RegCF Options on Raising Capital

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.

Mark Roderick

Managing Partner

Lex Nova Law

Mark Roderick

Managing Partner

I spend all my time in the Crowdfunding and Fintech space, representing issuers, platforms, investors, and other industry participants around the United States and all over the world. I speak at conferences across the country and write a blog that serves as a compendium of legal knowledge for the Crowdfunding industry, CrowdfundAttny.com. I'm an evangelist about Crowdfunding. By making capital available to a broader spectrum of entrepreneurs, and by making available to ordinary Americans the kind of investment previously limited to the very wealthy, I think Crowdfunding can reinvigorate American capitalism and begin to address the serious wealth and income inequality in our country. I began my career as a tax lawyer and have served as the Chair of our Corporate Law Group and our Mergers & Acquisitions Group.

John Hong

Director Of Operations

Sutter Securities

John Hong

Director Of Operations

John is an experienced legal and investment professional. Through his role as the head of operations at FinTech Clearing, LLC, a FINRA registered broker-dealer, he has extensive experience managing 15c2-4 separate accounts for the transmission and maintenance of payments for both private placement and registered securities offerings. John also oversees and manages all Trust activity. Prior to FinTech Clearing, John worked in operations at Science, Inc., where he provided support to its portfolio companies from formation and corporation governance to bridge venture round financing. Prior to Science, John worked in Microsoft Corporation’s business practice group including: Merger & Acquisitions Corporate Governance, Domestic and International Tax, and Treasury. John earned a B.S in Molecular, Cellular, Developmental Biology from the University of Washington, and holds FINRA Series 7, 66 and 99 securities licenses.

Oscar Jofre  00:22

All right, well 330 right on the dock. Good afternoon. Good to see you, john. Love you back, Oscar, how are you? Good God. All right 330 in the afternoon. Welcome, everyone to the KoreSummit webinar series 2021. My name is Oscar Jofre, we’re really excited. Once again, to have a great panel discussion. Obviously, everything’s about the topic at hand, we’ll get to that. Just to tell everybody The format is very simple. The format is basically the two speakers, we’re gonna have a discussion discussing grinded out, agree, disagree. And of course, afterwards, with during the session, there’s a little hand there, raise your hand, you can ask your questions and our speakers, bookmark, Roderick, and John Hong, I will be able to answer your questions. Very, very straightforward as well. All our webinars are available to you at KoreSummit.io. You can watch them at any time, share them. And of course, we still have about I think 70 are, yeah, maybe no 65 more webinars and still come in a little while. So we’re bringing you a lot of education. So welcome again. And we’re pretty excited to have you here. Mark, did you make your way in? Okay, so Mark Roderick, is that he is there. He’s gonna make his way. And he’s probably having some technical difficulties as some people may be having with zoom today. So but we The show must go on. And when he comes in, we’ll do the, the introduction. So as with every one of our sessions that we have, we want you to hear from the speakers learn about who they are. And then we get into this discussion, the educational element. So john, it’s on you, my friend. It’s all you. Please introduce yourself.

John Hong  02:18

Sure. My name is John Hong. I’m with Sutter Securities. And we’re a retail investment bank based out in Irvine, California. And we have a few different affiliated banks with bow securities and Sutter securities, Inc. and we operate a funding portal called flash funders.com. Which we also run through our reg D reg. A plus and IPO offerings as well.

Oscar Jofre  02:44

Great, thank you. And obviously, we hopefully will get mark to come on board here. He may be you hear me now. Oscar, sir. I can hear you there. I’m sorry. Yeah. The bug is back. The bug is back. Yeah. All right, Mark introductions. Too bad. Nobody can see you. But you’re there, please.

Mark Roderick  03:12

Yeah, my camera’s not working. It’s probably better for your audience that way. Yeah, yes. So you want me to introduce you Oscar or just myself. Now. I My name is Mark Roderick. And I am a crowdfunding lawyer. I’ve been a lawyer I started practicing in 1840, as I always say, and I’ve always represented the entrepreneurs and their businesses and when I saw the JOBS Act on the horizon, I realized that it was going to be super exciting and disruptive and transformative because the capital formation industry as we all know needs disruption. So that’s what I’ve been doing ever since. So I I represent portals I represent issuers I represent every kind of player in the in the crowdfunding industry.

Oscar Jofre  04:21

Perfect. Thank you for that. And I and if you don’t know Mark, just got on LinkedIn. He does a lot of writing supporting the I always see him as one of those lawyers that’s there to support the little guy and, and obviously to make sure they become big, but he’s been a very strong voice for advocacy for regulation CF, he’s a big advocate for it. And we finally got our wish. So I’m going to start with this. For those that are on this call that haven’t heard the news. It is official. Yes, you will be able to raise up to $5 million. us using regulation CF. It was kind of a nail biter there until January the 29th 11:38am. Eastern Standard Time, when it was official that the we were moving forward, there was a bit of a kind of a hiccup, we almost started didn’t. But here we are. So what does it mean? It means that we need to change the way we’re moving forward, it needs a means that the options are here. And today, we got two great speakers that are going to, you know, help you through that journey. Because it’s important. That’s why we’re having all these educational elements. Because the more people you speak to your you’re getting them all in one shot you’re hearing from flat funders, which is a reg CF, but also operated by a broker dealer, and the leading lawyer in the discussion. And of course, today, you know, what are the reg CF options to raise the capital? So I’m going to start with Mark, because, Mark, you and I have been in many webinars outside of the industry more in the financial side, when people think of reg CF, did this have this connotation that Oh, yeah, it’s a crowdfunding software, you give away money, you get a product. And it’s really not like that. So tell everybody what reg CF is from your point of view, because I like the way you tell it.

