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The Relationship Between Cryptocurrency and Blockchain

Posted on by Oscar Jofre Tags: , ,

The relationship between blockchain and cryptocurrency has been an area of increasing interest over the past few years. For those looking to use cryptocurrency or blockchain technology to transfer, store, and track data, understanding the differences between the two technologies is essential. Though they are related in many ways, blockchain and cryptocurrency should not be confused with one another as they are different. Knowing how to leverage each technology can help individuals make better use of these assets while avoiding pitfalls associated with a lack of knowledge. Those looking to invest in cryptocurrency or leverage blockchain should take the time to learn and understand the nuances of both technologies so that they can make informed decisions when it comes to utilizing these digital assets.

 

Cryptocurrency: Definition and Use Cases

 

Cryptocurrency refers to a type of digital asset designed to be used as a medium of exchange, a store of value, and a unit of measure. It is usually underpinned by blockchain technology, the use of advanced cryptography techniques for securing online transactions, and can exist either as a centralized token (one with a centralized issuer such as Bitcoin or Ether) or decentralized tokens (without a single issuer such as Libra or Ripple).

 

Cryptocurrency is gaining traction around the world, with its use cases ranging from being used to buy goods and services to savings and investments, to trading and speculation. Cryptocurrency is also being utilized in areas of financial inclusion, such as providing access to banking services and other financial products to those who lack traditional banking accounts.

 

Blockchain Technology: Definition and Use Cases

 

Blockchain is the underlying technology powering cryptocurrency transactions. It is a secure, tamper-proof, decentralized ledger system that allows for peer-to-peer transactions without the need for a middleman. It is also highly secure, as blockchain technology doesn’t rely on a single central authority or server to control and monitor its operations. Instead, it relies on a distributed network of computers to verify and validate the transactions that take place.

 

This technology is finding its use cases in many industries outside of cryptocurrency, such as healthcare, supply chain management, and real estate. For example, blockchain can help increase transparency and trust in these sectors by providing immutable records of all transactions securely stored across multiple nodes in a network. Such records can then be used to trace the source of a product, helping to ensure that it is authentic and untampered with.

 

Still, the relationship between blockchain and cryptocurrency does not end there. Cryptocurrency is actually one of the earliest use cases for blockchain, with Bitcoin being the first digital asset to take advantage of this technology in 2009. To this day, blockchain remains a key technology underlying most cryptocurrency transactions, allowing them to be securely transferred while avoiding double-spending and other fraudulent activities.

 

Similarities and Differences

While the two are not the same, blockchain and cryptocurrency do share some similarities. Both are digital assets, designed to be used as mediums of exchange and units of measure. They also both use cryptography for secure online transactions. However, there are notable differences such as blockchain being a distributed ledger system that is used to securely store and transfer data, while cryptocurrency is a digital asset designed to be used as a medium of exchange.

 

The relationship between blockchain and cryptocurrency is not always easy to understand. Though they share some similarities, they are two distinct technologies with different use cases. Blockchain is the underlying technology that supports cryptocurrency transactions, while cryptocurrency itself is a digital asset designed to be used as a medium of exchange and unit of measure. By understanding their differences, businesses and individuals can make more informed decisions when it comes to utilizing these digital assets.

 

Is Reg D Suitable for My Company?

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Regulation D (Reg D) is a set of rules established by the U.S. Securities and Exchange Commission (SEC) that allows companies to raise capital without registering their securities for public sale and is related to, but different than other JOBS Act regulations. Reg D also establishes certain disclosure requirements that companies must comply with when selling securities under this type of offering and offers several advantages for companies seeking to raise capital, these include:

 

  • Ability to raise capital from accredited and some nonaccredited investors
  • Reduced disclosure requirements, and faster access to capital
  • No limits on offering sizes

 

However, there are also certain drawbacks associated with Reg D. For example, companies must comply with state regulations that may require disclosure of notices of sale or the names of those who receive compensation in connection with the sale. Additionally, the benefits of Reg D only apply to the issuer of the securities, not to affiliates of the issuer or to any other individuals who may later resell them.

 

What is Reg D?

 

Reg D is a set of rules established by the SEC to help companies raise capital without registering their securities for public sale. The regulations are designed to make it easier for businesses to access capital markets and take advantage of potential investors who were not previously able to invest in private offerings.

 

Under Regulation D, companies are allowed to raise capital without registering their securities with the SEC under rule 506. Under Rules 506(b) and 506(c), companies are not limited to the amount of capital that can be raised. However, offerings under rule 506(b) cannot use any form of general solicitation, which means they need to rely on their networks of accredited investors. In addition, 506(b) offerings can have up to 35 nonaccredited investors.

 

Who Can Benefit from Reg D?

