What do you need for a RegCF Offering

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.

Theresa Hyatte

Counsel

CrowdCheck

Theresa Hyatte

Counsel

Theresa Hyatte is a securities attorney focused on capital raising transactions under Regulation A, Regulation CF, and Regulation D. Her practice includes clients that are established companies as well as startups, and includes advising on corporate governance, ongoing disclosure requirements and communications matters.

John Evershed

Strategic Advisor

Chonky

John Evershed

Strategic Advisor

John Evershed  00:00

I’ll tell my wife they’re found objects. whereabouts are you, Theresa?

Theresa Hyatte  00:18

I’m just outside DC. I’m in the suburbs. 

John Evershed  00:23

I’m in Marin County just north of San Francisco. Nice. Very nice. 

Theresa Hyatte  00:32

I’m a little nervous. Sorry.

Oscar Jofre  00:35

Don’t be nervous. Never been in a room with me. You’ll never be nervous. You’re just fine. You know? It’s not meant to be nervous. It’s just like sitting at home drinking a cup of coffee and people asking 1001 questions. It’s me asking the questions. Alright, let’s get started. Good afternoon, everyone. And welcome once again to the KoreSummit webinar series 2021. My name is Oscar Jofre and once again, we are excited to continue the journey of education for everyone specifically, because now we are truly on a countdown. 12 days. That’s right 12 days mark it on your calendar, March the 15th. It goes live regulation CF to 5 million, Regulation A to 75 million, so much to talk about so much to learn. And as you know, our format is very simple. We don’t have PowerPoint presentations or anything like that. We’re here to have a discussion, to learn and learn from the leaders that are doing this day in and day out. And today I am joined by two guests that you’ve seen before, but nevertheless, I want them to introduce themselves so you get to know them. And then we’re going to jump into our great topic. Ladies first.

Theresa Hyatte  01:49

Hi, Oscar. Hi, John. I’m happy to be here. My name is Theresa Hyatte. I’m a counsel with CrowdCheck and CrowdCheck law.

John Evershed  02:00

And i’m John Evershed. I’m the CEO of Chonky, which is actually a new name that we haven’t even really technically rolled out just yet. We were previously known as FatKatClub. We’re a site focused on entertainment projects, raising financing for entertainment projects with a rev share on the back end. And we’ll be launching here very shortly with several different video games, movies, TV series, that kind of thing. So we focus on helping people raise funding for their their entertainment projects.

Oscar Jofre  02:40

Wow, that’s great. So did I hear that, sorry, want to get the name. Chonky? Chonky, got to that, Chonky?

John Evershed  02:49

There’s there’s method to our madness though. It’s a meme on the internet that actually means fat cat. So if you look up chunky on the internet, it comes up with a whole bunch of pictures of fat, literally fat kittens, fat cats. 

Theresa Hyatte  03:03

I’ve seen that. 

John Evershed  03:04

Yeah, have you seen it already? Okay, that’s great.

Theresa Hyatte  03:07

I own two fat cats. So I know exactly what you’re talking about. 

John Evershed  03:10

It a term of endearment.

Oscar Jofre  03:13

I think I’m there. I just have to get there. Right? So Chonky it is.

John Evershed  03:19

You have to remember who we’re targeting, right, which is kind of the Comic Con crowd. We’re not so much focused on, you know, high net worth kind of types or institutional investment. A lot of this is going to be fan investing around entertainment projects. So think of it like the Comic Con crowd, if you will.

Oscar Jofre  03:37

No, no, I’m familiar. I always say don’t be surprised. I mean, is one thing that we’ve learned in this space. You know, the less we assume what may or may not happen, its better. 

John Evershed  03:52

We got learning to do. We’re pre launch, obviously. So yeah. 

Oscar Jofre  03:56

Of course. Listen, this goes without saying, one of the things that we like to share with everyone is that things are changing. There is definitely something new afoot. And there’s definitely a new investor, but we’re gonna talk about that. So this afternoon’s topic is going to be fun, because now we are getting ready, you’ve got to start preparing. And, you know, what do you need for regulation CF? It may sound simple, it probably is. We don’t want to over simplify that. You know, you often hear people say, Oh, it’s just really simple. Fill out a form C and, voila, you’re ready to go. Today we’re gonna have a discussion with both from the inside of the law firm. And then of course, a up and coming platform who will have its own requirements to follow to bring an opportunity. So for those listening in, this is really a way for you to start understanding this process. So, you know, obviously it start with the lawyers. Well, at least I hope it does. It should and I know that CrowdCheck and your firm has been integral to it. So in regulation CF in order for a company to proceed, its needs to engage to provide some filing. And so if you can walk us through that, and then I’m going to jump to you, John, as to how that fits in with what the lawyers’ doing, please.

Theresa Hyatte  05:22

Well, Oscar, you said something that was right on key, which was, we got to get prepared, you got to get ready. Um, although if you were aiming for March 15, and you’re just now starting, you’re already too late. So this is quite a process. There are lots of requirements, I think people are often surprised, I think crowdfunding is kind of like, you know, kickstarting where you get out there and you just kind of throw something up on the web and see what happens. There’s a lot of preparation that goes into crowdfunding. My first thought, when talking to clients is, know what you want to do. You really need to know what you’re selling before you can really make a lot of other decisions. What do you envision? Are you thinking of offering common stock? Are you thinking of offering debt? What kinds of things do you want to sell, because you need to know that, in order to know if you have, say, for example, the correct corporate form, if you are an LLC, and you want to sell common stock, you’ve got a problem, you’re going to have to change your corporate form. You also might want to talk to a lawyer about whether or not you’re in the correct state, some states are more advantageous than other states, depending upon what your plan is. So I think, thinking ahead, you’re not going to solve every problem that comes up, things come up as you go along the way. I like to liken this as a classic pulling the loose thread on a sweater, you don’t know if you’re going to just have a sleeve left or a big pile of yarn on the floor. But that would be my first advice is to think about where you want to land. And then you can start putting together a roadmap.

