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KorePartner Spotlight: Peter Wright, President and Co-Founder of Intro-act

Posted on by Oscar Jofre

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

 

Companies are burdened by high costs when raising capital through traditional public routes. In the private markets, raising capital in inefficient yet undiscovered markets is vital for newer industries to connect their investment opportunity with compatible investors.

 

Intro-act realizes that Wall Street resources overly cover large pensions, mutual funds, and hedge funds. At the same time, many family offices and RIAs do not have access to or are unwilling to spend a large amount of money needed to garner attention from more prominent brokers. Intro-act specializes in connecting compatible investors with various markets like SPACs, health care, industrials, finance, technology, consumer services, and energy to provide investors with monthly trackers and weekly newsletters in multiple industries to ensure investors and companies are on the same page. Some segments include AI, IoT, telemedicine, 3D printing, and cryptocurrencies.

 

Intro-act’s wide range of clients is connected with capital through three steps. Intro-acts identifies compatible investors, then educates them through research and access events, and finally engages with investors that engage the content. Intro-act clients are typically “diamonds in the rough” and are found by starting in the right mine. For Intro-act, this means mapping segments of each emerging industry that requires the latest capital and will soon become a focus of broker-dealers. The firm has found RegA+ offerings to be great starting places to identify these progressive industries and companies.

The Evolution of Reg A+

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

During the recent Dare to Dream KoreSummit, David Weild IV, the Father of the JOBS Act, spoke about companies going from public to private, access to capital Reg A+, the future of small businesses raising capital, and the future of the broker-dealer system. The following blog summarizes his keynote address and what Wield believes will be the future of raising capital for small businesses. 

 

Reg A+’s Creation

The JOBS Act, passed in 2012, helped address a significant decrease in America’s IPOs. “When I was vice-chairman of NASDAQ, I was very concerned with some of the market structure changes that went on with our public markets that dropped the bottom out of support for small-cap equities,” said Weild. “80% of all initial public offerings in the United States were sub $50 million in size. And in a very short period of time, we went from 80%, small IPOs to 20%, almost overnight.” The number of operating public companies decreased from about nine thousand to five thousand. The changes in the market significantly restricted smaller companies from growing, unable to go public because of prohibitive costs and other expenses. 

 

Effect on Small Business

After years of lobbying and the passage of the JOBS Act, only one of the seven titles went into effect instantaneously: RegA+. With this new option for raising capital, startups could raise $50 million in money without filing a public offering. The previous maximum was $5 million; this would eventually be increased to $75 million. It also expanded the number of shareholders a company can have before registering publicly, which is essential as companies can raise money from accredited and non-accredited investors through this regulation. RegA+ and the other rules have had a significant impact on the way startups do business. This has been a significant benefit for small businesses, as it has allowed them to raise more money without going through the hassle and expense of becoming a public company. 

 

Reg A+ into the Future

The capital raising process was digitized by taking the investment process and making it direct through crowdfunding, removing economic incentives for small broker-dealers who could not make their desired commission on transactions. This resulted in many of them consolidating out of business and leaving a gap in the private capital market ecosystem that supports corporate finance. Changes to the JOBS Act are beginning to reintroduce incentives for broker-dealers, which will continue to shape the future of private investments as it will continue to facilitate the growth of a secondary market. Wield’s thoughts on the future of capital raising marketing are that the market is not yet corrected, but it is on track. He said: “I would tell you that there’s a great appetite in Washington to do things that are going to improve capital formation.”

 

Getting more players like broker-dealers involved in the RegA+ ecosystem will do nothing but benefit the space. In his closing remarks, Wield said that this would provide for a “greater likelihood that we’re going to fund more earlier stage businesses, which in turn gives us the opportunity to create jobs and upward mobility. Hopefully, since much entrepreneurial activity is focused on social impact companies to solve great challenges of our time, whether it’s in life sciences, and medicine, or climate change, you know, I firmly believe that the solutions for climate change are apt to come from scientists and engineers who’ve cracked the code on cutting emissions or taking CO2 out of the atmosphere. And so from where I said, getting more entrepreneurs funded is going to be important to have a better chance of leaving a respectable environment for the next generation.”

What are the Different Types of Investors?

Posted on by Oscar Jofre

Through the JOBS Act exemptions, private companies can access a wider pool of potential investors to fund their business ventures. With many diverse investor types available, it is essential to know who they are and how they work to reap their benefits. Here is our breakdown of the different investment types and their fit into the market.

 

Non-Accredited Investors: A non-accredited investor is anyone who does not meet income or net worth requirements stipulated by the SEC. These investors have a net worth of less than $1 million and make less than $200,000 annually. The term is also usually used interchangeably with “retail investor.” These investors are the majority of Americans, meaning that far more non-accredited investors exist than accredited ones. Non-accredited investors can participate in private markets, but there are some restrictions. Private companies can only have 35 non-accredited investors who can provide funding under Regulation D, for example. In addition, raises through RegA+ and RegCF limit the amount non-accredited investors can invest within a 12-month period.

 

Accredited Investors: An accredited investor is an individual or business that can invest in private securities not registered with the SEC. These individuals or entities must meet net worth guidelines to qualify, allowing accredited investors to invest in unregistered securities because they have been deemed to have the financial knowledge (and can take on the financial risk) to do so without SEC protection. In 2020 it was estimated there were 13,665,475 accredited investor households in America.

 

Angel Investors: These investors fund private startup companies in exchange for a piece of their business, often royalties or equity. Angel investors can be accredited or non-accredited if they have a high enough net worth or income. Angel investors can be business professionals, company executives, or even retail investors. Angel investors often invest while a company is still in its seed phase and contribution levels can vary significantly based on the company. There were around 334,680 angel investors and $25.3 billion funded by them in 2020.

 

Venture Capital: Venture capital investors, often known as VC, provide a large amount of capital to private companies in exchange for an equity stake in the venture. They often target companies with high growth potential. Typically, venture capital firms manage investments into companies in their early stages in exchange for equity and say in company decisions. In 2020, more than 10,000 companies received funding from nearly 2,000 VC firms that manage $548 billion in assets.

 

Family Office: A family office is an advisory firm that caters to high-net-worth individuals and can be either single or multi-family. Family offices provide wealth management, planning, and other comprehensive services, providing a broad spectrum of options. Because they are unregistered, data on family offices is often challenging to come by. Still, trends suggest that they have a growing ability to make substantial investments on par with large companies and private equity.

 

Qualified Institutional Buyer: Sometimes called a QIB, a qualified institutional investor is a security purchaser that regulators legally recognize as requiring less protection than most public investors. Large QIBs own a minimum of $100 million of securities, not counting those issued by affiliates. This threshold is less for registered broker-dealers at $10 million, and banks need $25 million to be considered a QIB. The SEC allows only QIBs to trade restricted and controlled securities under rule 144A.

 

Institutional Investors: Often organizations or companies, institutional investors buy and sell with others money in blocks of bonds, stocks, and other securities. Mutual funds, hedge funds, and endowments are examples of institutional investors in the market. Because of their ability to invest the money of others in large quantities, institutional investors are one of the primary funders of private companies. The only type of investor that can officially call itself institutional files a 13F with SEC.

 

Private Equity: Private equity is an alternative investment class consisting of capital not listed on public markets. Investing funds directly into private companies, these private equity funds consist of limited partners who own 99% of fund shares and general partners who own 1%. Private equity can come in several forms, like venture capital and leveraged buyouts.

Has RegA+ Killed the IPO?

Posted on by Oscar Jofre Tags: , ,

Has RegA+ Killed the IPO?

