What Due Diligence do I need for my RegCF

Speakers

Oscar Jofre

CEO and Co-Founder

KoreConX

Oscar Jofre

CEO and Co-Founder

Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide. Oscar is a featured speaker on Fintech, regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business.

Jamie Ostrow

Partner

CrowdCheck Law

Jamie Ostrow

Partner

Jamie Ostrow, Chief Administrative Officer for CrowdCheck and Partner of CrowdCheck Law, wears many hats. Not only does Jamie help shepherd a start-up in many of its operational functions but she also assists and advises other early-stage companies with online capital formation and general corporate law issues. This dual role together with her past experience, including as a pension actuary at PwC, corporate and securities attorney at Freshfields Bruckchaus Deringer and Counsel at the bipartisan Congressional Oversight Panel (an overseer of Treasury’s efforts to stabilize the economy through the Troubled Asset Relief Program (TARP)), makes her a valued advisor to clients. She currently assists clients through due diligence disclosures, public and private offerings, including under Regulation CF, Regulation A, Regulation D and Regulation S, broker-dealer issues and general corporate law issues and governance.

Jonny Price

Director of Fundraising

WeFunder

Jonny Price

Director of Fundraising

Oscar Jofre  00:25

All right, good morning, everyone, Jamie, so nice to see you again, Good morning. Excellent. So let’s get started. We are now on you to live. So let’s get started with everyone. Good morning, everyone. And welcome to the KoreSummit webinar series 2021. My name is Oscar Jofre, once again, we are going to have another fun session of education. I brought you some really good people today. Believe me, thank you, everyone for all those questions. And I hope you’re enjoying the videos, even though you can make it I know, first I want to say, for everyone out there in, in certain regions throughout the US that are at the moment can’t get in, we’ve got your emails, don’t worry, all of this is being recorded. It’s going to be available at our KoreSummit.io, your website and a YouTube channel. So not to worry. And we’re always going to be here, our colleagues said this morning are going to make themselves available as they always have. And we’re going to have a great conversation. But as a reminder to all those new attendees, our our webinars are very, you know, it’s sort of like let’s have a coffee, cup of coffee, cup of coffee story and no PowerPoint presentations, ability to speak to those who are doing this day in and day out. And then for you to ask questions along the way. And so I’m really looking forward to this one. Because the last couple of weeks, I have been bombarded with this question. And aid. I know, both of you have done this tremendously. But before we get started on the subject matter, let’s take a moment to introduce yourself. And as they say, ladies, first Jamie.

Jamie Ostrow  02:05

Hi, my name is Jamie Ostrow and I am with crowd check. Crowd check provides due diligence and compliance as for and as well legal services to companies who are doing basically any online capital formation. So we worked in regulation, CF regulation, crowdfunding regulation, a, and also regulation D as well as a variety of other services. And I’m also a lawyer by training and my also represent a lot of our clients with respect to the SEC.

Oscar Jofre  02:37

Oh, you are a lawyer then. Got my TV. Hey, Jonny, please.

Jonny Price  02:47

Yeah, absolutely. Pleasure to be here. With you both today. And my name is Jonny price. I lead the business development team, we funder and the largest regulation crowdfunding platform, I’ve been here for about three years, and seen us grow pretty spectacularly that in that time, it’s been really exciting, especially the last year for us and coming into 2021 with the new rule changes that go live on March 15. It’s a very, very exciting time for us. And before that, I led the US lending team at a nonprofit called kiva.org we will sit in crowdfunding of more micro loans for entrepreneurs. And then before that, I worked in strategy consulting, where I started my career. I’m from the UK originally, but now live in Nashville, and with my three young kids who you might actually be able to hear crying behind me in the background right now.

Oscar Jofre  03:40

Well, me too. That’s right. So bear with me, you know, welcome to COVID I think Jamie, you have a little one as well as your darling little girl, my five year old is going to come here any moment because he always likes to wave to everybody. But you know what we live, we were in different times, which is means that we our children are part of our zoom meetings lives today. So it’s great. We’re gonna have a great conversation today. And you know, maybe the wording is incorrectly but you know, I we call them you know, what due diligence Do I need for reg CF. And, you know, we use the word due diligence, because a lot of the times people go, Okay, I just heard, I just heard, all I gotta do is file this form, see nothing else and I’m ready to go. We’re gonna get into that. So I’m going to, I’m going to be going at it with each of you, I have kind of an outline. But keep this in mind, we can have a dialogue between it’s not meant to be kind of rigid. It just the idea is think of the audience. I want to do this. What do I need to do to get ready, both from each sides and you know, here’s the lawyer side in the in the platform side. So I’m going to start with the legal side. First I’m going to start with Jamie because Jamie quite often declined comes to a law firm like Out check to learn about regulation, see, and they go well, I started proud of profiling. And they go, listen, I just I need your law firm to do the form for me. And I’m sure that’s not the first time you heard that. So what do you need from a law firm perspective? To assist them to get that form? See filed properly? Because I call that the due diligence. But please.

Jamie Ostrow  05:27

Yeah, so we actually, I mean, it depends, obviously, who they’re working with, and what platform but for us, we have an onboarding form, which is, you know, it goes through a lot of things like, you know, describing your business and, and we asked for all your documents related to the business and onboarding forum, to get to know the business. And it’s about, I forget, for reg CF, I think it’s about 20 pages long. And because we need to be able to describe your business in this document. And we also need to understand your business and describe the risks that are going to be relevant to your business. So you know, when you go out there and sell and investor, like, you know, your best protection is to tell investors, hey, these are the risks if you purchase my business. So and then we also do due diligence along with drafting the documents, because, you know, anti fraud provisions of the federal securities law, which includes section 12, a 12, a two, and some of the relevant statutes, do, you know do subject issuers as well as platforms to liability based on like, you know, material statements or material missions, like, you know, if like, you know, in the light of the like, in the context that they put, for what they stay in these documents, so we want to make sure that our companies are protected from that. And then the other thing is, they’re obviously going to need financials. And then there’s also like, you know, what, what we find it will take will also help as well is they’re going to do, they’re going to start putting together like marketing pages, or campaign pages, which we can advise them from a compliance point of view, but we won’t actually be drafting those.

