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Reg A+ SEC Reporting Obligations (part 1)

Posted on by Thiago Tags: , ,

Regulation A+ offers great fundraising chances for companies, but understanding SEC reporting obligations might be confusing sometimes.

This guide highlights the key forms, deadlines, and compliance measures associated with Tier 1 and Tier 2 offerings. Essential info to empower you to navigate the landscape of SEC reporting obligations for Reg A+ with more clarity.

No more deciphering cryptic acronyms or wrestling with mountains of paperwork. We’ll demystify Forms 1-K, 1-SA, and 1-U, providing a clear roadmap for accurate and timely filings. Whether you’re a budding Tier 1 startup or a seasoned Tier 2 company seeking expansion, this guide equips you with the knowledge and tools to build investor trust, ensure regulatory compliance, and unlock the full potential of your RegA+ offering.

Ready to step into a world of informed decision-making? In this article you’ll discover:

  • A comprehensive breakdown of essential SEC reporting forms for Tier 1 and Tier 2 offerings.
  • Clear explanations of filing deadlines and compliance requirements.
  • Practical tips and best practices for optimizing your RegA+ reporting strategy.
  • Insights about investor trust and transparency through effective reporting.

Keep reading and join us on the first part of this journey.

Contents

Reg A+ SEC Reporting obligations

With all the talk about Regulation A+, we often overlook what a company (Issuer) must comply with in order to use the regulation. There are a number of  mandatory requirements that an Issuer must comply with when using Regulation A+ (RegA+).

RegA+ reporting requirements entail periodic and ongoing reporting for companies that have conducted offerings under RegA+ of the Securities Act of 1933. These requirements differ depending on whether a company has completed a Tier 1 or Tier 2 offering under RegA+.

Here are the general reporting requirements for RegA+:

 

Tier 1 Offerings

  • Companies that conduct Tier 1 offerings (up to $20 million within a 12-month period) are subject to fewer ongoing reporting requirements.

 

  • Following the offering, Tier 1 issuers must file a Form 1-Z exit report within 30 days after the offering is terminated or completed. This form includes information on the termination or completion of the offering and the proceeds received.

 

  • It should be noted that there have been zero (0) companies using this Tier.

 

Tier 2 Offerings

Companies conducting Tier 2 offerings (up to $75 million within a 12-month period) are subject to more extensive ongoing reporting requirements.

General reporting requirements 
Form 1-K (Annual Report): Tier 2 issuers are required to file an annual report on Form 1-K within 120 days after the end of the fiscal year covered by the report. Includes: audited financial statements, management’s discussion and analysis (MD&A), information about the issuer’s business operations, and other disclosures.
Form 1-SA (Semiannual and Quarterly Reports): Tier 2 issuers must file semiannual reports on Form 1-SA within 90 days after the end of the first six months of the issuer’s fiscal year. Quarterly reports on Form 1-SA are not required.
Current Event Reports: Tier 2 issuers must also submit certain “current event” reports on Form 1-U to report specified events promptly, such as fundamental changes, changes in control, or bankruptcy proceedings.

These reporting obligations aim to provide investors with timely and relevant information about the issuer’s financial condition, business operations, and material events that could impact their investment decisions.

It’s essential for companies that have conducted Regulation A+ offerings to comply with these reporting requirements to maintain regulatory compliance and transparency with investors.

Additionally, the specific reporting requirements and deadlines may vary, and companies should ensure they adhere to the regulations outlined by the Securities and Exchange Commission (SEC). To help in this process is important to seek guidance from legal and financial professionals to navigate these obligations effectively.

SEC Reporting Requirements – Form 1-A

SEC Form 1-A is an offering statement that companies use to register certain securities offerings with the U.S. Securities and Exchange Commission (SEC) under Regulation A of the Securities Act of 1933. Regulation A offers an exemption from full SEC registration requirements and allows smaller companies to offer and sell securities to the public without going through the traditional and more extensive registration process.

 

Form 1-A consists of three distinct parts, each serving a specific purpose:

  • Part I – Notification: This section includes basic information about the issuer, the type of securities being offered, and the intended use of proceeds from the offering. It provides an overview of the offering and the company’s business operations.

 

  • Part II – Offering Circular: This section contains the detailed disclosure document, often referred to as the offering circular. The offering circular includes comprehensive information about the company, its management, business operations, financial statements, risks, intended use of proceeds, and other material information relevant to potential investors. It is similar to a simplified prospectus and aims to provide investors with enough information to make informed investment decisions.

 

  • Part III – Exhibits: This part includes various exhibits and additional documents that support the information provided in Parts I and II. It may include financial statements, legal agreements, consents, and other relevant documents that help to substantiate the disclosures made in the offering circular.

 

Companies planning to offer and sell securities to the public under Regulation A must file Form 1-A electronically through the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. After the SEC reviews and qualifies the offering statement, the company can proceed with the public offering.

Form 1-A filings are subject to SEC review and comments, similar to the registration process for larger offerings. However, Regulation A offerings generally have less stringent disclosure requirements compared to traditional registered offerings, allowing smaller companies to access the capital markets more easily.

It’s important to note that Form 1-A is specifically tailored for Regulation A offerings and differs from other SEC forms used for different types of offerings and securities registrations. Companies seeking to conduct Regulation A offerings should work closely with legal and financial professionals to ensure compliance with SEC regulations and to prepare the required disclosures accurately and effectively.

Today, we’ve wrapped up the first part of our journey into SEC reporting obligations under Regulation A+. We’ve covered some crucial points regarding REG A+ SEC reporting obligations. So, what’s next?  In the upcoming article, we’ll dive deeper into the intricacies of these reporting requirements. We’ll help you navigate the waters of Regulation A+ and gain a better understanding of its implications for companies.

Stay tuned for Part 2!

Online Capital Formation for Private Companies

Posted on by Thiago Tags: , , , , ,

In the fast-paced private company landscape, understanding Online Capital Formation dynamics is not just a strategic advantage – it’s imperative. As we commemorate the twelfth anniversary of the JOBS Act in 2024, it’s evident that evolving capital-raising regulations have paved the way for a transformative approach to business financing. In this ever-changing scenario, everyone in the private market needs to grasp the significance of Online Capital Formation to unlock myriad opportunities for their ventures.

Table of Contents

  1. Making Capital Formation Accessible for Private Enterprises
  2. The Complexity of RegCF and RegA+
  3. Beyond Conventional Crowdfunding
  4. Seizing the Future with Online Capital Formation
  5. Final Insights

 

Making Capital Formation Accessible for Private Enterprises

At its core, the democratization of capital is a driving force behind Online Capital Formation. Gone are the days when crowdfunding merely conjured images of Kickstarter campaigns. Today, it has evolved into a sophisticated financial tool, especially with the maturation of Regulation CF (RegCF) and Regulation A+ (RegA+) over the past decade.

RegCF and RegA+ are two sets of rules established by the U.S. Securities and Exchange Commission (SEC) to govern equity crowdfunding. They were both introduced as part of the JOBS Act (Jumpstart Our Business Startups Act) and their primary goal is to make it easier for businesses and startups (from small to enterprises) to raise capital by offering and selling securities online.

The concept of digital securities involves representing traditional financial instruments (such as stocks or bonds) in digital form using blockchain technology. Digital securities enable more efficient and transparent transactions, and they can be traded on digital securities exchanges.

The Complexity of RegCF and RegA+

RegCF and RegA+ transcend the traditional crowdfunding model, where entrepreneurs pitch ideas for product launches. Instead, they empower companies to transform investors into shareholders. The focus has shifted from merely selling stories to selling stock – a nuanced shift that goes beyond the conventional understanding of crowdfunding.

In order to fit in each of these regulations, companies must pass the eligibility criteria for each of them and provide certain disclosures to investors, including information about their business, financial condition, and the terms of the offering. The level of disclosure required is less extensive compared to traditional IPOs, but it aims to provide investors with enough information to make informed investment decisions.

Beyond Conventional Crowdfunding

These regulations are more than regulatory frameworks; they’re a paradigm shift that offers private companies a more expansive and flexible avenue for raising capital. They allow them to raise capital from both accredited and non-accredited investors, which includes their own clients and employees. RegCF allows them to raise up to 5 million dollars while with RegA+, it’s possible to raise up to 75 million dollars.

Equity Crowdfunding is an alternative pathway to access capital markets, offering a more cost-effective and less burdensome option than a full IPO. It has helped more people invest in early-stage funding, making investment opportunities available to a wider range of investors. With these regulations, you can leverage the internet and technology to connect with more investors and grow the business.

Seizing the Future with Online Capital Formation

While the term “crowdfunding” remains rooted in popular imagination, it falls short of encapsulating the depth and complexity of RegCF and RegA+. We must recognize these exemptions have matured into a robust mechanism that demands a more nuanced understanding. They must carefully navigate the regulatory requirements and considerations as this is monitored by the SEC aiming to ensure investor protection and maintain market integrity.

To shed light on this evolution, we have collaborated with industry experts, including Sara Hanks, CEO/Founder of CrowdCheck, and Douglas Ruark, President of Regulation D Resources, now known as Red Rock Securities Law. Together, we aim to redefine the landscape by emphasizing what we believe heralds a new era in crowdfunding: Online Capital Formation. 

Additionally, success in equity crowdfunding often depends on effective marketing, transparent communication, and a compelling value proposition for investors.  From accessing diverse investors to increasing brand visibility, this overview highlights seven key benefits. Take a look at the chart.

