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Investor Acquisition in online capital raising

Let’s talk about Investor Acquisition in online capital raising.

There are over 4.7 Billion potential investors online, but finding the right people to invest in your company among that vast number can seem overwhelming. That is why it is important to understand the various Investor Acquisition (IA marketing) activities you can use to achieve your goal.

Online capital formation (OCF), also known as crowdfunding, refers to the process of raising capital for a business, project, or venture by soliciting small investments from a large number of individuals through the Internet. This is typically done through online platforms or direct listings on company websites that connect entrepreneurs and businesses with potential investors.

 

There are several types of Online Capital Formation (OCF), including:

 

  • Equity-based, in which investors receive an ownership stake in the business in exchange for their investment
  • Debt-based, in which investors lend money to the business and are repaid with interest
  • Token-based, similar to equity but the ownership is tracked and managed in a compliant blockchain technology

 

Online capital formation (OCF) allows businesses and entrepreneurs to access capital from a wider pool of potential investors, and it can also provide a way for individuals to invest in businesses and projects that they are passionate about.  Online capital formation can also help businesses to validate their ideas and to test the market before launching a full-scale fundraising campaign. However, it is important to note that crowdfunding may be subject to different regulations and laws in different jurisdictions.

 

Online capital formation refers to the process of raising funds for a business, project, or venture by soliciting investments from a large number of individuals over the Internet, typically through online platforms such as crowdfunding sites, or online investment platforms like angel networks, or private equity platforms.

 

Online capital formation can include various forms of fundraising, such as:

  • Private Placement Memorandums (PPMs)
  • Regulation A+ (RegA+) Offerings
  • Regulation CF  (RegCF)  Offerings
  • Regulation D (RegD) Offerings
  • Regulation S (RegS) Offerings
  • Regulation 45-106 Offerings
  • Regulation OM Offerings
  • Regulation 708 Offerings

 

Online capital formation allows companies to reach a wider pool of potential investors and to raise funds more efficiently and cost-effectively than traditional fundraising methods. It also provides investors with more opportunities to invest in startups and early-stage companies, and to diversify their portfolios. However, it is important to note that online capital raising may be subject to different regulations and laws in different jurisdictions. Additionally, online platforms that facilitate online capital raising need to be registered with regulatory bodies and comply with securities laws. Investors should also be aware of the risks associated with investing in start-ups and early-stage companies, as these investments are considered higher risk than traditional investments.

 

There is much we can learn from other types of marketing, to make sure best practices are applied.  One basic principle we feel has been severely overlooked by the entire online capital formation sector is their tactics involve no relationship, and no community building.

 

We describe this approach like this:  

 

The number of marketing touches it takes to get an online subscriber can vary greatly depending on a number of factors, such as the industry, target audience, and the type of content or offer being promoted. Typically, it may take several touches before a potential subscriber feels comfortable enough to provide their contact information. According to the rule of seven, the average number of marketing “touches” it takes to convert a lead into a sale is 7.  And depending on specific audiences, funnels, and strategies, this number may be different.

Investor acquisition (IA) refers to the process of identifying, reaching out to, and acquiring new investors for a company or an investment fund. The goal of investor acquisition is to raise capital, and to increase the number of shareholders in a company or the number of investors in a fund.  They do this by first starting in building your community of followers.

 

Investor Acquisition in online capital raising can take many forms, such as:

  • Cold-calling or emailing potential investors
  • Networking and building relationships with potential investors
  • Participating in roadshows and investor conferences
  • Using online platforms and social media to reach a wider audience
  • Using investor databases and investor targeting tools to identify and reach out to potential investors
  • Create online community of like-minded individuals who support your vision, product, service to make your brand ambassadors to champion your offering

 

Investor acquisition can be a complex and challenging process, as it requires a deep understanding of the target audience, the industry, and the investment opportunities. Companies or investment firms that are seeking new investors need to have a clear value proposition and a compelling pitch, as well as a strong track record of performance, to be able to convince potential investors to invest. Additionally, they also need to comply with securities regulations and laws when reaching out to potential investors.

 

At KoreConX our goal is to make sure you achieve yours.  We provide an eloquent way for you to access millions of potential followers, clients, affiliates, like-minded individuals who will want to be associated with your company, brand.

 

What is important is how this is achieved and we believe if you follow the principles of 7 you can achieve this goal.

 

The number of marketing touches it takes to get an online subscriber can vary greatly depending on a number of factors, such as the industry, target audience, and the type of content or offer being promoted. Typically, it may take several touches before a potential subscriber feels comfortable enough to provide their contact information. According to the rule of seven, the average number of marketing “touches” it takes to convert a lead into a sale is 7. And depending on specific audience, funnels, and strategies, this number may be different.

 

The strategy is simple.  

The process is challenging.  

The reward is achieving your goal

Stage 1

Build your community & affinity with your company utilizing the 7 touch process.

 

Romance the Journey

  • Bring relevant information
  • Bring relevant value to your audience
  • Educate
  • Gain trust
  • Ask to join the journey

TouchPoints  (1-7)

Each type of TOUCH Point is to build a relationship with the USER in building your community.  As you build your community, you create an affinity with each of the USER which allows you the opportunity to introduce them to your journey.

 

  • Create Landing Pages/Squeeze Pages 
  • Create Pop-ups
  • Create Target Ads
  • Create Investor Persona
  • Webinar
  • Podcast
  • Email Marketing
  • Newsletter
  • Download (book, information)

 

Stage 2

After they invested it’s just as important to be reaching out but it needs to be on an even more personal level.

 

  • Thank them, and welcome them to your family, and company
  • Meet the Team
  • Meet our partners
  • Follow us on Social Media
  • Progress update
  • Family & Friends Program
  • Invitation for special programs
  • Newsletter
  • Engage, keep engaging
  • Engage, Engage, Engage
  • Enage

 

Strategy

  • Do not call them Investors
  • They are:
    • Customers,
    • followers, 
    • clients, 
    • affiliates, 
    • like-minded individuals who will want to be associated with your company, or brand.
    • brand ambassadors
  • Investment Strategy for Your Journey
  • Business Plan
  • Budget
  • Sets the tone for all marketing activities

 

You are now set to engage with IA firms who can assist you with your goal for your company.  This ebook provides A-Z all the buzzwords and provides you the reasons why each of these IA tactics is important for your online capital raise.   You do not need to use all of them, but it’s important to understand each one, first look at what your company has and how you can complement what you need.   At the end of the book we also provide you with a great IA checklist so you can move through the process faster, so you can get started on building your company and your capital raising.

 

“Nothing in this world is easy, but for those who want to succeed, the journey will be easy” 

– Oscar A Jofre

 

Online investing on the Rise: What to look for?

Online investing, particularly in private capital markets, has experienced a significant uptick in popularity and accessibility in recent years, largely thanks to the innovations brought about by the JOBS Act. The Act’s regulations have democratized access to investment opportunities, allowing Americans over 18 years of age to engage in the private sector’s growth potential. We will delve into the online investing landscape, highlighting the ease with which investors can now participate, the challenges they face, and the due diligence required to make informed decisions. With platforms like Spark Exchange emerging to streamline the investment process and initiatives like KoreID Verified enhancing security, the sector is ripe for informed investors ready to explore. Here are the insights and red flags every investor should be aware of in this burgeoning space.

The Rise of Online Investing

Since the spike in 2019, online investing, or online capital formation, has become a major trend, set to increase as investors gain access to comprehensive information online to guide their investment decisions. The JOBS Act has played a pivotal role in this upward trajectory, simplifying the process for companies at any stage to raise capital through regulations like RegCF, RegD, and RegA+. For investors, the journey has never been more straightforward. In less than two minutes, one can invest in a private company, fulfilling all necessary SEC requirements and gaining instant connectivity to the company’s growth story.

The Investor Journey Online

Investing online is characterized by convenience and accessibility. With just a few clicks, investors can provide all required information and complete their investment, benefiting from the SEC’s mandated disclosures by the companies using the JOBS Act regulations (RegCF, RegD, and RegA+). This transparency ensures that investors can do their homework from anywhere, anytime, accessing all the information they need about a private company qualified by the SEC to raise capital online.

Challenges in Online Investing

Despite the streamlined process, challenges remain for those looking to invest in private companies. One primary concern is finding a centralized platform where potential investments are listed, with Spark Exchange being a notable emerging solution. However, the most significant challenge is verifying the legitimacy of companies. As online investing becomes more prevalent, ensuring a company’s authenticity before investing is crucial. Until solutions like KoreID Verified become standard, providing a Certificate of Authenticity for companies, investors must engage in rigorous due diligence to avoid scams and ensure their investments are sound.

Red Flags for Online Investors

Investors should be vigilant for several red flags when considering an online investment in private companies:

Registration of Offering: Verify if the company has registered its offering appropriately, with RegCF offerings showing a Form C and RegA+ offerings a Form 1A, both linked to the SEC website.

Leadership’s LinkedIn Profiles: Review the LinkedIn profiles of the founders and key executives to assess their commitment and background.  If they are not in LinkedIn major red flag, if they do not have the company listed run.

Broker-Dealer Association: Inquire about the name of the Broker-Dealer the company is working with.

Escrow Provider Details: Ask for the name of the escrow provider where funds are to be sent, ensuring financial transactions are secure.

Legal Counsel Verification: Request the name of the legal counsel who prepared the offering documents, adding a layer of legitimacy.

Company Registration Verification: Conduct an online search to confirm the legal registration of the company.

Website Transparency: The company’s website should transparently list the team, legal company name, and other essential details; the absence of this information is a red flag.

Educating Oneself is Key

The importance of educating oneself before making an investment in a private company cannot be overstated. Understanding the nuances of the JOBS Act and the rights it affords you as an investor is critical. Engaging in thorough due diligence, from verifying the offering’s registration to researching the company’s leadership and legal standing, is essential in choosing the right investment. The landscape of online investing in private capital markets is rich with opportunities, but it demands an informed and cautious approach. As the sector continues to evolve, empowered by regulatory advancements and technological innovations, investors equipped with the right knowledge and vigilance stand to benefit significantly from the growth potential of private companies.

 

Regulation S vs Rule144 explained

Introduction: Regulation S vs Rule 144

Regulation S and Rule 144 are pivotal components of the United States securities law framework, each facilitating different aspects of the capital markets, particularly in the context of private offerings and the sale of securities to non-U.S. investors. Understanding the nuances between these two regulations is essential for issuers, investors, and intermediaries navigating the private capital markets.

Regulation S

Regulation S provides a safe harbor that exempts securities offerings from the registration requirements of Section 5 of the Securities Act of 1933, as long as the offering is conducted outside the United States. Most people are not aware that is particular regulation was named after Sara Hanks when she was at the SEC.  This regulation is designed to facilitate the sale of securities to non-U.S. residents in offshore transactions, without the stringent disclosures and registration processes required for public offerings in the U.S.