 

Regulation A+ gives issuers the ability to raise $75 million in crowdfunding while remaining private. With RegA+ benefiting both companies and investors, does this mean the death of IPOs?

 

RegA+, part of the JOBS Act, allows companies to raise funds through the general public, not just accredited investors. With more and more IPOs delayed, unprecedented access to private capital is available to all organizations. With RegA+, anyone can invest in private companies, making it increasingly popular with companies seeking capital, primarily since they can raise a significant amount of funding.

 

The regulatory and monetary hurdles that come with entering an IPO in addition to RegA+ have led to delays in initial public offerings. Since the JOBS Act was passed in 2012, funding opportunities for private companies have improved, especially with the allowance of not-accredited investors opening up a previously untapped pool of prospective investors. Additionally, the secondary private investment market increases liquidity options, allowing investors to sell shares in private companies to others without waiting for the company to go public.

 

Pre-JOBS Act, many companies were forced to go public because they were limited to a certain number of shareholders. With RegA+, this limit is non-existent, allowing them to stay private longer. In 2011, companies stayed private for about five years on average; in 2020, companies were private for an average of 11 years. 

 

RegA+ brings renewed opportunities, especially to small-cap companies. Companies gain access to liquidity, investors, and significant capital growth that would not have otherwise occurred. RegA+ offers substantial advantages over the traditional IPO. As our KorePartners at Manhattan Street Capital have pointed out:

 

  • “Startups don’t need to spend as much time trying to win over large investors and can focus instead on getting the company ready for the next level. Since Regulation A+ options are still being realized by the people who are now able to tap this investment potential, there is enthusiasm and momentum that is certainly to the advantage of the startups and growth-stage companies.”
  • “Instead of large amounts of capital being raised from a few sources, Reg A+ funding collects smaller amounts from a bigger pool of investors. This means that no single investor will own enough shares to have a controlling stake in what the company does, meaning that the startup can continue to operate as it pleases.”
  • “Word-of-mouth marketing is still considered the most powerful of all promotions, whether it happens in-person or through online means like social media. Main street investors are committing hard-earned money and have more of an incentive to see a return on it. They are more likely to evangelize the brands they have invested in which means a much wider marketing reach than if the company was spreading the word on its own.”
  • “Just as the investors will want to tell other people about the brand, they will also likely want to test out the products or services themselves. This can lead to feedback that improves what the company offers to the public.”

 

These are significant advantages over an IPO that will allow an issuer to secure the capital they need to grow, create jobs, and provide investment opportunities. Especially with everyday investors able to participate, RegA+ does a great job of leveling the playing field and opening opportunities up to those who would have been traditionally excluded from private investment deals.

KorePartner Spotlight: Jonathan Stidd, Co-Founder and CEO of Ridge Growth Agency

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 raise is marketed to get an issuer’s message in the right place to get in front of the right eyes. 

Ridge Growth Agency is an expert in equity crowdfunding and direct-to-consumer marketing, dedicated to building the brands of tomorrow. The company positions brands to introduce them to new, high-value customers and investors. When the company started, it was first a digital marketing agency that helped eCommerce brands scale online. Jonathan Stidd said, “When we got introduced to equity crowdfunding, we quickly realized we could apply these same tactics to acquiring investors online.” Since introducing this service, the agency has helped its clients raise over $330 million through Regulation A+ offerings. 

Ridge Growth Agency provides a wide range of digital marketing services for its clients. These include website design and development; newsletter and sponsored content creation; paid media management; budgeting, planning, and forecasting; video production and editing; graphic design; copywriting; and email marketing. Jonathan feels this is what sets them apart from other firms offering similar services, saying, “nobody seems to offer [them all].”

After receiving his education in economics, Jonathan himself entered into this field and has since developed expertise in management consulting, venture capital, entrepreneurship, and the growth strategies to launch and scale brands. He feels passionate about this industry because of the ability to “help cutting-edge companies raise capital in a relatively new way!” Additionally, he feels that a partnership with KoreConX was just the right fit. He said: “as a technology provider for the pipe system of these raises, KoreConX is a crucial tool to move the investors through the funnel.”

End to End for RegCF

Posted on by Oscar Jofre Tags: , ,

When the JOBS Act was signed into law in 2012, it brought about many changes in the private capital markets, namely, the dramatic increase in the availability of capital from more expansive pools of investors. Later on, 2016 saw Regulation Crowdfunding, also known as Title III or RegCF, go live. At that point, US-based issuers could raise up to $1.07 million from both accredited and nonaccredited investors. Additionally, companies in the startup stage through to full operating companies across all industries can take advantage of this exemption to raise capital. 

 

However, due to the comparatively low limit of RegCF in the early days when the regulation was introduced RegCF was largely overlooked by many companies seeking to raise capital. Now, it continues to gain momentum due to the limit of RegCF increasing to $5 million in March of 2021. Since then, RegCF has reached a significant milestone. In October 2021, companies surpassed a cumulative total of $1 billion raised under the regulation. Now that the limit has increased nearly five times from where it started, we expect the adoption of Reg CF to continue to grow much faster than the half-decade it took to reach $1B.

 

Getting Started with RegCF

 

For issuers looking to use Regulation CF for their offering, it is relatively straightforward for those looking to raise up to $1.07 million. For raises of this size, the issuer is not required to submit audited financial statements to the SEC. They must retain a securities lawyer to complete their Form C and obtain a CrowdCheck Due Diligence report. Next, the issuer must find an SEC-registered transfer agent to manage corporate books and cap tables, a requirement under the regulation. Additionally, the issuer must also select a FINRA-registered broker-dealer to raise capital directly from the issuer’s website. 

 

The process for raising up to $5 million is pretty similar. However, the main difference is that issuers require an audit. With this being the only difference, there is not much in terms of the change to the regulatory and compliance requirements.

 

What do RegCF Broker-Dealers Need?

 

For broker-dealers working on RegCF raises, it is something different than anything else they’ve done; they need to be prepared to handle things they may not have needed to consider in other types of capital raising activities. These things include:

  • Investment Landing Page: Once the landing page is created and ready to go live (a step sometimes done by investor acquisition firms), the broker-dealer must manage it. This includes taking over or registering the domain name. This ensures the broker-dealer is in total control, with the ability to shut it down or change/amend things as needed. 
  • Back Office: After an issuer signs up with a broker-dealer, the broker-dealer provides them with the escrow and payment rails. For the escrow account, the broker-dealer is on title as a broker-dealer so that they handle all payment components like credit cards, ACH, wire, cryptocurrency, and IRA. Typically, the bank or trust providing the escrow account will also offer wire and ACH. Since broker-dealers currently cannot hold any crypto, crypto payment options allow issuers to submit crypto that gets exchanged into fiat USD. 
  • Due Diligence: The broker-dealer will be able to rely on the CrowdCheck report, an industry standard. 
  • Registration: The broker-dealer must be registered in all 50 states to be able to provide the best help to an issuer.

 

What Compliance is Needed?

 

The compliance officer also has responsibilities they need to meet for a successful RegCF raise. This included performing ID, AML, KYC, and suitability on each investor who is investing in the offering. Plus, while accredited investors aren’t restricted to the amount of money they can invest through RegCF, the compliance officer can request an individual to go through verification, but it is not necessary. The compliance officer must also manage the KYC process through the entire offering until the money is released to the issuer. Another new change to RegCF is that companies can have rolling closes, which means that they can start closing each time they hit their minimum. When it comes to closing, the broker-dealer must ensure that the company has filed its Form C amendment.

 

What Does an Issuer Do to Prepare?

