannot advise you on investments, finding a financial advisor that specializes in IRA investments can help ensure due diligence.

 

With IRA investments, investors need to be extremely careful that it follows regulations enforced by the SEC. If regulations are not adhered to, the IRA owner can face severe tax penalties. For example, you cannot use your IRA to invest in companies that either pay you a salary or that you’ve lent money to, as it is viewed by the SEC as a prohibited transaction. Additionally, you cannot use your IRA to invest in a company belonging to either yourself or a direct family member. If the IRA’s funds are used in these ways, there could be an early withdrawal penalty of 10% plus regular income tax on the funds if the owner is younger than 59.5 years old.

 

Since the IRA’s custodian cannot validate the legitimacy of a potential investment, investors need to be responsible for proper due diligence. However, since some investors are not aware of this, it is a common tactic for those looking to commit fraud to say that the investment opportunity has been approved by the custodian. The SEC warns that high-reward investments are typically high-risk, so the investor should be sure they fully understand the investment and are in the position to take a potential loss. The SEC also recommends that investors ask questions to see if the issuer or investment has been registered. Either the SEC itself or state securities regulators should be considered trusted, unbiased sources for investors.

 

If all requirements are met, the investor can freely invest in private companies using their IRAs. However, once investments have been made, the investor will need to keep track of them, since it is not up to their custodian. To keep all records of investments in a central location, investors can use KoreConX’s Portfolio Management, as part of its all-in-one platform. The portfolio management tool allows investors to utilize a single dashboard for all of their investments, easily accessing all resources provided by their companies. Information including key reports, news, and other documents are readily available to help investors make smarter, more informed investments.

 

Once investors have done their due diligence and have been careful to avoid instances that could result in penalties and taxes, investments with IRAs can be beneficial. Since it allows for a diverse investment portfolio, those who choose to invest in multiple different ways are, in general, safer. Additionally, IRAs are tax-deferred, and contributions can be deducted from the owner’s taxable income.

Conducting a Successful RegA+ Offering

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

Regulation A+ Is Even Better After Passage Of The Economic Growth Act

Posted on by Lahdan Rahmati

On May 24, 2018, President Trump signed the Economic Growth, Regulatory Relief and Consumer Protection Act (the Act) into law. The Act was introduced by Senator Mike Crapo, a Republican Senator from Idaho, in the United States Senate Committee on Banking, Housing and Urban Affairs on November 16, 2017. The 73-page-long Act contains a short and sweet Section 508 entitled “Improving Access To Capital” that changes Regulation A in a big way.

Some Background

In mid-2015, the U.S. Securities and Exchange Commission (Commission) amended Regulation A in order to expand the exemption from registration under the Securities Act of 1933, as mandated by the Jumpstart Our Business Startups (JOBS) Act, to enhance the ability of smaller companies to raise money. Regulation A allows companies to offer and sell securities to the public, but with more limited disclosure requirements than those that apply to full reporting companies under the Securities Exchange Act of 1934 (Exchange Act). In comparison to registered offerings, smaller companies in earlier stages of development are able to use this rule to more cost-effectively raise money.

Why Is This A Big Deal?

(1) Reporting Companies Will Be Able to Rely on Regulation A: Prior to the Act, reporting companies were prohibited from utilizing Regulation A to raise capital. The Act requires the Commission to finalize rules that amend 17 C.F.R. Section 230.251 to remove the requirement that the issuer not be subject to Section 13 or 15(d) of the Exchange Act immediately before the offering. Therefore, reporting companies will be able to rely on Regulation A to raise capital.

(2) Reporting Companies Will Not Be Required To File Additional Reports: The Act requires that the Commission finalize rules that amend 17 C.F.R. 230.257 to deem reporting companies as having met the requirements of 17 C.F.R. 230.257. Therefore, reporting companies that already meet the reporting requirements of Section 13 or 15(d) of the Exchange Act do not need to file additional reports required under 17 C.F.R. 230.257.

When Will The Rules Be Finalized?

Rulemaking is the process by which federal agencies implement legislation by Congress that is then signed into law by the President. Rulemaking generally involves the following steps:

(1) Concept Release: The Commission issues a concept release when an issue is unique and complicated such that the Commission wants public input before issuing a proposed rule. The Act is very straightforward so the Commission will probably not issue a concept release and go straight to the next step.
(2) Rule Proposal: When approved by the Commission, a rule proposal is published for public notice and comment for a specified period of time, typically between 30 and 60 days. A rule proposal typically contains the text of the proposed new or amended rule along with a discussion of the issue or problem the proposal is designed to address. The public’s input on the proposal is considered as a final rule is drafted.
(3) Rule Adoption: When approved by the Commission, the new rule or rule amendment becomes part of the official rules that govern the securities industry. The new rule or rule amendment is in the form of an adopting release that reflects the Commission’s consideration of the public comments.

