What do you need for a RegA+ Offering
CEO and Co-Founder
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.
CEO and Co-Founder
CEO and Co-Founder
Shari Noonan is Rialto Markets CEO and has more than 20 years of experience in the financial services industry. Shari has extensive experience in building and scaling operations and products with Deutsche Bank, Goldman Sachs, and Instinet and was directly involved in the electronification of the Equities market. She worked to develop many of the initial products in equities electronic trading, including the first ATS’s, advanced algorithms, and electronic negotiations. She received a BS in Accounting from Marquette University and MBA from Columbia University and holds Series 3,7,24,55,63 registrations.
Chief Product Officer and Partner
Chief Product Officer and Partner
Andrew D. Stephenson, Chief Product Officer for CrowdCheck and Partner with CrowdCheck Law, is an entrepreneurial attorney focused on assisting small and early stage businesses with exempt offerings under the Securities Act, especially related to online securities offerings and crowdfunding. Prior to joining CrowdCheck, Andrew was involved with evaluating internal company communications and reports as part of complex civil litigation matters. Andrew has also worked for the United States Congress, handling a wide range of policy areas. Andrew received his B.A. from Claremont McKenna College and graduated, cum laude, from the University of California, Hastings College of the Law. Andrew is a member of the California and District of Columbia bars.
Oscar Jofre 00:02
We’re just waiting for a few attendees that are starting to show up there. So we’ll just give them a couple of seconds while that’s happening. And the meantime, I’m just going to just got to click one more button. Well, I was a bit odd hearing myself again and two echoes. Okay, we are now live. So first of all, welcome, everyone to the core summit webinar series. 2021. Thank you. For those who joined us this morning, this is the afternoon 330 afternoon Eastern Standard Time, I’m joined by two great speakers, part of the KoreConX KorePartners ecosystem that you know, we’re gonna have fun with RegA. So first of all, the one of the cofounders and CEO, Shari Noonan from Rialto markets. I’ll give her a couple minutes to introduce herself. And of course, one of the partners at crowd check. Andrew Stephenson. So like always, the the format for our webinar series is very simple. There’ll be a 45 minute kind of discussion period, this no PowerPoint presentations here, you’re here, the real people doing the real work so you can hear them and understand, you’ll have the ability to contact each of them, we will provide you their contact details so you can reach out. And for those who as well. The of the entire webinar series is live on youtube as we speak. So let’s get started today. And of course, ladies first Shari, please say hello to everyone.
Shari Noonan 01:38
Thank you for giving us all, you know, giving us an injection of energy at this point in the afternoon. Thanks, Oscar. So I’m Shari Noonan the CEO and co founder of Rialto markets. So Rialto is a federal registered broker dealer and alternative trading system. And we focus specifically on the private markets building out functionality in the private markets through the use and connecting with blockchain based securities, which aren’t digital securities, but we facilitate trading in RegA securities and other private market securities. Thank you, Andrew.
Andrew Stephenson 02:17
Great. Hi there. I’m Andrew Stevenson. I am with CrowdCheck. CrowdCheck, we are. So it’s kind of a dual, sort of kind of fee for service, compliance and due diligence service provider, we are also a law firm us we wear two different hats. And where we assist companies with preparing their offerings, under Regulation A and getting them through from kind of the sort of initial initial thoughts on the process all the way all the way through to qualification and beyond.
Oscar Jofre 02:49
Perfect, so thank you. And this kind of leads, you know, the discussion why we’re here today, everybody that is in attendance and those that are live, it’s all about RegA, we’re getting excited, of course, because on November, the second, Commissioner Clayton gave us all a gift. It hasn’t gone live yet. But we are waiting. And obviously, this is paying a lot of attention. Everyone around the world, not just in the US around the world, this great exemption called Regulation A plus, that everybody is wanting to know about. So we’re gonna go right to the beginning, because it’s important that we all understand what is regulation, the current historical element. And obviously, we were not going to dig too dug, we only got 45 minutes. So the idea is to kind of give you the overview of these items. And then keep in mind everyone here, there are 72 other webinars that will go into more detail on each of the sections. So and you can always reach out to the panelists that we have here today. So let’s, let’s get started. Let’s dig in into it. So obviously, the great news by Commissioner Clayton, Andrew is it’s been great. But for a lot of people, what is RegA? So a little bit history where we are with it today?
Andrew Stephenson 04:05
Sure. So Regulation A, is is an exemption for registration under the Securities Act. So that’s the sort of the legal premise of it. The fundamental rule for anytime you’re selling securities to United States investors located in the United States is that every offering of securities must be registered or exempt. So a registered offering is it’s an it’s like doing an IPO. So, massive amount of disclosure, major requirements for for the for the accounting and auditing and then significant ongoing reporting requirements, Regulation A kind of cuts cuts that down significantly. So it says you know what, for the smaller offerings, this can be a separate this can be an exemption from from registration, but you do need to meet certain requirements in order to to, to utilize Regulation A. The regulation has been around for for a long time, I think in kind of the initial time that the SEC created it sort of over 50 years ago, and it was I think it was an exemption for like $100,000. But it certainly in post jobs act has scaled up significantly, the JOBS Act created the classification to allow for tier two offerings to raise up to $50 million every 12 months under Regulation A under tier two will also be referring to on November 2, and then just just published in the Federal Register to be effective on March 15, or amendments that will increase that offering limit up to $75 million every 12 months. And so companies will be able to use Regulation A to raise that, that that amount of capital, without going through a full kind of registration IPO process, doesn’t mean the money is going to come in. But it’s been the companies do have the opportunity to undertake that exemption. And then I think just one thing to note, because you know, that this, we probably do have some participants watching that are not just from the US, this is Regulation A is is an exemption only for accessing US based investors, it’s not a it’s not an exemption that will then be automatically allow for raising from, for in other jurisdictions, there may be depending on jurisdiction, jurisdiction by jurisdiction basis, there may be some sort of analogies that would allow for reuse of a lot of the disclosure, but fundamentally needs to be thought of just as a means of raising capital in the United States.