Oscar Jofre  07:04

Interesting, once again, I’m never surprised by this. It’s just part of the learning journey. Sorry, getting more information that people don’t often think about. And John, obviously, companies coming to you, where is the starting points in them? Now that you take it on from where Theresa started?

John Evershed  07:26

I guess some a little bit to Theresa’s point, a clear, compelling idea. I mean, we probably have looked at, I would say, upwards of maybe, you know, 75, various projects of various kinds to evaluate them for whether we think they have what it takes to actually work as a crowd raise on our platform. And we have three at the moment. So there’s a pretty heavy vetting process that we go through. We’re asking for projections on how this project will perform? We’re looking at cost, we’re looking at the maturity of the team, have they done it before? Do they have a pre existing social media footprint already that they can speak to with their project? And really, you know, just the soundness of the team more than anything like, is this a quality group of people that have worked together in the past? So we look at all those things. There’s some other technical things that I’m sure Theresa could go through, that are requirements that they have to go through. But just from a from a soft standpoint, for us, frankly, we’re more focused on those things, and maybe the technical requirements, because the technical requirements, that it’s not a hurdle, like you have to do if you’re doing you know, fundraise, in the classic sense. So it is simpler, but there are a lot of things that you have to do. And I’m sure Theresa can get into that in in some detail. But for us, really, it’s more about the compellingness of the offer itself to evaluate whether we think it’s got what it takes to actually work on the platform.

Theresa Hyatte  09:11

I’d like to interject here real quickly, Oscar, something that I think is also helpful is one of the new rules, what they call generic testing the waters. So this is something after March 15, a company can go out and even before they have picked an exemption on which to rely if you’re going to do a regulation crowdfunding offering or a private placement, say for example, pursuant to regulation D, or maybe have bigger sites and target and want to looking at a Regulation A offering. You can go out and test the waters and see if there is a market. There are some requirements. Obviously the anti fraud rules still applies to don’t go out and say, You know we have all this inventory or we have all these sales when really just somebody in the garage with a really great idea that hasn’t started anything, so you want to be careful of that. And there are certain legend requirements that you would have to have such as saying, you know, as an issuer, you’re considering having an exempt offering, but you haven’t determined which exemption you want to rely on yet that no money is being solicited or will be accepted, there are a number of these kinds of legends that would protect you. Now, here’s the thing, there’s always kind of a catch. So if you start an offering, within 30 days, these types of testing the waters materials would end up being filed and included. But it is a way that issuers can get out there or potential issuers and decide whether or not there’s even an interest in their idea

Oscar Jofre  10:49

Yeah, I’m not a big fan of testing the waters, I think it’s you know, it’s like putting half your foot in something and joking around, I understand that people say that it’s tested, we’ve obviously seen the failure rates and RegAs. So meaning, you’d go out and test it, and then you decide to file. So people think that magically, I’m going to get approved in 30 days. So it could be 60, 90, 120 days, and all of a sudden, all that work you did four or five months ago, it’s gone. I understand it, I think I it’s good that they have the opportunity to do so I think that’s good. But if you’re in you’re in, because I think the dialogue needs to change now that crowdfunding is not the last resort of money. That’s why people would like testing the waters. This is my one part of reg CF or RegA. It’s just like any other regulation, it just the way its approached and who you’re targeting to is different. But it’s still a regulation to raise money. Money is money. You know, just because it took 100 people to give you a million versus one, you know, it’s still money when you go to the bank, it’s a million dollars. Bu, I’ve heard this and it is good that is changing, is that regulation CF or any regulation has been seen “Well, you know, if you can’t get VC money, you can’t get that money, you can’t get that money.’ This is the first money or it should be the an option like equal to all others. So that was my comment on testing the waters. But I could go on because you know, I do have? I do have some some ideas in my head all the time, right.

John Evershed  12:45

If I could offer something, though, we were thinking of potentially launching under that basis. Testing our projects, just to kind of allow us to build some momentum before we switch on. If that makes. So I think from that standpoint, but that’s just the very first tranche of projects that we would arguably post that we would do this way before we switch on investment. Should we maybe back up a little bit, though, and just sort of define the most basic parameters. 

Oscar Jofre  13:18

Oh, yeah, I would just kind of get to that. I mean, the key element that both of you came first, which is important is identifying the opportunity you have, do you have a business to take and what do you want to be able to do with it? And the key here again, just to put in the back of their mind, what do you need to do a reg CF offering because there are five elements that you need. Five, right. Oh, yeah, five is the headings, the headings. Okay, you want it? So here we go. We go into the legals. So the legal says your firm. I mean, I work with Jamie, Sara, Andrew, yourself, Theresa, as well. So you have diligently created what I call a very profound regulation CF information document request. So I, you know, I’m not gonna oversimplify it. But I’m just doing as we’re speaking right now, and this is a 26 page document, even before you start filling it in. So I know my RegA’s is at 78. Just so you know. 

John Evershed  14:28

I have mine right here and it’s about maybe 10. But you don’t feel insufficient.

