RegCF is the New Series A for Companies

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.

Andrew Corn

CEO

E5A Integrated Marketing

Andrew Corn

CEO

Andrew Corn is the CEO of E5A Integrated Marketing, a systematic, data-driven investor acquisition-focused agency that assists firms with raising assets or capital, engaging in outreach to prospective shareholders or clients, and launching new products. His experience spans several industries, including advertising, marketing, software development and investing. Previously, Andy was the CIO for E5A Funds LLC, a firm specializing in alternative investments and after-tax alpha strategies. He also served as CIO for equities at Beacon Trust Company, CEO of Clear Asset Management, and SVP for Corporate Marketing for TheStreet.com. Prior to that he was EVP Digital for Citigate which purchased his software firm MasterApproach and was the CEO/Head of Strategy for the agency Admaster Communications.

Manuel Pesendorfer

Associate

JOBS Act Lawyer

Manuel Pesendorfer

Associate

Blockchain | Fintech | PropTech | LegalTech | Life Science | Crypto I’m a corporate and securities attorney based in New York City. In this capacity, I represent startups, emerging companies, and venture capital funds throughout all stages of their corporate lifecycle, from formation and capital raises (i.e., Reg, D, Reg A, Reg CF) to exit events such as IPOs or M&A transactions. In addition to the foregoing milestones transactions, I operate as an outside counsel and advise on day-to-day corporate law issues. Besides, I provide formation and ongoing regulatory compliance services to funding portals, broker-dealers, and online investment platforms.

Oscar Jofre  00:21

Okay, so we are ready to go. Well welcome, everyone, to the core summit webinar series 2021. My name is Oscar Joffrey, and I am joined by some great panelists, some of them you’ve seen before some new ones. So we’re trying to get up a bit, get different views and stuff like that. But today is going to be an exciting. Once again, topic. We’re, again, these are the questions that you have brought to us, and we made it into a webinar. And in order to be able to answer it, and one of the format’s that we have is very simple. We have a teacher, there’s no PowerPoint presentations here is for you to hear the leaders themselves to speak. And then it gives you an opportunity by clicking that beautiful raise hand button there below, click it, and you can ask a question from them to hear something specific about your company or in general, but we want you to be participant. So it’s great to be joined by our guest today for this discussion. We’re gonna start with our new one because that you know, they your start now. So, Manuel, let’s please introduce yourself.

Manuel Pesendorfer  01:29

Sure. Thanks, Oscar for having me. I really appreciate the opportunity. Yeah, my name is Manuel Pesendorfer. I’m a corporate and securities attorney in New York City. Just to give you a brief, a brief background, I started my career in a big law firm in Austria practiced there I am in the corporate and m&a department and mostly and primarily represented publicly traded companies. After that, I moved to New York and got my master’s degree here in law, and became super fascinated about while I was attending law school, actually, I became super fascinated about the startup scene here and the venture capital scene and how and how vibrant it was compared to compared to Europe. And that basically brought me to [uncertain] and associates with, which is a boutique firm in New York City is hyper focused on startups and venture capital. And yeah, I joined the firm now more than two years ago, I primarily represent startups and venture capital funds and help them with their capital raising activities. And with their with their corporate work. And the firm is hyper focused on the JOBS Act, and the exempt offering framework, including regulation, crowdfunding, RegA, and private placements under regulation and the 506, B and C. And besides that, I am also heavily involved in venture financing and I do a fair amount of fund work, specifically, private equity and venture capital funds. And, yeah, in terms of the industry, the firm is very much focused on technology companies ranging from FinTech to prop tech, health tech and very much in the blockchain and crypto space. And yeah, I’m very excited to be here today and to speak about today’s topic, and to speak about the amendments that have been made to the regulation crowdfunding framework.

Oscar Jofre  03:41

That sounds great. So one of the things that you’ll learn, obviously, what we have here is we tried to be our objective is always educational. It’s important because the audience right now, there’s a lot of stuff floating out there and who better know that being the people that are in the front lines, helping clients get exposure, and recording please. 

Andrew Corn  04:02

Good morning, everyone. I am Andrew Corn. This is my fourth webinar with Oscar this year, and I founded and run a company called E5A we are a systematic data driven investor acquisition firm. We focus on helping companies bring and acquire investors to either their CF platform offering page or their RegA plus or reg D. It is actually the broker dealer, the platform that actually raises the money, but we’re the ones responsible for figuring out who the audience is acquiring great data on them handling the messaging, and getting the investor not only to the offering page, but convincing them to click that invest button. We also run campaigns just to get people to complete their An investment, because not everyone who clicks that invest button will actually complete and send their money. I also have been involved in the startup community for a lot of years and worked. I’ve had clients who are venture capital firms have not worked at a venture capital firm. I’ve been an active angel investor for more than 20 years, and have worked with tons of startups, not only in technology, but we’re talking to a startup right now, which is in a the soup business. And they are considering venturing into salad dressing. So some interesting stuff to talk to them about is sourcing, scaling. And how they can really maintain quality while they scale shipping and their entire ecosystem. So it is not just software, but it’s all different types of companies that are looking to scale. And we’re very happy to be part of that ecosystem.

Oscar Jofre  06:05

Fantastic. So thank you both for taking the time to let everybody know who you are, what to do. And so this way, they have an idea of what to expect in this conversation. So today’s topic is really interesting, because, you know, when the job sec was first introduced, nobody would have put this subject out there. Because people are now not even close. But now we’re here, anytime great time to discuss it. Because seriously, in definition is when a company is ready for another layer. And if you can hear that hammering, see, this is the great thing about doing a webinar during COVID. You get to hear my new baby talking in the background. Maximus, he’s telling people get on with it. Alright, so the, the one thing that I really think it’s important is that I want to talk about the why first because it’s so it is now the new series A. And so I’m going to start with you Andrew because you’ve had the experience being on the other side, you’ve been on wall street side, you’re on the other side, you understand the dynamics of scaling a company from seed round to this in crowdfunding for the longest time, boom, right here. The only other leap was go to a RegA and it was a fairly big leap. Now there’s this new thing here. Why is this now becoming so important?