Oscar Jofre  07:08

So you said something that caught my attention there, and I’m going to pick it up, and I’m going to come back to it, you have a 20 page document form that you if you want the client to fill out in order for you to do your creation for them, right, which is, again, it’s not just coming in, fill it out. For me, it’s you got to be ready to provide that information. And we’re going to dig deep into that a little bit more. But you know, Jonny, from your reign, obviously, you’re not the law firm, but you as as Gainey alluded to, you have the same responsibility, as the law firm does to do a form of due diligence or making sure. So what are you doing further than the form See, to, uh, to compliment it? And to help that journey for the, for the company to get listed?

Jonny Price  08:00

Yeah, I’m, honestly, I think on the spectrum between, you know, being an open platform, and being a VC, that’s kind of, you know, picking winners or setting the terms of the offering, I’d say we’re probably closer to that open platform. And so we are doing a compliance review on the form. See, obviously, we have our own kind of fraud checks and bad actor checks that we do. And but I think we kind of generally don’t want to position ourselves as kind of being the arbiter of, you know, whether this valuation cap should be 5 million or 7 million, or even, you know, whether this company should be raising when we funder or not, you know, like, if, let’s say, it’s a coffee shop in rural Arkansas, like, no one on our team is going to be able to kind of say, yeah, you know, this is a good investment opportunity or not, we just don’t, are not going to know that market well enough. And so that’s kind of the philosophy, philosophy, I guess. And one important product feature that we rolled out in 2020, to try to take a big step in this direction was around lead investors. So we rolled this out about a year ago now. And now every company on we fund that is required to have a lead investor that serves a few functions. So we use a custodian structure to roll individual investors up to one line and the cap table, and the lead investor will vote for the shares of the individual investors, custodian. And so in the event of a foreign financing or corporate action, the founder only needs to collect one signature, so it’s good for them from the lead investor. But on the other hand, investors actually have representation more so than they do if those rates proxy to the founder, he might be being pressurized by a VC and a follow on financing round, let’s say. So you think that’s actually better for both founders and investors. That’s one rather lead investor place, but another one It’s relevant to this conversation is around setting the terms of the offering. And so the lead investor, average lead investor on the fund is putting in 25k. And you know, if it’s a $5 million raise, but the new rules, and probably the average lead investor is going to put in significantly more than that. And that’s an expert, right, an expert angel investor, who knows the sector knows this company inside out. And their verdict or their assessment on terms as someone that’s actually putting significant money themselves into the deal is kind of the expert that we’re that we’re kind of deferring to and is leading here in terms of Yes, like, does this make sense to launch we funder and what should what should the terms be. And when we first rolled out, we funded our reg CF in May 2016, we were really kind of emphasizing the wisdom of the crowd. I think over time, obviously, we still believe there’s a lot of wisdom in the crowd. But we also are looking to complement that now with wisdom of the experts. So another another product feature is we have these expert interview panels, where a couple of sec sec sector experts will grill the founder for 1015 minutes, on pretty deep questions pertaining to their business. So if it’s a biotech company, for example, it will be, you know, maybe investors in the biotech space that will really be putting them through their paces. And so we also will then share that and surface that to investors. So it with the lead investor, the expert interviews and other ways over time, we’re trying to complement the wisdom of the crowd with the wisdom of the experts, but also not necessarily have Wi Fi on the plane, that kind of centralized gatekeeper role. That’s I think, what regulation, crowdfunding and investment crowdfunding allows us to move away from.

Oscar Jofre  11:44

That’s pretty interesting. Yeah, it’s an interesting dynamic. You it’ll be interesting how it plays out, because we got that model, we tend to see more on the accredited investor side with, with investors that are very qualified. Not so much qualified, but they, they have a different way of acting and pursuing their grievances. The the crowdfunding investor, I’m not so sure. Ay, ay, ay, I’m already dealing with a an issue in this model where they feel like they got put into this thing. And they didn’t realize what it really meant. I want my rights. And it’s really interesting, I bet it’s interesting. I do like the fact that somebody’s coming in and doing the, the additional due diligence, I think, you know, due diligence, there’s nothing wrong with it. I think in general, it just, we, as an industry, we want to make sure that these companies are coming well prepared. So you’re going the extra mile by Hey, listen, there could be a lead investor in your deal with that expertise, and they’re going to write a significant check as well, which is great on on any level,

Jonny Price  12:58

you guys will probably know this better than me, what other platforms do hear from, from what I understand, which is very imperfect, I don’t know in detail what like a republic or star engine will do. But, um, but I believe that this this structure of a lead investor, who is basically, you know, trying to advocate for the rights of investors, is, is industry leading in terms of protecting protecting investors? Sure, they they proxy their their rights to the lead investor, but I believe most other platforms are proxying rights to for example, a founder and say, say the kind of investors as a book, maybe have less