# Top 7 Benefits of Democratizing Capital Formation
1 Access to Diverse Investors
2 Engagement of Customers
3 Increased Brand Visibility
4 Flexibility in Fundraising
5 Gathering Early Feedback
6 Cost-Effectiveness
7 Potential for Liquidity

A Closer Look at the Top 7 Benefits of Democratizing Capital Formation

Final insights

As private company owners and managers, the onus is on you to comprehend the evolving dynamics of Online Capital Formation. It’s not merely a trend. Embrace the opportunities, stay informed, and position your venture at the forefront of this new era in crowdfunding. The journey begins with understanding. If you’re looking to raise capital and want to know more about your company’s suitability and which steps to take first, book a call with one of our specialists.

Subsidiaries using RegCF

Posted on by Sara Hanks Tags: , , , , , ,

Subsidiaries using RegCF: introduction

This came up no less than three times last week, so I figured it was worth a blog post.

Subsidiaries can raise funds under Reg CF, even if they are subsidiaries of companies who cannot use Reg CF themselves, because they have a class of securities registered with the SEC, or they are not US companies. To determine eligibility, you look at the status of the potential issuer. Is it a US company? Have you confirmed it’s not an investment company? If it’s raised funds under Reg CF before, is it in compliance with ongoing reporting requirements?

We need to add another element to this determination: is the US sub genuinely the issuer under Reg CF, or is there a “co-issuer” in the picture? And if there is, is the co-issuer prevented from using Reg CF because it’s an SEC-registered or foreign company?

There’s no useful definition of “co-issuer” under securities law (and if you go looking for one, what you will find will only confuse you) but when faced with the issue, we often ask clients to take a step back and ask themselves: “Whose performance is the investor relying on when they make their investment?” If the funds raised are going to be used at the subsidiary level, and the subsidiary is a genuine operating company, with employees, and a business plan, then everything may be ok, even if some portion of the funds end up at the parent level; for instance, payments for contracted support functions, or as license payments. But if the US sub is being effectively used as a finance sub, has no employees, and the funds are sent upstream to the parent, then you probably have a co-issuer, who is subject to the same eligibility, financial statement, and disclosure requirements as its sub.

It’s always going to be a matter of judgement, and as the SEC loves to remind us, dependent on facts and circumstances. It is worth going through the above analysis with your counsel to determine if the subsidiary is eligible to raise funds under Reg CF.

 

 

* Subsidiaries using RegCF was originally published on Crowdcheck.

Communications and publicity by issuers prior to and during a Regulation CF (RegCF) Offering

Posted on by Sara Hanks Tags: , , , , , , , ,

In the world of finance, “Communications and publicity by issuers” plays a critical role, especially when it comes to crowdfunding campaigns. The way issuers communicate about their securities offerings is tightly regulated by the SEC to ensure transparency and fairness. These regulations aim to prevent market manipulation and ensure that all potential investors have equal access to essential information. Crowdfunding, while an innovative approach to fundraising, must adhere to specific rules to maintain integrity in financial markets. Issuers must navigate these rules carefully to avoid legal complications and maximize the potential of their offerings.

The idea behind crowdfunding is that the crowd — family, friends, and fans of a small or startup company, even if they are not rich or experienced investors — can invest in that company’s securities. For a traditionally risk-averse area of law, that’s a pretty revolutionary concept.  

In order to make this leap, Congress wanted to ensure that all potential investors had access to the same information. The solution that Congress came up in the JOBS Act with was that there had to be one centralized place that an investor could access that information — the website of the funding portal or broker-dealer that hosts the crowdfunding offering (going forward we will refer to both of these as “platforms”). 

This means (with some very limited exceptions that we’ll describe below) most communications about the offering can ONLY be found on the platform. On the platform, the company can use any form of communication it likes, and can give as much information as it likes (so long as it’s not misleading). Remember that the platforms are required to have a communication channel — basically a chat or Q&A function — a place where you can discuss the offering with investors and potential investors (though you must identify yourself). That gives you the ability to control much of your message. 

So with that background in mind, we wanted to go through what you can and cannot do regarding communications prior to and during the offering. Unfortunately, there are a lot of limitations. Securities law is a highly regulated area and this is not like doing a Kickstarter campaign. Also, bear in mind this is a changing regulatory environment. We put together this guide based on existing law, the SEC’s interpretations that it put out on May 13, and numerous conversations with the SEC Staff. As the industry develops, the Staff’s positions may evolve. 

We do understand that the restrictions are in many cases counter-intuitive and don’t reflect the way people communicate these days. The problems derive from the wording of the statute as passed by Congress. The JOBS Act crowdfunding provisions are pretty stringent with respect to publicity; the SEC has “interpreted” those provisions as much as possible to give startups and small businesses more flexibility. 

What you can say before you launch your offering 

US securities laws regulate both “offers” and sales of securities; whenever you make an offer or sale of securities, that offer or sale must comply with the SEC’s rules. The SEC interprets the term “offer” very broadly and it can include activity that “conditions the market” for the offering. “Conditioning the market” is any activity that raises public interest in your company, and could include suddenly heightened levels of advertising, although regular product and service information or advertising is ok (see discussion below). 

Under new rules which went into effect on March 15, 2021, companies considering making a crowdfunding offering may “test the waters” (TTW) in order to decide whether to commit to the time and 2 expense of making an offering.1 Prior to filing the Form C with the SEC, you may make oral or written communications to find out whether investors might be interested in investing in your offering. The way in which you make these communications (eg, email, Insta, posting on a crowdfunding portal site) and the content of those communications are not limited, but the communications must state that: 

  • No money or other consideration is being solicited, and if sent in response, will not be accepted; 
  • No offer to buy the securities can be accepted and no part of the purchase price can be received until the offering statement is filed and only though the platform of an intermediary (funding portal or broker-dealer); and 
  • A person’s indication of interest includes no obligation or commitment of any kind.2 

You can collect indications of interest from potential investors including name, address, phone number and/or email address. The rule does not address getting any further information, such as the manner of any potential payment. If you do make TTW communications, you must file any written communication or broadcast script as an exhibit to your Form C. And TTW communications are subject to the regular provisions of securities law that impose liability for misleading statements. 

Before the point at which you file your Form C with the SEC, the TTW process is the only way you can make any offers of securities, either publicly or privately. This would apply to meetings with potential investors, giving out any information on forums which offer “sneak peeks” or “first looks” at your offering, and public announcements about the offering. Discussions at a conference or a demo day about your intentions to do a crowdfunding offering must comply with the TTW rules and you should read out the information in the bullets above. Any non-compliant communication made prior to filing the Form C may be construed as an unregistered offer of securities made in violation of Section 5 of the Securities Act — a “Bad Act” that will prevent you from being able to use Regulation CF, Rule 506, or Regulation A in the future. 

Normal advertising of your product or service is permitted as the SEC knows you have a business to run. However, if just before the offering all of a sudden you produce five times the amount of advertising that you had previously done, the SEC might wonder whether you were doing this to stir up interest in investing in your company. If you plan to change your marketing around the time of your offering (or if you are launching your company at the same time as your RegCF offering, which often happens), it would be prudent to discuss this with your counsel so that you can confirm that your advertising is consistent with the SEC’s rules. 

Genuine conversations with friends or family about what you are planning to do and getting their help and input on your offering and how to structure it, are ok, even if those people invest later. You can’t be pitching to them as investors, though, except in compliance with the TTW rules. 

What you can say after you launch 

After you launch your offering by filing your Form C with the SEC, communications outside the platform fall into two categories: 

  • Communications that don’t mention the “terms of the offering”; and 1 We are talking here about Crowdfunding Regulation Rule 206. There is another new rule that permits testing the waters before deciding which type of exempt offering (eg, Regulation CF or Regulation A) to make, which does not preempt state regulation; using that rule may be complicated and require extensive legal advice. 2 We advise including the entirety of this wording as a legend or disclaimer in the communication in question. The convention in Regulation A is that “it it fits, the legend must be included” and if the legend doesn’t fit (eg, Twitter) the communication must include an active hyperlink to it. 3 
  • Communications that just contain “tombstone” information. 

Communications that don’t mention the terms of the offering 

We are calling these “non-terms” communications in this memo, although you can also think of them as “soft” communications. “Terms” in this context are the following: 

  • The amount of securities offered; 
  • The nature of the securities (i.e., whether they are debt or equity, common or preferred, etc.); 
  • The price of the securities; 
  • The closing date of the offering period; 
  • The use of proceeds; and 
  • The issuer’s progress towards meeting its funding target. 

There are two types of communication that fall into the non-terms category. 

First, regular communications and advertising. You can still continue to run your business as normal and there is nothing wrong with creating press releases, advertisements, newsletters and other publicity to help grow your business. If those communications don’t mention any of the terms of the offering, they are permitted. Once you’ve filed your Form C, you don’t need to worry about “conditioning the market.” You can ramp up your advertising and communications program as much as you like so long as they are genuine business advertising (e.g., typical business advertising would not mention financial performance). 

Second, and more interestingly, offering-related communications that don’t mention the terms of the offering. You can talk about the offering as long as you don’t mention the TERMS of the offering. Yes, we realize that sounds weird but it’s the way the statute (the JOBS Act) was drafted. Rather than restricting the discussion of the “offering,” which is what traditional securities lawyers would have expected, the statute restricts discussion of “terms,” and the SEC defined “terms” to mean only those six things discussed above. This means you can make any kind of communication or advertising in which you say you are doing an offering (although not WHAT you are offering; that would be a “term”) and include all sort of soft information about the company’s mission statement and how the CEO’s grandma’s work ethic inspired her drive and ambition. 