Mark Roderick  06:17

Okay, well, so, I mean, the first thing that I will say, for anyone who doesn’t already know is that reg CF is not Kickstarter. So Kickstarter and Indiegogo are what we call donation based crowdfunding, where you give money to a worthy cause, and you get a baseball cap, or something or a CD or something like that. You’re not making an investment. That is not what we’re talking about today. Reg CF is an investment. It’s an exemption, yet another exemption from the Securities Act. The The, the law that created all this, the JOBS Act back in 2012, created crowdfunding, and it created three different kinds of crowdfunding, what we call title two, title three, and title four. And reg CF is titled The same thing as title three crowdfunding. And it is really revolutionary in terms of the history of American securities laws, in the sense that it allows an issuer to freely advertise an offering to every investor in the world without a pre qualification, consent from the Securities and Exchange Commission, right. So I mean, you can advertise, you know, anyone can advertise, all you have to do is spend a million dollars to do an IPO, meaning an initial public offering like Facebook, or Uber or Airbnb, you go through a whole sec process, the SEC, reviews, all your submissions super long, super expensive, and now you’re a public company, and then you can advertise. And that’s how it’s always been for the last 85 years. But for the first time ever, reg CF allows you to advertise to everyone, and accept investments from everyone accredited and non accredited, with no prior approval from the SEC, and really with very little friction, and very little cost. So it’s a huge, huge deal, which will become a much future deal if the rules change. But the first thing I always want to say and presentations like this, where everyone may be new to the field is all of crowdfunding, title two, title three and title four. Well encumbered by lots of legal rules, the thing you want to the one thing, crowdfunding is just the internet. It’s just the internet coming to another industry, in this case, the capital formation industry. And when you think about what the internet does in every industry is it connects buyers and sellers directly, and bypasses all the middlemen who have historically taken a piece of the action. So that’s what crowdfunding does. The internet, you know, it allows the entrepreneur to connect directly to the investor without wall street without all those middlemen. And in that, if you think of it in that way, particularly younger people who were used to using the internet for everything in their lives, It all makes sense. You know, that’s why it’s growing so quickly. That’s why it’s so successful. And that’s why it’s going to become even more successful. It’s just the internet coming to the capital formation industry. So that’s my summary.

Oscar Jofre  10:16

Yeah, if I remember you mentioned it I don’t I always like that component from especially coming from a lawyer, which is very positive to hear, john, obviously, from flash funders, you guys must be excited, this new option now that it’s increased to $5 million dollars. Where do you see that? Obviously, going from what Mark was saying, This is the internet bringing, you know, the capital markets to do something that’s already there. How do you see reg CF, working out in this environment?

John Hong  10:49

Well, I’m really excited about it one, because the way the rules existed before just wasn’t very sensitive to what, you know, early stage companies were looking for. It’s the burden, the cost, and kind of navigating the even the form See, I mean, you had a lot of upfront capital to really get a reg CF launched. And then your capital, raising a maximum of million dollars to 12 month period. So those limitations are now removed, I think 5 million is that’s real money, that’s money that can that can really, you know, get a good early stage company to the next stage. So, as a platform, we kind of use flash winners for a variety of capital races. CFB, one, we actually closed the very first CF, let’s call for mobile strike, not for a lot of money, but it was the very first one. But we primarily use it for our deal execution for our broker dealers, reg D, and RegA plus an IPO offerings. It was just because like the CF rules made it very difficult for companies to raise capital. And I definitely appreciate sec kind of revisiting those, of course with a lot of feedback from the industry and kind of expanding and increasing the limits. And even, you know, increasing the individual investor limits, which is going to be a significant boost to the exemption. So I mean, as a portal, as a company, we’re very excited. We have a lot of already, companies approaching us interested doing a brake CF. Many of them, you know, are looking for like a white label version of software, which we can also provide. So we are very optimistic with the outlook.

Oscar Jofre  12:32

You brought up an interesting point there, I think it’s one that we often don’t talk about what we do, we touch on it just like now, but I’m going to, I’m going to hone in on it. Because we talked about the the the opportunity that’s been given this regulation CF is given this new option to raise up to $5 million is going to bring a new type of company, it’s exciting for companies now to raise even more, but I’m going to I know, Mark, I’m gonna go to you on this one, because you are always the champion as well for the investor. This new update amendment is changing the type of investors that can invest and the investor limits if you can touch on that that’s a great story as well.

Mark Roderick  13:15

Right, so let me start, which is with the point that I think that matters most and aware, I always want to focus on so the crowdfunding industry, you know, the people in the industry, almost by definition, and you know, all the portals, for example. And really, all the lawyers and, and everyone else focuses on the industry through the end of a telescope, that sees things from the perspective of issuers, you know, entrepreneurs trying to raise money, and, you know, that landscape looks looks terrific. crowdfunding is bringing capital to more places, geographically, to more kinds of entrepreneurs, minority entrepreneurs, female entrepreneurs, so it’s doing a terrific job. expanding access to capital from from entrepreneurs, for entrepreneurs, the the others, the telescope, which I really encourage everyone in the industry to look through is what the landscape looks like from the perspective of investors, because that’s the other half of the equation. The crowdfunding ecosystem can’t work for issuers and portals unless it works for investors. And from my perspective, So, you know, I am about and most people in the industry are about the democratization of capital, that’s an expression you hear frequently. And yes, half of that means getting entrepreneur in the hands, or getting capital in the hands of American prisoners wherever they live. And whatever their socio economic backgrounds. However, just as important, is making high quality investments available to ordinary American investors, right, we have this terrible problem with wealth and income inequality in this country, where, historically the best deals are reserved for people who already have the most money. And, and crowdfunding offers an opportunity to change that. And it is changing it, it’s making institutional quality deals available to retail investors. So you know, that, in my view, is where the industry should focus its attention. And if you make investors happy, if you offer them good deals, you know, that’s what is ultimately going to ensure the health of this of this industry. So that’s my little take on that.

