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What is Regulation S?

Posted on by Oscar Jofre Tags: , , , , , ,

It is essential to be familiar with the different regulations that govern how companies can raise capital in today’s business world. One important rule is Regulation S. This article will give you a basic overview of Regulation S, how it affects businesses, and how companies can use it to raise capital.

 

What is Regulation S?

 

Regulation S is a set of rules that govern security offerings to offshore investors. It is an attempt by the SEC to clarify its role in regulating securities offerings sold by US companies outside the United States. The regulation allows companies to offer and sell securities without registering the offering with the SEC, as long as the securities are only offered and sold outside of the United States. This excludes investors within the US from participating in the offerings. If an offering is for foreign and domestic investors, it would not fall under Reg S exemptions because it would have to be registered with the SEC.

 

Benefits of Reg S

 

Regulation S is an important securities regulation because it allows companies to offer and sell securities offshore without registering with the SEC. This is important because it enables companies to raise money from investors worldwide, and it also protects investors because it ensures that all offerings are made lawfully. At the same time, it enables companies to have a greater reach for their security offerings, as they can now globally raise money from investors all over the world.

 

As it was designed, Reg S was always intended for large transactions made by large companies to sophisticated investors. The primary use case of Reg S is still the Euro bond or an extensive offering by a U.S. or foreign company that is made outside the United States. Because Reg S can be used for such a large-scale offering by large corporations, companies will always continue to use it as an option when they need to raise funds globally.

 

The Pitfalls of Regulation S

 

The problem is many companies do Reg S offerings incorrectly in this particular space of crowdfunding. Many think all they need to do is sell to somebody outside of the United States, but they ignore that Reg S has three separate categories. These categories are based on the likelihood of the transaction being made in the U.S. or the securities returning to the U.S. The most effortless use case of Reg S is a foreign company selling securities under their own rules. An intermediate use is a reporting company registered with the SEC. For startups, the rules of non-reporting U.S. companies are stricter, but many businesses are not complying with these rules.

How Can Companies Keep Their Offering Out of the US?

 

No offer sold under Reg S should be advertised or be made known in the U.S. To this effect, companies should Geo-fence any offering site so individuals with U.S. IP Addresses can not see what you are offering. However, if you have Geo-fenced your offer and implemented the proper protections to ensure a US investor cannot invest, and someone found their way around it, it’s not on you. Companies do not need to police the internet, but they should ensure that their Reg S offerings are only available internationally with Geo-fencing. 

 

While Reg S does not have as wide of a use case as Reg A or Reg D, Reg S is helpful if you feel you will exceed the $75 million of Reg A and can capitalize on international investors. However, companies must be aware that Reg S only tells how to comply with the U.S. rules, not another countries regulation. With most countries having restrictions on making offerings to less sophisticated investors, you want to ensure you meet all these standards if raising capital internationally. 

 

The Regulation S exemption was implemented to help companies raise capital from non-US investors without SEC registration. It has its benefits, but it is not always accessible or appropriate for every company.

KorePartner Spotlight: Scott Pantel, President & CEO of Life Science Intelligence

Posted on by Oscar Jofre Tags: , , , , , ,

With the launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners contributing to its ecosystem. 

 

During the capital raising journey, many things must be in place to increase the potential for success. One of these critical factors is having the right team to assist with gaining information on your demographic is vital to a successful capital raise.

 

As the President and CEO of LSI, Scott Pantel knows the importance of this, which is why Life Science Intelligence was formed. Scott knows that the most important and strategic business decisions must be made based on data and insights from trusted advisors. LSI is proud to be the go-to-market research firm to support those making these big decisions because of their experience in the Medtech field. With a team of economists, analysts, and market researchers, LSI provides deep knowledge of the healthcare industry, guiding clients with actionable data to identify significant trends in medical devices, diagnostic, and digital health technologies that are rapidly evolving in the industry.

 

We took some time to speak with Scott to learn more about him, his company, and his thoughts on the future of market research, advisory, and raising capital.

 

Q: What does your company do, and how are you making a difference?

A: We’re a Medtech-focused market research and advisory company. We help early-stage companies all the way up to the largest healthcare companies in the world, and their investors, make the best strategic decisions possible. We do this through independent research, consulting, advisory and partnering events.

 

Q: What excites you about the Medtech, Life Sciences, and Biotech Industries?

A: The thing that excites me most about Medtech is that we get to have an impact on people’s lives. The innovators in our space save lives and reduce suffering. To borrow a quote from our 2020 Keynote Speaker and Co-Founder of Auris Health (acquired by J&J for $5.8B), “Medtech is the best and original impact investment sector.”  The innovators in our sector are literally changing and saving lives.  I also get excited to see that patients are increasingly becoming more involved in their healthcare decisions. The convergence of medical devices, data, and smart technologies improves patient outcomes and is slowly but surely making our healthcare system more efficient. We have a long way to go, but I believe we are on the right track, and we will see some quantum leaps in medical technology over the coming years.  

 

Q: How do you see the LSI Medtech event impacting your company and industry?

A: This event connects the innovators with the capital sources they need to commercialize life-changing and saving technologies.  Innovations need capital and strategic partners to scale and get to the market.  Our event connects all of the stakeholders in the Medtech ecosystem so that good things can happen and we can get technologies to market faster.

 

Q: Why do you think education on RegA+ plays such a vital role in expanding access to capital for Medtech companies?

A: Most of the companies we work with are totally unaware of what is available in terms of tapping the private markets and leveraging equity crowdfunding. The market is slowly but surely catching up, and we believe inside of the next 12-18 months, we’ll be seeing a huge uptick of healthcare companies taking advantage of the various Regulations that came from the JOBS Act. Specifically, we believe Reg A+ will see exponential growth within healthcare/Medtech companies.

 

Q: What impact do you think RegA+ can have on Medtech companies?

A: It is already having a huge impact. Companies are starting to jump in. In the last six months, I’ve personally gotten involved in supporting five Medtech companies that collectively raised over $200M. And it is just beginning – we are at a turning point, and the markets have a huge appetite for impact investment opportunities. This is a perfect setup for CEOs and founders that are running Medtech startups that are building solutions that can save a life or reduce suffering.

 

Q: What advice would you give a young Medtech entrepreneur as they begin their journey in capital raising and building their company?

A: Do your homework and see if a Regulation A+ capital raise path makes sense for you. Surround yourself with talented people that are committed to your vision. Stay positive and be willing to adjust as you go. 

 

The Recipe for a Successful RegA+ Offering

Posted on by Oscar Jofre Tags: , , , , ,

If your company is looking to raise funding, you’ve probably considered many options for doing so. Since the SEC introduced the outlines for Regulation A+ in the JOBS Act in 2012 and its subsequent amendments, companies are able to raise amounts up to $75 million during rounds of funding from both accredited and non-accredited investors alike. If you’ve chosen to proceed with a RegA+ offering, you might be familiar with the process, but what do you need for your offering to be a success?

When beginning your offering, your company’s valuation will play a key role in the offering’s success. While it may be tempting to complete your valuation in-house, as it can save your company money in its early stages, seeking a valuation from a third-party firm will ensure its accuracy. Having a proper valuation will allow you to commence your offering without overvaluing what your company is worth, which can be more attractive to investors.

Since the SEC allows RegA+ offerings to be freely advertised, your company will need a realistic marketing budget to spread the word about your fundraising efforts. If no one knows that you’re raising money, how can you actually raise money? Once you’ve established a budget, knowing your target will be the next important step. If your company’s brand already has loyal customers, they are likely the easiest target for your fundraising campaign. Customers that already love your brand will be excited to invest in something that they care about.

After addressing marketing strategies for gaining investments in your company, creating the proper terms for the offering will also be essential. Since one of the main advantages of RegA+ is that it allows companies to raise money from everyday people, having terms that are easy for people to understand without complex knowledge of investments and finance will have a wider appeal. Potential investors can invest in a company with confidence when they can easily understand what they are buying.

For a successful offering, companies should also keep in mind that they need to properly manage their offering. KoreConX makes it simple for companies to keep track of all aspects of their fundraising with its all-in-one platform. Companies can easily manage their capitalization table as securities are sold and equity is awarded to shareholders, and direct integration with a transfer agent allows certificates to be issued electronically. Even after the round, the platform provides both issuers and investors with support and offers a secondary market for securities purchased from private companies.