Andrew Corn  07:29

Okay, so first, I want to take a little step back and say the big news, which a lot of people do know is that reg CF is going from $1,070,000 maximum to a $5 million maximum. So that really changes the dynamics of what can happen to see. So my firm has stayed clear of reg CF, because raising a million dollars and hiring a firm like ours to help you is not very cost efficient, it 5 million that starts to become quite cost efficient. There were some exceptions to that when we would help with the CFX that was helping to a plus where they were going to raise a great deal more money. And we encouraged some firms that we felt had really good management teams and a really good story and a really good product. That was a viable route to starting with, quote, having lots and lots of people come in to help fund them and then bridge that to a RegA. So the topic today is now that it’s $5 million. Can we switch this over? And instead of doing a series A with a VC firm, can we use reg CF to raise $5 million and replace that? So I want to take a step back and on answer that question precisely yet. And say what’s the difference between VC funding and doing the CF. And the biggest thing is the size of your investor base. If you bring a VC on, they frequently don’t come alone, even for a series a $5 million, they may lead it at three and get a couple of other VC firms to throw a million in the edge. So what will happen is at that point, the lead VC will probably ask for a board seat and get it and they’ll also probably ask for specific terms like liquidation preference and other favorite terms they want. They want a different class of stock, which I’m going to definitely let the lawyer who knows more about that than I do speak to that. But there are things that they will want. In a reg CF, you’re doing the opposite, you are setting the terms and then people have the option of investing or not investing. And generally you should not do a CF unless you want a lot of investors if you’re going to set a minimum of 200 dollars, let’s say, which is not even that low for a CF, and you’re raising $5 million, you’re gonna wind up with if everyone just invest 200, you’re going to want to put 25,000 investors. So now that may not be something you want. And if you are going to do something like that, and have a boatload or several cruise ships full of investors, I suggest you have a great transfer agent. an Oscar may just no one. So let you know, let’s look at the difference between what we’re doing here. So one of the things I love to say, and then I’m going to yield My time is what I love about the new CF is that you’re not getting three people to validate your business plan and to help fund you. You’re getting 1000s of people to validate your business plan and help find you. And many of them may turn into customers. Many of them may become influencers, like on social media or telling friends, and they may be investor, influencer and customer all at the same time. And that we believe is very powerful.

Oscar Jofre  11:15

That’s, you know, thanks for that. The first part, I keep forgetting sometimes we got to remind everybody the great news that because there was a scary moment there for a while where everybody thought that the amendments weren’t going to go through but don’t get me this morning. 930 11:30am Eastern Standard Time. See, I got to nail down to the time. That reality is here we are going live with it. And thank you, right. Sometimes I forget that. That’s why we’re all having this discussion that everybody but I do I love get analogy of the option of the VC. I like that break down, you know, VC will want this. So the real question dccf what I got from your noted, VC, you’re a passenger? On CF, you’re the driver? Did I get it? Right? Like I

Andrew Corn  12:05

I wouldn’t say it’s quite that black and white. And there are some really supportive great VCs out there. There’s just not that many of them. And there’s some real pain in the neck individual investors too. So I happen to be one of them. When I make

Oscar Jofre  12:26

our company, I mean a choice.

Andrew Corn  12:28

So no one needs to acknowledge that everyone is human in this case, and there’s going to be different people. But when it comes to terms, I would love to hear from someone who’s worked on lots of deals. You know, my co panelist here? Let’s, let’s hear Yeah,

Oscar Jofre  12:46

let’s put him on. So mine when it is sure was on the same question.

Manuel Pesendorfer  12:51

I can, I can echo what what Andrew just elaborated upon. I think there are like three major points here, the one Andrew mentioned, it’s it’s a cost of capital, right? With reg CF rounds where you can, under the current framework where you can raise up to 1.7 million, your cost of capital is disproportionately high, you have two legal fees, you might have an audited financials, so you have accounting fees, and then you have other service providers raid transportation funding portals, so you’re so your cost of capital is is disproportionately high that will change that will certainly change with the 5 million which is which is great. And it’s also great that, you know, vendors like like Andrew can now also venture into that and it is worthwhile for for issuers, to to hire companies like that. The second prong here, in my opinion is the size of the offering. When we when we look at series A rounds and maybe I make a step back here, once you visit your rounds are in fact the typically a priced equity round and it’s typically the first price equity round. Before seed rounds, you very often issuers issued very often issue convertible securities in the form of a convertible note or other safe instrument. And with the series a round the first time you issued priced equity very often in the form of preferred stock sometimes in the form of common stock, and it’s typically non voting common stock. And and if you compare the range of of series A sizes we have out there, it’s typically between three to 4 million up to 20 to 25 million, and that would exclude series A rounds of biotechnology company which are far beyond those amounts, they typically raise up to 100 million or even beyond 100 million. But if we take that and if we and the median, I think is around eight to 9 million, compared to the 5 million new maximum offering amount under regulation crowdfunding, we are in the ballpark of a very decent small series a round and I think that is great. To be able to bridge the gap, as Andrew outlined, bridge the gap to a RegA offering, or even to venture offering a subsequent venture offering, I think the discussion is always is always like VC versus the retail investor, but it shouldn’t be they at the end of the day, and I think the VC industry has to adjust to that they have to align at some point. With the main street investors, they were, up until this point where they’re very hostile towards, towards retail investors, and we didn’t want to have retail investors on the cap table of us attack, because the cap table would be messy. And that would later on, inhibit future financing rounds or even like an exit event. And I think that will change and ask to change. And the last point is, I think that is a very pivotal one is who determines the terms right? In the reg CF round compared to the venture round, as Andrew outlined, if you have VC, people investing, they, the terms are typically highly negotiated. And that means, as Andrew mentioned, they want to board the there is a liquidation preference, they want them specific and pre emptive rights where they can keep their ownership stake in the company in a future round. And they very often get, I mean, dividends are not really paid that often. But they have other protective rights, that issuers would not offer. Under a regulation crowdfunding round. So in a regulation crowdfunding around the issue is really as you as you mentioned, Oscar more in the driver’s seat, right. And what what regulation crowdfunding can do and why it is so great compared to VC investors, although VC investors, as Andrew mentioned, can be really like a great partner and have, you know, a strategic partner that help the company scale and grow with the main street investors, you really get the crowd in the crowd that are already an ambassador of your brand, or will become an a brand ambassador of your brand. And they’re excited about that, and they go out there and they spread the word out there. And that is really a great in addition to raising capital, it’s a great marketing tool for issuers. And it is a and they become shareholders. So there is an there is an alignment of interest. And yeah, that is really great.