Oscar Jofre  16:32

Point. Point, Mark. Yeah, I think we’re at the stage now. I mean, look, stats came out 358,000. Investors put money in in 2020. I mean, that’s not a small number. I remember no, it’s a huge number. And we should be all applauding everybody. But the work just begins. And I think sometimes for entrepreneurs, you’ve been given this wonderful gift. I’m just going to recap the jobs career. I do this in every webinar, because it’s important that people understand what the creators want and what the Father their jobs are people like Mark and Sara Douglas alone all you know, luvabella qual meditate, many, many Robin sauce No, all these lawyers that stood out, when everybody else was busy doing their thing, they took time out of their day, they didn’t get paid for this, they only recognition. But the JOBS Act was one democratization of capital, we’ve done that the rules are there to do that number two, to give you back the ownership of your company. So you’ve got a responsibility, now you get to call the shots. You don’t have to go the other route, or you can blend it in. But that responsibility is what Mark is talking about. You can take advantage of these retail investors. They’re the greatest gift we’ve been provided. And we need to nurture that properly. And obviously a great comment for you, john, I’d love to hear your feedback. Because for flash funders, success really relies on making sure those holders are well taken care of and maintain going forward.

John Hong  17:58

No, no. Yeah. Agreed. I mean, I mean, the last thing you want to do as a funding portal, and when you’re kind of on the forefront of you know, the jobs that was provided with title, regulation CF is you don’t want to, you know, put up just bad companies that potentially could have long term repercussions for your own reputation. And of course, the that are not great custodians of an investor’s money. I bought what I like about the expansion, the increase of the investment, or the increase to 5 million is now maybe a higher public company who would be more interested before that, when your capital 1,000,004 that automatically limits the types of companies to very early early stage companies, pretty much seed stage companies, which obviously come with high risk, potentially high reward. But if we start kind of exploring the space for a company looking for a series A of 5 million, now you got companies a bit more traction, potentially even some revenue. And you can just easier to find in Coronavirus, like a better company that kind of fits that model.

Oscar Jofre  19:08

Yes, I do agree with that we are going to see, with a $5 million increase, we’re gonna see a very different type of company coming in. We’re gonna see them coming in. And you want to use the exemption and they’re going to be new to this type of shareholder as well. This is a I would say at the moment the existing 350,000 well groomed the hit so well groomed as possible meaning that they’re accustomed to certain things they’re accustomed to how a company is transparent. And I know we were What are you talking about? Well, the new era is about sharing, not keeping it to yourself meaning you share the the news, the end the journey of your company, and those who do it right are rewarded so immensely by this crowd, that when you do your next round They’re the first ones there to take up more of your equity because they see the value that you’ve done, you’ve delivered, you read your metal, your milestones, and everything you did that is because they were seeing it all the way through. So, you know, the, the options of raising capital have been limited, as john alluded to, because it’s a million dollar. And, and traditionally, companies would go, Okay, I do a million. Yes, I can blend that in with a reg D, to do it side by side, or I go to an angel group or venture capital. You know, I read an art report recently from pitchbook, by the way, for all of you that, you know, it’s industry leading research for private companies. And what people don’t realize though, it only represents 1.8% of the overall market. It does report on 1.8%, let’s call it 2%. For the grade, that’s all a provides reporting on and all of us, we look up to that, right. So when crowdfunding first came out with a jobs came out there, they had it in their newsletter, like one line item, this thing is to help, you know, Kickstarter companies, I don’t never forget that. That’s going way back some years. But now. They recently published something that really woke, I believe, it’s waking everybody up and saying, this thing has got legs, it’s got momentum, David Weil, like his words, he got this thing, it’s got momentum moving forward, year by year, this thing is doubling and tripling and quadruple and this, and now we got a great catalyst of COVID-19, that you add sparkle in there, in when pitchbook came out with their report saying that crowdfunding regulation CF, will now have an impact on a series A, and this is quite significant. Because money now needs to compete for you, not the other way around. You can be one of the 2000 companies that the entire industry invest in that year. But more importantly, you have options. And that’s I think that’s the greater the same responsibility that you would have to your shareholders, VC, private equity and all that. It’s the same that you would have to be a smaller investor, just because they put in a smaller amount doesn’t change the dynamics. A mark, obviously, you you and I’ve talked about this before another, another webinar, we’ve discussed the component of because of these options, the the entrepreneur has a different way of guiding How are you guiding companies that are actually blended with these two environment? They may have some private equity, how are they adjusting to this new option that’s in front of them?

Mark Roderick  22:42

Well, I think the answer is, most companies are just astounded to learn that crowdfunding is possible. You know, the, the Act was signed into law by President Obama almost nine years ago, but it’s amazing how many people are not aware of it. And I, you know, because of my blog, and I’m sort of I’m well known. So you’ve typed me into a crowdfunding lawyer into Google, and you get me. So I feel tons of calls and emails from all over the world. And I can’t tell you how many people even now, you know, we talk about it, I answer some questions. And they say, and they’re not, they’re not quite believing you mean that? You know, I can raise money from anybody what No, that can’t be, you know, I’ve been doing this 25 years, Mark, you can’t do that. And so the first thing is that they’re shocked that they can do this, which is great. You know, I get to be the bearer of good news frequently. They’re, you know, this question always comes up Oscar that you and I have talked about at length that I’ve written about at length on my blog, you talked about the interplay with private equity and so forth. The question people say, Well, if I raise money through crowdfunding, will I then be able to raise you know, a series a round or you know, raise money from VCs or a private equity fund? And you and I both know, the answer is absolutely yes. There’s no problem at all. But there you see some reluctance or you It takes some it takes some convincing, I guess, which is just telling people the truth that you can have at all, you know, you you can have money from the retail crowd. You can have money from VCs and angels and everything in between. And there’s no problem at all with that. I do. I mean, one of the really great things we’ve been seeing recently as we look forward to these new rules is the quality of the companies Have are expressing interest in title three raises and and go following through with title three raises in my anecdotal experience and john would know more. But the quality of that company is just increasing dramatically. Just in the last month I, I’ve represented a couple companies that have already had series A rounds, and are very, very successful revenue, you know, a lot of revenue generating companies that are worth a lot of money, and they have looked to title three crowdfunding. So with those kinds of companies, you weren’t, you were definitely you’re planning for the next raise, you’re saying, Well, what should we do? And what Shouldn’t we do in this crowdfunding raise in anticipation of our next raise? Whether it’s, you know, to accredited investors only, or Regulation A or a public filing, so that, that is definitely part of the conversation now as the industry matures?