Knowing your audience, establishing a marketing budget, creating simple terms, and having an accurate valuation will give your RegA+ offering the power to succeed and can help you raise the desired funding for your company. Through the JOBS Act, the SEC gave private companies the incredible power to raise funds from both everyday people and accredited investors, but proper strategies can ensure that the offering meets its potential.

How to Read a Startup’s Financial Statements

Posted on by StartEngine Tags: , , , , , ,

This article was originally written by our KorePartners at StartEngine. View the original post here.

 

When considering which startups to invest in, there is some key information prospective investors would want to review and understand before making any investment decision. A lot of the information is presented to you on campaign pages, but if you want to review more detailed information about a company, you need to look at their:

  • Form C and “offering details” (for Regulation Crowdfunding offerings) or
  • Offering circular (for Regulation A+ offerings)

There are links to these documents on all of the campaign pages on StartEngine, so that you can review them, but they can contain a good deal of complex terminology that can be hard to understand.

One area that can be complicated to grasp is the company’s financial statement and the related analysis. It is one of the primary types of information prospective investors review to gain a glimpse into a company’s overall financial health.

Financial information can also help you identify trends of the business over time, so you get a better idea of the company’s potential future performance based on historical results. It can also provide you with a means of comparing a company’s performance to other companies in the same industry and stage of growth.

To make it easier for you to accomplish this, we have outlined some key terms and financial concepts to make it easier for you to review and understand a startup’s financial statements.

Note: a typical set of financial statements will include a balance sheet, income statement, statement of cash flow, statement of shareholder equity, and supplement notes. 

Income and Expenses

At some point in its lifecycle, a company must generate a sufficient amount of income to survive and grow (otherwise, it will continue to need outside sources of funding). So, how can you tell how much money a company is making, and how much it is spending? To determine this, you’ll need to take a look at the company’s Income Statement (for Regulation Crowdfunding’s offering details) or their “Statement of Operations” (for Regulation A+’s offering circular).

Gross Revenue

The first item presented on a company’s income statement is Gross Revenue. This is the amount of money the company has received by selling its goods and/or services. It is reported on the first line of the income statement, which is why you may come across people refer to gross revenue as “top line revenue” or simply “revenue.”

Cost of Goods Sold

After revenue, a company will deduct Cost of Goods Sold. This can also be called “Cost of Revenue” or “Cost of Services” and refers to all expenses that are directly related to the production of whatever products a company is selling or services it is performing. Sometimes a company may not have these costs on its income statement if it is an early stage pre-revenue startup that has not introduced its product/services to the market. These are also referred to as “variable costs” because they typically rise and fall in line with sales—simply put, producing more costs more.

Gross Profit

Once these costs are deducted, the resulting number is the company’s Gross Profit—the amount of money earned from the product or service sold. It is called a “Gross Loss,” if the sale of product or service loses money. In financial documents, losses are indicated by numbers in parenthesis, so for example ($200,000) would represent a loss of $200,000.

Operating Expenses

Operating Expenses, such as research and development expenses (money spent on innovation and technological advancement), “General and Administrative” expenses (day-to-day costs such as accounting, legal, utilities and rent) and many others are  deducted from gross profit or added to gross loss. These consist of all costs that are not directly attributable to the production of a product and/or service and are generally considered “fixed” costs because they do not rise or fall directly in line with sales.

Operating Profit/Loss

After considering these expenses, the resulting figure (gross profit minus operating expenses) is known as Operating Profit, or Earnings Before Interest and Taxes (EBIT). It is considered an “Operating Loss” or “Loss from Operations” when gross profit minus operating expenses results in a negative value.

Net Income

Once interest expense on outstanding debt and income taxes are deducted from Operating Profit/Loss, you arrive at Net Income. Conversely, if after deducting taxes and interest paid on the company’s debt results in a negative amount, it’s called a “Net Loss.”

This figure is referred to as a company’s “bottom line” due to the fact that it is typically the last item presented on the company’s income statement—much in the same way gross revenue is referred to as a company’s top line. Also, people will many times address a company’s net income or net loss as a percent of revenue, known as its “net profit margin,” which is used to measure a company’s overall profitability.

In the context of investing in startups, it’s worth noting that most companies will record gross losses, operating losses and net losses. Nearly all early-stage businesses are not profitable as funds are reinvested into growth and R&D. It’s why startups raise funding: to build the product that they can sell, to scale their operations to reach an economy of scale, to hire new employees, and a host of other reasons that help them grow towards that point of generating profit.

Net Worth: Understanding Balance Sheets

A company’s Balance Sheet presents their assets (anything the company owns that has value such as cash, inventory, accounts receivable, and real estate) and liabilities (what the company owes, such as unpaid invoices, taxes and debt). When you subtract all of the funds owed by the company from all of the assets it owns, you get the overall net worth (the book value of total assets minus total liabilities) of the company. Let’s start by looking at the asset side of the balance sheet.

Current Assets

The first category you will see is called, “Current Assets.” These are all assets that are considered cash or assets that the company expects will be converted into cash within a year. This includes cash and cash equivalents (any asset that can be immediately turned into cash, such as foreign currencies, short term government debt securities called Treasury Bills, and certificates of deposit), accounts receivable (the amount of money you are owed for products and services delivered that have not been paid for), inventory, prepaid expenses and other items.

Current assets are a major element of a company’s working capital (current assets minus current liabilities) that presents the amount of funds available to pay off short-term or current liabilities, which we will define later. The more working capital a company has, the greater its liquidity, which implies a more healthy financial position.

Long Term Assets

Next up on the balance sheet are Long Term Assets that consist of non-current assets that have a useful life of longer than 1 year. They include: property and equipment; long term investments; intangible assets such as patents, copyrights, trade names and goodwill; and software.

Long term assets are typically presented on the balance sheet at their cost value minus accumulated depreciation, which equals their net book value. Significant growth in this category can indicate that a company is focusing on or moving into or expanding lines of business that require a greater investment in fixed assets.

Current Liabilities

Current Liabilities consist of all expenses that are payable within 1 year, or sometimes within one operating cycle (the time period required to receive inventory, sell it and collect cash from the sale).

These short term liabilities include accounts payable (for example, unpaid invoices to suppliers), lines of credit, short term loans, accrued expenses (owed money for which no invoice has been submitted), taxes payable and payroll liabilities.

Current liabilities are also used in the calculation of working capital in order to ascertain a company’s level of liquidity as described above. This can provide important insight into the company and give you a sense of whether the company is generating enough revenue and cash in the short term to cover its bills.

Long Term Liabilities

Long Term Liabilities are made up of all obligations that are not due within 1 year of the date the balance sheet was prepared or during the company’s operating cycle. Examples of these liabilities are bonds payable, long term debt, deferred taxes, mortgage payable and capital leases.

A company is over burdened by excessive long term liabilities can equate to high monthly payments and lower cash flow, but some amount of long term obligations can be positive. This is due to the advantages that a company can gain through access to long term financing at low interest rates that can help it expand over a longer time period.

Net Worth

Finally, we come to Net Worth, which is most often referred to as “shareholders equity.” It is calculated by subtracting total liabilities from total assets and represents the amount of money a company would have if it ceased operations and paid off all of its debt. It is calculated the same way you would calculate your personal net worth—you would add the total value of everything you own then subtract all the money you owe.

Banks use this number as a metric for lending decisions because if a company’s assets far exceed its liabilities, it indicates a healthy financial position. On the flip side of the coin, if a company’s net worth is negative, it just means that the amount of money it owes exceeds the value of its assets. It should be noted that this is a common financial situation for an early stage startup that is trying to establish a foothold in its target market and continue to grow until its net worth is positive.

Cash Flow

The Statement of Cash Flows presents the net cash flow for a company over a given time period. It shows how cash enters and leaves a company from three main activities:

  • Operations (sales, inventory, accounts receivable, accounts payable)
  • Investing (buying and selling of assets and equipment)
  • Financing (selling of bonds, stock and paying off debt)

If an activity results in cash flowing into the company, it is shown as a positive number. If an activity causes cash to flow out of the company, it is shown as a negative number and placed in parentheses. E.g. $100,000 indicates a positive value, and ($100,000) indicates a negative value.