 

While the broker-dealer fills their component of the RegCF raise, an issuer will typically work closely with an investor acquisition firm to bring the eyeballs to the website. The issuer is responsible for meeting their regulatory requirements, like preparing their audit if raising over $1.07 million. Even if an issuer does not have their audit ready, they can still start their raise up to the $1.07 million amount. Once the audit is done, the offering can be amended to go to $5 million instead. Since securities are being sold directly on the issuer’s website, the traffic they’re driving there is only for them. Previously, when RegCF offerings could only be done on a registered funding portal, traffic would be directed to a site with many other offerings as well. 

 

This is not to say that funding portals don’t serve a purpose; instead, some issuers (especially those who have grown out of the startup phase) prefer more direct traffic. Currently, there are over 70 funding portals (and more on the way). Each option has pros and cons depending on the issuer and the raise that must be considered when launching RegCF. Additionally, some investor acquisition firms prefer an individualized landing page because it directs traffic and attention solely to the issuer.

 

Investment Process for RegCF

 

When the investor (or potential investor) goes to the landing page and begins the investment process, the first thing collected is their email address. This allows the investor acquisition firm to remarket to the individual if they left the page before completing an investment. Every day, a report of drop-offs will be provided that details which stage of the investment process the investor left. Plus, data is provided as to where each investor is coming from.

 

 After the initial stage of the process, the investor will proceed to enter their information, like how much they want to invest, their income, how they want to invest, and other data necessary to complete the investment. Once all of the information is entered, the investor will review and sign the subscription agreement before submitting their investment. 

 

Once the subscription agreement has been submitted, the investor receives an email allowing them to register their account with the issuer’s private label page to manage the investment they’ve made. Even though the broker-dealer manages the website, the investors’ experience end-to-end is with the issuer. Once the investment is completed, the investor will be able to find it in their portfolio. Through the portfolio, the SEC-registered transfer agent and the company manage the cap table and provide individual investors access to their investments.  For each investment, the investor can view all of its details rather than keeping that information in paper documents. They can see what rights they have for each security, how much they invested, how they paid, etc. 

 

Through the entire investment process, not only is the investor involved but there are many other parties involved. Beyond helping the company set up the investment, the broker-dealer also helps to ensure that the issuer has everything ready in their platform. The broker-dealer is then responsible for ensuring that the offering and investors are vetted into the platform as well. Additionally, the compliance officer will also have to verify the investors through the platform’s compliance management system. Once the investor is approved, their funds are sent to escrow, which the broker-dealer monitors to make sure they’ve all arrived. When the minimum is met, the broker-dealer closes, allowing the company to receive their funds and the cap table to be updated. 

 

For 2022, we anticipate that RegCF will be a game-changer. The amount of capital raised under the regulation makes it a perfect fit for seed and Series A companies that may have otherwise used RegD. Like RegD, issuers can target accredited investors, but they can also target nonaccredited as well. This significantly increases the potential pool of investors and opportunities available to raise capital. While there are an estimated 8.5 million accredited investors, only 110,000 have been verified. When considering nonaccredited as well, this number grows substantially to 233 million individuals. 

What is Impact Investing?

Posted on by Oscar Jofre Tags: , , ,

Impact investing is the allocation of investments in companies, organizations, and funds to generate social and environmental impact alongside financial returns. Impact investments can be made in developing and developed markets and target various social and environmental issues, including poverty alleviation, climate change, education, and healthcare.

These types of investments come in various forms, each with varying levels of risk and potential returns. Investors should consider the kind of risk they are willing to take and their personal beliefs when considering what kind of impact investments to put their money in.

Some spaces where impact investing is prominent are healthcare, education, and energy, especially renewable energy. There are three main categories of impact investments; debt financing, equity, or mezzanine financing, which involves investors purchasing shares in a company, and direct investments such as buying land for conservation purposes. These represent just a small number of possibilities; there is no one-size-fits-all approach to this style of investing.

Thoughts on Impact Investing

More and more, socially and environmentally responsible practices attract investors, benefiting companies that commit to those practices. Impact investing appeals mainly to younger generations, such as millennials, who want to give back to society; this will likely expand as these investors gain more influence in the market. However, because impact investments are often profitable, they are also attractive for traditional investors looking for ways to make their money work for good without compromising their principles. In 2020, the Global Impact Investing Network released a survey that found more than 88% of impact investors had their financial expectations met or exceeded. 

Since the popularity of impact investments has grown, there have been asset management companies, banks, etc., who have tailored funds to meet the demands of socially responsible investors. Another form of investments, called socially responsible investments, or SRIs, are a subset of impact investments. However, the investment focus of SRIs are more narrow, with an affinity towards companies that align with their views of human rights, responsibility to consumers, and environmental protection.

How Impact Investing Works

Generally speaking, impact investors enjoy an ROI that falls just below the average market rates. But, some instances can see impact investments outperform. Recent data from the University of California shows impact investments have a median return rate of 6.4%, which was one percentage point lower than non-impact focused funds. There are a few significant examples of impact investing in the real world. One example is the work that the Gates Foundation does in developing countries. The Foundation’s initiatives are focused on areas like healthcare and education, creating a positive impact on the people who receive the services and having a ripple effect throughout the community.

Another example is Acumen’s work in Africa, focusing on issues centered around clean water and affordable housing, which significantly impact the quality of life for people in poverty-stricken areas. Finally, Kiva is an organization that allows individuals to loan money on their website at 0% interest. The lender receives tokens every month, which hopefully will turn into capital gains when they are sold. While impact investing is helpful to the planet, it differs from philanthropy in that it requires measurable social or environmental impact and profits. Philanthropy is help given with no expectation of any repayment or benefit. Impact investing must positively impact society and make financial gains for investors; it can’t just be money donated with no return.

Crowdfunding SAFE vs. Traditional SAFE – Key Differences

Posted on by Brian Belley Tags: , , , , ,

This blog was originally written for our KorePartner Bian Belley at Crowdwise. View the original article here. 

 

Since its creation in 2013, the use of the SAFE has proliferated as an early-stage financing instrument and is now used everywhere from Silicon Valley VC deals to online crowdfunding rounds. However, not all SAFEs are created equal.

The SAFEs used in VC rounds and in angel SPVs can be quite different from SAFEs on crowdfunding platforms. Even SAFEs between crowdfunding platforms (e.g. Republic vs. Wefunder) will have key differences that investors should be aware of.

In this article, we will review the basics of the SAFE and discuss key differences between crowdfunding SAFEs and traditional SAFEs.

What is a SAFE?

A Simple Agreement for Future Equity (SAFE) is a type of early-stage investment security that converts to equity at a specified conversion event in the future. It is roughly equivalent to a Convertible Note, only without a maturity date or interest rate.

History of the SAFE

The famed accelerator Y-Combinator originated the pre-money SAFE in 2013. Its use was adopted in Silicon Valley and quickly spread throughout the world. Today, SAFEs are used everywhere from Silicon Valley to online crowdfunding portals, though specific deal terms still vary.

In 2018, YC updated their boilerplate SAFE to be a “post-money” SAFE, which means that it now converts based on post-money valuation instead of pre-money valuation. Another notable update included adding in provisions that explicitly treat the SAFE as equity for purposes of taxes under IRC Section 1202.

The latest post-money YC SAFE templates can be found here; however, many SAFEs on crowdfunding portals still use the pre-money SAFE as of late 2021. Also, conversion triggers in crowdfunding SAFEs are usually different than those found in the standard YC SAFE used in accredited deals, as we will discuss below.

SAFE Deal Term Basics

The two most important deal terms associated with a SAFE are its discount rate and valuation cap.