Oscar Jofre  26:05

I agree with you. And I’m going to share Personally, I think that the we crossed something really interesting, I’m very excited that we were able to attract VCs, knowingly. And we were candid, I mean, there were some VCs that walked out of our offering. They said, Now, you know, if you’re gonna do crowdfunding, we’re out. But the ones that stayed, they know now that they can, they can be doing it side by side, they don’t fear it anymore, because now they understand the value behind it. And we’re going to talk a little bit about that as well. But so I agree with Mark 100%, you cannot do the entire as the the amount gets bigger, you’re going to realize you’re going to need private equity institutional venture. And so start that conversation. They, you know, they may say, hey, they may say no, at first, but if you’ve got some traction going on, you’ve got 1,000,002 million, they may want to come in. And, you know, even if it’s a token investment of $200,000, you got a man, you know what I mean? It’s it’s part of your offering. And I think that’s the exciting thing. They’re not all gonna go for it. Because they may want different things, john, I mean, how are you seeing that? 100? Are you seeing that kind of mix? Right now? Are you are you going to anticipate that springing on now that it’s been increased to 5 million?

John Hong  27:27

Yeah, so like, like, Mark was saying a lot of the companies we speak to, they’ve heard a brixia, but they don’t know the specifics, right. They don’t understand that they can do general solicitation or market, they’re offering to, you know, retail public. And they’re pretty surprised by that. I mean, they’re always on the impression that there were some mutations are familiar with an IPO. And that you know, only if retail investors want to purchase stock in a company, it has to be a publicly listed and registered company with the SEC. With that being said, I really believe that the types of companies that we’ve been approached by now, a lot of the ones that we deal with doing strict reg D are looking for about a $5 million, typically like a bridge round, or a $5 million note, now that CFD is available, they’re very interested in potentially exploring that, it’s a matter of kind of explaining to them the rules and how to help them navigate space. So they better understand the kind of, there are some burdens with doing a CF raise proceeding with straight reg D raise, right. There’s some filing requirements and and of course, there’s some upfront capital that needs to be spent on preparation of the dogs, which, versus you know, going online and pulling a set of CRC Doc’s from some website, and then going about embracing their capital. But, but in light of everything, I think this is a very positive development, you know, the restrictions that are in place with the current rules, I believe they should be there for investor protection. There’s definitely those that would choose and could abuse the rules. And hopefully, that isn’t the case. But you know, the beginning has to convert slowly rolling this out. And as we kind of were many many years into this now, I like what the SEC is done and kind of kind of not so much open the floodgates, but you know, crack them open a little bit and kind of let the industry kind of evolve with the new rules.

Oscar Jofre  29:26

Yeah, I share the I think we all share the same comment to everybody. As much as we’re all exciting on one side, we have such a still a long journey to go ahead to educate the market and that because of that it will give more options to companies because there’s nothing more frightening and I have been on a call with somebody in Houston, Texas, where the accountant you know, a certified accountant and auditor, a sane you’re giving my client false advice. And I say I’m not advising them. I’m just making them aware of I’m sure if I, if there was a regulation that they can raise money from the general public, I would have known about it. I said, Don’t take my word for it, I’ll give you the link from the SEC, there is no way the SEC would have ever done that. It. It isn’t. To Mark’s point that we so we made some great inroads during the 58,000. So even though the options are available for companies, we need to be aware that we still have a lot of education. And so reasons for these webinars, because I think it’s important for everybody to understand the options are available there. And companies need to go through these elements. And obviously, one of them is their legal counsel. And but here’s the other part. And it’s an important one, you should never ever undertake anything any capital raising without talking to your lawyer, or a lawyer that knows the regulation rather than one base trying to figure it out. You’ll soon discover the differences. But the the one area about reg CF. Now that is different, I believe, is going to be how you can do it. And so I want to touch on there’s two different new dynamics. And that’s all start with you, john. I mean, obviously, reg CF, traditionally, you can raise it on a funding portal. I mean, that’s been the restriction to date. And, you know, that’s where people go to flash funders on the world. So now we have a different option available to them. It Are you are you familiar with that? Yeah, somewhat. Love to hear your explanation on it. Sure. So obviously, you know, when they’re when they regulation? Well, Mark, I mean, are you aware that there’s different choice? I mean, you may you may or may not, but I thought, why don’t I throw it back to you? What’s your question? Your question? Yeah. What do you and your company ABC comes to you, Mark, I want to raise $5 million? You go great. So my option is to go to a funding portal. But do I have other options in raising my capital?