Shari Noonan 06:46
And if I can just jump in. So from from a corporate perspective, what’s really exciting about this is it really changes the way that capital companies can form capital. So if you think about a traditional company, how you would go out and raise capital, and you sort of do your series, you know, your seed round, and then your series A and Series B, and you might, you know, avail yourself of certain tools. This is certainly quite a big tool to put in the toolset of raising capital from the public markets. And if your company is one that has a loyal network of vast network, it’s a great one to think about utilizing.
Oscar Jofre 07:25
Well, that’s an interesting point. Um, so you caught me by surprise around, I wasn’t aware, I thought it was just Reg CF, that goes live on the 15th. So that’s,
Andrew Stephenson 07:36
it was all Yeah. All part of that same rulemaking. So it’s March, march 15.
Oscar Jofre 07:39
Okay, so tell everyone, so that’s good news. So that’s, that’s even better. So see, you made my day. Look at that. So number two, um, obviously, we were touching on the investor, but I think it’s also needs to be clear. So there’s the the who were the investors that you can attract. But you also the type of company could only be at the moment under Regulation A, it can either be a US based company or Canadian company, just want to make sure that clarity is also there. There have been other companies from other countries utilizing it, there is additional steps you need to take to make sure you’re fully compliant. And if you want to use this, correct,
exactly, yes, it is. It is an exemption that is limited to us organized company, us or Canadian organized companies with principal place of business in the US or Canada. So if a company so for a specific company, so home bases in is in an EU country, they would need to kind of they would need to either establish some sort of some operations in the United States or Canada that has its real own operations, not just as a kind of a shell subsidiary, but it needs to have its own operations, or really, or just pick up and move over. And so those are decision makings decisions that are important for any company to think through before undertaking any any drastic action like that.
Oscar Jofre 09:09
I concur. Obviously, it’s one of the necessary steps. And you know, as we were talking earlier this morning, it’s part of a journey of a capital raising, you got to think of your strategy when you’re going to do a reg CF and combine that with a RegA. It’s very important that early on to anybody listening here. At no time any of this information here is meant to be to not work with your legal counsel and your broker dealers and all that to make sure that you’re positioning yourself well right from the beginning to understand the full journey because one thing that I have learned is that there are times when companies think, Hey, you know what, I’ll just create that sub, and I’ll do it a reg CF, and then they want to do a RegA and it all blows up. Right? Which one of your partner Sara Hanks recently wrote an article about that? And the right CF, there’s no qualification other than filing RegA, they’re looking at the documentation and reviewing things. So let’s talk a little bit about that. So we’ve talked about the regulation. We’ve talked about, you know, the great thing that goes live March 15 2021, for 75 million. So let’s talk about the requirements Shari. So from obviously, your firm being a registered FINRA broker dealer, what is it that is needed for a company to first file, and then of course, ongoing during the raise? Absolutely. So
Shari Noonan 10:31
usually, when we’re engaged by a company, where it’s a little bit further, they’re closer to qualification. But they’ve already gone through audited financial statements, you’ll need to clearly have a lawyer and a law firm that you’ve coordinated with, if you’re doing and handling a tier two, offering a transfer agent. And so you’re going to need certain ecosystem partners around you and some of those, you’re going to be required to have some of them, you should have, just because grow, you’re going to need them. And from an infrastructure standpoint, it’s just good practice to build these these infrastructure components. And so those are really the things that you need to have, what we see from a lot of companies that come in and talk to us is some of the first questions that we ask it, you know, if they come to us and say, you know, I’d like to do a RegA, is this the right time in your company’s journey? To be doing a RegA? Do you have the funds to do a RegA? Do you have the runway to do a RegA? And are you able to successfully complete a RegA and continue your your operations? So those are two key questions. And then, you know, do you understand what this means from a you’re doing? You know, you’re opening up the kimono, there are going to be public filings that are out there. See? So you have to be comfortable with certain amount of disclosure, which some private companies are not as comfortable with? Andrew, I don’t know if you can expand on that. Yeah, so yeah, that’s
Oscar Jofre 12:00
a great point. Yeah, go on. And obviously, okay, so we talked about the the starting point with a BD, obviously, that’s one of the requirements to follow the audited financial statements, actually, under your firm. You know, you guys do so many of them in the market. So what are all the elements, you know, guess people think that I can cut this short cut that short adorno shortcut. So let’s.