Oscar Jofre  17:32

Yeah, I agree. I sorry, I didn’t mean to you.

17:35

No

Oscar Jofre  17:36

worries, you know, one of the things that for me for it goes back 11 years. It’s amazing, you know it when you really start recognizing how long it’s been around. And when we started all this. And I remember when I first wrote my first book, equity crowdfunding one on one, I was challenged on a statement on a blog or a component of my chapter, which I believe back then even five, six years ago, when I wrote it was that I believe that shareholders shouldn’t be looked to shareholders, bores, customers and ambassadors, because it changes your mindset, how you treat them. And I was challenged by a VC at the time that who in the right mind would want to have 5000 shareholders in a company and my rebuttal to that was? The irony is that when we come to you for money, the first thing we’re asking is, how many customers do we have? So in this case, I’m coming with 5000 customers, brand influencers, who gave money to be part of this. It’s a, it’s it’s the narrative that changes. And I’ll say this, I’m very honored that we now have venture capital to understand that they’re not all of them, not all of them embrace this, they, they do get scared that there’s a large gathering of investors. But we are bringing crowd and VC together now in private equity in our in our company. And it’s great to see that it’s starting to happen. Because I think Andrew, you said this before, we it’s not saying that VC money is bad VCs have some great attributes that we cannot just disregard, which is they have connections, they have experienced some cases, but you have to watch out as MP said, didn’t. They’re not all the same, but the point is they and same with a crowd, the crowd brings different values. So I think it’s one of the things that’s exciting for us that we can finally speak in an equal say, Hey, you know what, it doesn’t have to be just VC or Angel story or, or the crowd. How about the hybrid hybrid mixing of the two. However, we’ve now seen that and we’re seeing it in bigger numbers and Regulation A where nobody said in institutional winning In RegA deal we’re now seeing. So this is an exciting component to it. So we’ve obviously come to the wires, and we see the value in destructuring, obviously, will be a key element of attracting both sides of the fence on that. from, from it becoming a series A, what do what do we expect to see now going forward? And Andrew, I’m going to come to you because I know you’re really seeing it. But what more can we expect? Meaning what kind of companies do you think are going to come now that in the past, when I’ve looked at it, forget about the dollar amount, because, you know, you could always slice it in different ways. But why is this time going to be different, that that company will consider this.

Andrew Corn  20:46

So I’m going to start off with a disclaimer on this. I am not a lawyer, and I’m not an investment banker, I am do not have a series 79, which is the investment banking license. On the flip side, I have worked on literally over 1000 deals, I also took nine years off, and during that time, I was an equity portfolio manager and Chief Investment Officer. So I have a lot of very good ideas of what investors are looking for. So let’s take a step back and say, we are already working on three $5 million reg c apps. And each one is very different. And not just their industries, but their mindset and why they’re doing. So here’s a piece of advice that we have given to a bunch of companies who will come and say, we’re ready, we’re going to skip this CF thing and go right to an A we want to raise $25 million. And I say, Whoa, let’s take a deep breath here. Why am I pushing back on that? Isn’t that a much bigger project for my company? And the answer to that is we don’t care. We are going to work for X number of issuers in a year. We also market all different types of financial products, because investor acquisition started with us and asset management anyway. And we look at companies and we say why not raise 5 million instead of 25 is that enough to hit your next three milestones. If it is, then why not do that, hit those three milestones, raise your valuation, and then go and raise the $25 million. Because depending upon your pre money valuation, if if your company is worth 30, and you raise 25, you just sold way too much your company way too early. So five can do it for you like a series A and you can hit milestones and then go raise more money. Odds are when you hit those milestones. Not only can you raise your valuation, but you probably acquired enough gravitas and customers that it will be much easier to do than to that RegA, which will then make my job easier, which is really what it’s all about. So with all kidding aside, that is the is don’t go for the 20 or 25. Let’s go for the five similar to a series A and don’t jump the gun. So and that is to protect them so that they maintain a large very large equity stake in their company. Something else that people need to be warned when working with VCs is they will come in VC v can sometimes stand for not venture but other v words where they will take too large a stake in the company. So we are seeing currently we’ve got a media tech firm, we have a vineyard to table blockchain wine company. And we have a medical device company. And we’re probably taking on a couple of more, and another medical device. And then something in the over the counter consumer product world. So you know, there’s a nice variety of companies out there, what they have in common is they’re looking to raise more than a million dollars. They’re gonna hit some goals, and then come back and do a RegA plus. And I’m just gonna add one thing to that is we have another company, they want to do a five and a 75 right behind it and go straight to the NASDAQ. And to that I say, you know, do your 75, maybe do another 75 and then do an s one and go straight to the NASDAQ when you were large enough that you will not be a micro cap stock.

Oscar Jofre  24:53

So thank you for that. No, that was um we’ll come back a little bit more But obviously, it actually Manuel like to hear from your perspective. I mean, you Robin and your team at JOBS Act lawyer have been advocates of the JOBS Act. So you’ve seen small, medium large, typically companies that you get, are you seeing a different type of client now coming your way? Potentially? Or do you? Or do you see the same type of startup technology and continuing that path?