Mark Roderick  32:05

Well, you could be asking me about something very subtle, and I’m not sure that’s what’s your problem? I will, I will see about that in a in a second. But so company do call me that’s what that’s what they call me and say, I want to raise capital? And how can I do it. And so there are, you know, there are several options. One, if you have a rich uncle, you know, get it from him. Or, you know, I guess it has to be him if it’s an uncle, but I don’t mean to be sexist, never rich and get it from her. So I mean, their normal sort of traditional fundraising routes. But if, if, which is true of most people, you don’t, you know, run in wealthy circles, and you don’t have buddies who can just write your checks, then you think about the crowd. And there are different, you know, for the person you’re talking about. The the choices are either titled to crowdfunding, title three crowdfunding, or both of them together. And title to crowdfunding just very briefly is sort of wild, wild west, no legal rules, except you can only raise money from accredited investors. And that is, I mean, as I tell people, and they’re shocked to hear, you can have a business, you know, put up a website this afternoon, and you can start raising money from it. And that will be perfectly legal. So that is one option for that person. Just put up your own website and start raising money from accredited investors online. Another related option is to use rule 506 c titled to crowdfunding accredited investors only, but use a portal, you know, their title two portals out there, and in various industries. And they have a lot of investors signed up. So, you know, you might find it easier to raise money from accredited investors from a portal and then, you know, the downside is you’re gonna have to pay that portal for the privilege. And so we then talk about it and we say, Do you think you’ll do you’d like to raise money from non accredited investors? What what’s your company about? Do you have a lot of customers who might be investors and that whole conversation and of course, I’m making this as brief as possible. I hope you know, that can be a fairly long conversation. But sometimes we ended up with Yeah, we would like to or need to raise money not just from accredited investors, but also from ordinary people, non accredited investors and In that case, there are options we, you know, a traditional rule 506 b offering. If you know, some non accredited investors or a combination of accredited and non accredited, you can do a rule 506 b offering, you can’t advertise it on the internet, but you can do it to people, you know. And you can include up to 35 non accredited investors. So that’s yet another cubbyhole that you can fit into, possibly, but if that doesn’t work, no, I don’t know anyone. I’d like to be able to raise money from non accredited investors. And so then we end up at at title three. And when you’re raising money under Title three, as you know, you, you are required to use a funding portal. Like like John’s, and they are registered with the SEC, they are members of FINRA, which is a somewhat arduous process. But you are required to go through a funding portal. Once there are many funding portals, I bet Jon’s included, will suggest depending on how much money you’re trying to raise a simultaneous offering under both title three, and title two. And that is allowed to so that’s yet another flavor. Now the very subtle question, and I’m not even sure you were asking me this question is, some portals have been I don’t know whether john says or not have begun to play with the idea of licensing their portal to individual issuers. And so let’s say Mark rodrick, wants to raise money for his company. Some portals are again sort of toying with the idea of allowing Mark rodrick to run that offering at his own website, using the portals software. So I and that is a very subtle thing. I don’t think anyone really knows that works. And it’s so what the parameters are, and I’m not that’s why I’m not sure you were asking me that question.

John Hong  37:31

But I think it’s a great answer. What is your take on that? I see that, right? Like what kind of form see phone you have to have a designated funding portal. But if you’re operating on your own website, are you kind of circumventing the rules or we always say is flash funders to say still the name funding portal, but let’s just see that

Mark Roderick  37:58

well, using that. And and we’ll explain. And I have an eye and probably a handful of other lawyers have calls into the into FINRA to ask them exactly this question. So here’s what would be an example of something that would be perfectly legal Mark rodricks business just has a link at at its crowdfunding or edit, you know, regular business website, we’re raising money, click here. And the CLICK HERE takes you to John’s funding portal. And you know, everyone goes through the whole process and John’s funding portal, that’s perfectly legal. Next step, kind of down the well. What if people can’t see my offering at John’s funding portal, one of the only place they can see it? Is that Mark rodricks website. And what if when they click on Mark rodricks website, the only offering they see is marks, they don’t see any other offerings that John’s funding portal is hosting. And when they you know, they click invest now and all the it’s all branded with Mark rodricks company, they don’t even see the name of John’s funding portal anywhere that I think is At the other extreme, that doesn’t work. But there are as anyone you guys and all the listeners can imagine there are lots of possible permutations permutations in between those extremes. And there is a lot of thought in the industry being given right now. You know, pending an SEC clarification on you know, we were in the spectrum it stops being okay. And again, I’m sorry if I introduced I don’t know if that’s what you were asking me But

Oscar Jofre  39:55

no, no. Close. You can close but they’re there. You can close But the the two new that we didn’t have when reg CF was first introduced was the broker dealer, the broker dealer dismissed the regulation completely right? You remember that they would go all this is not this is Kitty, you know, Kickstarter stuff, we don’t want to have anything to do with it. This time, they’re back there now saying wait a minute, 5 million. That’s that’s my sweet spot, you know what I mean? So a lot of rexy apply, our broker dealers are getting registered for reg CF. Now, why is this different, because a broker dealer is going to provide and we already have a few clients doing this, they’re going to provide a dedicated page to that issuer. So there is something new that is arising, we have will have different types of issuers will have on different stages startup, you know, operational and then one that’s a little bit more established. Not everybody wants to be in a crowded room. Some I want my offering to be by myself, if I’m going to spend that kind of money, I want that profit to me, nobody else. And I think you touched on that mark. So these offerings are being done on a URL that the broker dealer controls. So that is already allowed within FINRA, but there is a broker dealer in this opportunity in the broker dealer working alongside the issuer. So that’s what’s different, that we didn’t have before. And the dedicated page is the other. So we’ve seen broker dealers like Sutter who, who became a funding portal, because that was the only option. It makes sense, you know, credit,

John Hong  41:39

credit that so a broker dealer could always operate in Dubai and new CF offerings, is just beedis generally avoided it because of the heavy compliance component 87 funding portal. So the word the first one CFR, when we close, we actually close that on there, our broker dealer bizarre crowd funding portal applicant was still pending.

Oscar Jofre  42:01

Yes, but a lot of them just like RegA, you still got to make the application to be allowed. So that we do know, I mean, it making the request making becoming a funding portal is a totally different thing. But the point is beedis are now coming in. So we now have, I think the latest count is I don’t know 68, or maybe more funding portals. Prior to the new regulate amendment, there were 51. So you can see more have been added. And now there are broker dealers who can then provide you a dedicated paid. So again, you’re getting options and raising capital, you’re getting options on how to raise your capital. I mean, Mark, you and I have been advocates about this Choices, choices choices, not one, you’ve got to the only model is this. That’s it? No, you don’t need to the model is what works best for you with the journey of your capital race. And you have choices to go to the question is, where is all that and that that is going to be a bit of a problem. There is a company out there right now called crowd tide. And what they’re doing, they’re providing a, a landing point for everybody to go to. So they can start, you know, navigating where the portals are. So it’s at least that’s that that’s a starting point. But I do get it it can be it will be a lot for issuers. But most important, don’t. The one thing that I want you to take out of here you have choices regarding your offering, Mark discussed in detail giving, you know family and friends that Angel groups, you can do do side by side or RXi up with a reg D. And then of course, making sure you disclose fully to your partners. You know, what is the total round of capital you need. I know sometimes as intrapreneur, you’re going, I don’t want to tell them everything I need because they will, you know, they may not want to talk to me, but the more they know and particularly your lawyer, the better it is. Because there is a structure issue that you need to deal with that you need to make sure you plan ahead. So you know if your total capital intake for your business to be successful. Regardless, if it’s you know, 510 15 75 million, there are things that need to be structured in the beginning, that is going to help you get there in the most efficient way. Because otherwise, you’re going to need to unravel it. You know what I mean? So, it’s important that you do that with people like Mark Broderick and mark will bring in the best source for you to do your capital raise. You know, you need a crowd. Okay, let’s go to funding portal. I don’t want to cry. Okay. You go to that BD. I want to hybrid. Well, that’s interesting to see what I mean. So this is where you it Choice selection for the companies is going to get better. So, um, john, I, obviously I mean, you guys been both sides. So you have had that advantage where some of the, you know, funding portals were strictly funding portals. Only as of late, they’re becoming registered FINRA broker dealers? How did you guys always take that date when a company came into flash founders, you would normally take them to the BD site. But now you’re going to? Are you going to put it all under the flash umbrella and operated there? Well, no, it