Oscar Jofre  13:39

No, no, I’m not seeing that. I I love the thing about the crowd that is very good look at taking the traditional model from due diligence making it easier. Okay, formed seats done that and I’m going to get back to you again on that a little bit on that question. But from a shareholder point of view, the we see something else in the back end, we what we see is confusion, confusion from I’ve got, so here’s one we’re dealing with now. I thought I invested in company ABC. How come I’m being invited for Wait a minute, what does that lll? What does that have to do with then you have to explain it to them. And I know when I recorded to the offering that that’s exactly how it was described. But nobody really understood this investor, this investor’s emotionally purchasing in, they never saw the fine print or the allow, they just see, you know, because they’re all the more than marketing was done on this company. So I’m cautioning that element, because this audience is still, you know, young, we’ve only got five years we only touched 350,000 of them so far. They’re storing 33 million more to come which is great, and we have a lot of education to do. So. I’m all for testing different models, but I see it after the fact. And this is where the concept and the one thing that’s different about this particular investor, they take their agreements to social media, not like an accredited investor calls Jamie says, Jamie, I want you to COVID. You know, it’s kept in quiet, this investor takes it out there and, and then it starts creating. And we’ve seen what can happen when the crowd gets together when there’s a misunderstanding. So, but I’m not, I’m not judging one way or the other. I’m just a it’s a like, it’s an interesting model. And I’m glad to hear that we’re testing new things. And what I’ve seen, I can only go by what we’ve seen, we haven’t seen the model where the platform becomes the proxy owner. So far, the new platforms that we’re also working with, not a single one has that in mind, they want to be like yourself, we’ve under be agnostic, so which is good. But this is leading us to the whole issue of, you know, the due diligence, right, a lot of them, they’re there, they’re either going to go too far. And that’s a problem, because that’s not really your role. But then there are service that companies can retain. So I’m going to come back to you, Jamie, as I said, you know, you mentioned that form, you said something in there as well, that one of the things that you do with all that information, you’re also creating an independent due diligence report, am I that? I did get that correctly? Right? Yes. So that independent PD report is something that the company can use when going to funding portals or providing it to investors, and I’ve seen it on incident, so that that’s giving a third party DD to the investor base at large on what you see in the company. Can you explain that a little bit further?

Jamie Ostrow  16:53

Sure. And I will say that our you know, detailed in support is for like, you know, legal and like corporate governance compliance, it’s not going to be, you know, as Jonny mentioned before, like, you know, valuation, we don’t get into valuation, we are not business experts. That’s not where our report is. So what our report does is we kind of go through the company and kind of make sure that their housekeeping is in order. Right, like, you know, it’s not unusual that will, you know, companies come to us, especially in reg CF, where they’re like, Oh, yeah, I just like, you know, use like LegalZoom, or whatever have a company did, like, you know, kind of, you know, bootstrap some other documents and don’t have any, like, you know, corporate formalities or what they do have is incorrect. Or sometimes, you know, what they’re trying to sell doesn’t necessarily, like, make sense for them. So like, you know, we can help them with that, for like, you know, not knowing what they saw previously, right, like companies might have sold safes and not understanding that their safes only convert into preferred zz or what their safes do or, you know, or the safes have terms that don’t actually makes sense. Like, you know, in, you know, someone in the company, you know, you know, fudged the document a little bit, and like, you know, we can’t even understand a little bit what they’ve previously sold. So a little bit of cleaning that out through the process.

Oscar Jofre  18:15

So, Jonny, so when I hear this independent report, and I look at it from the the two models we have where the lead investor there Normally, this the independent report help, I mean, that could gives even further confidence does would it not? I’m just curious if that at all.

Jonny Price  18:34

Yeah, I would imagine so I mean, you know, third party, third party, kind of, you know, review and assessment from a law firm, like Krawcheck who are like, you know, experts in in this equity, crowdfunding space. I don’t know, we don’t have any, any data will be a cool AB test around, you know, to to kind of show 50% of investors, the crowd check kind of seal of approval and 50% not, and see what the increase in in clicks and investment volume is, but

Oscar Jofre  19:05

that suggested, yes, I think anytime you want to do that. But Jonny, you, you touched on a really good point. We’re, we’re, we’re growing up that, you know, in the reg D world, it makes a big difference. And I just want to touch on that, because I know we’re laughing about it. But I think that’s a wonderful idea. What difference would it make to this type of investor knowing there’s a crowd check report? I like an independent third party will win it let allow them to say, I’m going to put not 100 I’m going to put in 1000 Did you know that’s it? Did you know what I mean?

Jonny Price  19:43

Yeah, absolutely. I would love to be able to do more A B testing. It’s kind of tough, right? Because he if the crowd check report has been kind of made provided to a founder and you better believe that founder will want to like show that to all their investors. Right? And because obviously it’s Gotta increase confidence. And that’s to some extent, it’s just the question is, is that I’m saying are 100% or 1%. And so, you know, Ben, so then the founder will want to share it to everyone. And so it’s tough to operationalize and ABTs. But over time, hopefully, you know, as soon as the numbers get bigger, and as kind of bandwidth on the product team grows, hopefully we can do some of these tests. Another AB test I’m always curious about is minimum investment size, you know, I’m always advocating for founders to go for $100 minimum when we fund that we allow a range of $100 to $1,000. And, you know, if you go for $100, you’re obviously going to have a lot more invested. And that’s kind of what, you know, we’ve been there is all about. But, you know, does that mean that obviously, average investment size will come down? And does that mean, you’ll raise less money in aggregate? And so again, we’d love to run an edss there, but it’s kind of tough to your one day No, I

Oscar Jofre  20:55

I’m tracking over that right now. Not so much on breaks here. But on RegA? Does it make a difference? Whether you manage 100 500 or 1000, psychologically and all that in within a beat? Yeah. Do you know the in RegA?

Jonny Price  21:12

What’s the answer? If you go from $100, minimum to $1,000? minimum on a RegA? What what’s the Delta change in aggregate investment volume,

Oscar Jofre  21:22

you’re gonna you’re gonna love this. So the amount of hits you get on $100 is more than 100 to one to the one 1000. But one 1000 comes in and leaves.