Manuel Pesendorfer  25:28

No, there is a different type of clients we see coming in it’s more mature companies but not mature enough to as Andrew just outlined, to raise that 20 million and above. And, and there is exactly where it is new 5 million fit in. And I think that’s why it’s so great. Those companies that were previously were 1 million was too little and the reg and doing a reg HS to raise three or 4 million was such a big animal for them, right going through the SEC process and going through the comments period and having a reg a qualified, and that takes much longer than doing a regulation crowdfunding offering where you file the form C and the offering statement with the Securities and Exchange Commission. But the the SEC will not opine on it, right. And so the legal fees, the accounting fees, and are are much lower compared to a RegA, so exactly in that realm, the the new reg CF kicks in, in my opinion, and that’s where our our companies are now are the companies we had in the past and new and new clients that that reach out to us, they are more mature than those company that raised the 1 million under under regulation, crowdfunding, but they are not mature enough to raise the 20 million or 25 million. And as an outline, it’s for for the obvious reason that you don’t want to sell your company or your equity at a discount and sell 20 million at a pre money valuation. That is that is way too low for for, for that amount you take in. So yeah, that’s that’s definitely something we see we see more more mature companies. And, and it gives them an opportunity, especially companies that do not want to go along the VC route and the reg a plus route yet. Regulation crowdfunding is now the perfect offering exemption to have them raise capital from from the crowd.

Oscar Jofre  27:31

And let me ask you both this question. I mean, we’ve talked about dollar amount and passage and all that. But I mean, traditionally, to a certain degree, and reg CF and others, we’ve seen certain sectors and some people say, well, it doesn’t work for the sector’s for further that does the increase in the limit? The new theory say, does it introduce a new type of coin? pharmaceutical? You know, here’s one real estate, I think we’ve seen a little bit mining, and I’m not talking about crypto mining, I’m talking about, you know, traditional my AI, because it’s an honest question, right? I mean, these companies, a million wasn’t enough, but 5 million, you know, in the mining industry, you can do a lot of exploration, exploration with that kind of money in this market, and get a lot done before they need to go to the next stage. So I’m just curious, will this open it up to more? Or are we just saying it works best if you’re, you know, business to consumer product line? Or you’re a technology company? Because then what it does, it wipes out, you know, 80 90% of the rest of the businesses? Andrew?

Andrew Corn  28:42

Yeah, so I think the dollar amount helps. It’s also, you know, as was just stated, there’s a bunch of fixed costs in there, the legal, the accounting, getting a transfer agent, those types of things, it’s going to cost the same no matter how much money you’re raising. The big variable cost is the investor acquisition, which also has fixed costs to it, which is one of the reasons why a million makes it cost prohibitive. From my perspective, but the difference once you’ve hit those fixed costs between raising a million and raising five is not tremendous. So it does open Oh, I need two and a half million dollars to do this. There really was no way of doing that kind of too large for friends and family. Way too little for a RegA plus. And it could be Gee, we’re going to do a reg D or we’re going to do something open only to accredited. But then you’re cutting out tons of people. And I think about businesses that may not scale and may have no shot of being a unicorn but are wonderful, wonderful businesses. Things like restaurants. Things like other types of foods that are being sold where Yes, they may scale and get acquired. Or they may scale and go from one operation to five operations or a bakery from one to 10. That’s a really good business. And if they raise the right amount of money can be done strategically in a super smart way. And everyone will get not only their bread or their doughnuts, but they’ll get dividends. And eventually the business may sell as well. It’s kind of an enhanced lifestyle business. And I definitely see a lot of those on CF platforms, they may think in their mind, oh, we’re going to be a billion dollar company one day. But that’s a place that’s very different. A VC cannot really invest in most companies like that, because they need to invest in companies that will become outliers in return, because they’re all worried about their limited partners, who have invested in their Fund. The crowd may be investing because they’re just passionate about it. And where there’s passion and a reasonable dollar amount as an entry fee, meeting the minimum investment, you can get a lot of people excited and have some really good success with regional businesses, things that may not scale like software. And I look forward to working on some of those as well. You know, as long as everyone knows what they’re getting themselves into, and understands all the fixed costs that go into that. We also received some very, super high quality companies with experience management teams, who with really clear vision and a path and a methodology to get there who want to start with CF now. So we’re super encouraged by both of those two kind of extremes of what we’re seeing.

Manuel Pesendorfer  31:57

I would like to I would like to add a note to this. I echo that absolutely. Andrew what he said. And I think what is also very interesting in terms of what you ask Oscar Is there a shift in the industry, in the industries and like what industries could possibly utilize regulation crowdfunding now, where there is a new maximum offering amount, what I think is that there is a correlation between the maximum offering amount and the type of securities that will be offered, whereas now we saw very much that the 1 million only really justified and I think, almost like 80% of the companies I have represented and if you look through the funding portals, most of the companies offer convertible securities, it is a it is a convertible note or it is a safe and I think that correlates with the offering amount. Now where the offering amount is up to 5 million I think more companies will utilize the price round and they will issue preferred stock. And what that will allow in turn is to have more companies in that as Andrew outlined that grow organically as opposed to exponentially with those high tech companies you know, you have to VC investors and or you have the crowd and and you you are you’re willing to invest in a in a safe because you think the valuation of the company over the next five to seven years will grow exponentially and will yield the return you want on your investment. Whereas if you want to invest in a New York pizzeria and the pizzeria is offering it securities on a on a on a on a funding portal, utilizing regulation crowdfunding, that might be a total different equation, right? The pizzeria might, the pizzeria is likely will likely grow organically, right and will not have an exponential increase of its valuation. But it might offer dividends for example, because it won’t, it won’t have a huge exit in five to seven years. So, so we might see more of those traditional companies, traditional industries coming into regulation crowdfunding now. And I think that is a very, that is a very exciting development. On the other hand, what I what I wanted to outline briefly is we’re talking about this reg CF and the 5 million now, there was already an avenue to raise up to 5 million from accredited and non accredited investor by doing a side by side offering. So, I just want to point it out people might not know that, but we structured several of side by side offerings and what I mean by side by side offering is that you do a regulation crowdfunding and a regulation D simultaneously. That means you take in the money from the non accredited investor under the regulation crowdfunding offering and the money from the accredited investor under the regulation and the offering which is typically a five or six See if it’s if it’s done concurrently with the regulation crowdfunding. So that will allow you to go far beyond that million, although you can only have 1 million from non accredited investors in, you can have substantially more by accredited investor investing through the regulation crowdfunding. So it was already possible to to raise more money than the than the 1 million. It’s just like now we have it in a consolidated form in one form C is going to be filed with the SEC. And that can be advertised through the funding portal and through marketer, especially now where the rules changed and testing the waters is allowed under regulation crowdfunding, which is in my opinion, one of the most significant changes and most impactful changes for for issuers.