Key Features of Regulation S:

  • Offshore Transactions: Regulation S applies only to offers and sales of securities that occur outside the U.S. and to non-U.S. persons. The issuer must ensure that the offering cannot be deemed to have been made to a person in the United States.  The offering must be gated and block all U.S. persons, one other major factor is that a company must follow local securities laws to make sure they are compliant when offering their securities in offshore markets.
  • Category System: Regulation S categorizes offerings to determine the level of restrictions required to prevent the securities from flowing back into the U.S. market. These categories help in defining the resale limitations and distribution compliance period for the securities.
  • No Directed Selling Efforts: Issuers and distributors must not engage in any directed selling efforts within the United States, ensuring the offering is genuinely foreign and not targeting U.S. investors indirectly.

Rule 144

Purpose and Application: Rule 144 provides a safe harbor for the public resale of restricted and controlled securities in the U.S. market, without requiring SEC registration. This rule is crucial for investors looking to sell their holdings of restricted securities (typically acquired through private placements or as compensation) and for affiliates of the issuer who hold control securities.  This very common with RegD 506b and 506c offerings.

Key Features:

  • Holding Period: Sellers must adhere to a specific holding period before restricted securities can be sold on the public market—six months for securities of a reporting company and one year for a non-reporting company.
  • Volume Limitations: There are limits on the volume of securities that can be sold within a three-month period, which helps prevent market manipulation and protect investors.
  • Manner of Sale and Information Requirements: Rule 144 imposes conditions on how sales can be made and requires that adequate current information about the issuer is publicly available.

Differences Between Regulation S and Rule 144

  • Geographical Focus: Regulation S deals exclusively with offers and sales of securities conducted outside the United States to non-U.S. persons. In contrast, Rule 144 applies to the resale of restricted and controlled securities within the U.S. market.
  • Targeted Securities and Sellers: Regulation S can be applied by issuers, distributors, or their affiliates for initial sales to non-U.S. persons. Rule 144 is used by shareholders (both affiliates and non-affiliates) who seek to sell their restricted or controlled securities in the U.S. market.
  • Conditions and Restrictions: While both set forth conditions to prevent the improper flow of securities, Regulation S focuses on ensuring that the securities are offered and sold outside the U.S. without directed selling efforts to U.S. persons. Rule 144 establishes criteria related to holding periods, volume limitations, and disclosure to facilitate the safe resale of securities in the U.S.
  • Purpose: The fundamental purpose of Regulation S is to exempt international securities transactions from U.S. registration requirements, promoting global capital formation. Rule 144, however, aims to provide liquidity for holders of restricted and controlled securities by enabling a pathway to public resale under certain conditions.

Regulation S and Rule 144 address different needs within the securities market, reflecting the SEC’s efforts to accommodate the complexities of global capital flows while protecting investors. Regulation S facilitates the international offering of securities by U.S. and foreign issuers, whereas Rule 144 allows investors to sell restricted and controlled securities in the U.S. Understanding these regulations is crucial for conducting compliant securities transactions, whether operating within the U.S. or on a global scale.

It’s always important when using either of these regulations to speak to your securities lawyer to ensure your company is using the regulations compliantly.

Why is building a community important when raising capital?

The private capital markets are very dynamic, and the advent of online investing, also known as online capital formation, marks a pivotal shift in how companies approach capital raising. This shift necessitates a focus not just on attracting investors but on building a community around the business. The JOBS Act regulations have played a significant role in this transformation, enabling companies to tap into a vast pool of 233 million Americans. We will review what is the critical importance of cultivating a community of like-minded individuals and companies who share a passion for your business. As we navigate the nuances of utilizing the JOBS Act Regulations (RegCF, RegD, and RegA+), it becomes evident that building a community is not just a strategy but a necessity for accessing capital and creating a sustainable growth trajectory.

The Impact of Community in Capital Raising

The power of community in the context of raising capital cannot be overstated. A well-engaged community can serve as a formidable force in spreading the word, creating a viral effect that traditional marketing efforts might not achieve. When a company introduces a new product line or announces a significant hire, having a community means there’s an already engaged audience ready to amplify the message. More importantly, this community becomes a credible voice to potential investors. Testimonials from community members who have invested can resonate more authentically than any marketing pitch, providing firsthand accounts of why they chose to support the business.

Challenges in Building a Community

Cultivating a community is no small feat and presents several challenges. Leadership from the CEO down is crucial; this initiative cannot be viewed as an outsourced function but rather as an integral part of the company’s DNA. Commitment to community-building must be unwavering, not just for the duration of a capital raise but as a perpetual aspect of the company’s operation. This approach requires time, resources, and a genuine desire to engage and grow with your community.

Steps to Building Your Community

Define Your Core Values: Start by articulating the core values and mission of your company. These will be the rallying points around which your community gathers.

Engage Through Social Media: Utilize social media platforms to share your story, updates, and milestones. Be consistent and authentic in your engagement.

Create Value-Driven Content: Produce content that educates, entertains, or informs your audience, fostering a sense of belonging and shared purpose.

Leverage Email Marketing: Keep your community informed and engaged with regular updates, insights, and opportunities to participate in your journey.

Host Community Events: Whether virtual or in-person, events can be powerful tools for strengthening community ties and encouraging direct interaction.

Encourage Feedback: Open channels for your community to share their thoughts, feedback, and suggestions. This two-way communication is vital for community health and growth.

Show Appreciation: Acknowledge and reward your community’s contributions and support. Recognition can go a long way in fostering loyalty and advocacy.

Building a community in the context of raising capital under the JOBS Act regulations is a strategic imperative that transcends mere financial transactions. It’s about creating a sustainable ecosystem where shared passion and collective support fuel business growth. As companies navigate this journey, understanding the nuances of community engagement, the commitment required, and the strategies for success is paramount. Whether your company operates in the B2C, B2B, or B2B2C space, the principles of community building apply universally. In embracing this approach, companies not only secure the capital they need but also cultivate a loyal base of advocates who will be instrumental in their long-term success. Remember, the strength of your community reflects the strength of your business; invest in them, and they will invest in you.

Accredited investor definition and SEC Review

In this special article written by Laura Anthony from Securities Law Blog, we’ll learn more about recent matters regarding accredited investor definition and SEC Review.

Keep reading and discover more about this fundamental topic in the financial markets, especially when you’re looking to raise capital.

On December 15, 2023, the SEC issued a staff report on the accredited investor definition.  The report comes three years after the most recent amendments to the accredited investor definition (see HERE).

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) requires the SEC to review the accredited investor definition, as relates to natural persons, at least once every four years to determine whether the definition should be modified or adjusted.  The last two reports can be read HERE and HERE.

The current report focuses on the composition of the accredited investor demographic, including since the last definition amendments; the extent to which accredited investors have the financial sophistication, ability to sustain the risk of loss of investment, and access to information that have traditionally been associated with an ability to fend for themselves; and accredited investor participation in exempt offerings.

I’ve included the complete current accredited investor definition at the end of this post.

Background

All offers and sales of securities must either be registered with the SEC under the Securities Act or be subject to an available exemption from registration. The ultimate purpose of registration is to provide investors and potential investors with full and fair disclosure to make an informed investment decision. The SEC does not pass on the merits of a particular deal or business model, only its disclosure. In setting up the registration and exemption requirements, Congress and the SEC recognize that not all investors need public registration protection and not all situations have a practical need for registration.

However, exempted offerings carry additional risks in that the level of required investor disclosure is much less than in a registered offering, the SEC does not review the offering documents, and there is no federal ongoing disclosure or reporting requirements.  The premise of allowing offering exemptions to accredited investors is that such investors are able to fend for themselves and, accordingly, do not need the protections afforded by the registration requirements under the Securities Act because they have access to the kind of information which registration would disclose (SEC v. Ralston Purina Co.).

Diving deeper: Definition of an accredited investor

The definition of an accredited investor has become a central component of exempt offerings, including Rules 506(b) and 506(c) of Regulation D.  Qualifying as an accredited investor allows an investor to participate in exempt offerings including offerings by private and public companies, certain hedge funds, private equity funds and venture capital funds.  Further accredited investors are not bound by the investor limitations set forth in Regulation Crowdfunding or Regulation A, and investors in a Regulation Crowdfunding offering are free to sell to accredited investors without complying with the one-year prohibition on resales.

The concept of “accredited investor” is not limited to exempt offerings but permeates the state and federal securities laws in general.  For instance, a company is required to register under Section 12(g) if as of the last day of its fiscal year the number of its record security holders is either 2,000 or greater worldwide, or 500 persons who are not accredited investors or greater worldwide.  Accordingly, companies must differentiate between record holders who are accredited investors and nonaccredited investors.  For more on Section 12(g) registration see HERE.

Most state securities statutes contain a definition of an accredited investor that either tracks the federal definition, or in some cases, contains higher thresholds for institutional investors ($10 million as opposed to $5 million).  Some states use the accredited investor definition to determine whether investment advisers to certain private funds are required to be registered. FINRA also uses the definition to determine the private placement document filing requirements for placement agents.

Accredited Investor Pool

The SEC has no real source of information on the number of natural persons that are accredited investors but rather must rely on assumptions and general information provided by, for example, the Federal Reserve Board’s Survey of Consumer Finances.  However, the SEC estimates that approximately 18.5% of U.S. households qualify as accredited investors based on income standards.   The SEC estimates that the number of accredited investors has grown steadily, attributing some of this growth to the fact that the definition has never been adjusted for inflation.  According to the SEC report, if the natural person accredited investor thresholds were adjusted to reflect inflation since their initial adoption through 2022 using CPI-U, the net worth threshold would increase from $1 million to $3,037,840, the individual income threshold would increase from $200,000 to $607,568, and the joint income threshold would increase from $300,000 to $911,352, which is s significant jump from the current definition.

The SEC also points out that its estimate does not include the indeterminate additional number of people that would qualify as accredited based on holding qualified professional licenses or being knowledgeable employees at private funds.  Same for the number of individuals that may qualify as a director, executive officer, or general partner of the issuer.

The SEC report delves into the composition of assets for most U.S. households concluding that a disproportionate amount of assets are held in retirements savings accounts and plans that are directed or controlled by individuals, who “may lack experience in building a portfolio that appropriately allocates risk and ongoing management of investments, including preparing for the illiquid nature of private company investments.”  Although the SEC admits there is limited information available to assess the financial sophistication of accredited investors, it still leans towards concluding, they are not sophisticated or protected.

The SEC points to this as a reason to question the continued utility of the current financial thresholds. I flat-out disagree.  Without side-by-side evidence of retirement losses, investors suffering from poor decision-making, investors suing for private investment losses, regulatory actions related to inappropriate private offerings involving retirement accounts, or any other reasonable metrics supporting the alleged inability of U.S. households to make their own investment decisions with their own money, I find this discussion lacking in evidentiary support.