Theresa Hyatte  14:36

The disclosure rule, rule 201, that spells out all of the disclosure requirements for CF that goes up to after March 15. It’ll be double [uncertain]. So let’s pick the last time I checked 26 letters in the alphabet. Now they’re 28. And that doesn’t even count all the sub rules in there and the notes to the rules. So what exactly are you looking for? No,

Oscar Jofre  14:59

No, but what I’m saying is that once you’ve identified the opportunity to John’s point, again, we want to get to a reg CF. So it’s what you can do with a regulation, there’s a legal component, there’s the form C that needs to be done. But your firm, and like any other law firm, you collect an abundance of information. Walk us through those data points, that company needs to have to be prepared.

Theresa Hyatte  15:06

Okay, so the first thing is, I mentioned before, are you in the right corporate form? What are you planning to issue because, you know, let’s face it, the form C is all about your company, we got to be able to describe your company. And what you do, we have to be able to describe your corporate form, we need to be able to describe what you’re selling, and how that’s going to impact people who purchase it. So that’s an important piece that can’t be ignored. And other pieces, you know, a lot of the information we collect is because your financials are the backbone of the whole thing. So you’ve got to have your financial statements, depending upon where you are in the range of offering amount, that’s going to vary. And a lot of the other documents are for due diligence purposes. A lot of companies like to go through that because it is an excellent exercise in getting your ducks in a row. Making sure your cap table is in order, making sure your meeting minutes are organized and are complete, has your board been functioning in accordance with your bylaws, these are all crucial elements, I think for any company that’s looking to go sell some securities to the public, it’s an important stepping stone, because hopefully, you will take those proceeds from your offering, you’re going to grow. And you’ll be able to do next time a bigger round another offering and you need to have your fundamentals in place. That’s why that’s such a comprehensive list.

Oscar Jofre  16:54

And on the financials, I’m just gonna touch because you brought it up different levels. So when you say different levels, just for the audience, what you’re saying, here is depending on how much money I want to raise, right, it will determine the type of financials that I need to provide. Does that mean I will need audited financial statements or it will always be, you know, notice to reader or prepared by an account?

Theresa Hyatte  17:18

Okay. So if you’re going to raise 535,000 or more, right now, the limit is 1,070,000, it’s going to go up to 5 million, as you know, March 15. The first time you rely on regulation CF, you can have reviewed financials. But after that you would need audited financials. And here’s another thing I like to point out to clients, make sure you have your stakeholders on board and are keeping them informed because as a private company, you probably have, you may already have private investors, you may already have loans or credit facilities that have certain, you know, what do you call it when they trigger, I’m going blank debt ratios and things like that, there may be some things that you have to keep at a certain level in your company, when you have your financials reviewed, they really changed drastically. And those can look very different from the financial statements of a private company that has not been reviewed. So it’s important to keep people informed to have a very significant interest in how you look on paper. And then just a word of caution, when you get audited, even the reviewed financials to the audited is another big change you you’re going to have to expense your stock, you know, your stock that you use as compensation, there are things that are going to happen, that are going to make them look different, it’s going to impact things.

John Evershed  18:50

Maybe if it’s okay, Oscar, we’re project financing with a rev share on the back end. So we’re not issuing stock per se in companies, right? For our model. And so I believe that what what we need is simply gap compliant financial reporting on the company. It needs to be US based, which is important. And you can now as of these new regulations. Again, Theresa can chime in here, but you can form an SPV. I know that Oscar has some problems with that, from my conversations with him. But from an entertainment standpoint, that’s a very, very classic model for a movie, for example, is that you create an SPV around the specific project and all inflows and outflows happened with that entity, but I’d like both you guys to sort of chime in on what all that means from your different viewpoints.

Oscar Jofre  19:52

Yeah, I’ll come in first. So as far as whatever you decide, It doesn’t change what the regulatory side, and Theresa will echo it. But from a company point of view, you still got to follow form C whether it’s revenue share or not, that doesn’t change. How you proceed with it is different.

John Evershed  20:15

One thing though, Oscar, to be clear with everybody forum C is a filing. It’s not reviewed by anyone per se, right. It’s it’s simply a filing. But you have to adhere to all the regulations about the filing.

Theresa Hyatte  20:27

That true to a point. It’s true to a point, I do know, the SEC does not make a habit of reviewing form CFs. However, that doesn’t mean they wouldn’t or will.

Oscar Jofre  20:39

Thank you.

Theresa Hyatte  20:42

And especially if you’re going to do subsequent rounds, if you’re going to file, you know, let’s say you do your CF offering, it’s a success. And you decide you want to go to the next round and do a Regulation A which those are reviewed, don’t think the staff isn’t going to go back to your form C, and make sure that what you’ve said in the form C is consistent with what’s in your form 1A don’t think they’re not going to go back. And you know, they have Google like anybody else don’t think they’re not going to go out there and see what you’ve been doing on the web? Or what videos are out there. Do you have the appropriate legends, you know, then they’re gonna look at the timing, you know, there’s a filing that form C is is significant event right now, you can’t have any advertising or anything out there about your offering before the form see is filed. Like we were talking about the testing the waters rules, that’s going to change, but they’re still gonna want to go look and make sure you’ve got the appropriate legends and that you’ve been filing everything the way you need to and have you been keeping up with your ongoing reporting obligations? So sorry, jumped in.

Oscar Jofre  21:40

You know what, Thank you. Thank you for saying that. Because too often, sorry, John, I’ll let you come in. But too often I hear companies Oh, yeah, I’ll just follow the form C. Nobody at the SEC is looking at it. I don’t want everybody to think that the SEC collects data. They are the best at it, they are the very best in the world. And that’s why they are the ones that can enforce it like nobody else. And so if you’re going to do further funding down the road, they’re going to tie all this together. They’re not like other regulators where they may not see it. Yeah, I agree with you on this one, Theresa, it needs to be treated. And you need to follow the guidelines of it. And making sure that regardless of what funding portal, you go to. By the way, the funding portal, John, is item, one of the five elements that you need to do in order to prepare for your offering. Because not only do you need to follow the pharmacy, and all the requirements with it, you need to select the portal because the portal could say, you know what, that’s great. But we need additional. And, you know, that is already happening. We see that with Republic and with a real estate, please don’t I didn’t mean to cut you off earlier. 