Oscar Jofre  35:48

You know, you’ve touched on the last good point there that we’re adding this new investor the accredited and you said he was there before. The only slight difference here though, in my view is we’ve all seen, you know, regulations coupled together reg CF. But when a reg CF investor goes in, it’s like in one minute, you’re done. reaccredited, you got to go through accreditation, you got to go through verification, put in your tax returns and all that. So as much as it looks great from a legal perspective on paper that it can be done, the logistics are not the same. But But that being said, comes back to the new component. Now, we won’t get away reg CF does allow an accredited to invest an unlimited amount, which in the past wasn’t. And it’s under the regulation CF rule, which also allows the company to have more of them were before they had a shield of under 2000. Right. So this other implications as well, is that yes, the accredited could invest more, but you still needed to watch out that you didn’t put them over the 2000 shareholder rule if you didn’t put them under an instrument that would protect you like a safe or a convertible debenture or crowd sale. But with the new with this new insight that you can now attract accredited the same way. We’ve already seen this and RegA but I want to see in reg CF. Will that navigate companies that typically will do a reg D for 5 million just going to be accredited because that’s the only option. What do you think under I mean, I know what I see.

Andrew Corn  37:27

Yeah, so we’re we’re already seeing this. And actually, it can be really used for marketing advantage. So you were thinking about, gee, let’s just file for the 5 million. If we raise two and a half, we’re fine. Anything over three, and we’re golden. Let’s see what happens. And you’ve got all your reg D investors who by the way, don’t want to fill out all that paperwork Anyway, you let them in day one before you even start really promoting the CF, and you get your first half million dollars. Now you open the CF and the first thing an investor who’s thinking about putting in two to $500 sees is there’s already 500,000 invested in this, a lot of the risk has been taken away, of course, that investment. So what that can do is create tremendous momentum going into the CF as we start to advertise it and bring in people who are not familiar with the company. So you know, we see the accredited investor, your friends and family, your you know, whoever might go in a 506 c reg D or wragby as just a huge advantage to really jump starting that CF and getting it going.

Oscar Jofre  38:47

So yeah, I think

Andrew Corn  38:49

we’re already literally seeing that as we speak right now.

Oscar Jofre  38:55

I agree. I am. I was just going to couple apologists, I keep cutting you off. I think it’s just because we’re always together on these webinars. And you know, what excites me. I mean, for those who have been here, right to the beginning, I mean, 358,000 Americans have already participated. I mean, this is just, you know, it’s not one anymore. It’s and now we’re allowing an accredited investor base, which in the United States about 8.5 million 10 million give and take, which can now also participate here. I firmly believe we will see a different type of company coming in a roofing company that will never looked at it because they get spooked or for whatever reason to get to have 1000s of customers not realizing that each of them could be offered an opportunity or construction company, concrete company. You know, somebody was telling me about Middle America, the an area of America that doesn’t get A lot of funding with now with a $5 million increase, it’s going to help that region out tremendously. Sorry, Andrew, please.

Andrew Corn  40:07

Yes, sir. So the idea of a mass niche audience is really good for marketing, either RegA plus or a CF. So, if you’ve done something, and you’ve already touched lots of people, and they’re thrilled about what you’ve done, a lot of them may be want to become an investor. So this brings in the concept also of perks. If you invest in my restaurant, you’re going to get a burger and fries times for in one visit, or over, if you’re smarter, maybe it’s over four visits, so that if they come with three other people, you’re selling 12 meals, as well as giving the investor a free one, each of those four visits, so thinking about perks, and what will be an incentive for product usage and revenue, as well as investor slash customer satisfaction, is, it’s not just a marketing gimmick, or a way to take in money. It’s also about enhancing your business. You know, there is a well known entertainment company out there, which already has 30,000 investors, they’re doing another RegA, we’re hoping they hire us. Anyway, but with that, their goal is to have a million investors. And, you know, if you have a million investors, every time they’ve put out a new movie, if a quarter of them see it and bring a friend, that’s their first half million tickets sold. So not everything can scale like that, like entertainment pack. But using that concept, and extrapolating it to your business is a really smart way of thinking. And in with our medical device, company, they’re thinking about how practitioners can become investors, as well as customers of the company. And how does that work so that a, there’s no conflicts of interest, and be it helps accelerate revenue while also taking in investment. So, you know, thinking these through, these are strategic thinking sessions that need to occur to make sure that you’re doing this as optimally as possible. And definitely, that’s marketing and finance working together, along with what’s practical for the business and makes sense. So

Oscar Jofre  42:32

I agree, I, it’s been, you know, for me personally, to see it, like, that particular entertainment company, it’s pretty jolty. To hear when, you know, the CEOs telling you working for a million shareholders. You know, it’s the dream, it’s what the JOBS Act was for, right to empower to provide the, the incentive, and we never even got a chance to go really in depth with the incentive with a perk to the to the investor. So, you know, one, it’s been increased to 5 million, so we shouldn’t even say you can raise up to 5 million now. You can really quickly,

Andrew Corn  43:11

name five companies that have over a million shareholders.

Oscar Jofre  43:15

Oh, over how many,

Andrew Corn  43:17

a million, how many, how many companies have over a million shareholders ever hear of Apple computer, or Google, or Facebook, or any of the Fang stocks, they all have over a million investors. So it’s not something outrageous to think of, it’s just another, it’s a very large, bold, audacious goal, as we love to call them, and they’re great to have. If you can then form a path to make them achievable. That’s even better.