John Hong  45:30

just depends what the company needs, you know, every issue is going to be different. Maybe a crowdfunding round is right for them. If they’re like a niche market or niche, vertical, a retail investor might not necessarily make sense of the product and company, what they’re trying to do, you might just need an institution or a or a set of accredited investors to come in and complete the round. It just depends on each issuer is a little bit different. One might be one type of race might be right for the other. But the you know, CF isn’t for everybody. And now there’s reg D. So it’s really just a pension through conversations with them to kind of determine and help guide them down the path of what might be the best suitable capital race.

Mark Roderick  46:18

Yeah, well, let me just say, by way of comment, I mean, that I wanted to say, at some point here, you know, as I say, I’ve been doing this for a long, long time, meaning helping companies raise money. And there is, you know, ever since I’ve been alive, the place where people raised money, you know, the cool neighborhood was rule 506, not so much. 506, including non accredited investors, but not at 506 accredited investor only raises under 506. That used to be the only thing we have. And since the JOBS Act, now we call it 506. c. But rule 506 is where all the money for small businesses gets raised in this country. You know, the IPO market? Yes, those are big public companies. But that market pales in comparison to the capital raised for private companies. And it’s always been raised under Rule 506. In my opinion, these changes to title three is going to change that landscape. Up until now title three has been a bad neighborhood, relatively speaking, on the wrong side of the railroad tracks, these rules are going to immediately put title three on the good side of the railroad tracks, it is going to become the best neighborhood, it’s going to surpass rule 506 is going to be where almost all the capital for private companies is raised. This is just, you know, this is not the kind of thing to make you popular at a cocktail party. In the world of in the world of raising capital. This is an enormous change that we’re about to see. It’s we’re just going to see, you know, billions and billions of dollars start to pass through funding portals. So I mean, this is the time for John’s company and all the others. This is the time to be in that industry because it is about to become you know, the justo that great retail neighborhood where there’s people walking down the street all the time looking in the windows, looking to spend money, it is just it we’re about to see it explode. I am 100% sure of that.

Oscar Jofre  48:50

I agree 100 You know, it is important to to know that this significance. When we got the gift on November the second by Commissioner Clayton The timing was unbelievable. It came earlier than we expected. And here it is why because during the most horrific time in history Americans stepped up they came to the plate to help their fellow American with their companies. Online investing was on the rise some people are talking about your an 80% return is we’re saying dependent we The important thing is nobody gave up people give more forward and this mark alluded to this year is going to be even greater. And I’ll leave everyone with this you know 1100 companies raised capital and reg CF in 2020 $240 million was raised from 358,000 investors. This is just scratching the surface where the setting so now this is the time where we usually give our audience an opportunity to ask questions simply click the button you know raise hand and we’ll we got Mark leading regulation CF lawyer here that you can ask a question, journey and of course, john Kong From our flash funders, one of the funds register funding for discipline service securities. So when I see that I’ll bring you in, but in the meantime, we’ll continue the conversation. JOHN, you were about to say something when I picked you up there, please continue. Oh, apologize. I can’t recall where I was going. We were talking about you know, the, obviously the significance of this regulation is we’re going to we’re going to see as Mark alluded to that it’s going to change from the traditionally follows 60 was the route now obviously with reg CF, it’s gonna it’s the people companies are going to pivot I saw something that I never thought I would ever see. And Mark, Mark and I know this company very well. realty mogul. Right? I know and this company has been an advocate of accredited investor only remember that accredited only no retail? Well, now they’re doing a real you know, crowdfunding. It just goes to show you that even the most advocates for you know, dealing only with accredited there are pivoting to words, you know, regulation CF and Regulation A plus, because they’re seeing that it’s working. And not only that, investors like it, investors truly like this regulation better. Even accredited investors love Regulation A better than reg D because of all the other elements. And there’s one area that we’re going to talk about the last 10 minutes or discussion, is that one of the options for regulation CL is the incent, you know, you can incentivize the investor. So, Mark, I’m going to put it on to you first and then we’ll go to mark but let’s talk about incentivization because, you know, you’re you’re the lawyer you’re helping I want to give away what So first of all, what are the limitations? And what are you guiding people with when they want to do it?

Mark Roderick  52:04

Well, first I got to say your news about realty mogul is very interesting to me because I have written I actually I wrote a blog post well, that must be what why they did it I wrote a blog post as to why every title to portal should become a title three portal so you know, I’m sure they listened to me. But But I have actually written to the other two, premier Realty, real estate title two sites, crowd street in real crowd and implored both of them to create title three sites and and I think they will. But anyway, so that’s, that’s very interesting news, which I always get from you, Oscar, somehow you are plugged in. So the question you’re asking me is about limits limitations. Is that is that where you’re at? No, no, no, not

Oscar Jofre  52:56

limits. Obviously, you know, we can incentivize investors when doing investing, right? We can give them a T shirt, we can give them drawings, we can give them a Yeah. So obviously, this is now becoming something very different, you know, on the reg D model, you can incentivize them other than with the equity itself by given warrants and all that nothing stopping you from doing that as well here, but perks have become an integral element of reg CF, right.