 

See the original article, published on our KorePartner’s blog here.

KorePartner Spotlight: Sara Hanks, CEO of CrowdCheck

Posted on by Oscar Jofre

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

 

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

 

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

 

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

 

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

 

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

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

Posted on by Oscar Jofre

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

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

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

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

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

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

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.

Warrant Issuers, Keep Your Offering Statement Evergreen

Posted on by Jeanne Campanelli

An increasing number of issuers have been using Regulation A to make continuous offerings of units, consisting of a combination of equity, often common stock, and warrants to purchase the same equity at a future date.  Under the Securities Act, the units, the shares of stock, the warrants and the shares of stock issuable upon exercise of the warrants are separate securities whose offer and sale must be registered on a registration statement or covered by an exemption from registration such as Regulation A.  That is why offering statements under Regulation A list each of these individually and why the SEC requires the validity opinion filed as an exhibit to the offering statement to cover all of them (See Staff Legal Bulletin No. 19, available at https://www.sec.gov/interps/legal/cfslb19.htm ).

 

Most warrants that are part of these structures are exercisable for more than a year after their date of issuance, often up to 18 months.  Since the exercise of the warrant and payment of the exercise price for the underlying shares is a new investment decision by the warrant holder, the offering statement covering the underlying warrant shares must continue to be qualified under Regulation A in order for the new shares to be covered by the exemption from registration. That means that an issuer must keep the offering statement “evergreen,” or qualified for at least 2 to 3 years to cover those exercises, even if the offering of the units is completed before the first anniversary of qualification.   Most Regulation A offerings permit rolling closings.  The effective date of a warrant is typically the date on which a closing is held and a warrant is issued to an investor.  For example, if an issuer commences a Regulation A offering on the date its offering statement is qualified (let’s say February 1, 2021) and holds its first closing of units on March 1, the warrants issued in that closing are exercisable until September 1, 2022, well past the anniversary of qualification.  Assuming the offering stays open for at least 9 months and the final closing is held on November 1, 2021, the warrants issued in that final closing are exercisable until May 1, 2023.

 

Under the securities laws, registration statements for continuous offerings are kept updated, or “evergreen,” when an issuer complies with its reporting obligations under the Exchange Act by filing timely periodic reports such as their annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.  However, since the analogous periodic reports under Regulation A are filed under the Securities Act, their filing does not keep the offering statement evergreen.  If an offering is to extend more than one year from qualification, issuers conducting continuous offerings need to file post qualification amendments (“PQA”)  in accordance with Rule 252(f)(i) every 12 months after the qualification date to update the offering statement, which includes incorporating the financial statements from the periodic reports filed during the previous 12 months.  If the original offering statement was scheduled to terminate before the warrant exercise period ended, the PQA would also need to extend the termination date. A PQA in those circumstances renders the offering statement un-qualified and subject to a possible new SEC review, which means an issuer may continue to make offers (so long as the financials are not stale yet) but may not make sales, such as the issuance of warrant shares upon exercise of warrants, until the SEC re-qualifies the offering statement (See our blog post on updating continuous offerings: https://www.crowdcheck.com/blog/updating-continuous-offerings-under-regulation).  Using our example above, the issuer of units would need to at a minimum file a PQA in sufficient time before February 1, 2022 to allow for a possible Staff review and comment period to meet the annual requirement under Rule 252.  Moreover, if the unit offering lasts more than 6 months after the original qualification date, an issuer should anticipate having to file a second PQA in early 2023 to cover the exercise of warrants issued in the last closing of the offering.

 

Warrant issuers should also keep in mind some additional steps they will need to take.   The subscription agreement and the warrants themselves will need to include additional reps, warranties and covenants, such as a covenant to keep the offering statement evergreen.  Plus, even after qualifying the PQA with the SEC, the issuer will need to insure that it is current with state notice filings, which typically need to be renewed every 12 months as well.

Foreign Issuers Using Regulation A and Regulation CF

Posted on by Sara Hanks

For some reason, this issue has been coming up a lot lately. Our usual response to the question “Can non-US issuers make a Regulation A or Reg CF offering?” is to point to the rules:

  • Rule 251(b)(1) says Regulation A can only be used by “an entity organized under the laws of the United States or Canada, or any State, Province, Territory or possession thereof, or the District of Columbia, with its principal place of business in the United States or Canada.”
  • Reg CF Rule 100(b) says Reg CF may not be used by any issuer that “is not organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.”

Slightly different formulations, as you can see, and note that Reg CF doesn’t say that the company needs to have its primary place of business here. But both exclude non-US or Canadian companies.