Andrew Stephenson 12:20
So the, in some, in many ways, it’s going to be very what what gets filed and what gets put together and filed for religion offering is going to be very similar in some respects to what’s in a sort of in an IPO filing. So if you’ve ever looked through an IPO, seeing all the disclosures of the financial statements, all the exhibits, all that’s there for regulation, a offering as well, everything just kind of a little bit condensed, and with standards that are a little bit lighter is a bit lighter, a bit of a lighter lift. So very detailed disclosures about Yeah, who the company is what it does, how you make money. Who are your key partners? What’s your customer base, if you’re relying on limited number of customers? Or is it? Or is it a sort of a pretty have a broader reach? Those are gonna be key key disclosures, your risk factors, what is it? What is it about the the investment that makes that makes it risky to investors? One way we often tell companies think about it, what keeps you up at night? And if they’re in that’s the kind of information that needs to be provided to investors, not just to keep them informed, but to protect the companies? Because it’s, if you’re, if if there’s a risk that is present, that isn’t disclosed, and that risk in the risk occurs? What’s Yeah, now potentially, the company’s liable and we’ve seen this I’m not sure exactly where all some of the litigation has landed. But we saw that in during 2020, with COVID-19, where companies were, were facing potential liability because of not fully, sort of, because the risk factors that we’re putting out into the public markets weren’t fully a weren’t fully sort of laying the groundwork for the extreme measures that became that occurred as a result of COVID-19. So risk factors are a major part of your financial discussion. So in your management, discussion, analysis, how Yeah, we’re, whether your past results been what’s your current, how much money you currently have, how much more do you need to succeed? And then audited finding then audited financial statements and exhibits? Those are so those kind of all all get put together, the exhibits are going to be critical as well. As Yes, if you’re especially if you’re identifying critical partnerships, you those agreements for those partnerships will need to be part of the filing and and that’s an area that your Counterparty may not want that they may not want those agreements out there in public. And so it’s it’s really, it’s so these are things that will need to be sort of assessed. And then figured out before you really started to really get going. And it was always fun the companies we get is usually it’s like they’re, it’s, they start to start the process, and we’re gonna get a first filing with the SEC get comments back, we’re preparing an amendment. And then a major, sort of great business update. Alright, we got this credit, we got this major contractor, we got this new we have this new leasing this new, this new space. It’s like, great. Yeah, that’s important information, disclose. And now Do we need to file these agreements, and it’s a, so so that’s, so if those are, if that’s happening, while you’re doing your RegA, you got to make sure that Counterparty is okay with information getting getting filed and made available publicly.
That’s very interesting actually, to hear that. So part of the filing, it’s not just putting the business part, but it’s all putting the external partners component to it. So we’ve identified obviously, you know, it’s just like a an IPO filing for, for prospectus, you’re gonna have audited financial statements, you’re gonna have all the information of its officers, I’ve seen the checklist that your firm produces about 57 pages long. So not that long, but yeah, well, it is for us, maybe adding the content. But, um, so we got those two major pieces, we then have the broker dealer, who so that’s also an important element, because the when the filing is put in, the SEC is reviewing both the broker dealer and the issuer to make sure that they’re both working together that I think that’s a really, for me, you know, for for shareholders or investors at large to hear that is that it’s not just anybody, it’s they’re both reviewed for the offering. Right. So then, of course, there’s the other elements that the company needs to help, which is the registered transfer agent component in order to make sure that their securities are being properly managed externally, what other regulatory items are needed you know part of the checklist that you’re looking at Shari, as well, that you want to make sure are there from the ones that I’ve already set, but other ones that you’re looking at?
Shari Noonan 17:20
Yeah, absolutely. So when you engage with a broker dealer, really, you’re working with a broker dealer under a couple of different couple of different value propositions. So the, from a regulatory perspective, it’s really performing working on a lot of the logistics, so filings with problem states, there are a number of them out there in the US, we call them problem states, they’re not really big problems, but you need to, they need to be dealt with, they need to be understood and dealt with. And I think this is an important concept. When you’re undertaking if you’re a company undertaking a private market security to really distinctly realize that it’s not like a national market. system security, where you don’t, you know, you don’t have this federal overlay there, the blue sky laws that are also applying. So you have to make sure that you’re dealing with everything that needs to be dealt with, which can cause more paperwork associated with the raise or more coordination effort that’s needed. So you just need to be aware that there are some differences when when you’re handling a raise like this. So handling the filings handling all of the dealings with those states state that the actual blue sky states and then general gatekeeping. So writing review and review of materials like that, also, all of the operational execution of the actual deal a broker dealer will handle, which includes managing the record keeping, which is very, very important, because if that record keeping is not adequate, one, your transfer agents not going to be happy, but to you’re going to have issues when you do a future raise in the in the future. And if you should ever go public, or if you should ever have an IPO, it’s going to be very difficult to go backwards and try and piece that information together. So it’s all of that record keeping and then all of the escrow in transparent, a transfer agent management. And then lastly, the last component, and some broker dealers handle this, and some broker dealers don’t. So just be aware of it. It’s the actual distribution of the offering. There are broker dealers that can work with you on the management of that
Oscar Jofre 19:30
Perfect. So, so it’s great. So for those who are listening in, and you’re doing the checklist on what you need to obviously start with a lawyer, the lawyer is gonna compile all the business you need audited financial statements. So it should be noted that if you’re an American companies gap, if you’re a Canadian company, it does accept IFRS. So this is a really sweet, sweet way to operate. Then from there, we move into what Shari’s from we also have been a broker dealer. They you will have an agreement with them. And then I heard you know, we heard escrow. So, escrow is also one of the requirements as well to be included in the filing documents. Correct Andrew.