Some examples of SAFE terms include:

  • SAFE with $5 million valuation cap and a 15% discount
  • Uncapped SAFE (i.e. no valuation cap) with a 25% discount
  • SAFE with a $15 million valuation cap and no discount

As you can see, both the discount rate and the valuation cap will vary between each SAFE. Furthermore, both terms are optional, so a SAFE may have both, or just one or the other (rarely will a SAFE have neither).

SAFE Conversion Examples

A SAFE will convert to equity at the better of either the valuation cap or the discount rate.

Let’s say you invest in a SAFE with a $5 million valuation cap and a 20% discount. Here are some different conversion examples.

  • If the startup raises a follow-on financing round at a $6 million post-money valuation:
    • The valuation cap would be $5 million.
    • The 20% discount would be at an effective $4.8 million valuation ($6M*0.8 = $4.8M).
    • Since the discount rate ($4.8 million) is better than the valuation cap ($5 million), your SAFE would convert under the 20% discount at an effective valuation of $4.8 million.
    • So if current investors in the $6 million post-money round were investing at $1 per share, SAFE investors would get a $4.8/$5*1 = $0.96 per share.
  • If the startup raises a follow-on financing round at a $10 million post-money valuation:
    • The 20% discount would be an effective $8 million valuation.
    • Since the $5 million valuation cap on the original SAFE is a better deal for investors, the SAFE would convert at the valuation cap of $5 million.
    • So if current investors in the $10 million post-money round were investing at $1 per share, SAFE investors would get a $5/$10*1 = $0.50 per share.

Discount rates will give a better conversion price if the follow-on round is similar to the prior round (up to the amount of the discount). For rounds and exits that have much steeper increases in valuation, the valuation cap will give the more favorable terms.

When do SAFEs Convert to Equity?

A SAFE converts to equity at a specified conversion event in the future. Typical conversion scenarios may include an exit (e.g. acquisition, IPO, etc.) or a future financing round, such as a Series A round after an initial Seed round.

Especially on crowdfunding portals, conversion triggers will vary from SAFE to SAFE. Investors should always read the subscription agreement for each deal in its entirety.

The three types of conversion events typically specified in a SAFE include:

  1. Equity Financing Event (e.g. follow-on financing round – e.g. Series A, Series B, etc.)
  2. Liquidity Event (e.g. if there is a merger, acquisition, IPO, or other liquidity event prior to the conversion of the SAFE, that may trigger a conversion to equity)
  3. Dissolution Event (e.g. the company shuts down operations)

Converting into Common vs. Preferred Equity

While the standard Y-Combinator SAFE converts to Preferred Equity, crowdfunding SAFEs — such as those used on Republic and Wefunder — will vary in terms of whether they convert to Common Stock or Preferred Stock.

Common Stock is the type of equity held by founders and employees of a company, while Preferred Stock is the type of equity typically held by investors. Among other differences, Preferred Stock typically comes with a liquidation preference (e.g. 1X, 2X, etc.), meaning Preferred shareholders will be paid back prior to Common shareholders should the company be liquidated.

Both Common and Preferred shareholders are paid after debt-holders and creditors, and that’s only if there is anything left to be paid.

SAFEs that Convert to Shadow Series Shares

Some crowdfunding SAFEs, such as the Republic Crowd Safe, may convert to “Shadow Series” shares.

This essentially means that Crowd Safe holders will receive the same class of shares (e.g. Common or Preferred), only those shares will have limited voting and information rights.

What Happens When a SAFE Company Fails?

If a startup fails, investors will be paid out based on the “dissolution event” provisions of the SAFE terms and the “liquidation priority” order.

In general, investors should not expect to receive any capital back when a company fails, since the proceeds of the failure, if any, will first be paid to debt holders.

In the standard Y-Combinator post-money SAFE terms, a SAFE is paid out:

  • junior to payments of outstanding indebtedness and creditor claims,
  • on par with other SAFEs and Preferred Stock, and
  • senior to Common Stock.

This is typically found under the “Liquidation Priority” section of the SAFE terms.

Summary of Crowdfunding SAFE Differences

Now that we have a solid understanding of the deal terms and basics of the SAFE, we can review the most common differences between crowdfunding SAFEs and traditional SAFEs:

  1. Crowdfunding SAFEs may have optional conversions: in some crowdfunding SAFEs (such as Republic’s Crowd Safe), shares convert at the next equity financing round at the discretion of the issuer (i.e the startup). While most traditional SAFEs are forced to convert at the next qualified financing round, many crowdfunding SAFEs give the company the option to either convert to equity or defer conversion until a later time.
    1. While this may sound like a bad thing for investors at first, we’ll discuss in a future article why this can be a win-win for both the company and the investors.
  2. Crowdfunding SAFEs may convert to Shadow Series shares: in the Republic Crowd Safe, the SAFE may convert to shadow shares, which means the same class of shares (e.g. Common vs. Preferred) as other investors, but with limited voting and information rights.
  3. Crowdfunding SAFEs Investing via an SPV: When you invest in a SAFE on Wefunder, you’ll often be investing in a Special Purpose Vehicle (SPV). While this is typical for angel investors on sites like AngelList, this means you’ll actually be investing in the SPV (e.g. “Company X, a Series of Wefunder SPV LLC”), and not be directly investing in the company itself.
    1. Investing in an SPV may have potential tax implications (because the SPV is an LLC). Furthermore, investing in an SPV may have implications in terms of the potential future liquidity of that investment due to complications when listing SPV shares on a secondary market.
  4. Many Crowdfunding SAFEs are still Pre-Money: while the standard Y-Combinator SAFE was changed to convert based upon post-money valuation in 2018, many of the SAFEs used on crowdfunding sites today are still using pre-money valuation for the conversion price.
  5. Some Crowdfunding SAFEs may have repurchase rights: something that most VCs and angel SAFEs would never have is a “repurchase rights” or “redemptive clause”. These terms allow the company to buyback SAFE investors at the company’s discretion, which typically happens if a later-stage VC wants to “clean up” the cap table (i.e. get more control and ownership for themselves) or when the company is doing well and wants to buy out early investors. As we’ll discuss in a future article, investors should avoid SAFEs with these terms. These terms put the company’s best interests at odds with that of the investors’.
    1. The good news is that I have not seen any SAFEs recently with these repurchase terms (although I have seen some Common Stock offerings on some platforms with repurchase rights, so be careful!). It seems that crowdfunding portals have realized that these repurchase rights often end poorly for investors and are used by issuers who might not have their crowdfunding investors’ best interests at heart.

Why Digital Marketing is The Key to “Always Raising” Capital

Posted on by Jason Fishman Tags: , ,

In a recent webinar with StartEngine, Kevin O’Leary succinctly said, “great companies that are growing need money, and they should get it.”

 

With today’s unparalleled changes, raising capital in many ways is much easier said than done. Many great ideas are having a uniquely difficult time raising the money to fuel their vision.

 

Radical economic change due to COVID vastly disrupted the venture capital markets by 57%—a start-up’s traditional source of funding.

 

Rather than making new investments, Kevin summed, “venture capital firms are focused on making life and death decisions within their own portfolio.” Which means venture opportunity is sparse, and entrepreneurs are left wondering, “where can I turn for funding?”

 

The good news is there’s a silver lining and it’s called equity crowdfunding.

Traditional Venture Capital is Shifting Towards Online Equity Crowdfunding Platforms

 

Equity crowdfunding, or selling small shares of a company to the everyday (non-accredited) investor started not too long ago when the Title III section of the JOBS Act was passed in 2017.

 

Now, when venture capital is failing, more entrepreneurs are looking to the crowd of the everyday investors to fund their business in exchange for offerings like promissory notes, convertible notes, SAFE agreements, and revenue shares.