You can link to the platform’s website from such communications. But be careful about linking to any other site that contains the terms of the offering. A link (in the mind of the SEC) is an indirect communication of the terms. So linking to something that contains terms could mean that a non-terms communication becomes a tombstone communication (see below) that doesn’t comply with the tombstone rules. This applies to third-party created content as well. If a third-party journalist has written an article about how great your company is and includes terms of the offering, linking to that article is an implicit endorsement of the article and could become a statement of the company that doesn’t comply with the Tombstone rules. 

Whether you are identifying a “term” of the offering can be pretty subtle. While “We are making an offering so that all our fans can be co-owners,” might indirectly include a term because it’s hinting that you are offering equity, it’s probably ok. Try to avoid hints as to what you are offering, and just drive investors to the intermediary’s site to find out more. 

Even though non-terms communications can effectively include any information (other than terms) that you like, bear in mind that they are subject, like all communications, to the securities antifraud rules. So even though you are technically permitted to say that you anticipate launching your “Uber for Ferrets” in 4 November in a non-terms communication, if you don’t have a reasonable basis for saying that, you are in trouble for making a misleading statement. 

Tombstone communications 

A tombstone is what it sounds like — just the facts — and a very limited set of facts at that. Think of these communications as “hard” factual information. 

The specific rules under Regulation CF (RegCF) allow for “notices” limited to the following, which can be written or oral: 

  • A statement that the issuer is conducting an offering pursuant to Section 4(a)(6) of the Securities Act; 
  • The name of the intermediary through which the offering is being conducted and (in written communications) a link directing the potential investor to the intermediary’s platform; 
  • The terms of the offering (the amount of securities offered, the nature of the securities, the price of the securities, the closing date of the offering period, the intended use of proceeds, and progress made so far); and 
  • Factual information about the legal identity and business location of the issuer, limited to the name of the issuer of the security, the address, phone number, and website of the issuer, the e-mail address of a representative of the issuer and a brief description of the business of the issuer. 

These are the outer limits of what you can say. You don’t have to include all or any of the terms. You could just say “Company X has an equity crowdfunding campaign on SuperPortal — Go to www.SuperPortal.com/CompanyX to find out more.” The platform’s address is compulsory.

“Brief description of the business of the issuer” does mean brief. The rule that applies when companies are doing Initial Public Offerings (IPOs), which is the only guidance we have in this area, lets those companies describe their general business, principal products or services, and the industry segment (e.g.,for manufacturing companies, the general type of manufacturing, the principal products or classes of products and the segments in which the company conducts business). The brief description does not allow for inclusion of details about how the product works or the overall addressable market for it, and certainly not any customer endorsements. 

“Limited time and availability”-type statements may be acceptable as part of the “terms of the offering.” For example, the company might state that the offering is “only” open until the termination date, or explain that the amount of securities available is limited to the oversubscription amount. 

A few “context” or filler words might be acceptable in a tombstone notice, depending on that context. For example, the company might state that it is “pleased” to be making an offering under the newly- adopted Regulation Crowdfunding, or even refer to the fact that this is a “historic” event. Such additional wording will generally be a matter of judgement. “Check out our offering on [link]” or “Check out progress of our offering on [link]” are OK. “Our offering is making great progress on [link]” is not. Words that imply growth, success or progress (whether referring to the company or the offering) are always problematic. If you want to use a lot of additional context information, that information can be put in a “non-terms” communication that goes out at the same time and through the same means as a tombstone communication. 

The only links that can be included on a tombstone communication are links to the platform. No links to 5 reviews of the offering on Kingscrowd. No links to any press stories on Crowdfund Insider or CrowdFundBeat. No links to the company’s website. The implicit endorsement principle applies here just as with non-terms communications, meaning that anything you link to becomes a communication by the company. 

An important point with respect to tombstone notices is that while content is severely limited, medium is not. Thus, notices containing tombstone information can be posted on social media, published in newspapers, broadcast on TV, slotted into Google Ads, etc. Craft breweries might wish to publish notices on their beer coasters, and donut shops might wish to have specially printed napkins. 

What constitutes a “notice” 

It is important to note that (until we hear otherwise from the SEC) the “notice” is supposed to be a standalone communication. It can’t be attached to or embedded in other communications. That means you cannot include it on your website (as all the information on your website will probably be deemed to be part of the “notice” and it will likely fail the tombstone rule) and you cannot include it in announcements about new products — again, it will fail the tombstone rule. 

We have listed some examples of permissible communications in Exhibit A. 

Websites 

It’s a bad idea to include ANY information about the terms of the offering on your website. However, some issuers have found a clever solution: you can create a landing page that sits in front of your regular website. The landing page can include the tombstone information and two options: either investors can continue to your company’s regular webpage OR they can go to the platform to find out more about the offering on the platform. We have attached sample text for landing pages on Exhibit A. 

“Invest now” buttons 

Under the SEC’s current interpretations as we understand them, having an “invest now” button on your website with a link to the platform hosting your offering is fine although you should not mention any terms of the offering on your website unless your ENTIRE website complies with the tombstone rule. Most of them don’t. 

Social Media 

As we mention above, the medium of communication is not limited at all, even for tombstone communications. Companies can use social media to draw attention to their offerings as soon as they have filed their Form C with the SEC. Social media are subject to the same restrictions as any other communications: either don’t mention the offering terms at all or limit content to the tombstone information. 

Emails 

“Blast” emails that go out to everyone on your mailing list are subject to the same rules as social media: either don’t mention the offering terms at all or limit content to the tombstone information. Personalized emails to people you know will probably not be deemed to be advertising the terms of the offering, so you can send them, but be careful you don’t give your friends any more information than is on the platform — remember the rule about giving everyone access to the same information. 

Images 

Images are permitted in tombstone communications. However, these images also have to fit within the “tombstone” parameters. So brevity is required. Publishing a few pictures that show what the company does and how it does it is fine. An online coffee table book with hundreds of moodily-lit photos, not so much. Also, a picture tells a thousand words and those words better not be misleading. So use images only of real products actually currently produced by the company (or in planning, so long as you clearly indicate that), actual employees hard at work, genuine workspace, etc. No cash registers, or images of dollar bills or graphics showing (or implying) increase in revenues or stock price. And don’t use images you don’t have the right to use! (Also, we never thought we’d need to say this, but don’t use the SEC’s logo anywhere on your notice, or anywhere else.) 

While the “brevity” requirement doesn’t apply to non-terms communications, the rules about images not being misleading do. 

Videos 

Videos are permitted. You could have the CEO saying the tombstone information, together with video images of the company’s operations, but as with images in general, the video must comport with the tombstone rules. So “Gone with the Wind” length opuses will not work under the tombstone rule, although they are fine with non-terms communications. 

Updates and communications to alert investors that important information is available on the platform 

Updates can and should be found on the crowdfunding platform. You can use communications that don’t mention the terms of the offering, to drive readers to the platform’s site to learn about updates and things like webinars hosted on the platform. They may include links to the platform. 

Press releases 

Yes, they are permitted, but they can’t contain very much. Press releases are also laden with potential pitfalls, as we discuss below. Press releases that mention the offering terms are limited to the same “tombstone” content restrictions that apply to all notices. Companies may say that they are pleased (or even thrilled) to announce that they are making a crowdfunding offering but the usual quotes from company officers can’t be included (unless those quotes are along the lines of “ I am thrilled that Company will be making a crowdfunding offering,” or “Company is a software-as-a-service provider with offices in six states”). The “about the company” section in press releases is subject to the same restrictions and if the press release is put together by a PR outfit, watch out for any non-permitted language in the “about the PR outfit” section of the press release (nothing like “Publicity Hound Agency is happy to help companies seeking crowdfunding from everyday investors who now have the opportunity to invest in the next Facebook”). 

You could also issue non-terms press releases that state you are doing an offering (and you can identify or link to the platform) but don’t include terms and still include all the soft info, including quotes, mission statements and deep backgrounds. It’s likely, though, that journalists would call asking “So what are you offering, then?” and if you answer, you are going to make your non-terms communication into communication that fails the tombstone rule. 

Press interviews and articles 

Interviews with the media can be thorny because participation with a journalist makes the resulting 7 article a communication of the company. In fact, the SEC Staff have stated that they don’t see how interviews can easily be conducted, because even if the company personnel stick to the tombstone information (which would make for a pretty weird interview), the journalist could add non-tombstone information later, which would result in the article being a notice that didn’t comply with the tombstone rule. 

The same thing could happen with interviews where the company tries to keep the interview on a nonterms basis. The company personnel could refrain from mentioning any terms (again, it’s going to be pretty odd saying, “Yes, we are making an offering of securities but I can’t say what we are offering”), but the first thing the journalist is going to do is get the detailed terms from the company’s campaign page on the platform’s site, and again the result is that the article becomes a non-complying notice. 

These rules apply to all articles that the company “participates in.” This means that if you (or your publicists) tell the press, “Hey, take a look at the Company X crowdfunding campaign” any resulting article is probably going to result in a violation of the rules. By you. 

Links to press articles are subject to all the same rules discussed in this memo. If you link to an article, you are adopting and incorporating all the information in that article. If the article mentions the terms of the offering then you can’t link to it from a non-terms communication (such as your website) and if it includes soft non-terms information, then you can’t link to it from a tombstone communication. And if it includes misleading statements, you are now making those statements. 