John Evershed  22:59

I can’t recall where I was, what plac, we were talking about the form C, right? That  you have to obviously file this form C, and then there’s these ongoing obligations that you have to be ready for that I think Oscar touched on, which is you’ve got like quarterly reporting, or is it quarterly reporting, once you go to market is kind of I think the the standard? Well, here, I’ll just literally read I have like, your obligations are that you have to do progress updates during the raise. And there’s specific points at which you have to do it where an issue where it says here that, you know, an issuer must provide an update on its progress toward meeting the target offering within five business days after reaching 50% of the target amount, and 100% of the target amount. And then you have annual reports that you have to file as well. So there’s these ongoing kind of obligations that you should be aware of that you’re signing up for when you sign up for one of these raises

Oscar Jofre  24:12

Well the updates, what’s really cool is because you’re doing this at a registered funding portal, the funding portal has already built that mechanism in. Yeah, unfortunately, this is where CrowdCheck and I truly agree, and we agree on a lot of things, but this is one that we agree the most is that as soon as they leave the funding portal, they feel like they don’t need to and we don’t enforce it enough. And now that the regulators are increasing this to 5 million, many other feel that the regulators will be more enforceable is that most reg CF companies do not file the form C A, which is their annual filing they need to do. So the the updates, they’re doing it not because they’re they’re doing it, the platforms are doing it for them. They just have to submit it. So the platform’s are being proactive because they have complete visibility to it. Yeah, you hit 50% mark, trigger, boom. Yeah, so now we just have to work on the annual. But you’re right, to your point, there’s certain regulatory obligations, the form C being one, the financials inside of a Theresa brought up an interesting point that I didn’t even know before. So thank you for that. Your first time you do an offering, it’s a review. But the second time you want to use it, it’s now an audit. So you really need to think about your strategy on how much money you’re going to ask for knowing that you’re going to ask for it later. Right? If you if you’re going to go for 500,000 now go for a million.

John Evershed  25:47

We’ve been advising issuers on our platform, to oftentimes build in money for marketing of the raise, marketing for the actual product itself, your ongoing obligations for legal and accounting. So I think as a matter, of course, build that into your raise is the best guidance I can give to people because a lot, oftentimes we’re working with, you know, smaller in, you know, Mom and Pop companies, and they don’t have a lot of infrastructure. And these things are all meaningful, like these kinds of accounting and legal. I also want to be a little careful, though, because I sort of feel like we’re sending the signal like, this is a big hairball. And it’s impossible and, you know, don’t even think about it. It’s still I think, obviously superior to to a lot of other ways of raising money and your legal and accounting, although it’s there and it’s real, it’s not insurmountable, it’s managed.

Oscar Jofre  26:49

I’m not sugarcoating it anymore. Sorry, as an entrepreneur. I’m not sugarcoating it anymore. Meaning I know the dangers now of telling people oh, don’t worry about it’s really simple. And so, you know, I taught an entrepreneur class, getting off a little bit, and they told me, Oscar, don’t go too much in depth. Because, you know, they’re just, they just want to hear the high level. And that’s when do you want them to learn? Well, you know, when they graduate, a good you know, what happens when they graduate? That’s when they make mistakes. So Isn’t it better to teach them now? So part of this is saying, Look, we’re explaining what it all is? Yes, it’s detail. And if you have a right team working with you, it can be very efficient, because they’ve done it before. This is not where we were five, six years ago. Now, it’s cookie cutter, the platform’s help you with it. And we look at how many deals are up there, what 1100 companies raise money last year, and this year, we’re anticipating over 2000 or more. So what that tells you is that we are, but it doesn’t diminish the fact that you still need to prepare, you still need to come ready with certain elements. Otherwise, even the simplest things can’t be done for you. I mean, Theresa, what can you do with me? I want to raise a million dollars. Great. Great, that’s fantastic. We want to help you. Okay, so what legal structure. What does that mean? Oh, boy. Right. So this is where we are getting pods out there, accelerator programs and stuff like that. But this is important for everyone to know. Because if everyone appreciates it, and everybody embraces it, all that comes with it, it really is the most cost efficient way of raising capital. I’m the opposite of what others believe that this is actually expensive. If you’ve never raised money before, this is cost effective. Dollar for dollar it is because anybody can put money in the other ones here.

John Evershed  29:02

There’s some macro trends that I think are going our way in terms of consumer acceptance of, you know, using their phone to make investments. I mean, literally, this whole COVID era has kind of, I think, open people’s minds to Oh, wait a sec, you know, all I have to do is is you know, sign up for this account, and I can I can invest in stocks. That easy, right? I like to get our business to a place where it’s that simple for investors, you know, again, I’m thinking like lots of smaller investors, for our entertainment projects on the platform. So I do think that there’s some overall trends that are really going our way in terms of just user, consumer behavior, I guess about investments.

Oscar Jofre  29:47

And sorry, Theresa, you were going to add something there.

Theresa Hyatte  29:50

I know I’m trying to remember what it was. I thought that was an interesting point.

Oscar Jofre  29:53

What’s going on, guys, it’s not Friday today.

Theresa Hyatte  29:57

But it is 430, Actually, it’s five.