Shari Noonan 20:09
Absolutely. Please Andrew.
Andrew Stephenson 20:11
Yeah, certainly if if there, especially if there is, if there’s going to be a minimum on the offering, so that needs to be hit before the company can accept funds from investors, there needs to be a third party escrow. And it’s pretty important to have that in this in also from a investor perception issue in your kind of your use of proceeds disclosure and your mdna, you’re talking about how you need, you’ll you need to have at least a million dollars in order to execute your plan over the next 12 months. Well, no investors want to want to want to put money in if they’re just gonna be an investor, that’s if that’s if you’re only if they’re only going to be putting money into a raise of $500,000. Now they’ve just blown their money, and they’re gonna be upset with you. So it’s having that escrow minimum at your kind of what your viability is, at least for the next 12 months. Is is critically important. And so it does require the use of a third party escrow agent. And, and so one of the ways I like thinking about is kind of the brokers and other professionals involved, this is amazing. Doing a securities offering for company is should be like buying it should be like buying a house for you to personally, you don’t have like you’re only doing if you probably will only do it a few times in your life. And you know what, we’ll go ahead and work with professionals who do this every day. Because of all the all the checklists involves all the things that need to be hit. It just that’s that value add there is important for making sure it gets done, right. Because it’s a it’s like when you buy a house you don’t want to be Yeah,
I was wondering when you either you or Shari, we’re going to say the most important piece of RegA or any of these regulation is the first crowd. And the first crowd is the lawyer, the auditor, the broker dealer. Yeah, you know, we we don’t talk about that how important that is to bring in them all in, as you’re saying. Yeah, it’s just
Andrew Stephenson 22:13
it’s, it’s a matter of doing it doing it right the first time. We’ve seen it, because we’ve seen companies that have had to go out and do rescission offers because they just it just wasn’t done correctly. And that’s it’s a, and that’s in basically they were, they were required to do it by the SEC, because they did things incorrectly in the way they executed their offering. And that’s a lot. That’s a lot of money to spend in order to give money back to back to investors. And so be able to avoid those outcomes is very important. And that’s not even just considering potential liability, which which companies to expose themselves for. expose themselves to just by undertaking a public offering of securities.
No, I, I didn’t want to talk about some of the work. But you’re right. Having the right team people have done it been there is critical. There’s always going to be people say, Hey, I can do it. But one thing is saying it another thing. And the nice thing about RegA, all this data is publicly available to the public good. And God has it you can see every law firm, and that’s where you’ll see firms like CrowdCheck, I think 48% of all the filings are done by your firm. And, and you can see that right there. It’s not like it’s hidden away from you. So if you have a name, and you’re not sure, and this is where the problems occur, and we’ve seen it firsthand, and ultimately, who pays the investors and the company, the provider, sometimes, you know, they whittle away and we get stuck with the with a mess, because we want to make this effective. So I you know, it, it’s I call it the first crowd, I think the first crowd is important. I you know, when people ask us, what do I need? Well, I mean, we make it very clear, you need a securities lawyer, number one, number two, you need a broker dealer. Number three, you need an escrow provider. So we make sure it’s not even above the minimum anymore. What people need to know now if you want credit card, you want ACH you want wire transfer, none of these providers will provide that accessibility unless you have escrow, because they know now, the problems if you get the money directly to your account they need, they need a buffer. And the buffer is the escrow and we’ll get to Shari’s point here. And then of course, there, there’s the transfer agent, but these are all the things that it takes just to get it filed, get the deal qualify, and then we’ll get into the next part, you know, going live and the other items, but one part that for many years, I believe. And just looking at the broker dealer role was sort of like a commodity. And I hate that personally, I I’m not a broker dealer in any way. I’m an entrepreneur, but I hate it’s no different than you know, some people try to treat lawyers like a commodity. It’s not It’s a value add an enhancement. So I think it’s important for people to know because I know people are gonna read the regulation saying, I don’t need a lawyer, I don’t need a broker dealer. I don’t need all these things these guys are talking about. They’re just trying to sell their services. We’re not we’re trying to protect you. And so the role of the intermediary, I hate that word, just got broker dealer, the FINRA registered broker dealer in in a RegA. Shari? I mean, the importance of it. I mean, obviously, you know it, but obviously, for the audience.
Yeah, absolutely. So it’s about, it’s about making sure that just like Andrew said, you know, when you buy a house, there are certain things you should pay for which the professional, we always think about it from an insurance perspective, it’s insurance, to make sure that the actual execution of the race is done correctly. That’s what that’s what this provides. So it’s, you know, all of the operational execution around it, facilitating all of the payments, making sure that the investors that are coming in are vetted and vetted correctly, and that there’s proper diligence and proper records kept on those investors, that all of the gatekeeping around marketing materials that are going out any campaigns that are going out that their own fitting within the securities regulations, that’s and then all of the filings in dealing with, you know, the patchwork of blue sky regulations, just making sure that that is that from a raise perspective that you can that you can, you’re managing that raise, from a national level. So that’s really what a broker dealer does. I, you know, this is a very, I think, sometimes what’s missed it is that this is a very complex set of rules. And so it can be easy to say, oh, we’re just, we’re just going to go out and we’re going to raise, raise some money, and it’s really not going to be that hard. How, how complicated can it possibly be? It’s actually quite complicated. There are lots of rules and lots of regulations that you don’t want to trip over, because it’s just not worth it. And there are people that can provide the service at an in very reasonable rate. And this is really a new way to form capital. That that is, I think, quite innovative. So just put the infrastructure around it. And I really think it’s gonna, it’s going to take off, especially with the new, especially with the new 75 million cap.