 

Everyday investors can invest in businesses through one of many equity crowdfunding platforms such as Wefunder, StartEngine, and MicroVentures. Since the platforms and investors are solely online, it means that businesses must have a strong online presence and digital marketing plan to meet their raise goals.

 

It means a brand trying to disrupt the market with a game-changing idea, must have an equally innovative online marketing strategy. For instance, say you’re trying to raise the full Reg CF cap of one million dollars when on average an everyday investor invests a minimum of $150 into your company. You’ll need to be backed by 6,667 investors.

 

But the real question is how do I drive awareness and attract the number of investors in the first place?

 

That’s where digital marketing comes in.

 

Digital Marketing Lets You Tap Into the Growing Everyday Investor Community

 

Most entrepreneurs make the mistake of believing that if they post a raise video, write engaging copy, post an interesting graphic, and that the investors will flood in from the crowdfunding platform. Wrong.

 

As an expert in digital marketing for crowdfunding campaigns, I see this mindset often. When entrepreneurs ask why their equity crowdfunding campaign failed, the answer is always the same—the offering was not marketed enough and the brand did not have a strong enough presence online.

 

Digital marketing mitigates both and helps drive accredited and everyday investors to their raise page with proper testing, optimation, and scaling.

Because here’s the thing:

 

Equity crowdfunding platforms are digitally native, which means new everyday investors that are not a part of your existing network or family, must be found online. Thus, failing to target and nurture an online audience with a closely managed digital marketing strategy is not only failing to plan, but it’s also planning to fail.

 

Accredited Investors Want to See a Strong Digital Marketing Strategy

 

The beauty of equity crowdfunding is that any campaign can still pique the interest of accredited investors and inspire them to fund you. We all know that a single large investment can take your campaign to the next level, thus it’s paramount to make your campaign as attractive as possible to them.

 

One of the best ways to do so is to show a strong digital marketing strategy that drives investor interest and audience growth. Your marketing strategy not only shows investors why you’ll succeed, but also highlights your ability to find, capture, and convert your target audience.

 
 

Digital Marketing Can Turn $1K into $1M During an Equity Crowdfunding Campaign

 

As more of the world log online to cope with the new norm and as venture capital slowly recovers, private investing is dramatically shifting

 

Equity crowdfunding is in the spotlight, giving everyday people the power to invest in potentially the next Uber or Instagram but also back the problems they’re passionate about—all while helping entrepreneurs keep their business growing and their dreams alive.

 
 

If equity crowdfunding is the door to always raising capital through and beyond this pandemic, then digital marketing is the key.

 

With its native abilities to connect people, build trust, and tell stories, digital marketing is uniquely positioned to help any start-up looking to scale, find new users and investors from around the world.

 

Thus, digital marketing is an essential part of your campaign, and it’s important to work with the right professionals who know how to create the right strategy, target the right investors, and find the right message.

 

Remember, turning on some ads and writing a few blog posts won’t cut it. Scaling your business with digital marketing takes time, constant testing, monitoring, and creativity. From experience we can’t emphasize enough that you start early in your campaign, don’t give up, and always be raising

How Does a Transfer Agent Protect Issuers and Investors?

Posted on by Oscar Jofre Tags: , , , ,

A transfer agent is responsible for the custody of securities and preserves books and records. They also keep up with who owns what investment, which can be especially important if a company goes bankrupt or merges with another entity. Transfer agents are a crucial part of the securities industry and something all investors and issuers should be aware of. They help protect companies and investors by ensuring that transactions go smoothly while maintaining accurate ownership records and paying dividends every quarter.  

 

Without a qualified transfer agent who can complete these tasks efficiently, the risks for all parties increase; private issuers would be more vulnerable because they might not find errors, incorrect ownership information, or inaccurate assets. These inaccuracies may lead investors to incur higher costs, losses from missed market transactions, suffer from delayed payments, deliveries of dividends, and face unanticipated tax liabilities for unclaimed assets.

 

To protect issuers, transfer agents maintain an accurate and current record of share ownership and make sure that this information is reported accurately to them. Transfer agents provide issuers with a complete list of their shareholders and guarantee that these records are up-to-date. It is the job of the transfer agent to make sure that any changes in ownership are correctly recorded and reported to the issuer so both parties are protected from future complications or confusion. They are essential when issuers deal with investors, giving issuers a detailed account of who investors are and the amount of equity they have remaining. 

 

Transfer agents protect investors by ensuring their brokerage account is accurate and up to date. Agents view new transactions to ensure they’re coming from the correct party, and they review brokers’ reports for mistakes or fraud. Without transfer agents, the ability to track ownership and transactions would be nonexistent. Perhaps more importantly: if we didn’t have transfer agents, it would become impossible for shareholders to trade their securities. This would severely limit liquidity in the secondary market since it would become impossible for anyone who wanted to sell a share to find anyone willing to buy it. By allowing investors to view accurate and complete information on the company they are investing in, investor confidence is increased by this transparency and availability.

 

Additionally, transfer agents maintain investor financial records and track investor account balances. These agents usually belong to a bank, trust company, or similar establishment. Agents record transactions, process investor mailings, cancel and issue certificates, and more. Transfer agents protect issuers and investors by ensuring records maintain correct ownership and credentials at all times, making transfer agents the security link between these two parties; all agents must be registered with the SEC. 

 

Transfer agents are a vital part of the financial world. They provide a valuable service for issuers and investors by ensuring that trades happen smoothly, issuing new shares during an offering, or transferring ownership from one investor to another.  They play a pivotal role in protecting issuers and investors by assuring that they have a reliable, efficient process for handling transfers and executing trades on behalf of their clients.

Crowdfunding with IRAs

Posted on by New Direction Trust Co. Tags: , , , ,

This blog is was written by our KorePartners at New Direction Trust Co. View the original article here. 

 

It would be an understatement to say the financial landscape has changed in the past decade. Businesses accept payments with Square, investors buy stocks through apps while listening to podcasts, and cryptocurrency went from geek niche to cultural phenomena overnight. Alongside these is another monumental shift: crowdfunding.

What is crowdfunding?

Crowdfunding is a type of investment in a business or venture. However, unlike angel investing or stock purchases, crowdfunding typically involves smaller sums from a large group.

There are multiple types of crowdfunding, each with a slightly different purpose:

  • Rewards-based crowdfunding: This type of crowdfunding is the most well-known, thanks to Kickstarter. In rewards-based crowdfunding, people invest in a company in exchange for a reward, typically a discounted final product or service.
  • Donation-based crowdfunding: This is charitable crowdfunding, in which people donate their money expecting nothing in return. Donation-based crowdfunding is typically used by charities looking to fund a project or to help with medical bills or recovery expenses via sites like GoFundMe.
  • Debt-based crowdfunding: This type of crowdfunding is used when a company needs a large sum of money to cover some kind of expense or acquisition. In exchange for donations, the recipient typically promises some kind of repayment to those donating.
  • Equity-based crowdfunding: In equity-based crowdfunding, investors put their money into a company in exchange for shares. This type of crowdfunding gives startups the chance to grow through funding, and investors the opportunity for a potential return on their investment.
  • Real estate crowdfunding: This type of crowdfunding involves multiple people pooling their money together to fund any kind of real estate project. Real estate crowdfunding can be as simple as buying a rental property with multiple people or funding a new building entirely.

Beyond the above-listed types, there are other types of crowdfunding that offer different returns and possibly perks for investors.

How does crowdfunding with an IRA work?

Crowdfunding with a self-directed account is surprisingly straightforward, thanks largely to the 2011 JOBS Act. Crowdfunding with a self-directed account involves only a few simple steps.