Accredited Investor Participation in the Exempt Offering Market

The SEC has no proper methodology to estimate the participation of natural person accredited investors in the exempt offering market.  However, they do estimate that approximately $3.7 trillion of new capital was raised in exempt offerings in 2022.  Although clearly the vast majority of the investors are accredited, the breakdown between natural persons and institutions or entities is unknown.  The SEC spends several pages espousing statistics based on Form D filings but, as they indicate, many issuers do not file a Form D and even when they do, it may be at the beginning of an offering and contain no information about the offering results or investor composition.

Conclusion

Although the SEC report’s introduction explains that it will examine accredited investor demographics and investment habits, in actuality the SEC has no reliable or aggregated sources of information from which to obtain these facts.  Although I summarize some of the findings, the conclusion is that all information is a best guess and estimate.  With such a lack of information, the SEC chooses to err on the conservative side seemingly leaning towards suggesting raising the financial thresholds.  Laura has a different perspective, disagreeing with this approach.

In general, she considers that the report offered little useful information.

Current Definition of Accredited Investor

Accredited investor shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

(i) Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any investment adviser registered pursuant to section 203 of the Investment Advisers Act of 1940 or registered pursuant to the laws of a state; any investment adviser relying on the exemption from registering with the Commission under section 203(l) or (m) of the Investment Advisers Act of 1940; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any Rural Business Investment Company as defined in section 384A of the Consolidated Farm and Rural Development Act; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

(2) Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;

(3) Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, partnership, or limited liability company, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

(4) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

(5) Any natural person whose individual net worth, or joint net worth with that person’s spouse or spousal equivalent, exceeds $1,000,000 excluding such person’s primary residence (both on the asset and liability side except that indebtedness in excess of the fair market value of the primary residence shall be included as a liability);

(6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse or spousal equivalent in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

(7) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in § 230.506(b)(2)(ii);

(8) Any entity in which all of the equity owners are accredited investors;

(9) Any entity, of a type not listed in paragraph (a)(1), (2), (3), (7), or (8), not formed for the specific purpose of acquiring the securities offered, owning investments in excess of $5,000,000;

(10) Any natural person holding in good standing one or more professional certifications or designations or credentials from an accredited educational institution that the SEC has designated as qualifying an individual for accredited investor status. Under this category the SEC designated persons holding the following licenses: (i) Series 7; (ii) Series 82; and (iii) Series 65.

(11) Any natural person who is a “knowledgeable employee,” as defined in rule 3c–5(a)(4) under the Investment Company Act of 1940, of the issuer of the securities being offered or sold where the issuer would be an investment company, as defined in section 3 of such act, but for the exclusion provided by either section 3(c)(1) or section 3(c)(7) of such act;

(12) Any “family office,” as defined in rule 202(a)(11)(G)–1 under the Investment Advisers Act of 1940:

(i) With assets under management in excess of $5,000,000,

              (ii) That is not formed for the specific purpose of acquiring the securities offered, and

             (iii) Whose prospective investment is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment; and

(13) Any “family client,” as defined in rule 202(a)(11)(G)–1 under the Investment Advisers Act of 1940 , of a family office meeting the requirements in paragraph (a)(12) of this section and whose prospective investment in the issuer is directed by such family office pursuant to paragraph (a)(12)(iii).

 

* Disclaimer: The data presented in this article is based on the information available at the time of the publication. For updated data and specific questions, reach professional help.

The Origins of KoreConX Trust Charter

I often get asked a number of questions when we’re doing presentations about how we got everything started. And today, I think what I want to talk about is, which is really important to us is the origin of the KoreConX Trust Charter. And why did we create it in the first place? So when Jason Futko and I got the company started, we came from the public capital markets, and the things we saw, well, I’m not going to cover that here. But we thought that was only isolated to the publicly traded world, it wasn’t, it was also the private company world. And we found that that in the private company world, it, it was just even more just magnified times, not 10 Times as they say, it’s 100, 1000 times because there’s that many more privately held companies versus public. So you can imagine how fragmented it is. So when we saw the emergence of the online capital markets, for private companies, with the introduction of the Jobs Act, wow, what an opportunity, but at the same time, if the problem kept going, this thing would never grow. 

It will never grow. And it is growing. But the problems still haunt us the way we operate. And not seeing the way we as a company operate, but the way the industry and some participants have been operating for years. So when we set out to create KoreConX, and when we launched it, I mean, we’ve been doing this for over a decade planning and strategizing until we did launch the platform. But we wanted to make sure we get it in a different way. And that’s come with a price for us in many ways. Some people wouldn’t partner with us because there was no financial gain, for us to work with them. I know that sounds weird, but some people would not partner with us because well, if there’s, if you’re not financially motivated, then there’s no reason for us to be partners, which I thought was a bit odd. Because what we’re trying to do is bring a solution to the market. 

You keep your revenue, we keep our revenue, and everything moves forward. It’s a regulated space, we you know, this is, it’s the forefront of everything. So, you know, we sat down all of us, myself, Kiran Garimella, Jason, and coming up with a Charter when we first introduced it in 2016. Nobody was paying attention to it. And of course, now we’re so busy building and trying to figure things out that there was not enough time. But now, it has reemerged again. 

But our origins were right from the beginning. We wanted to make sure that people understood how we did business and what we were not ready to do. And these things have been there since the day we started. And it’s hard. It’s extremely hard. It’s hard, because it’s so easy to get caught in and saying yes, I’ll take it, you know, getting paid a little percentage from the credit card company getting paid from another service, just because you’re delivering it, you get paid, you make extra. And all of a sudden you’re part of that transaction where you shouldn’t be that transaction is regulated. And the only person there should be taking any fees related to that is the FINRA broker-dealer. 

In this in, in this instance. So we made that decision a long time ago. As I said, it has been hard. Even with our shareholders, it didn’t, my apologies become Gladiators are Gladiators, it didn’t go well with them. Because, hey, look at that it’s a $100 million deal. If you just got 1%. I know if you just got 1%. But even if you could take the 1%, which there is a way of doing it compliantly we did not want to be a FINRA broker-dealer. We did not want to become a broker-dealer. We couldn’t deliver what we’re doing. 

If we were a broker-dealer, we needed to create an infrastructure that everybody could work on. Everybody could, you know, transact on and work with each other without having to worry about over each other’s back. And it had to be in a way that it wouldn’t, we will never compete with them. We’re only here to support them and help them grow their business, which we’ve done with many broker-dealers. So this has been at the Kore, at the Kore of everything we’ve done, is making sure that this is the way we operate. And today, we’re re-launching the Charter of Trust. Again, we’re reemerging and why now? 

Well, 2023 was a very hectic year, we had to deal with the issues with FTX and Binance and I know that’s not related to us, but it really is why there are people there’s companies or security regulators and the entire all the activity they’re getting throughout the world and the exposure it’s putting what is the saying to people don’t Trust us because of the technology. It’s not we’re human beings as human beings, we’re flawed. We need to follow certain rules that are not perfect. I can tell you that right now. A lot of my staff partners, Gladiators will tell you I of course I make mistakes, but I’m not gonna give up and I’m gonna make it better.

I’m going to always try to make it better for them for everyone. There’s a way to do things the right way. So you never have to be compromised in any situation. So we’ve lived up to that. We’ve never, ever, unless we own the business, unless we own that business in particular, only then do we charge without revenue, and we keep it otherwise, that revenue does not belong to us, whether it’s credit card, bank, and escrow, again, that belongs to those third-party vendors, they’re investing heavily, just the same way we are on their infrastructure, the last thing they want is someone taking a piece of their piece of their business and boom, scooping it up. And that’s been going on for years. And that had to come to an end. And then of course, the bigger one, why Trust, because look at the data that you’re being provided to safeguard the word is safeguard companies. Intrapreneurs, listen carefully, you’re entrusting us with your most important information, which is your board, your shareholders or your company that you work so hard to get, the last thing you want is us going after them without you or your permission, or any in any way and sending them new offerings, you wouldn’t be happy with that? Well, guess what, and that’s exactly what happened in 2023. That was the last piece that this market needed. It didn’t break any securities law, they didn’t break any privacy law. They didn’t break any terms and conditions, law, or anything. This just broke the ultimate Trust in business, which is I trusted you as my partner as my vendor, as my vendor to house my information, my confidential data, and you use it for your own. And we have, we’ve been conflicted with this over and over and over again, to do the same. And we will not we never have and never will. 

Because that’s not who we are. And today, I’m excited. And I hope you read the Charter of Trust, all of us have signed it, all our senior-level people and our KoreTeam are dedicated to delivering just that, we will never be compromised by taking fees on any on the front end, the back end, we take our fees from our clients. And that’s it, we deliver the service. And that’s how we get paid. Number two, we do not sell anyone’s information. 

None of that information only belongs to you the company that you work hard to get those individuals into your company, and therefore it shouldn’t be going to anyone else. And I hope this proves a point. More importantly, for everyone else. And I know, we’re not the only ones. We’re not the only ones doing it. And I know the industry, all of us are changing and evolving. And I’m encouraging the entire industry to follow through. 

We welcome everybody to be part of this charter that we’ve created, sign on with us, and let’s show the industry that they can Trust all of us, all of us together working together, we will make this industry even stronger than it is today. Because we have look what we’ve done in a very short period of time. Our industry is only less than 10 years old, 10 years old, and only operational for the last six, seven years and look what we’ve accomplished so far. And we have so much great opportunity. It’s only uphill all the way through. It’s going to be bumpy. We’re going to be challenged. But the only way to make things even better is when we work together in order to make it happen.

Diversifying Capital Raising Strategies for Startups

Navigating the VC Winter: Diversifying Capital Raising Strategies for Startups

In the face of a VC winter, startups find themselves at a crucial juncture, requiring innovative approaches to secure funding. We will embark on an exploration of the myriad avenues available for raising capital beyond the traditional venture capital (VC) sphere. We dive into anecdotes of how private companies have creatively accessed funds, emphasizing the importance of not being tethered to a single source of capital. The focus is on the JOBS Act and its provisions, which offer startups a variety of options with potentially more favorable terms than VC funding. We’ll tackle the challenges companies face in this endeavor, from navigating regulatory landscapes to attracting investors. Additionally, we outline seven strategic steps to diversify funding sources, reinforcing the necessity of a well-rounded understanding of all available options. By the end, startups and established companies alike will be equipped with the knowledge to navigate the capital raising process effectively, leveraging regulations to their advantage and working with trusted advisors to ensure success.

The Landscape of Raising Capital

Raising capital for private companies is an art form, with various avenues from VC and angel investments to friends and family, bank loans, government grants, and the provisions under the JOBS Act. Each source has its narrative, shaping the journey of a startup in unique ways. These stories reveal a broader landscape of funding opportunities, illustrating that the path to securing capital is not linear but a web of interconnected routes.

Beyond VC: The JOBS Act and Other Avenues

Entrepreneurs must look beyond VC to fuel their growth, especially in times when VC funding becomes scarce. The JOBS Act emerges as a beacon of hope in such times, offering three distinct regulations (RegCF, RegD 506c, RegA+) that provide startups with options for funding. These options often come with better terms than traditional VC deals, underscoring the importance of a strategic approach that blends various funding sources. This strategy not only mitigates the risk associated with relying on a single source but also broadens the potential investor base.