Oscar Jofre  30:05

It’s five. It’s the same time for me. It’s only john thats enjoying the luxury of the beaches, where he’s at. So we get this we’re trying different times to see how it works. Um, well, if it comes to you just ping me, don’t worry, just come on in and have a discussion.

Theresa Hyatte  30:23

I remember now what I was gonna say. So yes, it’s more expensive than I think what people would like to spend or maybe had anticipated. But I mean, let’s also look at the fact that one of the benefits of this process in when you go through it correctly, is the protection it gives you and your company against lawsuits. So if you go through the process and you are thorough and you are detailed, you are going to have protection under 12 A2. That’s a benefit.

John Evershed  30:56

That’s really interesting. I hadn’t thought about it in those terms. 

Oscar Jofre  31:00

Yeah, see you learn something new every day. And that’s just it. We’re so caught up like I was in a panel yesterday, or the day before? I don’t remember. In another webinar I was invited to. And people are complaining that it’s so expensive and I go expensive to what? That to my question, expensive to what? Have you ever raised money before? I can tell you, it’s expensive. But no, no, no, all the other ones, you know, you just put out the deck. You don’t need lawyers. All okay? So what you didn’t account for is how many times you met that investor? How many times you took them out for coffee, maybe for a lunch? How many phone calls you made? How many trips you have to go to that hotel this and that.

Theresa Hyatte  31:38

How much are you going to pay the lawyer when you get sued? I’ll tell you what, I’m not a litigator. But I know it’s not cheap.

Oscar Jofre  31:48

No, but the point was, is that we don’t associate the soft cost our time and effort and energy into all that in when you do you go Whoa, I get it. I get it, I see it. So okay, so we’ve talked about the first you need an opportunity, right an opportunity, mindful of all that, then we know you need to go to the form C filing, which is a regulatory filing, that will require the legal guidance and where you need to prepare all the information, which will include financial information. So that’s three out of the five. And then number four, obviously, the in order to have a successful or not so much a successful Reg CF, to be able to for your reg CF as you need marketing, marketing plays important role. And this is an area that, I think is the game changer when people start saying the cost. And so I’ll start with this for I’ve heard the term it was used in one of the webinars they call it investomer. So investor slash customer. So I heard somebody coined it. Its very difficult. I don’t think it’ll go too far. But I just call them ambassadors. So there is a value.What is the value of cost of acquisition to bring a customer in, and now you’ve got a customer and an investor, that in previous models didn’t exist. I mean, I have investors in my company today, if I could get them to do a tweet about their investment, they’d be great, but they won’t you get somebody who puts in $100, they’re out spreading the word to everyone and great to be involved. So I want to talk a little bit about that. So John, obviously, from the portal point of view, the marketing aspect of it, from your understanding, and now that you’re a funding portal, how is that going to affect? And how are you going to guide companies in this one?

John Evershed  33:44

Well, the way I talk about that effect is it’s the difference between like a mid season football game, with no money on the line versus a mid season football game with a little bit of money on the line, like people just become more investment more engaged in, in your platform, and hopefully other projects. So you’ve got crossover pollination between an investor in one project and investor in the next project. And because we’re sort of going after this kind of passionate gamer, you know, kind of nerd Comic Con nerd in the good way, kind of crowd. It’s an identifiable demographic, right. So we know how to reach out to them on all of the various social media platforms. And hopefully, there’ll be crossover again, kind of, you know, potential with with with those investors. And I guess, you know, the closest word for us would be fan investor, right, which has been used before, I think there’s even a cycle of an investor out there, but I think it’s a good description of at least our typical investor profile for how we think about. Does that answer your question, Oscar?

Oscar Jofre  34:56

Um, it does it does it You’re right, there is a platform you just promoted. It’s called FanVestor. Yeah, under regulation CF. So Michael Golomb, he’s gonna say thank you to you, he owes you a little plug in there. So marketing plays a great role. So now let’s bring you back to the lawyer. So reg CF, you know, people go, Oh, I can mark in my deal. Let’s go to the lawyer now. So we’ve gone through the audit. Now the marketing, where are those restrictions? What are the boundaries? What are the things that need to be followed to make sure everything’s done on side?

Theresa Hyatte  35:34

Well, even though there are new rules, once you file that form C they quickly revert back to the more restrictive rules that apply to CF. So there are two different ways you can communicate. There’s what we call a terms or like a tombstone, marketing material, like an ad. So that’s just going to have some very basic information. That pretty much just says, The company is doing an offering and points you toward the intermediary or the platform with a link. And then it can say some basic things like the amount of securities being offered the price of the securities, the closing date, the nature of the securities, you know, are you offering debt equity. The point of these types of ads is really just to kind of funnel all your potential investors to the platform, because that’s the only place where they can buy those shares, you can’t have multiple platforms, you can’t have them coming through your website, it’s not like RegA, it’s very restricted in that way. The other kind of ad, you can still go out and do a regular ad for your products or your services, that hasn’t really changed. But if you mentioned anything about the offering, then you’re kind of cutting it close. So on those types of non terms, communications, you can mention there’s an offering, you can mention where there’s more information, you can link to the platform, but you cannot say any of the terms that I just told you about, you can’t say the type of securities that are being offered, you can’t say the amount, you can’t say the price, you can’t say the closing date. At the only thing that is going to change in this respect, after March 15, is that on these tombstone type ads, you can also add intended use of proceeds. You can also talk about your fundraising progress. But it’s very, very strict and it’s going to continue to be so.

John Evershed  37:29

Can you use a visual from from from the thing that you’re raising for if you’re raising money for like in our case? Let’s say it’s a movie and we’ve got like a nice big visual, can you can you put put that description under the visual? And is that considered tombstone?