  • Verify you have the right kind of tax-advantaged account. Crowdfunding through your IRA or Solo 401k requires a self-directed IRA or Solo 401k.
  • Choose a trust company specializing in self-directed IRAs or Solo 401ks to custody the asset you’re interested in. This company will handle the details of ensuring your assets are used to crowdfund the asset of your choice.
  • Open and fund your account. This is typically done via a transfer or rollover of existing funds from an IRA or Solo 401k, or you can choose to contribute new funds subject to contribution limits.
  • Select what kind of investments you’d like to make, real estate crowdfunding or another type of crowdfunding.
  • Complete the investment process and monitor your account for performance.

If the above process sounds simple, good, it should be. The right trust company will take care of the transactions while leaving you in the driver’s seat.

Four Red Flags When Crowdfunding

Crowdfunding can make for great investment opportunities and generate excellent returns. But, like all investing, crowdfunding involves risks.

  • The company has no online footprint. If you Google the company or founders and find nothing, this is a big red flag. Any enterprise trying to raise money should have some level of awareness around their product or opportunity. And if nothing else, the founders should have some kind of presence online. If you’re unable to find any history about the opportunity or those behind it, proceed with caution and look for other opinions.
  • The opportunity guarantees returns. Some opportunities really are too good to be true. Language like “guaranteed returns” or “double your investment” and so on is a sign the company is trying to mislead you. There are few guarantees in life, and investments are far from them. While some investments, like government-backed certificates of deposit, are safer than others, you won’t find a guarantee on a crowdfunding opportunity.
  • The math is funky. This point is especially relevant when you’re dealing with real estate crowdfunding. Closely examine the numbers when looking at investment properties. If the account holder claims you’ll make a certain amount but you’re not arriving at the same number after expenses, taxes, and other costs are factored in, double check the math. You may need to move on.
  • The valuation is inflated. When you’re looking at crowdfunding a startup, pay close attention to the valuation. It’s not unheard of for companies or crowdfunding platforms to inflate the valuation of a startup to draw more investors. If a company is brand new with no backing, it’s unlikely they’re worth $600 million. If the deal feels too good to be true, it might be.

An Overview of Digital Securities for the Private Capital Market

Posted on by Oscar Jofre

Understanding digital securities begin with blockchain, distributed ledger technology that has revolutionized the way records and information are stored. Rather than data being stored in a central database, blockchain technology works because the data is continually appended and verified by many participants. This gives blockchain strength and security because it makes it significantly more challenging for hackers to manipulate records. If one copy were to be changed, it would be immediately be recognized as invalid by the other participants on the blockchain. 

 

This is the technology that powers emerging financial technologies. Bitcoin is perhaps one of the most recognizable forms of blockchain technology today, with over 46 million Americans owning some of the cryptocurrency. This same technology is being applied to securities to improve upon the ways traditional securities have been managed. 

 

Ownership is easy to record and validate through digital securities because the transaction is stored on the blockchain. This eliminates the problem of an investor losing their certificate of ownership or the company losing their records of shareholders. Since the record is unchangeable, it also serves as a risk management mechanism for companies, as the risk of a faulty or fraudulent transaction is removed. Digital securities are also incredibly beneficial to the company when preparing for any capital activity since the company’s records are transparent and readily available. With traditional securities, the company would typically hire an advisor to review all company documents. If the company has issued digital securities, this cost is eliminated, as it is already in an immutable form.  

 

With digital securities, investors may receive “tokens,” which are registered investment vehicles and represent ownership in a company. This is often referred to as tokenization, a coin termed in 2010, but has since become less popular in favor of the term digital securities. The reason is that digital securities and digital assets became the preferred term to accurately convey the time, effort, and reliability in this form of investment.

 

There has also been an increase in the discussion surrounding another blockchain-based asset, NFTs. Non-fungible tokens (NFTs) are unique cryptographic assets that cannot be replicated and stored on a blockchain. However, it is essential to remember that not all digital assets meet digital security requirements. However, if an NFT can meet the digital security requirements, they can be offered through raises under exemptions like Regulation A+.

 

If you would like to learn more about how issuers can leverage digital securities for RegCF offerings, be sure to check out the upcoming KoreSummit event on November 18th, 2021, starting at 12 PM EST.

KorePartner Spotlight: Paul Karrlsson-Willis, CEO of JUSTLY

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. 

 

Paul Karrlsson-Willis is the CEO of JUSTLY, a registered broker-dealer designed for companies to promote their ESG profiles as the demand for socially conscious businesses continues to skyrocket. Nearly a quarter of the $400 billion investments ESG-focused private capital between 2015 and 2020 was invested last year alone. Paul has over 30 years of experience in financial services businesses and has expertise in building out a company’s global footprint.

 

We took some time to speak with Paul to learn more about himself and his firm. Here’s what he had to say. 

 

Why did you become involved in this industry?  

 

When I left school there was major unemployment in the UK so the government came up with the “youth opportunity scheme” which was an intern program at various companies which the government-funded. I was fortunate to be accepted into this program by the London Stock Exchange who placed me with a broker-dealer, Capel-Cure Myers, and never looked back.

 

What services does your company provide for RegA+ offerings? 

 

We can offer everything from front to back for Reg A+, Reg CF, and Reg. D as a result of having great partners such as KoreConX. Our true value is in our ability to work with the issuers and understand their businesses and needs. Our parent company–Ideanomics (NASDAQ: IDEX)–started no different from the issuers we support and still invests in private equity companies. It’s in our DNA.  

 

What are your unique areas of expertise? 

 

Over my 30+ career, I have continually been given various businesses, products, and groups to build or rejuvenate, many have gone on to be leaders in their space. A good example was when Fidelity hired me in the UK to build a global trading product for their retail clients base, knowing I had no experience in foreign equities and this was after 3 previous attempts had failed. We were up and running in 3 months and when they asked me to come to the US to do the same, the UK business was profitable. At Fidelity Capital Markets (US) we went from being only able to do everything in USD, to being fully multi-currency, able to trade in over 47 countries in real-time. As a result, Fidelity retail was the first retail US broker-dealer to offer global trading in real-time. I’ve been very fortunate to have worked my way up through the business and therefore know how things get from A to Z and the issues you will come across.  I love to learn; I hate being the smartest person in the room, which is why I try to make sure I have a team that is knowledgeable and feels empowered. I’m very passionate and treat everything I build as part of me, as I believe it reflects on me personally.

 

What excites you about this industry? 

 

Up until now, not very much. It’s been a job I have always put more than 100% into to support my wonderful family. JUSTLY has given me the ability to build something that can genuinely make an impact and help others. Every day, I think about making a difference and not feeding the machine or massaging someone’s ego. Don’t get me wrong, my job is to generate revenue and make JUSTLY profitable, but by making that difference, we will as they go hand-in-hand.

 

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

 

KoreConX has the complete platform, amazing expertise and therefore enables JUSTLY to focus on making an IMPACT! True success is never achieved on your own; you need a team and great partners. There is no better partner in this space than KoreConX.

 

What are the Benefits of Digital Securities for Issuers and Investors?

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

With the emergence and development of blockchain technology, digital securities have seen wider adoption by investors and investment firms. Arising from the need for protection against fraud and as a way for investors to ensure asset ownership, digital securities are a digital representation of traditional securities and follow the same regulatory rules. Since their first appearance, digital securities have come to represent any debt, equity, or asset that is registered and transferred electronically using blockchain technology. 

 

Digital securities are made possible by blockchain, also known as “distributed ledger technology”. Distributed ledger technology is a database where transactions are continually appended and verified across by multiple participants, ensuring that each transaction has a “witness” to validate its legitimacy. By the nature of the system, it is more difficult for hackers to manipulate, as copies of the ledger are decentralized or located across multiple different locations. Changes to one copy would be impossible, as the others would recognize it as invalid.