Cash Flows From Operating Activities

Cash flows from operating activities equates to how much cash has been spent or received from the company’s operations. One item is net income, which supplies cash to a company, or net loss, which indicates a flow of cash out of the company.

Depreciation expense (a yearly decrease in the value of a fixed asset over time resulting from normal wear and tear) and amortization expense (the yearly write-off of the value of an intangible asset over its useful life—e.g., a patent that is granted for 20 years has a 20 year useful life) are non-cash expenses subtracted from gross profit on the income statement. As such, they are added back since they are tax deductable expenses that do not deplete cash on hand.

Changes in working capital (current assets minus current liabilities) are also considered on the statement of cash flows. For example, if the company collects more cash from its receivables, cash increases. If it pays down its accounts payable, then that would reduce the amount of cash the company has on hand.

Investing Activities

Cash used for investing activities include cash spent on long term assets such as real estate, equipment (also called “capital expenditures”), patents, stocks and bonds. Conversely, gains on the sale of long term assets are recorded as cash received by the company. For example, if a company sold a warehouse, that would indicate a positive cash flow, whereas the purchase of stock in another company would constitute a negative cash flow.

Financing Activities

Finally, if a company raises money from investors by issuing securities such as convertible notes or stock, this would result in a positive cash flow to the company. When the company makes payments on its debts or buys back shares, it results in a negative cash flow.

Conclusion

And when all cash inflows and outflows are considered, the resulting amount of cash left over is a company’s net cash position. If a company shows an overall negative cash flow over time, the rate at which it is spending its cash reserves is known as its burn rate. The burn rate is usually quoted in terms of cash spent per month. 82% of startups fail due to the lack of cash flow necessary to survive and grow.

Based on the burn rate, you can figure out the company’s runway, which tells you how long a startup can survive before it will need to earn positive cash flow or raise additional capital (if the company’s finances remain unchanged). A startup’s runway is equal to its total cash reserves divided by its burn rate.

Understanding a company’s financials can help you make a more educated and informed decision when choosing the right startup to invest in. Once you have a good idea of what all of the terms mean, financial information will become easier to understand and faster to review, and in turn, investing will become a more enjoyable experience.

What is Regulation A+?

Posted on by Oscar Jofre Tags: , ,

Regulation A+ (RegA+) was passed into law by the SEC in the JOBS Act, making it possible for companies to raise funding from the general public and not just from accredited investors. Since March 2021, companies have been able to take advantage of the limit’s increase to $75 million. This provides companies the ability to pursue equity crowdfunding without the complexity of regular offerings. So, what investments does RegA+ allow?

Outlined in the act, companies can determine the interest in RegA+ offerings by “testing the waters.” While testing the waters allows investors to express their interest in the offering, it does not obligate them to purchase once the Offering Statement has been qualified by the SEC. Also allowed by the Act, companies can use social media and the internet to both communicate and advertise the securities. However, in all communications, links to the Offering Statement must be provided and must not contain any misleading information.

It is important to understand the two tiers that comprise RegA+. Tier I offerings are limited to a maximum of $20 million and call for coordinated review between the SEC and individual states in which the offering will be available. Companies looking to raise capital through Tier I are required to submit their Offering Statement to both the SEC and any state in which they are looking to sell securities. This was a compromise for those who opposed the preemption that is implemented in Tier II.

For offerings that fall under Tier II, companies can raise up to $75 million from investors. For these offerings, companies must provide the SEC with their offering statement, along with two years of audited financials for review. Before any sales of securities can take place, the SEC must approve the company’s offering statement, but a review by each state is not required. It is also important to note that for Tier II offerings, ongoing disclosure is required unless the number of investors was to fall below 300.

In contrast to typical rounds of fundraising, investors are not required to be accredited, opening the offering up to anyone for purchase. Under Tier I, there are no limits that are placed on the amount a sole person can invest. For unaccredited investors under Tier II, limits are placed on the amount they can invest in offerings. The maximum is placed at ten percent of either their net worth or annual income, whichever amount is greater. To certify their income for investing, unaccredited investors can be self-certified, without being required to submit documentation of their income to the SEC. Additionally, there is no limit placed upon the company as to the number of investors to whom it can sell securities.

Once investors have purchased securities through RegA+ investments, the trading and sale of these securities are not restricted. Only the company that has created the offering can put limits on their resale. This allows investors to use a secondary market for trading these securities.

Through Regulation A+, companies are given massive power to raise funds from anyone looking to invest. With the Act allowing for up to $75 million to be raised, this enables companies to raise capital from a wide range of people, rather than only from accredited investors. With two tiers, companies have the freedom to choose the one that best fits their needs. Regulation A+ and the JOBS Act have the potential to drastically change the investment landscape.

How RegA+ Helps Pre-Revenue Companies

Posted on by Oscar Jofre

For many pre-revenue companies, especially started by first-time entrepreneurs, capital comes from sources like personal savings, credit card debt, friends, or family. However, when it comes to raising a significant amount of capital for growth, they might not have the market validation needed to secure funding from traditional sources. With Regulation A+ equity crowdfunding, these companies can realize incredible access to capital, in turn helping the company grow so that it can create jobs and return money back into local economies. Since passing as part of the JOBS Act in 2012, Reg A+ has raised billions, assisting pre-revenue companies in reaching their business goals while scaling their company for the future.

 

Raise Millions as a Pre-Revenue Company with Reg A+

 

RegA+ can help pre-revenue companies raise up to $75 million from accredited and unaccredited investors. This is powerful because it allows smaller companies to leverage their loyal fans to raise capital and make these loyal followers part of your company as investors. This has expanded opportunities for many private companies by allowing them to raise millions in capital while keeping control of significant decisions.

 

One of these opportunities is a larger pool of investors that can be tapped with Reg A+. Pre-revenue companies can often find it challenging to raise money from venture capital or private equity, so raising money from a wider assortment of investors can be helpful. Reg A+ allows companies to keep control of major decisions, helping pre-revenue companies remain competitive and flexible while keeping to their vision of company operations.

 

Reg A+ makes it more accessible than ever to raise capital for your organization by allowing a company to raise capital without going public. This means that the company can avoid the costs and regulatory requirements of being publicly traded while accessing similar benefits. Plus, investors under Reg A+ are still protected by the transparency and compliance requirements, giving them confidence in their ability to invest and help pre-revenue companies scale their company in a way they may not have been able to if faced with the hurdles of going public.

 

Increasing the Amount of Successful Capital Raises 

 

A pre-revenue company is typically in the early stages of development and hasn’t generated any revenue yet. This means the company is at a higher risk of failure since it has yet to establish a track record of success. For this reason, other capital raising methods such as angel investing and venture capital might be impractical for pre-revenue companies. RegA+ is an excellent way for pre-revenue companies to raise capital because the cost of compliance is considerably less.

 

Plus, companies raising capital through Regulation A+ can also attract investors by offering liquidity options through a secondary market. Unlike traditional private investments, where the only chance of a return is when the company goes public or has an exit, a secondary market allows investors to monetize their investments if there is interest in the shares so they can sell. This is a compelling possibility for investors that pre-revenue companies should utilize when constructing their offering. 

 

A company looking to raise money through Reg A+ must first file a Form 1-A with the SEC. This document includes important information about the company, including its business plan and financial projections. After filing form 1-A, the company will need to wait for SEC approval. This can take months, and this is a great time to focus on your community and prime potential investors. Once the SEC has approved the company’s filing, it will be able to start raising money from investors. 

 

Finding the right investors and investment opportunities can be difficult as a pre-revenue company. However, with Reg A+, you can increase your potential for capital raising success. Reg A+ allows companies to offer securities to the general public and accredited investors, widening the pool of potential investors.

KoreConX Partners With LSI Emerging Medtech Summit 2022

Posted on by Peter Daneyko Tags: , ,


Medtech and Life Sciences main event will be held next March in California. KoreConX is one of the supporting sponsors.