Yeah, with the increase, I agree. And you said something that I really like. And I often say it in my presentations, I always tell entrepreneurs, working with a broker dealer is the best insurance policy you will ever have. Because what you’re getting is a protection. So first of all, there are I think it’s seven states, right, Stephen seven states that, right? Okay, so seven states.
Andrew Stephenson 28:03
Yeah, very, very varying degrees of problem.
varying degrees of problems are like that, that you need to be careful with. Because if you don’t have a BD, well, you are violating that particular state. So by having a broker dealer that’s registered in all 50 states, and has the ability to do the RegA business, so you even have to qualify the BD, not just every BD can do this. They’re doing all the work. They’re doing all the compliance, they’re making sure marketing is done, right. I’m, you know, I’m watching Rialto with one of our clients, I mean, weekly meetings, making sure with the lawyers, with everybody in the room to ensure that the success of the offering is not just on the primary but ongoing. Because the other holy grail of RegA, we’re now introducing secondary market trading. So if the, if it’s bad here, it’s never going to materialize over there. So it’s the insurance policy, ensuring that the investors are being bedded in properly with the right information. And I think that’s the critical piece with RegA that, I think for a short period of time, was dismissed as a commodity as, Hey, I’ll just take it if I need it. We make it a requirement as a standard in order to bring a healthy environment for everyone, the lawyers, the auditors and all that involved in this process, which can be very difficult. So
Andrew Stephenson 29:33
so just to add one thing into that I think we’re also seeing the there’s a greater sophistication on the part of investors who are investing in companies as selling under Regulation A, because early early on, I definitely had some big hypes in big companies with without kind of much, much of a much of an ecosystem around them. And but now, I think it’s seeing companies that don’t have that ecosystem are not doing as well thing investors want to see the want to see see that ecosystem, which is helping to help drive the, because part of it is a service initiative of legitimacy, it’s assurance that the ownership of the securities are going to be recorded correctly. It’s sort of a greater possibility of a future, future liquidity. And those are the all kinds of things that investors are looking for that come with having that, so kind of having that full ecosystem.
I agree, and it’s up. So, you know, we, I think it’s just as important with everyone to know. So now, this is getting the, you know, how all the requirements, you know, we went through it high level, now we’re going live. And there’s another piece of a RegA that quite often, people don’t. So where does the traffic come from? Where do the investors come from, so I’m going to put Shari on the spot, because often people think, well, I’m gonna have a broker dealer, they’re gonna bring me the investors. So let’s talk about where that comes from.
Shari Noonan 31:08
You I mean, you need to budget in an investor acquisition firm. So that’s probably, you know, depending on depending on the type of business you’re in, and depending on the type of network you already have. So you know, you can, you will probably know, or at least have some sort of sense of, if you can organically reach out to the network that you’ve already built through building your business. And, you know, start seeding the rays through that existing network, and through existing investors. However, at a certain point in time, you know, it behooves one, to engage the services of a have a investor acquisition, and that can get expensive. So it’s important to really understand what the different firms do. And there are a number of really great firms out there that handle this. And they’re, they’re really quite spectacular, and understanding digital marketing, and really targeting certain certain advertising and targeting certain investors. But it’s important to understand the different offerings and the ROI associated with that spend. So yeah, that’s the, that’s how you’re going to go out and, and get those investors. Now, there’s also the platform. So there are platforms where, you know, you can have your raise on a platform with a with a variety of different securities. That’s another model. So you can also do both, unless the platform doesn’t allow that. There, it’s becoming more flexible. And there are pros and cons with with both of those models.
Oscar Jofre 32:53
No, I agree. And so this is a an area that obviously in other webinars will go in more detail. But you know, the investor acquisition are different techniques. And there’s no one technique. That’s the end all it isn’t I, I can give you, every example of every successful opportunity that’s done it is used two or three of the techniques and an ongoing basis. But you do need to budget properly. I think Sherry nailed it that to assume that you just have an offering. And as qualified, you got the lawyers, you got the BD, and they will come, I’m sorry, they won’t. They need to be taken there. And in some cases, we’re starting we’re moving the evolution of the right now starting to have the broker dealers sell it. See this is been this is a new transition, that is going to occur where broker dealers will actually be right at the front lines, because some offerings will require that because the sound can sell by themselves, hey, you have a drape, I get it up and down. It’s easy, but maybe you got something a little bit more challenging, and it needs to be described. So why this is important, because there’s going to be the A to Z in companies, right? We can all agree on that we haven’t, there’s going to be the traditional companies manufacturing technology and all that. But there’s going to be all different sorts. And we need to understand that the the regulation is flexible enough, and there’s going to be providers. So investor acquisition is a very important element that you need to budget for and needs to be part of it. If you don’t, you’re in for a very long haul process where you may not succeed. So that’s why you may want to do a Reg CF beforehand. Mostly Right. Yeah.