Mark Roderick  53:26

They have and I mean, you are allowed to offer perks in reg D offerings. It’s just a culture shift. It’s not a legal shift. So you know, this is out there I there I for the first time ever I told Oscar something he didn’t know already. So that is a person. But anyway, so it’s a culture thing right. So we started off the very first thing I said whether you had asked me or not is to differentiate title three from from Kickstarter. Right? I said it’s a different but now here we are, toward the end of our conversation talking about perks. Well, where did the idea of perks come from? It came from Kickstarter. So that concept that you should get something some goodie some non financial goodie as a result of your investment that just comes that is fertilization from the Kickstarter world over to the equity crowdfunding world. And it it sort of you know it it really is a cultural thing like up until these days raising capital with something only very serious white men in suits did right and you couldn’t laugh about anything, couldn’t smile. Of course I’m I’m being over the top but you get the point. It was a very capital S serious undertaking to raise capital. Kickstarter is not, you know, Kickstarter is full of fun, cute videos helping people creating community. And so what we’re seeing with these perks is kind of a Yeah, a cultural phenomenon, where now raising capital is not just for very serious white men. You know, it’s, it’s about more than that. It’s about investing in things you believe in. It’s about making money, but it’s about doing good for a lot of people. There’s a real cultural dynamic going on here that is about more than just legal rules. In my opinion.

Oscar Jofre  55:45

That’s interesting. So okay, and I never thought of it bringing it back to the point of that was a Kickstarter, rewarding it. So john, I mean, I’ve got go back to you. How do you feel that with the perks, and now I got it, you can also use it for reg D. But it’s it’s a generational thing or, but I’d love to hear your comments on this.

John Hong  56:08

Yeah, with the purse separately a benefit. That’s what kind of retail investors are somewhat familiar with, coming out from the Kickstarter, and you go cool. So that definitely provides some incentive for investors. But end of the day, I’m always an advocate of just we just have to have good companies, good founders, strong executive teams, and whether the perks are they were not I think they raise cap. I’m not a major advocate for companies that approached us and advice and been introducing perks into their deal. Although that can help. What I’m hoping for is that with the new rules, we’re getting a different, you know, color of companies coming through.

Oscar Jofre  56:51

Yeah, in in Europe, right. I mean, it’s, I think it’s important, you don’t need it, but we obviously see a lot of it. I mean, our previous webinar, we had it, we’re way beyond the T shirt idea. So make sure that you you listen to that part, as well, because I don’t want to mislead anyone that just give away a T shirt and people are going to invest. Now, we’re way beyond that part. So but what I will say is that we are, we’re embarking on an era that we need to keep reg educating people, and what is important about a product that sometimes gets overlooked, that there is a legality to it. And I’ve been doing this more often on webinars closing off with it, because there is a bit of a snag with it that people have not overlooked. So and that is that when you promise anything, so when you promise an investment, people get it, they get their documentation, their weather transfer agent, and everything is moving nicely, the perk is different. The perk is something that is not part of the security, but you made it part of the contract. And let’s say it’s a one time part, it’s, you know, you deliver it, it’s all done. But let’s say you’re one of those that is providing a perk incentivizing them to invest more, you’ll do it more frequently, like monthly, quarterly, or whatever else. And we have run into a situation that if your product is not properly structured, the investor can actually if they make the investment using their credit card, they have one year from the date they made the investment to do a refund. And this is something that if obviously, no funding portal wants to have because it they wouldn’t, you know, it’s coming up to the fact it’s, and it’s a new component that the credit card companies have done which goes outside of securities law element, which means how do you protect both sides, the investor and the company, and making sure that both separated but the investor being a retail investor is safe, hey, I never got my product, credit card company goes okay. You know, automatically put on reverse and then you’ve got to go back and prove your, your, the fact that you’ve delivered it, but it it is something new. I’m not scenario mark. I mean, it’s probably something you’ve not seen before. We have seen it now. Where it’s a fairly significant amount of money in the credit cards have how far back and it’s important because if you’re going to take this process and and use these options, you you need to plan all this out with your legal counsel as you’re planning the journey, your capital raising the terms and condition and what you’re going to provide. It’s just as important to plan this out. I just like to hear your final comments on that mark before we close out.

59:56

You mean with respect to using using credit cards To find these deals,

Oscar Jofre  1:00:02

no, not I mean, that’s not really up to the company. It’s really the funding portal. But the, the the issuer, the company that is going to provide a, this opportunity to everyone is is doing something really interesting is it’s offering a perk, right? And a perk, you know, again, nobody has really done anything other than it’s something that I’m going to provide you to incentivize you that, is that perk included in the subscription agreement. That’s number one. Number two, you know, what can we do to make sure to protect, we want to protect the investor to get what they were promised. But at the same time, keep it in mind that that investor now has one year, one year to do a refund on that investment, even though legally on the figure slide at certain point. But they can call their their credit card provider. And they can claim I didn’t get my product. And it’s usually the perk, not the security. But the credit card company doesn’t distinguish either or does that help you?

Mark Roderick  1:01:10

Well? Well, I mean, I would certainly never recommend to an issuer that they promised to give investors their money back for the next 12 months, that that, to my mind would be. And that’s not good for anybody. I don’t, I don’t think because, you know, if I give it to you, I mean, in my right, give it to all my investors that everyone in this whole offering cancer right to get, get their money back, if I would never invest in that company. Because everyone else wants their money back. Now, by now the company is bankrupt and my investments not worth anything. So that would be a terrible idea.