Remember that prior to the launch of the offering you should not be talking about your campaign with the press (or publicly with anyone else). If you are asked about whether you are doing a campaign priorto launch you should respond with either a “no comment” or “you know companies aren’t allowed to discuss these matters.” No winking (either real or emoji-style.) 

Press articles that the company did not participate in 

In general, if you (or your publicists) didn’t participate in or suggest to a journalist that he or she write an article, it’s not your problem. You aren’t required to monitor the media or correct mistakes. However, if you were to circulate an article (or place it or a link to it on your website), then that would be subject to the rules we discuss in this memo. You can’t do indirectly what you can’t do directly. 

Also, if you add (or link to) press coverage to your campaign page on the platform’s site, you are now adopting that content, so it had better not be misleading. 

Demo Days 

Demo days and industry conferences are subject to many of the same constraints that apply to press interviews. In theory, you could limit your remarks to a statement that you are raising funds through crowdfunding, but in reality people are going to ask what you are selling. You could say “I can’t talk about that; go to SuperPortal.com,” but that would lead to more follow-up questions. And following the tombstone rules means you can’t say too much about your product, which rather undermines the whole purpose of a demo day. 

Demo days might be easier to manage when you are still in the testing-the-waters phase. 

“Ask Me Anythings” 

The only place you can do an “Ask Me Anything” (AMA) that references the terms of the offering is on the 8 platform where your offering is hosted. You can’t do AMAs on Reddit. Unless you limit the AMA to nonterms communications or tombstone information. In which case, people aren’t going to be able to ask you “anything.” 

Product and service advertising 

As we mentioned above, once you’ve filed your Form C, ordinary advertising or other communications (such as putting out an informational newsletter) can continue and can even be ramped up. Most advertising by its nature would constitute non-terms communication, so it couldn’t include references to the terms of the offering. So don’t include information about your offering in your supermarket mailer coupons. 

What about side by side communications? 

You are doubtless wondering whether you could do a non-terms Tweet and follow it immediately with a tombstone Tweet. It appears, at least for the moment, that this works. There is the possibility that if you tried to put a non-terms advertisement right next to a tombstone advertisement in print media or online, the SEC might view them collectively as one single (non-complying) “notice”. It is unclear how much time or space would need to separate communications to avoid this problem, or even whether it is a problem. 

“Can I still talk to my friends?”

Yes, you can still talk to your friends face to face at the pub (we are talking real friends, not Facebook friends, here) and even tell them that you are doing a crowdfunding offering, even before you file with the SEC. You aren’t limited to the tombstone information (man, would that be a weird conversation). After you’ve launched the offering, you can ask your friends to help spread the word (that’s the point of social media) but please do not pay them, even in beer or donuts, because that would make them paid “stock touts.” Don’t ask them to make favorable comments on the platform’s chat board either, unless they say on the chat board that they are doing so because you asked them to. If they are journalists, don’t ask them to write a favorable piece about your offering. 

“What if people email me personally with questions?” 

Best practice would be to respond “That’s a great question, Freddie. I’ve answered it here on the SuperPortal chat site [link]”. Remember the Congressional intent of having all investors have access tothe same information. 

Links 

As we’ve seen from the discussion above, you can’t link from a communication that does comply with the rule you are trying to comply with to something that doesn’t. So for example, you can’t link from a Tweet that doesn’t mention the offering terms to something that does and you can’t link from a tombstone communication to anything other than the platform’s website. 

Emoji 

Emoji are subject to antifraud provisions in exactly the same way as text or images are. The current limited range of emoji and their inability to do nuance means that the chance of emoji being misleading is heightened. Seriously people, you need to use your words. 

 

After the offering 

These limitations only last until the offering is closed. Once that happens you are free to speak freely again, so long as you don’t make any misleading statements. 

And what about platforms? 

The rules for publicity by platforms are different, and also depend on whether the platform is a broker or a portal. We have published a separate memo for them. CrowdCheck is not a law firm, the foregoing is not legal advice, and even more than usual, it is subject to change as regulatory positions evolve and the SEC Staff provide guidance in newly-adopted rules. Please contact your lawyer with respect to any of the matters discussed here. 

 

Exhibit A Sample Tombstones: 

  • Company X, Inc. 

[Company Logo] 

 

Company X is a large widget company based in Anywhere, U.S.A. and incorporated on July 4, 1776. We make widgets and they come in red, white, and blue. Our widgets are designed to spread patriotic cheer. 

 

We are selling common shares in our company at $17.76 a share. The minimum amount is $13,000 and the maximum amount is $50,000. The offering will remain open until July 4, 2021. 

 

This offering is being made pursuant to Section 4(a)(6) of the Securities Act. 

For additional information please visit: https://www.SuperPortal.com/companyx or Invest Button URL Link direct

  • Freddy’s Ferret Food Company is making a Regulation CF Offering of Preferred Shares on FundCrowdFund.com. Freddy’s Ferret Food Company was incorporated in Delaware in 2006 and has its principal office in Los Angeles, California. Freddy’s Ferret Food Company makes ferret food out of its four manufacturing plants located in Trenton, New Jersey. Freddy’s Ferret Food is offering up to 500,000 shares of Preferred Stock at $2 a share and the offering will remain open until February 2, 2021. For more information on the offering please go to www.fundcrowdfund.com/freddysferretfoodcompany. 

 

Sample “non-terms” communications 

  • We are doing a crowdfunding offering! We planning to Make America Great Again by selling a million extra large red hats and extra small red gloves with logos on them, and to bring jobs back to Big Bug Creek, Arizona. The more stuff we make, the greater our profits will be. We think we are poised for significant growth. Already we’ve received orders from 100,000 people in Cleveland. Invest in us TODAY, while you still can and Make Capitalism Great Again! [LINK TO PLATFORM]. 
  • Feel the “Burn”! We are making a crowdfunding offering on SuperPortal.com to raise funds to expand our hot sauce factory. Be a part of history. Small investors have been screwed for years.This is your chance to Stick it to the Man and buy securities in a business that has grown consistently for the last five years. 

 

Sample Communications on Social Media:
Note all these communications will have a link to the platform. 

 

  • Company Y has launched its crowdfunding campaign; click here to find out more. 

 

  • Interested in investing in Company Y? Click here. 

 

Sample Landing Page: 

Thanks to Regulation CF, now everyone can own shares in our company. 

 

[Button] Invest in our Company 

[Button] Continue to our Website

 

CrowdCheck is not a law firm, the foregoing is not legal advice, and even more than usual, it is subject to change as regulatory positions evolve and the SEC Staff provide guidance in newly-adopted rules. Please contact your lawyer with respect to any of the matters discussed here.

Private Capital Market Regulations – 10 RegA+ Issuers Penalized for SEC Violation: What Can We Learn?

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The Importance of Compliance in Private Capital Market Regulations

We’ve discussed compliance at length and how it’s essential for building trust within the private capital markets. But what happens when you’re not compliant?

The SEC will eventually find out and impose penalties to issuers that fail to meet securities regulations, as ten Regulation A+ (RegA+) issuers recently learned.

These recent violations can serve as a cautionary tale to issuers about the importance of adhering to Private Capital Market Regulations.

Regulation A+ and the SEC’s Oversight

Companies selling securities to raise capital generally have to register with the SEC and comply with other rules that can be expensive and onerous for smaller companies, so RegA+ allows exemptions from registration, provided certain other conditions are met. In its press release, the SEC announced that 10 RegA+ issuers failed to comply with these conditions, highlighting the challenges within Private Capital Market Regulations. The SEC reported that each issuer was previously qualified to sell securities under RegA+, but subsequently made significant changes to the offering so that it no longer met exemption requirements. These changes included “improperly increasing the number of shares offered, improperly increasing or decreasing the price of shares offered, failing to file updated financial statements at least annually for ongoing offerings, engaging in prohibited at the market offerings, or engaging in prohibited delayed offerings.”

Private Capital Market Regulations: Protecting Investors and Market Integrity

These regulations are not just arbitrary demands by the SEC; they exist to protect investors and the integrity of the system as a whole. For example, changing the offering price without getting those changes cleared by the SEC is a concern because it could be a vector for fraud or money laundering; issuing securities for a different price conceals the actual amount of money changing hands. Similarly, making unsanctioned changes to offering terms can erode investor confidence. Ideally, each investor conducted their own due diligence before investing – they felt comfortable with the terms listed in offering documents qualified by the SEC. Changing these terms without notifying investors and having changes approved by the SEC just isn’t fair play, and underscores the critical role of Private Capital Market Regulations.

The Consequences of Non-Compliance

The ten issuers cited by the SEC violated these principles, and got caught. Each company agreed to stop violating the Securities Act, and to pay civil penalties that ranged from $5,000 to $90,000. In the press release, Daniel R. Gregus, Director of the SEC’s Chicago Regional Office was quoted saying: “Companies that choose to benefit from Regulation A as a cost-effective way to raise capital must meet its requirements,” reinforcing the significance of compliance with Private Capital Market Regulations.

These penalties serve as a reminder that issuers must be careful when making changes to their offering after qualification. Working with an experienced team can help to mitigate some of this risk, but ultimately, it is the issuer’s responsibility to meet all securities regulations, including those pertaining to Private Capital Market Regulations. And as with most things, 90% of the job is preparation.