Jonny Price  21:34

But that doesn’t make any sense. It there’s no way it’s going to be 100x. difference. And

Oscar Jofre  21:40

again, it’s just it’s just, I’m not talking about money’s coming in, but I’m just talking about people coming to the sites in 100 versus 1000. There’s an expectation I believe, when you’re targeting the non accredited, or the, the the market at large, it’s a psychologically loaded, it’s no different than when we go shopping, right? You have this perception in your mind that I saw an ad somewhere where I can buy a TV for 2999. And you go to two sites, and you go one at 29 a night and the other ones at 199. You go No, no, it’s a 20. And even though it could be the same TV, and it is 2999, but they made it, I’m just, I think we My guess would

Jonny Price  22:19

be 3x, my guess would be 3x. The number of investors if you if you lower it from 1000 to 100. But that the total dollars would be slightly higher for $1,000. But that’s total. Okay.

Oscar Jofre  22:31

Yeah, we got on, we got a ways to go on that one. So but we’re learning so

Jamie Ostrow  22:38

ask our plugin for you a little bit. Because I mean, on this one, you know, as a transfer agent, well, you guys, obviously your costs are much like, you know, good with this. But like, you know, as a transfer agent, some of these things, if you have $100 means you’re gonna have a lot more investors and a standard transfer agent, you can talk a little about corporate x is going to charge a per investor fee. So your $100 might end up being significantly more expensive in the long run.

Oscar Jofre  23:04

Thank you, Jamie, I appreciate that. That is true. The traditional model punishes you for having more, we have a different view, we want you to have more, right, there was one client that I really enjoy. They’re shooting for a million. I mean, they give me a hard a dagger, we don’t. But I love it. I think it’s exciting. It’s everything the jobs I was created for, right? It’s a client of yours, Jonny and the client of Jamie See, we all share the client and I love their journey there. So there they are the poster child of both regulation CF and Regulation A, their objective, so so thank you for that note, the so obviously, we we need more work, obviously, we need to know what these independent report like the one from crowd check could have an impact. And you’re right, Jonny. The point is, if I have a positive report, I want everybody to see it. But obviously from a curiosity, we all want a death, then we will find a way we will find a way. So obviously now, I want to pick your edge without obviously going in client. But what are the roadblocks that you often see, when you’re creating this when you’re working with an intrapreneur Jamie? And coming to you they’re ready to go you’re given the 20 page one, what are the things that are coming out constantly over and over again that they’re unprepared for? Or they go like Wow, I didn’t know I needed all this. Right. I heard it was so simple. Just curious. From your point. What do you see?

Jamie Ostrow  24:33

And I think it depends on the client. I mean, obviously one of the big roadblocks so you know for reg CF, it’s not as big for the first time direct See if you can raise the full amount on reviewed financials is getting your financials in order. And for some companies that’s easy peasy. You know, I just started yesterday on a man or woman in a garage like you know, I got a zero balance sheet grades. For other companies. They’ve been operating for a while, even if it’s just a word Standard, you know, they might eventually want to go a RegA or do a reg CF later, you know, subsequent reg CF where they will need audited financials, it’s, you know, they’ve been operating for years, they’ve been operating on a cash basis, they have to move to an accrual basis, you know, not necessarily like they don’t, like, you know, it ends up being a significant heavy lift for them. And we like, you know, I can speak on the audit, like framework, like, there are times we start with a company, and they kind of disappear for like, four or five months until they get their audit in check. Right, like, and going through the process, especially if it’s, you know, a company that hasn’t been up has been an operation has lots of small sales, like, you know, isn’t an industry that like, it’s not everything is online, or computerized, like, you know, you were talking about a coffee shop, or a coffee shop could be a really heavy lift, depending on what their receipts and what their books look like. And then also just, you know, talk about, like, you’re right, like, you know, making sure we onboard them understanding, hey, this is not, you know, just the one side, you can’t just say, what do we do coffee shop and crowd, Jack’s going to put together a document for you, you know, it’s going to be a heavy, it’s going to be a heavy lift for a lot of the companies, as far as answering our questions and understanding where they are, and also kind of going through, you know, lifting the lid and kicking the tires, a gelatins process, you know, you know, understanding how their documents are, and like, you know, what sort of corporate governance they’ve kept in place and where they need to go. And understanding that the process could take a few weeks, or it could take several months, if not more, depending on where they are, like, you know, mainly do the financials, but like where they are.

Oscar Jofre  26:37

That’s good. Oh, that’s great insight. I mean, it’s helpful to everybody, that preparation, right? And you’re right, I’d say, so many are just, Hey, I’m ready to go. Boom. And Jonny from your brand. Are you seeing the same kind of roadblock that the financial cybers or other elements that you’ve seen outside of that, that become kind of barriers to going live or approving them?

Jonny Price  27:02

Yeah, um, I think the financials is the main one. Yeah. And you know, that that gap financials, like converting from cash to accrual, obviously, especially, you know, it’s like a brewery, for example, on Main Street brewery with like, a ton of ton of transactions. And that’s a stereotype. But maybe, maybe brewers are not the best bookkeepers. So you know, it depends on the founder, how clean their books are, how complex the book saw. So yeah, that’s, that’s usually the long pole. And, I mean, one thing we’re really excited about is testing the waters. Right, I think that’s gonna, that’s gonna definitely expedite its climb. To founders kind of starting to fundraise here. And so I do think that will significantly increase the number of companies that are trying to, you know, explore raising in this way.

Oscar Jofre  27:54

Yeah, exactly. They can test the waters and getting it will help Hey, you got to get your books in our Hurry, hurry, hurry, there’s, there’s becoming a bit of a demand. So let’s now let’s move forward. Because I mean, we’ve had a few years raising up to a million 1,000,070 was good, the crack a lap? In filing a form, see? So Jamie, I mean, you know, project the firm with Sarah and the team, and Andrew and yourself and many others, you guys have a really good pulse of what’s going on at the SEC, do we anticipate the form see being amended in any way now? Because 1,000,005 million are not the same way I work, I already see a different type of company already coming into the space. So is that going to change the due diligence component, rather, we’re going to see real estate, real estate is going to be a heavy, you know, one of the major assets? Do you see any of that coming?