 

Reg D can benefit both companies and investors. Companies can access capital markets without registering their securities for public sale, a great alternative to a cost-intensive IPO. Issuers can also raise the capital they need to grow and expand their business, as well as fund future rounds of fundraising that may be accomplished through a Reg CF or a Reg A+ offering.

 

For investors, Reg D offers the opportunity to invest in companies with potentially higher returns than other investments due to the increased risk associated with such investments. The majority of investors must meet specific criteria (such as having an annual income of over $200,000) to be considered accredited investors.

 

Is Reg D Suitable For My Company?

 

The answer to this question depends on several factors, such as your company’s financial situation and whether you can meet the disclosure requirements under Reg D. Companies that may benefit from a Reg D offering include:

 

  • Start-ups or development-stage companies
  • Growing businesses needing additional capital
  • Companies looking to access capital more quickly than they could through a traditional public offering

 

Reg D can be beneficial for companies, as well as accredited investors who meet specific criteria. While there are potential risks associated with a Reg D offering, it may be suitable for your company if you can meet the disclosure requirements and familiarize yourself with the relevant regulations. Ultimately, it is important to consult a qualified securities lawyer to determine if Reg D is the right option for your company.

 

Overdue Diligence: Examining the Cryptocurrency Industry’s Billion-Dollar Scandal

Posted on by Oscar Jofre Tags: , ,

What would happen if inexpensive flying cars hit the market tomorrow? Wouldn’t it be great if you could just fly right over stop signs and red lights on the ground or avoid traffic jams? But soon there would be a disastrous crash, and authorities would ground everyone while they figured out what to do. Meanwhile, flying car owners would quickly learn that new technologies don’t make them magically immune to liability in tort and criminal negligence. In this scenario, flying car owners and the companies that manufactured them should have performed overdue diligence by looking into air traffic laws that have always applied.

 

Something like this has happened in the cryptocurrency industry. Because cryptocurrency is so new, many people have assumed they were not subject to the traditional rules, a rich new area to be quickly exploited before the authorities showed up to rein things in. But there have always been laws to regulate it, which have gone ignored by those treating crypto like a modern-day gold rush. Many people have entered this space without a financial background, uneducated on the financial and securities regulations that apply in the space. Those with a financial background have perpetuated the myth that there is some gray area in which crypto operates and that securities laws don’t apply.

 

Even still, cryptocurrency has come a long way since the early days of Bitcoin. It has opened the door to a new form of digital asset that can be used for trading and investing, as well as providing an alternative to traditional fiat currencies. Unfortunately, the industry is not without its share of scandals, and one of the biggest to date involves the crypto exchange FTX. The collapse of FTX has caused ripples throughout the private capital market and highlighted just how important it is for companies to comply with securities regulations and for investors to properly vet their investments. 

 

Despite the alleged fraud occurring at companies like FTX, there are many in the space striving to build companies based on legitimacy, trust, and transparency. These companies are working hand-in-hand with the SEC and other regulators to ensure that investors and customers are protected and crypto evolves. As a result, we believe that the future will be dependent on trust and compliance, and only those essential components will allow this space to grow. 

 

The History of FTX

 

To understand the downfall of FTX, we must first take a look at its meteoric rise.

 

FTX was created in 2021 by Sam Bankman-Fried and its CEO Michael McCaffrey as an investment platform that allowed users to buy and sell cryptocurrency. The company quickly grew in popularity and established itself as a leader in the cryptocurrency sector. And shortly after its creation, the company began to receive attention from major investors such as the Royal Bank of Canada, Goldman Sachs, and Jefferies Group, quickly becoming popular among traders for its low fees and wide selection of cryptocurrency derivatives. It also launched an initial coin offering that raised more than $11 billion from investors around the world.

 

In 2021, FTX was one of the major sponsors for Major League Baseball, having agreed on a deal with the league to place its logo on the uniforms of umpires. The company also secured naming rights for the Miami Heat’s basketball stadium, renaming it FTX Arena, and sponsored the first season of MLB Home Run Derby X. The company also paid for high-profile, celebrity endorsements like Tom Brady, Shaq, and Shark Tank star Kevin O’Leary. However, FTX’s success was short-lived. In November 2022, the company abruptly announced that it had gone bankrupt and its assets were frozen. This news sent shockwaves throughout the cryptocurrency sector and led to many of FTX’s sponsors, including Mercedes-AMG Petronas F1 Team, TSM, and the Miami Heat, ending their partnerships with the company.