Oscar Jofre  43:53

No, I agree. That’s a great point. I never I sometimes I don’t make the correlation to public company. But you’re right. They’re the ones with the big base, why can’t we have a good private and actually make it even stronger? The the incentive, the perks, I, I believe will will also be a game changer. Now with a 5 million with a new type of company coming in. because traditionally, we’ve seen it usually being delivered only by one type of audience, a company that’s consumer driven, versus a company that’s not consumer driven. So I mean, Andrew, have you I know you guys have done a number of deals on the on that b2b versus the business to consumer a, you’re going to see a different type of product coming out that we haven’t thought of that people should be hard, never even. This is a new equalizer for my for my offering.

Andrew Corn  44:47

So we’re encouraging issuers to think creatively as well as strategically and putting that there, those two things together. And it is something that we love to work through with clients. So,

Oscar Jofre  45:01

Manuel, what do you in your from the legal side? What do you think of perks from the legal perspective?

Manuel Pesendorfer  45:08

Oh, I mean, I mean, perks are great. Everything you and Andrew just outlined, I think that’s what it was what it is about, right? You, you make them feel like they are in fact the owner if they buy your shares or if they buy equity, but you make them feel like a real owner that offered improves whatever just outlined before with the rest around we’re, I mean, that’s what what this all is about. And to, to add another note on, on your point before Oscar where you said, you think they will, different companies will pop up companies like a construction company and the and the middle, the Middle West will be at the Midwest will be like more will gain more traction and will utilize regulation, crowdfunding. And I agree. And we also see that in terms of an increase of funding portal applications, and they’re they’re popping up. And those are very often funding portals that operate locally, which is which is great for for those companies. Some of those companies, they don’t want an investor from the west or from the east coast, but they want an investor from the Midwest, and they want to, you know, raise money locally and want to be supported in that fashion. And I think that now becomes also a more viable Avenue. And by by increasing this to 5 million and giving them the opportunity to raise up to that amount. Where it wasn’t an option before because 1 million was just too little to satisfy their. Their capital needs to grow and scale the business. So so I’m really I’m really excited about that. And it’s in the it’s so funny. It’s in. It’s in a Zeitgeist of like the JOBS Act, right. If we think back nine years, where the JOBS Act was basically a response to the 2008 and 2009 crisis. We are now again nine years later, amid a crisis, right and economic crisis and a health crisis. And the SEC was was brave and bold enough to push that forward and push that through and adopt those proposed changes. And I think it can really be a game changer. And

Oscar Jofre  47:20

yeah, it will be a game changer. It will be a game changer in the combat is the exciting part it I think we’re seeing it Andrews already dealing with it. I’m already I’m very fortunate enough. Because we’re working alongside with many of the platforms used in in the new ones, and the issuer’s I see a level of excitement that is very much like when we were all started way back in 2012. And even before then, it’s great to see that version, I call it the jobs app version 2.0. And it’s, it’s really exciting. I do believe we will see a different type of business coming in, besides the fact that more mature, but I see a different sector coming in one that we’ve just never seen in this space before. They will be new to it for me. You know, one of them will be oil and gas, the other one will be mining. And it’s interesting, I’m picking all the traditional lumber, construction, concrete roofing, so I’m giving them all ideas, manufacturing. And because they This is a game changer. So we’re up to the point now, where you our guests, or attendees are here, you have an opportunity to ask a question from Andrew Manuel, they’re right here for you, all you need to do is click the button, raise your hand, and we will bring you in to ask the question. But in the meantime, we will continue this discussion and until I see a hand up and you can ask it away. Obviously you’d like to hear from us more than that’s exciting. So the the the part that, you know, we were talking about the perks, we were talking about the we obviously it’s good to hear from the legal perspective. Some lawyers, discourage companies, I don’t know if you guys knew this from doing perks. And we didn’t talk about that. I mean, we talked about, you know, now you can raise $5 million, you could have 20 30,000 shareholders, how you manage that it’s going to be important, you you have to think about the race, and you need to think about the implications how you’re going to manage that and, and that’s going to be an integral part. But now that you’re giving away a perk alongside with this brings a nother level of complexity. And I don’t want to get heavy into the legal implications of it. But under you’ve been in some offerings where the perks are being provided, what has been the advice you’re giving companies when they think about the structure of it, but now we got to deal with the delivery of it. What What, what could you add to that?

Andrew Corn  49:56

Well, it’s the same advice I give to every business which is don’t make promise Since you can’t keep So, if the logistics of the PARCC are too difficult, then it’s not a very good perk, because it’s only going to mess you up along with messing up or making investors unhappy. So it needs to be realistic and deliverable. And something that is inviting and people want. The best perks are ones that are not necessarily extraordinarily obvious, or are extraordinarily obvious, meaning it’s something they definitely would want from that company, or something that the company has dreamed up, that can be something, you know, just like almost a dream of that investor. And then, of course, setting some tears, you know, one of the reasons to have perks is to encourage larger investments. So, you know, the old days of we’re going to give everyone a T shirt, I think is pretty much gone. So what is it going to be in his t shirt, a perk? It might be if there’s something unique about it, but it probably isn’t. So what is it that’s going to enhance your messaging and be considered of real value to the investor?

Oscar Jofre  51:14

Manuel, you’re the lawyer in the room.

Manuel Pesendorfer  51:18

Yeah, no, absolutely. I second that. It’s, I think their their t shirts are definitely not a perk anymore, that are appealing to investors. I think we are beyond that. I think there are two types of products, there are those very special perks that an investor couldn’t get otherwise? And, and, and those I see, I think I’ve seen them in two offerings, and I advised on so it’s really the minority, and the majority is that you get discounts. I think those are the perks, if you invest early, you get you get you get discounts. And and, and, and I think those are products that are that companies can easily execute. And products that make sense. And that are also from a legal point of view. Totally fine. And okay.