Jamie Ostrow  28:49

So I don’t think there’s, I mean, I think the FCC regime right now, and then I could be wrong, and I don’t have any insight into whether there are going to be changes to the form See, but the disclosure requirements are, like, you know, at this point are pretty good. It’s so you know, it’s more of a matter of compliance with the disclosure requirements that already exist. Right? Like, you know, so you could have disclosure requirements, but if people aren’t actually like, you know, following what they’re supposed to include, or like, not including enough, then obviously, you know, garbage in, garbage out. But I don’t think they’re necessarily needs to be changes to the requirements themselves. But I think people really need to start like focusing a little bit more on making sure that they’re more compliant and like, you know, really, like, you know, you know, following what needs to be disclosed and understanding a little bit on look, companies could potentially be liable for it either, you know, it’s like, you know, you need like, you know, if you worked on it, like just making sure you understand what it is and when an increases from 1 million to 5 million. It’s not that the regime has changed, but like your exposure might have changed.

Oscar Jofre  29:57

That’s a great point to say that The actual in the regulars are going to pay a little bit more closer attention you’re taking in more money. Right. And it could be more holders, Jonny, from your point of view, I mean, obviously you’re hearing from lawyers The form is going to change. Is there anything going to change from wayfinders point of view? The the amount of information, you can follow the same process, regardless of the dollar amount? Um,

Jonny Price  30:24

yeah, I think so. Like I mentioned earlier with the expert interview panels, and the lead investor, those are two very important, I think, excellent product innovations that we rolled out last year, that are trying to, you know, kind of just provide more and, and kind of higher quality information to to investors. And by higher quality. I mean, you know, obviously, I think it’s great that the SEC mandated, you know, two years of gap financials, again, by two incorporation date of the company, that’s great, but the biggest thing that keeps me up at night is investor protection, and investor returns, you know, and or not necessarily returns, because, you know, this is startup investing, right, like a lot of probably the majority of investments on platforms, like we found that will go to zero over time, right? If you look at venture capital investing, right, like even for more established companies, probably majority of the companies might get zero, right, and then the one Uber in the fund, the power law returns a whole fund. So if a power law distribution means that the millions of investors who invest in refunds on aggregate, make a 10% IRR, like from one, you know, the next Uber IPO, and then a lot of these investors who were just making one investment are gonna lose all their money. So not necessarily invest returns. But that’s certainly kind of, you know, are investors going into this with their eyes open? Do they understand the risks? Do they understand that this is pretty illiquid investment? And you know, that that’s kind of really what keeps me up at night, above all, in this model, and working working what we fund. But so what I meant by high quality before was, for me an expert interview panel, a video that you can watch for 10 minutes, where experts in that sector are asking founders hard questions, or a lead investor, like in a leading angel investor in that sector, who’s putting in 100k. On the same terms, those things are great examples of quotes, due diligence or relevant information that is communicated an easy way. Because you can have like, a lot of kind of detailed disclosures, but we know like a lot of people don’t read. And sometimes the danger with kind of bubbles might be that, you know, people kind of follow each other like sheep. And so trying to try to present the right information, the right information, but in also in an accessible way, is a hard challenge. It’s like a product and design challenge, I think, as well as a kind of legal and, you know, kind of financial due diligence challenge, if that makes sense.

Oscar Jofre  33:04

No, it does. You know, I do like the expert panel, I have to tell you, that is I like the fact that a company has to go through kind of a review an independent group of people, experts that are in that area, like biotech, or, you know, consumer goods in particular now, because, well, one, we’re increasing it to $5 million. It’s not just in your right investor protection has to be at this most. So we got to ask more in depth questions, but not only that, we’re introducing a brand new investor into this pool, who can write a fairly significant check. And traditionally would rely on a broker dealer to do that due diligence, or a major lead investor writing a check bigger than 25,000? So obviously, this puts us all on kind of not so much on notice, but saying, Hey, listen, if we want to attract both investors, we have to provide that new level, I think what’s going to happen is platforms to be able to attract that new audience, meaning their credit, which in most cases they already have, but to attract more of them, and to write bigger checks, which now they can under the new regulation that comes into effect on March the 15th. will be these kind of things. So that you said john, is that they an expert panel is just one more thing. Okay, good. Somebody else reviewed it with more expertise than I have good crowd check record. Good. two verses. I’m not really sure. You know, I, this is a you know, I don’t know if you guys saw this, there was a report done by Nick crunchbase. Oh, my goodness, they do it. The other one’s gonna escape me right now. But I’ll come back to the name but it’s the pitch book. That’s what it is about. crowdfunding regulation, crowdfunding, and you need to understand why this is important. Because up until recently, they had never written a single article about crowdfunding. They didn’t think it was important. But for the very first time they feel the regulation CF, will tap into their seriously, you round. So back to your point, Jonny, that that structure, that type of investor is looking for a lead investor, right? Maybe the checks will be bigger than 25, which is even better. Right. And it will then become kind of a follow up. And if we can educate that industry, that the market at large on that, what do you think of that? I mean, did the exact change the model? Obviously, you guys have thought of that? We found a return?

Jonny Price  35:32

Yeah, absolutely. And, you know, the lead investor is the average check size is 25k. So, there’s a lot that that is significantly more than that, and it’s a signal on the campaign page, how much the lead put in? So, you know, if you’re raising 5 million and your leaders only put in 25k, I’d say that’s a, that’s a negative signal, right? versus if they put in 350. k. So, yeah, and with with the 5 million cap, I mean, one thing, that’s why it’s cool, you know, I think a big part of like, investor protection slash, or at least more kind of actually investing upside and investor returns is, you know, can we get the next Uber on refund, as opposed to, you know, raising from angels in a reg D, or VC is the more conventional fundraising approach historically, right. And so one thing that I think is cool is that, you know, we’re talking to a charity or Y Combinator company the other day that the founder told me, you know, 1.7 million, not not really worth it for me. But at 5 million, all of a sudden, like, reg CF becomes more attractive, and that the benefits outweigh the costs and say, now, okay, we’re going ahead and launching the dam. And so, you know, that that’s a good example, for me of where these rule changes, I hope will help get more of the very, very best founders using reg CF, which ultimately, I don’t think there’s anything better than that, for driving one term, you know, investor returns and a ability to participate in the upside here, which is, I think, what we’re all excited about, right? It’s like, why shared the wealth created by the next Airbnb all accrue to the top 1%? Let’s, let’s spread that out.