Navigating Capital-Raising Challenges

The journey of raising capital is fraught with challenges, from understanding the regulatory framework to choosing the right partners for issuance and attracting potential investors. A significant hurdle is the lack of awareness about the diversity of funding sources. Many companies do not realize the breadth of options available to them, limiting their potential to secure the necessary capital. Familiarity with each source’s regulatory roadmap, working with trusted FINRA Broker-Dealers, and leveraging technology partners for issuance are crucial steps in this process.

Understanding Sources of Capital

A comprehensive understanding of all sources of capital is essential. Each source, from VC and bank funding to government grants, friends and family, and the JOBS Act, comes with its own set of advantages and disadvantages. For instance, while VC funding can offer significant capital and mentorship, it often requires giving up a portion of equity and control. On the other hand, JOBS Act funding may provide more favorable terms but requires navigating a regulatory landscape and a totally different approach in attracting investors to your company.

Seven Steps to Raising Capital

  1. Educate Yourself on Regulations: Understanding the legal framework is paramount. This knowledge will guide which investors you can target and how.
  2. Build a Diverse Funding Strategy: Combine different sources of funding to minimize reliance on any single avenue.
  3. Select the Right Partners: Work with trusted advisors, such as FINRA Broker-Dealers and technology partners, who understand your business and the regulatory environment.
  4. Prepare a Compelling Pitch: Your pitch should resonate with the specific investors you’re targeting, whether they’re angel investors, VC firms, or the public through a crowdfunding campaign.
  5. Leverage Government Grants and Loans: Explore and apply for grants and loans that may be available for your industry or for innovation.
  6. Engage Your Network: Friends and family can be an initial source of capital, often willing to invest in your success.
  7. Utilize JOBS Act Provisions: Understand and leverage the specific regulations under the JOBS Act that best suit your company’s stage and needs.

In the challenging terrain of capital raising, knowledge and strategy are your best allies. The regulatory landscape, embodied by the JOBS Act, provides a roadmap for startups and established companies alike to navigate their way to successful funding. Educating oneself on the myriad sources of capital, understanding the pros and cons of each, and crafting a diversified funding strategy are essential steps. By working with trusted advisors and carefully selecting funding sources, companies can weather the VC winter and emerge with the capital necessary for growth. Remember, the journey of raising capital is complex and multifaceted, but with the right approach and resources, it is navigable. There are no shortcuts, but the path is rich with opportunities for those willing to explore beyond the traditional routes.

 

 

Capital Planning in Healthcare: valuation overview

For industry leaders and entrepreneurs charting the course of their company’s future, understanding the financial aspects of business valuations and fundraising is a strategic asset. 

In this article written by Stephen Brock, CEO of Medical Funding Professionals you’ll gain rich insights on these and other important topics in this area, including an overview on valuation for biotech, medtech, pharma, and life science companies. 

Keep reading and learn more.

First insights: the valuation process

So, to begin our journey, let’s talk about finance, which is a key point that impacts the pathway of any company. 

We all know that this is a broad subject, but one of the main issues is the valuation process. 

A practical example: if you own a company with $25 million in revenue or less, a business valuation can cost you anywhere from $0 (provided by a broker for free) to $40,000* (estimates based on current values at the beginning of 2024). 

There are two main types of valuations you will encounter: 

 

      1. Legal valuations: Legal valuations require the valuation expert to meet specific requirements since it will be used to support legal cases. The person performing the valuation must be certified and the methods they use must follow certain legal standards.
      2. Fair market valuations: When valuing your company a number of data points are built with a few of them being How much your assets are worth The present value of your future cash flows How much common stock is worth at similar (comparable) companies How much equity your company has in other similar businesses or industries, pre and post-money valuations, what does exit value look like, what does a share price project out to be, what comps for M&A and IPO in similar space you work in has occurred, what VC valuations have been printed

 

Attention! Depending on the type of valuation you need and the specifics of your business, the price will fall somewhere in that range.

 

The importance of capital planning

If you’re setting up a company or leading one in areas like BioTech, MedTech, Life sciences or Pharma, it’s important to keep many issues in mind. Especially when you’re aiming to raise money from investors, working strategically is essential.

Among the key points in this context, are creating the company’s structure in a strategic way that can stand out in the market, increasing the potential for attracting investors.

When raising capital in the private markets, seeking professional advice is crucial, working with trustworthy partners the process can be compliant and less stressful.

Solutions for healthcare industry

If you are looking to fundraise without giving up control of your biotech, medtech, pharma, or life science company, you’ll need to find a path to guide your business journey. Medical Funding Professionals developed the Capital Planning Valuation Strategy™ (CPVS™). The method is a custom-prepared funding roadmap and go-to-market strategy, designed to be efficient and straightforward.

One of the main purposes of CPVS is to guide entrepreneurs through each step of the fundraising journey, all with transparency and tailored plans.

Furthermore, the Capital Planning Valuation Strategy™ is designed to meet the unique needs of business owners who prioritize streamlined compliance and sustained leadership in their companies. By offering an alternative to the normative procedures of fundraising, it facilitates a more efficient path to capital acquisition.

Want to know more about the CPVS™ program? You can access the link and get more information directly from Medical Funding Professional’s specialists

What is Entity Management?

In today’s fast-paced business environment, private companies face a myriad of challenges as they scale and seek capital. A crucial, yet often overlooked aspect of their growth trajectory is effective entity management.

This blog post covers the essence of entity management and distinguishes between cap table management and equity management, highlighting the significance of each for private companies.

Entity Management: What does it mean?

Basically, entity management simplifies how organizations track, organize, and manage all details related to their business entities. An effective process helps to ensure compliance and streamline operations, impacting positively in decision-making.

In the next sections, we’ll explore the role of robust entity management software, underscore the potential pitfalls of neglecting this area, and provide insights into selecting a reliable technology partner. Our aim is to equip you with the knowledge to navigate the complexities of entity management, ensuring compliance and facilitating your company’s growth and success.

The Role of Entity Management Software

As private companies expand, particularly those leveraging the JOBS Act Regulations for capital raising, the complexity of regulatory compliance and entity management escalates. Strong entity management involves not just the maintenance of corporate records but ensuring that these entities meet all regulatory requirements timely. This is where the adoption of a comprehensive entity management software becomes invaluable. A technology partner who is adept at understanding the growth dynamics and regulatory landscape can be a linchpin in maintaining compliance, thereby avoiding the repercussions of missed filings or non-compliance.

The Challenges of Inadequate Entity Management

The consequences of not employing effective entity management software can be dire. Missed filings or regulatory non-compliance can severely impact a company’s ability to raise capital, pursue mergers and acquisitions (M&A), or even go public. For sectors like real estate, which typically involves managing multiple entities for various projects, the ripple effects of non-compliance can be even more pronounced. These challenges underscore the necessity of a vigilant approach to entity management.

Choosing a Trusted Entity Management Software Partner

The importance of selecting a trusted software partner cannot be overstated. This partner should not only possess a comprehensive understanding of managing multiple entities but also ensure their software facilitates time and cost savings while keeping up with regulatory deadlines. Here are three red flags to watch out for when choosing an entity management software partner:

Compliance Assurance: Ensure the partner operates with end-to-end compliance. The lack of a robust compliance framework is a major red flag.

Understanding Private Company Challenges: The partner must have a proven track record of understanding and addressing the unique challenges faced by private companies. Lack of expertise in dealing with private company-specific issues is a significant concern.

Reputation and Reliability: Investigate the partner’s reputation and reliability. A partner lacking in trusted testimonials or case studies may not be able to provide the level of service your company requires.

The process of finding a trustworthy company may take some time, but is essential in different aspects of the business. So it’s worth to spend time

Cap Table Management vs. Equity Management

Distinguishing between cap table management and equity management is essential for private companies. Cap table management involves tracking the ownership stakes, types of equity owned, and the dilution effects of future funding rounds. It is a snapshot of who owns what in the company. Equity management, on the other hand, encompasses a broader scope, including managing equity compensation, issuing new shares, and ensuring compliance with tax laws and regulations. Both are critical for effectively managing a company’s equity and ensuring stakeholders are correctly accounted for and rewarded.

Effective entity management is not merely a compliance requirement; it is a strategic imperative for growing private companies. Understanding the nuances between cap table management and equity management, and the importance of each, is crucial. Equally important is the selection of a robust entity management software partner that understands the unique challenges faced by your company and can ensure compliance and efficiency.

Educating yourself on the key considerations and red flags in choosing a technology partner will empower you to make informed decisions. Ultimately this facilitates your company’s growth and success in the complex landscape of private capital markets. Remember, the right questions lead to the right partner, ensuring your company’s entity management is in capable hands.

Digital Asset Ecosystem: Ultimate Guide

Overview of the Digital Assets Ecosystem

In an era where digital assets are redefining the boundaries of technology and finance, understanding the complex landscape of the digital assets ecosystem becomes paramount for companies aiming to leverage these innovations.  We will dive into the critical importance of aligning with a compliant and trusted digital assets ecosystem, offering insights into its transformative potential for private companies in the capital markets.

We explore the historical challenges faced by digital assets, emphasize the necessity of a compliant regulatory framework, and provide practical steps for selecting the right ecosystem. Through anecdotes and expert analysis, we aim to educate and guide you towards making informed decisions in this rapidly evolving sector.

Why Ecosystems for Digital Assets Are Essential

The journey of digital assets in the marketplace is a tale of innovation, ambition, and, unfortunately, a learning curve steeped in regulatory missteps. The initial excitement surrounding Initial Coin Offerings (ICOs) gave way to disillusionment as scams proliferated. Similarly, the Non-Fungible Token (NFT) phase, while showcasing the potential for unique asset ownership on the blockchain, also faced its challenges in market acceptance and regulatory clarity. These historical lessons underscore the imperative need for a robust compliance ecosystem from the outset of any digital asset venture.

For private companies venturing into the private capital markets through digital assets, the right ecosystem is not just an advantage—it’s a necessity. This ecosystem must strike a delicate balance between advanced technological frameworks and stringent regulatory compliance.

Practical examples

Also, a good digital ecosystem should encompass a comprehensive regulatory framework, partnerships with legal experts, collaboration with FINRA Broker-Dealers, and blockchain technology that has been vetted and qualified by regulatory bodies.

A prime example of such diligence is KoreChain, which stands out as a pioneering entity that has navigated its blockchain infrastructure through SEC scrutiny, achieving a qualified status under the JOBS Act. This milestone not only highlights KoreChain’s commitment to regulatory compliance but also sets a precedent for what constitutes a trustworthy digital assets ecosystem.

Regulatory frameworks

The digital assets sector faces unique challenges, primarily due to its turbulent history and the evolving regulatory landscape. The shift from ICOs to NFTs and now to a new, regulated phase illustrates the sector’s dynamic nature. The clear message from regulators like the SEC is uncompromising: engagement in digital assets must be 100% compliant. This underscores the critical need for companies to align with digital assets ecosystems that have not only embraced but have been validated by regulatory frameworks. The onus is on companies to rigorously vet potential ecosystems, ensuring they do not fall foul of regulatory mandates.