 

Distributed ledger technology allows digital securities to be incredibly secure. Ownership is easily recorded and verified through the distributed ledger, a huge benefit over traditional securities. Any transfer of digital securities is also recorded and with each copy of the transaction stored separately, multiple witnesses of the transaction exist to corroborate it. 

 

With traditional securities, investors can lose their certificate of ownership or companies can delete key files detailing who their investors are. Without a certificate, proving how many shares an investor owns would be incredibly challenging. In contrast, digital security ownership is immutable. Investors are protected by always being able to prove their ownership since the record cannot be deleted or altered by anyone. Additionally, investors can view all information that is related to the shares they’ve purchased, such as their voting rights and their ability to share and manage their portfolios with both accuracy and confidence. 

 

Since the record is unchangeable, it also serves as a risk management mechanism for companies, as the risk of a faulty or fraudulent transaction occurring is removed. Digital securities are also greatly beneficial to the company when preparing for any capital activity since the company’s records are transparent and readily available. With traditional securities, the company would typically hire an advisor to review all company documents. If the company has issued digital securities, this cost is eliminated, as it is already in an immutable form.  

 

Also making digital securities possible are smart contracts that eliminate manual paperwork, creating an automated system on which digital securities can be managed. Integrated into the securities is the smart contract, which has preprogrammed protocols for the exchange of digital securities. Without the time-consuming paper process, companies can utilize digital securities to raise funds from a larger pool of investors, such as the case with crowdfunding. Rather than keeping manual records of each transaction, the smart contract automatically tracks and calculates funds and distributes securities to investors. 

 

Companies that are looking to provide their investors with the ability to trade digital securities must be aware that they are required to follow the same rules set by the SEC for the sale and exchange of traditional securities such as registering the offering with the SEC. This ensures that potential investors are provided with information compliant with securities regulation worldwide. According to the SEC, investors must receive ongoing disclosures from the issuer so they can make informed decisions regarding ownership of their securities. Companies that are not compliant with the SEC can face severe penalties and may be required to reimburse investors who purchased the unregistered offerings. 

 

Besides the companies offering securities, broker-dealers must also register with the Financial Industry Regulatory Authority (FINRA). Similarly, platforms on which digital securities can be traded must register as an Alternative Trading System operator with the SEC. Both broker-dealers and ATS operators can face severe penalties if not properly registered. 

 

Possibly the greatest benefit of digital securities is that it allows for smoother secondary market transactions. With records of ownership clear and unchangeable, an investor can easily bring their shares to a secondary market. Transactions are more efficient and parties have easy access to all necessary information regarding the securities being traded, removing the friction that is typically seen with traditional securities. 

 

At KoreConX, the KoreChain platform is a fully permissioned blockchain, allowing for companies to issue fully compliant digital securities. Records are updated in real-time as transactions occur, eliminating errors that would occur when transferring information from another source. The platform securely manages transactions, providing investors with support and portfolio management capabilities. Additionally, the KoreChain is not tied to cryptocurrencies, so it is a less attractive target for potential crypto thieves. KoreChain allows companies to manage their offerings and company data with the highest level of accuracy and transparency.

 

Since digital securities face the same regulatory rules as traditional ones, investors are protected by the SEC against fraudulent offerings. This, together with the security and transparency that blockchain technology allows, creates a form of investment that is better for investors and issuers alike. Since the process is simplified and errors are decreased without redundant paperwork, issuers have the potential to raise capital more efficiently. They will also be better prepared for future capital activity. For investors, a more secure form of security protects them from potential fraud and losses on their investments. With digital securities still in their infancy, it will be exciting to see how this method of investment changes the industry. 

What is the Difference Between the Public and Private Capital Markets?

Posted on by Oscar Jofre Tags: , , , ,

 

The public and private capital markets work differently, but both sectors play essential roles in supporting economic growth. Companies raise funds for long-term growth and acquisitions in the public capital market, usually through debt instruments like bonds or stock, while private companies raise capital through private investments.  This article provides an overview of the differences between the two types of capital markets, including how they function and their role in economic development. 

 

Public Capital Markets

Public capital markets consist of equity and debt markets where buyers and sellers trade with each other daily. Many companies use this type of market to raise new capital or sell their existing stocks. It is typically easier for publicly traded companies to use these markets than private ones because traditionally, a wider pool of investors is available, and shares provide a significant amount of liquidity. Most investors use public markets to invest in companies, which buys them a partial interest in a company. It is also where many companies go when they want to raise new capital to fund their business operations. 

 

Private Capital Markets

Private capital markets are where privately-held companies can sell equity to investors like private equity, venture capital firms, and even individuals. This sale of securities is typically exempt from registration with the SEC and may come in the form of a Reg A, Reg CF, or Reg D offering. Before the JOBS Act, these types of investments were limited to high net-worth individuals and institutional investors. Post JOBS Act, even everyday investors can get a piece of a private company, which may offer a significant return if that company ever goes public through an IPO. Additionally, offerings in the private sector typically cost less to the issuer than an IPO, which makes JOBS Acts exemptions a very attractive form of fundraising. 

 

Because of the history of the private capital markets, there are misconceptions that it is expensive to invest. However, Reg A and Reg CF offerings can be affordable for investors, with investments for hundreds of dollars or less. However, non-accredited investors are limited to the amount they can invest each year by their annual income or net worth. The same restrictions don’t apply to private companies. Additionally, investors in the private capital markets have the potential for liquidity through alternative trading systems. 

 

Publicly traded companies are listed on an exchange so that anyone can buy their stocks. This means they have to follow specific guidelines set by the SEC to maintain listing requirements. Private company stock is not publicly available for trading, but there are still ways you may be able to get your hands on some shares. It’s important to note that different securities trade differently depending on where they’re bought from, and choosing the public or private capital market is the first step in any investment.

 

 

 

The Economy and the Private Capital Markets

Posted on by Oscar Jofre Tags:

The economy and the private capital markets are intrinsically linked; many of the largest companies in America exist because of investments within the private capital markets. When you invest your money, it is essential to understand how the economy and this market interact.

 

Capital markets are a system in which capital is transferred between people or institutions with capital to invest and companies who need it, fueling the economy with jobs, goods, and services. Unlike the public market, which consists of companies listed on a stock exchange and registered with the SEC, private companies are not required to be SEC-registered. Investments in this sector include alternative investments like private equity, JOBS Act exemptions, venture capital, and private lending. 

 

Although public companies have a significant impact on the economy, the number of private companies far outweighs the number of public companies. As of 2020, close to 6,000 companies were traded on NASDAQ or the NYSE. It is often more challenging to determine the actual number of private companies since they don’t have to be registered with the SEC. However, there are 31.7 million small companies, which account for 99.9% of US businesses and employ nearly half of the population. Public companies only represent a small fraction of the companies that have a profound effect on the economy.

 

This impact of the private capital market only continues to increase as companies stay private longer. At the turn of the millennium, companies stayed private for an average of four years before their IPO. However, this has since tripled to nearly 12 years. This means that throughout the lifecycle of a private company, they will have much more activity within the private capital markets. 

 

The private capital markets are often overlooked when discussing the economy of a country. However, these markets can be very influential to its economic well-being and citizens, contributing to the GDP and providing employment opportunities. Private capital markets affect the economy by providing loans for businesses and allowing new investments to take place. In turn, these companies can continue to innovate to bring new products and services to market. As the economy recovers from the pandemic, the influence of private companies will continue to affect our economy and encourage its growth.