Oscar Jofre  37:11

Agree, Agree that you need to get the next Airbnb on reg CF in order for that to happen. 100%. And now we can actually, you know, we’re not going to talk about secondary market trading, but at this call, we other webinar on that. And Jamie, from your rain, add crowd check, obviously, they we now bring a new element into this picture. I that element was there before, but it had the same restrictions as everybody else right, in that smaller amount of check. That’s a change the, you know, I know, I’m putting you kind of on the spot. But do you think it will change the crowd check report DD report, given that the the audience now is going to be an accredited investor? Do you? Do you think you’re going to enhance it any further? Well, she’s just it is what it is. And that’s it.

Jamie Ostrow  38:03

I mean, we’ll always I mean, like, we always like to enhance thing based on feedback. Like, you know, client needs. I don’t think so because I read CF report is very similar to a RegA report, which also like, you know, which was up to 15 million ahead of time. So it’s not, we’re not going to really modify like, you know, unless, you know, we get feedback otherwise, that people are really looking for this information, we’re not necessarily going to modify our report. And I will like to say like, I echo a lot of what Jonny was saying, like, hopefully, because the limit is increase, it’s going to be a way for, you know, bigger companies to really like a little bit more established companies to really start trying reg CF for them, like use it maybe as a gateway to reg a or other like financing in the future where everyday investors can get the same opportunities.

Jonny Price  38:53

I mean, just to double down on what Jamie said, it should not be the case. This is a little bit naive, probably. But in my kind of, you know, idealistic world, it shouldn’t be the case that accredited investors have, like, extra level of due diligence and unaccredited investors. Right. I think that’s

Oscar Jofre  39:12

the one. You both say something really interesting that I do to agree that we’re going to see a very different type of company coming into regulation CF, that hadn’t come in before, because it’s John’s point, you know, for 1 million. It’s really not worth my time. You know, you got 5 million on the table. Well, wait a minute, this has changed. But here’s my only fear. So I do have a fear. And because I’m 11 years and Sarah, I’m sure she’s 1213 I’m 11 years into this and I love it. I believe we’re just getting started. See, I believe we’re just getting started. We got a great momentum going and we cannot forget how we got started and I And I want to touch on this because a little bit, because we saw it in another industry many years ago, I saw it in the lending business. So crowdfunding lending was a major success, where the crowd came in putting the dollars, and allowing everyday other people to get loans. And, you know, people would play the banker with a middleman in between, or help businesses and all that. But these things became such a great success, that they started taking institution money. And within a period of less than five years, the crowd now is gone. So the crowd is back to where it was, and it’s institutional money being used here. So why am I coming back to this? My only fear in all of this is that I hope we never forget that company that raised 10,000. See, I really, it’s gonna, it’s gonna sound funny, but no, hopefully not. I like my very first reg CF client, because I’ll never forget who they were $10,000 was everything this lady needed. That’s it. And her business was able to get started. I think that in itself was the jobs app. And I also have billion dollar companies raising 14 15 million, you know, you won almost 1.5 billion, and everything in between, and I’m proud of all of that I love. I love the journey. I’m an intrapreneur. So I, I swell on it. My only fear now is, are we going to take our eyes off the company that only needs 50,000, not to get the coffee shop started. But to get that dress shop started? And or we’re just going to go, Hey, they want 5 million This is the better play the report?

Jonny Price  41:45

Yeah, so I can talk to that from the refund perspective, actually, also from the chemo perspective. So before we find

Oscar Jofre  41:50

humor, yeah, of course,

Jonny Price  41:52

I found that the key the US team back in 2011, and three, that for seven years, actually, several of the people who worked with me on that, and now we found that so I think, for us, it’s like very much in our DNA, you know, but he was a great, he was a great option. And now I think up to 25k and 0% interest, that’s loans, not equity. But you know, if you’re only raising 25k, I would say probably alone is, is a better option than kind of adding the complexity of, you know, different different kind of owners of the business anyway, and dealing with kind of ongoing profit distributions, etc. So I think he was a great option, we can credit great platforming in Pittsburgh, that dude, that raises fixed on Main Street businesses, less than 50k, we found the starts of 50k. But I mean, we are gonna have a lot of companies in that range, I think, and more kind of, again, Main Street, small businesses versus, you know, tobacco tech startups. Although even even, you know, tech startups, I think, this is a great way to do it, friends and family round. It’s a super efficient, streamlined, you know, supercharged way to do friends and family rounds. But a lot of these 50k raises are going to be mainstream. This says, I one thing I’m excited about with these March 15 rule changes here is testing the waters, right. So again, for for an independent coffee shop, with cash books that are a mess, right? to pay for a CPA, or I guess not a CPA review. But if there was less than two, okay, but still, you know, to get their books into gap format is like a big pain. And they don’t even know if they’re going to be able to raise the 50k on the platform, right? So now we’re testing the waters, like, try to try to feel it out, get a sense of that. And then if they are raising, you know, they kind of getting up to that, and they feel more confident that this is going to be a success, then they can commit to doing the gap financials and filing the paperwork and doing the form see. So I think that, you know, 5 million is one aspect of the rule changes and take your point or skirt, that that might kind of be a gravitational pull towards larger companies. But I think testing the waters is actually really have opened up the floodgates in terms of like, who is going to be able to launch a campaign and potentially use reg CF to raise smaller amounts of money. So I think at both ends of the spectrum, these rule changes are very, very exciting.