Oscar Jofre  52:10

Took it, I’ll give you my examples. So the advantage that we have we’ve had at cortex is we get to see everything, which is great. And we’ve been give feedback to the industry. So they don’t make the same mistakes. So you’re right, minimize the T shirt, we’re done. I mean, the T shirt is no longer a perk, knapsack, pins, pens, extra soul combined grade, given away food, not a problem, drinks alcohol. Again, as long as your lawyer gets it approved by the SEC, none of these things are a problem. The real big problem in all of this is when you promise to deliver it. So this is the feedback that I give to everybody. Because oddly enough, when people are engaged with court annex, and we have clients with 30,000 50,000, hundreds of 1000s of shareholders, reg CF, right being regulators, and we act, you know, portion of our platform is used for the from the transfer side, but they’re also using it from shareholder management. The number one issue at times is where is Mike Park. And I want everybody to understand why I’m going to tell you this, because there’s a little thing that’s happening right now, that will affect all of us why the perk is. So anybody thinking about this, it’s a great idea to do think about it, have a coordinator to make sure it gets out. Because if that investor paid with their credit card, that investor is doing something we didn’t anticipate nobody did is they can actually call their credit card and say I never got the product. From the credit card point of view. And guess what nobody else knew. I know securities law, the investor, after 24 or 48 hours, I know the legal component. But the credit card is giving them a year, one year from their transaction. And this was a major blow back to everybody. So I brought it up because not to be it’s a great thing to do. You got to think about the structure with your lawyers to make sure it’s completely compliant. But there’s, you know, the thing what I found with everybody is that everybody plans up to a certain stage and they think it’s done. So like any offering redsea you’re going to raise your 5 million you said in the terms you go, you know, VC slash CF, fantastic, great. Now you got to think about managing them, not just pushing it off to somebody to manage it for you know, you’re managing it along with them. And then if you have the PR component with who is managing that perspective to make sure it’s being delivered, because I’ve seen people where they promise things monthly. When it’s digital like a coupon or a movie or a pass or any of those things. Those are the easy ones when you’re delivered promising something hard that needs to be delivered by some One outside of your control, that’s when it gets challenging. And you need to account for that legally, because it does have an implication on a company. And we saw it firsthand, and it can cost the company millions of dollars. Because interestingly, now, if the people do not get their perks on time, they will they have that fallback where they can call in and say, I never got it, the credit card isn’t asking whether they got a share certificate or anything to them, somebody made a purchase, and they didn’t get their product. It’s a new component that we’ve added as a kind of a alert to the industry to make sure everybody’s aware of it. I love perks, I’ve seen it work, I’ve seen the companies that do it right, they actually have a park administrator, that don’t company, Andrew, they actually have somebody dedicated nothing more than just dealing with a cannabis company. This actually they have a person they hired her entire job at the company is to make sure the person I live in want to know what those perks are.

Andrew Corn  56:08

So I want to real I want to reel this back in with the CF versus doing a VC series ag. And just kind of sum up a small number of people, large number of people, pitching firms, which costs you time, and potentially a lot of time and a lot of meetings and I refer to it as a full time job. I have had many VCs, personally invest in companies that I have run. And they can be super smart doesn’t mean they’re always right. But it does take a lot to get them to write the check that the check is very large, versus you’re going for lots and lots of small amounts of money. And hopefully you can leverage the power of the crowd to help your business in a lot of different ways. So the does the CFX replace the A for some businesses it does. For some it doesn’t. In the reg CF, if you’re going for the 5 million, it’s going to cost you quite a bit of money, the cost of capital is going to be much larger if you’re not including time. But doing even a reg CF will take quite a few hours for you as well, or days. And that needs to be budgeted in as well. So they are very different animals, they serve slightly different purposes. But each can replace the other depending upon the circumstance.

Oscar Jofre  57:42

That’s a great, that’s a great way to look at it as we kept talking that it makes you revert back to make sure that you you understand the path to each one cost time, effort. And let’s not forget COVID-19. Right, let’s let’s not forget that

Andrew Corn  57:57

you’re going to talk about all the weight I’ve gained the 19 pounds of getting through COVID.

Oscar Jofre  58:02

You’re being generous man, I don’t want to tell people how much I weigh. But, Bruce, I’m going to get to you. But I just want to say one comment to what Andrew started on, which I think is fantastic, is that there is one thing that we need to add to this that wasn’t there a year or two years ago, that’s COVID-19 COVID-19 just changed our strategy. Meaning before you could go see VCs in their office, you’re not going to do that that personalization is not there. And therefore it for them. If they don’t know you that hesitation, who knows and who brought them to me where the crowd is different. They’re writing a smaller check. It’s $200 I’m not gonna go out this weekend. Okay, only invest. I don’t know if you guys have noticed, but more and more people are investing monthly now because they’re not going out. Right. So it’s it’s great. All right, Bruce, I’m bringing you in your question, please. Can you hear me? Okay? We can.

58:56

Okay, cool. Andrew, you were talking about the difference between a VC and the CF. I’ve always stayed away from the CF and just went with a traditional VC dialing for dollars private company accredited investor. Mostly because managing 25,000 investors literally scares the hell out of me. What I mean, you talk about the cost of going out and the time and going to do the meetings and all that what’s the cost of looking after 25,000 a year we’re talking about a million shareholders. How can this be financially viable?

Andrew Corn  59:35

So I’m going to address that a little bit but really one Oscar to answer that question. One of the things that my firm has done, partially intentionally partially serendipitously is we now have about 850,000 accredited investors in our database. What we have found is is that if we generally solicit them, no one wants to prove accreditation. So what a reg CF does is allows them to check a box and invest as much as they want over whatever period of time that they want. And you know what, sorry, I’m just getting rid of that phone call. So we have found the CF to be a very light way of doing the reg D as far as going after VCs that can take months, and you can wind up completely empty handed. I’ve never seen a qualified company do a CF and not raise a reasonable amount of money. So I think the odds of it least reasonable success are also much greater. But to answer how do you manage 20,000 people? That’s really a question for Oscar.