How KoreChain Helps Companies Raise Capital Compliantly

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

Recently, KoreConX’s CEO Oscar Jofre was a guest on Fintech.TV’s Digital Asset Report to discuss the KoreChain Infrastructure. Watch the full video on YouTube.

 

What is KoreChain?

The KoreChain infrastructure is a blockchain technology that can be leveraged by companies qualified with the SEC to help them raise capital. It is the first fully SEC-compliant blockchain technology to connect broker-dealers, investors, companies, secondary market alternative trading systems, banking whales,  and all stakeholders in private capital markets.

 

KoreChain overview:

  • KoreChain is a permissioned blockchain.
  • KoreChain is built on enterprise-class industrial-strength hyper ledger fabric.
  • KoreChain is safe and secure: hosted on IBMs servers with the highest level of security (FIPS 140-2 level 4).
  • KoreChain is wholly focused on tokenized securities for global private capital markets. 

 

The technology enables a roadmap that others can adopt as long as they go through the qualification process to create fully SEC-compliant stable coins, NFTs, or other blockchain offerings. By being fully SEC-compliant, KoreChain offered by KoreConX is putting best practices forward, supplying the industry with standardization about market infrastructure, regulation, and how the latest and best technology can collaborate for the best outcome.

 

Why Utilize KoreChain?

The new SEC commissioner is not against cryptocurrencies; instead, he wants these offerings to utilize regulations instead of accessing these technologies through the side or back door. Using SEC regulations provides efficiency, transparency, and secondary liquidity, particularly helpful in private markets. The KoreChain technology allows you to offer all of this when creating assets on the blockchain.

 

The characters that differentiate KoreChain from other blockchains are: 

  • Permissioned 
  • Governed (including separate audit chain)
  • Complete lifecycle management of contracts
  • Event management
  • Artificial Intelligience 
  • Modular
  • APIs that integrate with the ecosystem

 

The KoreChain is the first fully SEC-compliant blockchain that meets regulations, encouraging understanding of SEC rules, regulations, and participants. The blockchain provides added confidence, so those using blockchain technologies find the process more efficient, from the investor to everyone involved. The KoreChain is a transparent solution that shortens the cycle of creation for anyone involved because investors can follow a fully SEC-compliant playbook through the entire process. 

KoreConX Webinar: Why cannabis and RegA+ are the perfect match!

Posted on by Oscar Jofre Tags:

A virtual event held by KoreConX that featured Cannabis experts and Top Thoughts Leaders discussing the potential and possibilities of raising money using Regulation A+

[New York, NY – 03 November 2021 ] – The KoreSummit, an event created by KoreConX to explore major aspects of the capital raising journey, Equity Crowdfunding and technology with experts, was held last week.  Partners included Moxie, Crowdcheck Law, Carman Lehnhof Israelsen, Dalmore Group, Rialto Markets, New Direction Trust, Ext-Marketing,  and DNA (Digital Niche Agency). More than 116 companies interested in raising capital in Cannabis attended this virtual event.

Guests discussed how Cannabis and Regulation A+ fits and how to create a capital raising journey for their business. Experts from different sectors shared their experience and knowledge about all the stages in using Regulation A+ to create a successful campaign for Cannabis companies and investors. It’s important to note that this business is expanding and creating more space – as more states continue to legalize this sector, more opportunities for investments to come.

“The idea of our KoreSummit is to demystify the capital raising journey opportunities and provide education to anyone who wants to raise money for their business. With more than 11 years of living and learning how crowdfunding works, we at KoreConX want to offer free education to entrepreneurs and companies seeking to raise capital,” says Oscar Jofre, CEO and Co-founder of KoreConX. “I am an enthusiastic learner. I believe that knowledge is a key to empowering people. In addition, our partners bring a broad base of expertise that can  help people who are looking for reliable information on creating crowdfunding campaigns”.

The Cannabis KoreSummit covered all the stages of raising money and had the collaboration of lawyers, broker-dealers, compliance, and marketing experts to help participants understand this Regulation. KoreConX’s team members discussed the requirements of an “All-in-One” technology platform with solutions that unify all parts of the Reg A+ offering process. 

KoreConX will hold two more KoreSummits until December this year.  These KoreSummits will bring focus to diverse themes and sectors, such Digital Securities. Participation is always free.

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. For investor relations and fundraising, the platform enables private companies to share and manage corporate records and investments: it assists with portfolio management, capitalization table and shareholder management, virtual minute book, security registration, transfer agent services, and virtual deal rooms for raising capital. The All-In-One platform manages the full life cycle of digital securities, including their issuance, trading, clearing, settlement, management, reporting, corporate actions, and custodianship.

Media Contact:
KoreConX
Carolina Casimiro
carolina@koreconx.com

What is an NFT?

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

A non-fungible token, more commonly known as NFTs, is a unique cryptographic asset that cannot be replicated and stored on a blockchain. By definition, fungibility is when an asset can be exchanged with more of the same good or asset–think of a dollar that can be easily exchanged into pennies or nickels and retain the same value. This means that by being non-fungible, NFTs cannot be traded or exchanged for an identical asset; one NFT cannot be exchanged for another NFT.

Throughout 2021, we have seen the meteoric rise in popularity of NFT, which can represent assets from artwork to videos and even real estate. In the case of artwork, it may be hard for someone to understand the value of buying a digital asset. The importance is ownership; the blockchain on which the NFT is stored verifies the identity of the asset’s owner in an immutable ledger. 

In the discussion on NFTs, it is essential to consider that not all digital assets are classified as securities. Based on the Supreme Court’s Howey case, the Howey Test helps determine whether an investment contract exists and is used to classify digital assets. With this test, an investment contract typically exists “there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” If a digital asset meets these requirements and is classified as a digital security, it must be registered with the SEC or exempt from registration. With registration, issuers are required to disclose certain complete, non-misleading information to investors. 

If an NFT can meet the digital security requirements, they can be offered through raises that happen under exemptions like Regulation A+. NFTs are not bound by federal securities laws and pose a potential investment risk without meeting these requirements. 

What makes an NFT a good investment is its resale potential. If there is no market for the asset and it cannot be resold, it loses its value. It is not like other digital attests like cryptocurrencies, where one bitcoin is always equal in value to another. As the landscape of cryptocurrencies, NFTs, and digital securities continue to evolve, it will be interesting to see their role in the future private capital markets.

 

Stable Coin for RegA+

Posted on by Oscar Jofre

For many, an issue with cryptocurrency is the intense volatility that persists. For example, the prices of Bitcoin hit a record high on October 20th before dropping over $6,000 in value per coin. Because of this volatility, it is not helpful for everyday use and makes some wary about their investments being tied to such a volatile asset. However, there is an alternative; the stable coin.

Unlike cryptocurrencies like Bitcoin, stable coins are stabilized by being backed by the US dollar or a commodity like gold. This price stability is a feature many cryptocurrencies lack. Stable coins are, therefore, more suitable for everyday use or even applications like issuing securities through Regulation A+ exemptions.

RegA+ is highly protected by compliance actives, broker-dealers, the SEC, filings, etc. The uncertainty behind a stable coin for RegA+ goes away because there is transparency and allows people to transact more efficiently with these assets. When it comes to RegA+ and stable coins, the security is pegged to a stable coin created with a smart contract to ensure stability from a technology perspective. With stable coins, especially those received when investing in a company, shareholders can use them in secondary market transactions that are FINRA-registered and fully compliant with securities regulations.

Still, stable coins are largely in their infancy. There will continue to be developments as to what types of assets or currency they are backed by. Because it is stable, it will have a far more practical use when compared to other cryptocurrencies. However, the main thing is that the infrastructure and engineering for stable coins already exists; it’s more of a matter of how quickly their use grows.

 

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