Shari Noonan 34:37
That’s exactly right. And and that’s a good strategy depending on where you’re at. Again, getting back to the beginning of the conversation depending on where you’re at from a corporate maturity perspective. Starting with the Reg CF is a great way to at least understand the beginning of this but please understand the rules between reg CF and RegA are different. So don’t be surprised when you come back in A and it’s a different ballgame. Somewhat.
Oscar Jofre 35:06
Great point. So in our last session, obviously, a lot of people are curious on how to use reg CF and RegA. Right? So we’re seeing that an Andrew, I know, our two firms are working together a number of clients that started with a RegA, now they need to do a reg CF to get more funding. So isn’t that great to be able to switch, but it’s got to be very clear. These are for American based companies. So again, we need to put that warning up there often because for Canadian companies, our path is not as the same. And I know Yes, I can create a company in Nevada, Delaware and all that. But I assure you, you will come to a heartstopping a RegA so it’s, it’s important. So we’ve talked about what the requirements are, who the players are in the crowd. Okay, so let’s talk about some of the known issues that we can safeguard everyone. I know, Andrew, you talked a little bit about them. But without obviously we don’t want to go into naming cluttering point, that same things that can help these intrapreneurs better prepared coming to you that is going to make the process go from here, you know, to get as fast as qualification as possible.
Yeah, I think the, the biggest issue that we encounter for a lot of companies are is just audited financial statements. If they if if a company hasn’t gotten used to, to regularly preparing sort of internal financial statements that are compliant with the nap of the uphold standard, like gap, or that it’s, it can be very challenging to get to the point of having statements that are even ready to be audited. And in the timeline, from engaged in sort of kind of from from go, can be dreaded, can be drastically drawn out if if, if the auditors cannot complete their work. And depending on the time of year, if the auditors can’t complete their work, you may need a major sort of trigger that you actually need an additional set of audited statements. One company we work with a. So they are a company within existing in some ways. So new businesses are easier for the audit than existing ones because especially on the store the inventory requirements, and that’s an area where we’re seeing that auditors just can’t they just not able to do finish their job do their work, because there weren’t sufficient inventory controls at a prior add sort of a past fiscal year end, in order to, to do the to make an unqualified audit opinion. And so that’s actually the reason offering [uncertain] and get delayed in order to Yeah, basically get a new job. Yeah. To have a new year for for either statement. So that’s a so the ability to get that audit is going to be a major issue. And, and so much of the audit drives a lot of the disclosure. So the audit is Yeah, so it’s, it’s not just plug and play, it’s so the audit is a figures, but in the disclosure needs to provide context to those figures. And so it’s they play off each other. It’s not just the the disclosure in the mdna is not just a recitation of the audit. So So yeah, so but having that all done is is critically important. For for the overall timeline of an offering.
Oscar Jofre 38:31
You know what, and I’m glad to hear that I’m sorry not to do. I’m sad to hear that. But I’m glad people should be listened to is because we you know what? You, you’ve been to a lot of our course i’m going to share it as well. But we don’t talk about the audit too much. Do you know what I mean? It’s sort of like, Oh, yeah, you can get it done. But now we’re hearing something very different. Yeah, you can get it done. But it’s a timing issue. It’s whether you’re on your current operational business, you got funding, and if you haven’t done this before, this could be you think it can be done in 30 days, but it could take longer. And
Andrew Stephenson 39:03
time and time here also matters to say if you’ve tried if you if you’re starting your audit in, in sort of if you’re a fiscal year is a calendar year, fiscal year, and you’re starting your audit in March. Don’t expect to get it back until June. Just because accountants are can be over at or can start being overwhelmed. And if it’s not back until June, then it’s likely your goals can need interim six months statements before qualification. So every time every every instance that pushes those pushes back the dates of when you can get your financial statements. Yeah, can trigger the need for additional financial statements and additional disclosure.
Oscar Jofre 39:45
Great little and of course, Shari from your end. I mean, what have you seen that it would be great for the audience to keep an eye obviously you’re the broker dealer. You You’re getting the finished product sometimes or maybe not.
Shari Noonan 39:59
But it will But it’s it’s it’s timing and expectations around the raise. So when you go out with a raise, and you say I’m filing for a $15 million raise, that does not mean you’re going to raise $15 million, it means you’re filing in, you can raise $15 million. But I think, you know, a lot of times, there’s a, there’s a lot of work put in upfront around the infrastructure in the filings. And that’s fantastic, that’s required. But once that’s all done that, you know, the expectations around the raise really need to be tempered. And, you know, there needs to be sort of a bear case, and a best case built. So that you are, your runway will be able to withstand a raise that maybe gets hit by COVID, you know, gets it in the middle of COVID, or something happens. That’s unexpected, because if we know anything, we know, the unexpected is always going to happen. So that’s something that we’ve definitely seen where, you know, companies come to us, and we’re in the midst of a raise, and they’ve budgeted, okay, this is going to be over in four months. And we’re saying no, I mean, it’s going to be nine months, it’s going to be a year, and they’re just thinking, I’m going to, you know, my raise is going to be spectacular. Everyone’s gonna love my baby. And that’s, you know, that’s what we’ve seen. And I mean, everyone’s babies. Great, right? Talking about everyone’s babies great. But, you know, it’s, it’s really important that it’s really more of a risk mitigant more than anything, it’s a risk mitigate, to step away from the situation and say, what’s the worst case scenario? From a cash flow perspective? What do we have? What are our backup options? You know, should this race not go the way we want it to go? Because the last thing you want to do is to, you know, have invested the money in a raise and then be squeezed somewhere else?