Oscar Jofre  1:01:54

Yeah, no, I’m not, I’m not suggesting that either. What I am suggesting what I’m bringing up is that if a company is going to incentivize investors, which is entitled to do, and let’s say, You promised to give, if somebody invested $100, you intend to deliver a case of juice is six of them, or vitamins one jar, that’s fine. But let’s say if they invest $500, you’re going to give it to them for six months. Okay? So what I’m saying to you is the following. When the investor made the investment, initially on the funding portal, and paid using their credit card acth, they have 60 days, but credit card has now the credit card companies have extended online investing to one year, this is the new thing we’re dealing with. That’s why I’m bringing it to you. Because I know you deal with this. So you’re right. We don’t want the company to give it back. But we now need to take legal steps to make sure that companies will are going to offer the perks biggest I get company Oh yeah, Oscar, I’m gonna get these perks away. And I go, great. Have you spoken to your lawyer? Well, no. Yeah, I mean, if you guys don’t have to deal with a person, no, you got to talk to your lawyer, because you got to make sure you can deliver this. Because when you go to the funding portal, or wherever you going to raise your money from if you don’t deliver those perks, those people can claim their money back, we now know that the company they the credit card companies put the industry on notice that they’re taking it up to one year now. This took into effect about September of 2020. So because they’ve seen the the complaints, and now they So traditionally, a refund on a credit card was like 3060 days. Now, it’s 12 months.

Mark Roderick  1:03:44

Well, let me ask you this, because I don’t know the answer. And and I’ll ask john, john, do you accept credit cards on your portal?

John Hong  1:03:53

We do. We do. But we do have trouble weapon? Oh, no, no trouble. But no, no, none of our issues are, you know, keeping out parks? I mean, I think that comes on? Well,

Mark Roderick  1:04:06

it’s not a purpose. You I think I mean, I’m not so concerned about the pert, they the one legal thing about perks is that they can get out of hand legally, the perk has to be the value of a perk has to be insignificant relative to the price of the security. You know, I’ve I’ve had issuers who have said, you know, we want to we want to offer this, you know, for $500, you get $600 of merchandise, you know, and I don’t believe you can do that because now your disclosure document is false in terms of what the price of the security is, but putting that to the side. If if, let’s say someone invested $500 and I got $25 worth of goods and I think the question you’re raising Oscar is, well, 10 months down the road, you haven’t delivered the goods, and now the investor can revoke the entire investment under the terms of its of its credit card, and, you know, probably legally to under the terms of the subscription agreement. I think that’s a risk. I think that is just a a risk factor.

Oscar Jofre  1:05:23

And that’s my god dang it. I only bring it up on, we need to we do know, like a lot of things we’re learning, we’re evolving. You know, David, as I said, before, we’re in a momentum. So we’re evolving, which means now we like everybody else, everybody’s fixing their back offices, there was a moment. I know, john knows about this is that we had a disconnect where the credit card companies were disconnecting some of the online investment. So I’m just letting you know, I, I bring this as a discussion because we are stepping it up to $5 million. And the the the incentivization are things that people are going to consider are going to be great. And we just need to make them aware. Okay, great. Listen, what is your delivery mechanism to make sure it’s going to get done? Because we need you to understand that the mechanics if it doesn’t get done, because that investment, I

Mark Roderick  1:06:12

mean, it, if you were a portal, in that situation, you might even say it’s fine, you can offer all the perks you want subject to the kind of Mark roderich rule I just said about the relationship to the value of the security. But you know what, you’re going to fund it up front, we’re going to make you you know, if the total value if you’re raising $750,000. And the value of the perks you’ve promised is $50,000, you’re going to take that out of the raise up front, and you’re going to put it or not.

Oscar Jofre  1:06:47

That’s a very interesting point. Something interesting as well, just sorry, I’m going through my notes on birth, something new that the SEC is requiring companies that are offering perks to put in brackets, the value. That’s a very interesting point you just said. That’s how

Mark Roderick  1:07:04

I come through again. Yeah, yeah. thing that it and you know, it’s more it’s because reg CF offerings are not policed by the FCC, right. There’s no pretty offering filing, but the same issue comes up in Regulation A offerings, and they’re the SEC is reviewing the at the sea, obviously, she is reviewing the offerings before you can start selling securities. And if you were, you know, you’re saying, well, the price of security is $10 per share, but I’m giving you $7 worth of product to buy it what well, then that disclosure is is misleading, because the price is really $3 a share. So it is it is a relevant. It is a relevant disclosure item to ensure that the disclosures in your form C are are accurate.

Oscar Jofre  1:08:06

Yeah, it’s john, did you have some closing remarks on that point?

John Hong  1:08:12

No, I mean, it was the our platform does accept credit cards, but it’s one of those things where the risks outweigh the rewards. We hear a lot of RegA plus offerings, where 50% of the funds coming in are coming in via credit card debit cards, are we losing out on potential investors by not taking on that undue risk of allowing credit card payments to purchase? So I mean, that each one of those is discussion we have with our issuers, like it’s a service you want to take on.

Oscar Jofre  1:08:45

Yeah, and

1:08:50

in some ways, I wouldn’t, you know, off the top of my head, I wouldn’t mind somebody that the SEC or FINRA saying you can’t use credit cards to buy securities, and then that wouldn’t. I think that wouldn’t bother me. Nobody, I think I think everyone in our industry should agree with what a great no one should be borrowing money at 18% per year to invest in a security. Right? I mean, that’s just a thing until I saw it happen. So the only good reason to buy with a credit card is I want to point I want the mileage. But to my mind, you know, allowing investors to get airline points is not worth the downside to all concern to an investor who might actually be borrowing at 18 or 24%. To buy stock in a speculative company. And it’s not well at right it’s worth it to the issuer who who’s and to all the other investors whose investment is an output at some higher degree of risk because of the possibility that the company will have to disgorge money. So there you go. That’s that’s a rule we should all be in favor of.

Oscar Jofre  1:10:11

Well, great gentlemen. Wow, it was it we could have. I love discussions like this where it’s just, again, we’re discussing things that people often run into, and we got to deal with it head on, so we can all discuss it and come up with solutions. So it’s a win win for the investor win win for the company, the funding portal, everyone involved. So john, always great to have you. It’s great to see you again, Mark, loving the fact that we’re connecting next time you have your camera on. Thank you. For everyone who attended today. All these webinars are available to you at KoreSummit.io. We welcome you to come back and see us again. We’re on tomorrow again at 11:30am. And on 3:30pm. So thank you so much for coming out this afternoon. Have a wonderful week, everyone. We’ll talk to you soon. Bye bye. Thank you very much. You’re welcome.

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