Oscar Jofre  44:10

Yeah, and I’m glad to hear that from you donate because I, I think about this a lot lately, because a lot of the platforms that I’m the new ones that I’m meeting. So what’s your target? Well, we’re really going after the company that’s going up to one to 5 million. Yeah, but the jobs app was for everybody. I know. But we found I’m ready, man. I’m ready. This is my background hurts me. It hurts me to hear that you know what I mean? Because it’s not what we all intended. And so obviously, Jamie, for you, clients as a client, they wanted

Jamie Ostrow  44:48

a client is a client, but at some point, it’s not economical for them to use us. They want to raise $10,000 and like those, and I think those people still need to have access to the capital markets, but like, you know, They need to, like, you know, we found in some of these places have been good with some turnkey functions, right? Like, you know, where anybody can just show up, but you just want to figure out, you know, what they should be selling and like, you know, get good advice there, because someone who raises $10,000 doesn’t want to get like, you know, whatever. How many clients wouldn’t be 100 100, client 100 investors at $100 each, were then like, you know, they don’t have necessarily a good exit, these investors then have this illiquid security, they have to think about what they’re doing with these investors, they have three years of on, well, maybe not three, but maybe one year of ongoing reporting requirements, and just have compliance and updates that might be far in excess of what they really need to do were like, you know, there might be other options like Kiva or like, you know, or there might be different securities that make sense, like, you know, some sort of revenue share for like, you know, the coffee shop, where people get their money back, and they don’t always have to stay with the company. And they like, you know, they’re not going to end up being lifelong equity holders. And

Oscar Jofre  46:03

that’s a good comment, Jamie, that that’s very good. It, you don’t always have to offer equity, there’s different models to get your financing. Not everybody needs to be a billion dollar company. And but that doesn’t mean you can’t give people a return. You know, this is a, you know, VC say the reason we don’t invest in the rest of the market is because our lifestyle companies, I totally disagree. I am very proud that the fact that we have a number of unicorns that came from the crowdfunding, and crowdfunding made them unicorns not venture capital, I think they both need to work together, I think this is the era we’re in, we can say one is better than the other. I think both of them working together gets a company even further. There are some lifestyle companies, and that’s fine. Those are well known. But I just, I always want to make sure that everybody has an opportunity, because Are we going to be is or are we going to create a new advocacy group saying, Look at this, all this is good. I know the little guys are getting left behind, right? So that’s it, the fuel that I’m having is, you know, Karen Carrington creating a, from the Small Business Association, doing a search with all her members and asking them, so how are you liking crowdfunding roles? Well, that was great. But you know, now I’m too small for that. Right? So I already know there’s at least 15 platforms that are coming live, that will not do anybody under a million. And I, you know, I and I want to echo the message to everyone, that that’s not the case we I we ponder, obviously, 50,000, that’s not unreasonable. I mean, it’s slow, you can do a lot with 50. But there are going to be others that as well with we found that are not going to push away that because your roots got started at that point. Right. That’s how you guys got started. I as well, for crowd check. I just want to make sure it’s even. But with all of that, I think Jamie nailed it, you still need to make sure that you meet all your the the obligations associated with whether you raise turn 50,000 300,000, whatever the amount is, nothing moves away from the disclosures or anything. Right, exactly.

Jamie Ostrow  48:17

But I, I will say you’re at you’re talking about platforms that are like, you know, looking only in the million to $5 million range. There also might be platforms, you haven’t seen that many, like, you know, that at this point, that might be looking in the niche markets to where, like, you know, you know, someone who wants to do X might get lost in one of these larger platforms potentially, or potentially not, right, like, you know, because they only, you know, their neighborhood coffee shop, and they’re handing out napkins to everyone who passes by to be like investing in their investors or going straight to them. So they’re not going to get lost in the mix. But you might have platforms that might be you know, hey, we’re looking for, you know, something very nice, right? Like, you know, and people are going to know, this is where my business can get money, because this is the place for me to go.

Oscar Jofre  49:00

Good point. Good point. So obviously, we’re getting to the point. I mean, I’d love to hear your closing remarks. Obviously, the whole idea was to tell people I hate that word due diligence. I don’t think it’s a bad word I we need to onboard you. And in order to onboard you, you need to be prepared. Jonny, I like to give you a couple of minutes to tell everybody you know, obviously you guys are really open. You guys have been really great. You take on like, you’re right, you take on everybody you don’t discriminate, which is fantastic. And with the new model, so you know your closing remarks in this discussion from onboarding would you give them the three high level points for everybody who wants to come to we found it to apply?

Jonny Price  49:41

Yeah, absolutely. I mean, just to give a shameless plug, as of March 15, you can raise 50k to 5 million and on refund. So anywhere in that range. If you are the small business that Oscar’s talking about all the way through to their, you know, startup and doing part of the a series a venture on the venture capital part. And so yeah, we found the.com slash res is where you can go to, and kind of learn more, our FAQs are really great. And then the process to set up a campaign and start raising money, I think especially with the new testing the waters regulations, is going to be going to be pretty easy. And, obviously, um, you know, you’re, the lion’s share of the money usually is going to come from people you bring. So it’s definitely not the case, that you put up the campaign and watch the million dollars roll in from the refund the investor network, and you will have to find a lead investor. And the more they’re investing the better signal that is, you know, you’ll have to get your community, your LinkedIn connections, friends, family customers, to invest. And then the more you can bring from your network, then the more exposure you get, and typically, the more you’ll bring in from from the refund or investor base. But yeah, we’d love to obviously, chat with any, any founders that are considering raising money in this way.