Oscar Jofre 41:58
No, I agree that, you know, most of us don’t want to think of, you know, the ad scenario, but you do. And more importantly, I think this is kind of a wake up call to the maturity of the ecosystem that we have, within the KoreConX environment is that, as members of it, we can now come into the deal. And we all have to be consistent that, yes, we want them to move, but we also have to keep these things in mind, this thing with the audience has really rattled me a little bit, not in a bad way, but in a very good way. Because, uh, you know, I’ve always known that if we’re a fresh company, boom, you get it done. And it’s pretty simple. But you’re an established company like us, you know, you got a few years down the pipe, your, your audit is going to take a while, right. And if you and the likelihood that whether you’ve done it or not, and whether you prepared financial statements, not whichever order you choose, there’s going to be a time element that you have not anticipated. They’ll give you the best case scenario, 60 days. But again, with that, when you got a plan, worst case, and then with that, how does that affect your marketing, pre marketing before your offering, and things like that. So I think this has been very helpful for everyone today to get an understanding. So you heard what you need. So just to recap for everyone, you know, again, going live March 15 2021, raise up to $75 million, you’re going to need to do a form one filing, where, again, we advise you please speak to the experts out there, we’ll provide all that information for you make sure that you when you’re doing that you’re bringing all the other elements that you need into that the broker dealer, the escrow the country and the you know, you can talk about the technology in the marketing next, this is the meet the audit, all that you got that wrapped up, as Shari said you can plan as Andy said, we can know exactly that we have great expectations when you can go live, because the last part is delaying your offering. And you got everybody else waiting and blaming. It’s not an initial blame. It’s just things take time. So and knowing the pitfalls are just as important. So one of the things we have here is that we we give you an opportunity, those who are here live with us to ask questions of Andrew and, and Shari directly. So all you need to do is hit the button that says raise hand just like we’re in school, you go click it. And we will be It’s your turn now to ask questions. And there’s Thomas he’s all the way Okay, so we’re going to allow Thomas to come in and ask his question. What’s the average cost for using a broker dealer?
Shari Noonan 44:38
Sure, so 1% in general 1% to handle the Oh, Thomas didn’t leave. I hope you didn’t leave Thomas. No, no, he’s still here. Okay, perfect. So in general, it’s it’s 1%. So, from an acquisition from that x x investor acquisition if you’re if you you’re engaging a broker dealer to handle the investor acquisition as well. That’s that’s a separate charge. But just to handle all of that operational AML, KYC, all of the operational infrastructure and record keeping that’s fairly market standard, Andrew and Oscar, you can comment.
Andrew Stephenson 45:18
Yeah, say for the investor acquisition side. So actually having the the broker dealer act as a placement agent as well, is typically going to be in the, so we’ve seen this as kind of six to 8% range. And sometimes that’s an addition to if they’re also kind of on the work on the processing side. But we’ve, but that’s going to be so yeah, so I’m going to be just on whatever is sold there. Typically, you’re not going to find any, at this stage in the market. Maybe that will change with raising being able to raise up to 75 million of broker dealers or investment banks actually undertaking firm underwriting, which would then that would change be a very different landscape as far as what is sort of taking a discount on in versus percentages. Maybe that Yeah, maybe we’ll see that in 2021. Who knows?
Oscar Jofre 46:13
No, I agree with you, Andrew, there is a model that we have. I mean, right now, Sherry said 1% is the going rate. broker dealers are trying to find the value add, whether it’s distribution, adding the what’s going to, obviously they want you to succeed. So it’s not like they’re just trying to take their fee. And as Andrew said, they don’t get paid unless you close. And but I do believe a hybrid is coming. I think he’s right, now that the dollar amount has stepped up to 75 million, we’re moving in a very interesting market where somebody will underwrite it all. And if they’re going to take it, you’ve got to expect to pay more, because you don’t have to do any of the legwork there. They’re just basically saying we like this offering. We’re gonna do it. So I think that’s a very good sign of the industry, maturity, and we’re moving in that direction. All right. Are there any other questions here? Anybody else? Put your hand up? If you’ve got questions, don’t be shy, you know, nobody’s going to bite you. Well, I just might say, Hey, listen, it’s Tuesday. And we’re trying to bring everybody the, the most our, you know, the most information we can in a very short period of time. This goes without saying that you need to speak to all the right people and bringing them in. I’m going to leave everyone obviously, with some components. Shari, I’m going to ask you this, because you’ve been doing it a lot, you obviously with one of the clients that were mutually working together, there was an interesting role that your firm played in it, that I’m not going to call it the quarterback room. But you almost did, because one of the things that your firm was doing a lot was bringing everybody together on a weekly basis, because there it was a qualified offering. Right. But there were changes as that was occurring, right?