NEW YORK, January 26, 2022 – KoreConX is pleased to announce its partnership with LSI Emerging Medtech Summit 2022, which will be held March 15-18, 2022, in Dana Point, California, USA. This is a major event managed by Life Science Intelligence (LSI) in the Medtech environment and will bring together investors, strategic partners, and experts within the Medtech, Life Sciences ecosystem.

Oscar A Jofre, Co-founder and CEO of KoreConX, highlights the importance of this partnership and event to the sector: “We at KoreConX are delighted to be part of this huge event focused on an industry that is flourishing like Medtech. This sector is critical to saving lives with its innovative solutions and healthcare impact. We are confident that this particular segment will reap the biggest benefits from Regulation A+, and we are honored to sponsor this summit. Also, we will be there in-person for the first time after two years, so we are more than excited to join LSI and our partners to be part of this.”

“A major current trend in the medtech industry is the democratization of capital through programs like Reg A+. We are embarking during a monumental time where we can finally achieve this grand goal and bring companies to market that have a fundamental impact in our lives,” says Scott Pantel, CEO of Life Science Intelligence.

This event will also feature the participation of an icon of the JOBS Act movement, David Weild IV, considered the “Father of the JOBS Act”. He will be giving a keynote address to stimulate and encourage everyone in this industry who wants to raise money using Regulation A+.

LSI is part of the Medtech ecosystem of KoreConX’s partners focused on Life Sciences companies. They are an essential part of this vertical, as they offer valuable insights to help investors and executives make decisions based on data provided by their team of market researchers, economists, and analysts.

LSI Emerging Medtech Summit 2022 will take place March 15-18, 2022, and attendees can participate in person or online. KoreConX will be represented by its Co-founder and CEO, Oscar A Jofre, its Chief Scientist & CTO, Dr. Kiran Garimella, and its CRO, Peter Daneyko. Visit their website for more information: https://www.lifesciencemarketresearch.com/medtech-summit-2022

About KoreConX

Founded in 2016, KoreConX is the first secure, all-in-one platform that manages private companies’ capital market activity and stakeholder communications. With an innovative approach and to ensure compliance with securities regulations and corporate law, KoreConX offers a single environment to connect companies to the capital markets and now secondary markets. Additionally, investors, broker-dealers, law firms, accountants and investor acquisition firms, all leverage our eco-system solution.

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Media Contacts:
KoreConX
Carolina Casimiro
carolina@koreconx.com

Reg A Offering : When is it the right offering type?

Posted on by Dawson Russell

This post was originally written by our KorePartners at Capital Raise Agency. View the original post here.

There are a lot of questions we get from potential clients or people that hire us for consulting on their fund around Reg A offerings but one of the main ones is what type of fund should I use to raise capital for my offering?

It really depends on a couple of things;

  1. The amount you are wanting to raise
  2. How you want to raise it (broker dealer channel, RIAs, high net-worth individuals, etc)
  3. Do you want to do general solicitation? (advertise to non-accredited investors)

The answers to these questions really will help determine if you should do a 506c offering, Reg CF, or Reg A (or Reg A+).

If you want to raise less than $5,000,000 a Reg CF is probably the best option for you – however, if you want to raise more than $50mm a Reg A or Reg A+ is going to be the best fit.

Our personal favorite for the larger raise is the Reg A or Reg A+ because it allows you to market to non-accredited investors, and run ads, and do creative marketing campaigns that is often not allowed through your normal Reg D or Private Placement offering.

If you have already started the process of building out your Reg A or Reg A+ offering you can contact us for a quick brand audit, where we just check and see how everything is looking and give honest feedback on what you need to adjust or update going forward.

Reg A offerings allow people to go out and raise capital that use to only be seen by the big players.

If you have a dream and an idea that requires capital; a Reg A offering is a great place to start.

How Regulation Crowdfunding Will Reach $5 Billion

Posted on by Oscar Jofre Tags: , , , 1 Comment on How Regulation Crowdfunding Will Reach $5 Billion

“We are adopting amendments to facilitate capital formation and increase opportunities for investors by expanding access to capital for small and medium-sized businesses and entrepreneurs across the United States.” – SEC, 2021

 

The continuous maturation of the crowdfunding industry has resulted in growth in the development of businesses and innovation. Since 2016, there have been 4,683 capital offerings, a third of which happened in 2021. This increase in crowdfunding spurs entrepreneurship while allowing startups to bring new technologies to market that will have a lasting impact. With over $775 million raised in crowdfunded investments in 2021 alone, this brings the total value of investments to $1.7B. This capital raised fuels companies to grow, create jobs, and positively impact their communities.

 

Growing with Crowdfunding

Before Regulation CF (RegCF), it was challenging for early-stage companies to access the capital they needed since it was often cost-prohibitive. However, this capital is essential for companies to succeed. Regulated crowdfunding is a robust tool for businesses to secure funding, with an average of 43.8% of pre-revenue startups being successful using this method of fundraising. Crowdfunding utilization has been steadily increasing since 2016, but in 2020 the success of startup companies declined to 39% due to COVID. This rebounded in 2021, with overall company success improving and 37% of all capital raised to new-revenue corporations.

 

Crowdfunded Capital

Out of 4,131 companies that have received crowdfunded capital, 2,700 were able to fund enough to innovate in their industry. Ninety-six of these organizations obtained three or more rounds of VC attention utilizing crowdfunding to improve their reach and innovation. With over 1 billion in capital deployed at an average of 1.3 million, these businesses create innovation and bring economic change to local communities.

 

An estimated $2.5 billion was pumped into local communities from crowdfunding companies in 2021, with money flowing as many as six times before leaving the local economy. Another way investment crowdfunding brings money to a community is by creating jobs; companies that utilize regulated crowdfunding support over 250,000 American jobs across 466 various industries. Crowdfunding helps industries grow and prosper, with 28% of funding going to manufacturing industries in the USA to rebuild the American manufacturing industry. Innovation grows with successful crowdfunding, with over 24% of capital being spent on IT services that make our future.

 

The Future of Innovation

 

With substantial growth in hundreds of industries, crowdfunding supplies businesses with the tools to simplify their success. With sizable exits leading to media and returns coverage, over $1 billion has been funded in over 2,500 offerings. This has led to other changes in the market, like a rise in technical innovations and digital assets like NFTs, which has also increased the growth of a secondary market.

 

Crowdfunding is an essential resource for startups, allowing companies to raise capital and turn dreams into reality. Crowdfunding efforts are an investment opportunity that helps organizations reach their goal by gaining the means to build an innovative business. We have seen the growth to $1 billion in record time, following the increase in investment limits earlier this year. Continual innovation and crowdfunding support will only help drive successful raises forward towards $5B.

Investing in Startups 101

Posted on by StartEngine Tags: , , , , , ,

This article was originally written by our KorePartners at StartEngine. You can view the post here. 

The high-speed world of startups, and the risks of investing in them, are well documented, but startup investing can be complicated and there is a lot of information you should know before making your first investment.

This article will try to answer the question “why should you invest in a startup?” by giving you information about the process and what to expect from investing in an early-stage business.

Why invest in startups?

Through equity crowdfunding, you can support and invest in startups that you are passionate about. This is different than helping a company raise capital via Kickstarter. You aren’t just buying their product or merch. You are buying a piece of that company. When you invest on StartEngine, you own part of that company, whether it’s one you are a loyal customer of, a local business you want to support, or an idea you believe in.

Investing in startups means that you get to support entrepreneurs and be a part of the entrepreneurial community, which can provide its own level of excitement. You also support the economy and job creation: in fact, startups and small businesses account for 64% of new job creation in the US.

In other words, you are funding the future. And by doing so, you may make money on your investment.

But here’s the bad news: 90% of startups fail. With those odds, you’re more than likely to lose the money you invest in a startup.

However, the 10% of startups that do succeed can provide an outsized return on the initial investment. In fact, when VCs invest, they are looking for only a few “home run” investments to make up for the losses that will compose the majority of their portfolio. Even the pros expect a low batting average when investing in startups.

This is why the concept of diversifying your portfolio is important in the context of startup investing. Statistically, the more startup investments you make, the more likely you are to see better returns through your portfolio. Data collected across 10,000 Angellist portfolios supports this idea. In other words, the old piece of advice “don’t put all your eggs in one basket” holds true when investing in startups.

Who can invest in startups?