Oscar Jofre  1:00:47

Thank you. I rarely ever do this. But I’m going to because the question was asked I, I always try to keep this educational part. So one of the things that we saw over 10 years ago, that we knew would eventually come is that what would happen if a company did get a million investors? How do you do that? How do you manage it? How does it how does how do you keep all that engaged and everybody brought in so we designed a platform, that is something that would be private label to you and your company. And it would allow you to manage all of them, it would give each of those shareholders the ability to log in view their holdings, be able to do transfers and secondary market trading. If your company was allowed to do so it, it engaged them, it kept you by providing you the cap table, they share all the management to communicate with them sending reports. So no more email blasting third party software, and it has a sec registered transfer agent as well, if you need it, depending on what exemption you’re using. Annual has a boardroom practice that keeps your boardroom together. It also has an issuance platform that if you want to raise capital, aka red CF to RegA or red D was directly connected to a broker dealer network, or it provides you the technology. So we, our view was we’re here 10 years ago, nobody believed us. Everybody thought we were not that I remember the first time I call somebody that 11 years ago, yeah, that some company could have more than 2000 shareholders they go It’s a joke, it will never happen. 2000 now it’s an everyday occurrence. So so it, it, it’s possible, it’s doable. And more importantly, it’s cost effective 99% of our you can go to our website, it’s 100% free, you can manage unlimited shareholders, unlimited companies, unlimited users 100% for free, yes, you will pay for certain functionality, depending what you want. And even then look at our fees, very, very small monthly fee. We’re very much aware that this is a journey of trying to help you grow, not trying to take it from you. That’s why lawyers like Manuel and Robin sauce know what jobs are lawyer, they are there to help you they understand what it’s like being an intrapreneur they themselves let big law firms to not charge you, you know, $10,000 upfront for something that you know, only is going to cost you a few 1000. They’re Cognizant, they want a an experience with you, they want to be there for you through the journey of your business, not a transaction. Under content. He’s providing a very necessary service. So our ecosystem that we built for if you attend our webinars, you will find that we bring you an ecosystem of participants that share the same belief that the JOBS Act was created for. So sometimes I think, you know, Andrew, I’m going to remind myself to do this over and to remind everybody why the JOBS Act was created. Because it it all of these pieces came together because we understood and each of us created something differently, but not to be separate. But to be part of it. It’s a team sport. And that’s how you succeed. I just I firmly believe that now, the crowd is going to get bigger. And I believe and I’m already seen it. And I’m not saying large numbers, but I am seeing venture capital embracing it. They didn’t do it in 2012 or 2015. But they are now embracing it. They’re seeing it as Hey, wait a minute, this is not a bad equalizer. I don’t have to be my risk is you know, it’s pretty good. They got all these people to buy in. This is great. This is not bad. Okay, so I’m not 100% in control, I can still contribute. See, I think people misunderstand that. You’re not kicking them out of the room and not to be participant you’re looking for the best people. Maybe that VC is the best person to be as an advisor or a VC or somebody guiding you forward. So great job choices. I that’s my belief. And today, there’s no excuse for there’s technologies there. It’s free it the tools to make Things happen are available. They weren’t there. 10 years ago they aren’t today. So today is really your mindset. As a CEO, you need to be ready. Manuel said it best when we were starting the conversation. He said, You can’t just look at them as shareholders, you got to look at them as customers ambassadors to your brand. As soon as you do that, when you find a tool to manage your 10,000 customers, you would in a heartbeat, you would do everything you can to make sure you’re constantly talking to your customers. Well, listen, you now have not just customers, brand ambassadors, I’m going to share one story with you guys goes in the brewdog breweries, a UK based company that used crowdfunding in the United States. And today is still the darling of crowdfunding, globally. Why? Because this company, took on the whole concept of turn them not into come from shareholders, into customers and come brand ambassadors, but it went went even further than that. It removed the dialogue of shareholder in everything they do. They they get them engaged with every one of their products. The brand being launches, everything, they are fully engaged. They’re out there in Twitter and Facebook selling the product or the company, because they they’re part of the journey, that CEO is communicating with them constantly. We’re going to do this when they brought a hotel, the idea to bring the beer to the hotel room came from the cloud. I think that’s exciting. You know what I mean? A product developed? I mean, a lot of people go, that seems sensible, but didn’t, you know, again, they listened to the crowd. And in Columbus, Ohio today, you can go to the brewdog Hotel, and stay in a room and the beer will spur right into your room. So you don’t even have to go to the bar. Isn’t it isn’t a great? I mean, that’s what that’s what we strive for? And could that be done for anything? I truly believe you can. You just don’t you, you can just take people for granted anymore. The job, Zack, I’m going to remind everyone democratization of capital, we’ve done it, we’re allowing 233 million Americans to invest. That’s their number to give them the ownership back to the companies, the owners, we’re doing that you’re given the privilege to call the shots, create the term sheet in terms and all that when you are driving it. But that comes with responsibility. The responsibility is don’t treat them like what public companies do. That’s what sets us apart. These investors are gonna sit on your cap table, you will know them by name. They will be the greatest champions of your journey. If you change the way you look at them. And I know for some people that will take time, some are adapted to it like, boom, I get it. Um, they’re calling customer at cork annex, we call them gladiators. That’s right. We’re empowering the private markets, we need gladiators to make a change. So all right, I could go on I get excited about this part. So closing remarks, Andrew, and then Manuel, and please,

Andrew Corn  1:08:06

who could follow that, Oscar. Thank you for having me again. I appreciate it. And this was fun today.

Oscar Jofre  1:08:15

Thank you, man. Well,

Manuel Pesendorfer  1:08:16

I can second that. Thank you so much for having us. And I love to see your excitement. I hope this will carry over to other people. And yeah, we’ll see a lot of traction in the industry and I’m pretty sure it will.

Oscar Jofre  1:08:32

I’m sure it will as well. Thank you and for those who attended today, thank you so much. To watch the videos again. They are all online at core summit.io or you can go to our YouTube channel core connects all the speakers information is there as well their LinkedIn link their email account, we everything is transparent is there to help you you can reach out to us we will connect you with everyone. What we want to do is help you in your journey March 15, you can raise $5 million. So don’t be late on the gate. Thank you everyone. We’ll see you at the next core summit webinar series at 330. This afternoon. Andrew Manuel lo vemos Goodbye everyone. Bye

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