How not to fall into the wrong with the regulators checklist

  • Always check with your securities lawyer and FINRA Broker-Dealer who did your RegA+ filing before making any public statements, news releases, or announcements related to investment in your company, as these might be construed as offerings subject to SEC rules and Private Capital Market Regulations;
  • Track all your activities date, time, where distributed
  • Be thoroughly familiar with your company, its business, and how it is structured.
  • Have a clear idea of your company’s funding needs, how much capital you need to raise, what kind of equity or control you are prepared to give up in return
  • Seek advice from qualified experts: securities lawyers, broker-dealers, accountants; being familiar with your own company will help you answer their questions and get better advice.
  • Choose the right capital-raising route for your needs, whether it be a bank loan, remortgaging your house, or using one of the JOBS Act exemptions.
  • READ THE REGULATIONS! Seriously, read the regulations, and any explanatory notes from the SEC on how they apply and what you need to do to comply.
  • Make notes about the parts you’re not sure about, and ask your experts how they apply to you.

It may turn out that the exemption you initially chose isn’t the right one for your needs, so be prepared to go back and change your plans. It’s much easier to change plans before they’re implemented than it is to have to fix something that’s gone wrong with the implementation.

Once you’re satisfied with the regulation you’ve chosen, make a list of all the things you’ll need to do to carry out a compliant and successful raise. You might do this yourself, or with the assistance of your experts, but in any event you should have your experts review it to see if you’ve got anything wrong or left anything out. Execute the plan. You may need to delegate some of the items on the list to others, but ensure that there is always someone accountable to sign off on the completion of every requirement. Maintain a paper trail of who did what and when, not so much to know whom to blame but to be able to identify where something went wrong and how to fix it. Don’t panic. Mistakes happen.

What is an Escrow Provider’s Role in RegA+?

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An escrow provider is a neutral party that handles financial transactions between two or more parties. They are often used in the securities industry to ensure that all parties involved in trade receive their agreed-upon share of the investment. Escrow providers in RegA+ play an essential role, securely holding funds investors have paid until those investors can be verified. This article will explain what an escrow provider is, their importance in RegA+, and some of the benefits they offer companies.

 

An escrow provider is a financial institution or company that holds funds on behalf of two other parties until their agreement has been met. In the context of securities offerings, escrow providers are often used in Regulation A+ transactions to hold funds invested by investors until the broker-dealer has completed their due diligence on those investors. This due diligence includes verifying the investor’s identity and ensuring that the investment is legitimate.

 

The escrow provider plays an important role in protecting both the investor and issuer in a Reg A+ transaction. Holding the funds until the completion of the broker-dealer’s due diligence protects the issuer from fraud and also ensures that the buyer receives their money back if the deal falls through. 

 

Escrow providers help to make sure that all of the necessary steps are taken to complete the transaction and that everyone involved is satisfied with the outcome. Part of this process includes making sure that the correct paperwork is filed and that all of the right people have signed off on it and everyone involved is legitimate. 

 

Beyond using an escrow provider to ensure that your Reg A+ transactions are completed smoothly and efficiently, it is also required for companies utilizing equity crowdfunding. Therefore, choosing an experienced escrow provider can provide valuable assistance and peace of mind throughout the process. 

 

Escrow providers play an essential role in Reg A+ transactions by holding and managing the funds until the necessary due diligence has been completed. They also ensure that all parties involved in the transaction comply with securities laws. These factors make escrow providers in RegA+ a necessary component of a successful offering. 

What Does Direct Listing Mean?

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Recently, we received a question from an issuer wondering what “direct listing” means. In short, a direct listing, also sometimes referred to as a direct public offering, is an offering in which an issuer raises capital directly from investors without a third-party intermediary like a broker-dealer or funding platform. 

 

Direct listings can occur in both the public and private markets. In the private market, companies raising capital often do so under JOBS Act exemptions for SEC registration, such as RegA+ or RegD. Companies may opt for a direct listing because it lowers the costs of capital as there are often fewer fees that would otherwise be paid to an intermediary. Issuers can also use a direct listing to allow investors to invest through the issuer’s website, which can prevent investors from being directed to other offerings. This often gives issuers more control over the investment. In contrast, RegCF offerings cannot be conducted without using an SEC-registered intermediary.

 

However, there are significant downsides to opting for a direct listing. Some states require issuers to utilize an intermediary like a broker-dealer or funding portal to sell securities. Additionally, some Tier I RegA+ direct listings require the issuer to register the security in every state that it intends to sell the security, making the offering more burdensome and costly. Additionally, a direct listing can make it easier for companies to miss essential aspects of regulatory compliance, creating additional risks for themselves and investors. This, offerings made via a direct listing require a higher level of due diligence from investors to ensure they aren’t falling victim to fraud.

 

When using a registered intermediary like a broker-dealer or a funding portal, these entities often have defined processes and compliance requirements that ensure capital is being raised in accordance with securities regulations, protecting both issuers and investors. An SEC-registered intermediary ensures that an issuer has gone through due diligence like bad actor checks to validate that it is eligible to be listed on a portal.

 

Ultimately, any company seeking to raise capital through a JOBS Act exemption should talk to a broker-dealer and a securities lawyer to understand how they can compliantly and successfully raise the capital they need to grow in the private market. 

Private Equity vs. Venture Capital

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For companies looking to raise capital, there are many options on the table. From raising capital from friends and family and crowdfunding to private equity and venture capital, not every option is suited for all entrepreneurs. In this context, the question “Private Equity vs. Venture Capital” is becoming popular.

So in this article we will explore the difference between venture capital and private equity, as well as some alternatives for companies looking to secure funding in the private capital markets. 

 

What is Private Equity?

Private equity firms are investment firms that raise capital from accredited investors to make investments in private companies. In the case of private equity, these firms generally seek to take a majority stake in portfolio companies – which means that the firm will obtain greater than 50% ownership. Another characteristic of private equity firms is that they generally prefer to invest in established companies that have operational inefficiencies. The goal is to reduce these inefficiencies so that the company can turn profitable. If the firm sells a portfolio company or it goes public, it distributes returns to investors. 

 

What is Venture Capital?

Similar to private equity, venture capital (VC) firms raise capital from accredited investors. However, they take a different role in the private capital markets. VC firms seek to invest in early-stage and startup companies with high growth potential. They often control less than 50% ownership and take a mentorship role. Once a portfolio company is acquired or goes public through an IPO, it can distribute returns to investors. 

 

Alternative Capital Raising Opportunities

However, many companies find it difficult to secure VC or private equity funding. Since 2022, VC funding has dropped by more than 50% and late-stage investments have plummeted even more dramatically, down 63%. Still, there is hope for companies seeking to raise capital. During this time, the amount of capital being raised through JOBS Act exemptions had grown considerably, providing viable opportunities for entrepreneurs seeking capital. Through RegA+, companies can raise up to $75 million, and through RegCF, companies can raise up to $5 million. This capital can be raised from both accredited and nonaccredited investors, creating a wide pool of potential investors. At the same time, the minimum investment is typically much smaller, which allows everyday people to get involved with promising companies. It is also more cost-effective to raise capital through these alternatives than traditional VC or private equity firms, or going through an IPO.

 

Now that you know the key-points on Private Equity vs. Venture Capital, it’s easy to understand that learn about the differences can help you identify what capital-raising options may be best suited for your company. However, if you need additional guidance, reaching out to a broker-dealer or securities attorney can help point you in the right direction for your capital-raising journey.

Can I Trade Private Shares?

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Think of buying a traditional stock, listed on a public exchange like the New York Stock Exchange or NASDAQ. You can buy and sell these stocks freely; you can do so through a broker-dealer, online, or even through an app on your smartphone. You can sell it almost immediately, although there can be some limitations.

Can I trade private shares? The answer is yes. Similar to the public market, you can invest in private companies through three common types of capital raises and trade your securities on a secondary market.

 

To sum these exemptions up, they allow private companies to sell securities to US investors without going through the SEC’s registration process. They each vary as to how much capital can be raised. These exemptions include:

 

  • RegA+ is a securities exemption that allows companies to offer and sell securities to US investors and raise up to $75 million in a 12-month period through Reg A+.
  • RegCF allows companies to offer and sell securities to US investors and raise up to $5 million through online marketplaces and crowdfunding sources in a 12-month period.
  • RegD is a securities exemption that allows companies to raise capital from accredited investors (and a limited number of nonaccredited investors) without limit within a 12-month period.

 

With all of these exemptions, investors can share the securities they’ve invested in. However, there are some key differences pertaining to the length of time an investor is required to hold the security before selling it on a secondary trading platform. Reg A+ is the closest to an IPO, assets can be sold the next day, and there is no lockout period. On the other hand, securities sold under RegCF cannot be sold for the first 12 months after buying it unless it’s sold to an accredited investor, back to the issuing company, or a family member. With Reg D, investors can not sell these assets for six months to a year unless they are registered with the SEC.

Once you can trade your securities, the transaction will be carried on an alternative trading system or ATS. An ATS is much like a traditional exchange, the only difference is that they do not take on regulatory responsibilities. They are also operated by a FINRA-registered broker-dealer.

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Before you make an investment decision, be sure to understand the limitations of secondary trading. If you’re unsure of what the limitations are, please reach out to a transfer agent or broker-dealer for additional information.

What is a CIK Number?

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Recently, we received a question from an issuer who asked what a CIK number is. If you have ever filed a form with the Securities and Exchange Commission (SEC), you have probably come across the term Central Index Key (CIK). The CIK number is a unique identifier used by the SEC’s computer systems to distinguish corporations, funds, and individuals who have filed disclosures with the SEC. 