Collaborating with a trusted digital assets ecosystem instills confidence that your offerings are compliant and that your partners are fully versed in securities law. Such ecosystems prioritize regulatory compliance and include all necessary intermediaries to ensure adherence to securities law.

Trustworthiness in digital assets ecosystem

It is essential for companies to demand evidence of compliance before engaging in any digital assets ecosystem, thereby safeguarding their operations and reputation.

Selecting the right digital assets ecosystem involves a meticulous approach:

Key points Why it matters?
Regulatory Compliance First Prioritize ecosystems that have proven regulatory approval or qualification, such as those that have engaged with regulatory bodies like the SEC. This ensures the foundation of your digital asset ventures is built on solid regulatory ground.
Technology and Infrastructure Scrutiny Evaluate the technological infrastructure of the ecosystem, ensuring it not only supports your operational needs but has also passed regulatory scrutiny. This includes assessing the blockchain technology for security, scalability, and compliance features.
Partnership and Support Ecosystem Look for ecosystems that offer a comprehensive network of partners, including legal experts, regulatory advisors, and broker-dealers. This network is invaluable for navigating the complexities of the digital assets market while ensuring compliance.

As we can see, navigating the digital assets landscape requires a well-informed approach, prioritizing regulatory compliance above all. The lessons learned from the ICO and NFT phases highlight the perils of overlooking regulatory requirements.

Digital Assets Ecosystem: Key Takeaways

As we venture into a new, regulated era of digital assets, the selection of your digital assets ecosystem should be guided by rigorous scrutiny of its regulatory standing, technological robustness, and the support network it offers.

Educating oneself on these aspects is not just advisable; it’s essential for success and compliance in the dynamic world of digital assets.

Remember, starting with technology without a clear understanding of regulatory requirements is a pathway to failure. Instead, choose wisely, ensuring your digital assets journey is both innovative and compliant.

Charter of Trust

Trust, Commitment, and Code of Conduct

This is the Trust Charter describing our commitment to Trust and the Code of Conduct of the Kore group of companies that includes KoreConx, KoreTransfer, and KoreChain.

We believe that TRUST is the cornerstone of any successful business relationship. Our co-founders build this into the DNA of our company.  As we celebrate our 7th year at KoreConX, we are dedicated to upholding the highest ethical standards and fostering an ecosystem of partners who share our commitment to integrity, security, and the responsible handling of information. This business charter outlines our principles of Trust, Commitment, and Code of Conduct, which guide our operations and interactions with clients, partners, and stakeholders. 

The KoreConX Seal of Trust

  • KoreConX will never take a commission, kickback, or revenue share from any of our KorePartners we have integrations with
  • KoreConX will never sell contact information or transaction data
  • KoreConX will never share or disclose individual data to anyone except to those parties who are responsible for working on transactions, following up with investors, performing their fiduciary duties, or performing their regulatory duties
  • KoreConX will never send marketing messages for investments
  • KoreConX will never contact investors in a manner that violates Trust or without the knowledge and consent of the company in which the investors are shareholders

The KoreConX Commitment to Value

  • KoreConX will provide and continually enhance value-added analytics
  • KoreConX will work with its KorePartners to continually reduce business process inefficiencies
  • KoreConX will be relentlessly focused on regulatory compliance and the safety of investors

Trust

  • Privacy Commitment: We pledge to safeguard our clients’ information with the utmost diligence. We will never use or disclose client information in a manner that compromises privacy, security, or business ethics.
  • Data Security: Our company will implement robust data security measures to protect client data from unauthorized access, breaches, or misuse.
  • Transparency: We will maintain transparency with our clients regarding how their information is collected, used, and shared, and we will comply with all applicable data protection laws and regulations.
  • Non-Disclosure: We commit to respecting client confidentiality and will not share sensitive information without explicit consent or legal requirements.

Commitment

  • Ethical Conduct: Our company is committed to conducting business with the highest standards of ethics, honesty, and integrity. We will not engage in any fraudulent, deceptive, or illegal practices.
  • Continuous Improvement: We will continuously improve our infrastructure, processes, and services to provide a safe, efficient, and innovative environment for our clients and partners.
  • Compliance: We will adhere to all applicable laws, regulations, and industry standards relevant to our business operations, including but not limited to financial transactions, data protection, and environmental regulations.
  • Client Satisfaction: We are dedicated to meeting and exceeding client expectations by delivering high-quality services, prompt responses, and personalized support.
  • Compliance & Safety: We will not compromise regulatory compliance and safety to convenience or expediency.

Code of Conduct

  • Partnerships: We have established partnerships with firms and individuals who share our commitment to Trust, ethics, and security. Our KorePartners must adhere to similar principles in their interactions with us and our clients.
  • Fair Competition: We believe in fair competition and will not engage in anticompetitive practices or unfair business tactics. Our partners must also compete fairly in their respective markets.
  • Anti-Corruption: We are resolutely against bribery, corruption, and unethical influence in business. Our company and partners shall not offer, solicit, or accept bribes or engage in any form of corrupt practices.
  • Environmental Responsibility: We acknowledge our responsibility to the environment and will take measures to reduce our environmental footprint. Our partners are encouraged to adopt environmentally responsible practices.
  • Inclusivity: We promote diversity, equity, and inclusivity within our company and encourage our partners to do the same. Discrimination, harassment, or bias in any form will not be tolerated.
  • Conflict Resolution: We are committed to resolving disputes and conflicts promptly, fairly, and through peaceful means. We will seek amicable solutions to disagreements with clients, partners, or stakeholders.
  • Seeking Synergies: We favor win-win and synergystic solutions and partnerships even with parties who believe they are our competitors. Our goal is to remain a technology infrastructure company, and we are open to collaborating with other parties and helping them maintain their brand.

KoreConX aims to create a business environment that is built on trust, commitment to ethical operations, and a shared code of conduct. We invite all our clients, partners, and stakeholders to join us in maintaining and upholding these principles, creating a thriving ecosystem where mutual respect, transparency, and trust are at the core of every interaction.

 

Learn more about the origins of our charter of trust. 

Payment Rails: Cannabis Raising Capital – Navigating the Complex Landscape

In the evolving landscape of the cannabis industry, securing capital through online platforms presents unique challenges, particularly in the realm of payment processing. We explore the intricacies of payment rails for cannabis companies engaging in capital-raising activities under the JOBS Act Regulations (RegCF, RegD, RegA+).

Through anecdotes and analysis, we delve into the reasons behind the sector’s struggle with traditional payment methods, the importance of partnering with knowledgeable payment rails providers, and the specialized hurdles cannabis companies face within the banking world.

We also discuss how partnerships with entities like KoreIssuance having a tightly integrated and well-informed payment solutions partner, can provide a fully compliant pathway for cannabis companies to raise capital online successfully.

By understanding the nuances of this process and recognizing red flags in selecting issuance partners, cannabis companies can position themselves for successful capital-raising.

The Regulatory Landscape for Cannabis Businesses

The cannabis sector in the USA operates in a unique regulatory environment. Despite legalization in numerous states for medicinal or recreational use, cannabis companies face significant operational challenges, particularly regarding payment processing.

Traditional payment systems, such as credit card networks, often exclude cannabis-related transactions due to federal regulations, leaving businesses to rely on less convenient cash transactions or navigate the murky waters of high-risk payment processors.

The Importance of Payment Rails in Cannabis Capital Raising

The distinction between operations and securities offerings is a crucial one in the cannabis industry.

While day-to-day operations might be cash-intensive and largely excluded from traditional banking services, raising capital online operates under a different set of rules and opportunities, particularly under the JOBS Act Regulations (RegD, RegCF, RegA+).

A strong payment rails partner, well-versed in these regulations, can unlock the door to efficient capital raising for cannabis companies by providing the necessary infrastructure to process investments safely and compliantly.

Banking Challenges for Cannabis Companies

Cannabis companies face special challenges within the banking world, not just for their operational needs but also when attempting to raise capital.

The banking industry’s hesitancy to engage with cannabis companies stems from a lack of understanding of the separation between the businesses’ operational aspects and their securities offerings. However, ecosystems like KoreIssuance have made significant strides in educating the banking and payment industries about the unique aspects of cannabis companies raising capital under securities laws.

This education is pivotal in distinguishing the use of payment rails for compliance with securities laws from the broader banking challenges of the cannabis industry.

Partnering with KoreIssuance for Compliant Solutions

Partnering with a trusted issuance partner like KoreIssuance provides cannabis companies with the confidence that all aspects of their capital-raising efforts are managed compliantly.

KoreIssuance, in collaboration with its exclusive payment processing partner, they offer a compliant solution that enables cannabis companies to raise capital confidently.

This partnership allows investors to use credit cards or ACH transfers to invest in cannabis companies, a significant advancement given the industry’s traditional reliance on cash transactions.

Red Flags in Selecting Issuance Partners

When selecting an issuance partner for their offering, cannabis companies should be wary of several red flags:

Comprehensive Compliance: Ensure that the partner operates compliantly end-to-end within the regulatory framework of the JOBS Act and understands the specific compliance requirements of the cannabis sector.

Understanding of Cannabis Challenges: The partner must have a deep understanding of the challenges facing cannabis companies, especially regarding banking and payment processing.

Dedicated Payment Solutions: The issuance partner should have established relationships with banks and payment processors who are fully compliant and willing to support cannabis companies in their capital-raising efforts and provide rates similar to any other business. 

Conclusion: The Importance of trusted partner selection

In conclusion, the importance of educating oneself before selecting an issuance partner cannot be overstated for cannabis companies looking to raise capital. The nuances of compliance, particularly in relation to payment processing under the JOBS Act, demand careful consideration and a thorough vetting process.

By asking the right questions and identifying potential red flags, cannabis companies can forge partnerships that enable them to navigate the complexities of capital raising in this unique sector confidently.

The partnership between KoreIssuance exemplifies the type of collaborative approach that can address the specific needs of cannabis companies, ensuring a compliant, efficient, and successful capital-raising process.

As the cannabis industry continues to grow and evolve, understanding these intricacies and leveraging the right partnerships will be key to unlocking the full potential of online capital-raising efforts.

 

Capital Raising Process: 4 Steps to Start Funding Now

In the dynamic world of private capital markets, raising capital is both an art and a science. We will demystify the capital raising process for private companies, outlining a four-step approach that harmonizes regulatory compliance, technology utilization, and strategic storytelling to attract and engage investors. From navigating the regulatory landscape to leveraging technology for efficient capital raises under the JOBS Act (RegCF, RegD, and RegA+), we explore how to transform the complex journey into a streamlined pathway to funding. By highlighting anecdotes from successful capital raises and the critical role of trusted partners, this guide aims to equip entrepreneurs with the knowledge and tools necessary to embark on their capital raising journey confidently.