Theresa Hyatte  37:46

Contingent upon the visual. Anything with an arrow? No. I’m confident I can say that, but that’s funny. Especially going up? Yes. It depends on the visual. I mean, that’s one of it’s both a difficult thing, and also the brilliant, you know, it’s kind of ingenious if you think about it in terms of securities law. That’s all facts and circumstances. So it’s very hard to, you know, make a bright line statement. It really is. a pain in the neck.

John Evershed  38:24

Ours will probably be like a zombie eating somebody’s head or something. It’s going to be that kind of stuff.

Theresa Hyatte  38:29

Are they holding wads of cash? Or gold bars?

Oscar Jofre  38:35

Or the gold sparking up? You know, the know you ask really good questions in it. It’s really good for everybody here involved to be listening, because the assumption is I’m going to use regulation crowdfunding, I’m going to tell the world well, no, you can’t not the way you think you can. And I’m I know, I’ve been approached on LinkedIn, by some and I go, you know, you need to go back to the portal and make sure they’ve authorized this, because they do it privately, right through private messages. So and people need to understand the SEC has eyes into everything.

John Evershed  39:12

Can I tell you a funny conversation we had with with FINRA when we were going through the review process, you know, somebody on our team asked them well, you know, we saw such and such a site that was doing this thing, and they said, Yeah, you probably did. And we probably know about it, and they probably shouldn’t be doing it like like, just because someone else is doing it doesn’t mean that that’s now a new, acceptable standard.

Oscar Jofre  39:36

It’s exactly the best way to describe the SEC compared to other regulators. And that’s the beauty of us. We’re because we operate in so many different jurisdiction. The SEC, in my view, just this is my observation is that they would rather have you do it wrong. They would have you do it continuously until you transact. They will wait until the transaction is completed. And they will wait until you close it. And then they’ll come after you. In Canada, and as soon as you put up the flag they go, Whoa, no, no, no, we put a stop to it. And you still get punished, even though all you were doing was putting up the flag. So it’s rather interesting. 

John Evershed  40:20

Oscars, isn’t that entrapment? 

Oscar Jofre  40:22

No, no, it’s if you follow the rules we need. 

Theresa Hyatte  40:31

Oscar, I was gonna say that sounds very similar to a colleague whose lives he was in litigation, who describes the SEC and other regulators as being kind of like on wild kingdom, where you kind of have the wildebeast who’s kind of wandered a little too far from the herd, and you got the lions, and they’re in the tall grass, and they’re just watching and waiting. And then, you know, boom, they that’s the way they described the regulator. So I can definitely see that. If you’re dancing along the edge of the herd, how much of an outlier do you have to be before you attract the wrong kind of attention? I don’t know. I don’t know where that line is. And I want to be the test case. I don’t want my clients to be the test case.

Oscar Jofre  41:15

Oh, no, we all don’t. But this is this is why this is we’re having this discussion. We’re, we’re kind of laughing, of course, having some fun with it. But the reality is, is that we’re not trying to make it onerous on you. But it comes with responsibility. That responsibility is we need to follow these particular rules to make sure that it’s done correctly, the funding portals have rules to follow, they also need to make sure they alert the company to make sure they don’t go off the, you know, the reserve too wild. I mean, we’ve been doing this has been happening for decades, when broker dealers are working with clients, I say, listen, nothing goes out anywhere unless we sign off on it. And it’s usually the compliance officer. And we kind of lost that a little bit, but it is well under control. So that’s item number four in our list, which is important. I mean, we’ve we’ve, we’ve covered in the fifth one, obviously, we we got the opportunity. We got the legals we got the financials, we obviously working on marketing, we filed, of course, our form, see we’ve been qualified. So one question I didn’t ask you, Theresa, is that, obviously you said that the only place where a person a company can raise its capital is on a funding portal, but there’s actually to look like two locations? And but do they does the company need to know that in advance before they can follow the policy? Or can they do that without actually knowing which of the platforms, the funding portal, they’re going to use?

Theresa Hyatte  42:44

Wait a minute? Can you explain to me there two places?

Oscar Jofre  42:49

Oh, you didn’t know that? Did you know there is in your law firm is? Yeah. So there is another model that we have not, we didn’t see it in the 2015. Because the dollar amount didn’t really it didn’t attracted them. And that is a registered FINRA broker dealer. A registered FINRA broker dealer does not need to register to be a funding portal. All they need to do is allow me just like a RegA. Instead of having it on my own website, it has to be a controlled environment by the broker dealer. But it’s an independent landing page, where the investor, all the reg CF rules, apply everything, all the disclosures and all that. And yes, this is the new model, we’re going to see two different types of reg CF in your firm is doing five of them.

Theresa Hyatte  43:48

I’m sure there’s something you know, if CrowdCheck is doing it, but that’s not a model I’m familiar with. I know, I couldn’t tell you off the top of my head. But I do know the rule says for CF, it has to be a single intermediary, a single place.

Oscar Jofre  44:05

You can only have it in one location. But you now have a choice where you can go to the traditional funding portals like John’s.

Theresa Hyatte  44:12

Okay, that’s different. That’s different than running a deal from two different places. That’s entirely correct. 

Oscar Jofre  44:18

Yeah, my apologies choices rather than so the choice has always been funding portal, nothing else. Now it’s funding portal or registered broker dealer who will not have a funding portal, but we’ll create a landing page that will look like a RegA offering, rather, and it’s a reg CF. Right. That model. My apologies. But my question was, number one, does a company need to list who they’re going to be dealing with before they can follow the form C or can come afterwards?

Theresa Hyatte  44:50

I think you need to know right? I mean, I don’t know how you can write the form C and explain where you are and what you’re going to do. I think you really Do you need to know that ahead of time.