But we are getting a lot of pushback and “what if?” questions, so here are responses to a few of the most common:

  • What if we redomicile to the US? Well ok, that might work for Reg CF. It might work for Reg A too, if your management changes their domicile too (you need a bona fide principal place of business here). However, have you considered the tax consequences in your original home jurisdiction? Also, note that you’ll still need two years audited or reviewed financial statements, in US GAAP and audited or reviewed in accordance with US auditing requirements (US GAAS).

 

  • What if we form a subsidiary and it makes the offering? Yes, you can form a subsidiary here (it’ll have to have its principal place of business here too, for Reg A) and it can raise money under Regulation CF. But the money it raises here has to be legit used for the sub’s own purposes. It can’t be upstreamed to the parent, because that would likely make the parent a “co-issuer” that needs to also file a Form C or 1-A and can’t. So the sub needs to be planning to undertake its genuine own business. Even then, if it’s not a new business but just taking over some part of the parent’s business, then the sub might need to produce financials (again, using US GAAP and US GAAS) from the parent’s business or the part of business it’s taking over, because that’s a “predecessor.”

 

  • What if we create a holding company in the US? Yes, although the same issues come up. If using Reg A, you need to move your principal place of business here. For either exemption, the foreign company that is now your subsidiary will be the “predecessor” company and so again we have the need for two years’ audited or reviewed financials using US GAAP and US GAAS.

 

  • What if we create a new company that licenses the foreign company’s product or service? This may be the most promising option, but it’s really going to depend on facts and circumstances. Proceeds of the offering have to be used for the new company’s operations, in the case of Regulation A the company’s primary place of business has to be here, and you’ll have to look carefully at whether there are any predecessor issues.

How to Manage Investments in Private Companies

Posted on by Oscar Jofre

For investors, investing in private companies can be a beneficial way to diversify their investment portfolios. Whether the investment was made through private equity or RegA+, proper management can contribute to long-term success. However, once the investment is made, investors need to ensure that they are correctly managing their shares. With this in mind, how should investors manage their investments once they have been made?

 

Investments made in private companies can often come with voting rights. Being a part of company decisions is an important aspect of being an investor and helps to elect company directors and resolve issues. Investors exercising their voting rights can be a major aspect of managing their portfolio. 

 

Whether information is provided directly to the investors by the company or through a transfer agent, as companies release reports and other key information, shareholders should maintain current knowledge of the information. Understanding the company’s direction and changes that are occurring can give investors a picture of the future so they can determine how their shares will affect their portfolio. The investor should also know where the data can be found so that they are easily able to access and assess it. 

 

Additionally, investors should monitor the liquidity of the shares. Since some private company shares can be traded in a secondary market, understanding the value and the option to trade is important for investors. If they know how much their shares are worth, and they have the ability to sell them, investors can freely trade their shares. This is key if they decide that they no longer want to be a shareholder in a particular private company. 

 

However, for investors who own shares in multiple different companies, managing this information can become a burdensome task. With an all-in-one platform that incorporates portfolio management for investors, KoreConX streamlines and simplifies the process. KoreConX Portfolio Management allows investors to manage their investments from a centralized dashboard. Investors are easily able to see the shares that they own in each private company they’ve invested in. Through the platform, investors can access critical company information and performance data in one place, eliminating the need to remember where each piece of information is kept. Investors are also notified of upcoming shareholder meetings and can exercise their voting rights through the KoreConX platform. When companies and investors utilize the KoreConX platform, they can achieve higher success rates by maintaining compliance with necessary regulations. Utilizing KoreConX Portfolio Management is a powerful tool for investors to make informed decisions regarding their investments. 

 

When dealing with private company investments, it is incredibly important that investors properly manage their portfolios. Remaining up-to-date on company decisions and performance can help them plan for the future of their shares while allowing them to make decisions to increase the success of their investments. When investors understand their voting rights, company developments, and the liquidity of their shares, they can be an active participant in their financial success. 

What is 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.

KoreSummit RegA+ 2020

Posted on by Oscar Jofre

KoreSummit is all about education,  We are pleased to be able to offer you the opportunity to receive first-hand knowledge from leading thought leaders to help you in your journey to capital raising.

The KoreSummit RegA+ 2020 online event was a huge success because of you who attended and shared it with your friends.  As promised here are the video segments.

Complete Live Stream

 

RegA+ Verticals

 

Legal RegA+ Global Companies

 

Investor Acquisition/Distribution

 

PR/IR/Social Media/Press

 

Research, Ratings

 

Role of FINRA Broker-Dealer

 

RegA+ Success, the CEO’s

 

The Main Event

 

Digital Securities for RegA+

 

Compliance for RegA+

 

Shareholder Management & Communications

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)

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