Anecdotes of Successful Capital Raising

The journey of capital raising is punctuated with stories of entrepreneurs who turned their visions into reality. From tech startups that secured seed funding through strategic pitches to established companies that leveraged equity crowdfunding for expansion, these stories share a common thread: the ability to articulate a compelling narrative that resonates with investors. These anecdotes not only inspire but also illustrate the practical application of strategic planning and regulatory navigation in the capital raising process.

Leveraging Technology for Compliance and Efficiency

In today’s digital age, technology plays a pivotal role in streamlining the capital raising process. Platforms like KoreIssuance offer a seamless solution for companies to manage their capital raises, ensuring compliance with JOBS Act regulations (RegCF, RegD, RegA+). Post-offering, technologies for shareholder communication and online e-voting, such as Shareholder Communications tools, are invaluable for maintaining transparency and engagement. Additionally, cap table management software is essential for tracking equity ownership and ensuring accurate record-keeping. These technological tools not only simplify compliance but also enhance the investor experience, making it easier for the crowd to invest in promising companies.

Navigating Challenges in Capital-Raising

The path to successful capital raising is fraught with challenges, from understanding the regulatory landscape to attracting potential investors. Entrepreneurs must work with trusted partners, including FINRA Broker-Dealers and technology providers, to navigate these hurdles effectively. One of the most significant challenges is crafting a narrative that captures the essence of the business, reminding companies that investors invest in people first. The story behind the company, its mission, and its vision is what ultimately draws investors in, not just the potential financial returns.

Working with Trusted Partners

The importance of selecting trusted partners for the capital raising journey cannot be overstated. These partners, including regulatory experts, technology providers, and FINRA Broker-Dealers, ensure that the process remains compliant, efficient, and transparent. By providing essential information and guidance, they help companies navigate from start to finish, ensuring that the capital raising process is not only successful but also builds a strong foundation for future investor relations.

Four Steps to Raise Capital

For companies looking to embark on their capital-raising journey, the following four steps provide a roadmap to success:

  1. Understand Regulatory Requirements: Start by gaining a thorough understanding of the JOBS Act regulations (RegCF, RegD, RegA+) and how they apply to your capital raise. This knowledge will guide your strategy and help you select the right regulation for your investor target market.  Here is a great library to get started.
  2. Leverage Technology Platforms: Utilize technology platforms for issuance, shareholder communication, and cap table management. These tools will streamline your process, ensure regulatory compliance, and enhance investor engagement.
  3. Craft a Compelling Narrative: Develop a compelling story that communicates your company’s mission, vision, and value proposition. Remember, your narrative should resonate with potential investors on a personal level, showcasing the people behind the company.
  4. Select Trusted Partners: Work with trusted advisors, intermediaries, and partners who understand the private capital markets and can guide you through the regulatory and operational complexities of capital raising.

Raising capital for a private company, whether a nascent startup or an established entity, requires a blend of strategic planning, regulatory navigation, and genuine storytelling. Understanding the regulations is the first step, providing a framework within which to operate and target the right investors.

Leveraging technology and working with trusted partners streamline the process, ensuring compliance and efficiency. However, the heart of capital raising lies in the ability to connect with investors on a personal level, sharing a vision that inspires and motivates them to join your journey.

As the regulatory landscape and market conditions evolve, continuous education and adaptability remain key. Remember, there are no shortcuts to raising capital, but with the right approach, tools, and partners, your capital raising journey can be a successful and rewarding endeavor.

 

The Broker-Dealer’s Guide to Due Diligence process

In the realm of private capital markets, due diligence is not just a procedure but a pledge—a commitment to uphold integrity, trust, and compliance.  This guide serves as a beacon for Chief Compliance Officers (CCOs) and their compliance teams, guiding them through the complexities of due diligence process in private company capital raises. From leveraging technology to navigating an ever-evolving regulatory landscape, to understanding the nuanced roles of FINRA Broker-Dealers, we delve into how these crucial processes safeguard the private capital markets, ensuring a secure and transparent investment environment for all parties involved.

Due Diligence by Chief Compliance Officers

Imagine a world where investments flow seamlessly, underpinned by an unshakeable trust between investors and companies raising capital. This is the reality that CCOs strive to create through meticulous process of due diligence on companies and investors. Through their diligent efforts, such as scrutinizing a company’s financial health, operational strategies, and leadership integrity, CCOs not only protect investors from unforeseen risks but also build a foundation of trust that is paramount for successful capital raises.

Empowering CCOs with Technology

The digital age has revolutionized due diligence process, providing CCOs with tools to gather and analyze vast amounts of data efficiently. Technologies tailored to regulations like RegCF, RegD, and RegA+ enable CCOs to customize and have still best practices in due diligence processes. Therefore, ensuring that each investigation meets specific regulatory standards. This not only streamlines compliance but also allows CCOs to allocate their resources more effectively, focusing on strategic decision-making rather than getting lost in a sea of paperwork.  CCO’s are the backbone of the firm, and as such technology needs to be part of their overall strategy for the firm to be successful, tools such as Compliance Desk provide the necessary and regulatory requirements of making sure data is collected, tracked, and maintained for CCOs. 

Navigating Challenges of due diligence process in a Dynamic Regulatory Environment

The landscape for FINRA Broker-Dealers is fraught with challenges, from navigating a complex web of regulations to ensuring that compliance teams are equipped with the necessary tools. The advent of technologies like the Compliance Desk represents a significant leap forward, enabling CCOs to maintain organized records in a FINRA-approved facility to meet Rule 17a-4 requirements. This capability is crucial for broker-dealers to manage their compliance efficiently, allowing them to focus on expanding their business while maintaining strict regulatory adherence.

The Critical Role of FINRA Broker-Dealers

FINRA Broker-Dealers are the guardians of the private capital markets, and their role extends beyond initial best practices on the due diligence process; they help to ensure the safety and integrity of transactions for investors, companies, and intermediaries alike. Once an offering goes live, they are responsible for continuous oversight, including KYC, AML, suitability, and investor verification. This dual focus on company and investor due diligence is essential for preventing bad actors from entering the market, thereby protecting the investment ecosystem.

7 Steps for Effective Due Diligence on Private Companies

For those aiming to enhance their due diligence processes or embarking on the journey to become a FINRA Broker-Dealer,  consider the following steps:

  1. Comprehensive Regulatory Understanding: Gain a deep understanding of the relevant regulations (RegCF, RegD, RegA+) and their implications for your due diligence process.
  2. Robust Data Collection and Analysis: Leverage technology to efficiently collect and analyze company data, focusing on financials, management, and operational integrity.
  3. Risk Assessment: Develop a framework for assessing and categorizing potential risks, including financial, legal, and operational risks.
  4. Management and Operational Evaluation: Conduct thorough evaluations of the company’s management team and operational capabilities to ensure they have the necessary expertise and resources.  Always do bad actor checks on the company and the principles of the company.
  5. Legal Compliance Verification: Verify the company’s compliance with all applicable laws and regulations, including securities laws and industry-specific regulations.
  6. Continuous Monitoring: Establish processes for ongoing monitoring of the company’s performance and compliance post-investment.
  7. Record Keeping and Reporting: Implement systems for maintaining detailed records of your due diligence process, ensuring they meet FINRA’s Rule 17a-4 requirements for record-keeping.

Best practices on due diligence for broker-dealers

In the rapidly evolving landscape of private capital markets, the importance best practices on due diligence for broker-dealers cannot be overstated.

It is the bedrock upon which trust and compliance are built, safeguarding the interests of investors and ensuring the integrity of the market. For FINRA Broker-Dealers and their compliance teams, staying abreast of regulatory changes and leveraging technology are key to navigating this complex environment effectively.

So, by creating a comprehensive guide of due diligence best practices that align with current regulations and anticipate future shifts, firms can not only comply with today’s standards but also set a benchmark for excellence in compliance and investor protection. As we move forward, education and adaptability will remain crucial for all stakeholders in the private capital markets, ensuring that they can meet today’s challenges and seize tomorrow’s opportunities.

2024 Funding Guide: Top 7 Loan Alternatives for Startups

Loan Alternatives for Startups

Getting money to start a business is a critical issue that entrepreneurs have to deal. Sometimes the landscape seems so uncertain that a lot of them think of paying astronomical taxes to get the capital and get the idea off the drawing board.

But beyond traditional bank loans, there are a lot of loan alternatives for startups waiting to be explored. This guide will show you different funding options, empowering you with more knowledge to unfoggy the landscape.  Therefore, you’ll have more resources to think about which alternative may fit your business.

From innovative crowdfunding to strategic partnerships with angel investors, we’ll delve into the diverse funding ecosystem, equipping you with the knowledge to make informed decisions.

For startups and companies looking to get money to fund their business, there are many different options. While not every option may be best suited for every company, understanding each will help to choose which one is best for them. 

Family and friends

In the early stages of seeking loan alternatives for Startups, investment from family and friends can be both a simple and safe solution. Since family members and friends likely want to see you succeed, they are potential sources of funding.

Unlike traditional investors, family and friends do not need to register as an investor to donate. It is also likely that through this method, founders may not have to give up some of their equity. This allows them to retain control over their company. 

Angel investors

Angel investors and angel groups can also be a source of getting capital to fund your business.  Angel investors can be either non-accredited and accredited investors, for accredited investors there is an additional step to meet SEC regulations to make sure they have been verified. Angel groups are multiple angel investors who have pooled their money together to invest in startups. Typically, angel investors invest capital in exchange for equity and may play a role as a mentor, anticipating a return on their investment. 

Venture capital

Venture capital investors are SEC-regulated and invest in exchange for equity in the company. However, they are not investing their own money, rather investing other people’s. Since venture capital investors are trying to make money from their investments, they typically prefer to have some say in the company’s management, likely reducing the founders’ control. 

Strategic investors

Strategic investors may also be an option for companies. Typically owned by larger corporations, strategic investors invest in companies that will strengthen the corporate investor or that will help both parties grow. Strategic investors usually make available their connections or provide other resources that the company may need. This makes them our forth alternative to loans for startups.

Startup accelerator programs

Another way to get money for your business without getting a loan, is through startup accelerator programs

For some companies, crowdfunding may be useful for raising money. With this method, companies can either offer equity or rewards to investors, the latter allowing the company to raise the money they need without giving up control of the company. 

Getting capital to fund your business: Regulations for crowdfunding

Through the JOBS Act, the SEC passed Regulation A+ crowdfunding, which allows entities to raise up to $75 million in capital from both accredited and non-accredited investors. Crowdfunding gives access to a wider pool of potential investors, making it possible to secure the funding they need through this method. 

Alternatively, Regulation CF may be a better fit. Through RegCF, companies can raise up to $5 million, during a 12-month, period from anyone looking to invest. This gives an important opportunity to turn their loyal customers into shareholders as well. These types of offerings must be done online through an SEC-registered intermediary, like a funding portal or broker-dealer.