Traditionally, startup investing was not available to the general public. Only accredited investors had access to startup investment opportunities. Accredited investors are those who:

  • Have made over $200,000 in annual salary for the past two years ($300,000 if combined with a spouse), or
  • Have over $1M in net worth, excluding their primary residence

That meant only an estimated 10% of US households had access to these opportunities. Equity crowdfunding changes all of that and levels the playing field. On platforms like StartEngine, anyone over the age of 18 can invest in early-stage companies.

What are you buying?

The Breakdown of Securities Offered via Reg CF as of December 31, 2020

When you invest in startups, you can invest through different types of securities. Those include:

  • Common stock, the simplest form of equity. Common stock, or shares, give you ownership in a company. The more you buy, the greater the percentage of the company you own. If the company grows in value, what you own is worth more, and if it shrinks, what you own is worth less.
  • Debt, essentially a loan. You, the investor, purchase promissory notes and become the lender. The company then has to pay back your loan within a predetermined time window with interest.
  • Convertible notes, debt that converts into equity. You buy debt from the company and earn interest on that debt until an established maturity date, at which point the debt either converts into equity or is paid back to you in cash.
  • SAFEs, a variation of convertible note. SAFEs offer less protection for investors (in fact, we don’t allow them on StartEngine) and include no provisions about cash payout, so you as an investor are dependent upon the SAFE converting into equity, which may or may not occur at some point in the future.

Most of the companies on StartEngine sell a form of equity, so the rest of this article will largely focus on equity investments.

How can a company become successful if they only raise $X?

Startup funding generally works in funding rounds, meaning that a company raises capital several times over the course of their life span. A company just starting out won’t raise $10M because there’s no indication that it would be a good investment. Why would someone invest $10M in something totally unproven?

Instead, that new company may raise a few hundred thousand dollars in order to develop proof-of-concept, make a few initial hires, acquire their first users, or reach any other significant business developments in order to “unlock” the next round of capital.

In essence, with each growth benchmark a company is able to clear, they are able to raise more money to sustain their growth trajectory. In general, each funding round is bigger than the previous round to meet those goals.

When do companies stop raising money? When their revenue reaches a point where the company becomes profitable enough that they no longer need to raise capital to grow at the speed they want to.

What happens to my equity investment if a company raises more money later?

If you invest in an early funding round of a startup and a year or two later that same company is raising more money, what happens to your investment? If things are going well, you will experience what is known as “dilution.” This is a normal process as long as the company is growing.

The shares you own are still yours, but new shares are issued to new buyers in the next funding round. This means that the number of shares you own is now a smaller percentage of the whole, and this is true for everyone who already holds shares, including the company’s founders.

However, this isn’t a problem in itself. If the company is doing well, in the next funding round, the company will have a higher valuation and possibly a different price per share. This means that while you now own a smaller slice of the total pie, the pie is bigger than what it was before, so your shares are worth more than they were previously too. Everybody wins.

If the company isn’t growing though, it leads to what is known as a down round. A down round is when a company raises more capital but at a lower valuation, which can increase the rate of dilution as well as reduce the value of investors’ holdings

How can I make money off a startup investment?

Traditionally, there are two ways investors can “exit” their investment. The first is through a merger/acquisition. If another company acquires the one you invested in, they will often offer a premium to buy your shares and so secure a controlling ownership percentage in the company. Sometimes your shares will be exchanged at dollar value for shares in the acquiring company.

The other traditional form of an exit is if a company does an initial public offering and becomes one of the ~4,000 publicly trading companies in the US. Then an investor can sell their shares on a national exchange.

Those events can take anywhere from 5-10 years to occur. This creates an important difference between startup investing and investing in companies on the public market: the time horizon is different.

When investing in a public company, you can choose to sell that investment at any time. However, startup investments are illiquid, and you may not be able to exit that investment for years.

However, equity crowdfunding can provide an alternative to both of these options: the shares sold through equity crowdfunding are tradable immediately (for Regulation A+) and after one year (for Regulation Crowdfunding) on alternative trading systems (ATS), if the company chooses to quote its shares on an ATS. This theoretically reduces the risk of that investment as well because the longer an investment is locked up, the greater the chance something unpredictable can happen.

Conclusion

Investing in startups is risky, but it is an exciting way to diversify your portfolio and join an entrepreneur’s journey.

KorePartner Spotlight: Andrew Bull, Founding Partner Bull Blockchain Law  

Posted on by Oscar Jofre Tags: , , , , , , ,

With the recent launch of the KoreConX all-in-one platform, KoreConX is happy to feature the partners contributing to its ecosystem. 

 

During the capital raising journey, many components must be in place to increase the potential for success. One of these critical factors is ensuring that a capital raise meets regulatory compliance requirements. This means that having a knowledgeable securities lawyer on your team is vital to your capital raise.

 

Andrew Bull knows this as a founding partner of Bull Blockchain Law. He and the company assist investors and businesses by providing regulatory clarity across jurisdictions to ensure raises are compliant and efficient. Bull Blockchain Law is a blockchain and cryptocurrency law firm specializing in digital assets, broker-dealer services, FinTech, advising, and more, and is one of the few law firms entirely focused on this subject. 

 

Since discovering Bitcoin in 2011, Andrew has become an industry thought leader and ran one of the first cryptocurrency mining companies in the US. He began his firm in direct response to a lack of clarity around laws in the blockchain industry.

 

We took some time to speak with Andrew and learn more about himself, his firm, and his thoughts on cryptocurrency’s future.

 

Why did you become involved in this industry?

To provide legal clarity regarding the regulatory compliance requirements for accessing capital from all types of investors. The emerging world of Bitcoin and Cryptocurrency gives a new way to supply these things to the industry and assist a new style of investor.

 

What services does your company provide for RegA offerings?

Bull Blockchain Law provides legal guidance, document drafting, and regulatory filings to ensure our clients have the best possible chance to have their Reg A Offering approved by the SEC.

 

What are your unique areas of expertise?

Blockchain, tokenization of assets, NFTs, tokens, and any economic representation facilitated through digital issuances. My background in Blockchain includes extensive legal and academic experience, including running one of the first Cryptocurrency mining companies in the United States, which helps in the scope of legal expertise I can provide.

 

What excites you about this industry?

With the recent expansion of the fundraising thresholds in the U.S. and Canada, I’m excited to see the large influx of new projects access capital and provide more opportunities to retail investors.

 

How is a partnership with KoreConX the right fit for your company?

KoreConX leads the industry in practical compliant fundraising solutions. As a law firm, we emphasize compliance and regulatory compliant digital solutions that facilitate the most efficient path for our clients. Having this partnership undoubtedly benefits us as well as our clients.

Using RegA+ For Collectibles

Posted on by Oscar Jofre Tags: , ,

RegA+ is a securities exemption that allows companies to raise capital from accredited and unaccredited investors. There has been a lot of interest around Regulation A+ and its potential uses for companies outside of the traditional tech and biotech sectors. In this post, we’ll take a look at how RegA+ could be used to offer equity crowdfunding opportunities for those in the collectibles space.

 

A Difference in Fundraising

RegA+ funding for collectibles is game-changing and different from the traditional process of raising capital, similar to real estate. This possibility allows issuers to offer collectibles in niche markets to a wide variety of investors who can usually not afford them on their own. Still, these offerings allow passionate audiences to invest in “holy grail” pieces of collecting with the hopes of the collectible appreciating in value. Even in this space, RegA+ for collectibles is closely tied to the theme of democratizing capital and investments. Anyone can participate in an offering and get their share of the pie.

 

Using RegA+ for Collectibles

Using RegA+ to offer equity funding opportunities for those in the collectibles space allows companies to raise up to $75 million per year from accredited and unaccredited investors. Opening up the opportunity to a much larger pool of investors can be crucial for businesses in the collectibles space, especially when seeking investments for high-worth assets.

 

However, the entire process is somewhat new and being figured out. For example, some items like autographs and music memorabilia are more tedious to ensure authenticity compared to something like cars, which have easily trackable and verifiable VINs. With almost anything able to be classified as a collectible, it is an interesting thing that the SEC will need to look at. 