Oscar Jofre  45:01

Okay, no, that’s good. So in essence, not only do you need to have the opportunity, you also need to know where you’re going to be placing your offering, why this is important because I had the order wrong. So if the order should be the opportunity, you have the funding portal that you need because you also need to know.

Theresa Hyatte  45:21

Its more basic than that even you need to know what funding portal you’re going to be on, because not all portals support all types of deals.

Oscar Jofre  45:28

Agreed. Okay. 

Theresa Hyatte  45:30

You know, even if I’m wrong about another part, which is entirely possible, I get stuff wrong all the time. But from a practical perspective, if you’ve got it, you know, this goes back to knowing what you’re going to do. What are you going to offer? Not all funding portals do the same thing. And so you need to know can they can they display and function with what your offering plans are? They don’t, they’re not all, they’re not all cut out the same way.

Oscar Jofre  46:00

Agree, and what what needs to be clear here, and we have one is that the regulation, the way it was written is that the only place that a company can raise its capital is through a registered funding portal, which is registered with FINRA, as john was alluding to. And then, of course, a broker dealer who’s already registered with FINRA. So let’s talk strictly talk about in the funding portal side of it. So obviously, I had the opportunity I go to you, john. So that’s what are you going to, on the form C, are you going to take on that burden? Or you’re going to work with a law firm like CrowdCheck, or a law firm to make sure that the clients taking care of what, what part of the responsibility Are you taking or not taking?

John Evershed  46:47

I sort of think of it as a hand holding kind of thing that we’re going to go through here. And honestly, the we’ve signed up with a third party vendor who is going to provide the form, if you will, for that, that they complete. And I don’t know that we’ve technically signed it yet. So I’m not sure whether that overlaps with your business tree. So like, if that’s if you’re a competitor to this company. But I think it might help if it can you can I just maybe walk through, hey, what how does this all work for just our platform from from beginning to end, you know, try to do it here in three minutes. So you come to us with a compelling project, you, we vet the project for its viability, you file a form C that explains the race and your company financials like standard gap, type reporting, right? Then you post the race on our platform, we collect, excuse me, sorry, we collect the revenue from excuse me the investments from all the various investors, it’s actually handled by a third party. escrow agent, so we don’t actually touch that money. And then we were paid a fee for what we do out of that race once you’re successful. And then we the the transfer, excuse me, the escrow agent, hands that money over to the Creator, in our case, who makes the product, you report on the progress as you make that product. And then once your product goes to market, you report on how it’s doing. And you you collect the money and you pay a transfer agent, which is what Oscar does. So that’s how he factors into our specific

Oscar Jofre  48:40

Did you just give me a plug in there. I did.

John Evershed  48:44

KoreConX. So it shows up on your books as one line, right that there’s there’s this investment in this project, and and then in turn Oscar’s the one that disperses those funds based on the level of investment of each of the investors. So for you on the back side like that, the it’s all managed by a third party. So it’s relatively simple on your books. So that’s sort of the whole process from beginning to end of, of how how we would work with a project and maybe I hope that helps a little bit. Just orient people like in terms of our platform, and where do we fit into the universe?

Oscar Jofre  49:24

Yeah, that’s perfect. No, that’s great. I give the journey. Look, I there’s going to be there’s a lot of discussion I, I’m going to look I do enough of these webinars that something’s every platform gives me a little derailment. The last conversation with Jamie, when she told me that you guys had this reg CF document, I got all excited, and now I have it. And I really want to look I’m the type of person that is not going to sugarcoat what’s needed. In fact, I’m, I’m starting to recognize the industry. We’re all starting to recognize that if we don’t educate the industry We can’t scale. And why you should pay attention to this part for you, john, is because if we can’t scale means that investors won’t come, because there’s not going to be any level of trust that people if if people go out there say, Oh, yeah, God, anybody can follow the form, see and raise 5 million bucks. Nobody’s watching. You think investors want to hear that? Yeah, I hope I’m not sending that signal. No, no, no, you’re not. No, no, no, I’m just saying in general, no, not at all. I know, I’m just saying in I, I’ve been in webinars, and I put in a stop to I say, Hey, guys, you know what, you’re right. The form C is simple. It is some because your lawyers make it simple. The partners make it simple. But make no mistake, like a lot of them don’t realize that you are entering into a database with a securities regulator. Your name is going to be there. And that’s a good thing. You’re you’re demonstrating that you’re a good participant in this capital markets, you have a journey. Today, it’s reg CF, maybe tomorrow’s reg D, maybe it’s reg A plus, maybe one day it’s going public, maybe one day, it’s a directory, this will have affecting your entire professional life. So you know, I call it a privilege, not a right. And that’s where I’m at right now. Because it, look, I’m an entrepreneur, I make mistakes like anybody else. But if you don’t learn and keep you keep making the same mistakes, it’s so we’re just it was informative. I learned something today, I didn’t know. In three said that was a great comment, can you put that, again, where by using a reg CF, you get you get protection as a company from being sued? What was the the the section that you quoted, 1802 I believe,

Theresa Hyatte  51:46

Oh, 12 A2. That’s kind of your general anti fraud provision that basically the standard says, you know, it’s called the due diligence defense. And it’s really hard if a company probably can’t really avail itself of it very often, because basically, it says, you have to show that you did not know, and in the exercise of reasonable care could not have known of the misstatement or omission, material omission, that’s kind of a legal standard, but by going through the document and having a third party, such as your attorney, looking at it, asking questions, fact checking, you know, saying, does this make sense, looking at your financial statements, it’s really helpful to have the reviewed or audited financial statements, because then you have another party, the accountants looking at it, and everybody’s kind of reading it over. Does it make sense? Is it consistent? That’s a lot of protection for companies, you know, but you know, having said all that, and I don’t mean to, you know, put a dark cloud over this, you know, if somebody wants to commit fraud, you know,

Oscar Jofre  52:57

well, that’s why we all insist Did you hear that we’re making t shirts, I survived a crowd check due diligence. Awesome. So I’m gonna do this is because you’re, you know, the, if you didn’t know this, john, the crowd check, due diligence has become an industry standard that broker dealers were utilizing under reg D. Now, it’s a standard under reg A for a lot of the BDS. And they and you do this for every type of client, whether reg, CF, reg A, reg D, it’s a standard package, it’s included correctly. So it’s everyone goes through that?