In the March 2021 update to the regulation, investment limits for accredited investors were removed and investment limits for non-accredited investors were revised to be $2,500 or 5% of the greater of annual income or net worth. It is also important to note that now, issuers (those seeking funding) can now “test the waters” to gauge interest before registering the offering with the SEC. Additionally, the use of special purpose vehicles (SPVs) within RegCF offerings was permitted.

Regulation D is another method that private companies can use to raise capital. Through RegD, some companies are allowed to sell securities without registering the offering with the SEC. However, if you choose to raise capital through RegD, you must electronically file the SEC’s “Form D.” By meeting either RegD exemptions 506(b) or 506(c), issuers can raise an unlimited amount of capital. To meet the requirements of the 506(b) exemption, companies must not use general solicitation to advertise securities, can raise money from an unlimited number of accredited investors and up to 35 other sophisticated investors, and must determine the information to provide investors while adhering to anti-fraud securities laws. For 506(c) exemptions, companies can solicit and advertise an offering but all investors must be accredited. In this case, the company must reasonably verify that the investor meet the SEC’s accredited investor requirements  

Direct offerings

Another loan alternative is to utilize direct offerings to raise money. Through a direct offering, companies can issue shares to the company directly to investors, without having to undergo an initial public offering (IPO). Since a direct offering is typically cheaper than an IPO, companies can raise funding without having major expenses. Since trading of shares bought through a direct offering is typically more difficult than those bought in an IPO, investors may request higher equity before they decide to invest. 

Security tokens

Companies can offer security tokens to investors through an issuance platform. Companies should be aware that these securities are required to follow SEC regulations. It is becoming more common for companies to offer securities through an issuance platform, as it allows them to reach a larger audience than traditional methods. This is also attractive to investors, as securities can be traded in a secondary market, providing them with more options and liquidity for their shares. 

Getting funds with a broker-dealer assistance

Additionally, companies looking to raise capital can do so with the help of a broker-dealer. Broker-dealers are SEC-registered entities that deal with transactions related to securities, as well as buying and selling securities for their own account or those of their customers. Plus, certain states require issuers to work with a broker-dealer to offer securities, so working with a broker-dealer allows issuers to maintain compliance with the SEC and other regulatory entities. This makes it likely that a company raising capital already has an established relationship with a broker-dealer. 

Funding through website

Lastly, companies looking to raise capital can do it directly through their website. With the KoreConX all-in-one platform, companies can raise capital at their website, maintaining their brand experience. The platform allows companies to place an “invest now” button on their site throughout their RegA, RegCF, RegD, or other offerings so that potential investors can easily invest. 

 

Whichever loan alternatives for startups you choose, it must make sure that it aligns with the company’s goals. Without understanding each method, it is possible that founders may end up being asked to give up too much equity and lose control of the company they have worked hard to build. Companies should approach the process of raising capital with a strategy already in place so that they can be satisfied with the outcome. 

 

*Disclaimer: This article was last reviewed in January 2024. Please note that regulatory landscapes and requirements are subject to rapid changes. The information provided here is reflective of the early part of 2024.

What is a Broker-Dealer?

We are diving into the world of FINRA Broker-Dealers – a crucial component in maintaining the integrity and trustworthiness of the private capital markets. We’ll explore their role, significance, and the technology that powers them, providing an overview of the challenges they face and their importance in safeguarding investors, companies, and intermediaries. 

We’ll also offer practical steps for those interested in becoming a FINRA Broker-Dealer, highlighting the ongoing responsibilities and the necessity of understanding the compliance landscape.

What is a broker-dealer?

Basically, a broker-dealer is a critical player in the financial landscape, serving as an intermediary that buys and sells securities for both clients and their own accounts. In essence, they facilitate the flow of capital by connecting investors with opportunities.

For people aiming to raise capital or just wanting to deep their knowledge, understanding the function and value of broker-dealers is important. As we’ll see in the next section, broker-dealers not only ensure transactions are executed efficiently but also uphold regulatory compliance, safeguarding the integrity of the capital markets and enhancing investor confidence.

Roles of a Broker-Dealer

Imagine you’re planning to climb a challenging mountain. Would you go alone or with an experienced guide? In the world of capital raising, FINRA Broker-Dealers are akin to these indispensable guides.

Therefore, one of major roles of a broker-dealer is to bring expertise and trustworthiness, ensuring that companies operate in compliance with regulations while securing capital.

An excellent example is when a startup, brimming with innovative ideas but new to the regulatory landscape, partners with a FINRA Broker-Dealer. This partnership not only enhances the credibility of the startup in the eyes of investors but also ensures adherence to the stringent regulatory framework, building a foundation of trust and reliability.  

The Pillars of the Private Capital Market

With over 3,000 registered FINRA Broker-Dealers in the USA, these entities are not just numerous; they are vital cogs in the financial ecosystem. They play a critical role in ensuring that capital markets operate smoothly, efficiently, and, most importantly, within the boundaries of securities law. Their presence bolsters investor confidence, knowing that there’s a regulatory watchguard ensuring fair and transparent transactions.

At KoreConX we only work with registered FINRA Broker-Dealers to utilize our infrastructure to make sure we provide and end to end compliant transactions for all participants in the transaction.

Broker-Dealer Compliance

The advent of the JOBS Act brought about a seismic shift in how private capital is raised, particularly for startups and small businesses. FINRA Broker-Dealers have been at the forefront of adopting technology to leverage these regulations efficiently. They use sophisticated platforms from KoreConX for tasks like conducting due diligence, monitoring transactions, and ensuring compliance with the JOBS Act and crowdfunding regulations. This technological integration not only streamlines processes but also enhances the accuracy and effectiveness of compliance measures.

Navigating Current Challenges

Despite their expertise and technological prowess, FINRA Broker-Dealers face an evolving landscape of challenges. The rapid pace of regulatory changes, the increasing complexity of financial products, and the need for advanced cybersecurity measures to protect sensitive data are just a few of the hurdles. Adapting to these changes while maintaining the highest standards of compliance and investor protection is a balancing act that requires constant vigilance and adaptability.

Safeguarding the Capital Market Ecosystem

The role of a FINRA Broker-Dealer transcends mere compliance. They are the guardians of market integrity, playing a pivotal role in ensuring a safe and fair environment for all participants – investors, companies, and intermediaries. Their work upholds the principles of transparency and fairness, which are fundamental to the health and stability of the private capital markets.

How to become a FINRA Broker-Dealer: Step-by-Step

  1. Understand the Regulatory Framework: Before embarking on this journey, it’s crucial to have a thorough understanding of the FINRA rules, SEC regulations, and other relevant laws. This knowledge is the foundation upon which your Broker-Dealer operations will be built.
  2. Obtain the Necessary Licenses: Register with FINRA, pass the required exams (like the Series 7 and Series 63), and meet the net capital requirements. This step is about more than just fulfilling legal obligations; it’s about equipping yourself with the tools and knowledge necessary for effective compliance and operation.  Once you have the people the firm also needs to add business line items such as RegCF, RegA+, digital securities to be able to transact in the private capital markets.
  3. Implement Robust Compliance and Technological Systems: Set up systems for ongoing compliance, including technology for record-keeping, reporting, and monitoring transactions. Remember, becoming a Broker-Dealer is not just about starting; it’s about maintaining and continuously improving your operations and compliance posture.  FINRA has requirements where information can be hosted that FINRA Broker-Dealers must follow, we are KoreConX follow these guidelines so FINRA Broker-Dealers can transact with confidence.

 

Educating for a Better Financial Future

Embarking on the journey to become a FINRA Broker-Dealer is not just about fulfilling a regulatory role; it’s about committing to the ongoing responsibility of maintaining licenses, staying abreast of regulatory changes, and undertaking permissible activities. This role is crucial in safeguarding the interests of all parties involved in the private capital markets, thereby ensuring a stable, transparent, and fair financial ecosystem.

Understanding the requirements and responsibilities of being a FINRA Broker-Dealer is vital for anyone considering this path. It’s a commitment to excellence, continuous learning, and an unwavering dedication to maintaining the integrity of the capital markets. As we navigate the ever-evolving landscape of private investing, the role of the FINRA Broker-Dealer remains more important than ever, acting as a beacon of trust, compliance, and stability in the dynamic world of finance.

 

Protecting shareholder rights: Can transfer agents save democracy?

In today’s article, we’ll talk about the key role of transfer agents in protecting shareholder rights and corporate governance. Especially when it comes to potential threats from powerful actors like oligarchs or governments.

Introduction

A long time ago in what seems like a different universe, I was working on an IPO for a company that will have to remain unidentified in a country that never experienced Enlightenment thinking.

The company’s CEO and majority owner decided to challenge the local dictator’s political leadership. Dictator X didn’t take kindly to that and decided that a change of ownership of the company was in order.

One of the ways he did that was to simply change the share register. “All your shares are belong to me”, he goes. 

And the keeper of the register does not challenge that because at least one person has already shown up dead in a quarry at that point.

We need to talk about protecting shareholder rights. 

It’s worth to consider

I’m not suggesting that anything like that is happening here yet. But I am worrying about the sanctity of the share register for a couple of reasons. 

First, the political environment suggests that many places might be moving towards a more dirigiste system with more political interference into the conduct of companies, with companies being penalized for behavior or policies the political leadership disapproves of.

Second, in our own industry, I’ve seen instances where issuers and gatekeepers (including lawyers) are looking for easy solutions to the existence of inconvenient shareholders. For example, trying to “reverse” the sale of shares that has already taken place by returning the money because of some compliance failure in an offering. Or trying to “cash out” non-accredited shareholders in an acquisition transaction that runs into the “Rule 145 problem” where registering or finding an available exemption is impossible or inconvenient.

Protecting shareholder rights

Here’s the thing. A share is a bundle of economic and governance rights. Some of those rights are specified by the corporate laws of the state in which a company is incorporated. Some of those rights are set out in the bylaws. State law dictates how rights granted to shareholders may be modified. If a company (or a potential acquiror of the company) finds that having a large number of shareholders, or having non-accredited shareholders, is not part of its plan, then it can only remove them through prescribed means in accordance with corporate law. Neither they nor their agents can just wipe out a shareholder’s rights by throwing money at them if the ability to do so is not specified in law.

Transfer agents, please guard the share registers you are entrusted with. You may be the first line of defense against oligarchs. You are certainly the defender of retail investors.

You should be making sure that transfer of (or cancellation of) ownership is made according to the law. If someone wants to remove a shareholder on your register, make sure you have legal advice that says you can do that.

Also, does anyone have an opinion on whether a blockchain-only register would make this issue better or worse?

*This text was originally published on Crowdcheck.

How to choose the right trusted cap table provider

In the dynamic landscape of private companies, managing and maintaining an accurate and reliable capitalization table (Cap Table) is paramount. A Cap Table is a detailed ledger that outlines the ownership structure of a company, showcasing the distribution of equity among shareholders. As private companies grow and undergo various funding rounds, mergers, and acquisitions, having a trusted cap table provider becomes indispensable. 