 

A CIK number is a 10-digit code that is an essential part of the SEC’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system, which allows the SEC to collect, analyze and distribute financial information about companies and individuals. CIK numbers are assigned by the SEC and must be included in all filings made with the Commission. This allows the SEC’s computer system to quickly and efficiently identify companies and individuals and analyze their filings. It also helps to ensure that filings made by a particular company or individual are accurate and complete.

 

The easiest way to find a company’s CIK number is by using the SEC’s online database. You can search for CIK numbers using keywords such as the company name or ticker symbol. The search results will provide a list of entities matching your search criteria and their CIK numbers. Keep in mind, the entity’s name may be listed differently than expected.

 

It is also important to note that not all companies that offer stock for sale are required to file disclosures with the SEC, such as some companies raising capital through Regulation D. Small companies may be granted exemptions from regular SEC reporting and, therefore, may not have a CIK number. However, a CIK number is mandatory for companies that file disclosures.

 

CIK numbers are essential for the SEC to monitor and regulate the financial markets. By requiring companies and individuals to use CIK numbers when filing disclosures, the SEC can efficiently identify companies and detect potential fraud or other illegal activities to take appropriate action.

 

CIK numbers are also important for investors and other stakeholders. By providing a unique identifier for each company and individual, CIK numbers allow stakeholders to easily access relevant filings, financial data, and other information. This makes it easier for investors to make informed decisions and for regulators to enforce the rules and regulations that govern the financial markets.

 

In conclusion, CIK numbers are a critical component of the SEC’s regulatory framework. They are used to track and monitor companies and individuals that file disclosures with the SEC, and they enable investors and other stakeholders to access important financial data and other information. 

 

We believe that education is an essential part of the capital-raising process, so don’t hesitate to reach out to our team with any other questions that could help you along your capital-raising journey.

 

What is an Option?

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Like warrants, options are a form of security called a derivative. As a derivative’s name suggests, these securities gain their value from an underlying asset. In the case of options, this is the underlying security. 

 

There are typically two primary forms of options; call options and put options. Both are governed by contracts; a call option allows the holder to buy securities at a set price while a put option allows them to sell. However, options contracts do not come for free. They can be bought for a premium, which is a non-refundable payment due upfront. Once options have been purchased, the holder has a certain amount of time during which they can exercise their options. On the other hand, options do not require the holder to purchase the shares contracts allow. When options are exercised, the price paid is referred to as the strike price.

 

In buying call options, the holder is guaranteed to buy securities at a certain price, even if the underlying security significantly increases in price. A put option works more like an insurance policy, protecting the holder’s portfolio from potential downturns. If a security was to decrease in price, the shareholder would be able to sell at a set price specified by their option contract, even if the market price was to fall lower than what the option allows it to be sold at.

 

In addition to being a way to minimize investment risks and maximize profits, options are becoming a popular incentive for employees, especially in startup companies when looking to attract employees. In addition to options that can be bought, options also refer to the ones issued to employees by their employer. This gives employees the chance, but not the obligation, to buy shares within a specified time. Employee stock options either come as an Incentive Stock Option or Nonqualified Stock Options, with the difference being the tax incentives that go along with exercising the options. 

 

Whether you have call or put options, they are a useful way to protect your portfolio from downsides or benefit from being able to purchase more shares at a discounted price. They are just one of the many forms of securities available, which should be considered carefully when making investment decisions.

 

What is a Burn Rate?

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Recently, we received a question from an issuer, asking what a burn rate is. We believe that education is an essential part of the capital raising process, so don’t hesitate to reach out to our team with any questions that could help you along your capital raising journey.

 

The word “burn rate” gets thrown around a lot in the realm of startups and early-stage businesses. But what exactly does it mean, and why is it so important? In this blog post, we’ll explore the ins and outs of burn rate, including what it is, why it matters, and how you can keep it under control.

 

Simply put, the burn rate is the rate at which a company is losing money. It takes into account the company’s operating expenses and revenue, measuring it monthly. This metric shows how much cash a company needs to continue operating for a certain period of time. For example, if a company has monthly expenses of $100,000 and revenue of $50,000, its burn rate is $50,000 per month. This means that the company is losing $50,000 each month, and if nothing changes, it will run out of cash in two months. It’s important to note that this rate can fluctuate based on several factors, including:

 

  • Investments in development
  • Advertising and marketing costs
  • Research and development costs
  • Operating expenses (e.g., wages, rent, etc.)

 

By monitoring the burn rate, businesses can make informed decisions about how to use their resources and budget.

 

Why is Burn Rate Important?

 

Understanding and managing burn rate is crucial for any startup or early-stage business. A high burn rate suggests that a company is depleting its cash supply at a rapid pace, which puts it at a higher risk of entering a state of financial distress. This can have serious consequences for investors, who may need to set more aggressive deadlines for the company to realize revenue, or inject more cash into the business to provide more time to reach profitability.

 

Conversely, a low burn rate can indicate that a company has a stronger financial position and are in a better position to become profitable. Low burn rates are also more attractive to investors since their investments can go further.

 

Keeping Burn Rate Under Control

 

Now that we understand the importance, let’s look at some strategies for managing it effectively.

 

Layoffs and Pay Cuts: If a company is experiencing a high burn rate, investors may seek to reduce expenses on employee compensation. While layoffs and pay cuts are never easy, they can help a company achieve a leaner strategy and reduce operating expenses.

 

Growth: One way to reduce the burn rate is to project an increase in growth that will improve economies of scale. For example, some startups are currently in a loss-generating scenario, but investors continue to fund them to achieve future profitability.

 

Marketing: Investing in marketing can help a company grow and expand its user base or product use. However, startups are often constrained by limited resources and budgets, making paid advertising a challenge. Instead, they can use low-cost or no-cost tactics to achieve growth, such as email marketing or social media.

Efficient Resource Allocation: Ensuring that resources are allocated efficiently can help manage the burn rate. This means prioritizing essential expenses and cutting back on non-essential ones. For instance, focusing on core product development rather than peripheral projects can make a significant difference.

Regular Financial Review: Conducting regular financial reviews can help identify trends and areas where expenses can be reduced. This proactive approach allows companies to make necessary adjustments before financial issues become critical.

Leveraging Technology: Utilizing technology and automation can also play a crucial role in managing burn rate. Tools that streamline operations, improve productivity, and reduce manual processes can result in cost savings and more efficient use of resources.

Burn rate is a crucial metric for any startup or early-stage business. By understanding and managing it effectively, companies can improve their financial health and position themselves for long-term success. Whether it’s reducing staff or compensation, investing in growth, or using low-cost marketing tactics, there are a variety of strategies for keeping the burn rate in check. And for investors, keeping a close eye on this rate can help you make informed decisions about funding and supporting startups.

Veni, Vidi, Verify

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More than two millennia ago, Julius Caesar said the famous phrase, “Veni, Vidi, Vici”, triumphant in battle. This translates to, “I came, I saw, I conquered.” While the Roman Empire has long since fallen, these powerful words continue to ring true today – only in a different context. When it comes to investment opportunities, there is a simple way to “conquer” the investment process: Veni, Vidi, Verify.


I Came: The Search for Investment Opportunites 

 

With Regulation CF or RegA+, investors have more investment opportunities available to them than ever. Many of these investment opportunities are in startups that have a promising future, ranging from collectibles, MedTech, real estate, and many other growing industries. This is the time to start thinking about how you can use these opportunities to grow your investment portfolio while aligning your risk tolerance with your investing goals.

 

I Saw: Seeking Legitimate Investments

 

The abundance of options available to investors can be considered both a blessing and a curse. Despite the many opportunities available, you must ensure that the company is legitimate and the way you invest. For issuers, the same could be said about making certain investors are who they say they are to protect your company. When investing, it is good to analyze the risk versus the reward of a particular investment. You want to ensure that everything is above board in terms of your investment and there are no underlying additional risks. 

 

I Verified: Confidence Through Verification

 

Verification allows investors and issuers alike to verify the information provided by all parties to help confirm the transaction is legitimate and complies with regulatory requirements. Verification can ensure the quality of an investment with the assistance of data and information, such as:

 

  • ID verification
  • KYC and AML
  • Regulatory compliance
  • Transaction information
  • Company information and history

 

This gives investors the peace of mind to pursue assets knowing that they are making an informed decision and letting issuers know that investors are who they say they are. Additionally, tools such as the KoreID mobile app enhances the process of verification during the investment process. With KoreID, investors can securely manage their investments and personal information to meet KYC requirements. 

Veni, Vidi, Verify helps both issuers and investors ensure that they are making secure investments. Ultimately, verification and adherence to securities regulations create trust between investors and issuers during the investment process.

What is Phishing?

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No one thinks they’ll fall victim to a cybercrime, but in reality, you’ve likely come across a suspicious email that could be trying to steal login credentials, financial information, or your identity or install dangerous computer viruses. Maybe you’ve received an email that claims to be from Netflix or Amazon, requesting your password, account email, payment information, or other personal information and directing you to an unfamiliar website. These characteristics are the hallmarks of a classic phishing attack, which can lead to identity theft, credit card fraud, ransomware attacks, and more. 

 

Where Did Phishing Come From?

 

The history of phishing dates back to the mid-1990s, when groups of hackers posed as AOL employees and used the instant messaging platform to steal passwords and login credentials. The purpose of these attacks was to use the hijacked accounts to access the internet, rather than pay for access once the 30-day free trial of AOL expired. These hackers were known as “phreaks”, a group of individuals who had a keen interest in studying telecommunication systems. The name “phishing” was used to link these scams to this community.