Oscar Jofre  51:10

Thank you. It wasn’t a shameless plug at all. No shame in telling people what you guys are doing. Because, you know, it goes without saying you guys have been leading it, you’re the leadership, there has been luck, you’re still there, you haven’t given up on anyone. And the fact that now it’s getting increased to 5 million, it’s only gonna make it bigger, it’s gonna be it’s gonna

Jonny Price  51:32

be an unbelievable year, you know, 2020, if in the whole industry grew by 2x, the key for refund, it was about four and a half x on key for 2019. But if you looked at 21, I mean, with these WorldVentures, it’s, it’s going to be absolutely explosive. It’s it’s really very exciting, I think, for all of us. And that’s cool. Because like, you know, the more success stories, I think there’s still some reticence right, like, it’s an easy thing. It’s not like the tried and tested path is still some lawyers out there that are kind of like, you know, skeptical of companies raising capital this way. But the more companies do it, then I think, and networking and network effects will kick in where like, more founders on platforms like we funder is better for investors, and then more investors is going to be better for founders more eyeballs, we can put them in front of like a two sided like network effect, which is powerful. But then also the more success stories, there are no more great companies now that are using it because of the 5 million cap, then it will just start to become more and more commonplace. And our vision is, you know, in five years time, it’ll be an absolute no brainer to do your seed rounds, where you give your own your customers and your community and your fans a chance to become owners early on, as well as or even instead of millionaires and billionaires and institutions. And it will just be like so common that it’s like we are kind of it’s kind of a weird move not to do that. I think that’s that’s the vision we’re shooting for.

Oscar Jofre  52:59

is funny yesterday, I had Samson Williams from cfpa. He was referring to them investor investors. So investor customer together in which is you know, we’ve been talking about that for a while.

Jonny Price  53:15

But you’re not one your customers to be owners of the company. Like then there’ll be more loyal customers and more passionate brand ambassadors. I mean, it’s logically pretty obvious to me, I we did a case study on I did read a blog on kingsguard. And that showcased an example of neuro hacker. And he wrote a b2c company sold exclusively through their website, and they anonymize their sales data and then shared it with me. And we saw two things. One, they, they had people that were not previously their customers, he then invested in the refund campaign, and then went on to become their customers. And then secondly, people that were existing customers that invested in the campaign went on to spend much more money and have a higher LTV over time, then customers that looked pretty similar but didn’t invest. So increase engagement with existing customers acquire new customers, especially for b2c companies, but for b2b companies as well. Like why would you not want that? It’s, yeah, it’s become more and more obvious that two founders over time.

Oscar Jofre  54:18

Yeah, it’s it is a an exciting, exciting journey. I’d like to say I’m pumped. Obviously, Jamie, ladies first ladies last I’d love to hear your your last comments on this. I your reg CR form. Obviously, I think that would be such a great day to put out there ready for people to get them ready. Like I really believe in preparation. So the floor is yours.

Jonny Price  54:44

Yeah. And I’m going to echo some of what Jonny said like I think we’re entering a really new exciting space. Now but and also agreed. I like that, that what’s the goal neologism? What was that the investor customer neologism Yeah, I think for reg CF, it’s one of those you have a lot of companies and an ounce of prevention, like, it’s easy to fix corporate booboos or corporate mistakes, you know, now, then later on or making sure like, you know, working with a team that can make sure like, you know, make sure you’re not, I’m not gonna say you’re not going to make mistakes, you’re an entrepreneur, you will make mistakes, but can the least help guide you into some of the best practices as to what you’re reselling, and making sure that you don’t overstep your bounds? Because I think there will be an increase, there potentially, will be increased spotlight on it when you go from one to 5 million and the $5 million companies. And all you’re going to need is a couple of $5 million companies that are hopefully, you know, knock on wood, not bad actors, but like, you know, get some bad press where, like, you know, it might like, you know, make the market wary. So just keeping people in line and look, there’s no way to prevent fraud, there’s always going to be fraud, but like, you know, really, we’re here to help good actors like you know, not get in trouble later on.

Oscar Jofre  56:04

Well, that’s great. Both of you. We had a great to chat. This is gonna come back to you on that point, though. I’m, you know, again, I, the better prepared, they are coming to you to Jonny to everyone, it just makes it I know, Jonny.

Jonny Price  56:20

And one point just to add on that as well. We think crowd checkout awesome, best in the biz, like brilliant, like, just know, this stuff inside out. We actually had Sarah on the week on the podcast, we call it sexing up securities law, the title of that, like I say, check that out, fellow Brit. But

Oscar Jofre  56:39

also remember,

Jonny Price  56:40

yeah, but we Yeah, just big endorsement of crowd check. If you’re looking for lawyers, as you’re considering a RegA or reg CF, I would highly, highly recommend Jamie and Sarah and the team,

Jamie Ostrow  56:55

I should say. So should say feel free to reach out to me or go to crowd check calm, I will do my shameless plug. And then I also wanted to echo one of things Jonny said at the beginning, which I think all people should be aware of, you know, when you get into this area and teach it to be great for securities needs to be sold, they don’t sell themselves. So, you know, I think, you know, I, you know, have everybody from clients and investors to the companies having the right expectations awesome, makes the process go a lot smoother. And like, you know, gets everybody in the right mindset for things.

Oscar Jofre  57:31

Perfect. Thank you. This is enjoyable, I’m definitely going to hold you both to your comments. today. We’re going to, you know, the journey begins March 15. We are, I mean, literally were less than 30 days away. It’s going to be an exciting day, we’re going to have out the whole week of March 15. We’re going to have an exciting lineup of things to come. And I think it’s just that the right spark that we need to get 2021 going even further. Thank you, Jamie. Jonny’s Good to see you both once again, for everyone else. We’ll see you again soon at 330 this afternoon, the next webinar session if you want to see this webinar. Again, it’s a KoreSummit.io website or the YouTube channel. We look forward to seeing you

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