 

Considerations of Collectibles Through RegA+

Collectibles are an interesting application of the RegA+ exemption, and there are a few things to keep in mind:

 

  • It allows investors to take part in collections they may not be able to otherwise.
  • RegA+ provides a high level of transparency and disclosure for investors.
  • More investment opportunities enable the value of collectibles to go up.
  • It may be challenging to find interested investors who have the capital to invest in high-value items.

 

Regulation A+ has opened the doors for a diverse range of companies to receive funding, from real estate to biotech and everything in between. Interestingly enough, one of these opportunities is collectibles. In these scenarios, an issuer will form a company around a collection of certain assets, whether cars, watches, or luxury handbags. Their offerings allow interested investors to own a piece of a collection they’re passionate about that they would not be otherwise able to be a part of.

How Does Social Media Impact RegCF Offerings?

Posted on by Oscar Jofre Tags: , , , , , , ,

Reg CF allows companies to raise up to $5 million through an SEC-registered intermediary.  Since increasing this limit from $1.07 million in 2021, private companies have raised over $1 billion in Reg CF offerings. This highlights Reg CF’s incredible success in opening the doors to capital for these issuers. For many of these offerings, social media is a key component to success by increasing investor awareness and conducting a successful offering.

 

Social Media’s Impact on Reg CF

 

Social media is essential for companies looking to make a Reg CF offering. It can build awareness and interest among institutional and retail investors and help generate traffic to their offering’s listing on a funding portal or the broker-dealer who hosts the offering. It can expand your crowdfunding campaign’s reach using social tools to raise more money.

 

As soon as companies file their Form C with the SEC, they can begin to communicate outside the funding platform about their offering. However, they must be careful about what they say. They are limited to communications that don’t mention the terms of the offering and “tombstone” communications. Issuers can continue marketing their product or service as usual, as securities regulations understand that the issuer still is running a business and trying to generate a profit. After the Form C has been filed, issuers can also increase the amount of marketing materials they create, as long as they follow SEC guidelines. Issuers are also subject to anti-fraud rules, even in non-terms communications.

 

Capitalizing on Campaigns

 

Building awareness and interest in your Reg CF offerings using social media, you reach investors who may have been unaware of opportunities to invest. Thanks to Reg CF,  startups and established companies alike can get started fundraising quickly with lower initial costs than traditional methods of raising capital. When combined with social media, the result is an effective way to get the word about the raise to many people hoping that they turn into an investor.

 

It has been made clear that social media and mobile marketing are necessary parts of Reg CF offerings. Social media marketing is an increasingly important part of any company’s digital strategy, so having these platforms as part of Reg CF efforts will give issuers the best chance for success with campaigns. It also helps businesses target their current audience to invest in their offering.

 

Social media is an excellent tool for companies to use when making Reg CF offerings. Whether you are looking to raise more money or get the word out about your company, social media can be used in various ways that will help your business grow and succeed with Reg CF.

Private Securities and Crowdfunding Surge is Forecast to Continue in 2022

Posted on by Rialto Markets Tags: , , , , , ,

This article was written by our KorePartners at Rialto Markets. View the original post here.

 

Crowdfunding had another record year in 2021 and is forecast to soar even higher in 2022.

According to Pitchbook data, global crowdfunding exploded from $8.61 billion in 2020 to $113.52 billion last year – a 1,021% increase. The US market alone doubled year on year through Regulation CF and A+, with much higher numbers being raised and over 32% oversubscribed, according to SEC (Securities & Exchange Commission) filings.

Recent analysis of key US private equity crowdfunding platforms such as Wefunder and Republic, showed their top 50 most invested Regulation CF (raises of up to $5 million) crowdfunding offerings raised more than $171 million in November alone from over 113,000 investors – an average of $1,315 per investor – while December tracked at similar levels going into the holiday season.

In the Regulation A+ category, where private companies can raise up to $75 million annually, SEC EDGAR filings for 2021 show 343 US-based high growth private issuers raised $8.6 billion in total.

The peak months for Regulation A+ capital raises were November and December, suggesting that 2022 will double the amount raised last year.

The market is also expected to expand significantly in 2022 and 2023 as regulated alternative secondary market trading platforms, known as ATSs, start to offer more potential liquidity in a private securities market set to grow from $7 trillion in 2021 to $30 trillion in 2030, according to Forbes.

Innovative US-based broker-dealer and a leading ATS provider specializing in private securities, Rialto Markets, predicts this trend will continue as more and more ambitious private companies in the US and worldwide apply this approach to their fundraising, leading to future secondary share trading.

Rialto Markets’ COO and Co-founder Joel Steinmetz said: “There were record months in the US crowdfunding sector during the first half of 2021 – with May being the highest – but there was a much steeper growth curve in the second half of the year, with record investment levels in the final quarter.

“We see Regulation CF and Regulation A+ public offerings complementing each other and while April was the lowest capital raising month, the sector surged in late summer, and November closed as the highest month.

“December in the US now looks like it may have matched or exceeded November, which sets the tone for a buoyant 2022, according to our research, and data coming from the major crowdfunding platforms and authorities like Pitchbook.

“We are seeing this pattern ourselves with over $730 million in signed contracts for Rialto Markets at the start of 2022 alone from high growth private companies in the primary market, using our broker-dealer infrastructure and technology.

“Additionally, in the secondary market, we are being swamped with requests from high growth private companies and marketplaces that offer fractionalized securities wishing to offer regulated trading to their investors through our SEC and FINRA regulated ATS secondary trading platform.”

Digital Twin pioneer Cityzenith, a company with three successful crowdfunding raises in three years, saw a big upsurge in investment during December and early January towards the 1st quarter 2022 close of its final $15 million crowdfunding raise.

It will then move onto funding from institutions that have followed the company’s rise during this process.

Cityzenith CEO and Founder Michael Jansen said: “Crowdfunding isn’t for the faint-hearted. You must have a strong strategy, a large following, and investors who are going to back the offerings from the outset.

“But it’s also about positioning the brand to win new partnerships and potential larger institutional investors due to the momentum you build through these Regulation CF and Regulation A+ investment offerings.”

The electric vehicle company Atlis Motors had one of the fastest and most over-subscribed Regulation CF raises of 2021, attracting its full $5 million in just a few weeks with 4,123 new investors, further illustrating the importance of building a community of investors and advocates for the future of your brand.

Shari Noonan, CEO and Co-founder of Rialto Markets – the broker-dealer for both Cityzenith and Atlis Motors – responded: “These are impressive and ambitious private companies who know what it takes to prepare and build a community for either a smaller Regulation CF raise or a much larger Regulation A+ offering.”

“2022 is going to be a massive year for the private securities market, especially Regulation CF and Regulation A+ capital raising campaigns for high growth private companies.

“We are especially excited about movement in secondary trading for private companies, and by providing a platform to potentially unlock value for investors much earlier through a regulated ATS such as our own Rialto Markets secondary trading platform.”

How Have the JOBS Act Exemptions Impacted Company Founders?

Posted on by Oscar Jofre

Since the JOBS Act was passed in 2012, it has been easier for company founders to raise money with exemptions like Reg CF and Reg A+, changing the landscape of private capital investments. 

 

The JOBS Act provides exemptions from registration for private companies raising money with key benefits, like:

  • Ability to keep the company private
  • Not having to disclose everything publicly
  • Less regulatory burden when raising money
  • Access to accredited and non-accredited investors

 

Reg A+ & Reg CF

Regulation CF is an exemption outlined in the JOBS Act that lets companies raise a maximum of $5 million in any 12-month period by selling securities to accredited and non-accredited investors. Regulation A+ allows issuers to offer and raise up to $75 million in funding without having to comply with all the strict requirements of a traditional IPO. This has allowed company founders to bypass some of the red tape and paperwork associated with more traditional fundraising methods and raise millions of dollars for their organizations. 

 

With RegA+ and RegCF, private companies have increased opportunities to raise capital. Before the JOBS Act, private companies were only invested in by wealthy individuals and firms like venture capital or private equity, but now investment opportunities have been opened to the non-accredited investor as well. This increases the pool of available investors for any given deal since the number of non-accredited investors is immense, which is powerful for companies seeking capital with these methods. 