 

In the early 2000s, hackers began to branch out past AOL accounts to target financial systems to steal credit card information and passwords. Since then, the prevalence of phishing scams has grown exponentially, with 36% of data breaches involving a phishing attack, according to a Verizon report. Between 2021 and 2022 alone, the number of malicious phishing emails grew by 569%, according to cybersecurity company Cofense.

 

How Phishing Works

 

In modern phishing attacks, many hackers use spoofing to disguise an email address, website, phone number, or sender name in the hopes that it will appear legitimate. It could be as simple as changing a number, letter, or symbol so that the URL a hacker is using, without close inspection, is coming from a legitimate source. This will often trick victims into disclosing sensitive information like passwords or credit card numbers, which are then stolen by the hackers. 

 

Protecting Yourself

 

Luckily, there are easy steps to protect yourself against phishing attacks. According to the FBI, companies generally will not contact you asking for your username or password. If you receive an email, text, or phone call requesting this information, that should be a significant red flag. If you receive an unsolicited email with a link, avoid clicking on it. Instead, carefully examine the sender’s name, email address, spelling, and other details about the correspondence to see if there are slight inaccuracies that could point to it being a phishing scam. And, if an email asks you to download something or open an attachment, do not do so unless you can verify that the sender and attachment are legitimate. Also, be wary of the information you share online. Details like birthdays, pet names, schools you attended, and other personal details can be used to guess passwords. 

 

The Importance of Verification

 

Ultimately, the confirmation of someone’s identity can help to avoid potential scams. This can be achieved in the private capital markets by complying with securities regulations. For investors, due diligence and careful research of investment opportunities can highlight potential red flags that could be a telling sign of something too good to be true. At the same time, verifying the identity of a company raising money can provide assurance that it is a legitimate investment opportunity. For issuers, identity verification like AML and KYC confirm that investors are who they claim to be. 

 

Being on the lookout for phishing can help protect your identity and financial information from hackers. Understanding what these scams are and how they work is one of the best defenses available. Stay tuned for the next article in this series, which will shed light on a different type of scam. If you have any questions or topics you’d like to see discussed in more detail, please reach out and share your ideas with us!

My Company is Based in Canada: Can I Use RegCF to Raise Capital?

Posted on by Oscar Jofre Tags: , , ,

Recently, we received a question from an issuer, asking if Canadian companies can use RegCF to raise capital. We believe that education is an essential part of the capital raising process, so don’t hesitate to reach out to our team with any questions that could help you along your capital raising journey.

 

Crowdfunding is a popular way for small businesses, startups, and entrepreneurs to raise capital without necessarily needing the support of venture capitalists or angel investors. Regulation Crowdfunding (RegCF) provides an avenue for companies to legally raise capital through equity crowdfunding in the United States and is regulated by the Securities and Exchange Commission (SEC). 

 

Although RegCF is available to US companies, many Canadian companies have questions regarding whether they can also use this exemption to raise capital. This article will answer those questions and provide insight into the legal requirements and structures that work for Canadian companies.

 

Legal Requirements for Raising Capital Through RegCF in Canada

 

In short, the answer is yes, Canadian companies can use RegCF. However, certain requirements must be met for a company outside of the U.S. to take raise capital through this exemption.

 

The main legal requirement is that the company must establish a US entity, such as a corporation or a limited liability company (LLC), which will be managed from within the U.S. The SEC states that “the issuer’s officers, partners, or managers must primarily direct, control, and coordinate its activities from the U.S., and its principal place of business must be in the U.S.”

 

It is also recommended that Canadian companies considering using RegCF to raise capital should provide evidence of their plans to engage the US market. This could include investing in marketing and advertising initiatives, setting up offices or physical locations within the US, hiring personnel from the US, etc.

 

Using RegCF in Canada

 

There are a few different ways that Canadian businesses approach a RegCF offering. One option is to create a wholly-owned subsidiary in the United States that will operate the business and raise funds through RegCF. This subsidiary must have its own business plan and financials, and cannot simply be a shell company. Alternatively, Canadian companies can create a US-based holding company that will own the Canadian entity and operate the business in both countries. This structure can be beneficial for companies looking to expand their operations into the US market while also raising capital from US-based investors. Canadian companies can also create a new US-based company that licenses the product or service of the Canadian company. 

 

Ultimately, a Canadian company seeking to raise capital using RegCF must create a US-based entity with a primary place of business in the US. The company raising capital cannot simply be a shell company that directs capital raised back to the parent company.

 

Alternatives for Canadian Companies

 

There are several other options for raising capital for Canadian companies that cannot or do not wish to use RegCF. These include traditional venture capital and angel investing, as well as debt financing from banks and other lenders. Additionally, many Canadian provinces have their own provincial securities commissions that offer exemptions from the registration requirements for businesses looking to raise funds from investors within their jurisdiction. But because of RegCF’s benefits of allowing companies to advertise offerings, as well as its low minimum investment requirements, it is certainly worth considering for Canadian businesses looking to raise capital.

 

Deciding whether or not to use RegCF for a Canadian company is ultimately a decision that should be made on a case-by-case basis. Although US securities laws may present some additional regulations, there are many benefits to using this platform if it is done properly. The ability to access capital from a larger pool of investors, as well as the streamlined process of RegCF, can make it an attractive option for Canadian businesses looking to raise funds.  Ultimately, Canadian companies should discuss their capital raising options with a securities attorney if they have questions about the process and their options.

April Investment Crowdfunding Sees Near-Record Levels

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

The last couple of months have been a turbulent time for the financial sector. In March, we first saw the collapse of Silicon Valley Bank, the largest bank by deposits in Silicon Valley and favored by tech startups. This was followed a couple of days later by the collapse of Signature Bank. The third collapse this year was that of First Republic Bank, the largest banking failure since the financial crisis in 2008. These events have been coupled with stagnation in the venture capital market that has highlighted the stability of the investment crowdfunding industry. Ultimately, April demonstrated a resilient interest in investment crowdfunding.

 

Investment Crowdfunding Proves Appetite for Deals

 

In a recent newsletter, Sherwood Neiss, Principal at Crowdfund Capital Advisors, was quoted saying, “A large amount of capital and number of investors flowing into Investment Crowdfunding offers proves that there is a massive appetite for these deals.” Neiss continues, “While there might have been fewer deals in April, the reality is startups still need capital, and Investment Crowdfunding is where they will find it. We expect to start to see an uptick in deals in May as these issuers realize opportunity exists here.” 

 

Investment Crowdfunding Sees a Decline in New Deals, Rise in Capital Commitments

 

In April, there was a decline in new deals, with only 91 being launched, compared to 147 in March 2023. This marked the lowest number of crowdfunding deals since June 2020. However, capital commitments reached an impressive $65.4 million in April, the second-highest level of commitment since March 2021, when investment crowdfunding was reaching a high point of interest during the pandemic. 

 

There were also 54 issuers that raised over $1 million each during April, while six raised the maximum of $5 million. With the 54 issuers that closed their raise during the month bringing in an impressive $131 million, it was the second-highest monthly close of capital, despite ongoing challenges faced by the private capital markets. 

 

More Investors are Making Investment Decisions

 

The number of checks written by investors in April 2023 increased by 92.9% compared to the prior month but dropped by 4% compared to the prior year. The average check size dropped to $1,174 in April 2023 due to a large number of active deals compared to March. 

 

The investment crowdfunding industry is growing rapidly and shows no signs of slowing down. As investors become more comfortable with deploying capital in private markets, despite current challenges in the private market, it will only continue to fuel this growth trend.

 

Avoiding Scams

Posted on by Oscar Jofre Tags: , , ,

Scams come in all shapes and sizes but share the same goal: to take someone’s hard-earned money. At KoreConX, we talk a lot about the importance of compliance with the regulations, because our platform is built to make it as easy as possible for companies to raise capital compliantly. But we haven’t talked all that much about why the regulations themselves are so important, and one of the main reasons is to protect against scams. In this and future posts, we’ll discuss some general and specific scams and their effect on investors and issuers. 

 

The internet has made it easier for criminals to reach potential victims, but compliance with regulations is an excellent protection against potential scams out there such as identity theft and investment fraud. There are, of course, many sorts of scams that the SEC regulations don’t directly touch, but understanding the reasons for the regulations can help you adopt best practices that will protect you against other scams as well. 

 

Regulations such as KYC (Know Your Customer) and AML (Anti Money Laundering) require participants to be properly identified – this alone can cut out much fraud before it even starts. Simply put, bad actors cannot be held accountable if they cannot be identified, so they often try to use a fake identity, or steal someone else’s. Similarly, companies seeking investors must make available financial and other information, an offering circular, and other data available, so potential investors know their money is going to an actual registered company with identified directors and officers. 

 

Who is Affected by Scams?

 

Scams hurt almost everyone indirectly by adding mitigation costs, driving up insurance premiums, and harming investor confidence, but the most obvious damage is financial: Online fraud in 2022 accounted for $41 billion stolen globally, with this number expected to rise to $48 billion in 2023. The burden of this loss does not fall evenly across all age groups. Adults between the ages of 20 and 29 reportedly have the lowest loss per person, at $2,789. Individuals in their 50s suffered the highest losses on average per person, with a total loss of $9,864 each. Those in their 30s lost an average of $5,570 each, and those in their 40s lost $7,832. Interestingly, the data shows that, on average, older Americans lost the most money to online fraud.