What most entrepreneurs do not realize is the importance of the cap table until they are engaging in a transaction of raising capital, M&A, or going public.   Your company’s cap table becomes the deal breaker if you are not ready. 

This blog explores the significance of a reliable Cap Table and the advantages it brings to private companies when working with a 3rd party provider.

What is a Cap Table Provider?

A Cap Table Provider is a third-party entity that specializes in maintaining and managing your company’s cap table. Their primary role is to ensure that your cap table is accurate, up-to-date, and compliant with all relevant laws and regulations.

This service is especially crucial in the context of raising capital online, where multiple investors may be involved. 

A cap table provider has to follow securities and privacy laws, also assuring companies of Trust, this is not any law but its clear that you are trusting a provider with your most valuable assets to manage. 

What Do They Provide?

Cap table providers need to offer a range of services designed to streamline the complex process of cap table management for private companies. These services typically include:

→ Initial Setup: They will help you create your cap table from scratch, ensuring that all equity and securities are accurately recorded from day one.

→ Transaction Tracking: Providers keep a detailed record of all equity transactions, including investments, stock issuances, option grants, warrants, safe, saft, notes, digital securities, NFT, and more.

→ Compliance Monitoring: They ensure that your cap table adheres to all legal and regulatory requirements, including securities laws, tax laws, and accounting standards.

→ Scenario Modeling “Waterfalls”: Cap table providers can help you run “what-if” scenarios to understand the impact of various financial decisions on equity ownership and dilution.  This is often referred to as “waterfall” modeling.

→ Shareholder Reporting: They generate reports and statements for your investors, making it easier to communicate and maintain transparency.  Very important element to make sure reports such as K1, dividends, AGM etc are delivered in a timely manner.

Valuation Management: Providers assist in tracking the valuation of your company over time, which is vital for determining the worth of individual equity stakes.  For private companies 409a reporting is critical and also mandated.

→ Exit Planning: As your company grows, they help you prepare for exit events such as mergers, acquisitions, or initial public offerings (IPOs).

Why It’s Important to Work with a 3rd Party Provider

Choosing a trusted cap table provider is not just an option; it’s a strategic necessity for any private company, especially those raising capital online and utilizing the JOBS Act Regulations such as RegCF, RegD, and RegA+. Here’s why:

1. Expertise and Accuracy

Cap table management requires specialized knowledge of securities laws, tax regulations, and accounting standards. A third-party provider brings expertise to the table, ensuring your cap table is accurate and compliant, reducing the risk of costly errors.  Today, the movement of securities such as transfers and trades you need experts to maintain your book of records accurate.

2. Scalability

As your company grows, managing your cap table becomes increasingly complex. A provider has the resources and tools to handle the growing complexity, allowing you to focus on your core business operations.

3. Transparency

A third-party provider adds a layer of transparency between your company and its investors. This transparency fosters trust and confidence, vital for attracting and retaining shareholders.

4. Security and Confidentiality

Your cap table contains sensitive information about your shareholders and the financial health of your company. Trusting a third-party provider with this data ensures that it remains secure and confidential.  TRUST is not technology, TRUST is not regulations, TRUST needs to be the DNA of the company.

5. Regulatory Compliance

Securities laws and regulations are constantly evolving. A cap table provider stays updated with these changes, helping your company stay compliant and avoid legal issues.

Choosing a trusted cap table provider

Perhaps the most critical aspect of choosing a cap table provider is TRUST. Your company is entrusting the provider with one of its most valuable assets: its shareholders. Here’s why trust is of utmost importance:

Factor Description
Confidentiality A trusted cap table provider understands the importance of keeping your shareholder information confidential. They have robust security measures in place to safeguard this data from unauthorized access or breaches. Not only managing securely but making sure the provider is not using your data.
Accuracy Errors in your cap table can lead to disputes, legal issues, and even damage your company’s reputation. Trustworthy providers have rigorous quality control processes in place to ensure the accuracy of your cap table.
Responsiveness In the fast-paced world of business, you need a provider who is responsive to your needs. Trustworthy providers prioritize client communication and support, ensuring your concerns are addressed promptly.
Compliance Trustworthy providers are well-versed in securities regulations and take compliance seriously. They help your company stay on the right side of the law, reducing the risk of regulatory trouble. A cap table provider should provide your company with a TRUST document that is beyond external regulatory compliance.
Reputation A provider’s reputation matters. Check their track record, client testimonials, and industry reputation to ensure they have a history of delivering quality service.

For CEOs, Presidents, CFOs, COOs, Chief Legal Counsel, and Lawyers, selecting a trusted cap table provider is a strategic decision that can greatly impact your company’s success, especially when raising capital online.

The right provider offers TRUST, expertise, scalability, transparency, and security. Above all, TRUST between your company and the provider is paramount, as they safeguard your most valuable assets—your shareholders. By choosing a reputable provider, you can navigate the complex world of cap table management with confidence, knowing that your financial records are in capable hands.

Reg S vs online offerings: key issues

In the complex sphere of securities, the SEC’s Regulation S holds significant importance, but it is frequently misunderstood by many in the industry. Therefore, having a clear understanding about its role is essential for to be well-informed and avoid misconceptions.

 

Introduction

We often hear suggestions that a Reg S offering be added to an offering being made under one of the online offering exemptions (Reg A, Reg CF or Rule 506(c) under Reg D). This is very rarely a good idea. Reg S sits very uneasily with the online exemptions. Although the conditions under which such offerings can be made using general solicitation vary, each of them can use general solicitation. Reg S offerings cannot.

Reg S requires that offers and sales be made in an “offshore transaction”, which means no offer can be made to a person in the United States and that you have to know or reasonably believe that any buyer of securities is physically located outside the United States. Additionally, “directed selling efforts” in the United States are prohibited.

Eye on compliance!

Directed selling efforts are much broader than general solicitation, including any activities that “condition the market” and would include not just advertising, but also person-to-person sales communications.

The type of communications permitted under the online offering exemptions would generally blow both the offshore transaction requirement and the directed selling effort prohibition. As we all know, the term “offer” is interpreted very broadly in US securities law.

If you are making an offering under multiple “exemptions”, even if you don’t mention the Reg S offering, the SEC is likely to take the view that general solicitation activities will result in conditioning the market for the Reg S offering. The Staff has certainly asked issuers making offerings under several exemptions contemporaneously for an “integration” analysis – explaining why various communications should not be treated as resulting in the several offerings being treated as essentially one plan of financing.

Efforts to argue to the Staff that one communication relates to one offering, and another communication relates to an offering under a different exemption have been met with a robust skepticism, and the Staff have often seemed to take the view that communications for multiple offerings cross-market each other. This would be even more the case if one of the offerings were being made under Reg S, where the “market conditioning” prohibition is baked into the rule.

Mentioning the Reg S offering in communications in the United States, would of course be a violation of the “no offers in the United States” requirement. But if you didn’t mention it, you would run the risk of omitting disclosure of a material fact.

Reg S and Online Offerings: think twice

Although its technically possible, is rarely adding a Reg S element to any offering being made under an online offering exemption. It’s reasonable consider that if you did want to add Reg S, you would need a geofenced offering site accessible only to persons outside the United States.

You need a separate set of offering docs (to comply with the other conditions of Reg S, which I haven’t even touched on here). And you would need to ensure that no-one who invested came to the offering because of all the communications you used in the other offerings – the LinkedIn ads, the TikTok videos, the Insta pics, the You Tube videos. And that’s a difficult task.

And bear in mind that even if you were to structure an offering to meet the requirements of Reg S, you would still need to consider compliance with the securities laws of the countries your investors are from, as you would with any of the other “exemptions”.

In most cases, from a practical point of view, you are better off relying on the usual online offering exemptions, even to accommodate non-US investors.

 

* Credits: Sara Hanks, CrowdCheck.

Canada 45-106 Reporting Obligations

Raising capital as a company can be an exciting step, but understanding some particularities of the area is not always so easy. One crucial aspect is understanding prospectus requirements, detailed legal documents outlining a security offering.

Regulation 45-106, a game-changer for Canadian companies by offering “exemptions” from this requirement, but it’s not a free pass, it has specific conditions.

Curious? Keep reading and check practical aspects about Canada 45-106 Reporting Obligations.

Introduction

Regulation 45-106, also known as National Instrument 45-106, is a key piece of Canadian securities law that governs exemptions from issuing a prospectus (a detailed legal document) for companies raising capital.

It outlines specific scenarios where companies can offer and sell securities without a prospectus, often referred to as “exemptions.” This streamlines the process for both companies and investors by reducing documentation and administrative burdens.

However, using these exemptions doesn’t mean companies get a free pass. Regulation 45-106 also imposes reporting requirements on companies that utilize these exemptions, typically those raising capital through private placements (selling shares to a limited group of accredited investors). These reports serve two main purposes:

 

  • Transparency: Provide investors and regulators with detailed information about the company and its securities offering, enabling informed investment decisions and ensuring everyone has access to essential facts.

 

  • Investor protection: Uphold a high standard of market integrity by deterring fraud and ensuring investors are treated fairly.

 

Therefore, Regulation 45-106 balances streamlined capital raising with essential investor protection by allowing exemptions under specific conditions but requiring reporting to maintain transparency and safeguard investor interests.

Filing Form 45-106: don’t forget this!

As we talked in the previous section, the National Instrument 45-106 is a securities regulation in Canada that governs prospectus and registration exemptions for issuers and investors. 

In this context, it sets out various exemptions from the prospectus requirement for the issuance and trading of securities, along with specific reporting obligations for companies that rely on these exemptions.

The reporting requirements for companies under Regulation 45-106 primarily apply to issuers who issue securities under specific exemptions, such as the private placement exemptions. The reporting obligations aim to provide investors and regulators with information about the issuers and their securities offerings, ensuring transparency and investor protection.

What is 45-106 filing?  

Summing up, the 45-106 filing is a mandatory reporting process in Canadian securities regulations. It involves submitting a form with detailed information about the issuer, security, exemptions, offering amount, and investors. 

Let’s take a closer look.

  • Form 45-106F1 – Report of Exempt Distribution:
    • Issuers who rely on certain prospectus exemptions (e.g., private placements) to issue securities in Canada must file a Form 45-106F1 – Report of Exempt Distribution.
    • This report must be filed with the applicable securities regulatory authority in each Canadian jurisdiction where the distribution occurred.
    • The Form 45-106F1 contains details about the issuer, the type of security issued, exemptions relied upon, the offering amount, and information about the investors.

Regulation 45-106 Compliance: best practices

Seeking professional assistance to fill out the forms and solve questions about your business and 45-106 is a key aspect and might be considered since the beginning of the process.

It’s crucial for companies and issuers to understand the specific reporting requirements associated with the exemptions used and to ensure timely and accurate filings to meet their regulatory obligations. Compliance with reporting requirements under Regulation 45-106 contributes to maintaining transparency in the Canadian capital markets and supports investor confidence. Companies should seek guidance from legal and financial professionals familiar with Canadian securities regulations to navigate these obligations effectively.