 

Impacting How Capital is Raised

WIth the doors the JOBS Act has opened up, entrepreneurs who have a great idea but no funding to realize their vision have the opportunities to raise the capital needed to grow their businesses. Companies in the private sector can connect with their investors in ways not typically seen in the public market; investors may be loyal customers or passionate about the cause or mission the company believes in. This is a unique opportunity for companies to build and maintain relationships with their shareholders that may be interested in investing in future offerings as well. 

 

Company founders can also retain more control over their company raising money through the JOBS Act exemptions, another significant benefit. There is a little more flexibility for founders to set the valuation they’re looking for and construct a deal more favorable. In other traditional funding scenarios, venture capital or private equity investors may seek more equity than the founder is hoping to give up or disagree with the valuation. 

 

The JOBS Act has created opportunities for companies to secure the funding they need to grow and sustain their businesses. Compared to traditional funding routes, RegA+ and RegCF are often more cost-effective and enable them to raise significant amounts of capital.

Why are Data and Research Key in the Private Capital Markets?

Posted on by Oscar Jofre Tags: , , , ,

Data and research are essential pieces of the puzzle regarding the private capital markets. Investors can make informed decisions about where to put their money, and private markets can attract the best investors by having access to accurate and timely data. By conducting thorough research on potential investments, investors can mitigate risk and maximize return potential.

 

Importance of Data & Research

Private market data provides understanding and predictions of trends, allowing investors to look for companies on a trajectory towards growth and success. Data helps identify these trends and enables investors to make more informed decisions. For example, if a company has the data to demonstrate an upward trend in annual revenue and gross profit, it can be compelling to any potential investor. Investors stay informed of private markets and make informed decisions by private companies providing up-to-date data.

 

Research is necessary to understand the risks and opportunities of any investment. Research helps investors see that a product or service works as intended and solves a real problem or need. Even if the revenue and gross profit look good on paper, investors won’t go for a product that isn’t solving a real problem or helping people. This is because investors need to be aware of any investment’s potential dangers and benefits before putting their money into a private offering. To make an informed decision, private capital investors need to know all they can about the company they are investing in.

 

Conducting Market Research

Private capital investors conduct due diligence on potential investments by reviewing various data sets and conducting company research. This information allows investors to understand the risks and opportunities associated with each asset. Research that demonstrates the viability of a product or service helps investors understand the potential return on investment.

 

There are multiple methods for investors to conduct market research based on private company data. One way is a SWOT analysis, allowing investors to take an in-depth look at a business and its needs to succeed by comparing its strengths, weaknesses, opportunities, and threats. In a rapidly changing market, companies that can demonstrate a trend of growth and success with minimal weaknesses are more likely to attract investment. 

 

Benefiting from Private Capital Research

Investors need to make quick decisions, so having access to up-to-date data is critical. Data is essential for understanding how a company’s market performance affects private company growth. The current market performance also influences an investor’s decision on due diligence on potential investments.

 

Private market data helps paint a more accurate picture of the company and its operations, which can be helpful for both investors and company employees alike. With accurate data, investors can make better decisions regarding where to invest based on their ROI expectations, company performance, and management effectiveness. Presenting data and research provides private companies with feedback from the market, including information about how potential customers feel, what they think about a product, or how successful a product may be compared to the rest of the market.

 

The private capital markets are a haven for risk-averse, long-term investors. With the correct data and research, investors can make more informed decisions and reduce the risk of investing in a company that may not be a good fit for their portfolio. Private capital markets increase transparency by showcasing company data, drawing in potential investors, and allowing more investment opportunities. Whether looking for funding or an investment, it is vital to understand how data and research can help private capital markets grow.

 

What Franchisees and Franchisors Should Consider when Crowdfunding

Posted on by Oscar Jofre Tags: , , , ,

With franchisees and franchisors looking to secure capital, a growing trend is using Regulation CF to raise capital from accredited and nonaccredited investors. Since RegCF’s expansion to $5M in early 2021, the updated limit provides even more potential for franchises to raise the money they need to fund operations and expansions. 

 

Here are some things franchisees and franchisors should consider:

 

Anyone Can Invest

 

Regardless of income, anyone can invest in a RegCF offering. This means that both wealthy accredited investors and everyday investors can also become shareholders. With this in mind, the pool of potential investors increases substantially compared to traditional private investments. 

 

Fees and Compliance

 

When conducting a RegCF offering, franchisees and franchisors should be prepared to pay portal fees, potential broker-dealer fees, and legal fees to prepare the offering documents, for example. There will also be a cost to engage with an investor acquisition firm to market the offering to potential investors. 

 

Building the Franchise 

 

While one of the most obvious advantages of a crowdfunding campaign is securing funding to grow, there are other benefits. For example, some investors may become franchisees while others are incentivized to become loyal customers. A successful RegCF campaign can also be useful for brand marketing. 

 

Alternative Financing

 

For some franchisees, getting a traditional bank loan is not possible. Some banks have requirements for how long a franchise has been open when applying, so this option is not feasible for newer franchises. Instead, crowdfunding can provide the necessary funding to open or expand to new locations. 

 

More Favorable Terms

 

Sometimes, offers from private investors like venture capital or private equity firms can be unattractive to franchisors. The investor may request too much control over the company that the owner would not want to give up, making the deal impossible. Instead, crowdfunding allows companies to dictate the deal and retain control over the company. 

Is Email Still King for Reg A, Reg CF, and Reg D Marketing?

Posted on by Dawson Russell Tags: , , , , , , , , , ,

This article was originally written by KorePartner Dawson Russell of Capital Raise Agency. View the original post here.

 

Email marketing has been around for a while. You might even be surprised to read that email has been around since the ’70s — over 50 years ago!

 

You’d think that as fast as the digital world moves, such a dinosaur of a marketing strategy would be nothing more than a relic or extinct.

But it’s not.

In fact, email marketing is somewhere in the ballpark of 40 times more of an effective marketing strategy than social media marketing, according to a study conducted by McKinsey & Company.

So why is that?

How is email marketing still king when we now have search engine optimization (SEO), social media marketing, mobile marketing, pay-per-click, content marketing, and influencer marketing all at our fingertips?

Here’s are 3 of the main reasons:

1. It’s Highly Customizable

The most crucial and effective way to have success with your email marketing strategy is to implement what’s known as “customer segmentation.” This means you can use customers’ recent and relevant searches & interests to your advantage and generate custom-made emails for them in a way that is MUCH more effective than other approaches. Customer segmentation also allows you to be much more tactful with your email timing, so you can avoid spamming their inboxes.

Even better, you can pivot your customer segmentation strategy quickly by reviewing click rates, bounce rates, and subscribe & unsubscribe rates.

2. It Provides Better Conversion Rates

It doesn’t matter if your focus is on Reg A email marketing, Reg CF email marketing, or Reg D email marketing, it will still have a better conversion rate than any other method.

Email has been traditionally regarded as the most transactional part of a company or business.

Think about it.

You can generate traffic to your business and/or convert a visitor to an investor with just a single click of a link. They can reply directly, sign-up for other newsletters, forward the email to other potential investors, and more.

According to a study done by Statista, over 93% of Americans between the ages of 22-44 used email regularly, and over 90% of Americans between the ages 45-64. Even 84% of people 65+ were regular email users.

3. It’s a Cinch to Automate

Once you get everything written out and running properly, you can launch a highly effective Reg A, Reg CF, or Reg D marketing campaign, with minimal effort compared to other methods.

With the right automation tools to go along with your campaign strategy, you can create and deliver automated emails that are not only relevant to your subscriber list but generate leads and new investors at the same time.

In Conclusion…

Email marketing really is still the best way to reach out to potential investors and remains the king of the digital marketing world. When utilized and implemented properly, it can build leads to potential investors, and strengthen brand trust and loyalty in a way that enables your fund to grow more than you would’ve thought possible.

PS: did you know that adding PS to your email marketing campaigns could increase click-through rates by an extra 2%?

Securities in Real Estate – A Beginner’s Guide!

Posted on by Crowdfunding Lawyers Tags: , , , , , , ,

This blog was originally written by our KorePartners at Crowdfunding Lawyers. View the original post here. 