 

It may be that younger people may have lost less money on average simply because they have fewer financial assets. However, the report emphasizes that it is important to take these figures with a pinch of salt, as the FBI’s numbers include businesses, which can suffer much greater losses than the average person. Nonetheless, these statistics highlight the importance of online safety and the need for targeted prevention measures for different age groups.

 

Scams to Look Out For

 

There are many scams to be aware of, especially online, here are just a few of them:

 

Phishing: Phishing is sending deceptive emails or messages that appear as though they’re from a legitimate source to get personal information. You may receive an email asking for sensitive information, such as your credit card number or bank account details. The scammers use this information to make fraudulent purchases, withdrawals, or transfer funds. Cybercriminals may also try to use phishing emails as a way of getting you to click on malicious links that will download malware onto your computer. Malware can be used to steal personal information and passwords or even lock up all the data on your computer until you pay a ransom.

 

Pyramid Schemes: Pyramid schemes are a form of fraud that involves promising participants large returns for recruiting others into the scheme. Despite the promises, none of the money invested by new participants ever makes it back to them. Instead, it is funneled upwards to those already in the scheme, who will eventually take all of the money and disappear.

 

Crypto Schemes: Many investors are eager to get in on the crypto market, but the crash of FTX reminds us of the importance of due diligence. New technologies are always especially rich breeding grounds for scams, when people don’t wait to find out how it actually works because they are afraid of missing out on the next big thing.  

 

What Can You Do To Protect Yourself?

 

The best way to protect yourself from scams is by educating yourself about them and being aware of potential signs that something might not be legitimate. Here are a few tips you can use when someone contacts you:

 

  • Verify the identity of anyone who contacts you. Do not send money or account details until you have verified their identity.
  • Be suspicious if someone is asking for personal information, such as passwords or bank account numbers. Legitimate businesses and organizations should never ask for this type of information via email or phone call.
  • Be wary of any offers that seem too good to be true. If someone is offering you something for free or an unbelievable return on investment, it’s likely a scam.
  • Research the company or individual before making any investment decision. Look at reviews from other customers and check with the Better Business Bureau if necessary. 
  • Don’t give out personal information online. Be cautious when sharing your name, address, or other identifying details on websites, as this can make you a target for scammers. This includes answering “just for fun” quizzes on social media that can be used to figure out your mother’s maiden name, the name of your first pet, and other likely security questions.

 

The best way to protect yourself from scams is by staying informed and knowing the warning signs of fraudulent activities. Keep following this series on scams to learn more about different types of scams and how to protect yourself from them. If you have any questions or topics you’d like to see discussed in more detail, please reach out and share your ideas with us!

What is an Escrow Provider?

Posted on by Oscar Jofre Tags: , , ,

If you’ve bought a home, you’ve likely heard the term escrow. In the homebuying process, escrow can be used to hold a good faith deposit while the contract is being finalized. It can also be used after the home is purchased to pay for property taxes, homeowners insurance, or mortgage insurance. In these instances, money held in escrow is managed by an independent, third-party intermediary. However, escrow is also common during the process of investing in a company, where the escrow provider takes custody of funds and assets until specific transaction conditions are met. But what exactly is the role of an escrow provider in a transaction? What responsibilities do they have? And when should they be utilized? 

Keep reading and learn more!

 

What is an Escrow Provider?

 

An escrow provider is an independent third-party intermediary which ensures that a transaction is completed in accordance with the rules of the agreement. An escrow provider collects, holds, and distributes funds on behalf of the individuals involved in a transaction. The help of certified escrow providers ensures that both parties meet their obligations and bring confidence to complete a transaction reliably. 

 

In many cases, the buyer and seller agree to use an escrow provider for several advantages, such as:

 

  • Mitigating the risk of nonpayment or fraud
  • Ensuring that all funds are securely handled
  • Being an impartial third party to the transaction

 

The process when utilizing an escrow provider generally includes:

 

  • Creating a contract outlining the obligations of the buyer and seller
  • Depositing funds into an escrow account
  • Ensuring that all conditions of the agreement are met before releasing funds

 

At the same time, technology can play an important role in the escrow process. For example, smart contracts that leverage blockchain technology can be programmed to automatically transfer assets between two parties once the conditions of the contract have been met. This can automate some of the escrow process, which can help to streamline the escrow process.

 

JOBS Act and Escrow

 

The Jumpstart Our Business Startups (JOBS) Act has since become a major factor in creating a secure capital-raising environment in the private capital markets. To raise capital, issuers must follow securities regulations to ensure compliance in the capital-raising process. This provides an additional layer of protection for investors and startups raising capital.

 

An essential component of compliance includes finding an escrow provider to administer transactions. This ensures that all funds are handled securely and that a third-party intermediary manages the transaction. Putting investors and issuers at ease by bringing peace of mind to the transaction. 

 

Escrow providers are essential for any type of business transaction where an impartial third-party intermediary is involved. With an increase in accredited and nonaccredited investors alike being involved in the private capital markets thanks to the JOBS Act, it is crucial to ensure that one is involved in the capital raising process.

Whether you are an investor or issuer, using an escrow provider guarantees all funds are handled correctly while avoiding financial risk or fraud. 

 

To ensure your escrow process is handled with the highest level of security and compliance, check out KoreConX. Their advanced platform supports all your private capital market needs, providing peace of mind for both issuers and investors. Book a call with our experts and learn more.

Shedding Light on the Secondary Market

Posted on by Oscar Jofre Tags: , , ,

The private capital market is an important component of the economy and has seen considerable growth since the JOBS Act exemptions came into play. However, the public markets have the advantage of a strong underlying infrastructure, one that existed long before the advent of the Internet (the first public company was the Dutch East India Company which began stock trading in the early 1600s). In contrast, the private markets historically have fewer options for liquidity other than an exit or an IPO. 

 

Technological advancements have had a profound impact on the secondary market, transforming the way trading is conducted through the use of electronic systems for order delivery and execution. On the public side, entities like the New York Stock Exchange and Nasdaq have automated many functions that streamline the process of buying and selling stocks. In addition, broker-dealers and institutional investors have been leveraging powerful computer systems and sophisticated applications to manage inventory, order flow, and risk while receiving market data, research reports, and company information electronically. 

 

In the private market, alternative trading systems (ATSs) have emerged to let investors sell or buy shares on a secondary market. For example, anyone who has invested through RegA+ is then able to transact on the secondary market if the issuer has permitted that option. Still, there are many issues that face the private market. The unfortunate reality is that while a fragmented regulatory environment does allow for some secondary market transactions, issuers are not pre-empted from state securities regulations. 

 

The private capital market is beginning to catch up with the public market in terms of technological advancements, with companies seeking to create digital infrastructure and platforms for the private market. However, to truly unlock liquidity in the secondary markets of the private capital market, there needs to be an overarching system that enables buyers and sellers to identify potential trades quickly, securely, and with full transparency on the secondary market.

 

The lack of visibility in information is a key issue inhibiting secondary marketing trading in the private capital markets. Solving these issues will unlock a huge opportunity for buyers and sellers. To do this, there needs to be an underlying infrastructure similar to that which exists in the public market, allowing companies to quickly and securely connect with potential buyers and sellers, as well as gain access to real-time information about the secondary market. With the right technology in place, this could open up unprecedented opportunities for liquidity in the private capital markets that have long been “dark”.

Why the Private Capital Markets are Outpacing the Public Markets

Posted on by Oscar Jofre Tags: ,

The private capital market has seen considerable growth over the past few years due to geopolitical tensions, inflation, and interest rate hikes. These factors are driving heightened volatility in public markets, and investors are therefore looking for protection in private market deals. The ability for private companies to raise capital with accredited and nonaccredited investors through regulations like RegCF and RegA+ has also added to this growth.

 

Large Pool of Capital

 

The private capital market is also benefiting from a large pool of capital currently available to investors. According to Preqin, global private capital dry powder stood at around $1.96 trillion in December 2022. Dry powder is the cash that has been committed by investors but has not yet been “called” by investment managers to be allocated for a specific investment. This sizable reserve of money, when deployed, will provide an influx of investment into the private markets.

 

Growth & Flexibility

 

Companies are also opting to stay private for longer durations of time. In 2011, companies typically stayed private for five years before going public. As of 2020, this has extended to a time period of 11 years. Remaining private can give companies greater flexibility as they grow their business. They may find it easier to adapt and make changes in the early stages with private capital, before choosing a public route when they are more mature and established. With the ability to earn up to $75 million in 12 months with RegA+, for example, the ability for private companies to raise capital is unprecedented in the sector. 

 

The Shift from Public Markets to Private Capital Markets

 

This trend is likely to continue into 2023 and beyond as investors seek alternatives to the public markets. As such, understanding the implications of this shift from public to private is essential for any investor looking to capitalize on these opportunities. Private companies are looking to stay private longer because:

 

  • It allows them to keep their business strategies under wraps and maintain control over key decisions.
  • They can gain access to more capital at a lower cost compared to public markets, allowing for accelerated growth.
  • The private capital market has more flexible structures and less regulation compared with the public markets.

 

Private vs Public Market Size

 

McKinsey estimates that in North America, private market fundraising grew by 21% between 2020 and 2021. In the United States alone, there were 7,042,866 private companies. In comparison, there were only 4,000 public companies in the United States as of 2020. These statistics highlight the significant impact that businesses have on the world economy, with diverse markets and industries contributing to growth and prosperity.

 

The private capital market is rapidly outpacing the public market and this trend looks set to continue into 2023. As private companies continue to significantly outnumber public companies, the increase of capital raising opportunities will only help this sector to grow.

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