Theresa Hyatte  53:34

Well, I think there are different packages. I’m not I’m you know, I don’t want to go into detail on that. But there are different packages. Reg A’s always have the fact checking. You know, but let’s put it this way. You know, if I’m looking at something, let’s say, I’m just taking a quick glance at if I see something that is inconsistent, or just doesn’t pass the smell test, I’m going to say something, period,

Oscar Jofre  54:02

We have to write if we don’t say it. Now, I know that business. Like I said, this is a journey. Now that is going to be we’re gonna have a lot of these different discussions. I often wondered in all of this, what we then say is the word due diligence. You notice that in Reg A we go through here, we don’t, I believe we will, I believe in 2021. Now, that is going to 5 million, it’s going to change our mindset, how we approach it, meaning that we need to ask more, even though the regulator’s may not require it, but we have to be smart about it, because $5 million is a lot of money. And we need to make sure if a platform, look, it only takes one deal to make everything sour, very, very quickly. So it’s, so I’m looking forward to the journey. This is not one that most intrapreneurs think that it’s all it’s to overcome. Some too many people involved in all that, but I believe it’s not. So last words, john, first, I’d like to hear your last words of guidance for anybody looking for doing a reg CF?

John Evershed  55:14

I guess, scope out what’s the right crowdfunding platform for you? There’s there’s many different kinds of crowdfunding funding platforms. I guess first of all, what type of raise Do you want to do? Right, that would be the first question CF or reg, a, or reg D or whatever. And then once you’ve done that, you know, scope out the platforms. And then if you’ve got an entertainment project, and you know, under $5 million raise and a pathway to profit with the, with the project, and a proven track record, and hopefully a social media pace base or IP, that’s, you know, there’s a level of consumer awareness for it, please come to us, you know, we’d love to look at it and, and, and help to, you know, we’ve talked a lot about the the the sort of complexities here, but one of our jobs as a good crowd funding portal will be to help guide you through that process, you know, that we will hold your hand, we will make sure that you’re completing these forms the way you need to that you’re, you’re you are reporting the way you need to that you’re like, my big issue, honestly, is Hollywood and the definition of net, and, and then the waterfall, which in in Hollywood is always a little bit overly complicated. It just, it just comes with the territory, you’ve got multiple ambassadors at different stages, different levels of participation. And my my emphasis in all of our contracts with with the folks that we’re dealing with is complete transparency, and over articulating the definition of net and the waterfall to ensure that by the time we get to the back end of this project, that all the investors are clear on where they participate and when, and and at what level. So we will help walk you through that process and make sure that it’s it’s you know, as as as easy as reasonably possible. But to these guys points, you know, both Theresa and Oscar here, there’s some things that you have to do that, you know, would probably weren’t doing before you decided to do a crowdfunding raise, and just to be aware of them. And I think it’s going to be, there’s a lot of learning, like, I’m not going to deny it, right, like, I’m not even launched yet. So. So, for me, honestly, these conversations are as educational for me as they are, as they are just me describing what we’re up to right from, from letting the world know. So I find these hugely helpful, and I really appreciate Oscar inviting me on these conversations.

Oscar Jofre  57:50

It’s always fun, john Theresa.

Theresa Hyatte  57:53

final words, we, I hope the 26 page didn’t scare everyone off, it’s really helpful actually. Crowd check is here to help companies and try to keep the process from becoming overwhelming, but at the same time, give you a certain peace of mind to know that you’re doing it properly, that you’re covered that you’re doing it right. And you know, following that due diligence document, I know, it sounds like a lot from what you’ve said Oscar, but if it is logical. And if you just follow it step by step, you’re going to have your your internal documents organized. And that’s always a good thing, getting you ready for, you know, getting through this successfully, and then moving on to your next offering. So we’re here to help pick up the phone, we can help make this as simple as possible.

Oscar Jofre  58:46

It’s great, thank you both in it. I do agree with you. I think it’s it’s important to understand that it I joke about how long or but in reality is that? This is nothing. Reg CF is just starting. And if you’re ready for it, welcome to the journey of capital raising to build your business. And if you think there’s other easier ways, whenever you think there’s a shortcut, there’s a bump, and that bump, as Theresa said it it’s one that you may not like because your cost you twice as much. There’s never any easy roadmap the money and we’re just going to simplify for you. And so thank you both once again for a great conversation. JOHN, looking forward to watching you one in months ahead or days ahead to launch March 15 is right around the corner for all of us. We have some exciting discussion points. And thank you to everyone sending in questions that has helped us create a better program of education and keep in mind that it’s always going to be available at our KoreSummit.io as well the speakers you can find their bios LinkedIn email address so you can reach out to them directly. We will be updating John Evershed for Chonky. I really liked the other name but Chonky is good. And of course, you can watch our videos at YouTube coconut. Again, have a great week everyone happy equity crowdfunding, we’ll talk soon

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