 

Over the past few decades, real estate investing has seen a dramatic shift from individual private investors to syndications of commercial, multifamily and development projects. This has contributed to the substantial growth of the global real estate securities markets. This shift has been largely due to the increasing adoption of the modern real estate syndication structures amid growing investor demand for passive income.

Real estate developments and multifamily opportunities generally require enormous resources and large amounts of capital for acquisitions of and operations. Investors get excited for real estate investing when they expect above-stock-market returns through passive income investing. The passive income can come from rental operations and capital gains on sale. Such investments are generally securities, which are regulated by the Securities Exchange Commission (SEC) and State securities regulators.

Private securities may take the form corporate shares, bonds, or futures/derivatives, and even promissory notes with private lenders may be categorized as securities. To make things even more confusing, some real estate investments are considered securities and others are not.

At a high level, the test for whether an investment contract is a security is referred to as the Howey Test and it considers whether the investment structure includes:

  • Investment of cash or assets
  • From a group (i.e., more than 1) of similar-interest passive investors
  • With an expectation of profits
  • From the efforts of others (e.g., management)

All securities are investments but not all investments are securities.

When should you care?

The starting point for analyzing whether securities law governs an investment real estate transaction is applying the “economic realities” test originally described by the US Supreme Court in the 1936 case SEC v. W.J. Howey. To apply this test, summarized above, it is important to consider if multiple people will put resources into a venture with an assumption that benefit will be procured through the efforts of another person.

Since a joint land venture might have different levels of investors, lenders, and stake holders, the Howey Test should be applied independently for each stake holder. As an example, there may be a first lien lender, a second position lien lender at materially different interest terms, a preferred investor that receives a designated rate of return, and common investors that receive the profit.

In the example above, the lenders would not be investing in securities because there is no commonality between them. It’s a similar evaluation of the preferred investor, assuming there is only one. Common investors expecting to receive profit would be purchasing securities and the sponsor would be responsible for complying with securities regulations (e.g., qualifying for an exemption from registration yet) for this group.

However, we can tweak one variable and each transaction can be considered a separate securities transaction. If there are multiple lenders sharing the same position loan or multiple preferred investors, then those are separate securities transactions similar to the common interest investors.

Let’s give illustration of how a single transaction may actually be BOTH a securities transaction and a non-securities investment. Let’s use an example of private loan for the acquisition of real estate. If it is a single source loan (one lender on note), the receipt of loan proceeds by the property owner would not be construed as a securities transaction. However, if the lender pooled together funds from multiple private lenders or investors for the purposes of making the loan, then the pooling of funds would still be considered a securities transaction. The property owner would have no obligations to maintain the securities exemption but the lender who is pooling investors would.

To put it in layman’s terms, whether a real estate venture is a regulated security depends on whether the investors depend on another’s efforts to earn a return. Unfortunately, since the application of the Howey Test actually depends on numerous guidelines and regulatory interpretations, court decisions frequently neglect to offer significant guidance. Likewise, the SEC will issue “no action letters,” which is the SEC’s response when asked for guidance on whether they would take action given a set of circumstances. There are thousands of these letters to consider, but they are also very fact-dependent, and therefore don’t always provide as clear a beacon as we would like.

This leaves the investment sponsor with few alternatives:

  • Hope they don’t get caught and accept investments without guidance
  • Hire an experienced securities attorney (e.g., Crowdfunding Lawyers) to evaluate and assist in the development of the investment program

Difference between a non-securities real estate transaction and a securities offering 

Real estate investments are often not securities when evaluated under the Howey Test for a variety of reasons.

Owners of a condo association are not purchasing securities although each member may have a similar passive interest in the building. Condo association members are generally expecting to reside at the property or rent out their portion rather than seeking profit from the activities of the leaders of the association.

The acquisition of rental properties is generally not a security when acquired by an individual since there is not commonality with other investors. However, if two or more investors acquire the property together, they may be purchasing a security if pooling their money to be managed by someone else.

When it comes to multifamily acquisitions, most often there are securities being offered to a multitude of qualified investors on similar terms, with the investment being managed by the investment’s sponsor. These syndications are securities and require either securities registration or exemption from registration under the appropriate securities exemption. Regulation D of the Securities Act of 1933 is the most commonly relied upon securities registration exemption but there are other exemptions from registration that should be considered when developing a capitalization plan.

Another common securities structure includes tenants in common (TIC) investment opportunities, which are often promoted in connection with 1031 tax-deferred exchanges. A straight-forward analysis of TIC investments includes: direct property owners with a non-divisible interest in a property along with other owners, a manager responsible for daily operations, and a TIC agreement binding the property owners’ activities to certain voting approvals.

Many people ask if having an investment opportunity with fewer than 35, 10, 5, or even 2 individuals is not a security. However, there is no specific number of financial backers that disqualify an investment from being a security as long as all prongs of the Howey Test are met. Even a solitary piece of venture property, deeded to two individuals, can be categorized as a securities offering if the conditions bring it inside the applicable lawful definitions under government or state law.

Compliance, Avoidance and Hope

Although conforming to securities requirements has become simpler and there has been a recent broadening of exemptions available to securities issuers, it continues to be a highly technical area of the law. Some investment sponsors seek to avoid securities requirements by giving every investor critical autonomy and control. In some cases of joint ventures, franchises, or general partnerships which generally require active participation and unlimited liability to the investors. There are some reliable strategies to structure an opportunity so that it is not a security, but a cost/benefit analysis is important to determine if, as an investor or promoter, the benefits are worth the risks.

When an offering structure is within the gray area between security and non-security, regulatory agencies can and often will step in with an investigation or audit to ensure compliance. Hence, investment offerings designed to avoid securities requirements by shifting independence and control to investors may undermine the project’s success and create unnecessary scrutiny for the participants.

What is Sustainable Investing?

Posted on by Raise Green Tags: , , , , ,

This blog was originally written by our KorePartners at Raise Green. View the original post here. 

OK, How Does Sustainable Investing Work?

Some investors seek to make a positive social and environmental impact with their investments and thus, they don’t simply look at the companies who will make them the most money from the get-go. Rather, they seek those companies who are working tirelessly to address a vast array of societal problems. As a result, sustainable investing is also referred to as socially responsible investing (SRI) or ESG investing, as it encompasses the idea that the investor is strongly influenced by environmental, societal, or governmental factors, before contributing money to a particular company. With this type of investment, people are seeking not a short-term financial return, but a longer-term financial return in which their money is being used as a medium for societal progress, environmental impact, and corporate responsibility. In fact, financial return goes hand in hand with ESG progress, as companies with stronger ESG profiles may generate more sustainable profit and cash flow because they tend to be more competitive than their peers (“ESG factors and equity returns – a review of recent industry research,” 2021). Sustainable investing places increasing emphasis on how investments contribute to the good of society, irrespective of how much money was made in the short run.

Sustainable Investing Objectives

Sustainable investing, as a catalyst for societal change, has seen it’s popularity rise in recent years in the face of the climate crisis and compounding social issues. Impact investing serves as one of the catalysts, alongside millennial investors driven by principles, that is lighting a fire under investors to invest their money in companies whose “intrinsic values” drive positive change (“What is Sustainable Investing?,” HBS). Sustainable investing pushes companies to embrace sustainable principles, which can lead to more impactful social and financial returns later on. With respect to Raise Green, sustainable investing is particularly crucial, especially within the context of environmental factors that investors look for in companies to contribute to money. The realm of environmental factors focuses on the impact that a company will have on the environment, such as its carbon footprint, waste, water use and conservation, and clean technology.

Growing Investment Opportunities

Furthermore, this marketplace for sustainable investing is only growing. The United States’ Forum for Sustainable and Responsible Investment identified $17.1 trillion in total assets under management at the end of 2019 using one or more sustainable investing strategies, a 42 percent increase from the $12.0 trillion identified two years prior (“Sustainable Investing Basics,” USSIF). This type of investing has become more desirable because “investors do not have to pay more to align their investments with their values, or to avoid companies with poor environmental, social or governance practices” (“Sustainable Investing Basics,” USSIF). Therefore, with sustainable investing, investors can propagate social impact without losing money. As a whole, sustainable investing is important because it can help contribute to vast infrastructure changes needed in our society to tackle the challenges we face. It allows us to move towards a better and more sustainable future.

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