Shari Noonan 48:09
flashbacks. Yes, yes. So that is something I mean, to be aware of, you know, in while you’re in progress, one of the reasons to establish yourself with a good team upfront, a team upfront from, from a legal from a broker dealer from a transfer agent and perspective is and have that team in places, if changes happen, which happened with this particular client, there was a change midstream mid post qualification, but mid raise. And, you know, that required a lot more. It was a delay in the offering. It required a lot of remediation from from the standpoint of everyone getting together. And we still I mean, in general with with the offerings that that we run we do. We do work with the issuers and touch base regularly as a team with them, but it’s fairly intensive, depending on you know, if there are if there have been issues or if there are lots of changes, so So once the filing, that’s why it’s really important from a legal perspective, as the filing goes in. You know, there might be some changes, but the more changes there are the more balls in the air, I guess.
Oscar Jofre 49:27
Well, let me give you one example. I mean, I’m not sure. But even with all that many people in the room, and why I’m bringing this up is because bringing the crowd in, it’s important to keep everybody on the same page. But even with the smartest people, little things get missed. I mean, in this case, the dividing the price of the share, it was done incorrectly even by the regulators in this case. And and so everybody’s got to be paying attention because it’s it’s a ripple effect for everyone, the lawyer the auditor, and that that was a we’ve hadn’t seen Before RegA, and your firm really stepped up to the plate there. And I think it’s a new model that we’re encouraging companies like I know CrowdCheck is all over this. Where were you, though those listening to this today? Instead, when you start this process, you may started with one company. And as I start bringing all the other meetings, everybody’s part of it. And if they don’t want to be part of it, you’ve got a problem right there. I’m telling you, this is something that these do. Andrew and Shari did not speak. But I’m telling you right now, whenever you have lawyer, auditor, broker, dealer, investor acquisition trends region, you can’t get them all in a room, before you’re going live, you’re going to have problems. I’m telling you that right now, because it’s so many of these little things that are going to get missed. And if everybody’s in a different page, believe me, it’s only going to be a mess, you’re going to get stuck with it. And we’ve seen that, and this is how it’s helping us go forward. Having these kind of, you know, meetings with everybody. So everybody’s on the same page. Right?
Shari Noonan 50:59
Oscar Jofre 51:02
Andrew, any closing remarks from RegA for 2021? from you? Where do we where do you stand with things going forward?
Andrew Stephenson 51:10
I think Yeah. It’s gonna be interesting year, it’s a we’re a few years into kind of the drastic change that came about as a result of the JOBS Act, creating tier two, which does have so many benefits. And with that limit, going up to 75 million I ever so often, I still come across kind of just general industry, industry research and seeing these like IPO filings for $15 million. And it’s it’s just crazy why you would spend that much money to do an IPO when Regulation A is available as well. And these are companies that aren’t even going to be exchanged listed. And yeah, so it. So I think we’ll start potentially start seeing some of that some of that change, and probably in from, from some other participants in the space, one of the major kind of online platforms that also do the placement agent services and marketing for companies. They were having kind of banner fourth quarters. And so I think there’s, it’s, there’s a growing acceptance from the investor base, which should translate into more success for for companies approaching regulation, a from from, from from different directions, either going with a, have a platform that can provide that full service or going through doing there. Yeah, sort of with a Yeah, could with just a marketing agents, just marketing services and, and then, and then a broker dealers are sort of managing the backend. So yeah, we’ll see. We’ll see what happens. So
Oscar Jofre 52:50
you’re right, fourth quarter was good. Shari. So for yourself, where do you see, you know, 2021 was really good? Well, you
Shari Noonan 52:57
hit on my favorite point. So. So you know, what we’re really excited about is the fact that RegA is really meeting their maturity in terms of allowing for secondary trading. And we really built out the infrastructure for that. So that’s what we get really excited about is, is now opening that infrastructure up. So
Oscar Jofre 53:22
the certainly the more
Shari Noonan 53:24
I agree, you know, giving investors really the opportunity to monetize their investments in the, in this ecosystem in this realm. Is is very, very exciting. So that’s, that’s what I’m looking forward to.
Oscar Jofre 53:40
I think, you know, you couple that it’s amazing. When you look back, Andrew, when RegA first came out, all we were trying to do is figure out the legals figure out the invest button, figure out the back end, look where we come, we’ve figured out that and now bring in get the regulation did have the liquidity, but we couldn’t, it was just too early. Now we have this here $100 trade, we’ll be able to happen on a registered secondary market platform. It’s really exciting. So for those new companies that are going to use this regulation, you can now say, with no hesitation, that it’s there. Right, the venue is there, it’s going to take time, just like RegA took time to develop, it’s going to take time to the next stage, but you’re going to be the front runners of that. And it’s going to be an exciting 2021. So I want to thank everybody this afternoon for taking graciously sharing. Andrew, thank you so much, great partners in our ecosystem that have been helping companies in the RegA space. And for the rest of you here waiting with us this afternoon. We want to thank you and we welcome you to attend the other 71 remaining webinars that are coming up. The next one is on Thursday. 11:30am What do you need for a reg day a reg CF offering? That’s right. So we’re mixing it up. You’re going to hear from different panelists. But until then, thank you have a great week and we look forward to talk to you very soon.