 

The United States House Committee on Financial Services also announced plans to conduct hearings in December 2022 into the collapse of FTX, with committee leaders seeking to hear testimony from Bankman-Fried. From its beginnings as a thriving startup in the cryptocurrency sector, FTX’s fall from grace was swift and sudden. The bankruptcy of FTX is a cautionary tale for those looking to invest in cryptocurrencies, as well as a reminder of the risks associated with these investments. Although many companies have made their fortunes in this fast-growing industry, it’s important to approach such investments with caution and do your research before making any decisions. As the fate of FTX shows, even the most successful companies can suddenly go under and investors can find themselves left with nothing but losses in their wake.

 

What Was Different About FTX?

 

FTX was far from the first crypto exchange, but it was widely seen as a legitimate entity by investors having established a positive reputation for itself and offering a wide range of services like spot trading, derivatives trading, margin trading, stablecoins, and decentralized finance products. FTX also had an innovative design that made it easier to use and had a wide selection of coins available to trade. At its height, the company was valued at over $32 billion in January 2022.

 

Unfortunately, some crypto companies have become complacent about following securities regulations. These crypto companies believe that because they are dealing in digital assets, they don’t need to follow the same rules as traditional securities. There have only been three companies, KoreChain, INX, and Coinbase, who have worked directly with SEC regulators to ensure that they are acting compliantly in this evolving space. These legitimate companies can continue transacting because they have shown that compliance is essential. 

 

When Did Signs Start to Emerge Something Was Wrong?

 

The signs that all was not well at FTX started to emerge in late 2021 when a series of lawsuits were filed against the exchange. These lawsuits alleged that FTX had committed fraud, and market manipulation, was operating an unregistered securities exchange, and were followed by reports of insider trading and other questionable activities.

 

The SEC has since accused FTX and Bankman-Fried of securities fraud and operating an unregistered securities exchange. According to the complaint, Bankman-Fried allegedly misled investors by failing to disclose that he was receiving payments from certain issuers in exchange for listing their tokens on the exchange. The agency further alleged that he had made false statements about the exchange’s liquidity and trading volume.

 

Furthermore, FTX was accused of failing to implement an adequate system for preventing market manipulation. The SEC also claimed that Bankman-Fried had personally profited from these activities by engaging in “wash trades,” a form of market manipulation that involves placing orders to buy and sell the same asset for the sole purpose of artificially inflating its price.

 

Crypto and Blockchain, what is the Difference?

 

With everything happening in the crypto world, it’s understandable the uncertainty that could creep into people’s minds. However, despite cryptocurrencies and blockchain often being confused to be the same, they are completely different concepts. Cryptocurrencies are digital currency that runs on a distributed ledger technology called a blockchain. It is a form of payment that can be sent and received worldwide, with no need for a third-party intermediary. In contrast, blockchain is a technology that enables the secure and transparent storage of data, with each transaction stored in a tamper-proof digital ledger. The recent FTX collapse has caused distrust in the crypto market, as questions arise about whether investments were safe. 

 

The news of the scandal and its effects has brought to light the risks associated with investing in security tokens, making many investors hesitate when it comes to getting involved. By taking steps to be trustworthy, companies can help restore public confidence in crypto and blockchain technology. In this way, the industry can benefit from a more secure and stable future.

 

What Does This Mean for the Private Capital Market?

 

The collapse of FTX is a wake-up call for the private capital market. Companies need to be more diligent in ensuring they are compliant with securities regulations and investors need to do their due diligence when investing in crypto companies. Companies need to have proper protocols in place to prevent fraud, market manipulation, and insider trading. Companies affected by the FTX collapse may also face increased scrutiny when seeking investments, as investors may be wary about investing in crypto companies.

 

Binance, for example, is currently facing potential charges of operating an unregistered securities exchange. If the SEC finds them guilty, they could face fines and the possibility of having their assets frozen. This could have a major impact on Binance’s operations and reputation in the crypto world. It’s also possible that other crypto exchanges could be targeted by the SEC for similar violations, creating more issues for the industry.

 

How will the SEC address crypto and blockchain moving forward?

 

With everything that has transpired, the SEC continues to actively monitor the cryptocurrency and blockchain space, seeking to protect retail investors from fraudulent activities. They have already taken active steps to ensure that companies operating in this sector are compliant with their regulations and have set forth guidelines for any security tokens issued through ICOs or STOs. Going forward, the SEC is likely to continue enforcing stringent rules to protect investors and ensure that companies are in line with their regulations regarding security tokens. As a result, companies will need to continue taking steps to be trustworthy and compliant. This means ensuring that their products meet high standards of security and reliability, as well as providing audit trails for all financial transactions conducted on the blockchain. 

 

Companies in this space must continue to be proactive about building and maintaining trust with their customers and ensuring compliance with SEC regulations. By doing so, they can help restore public confidence in crypto and blockchain technology and create a more secure and stable future for the industry. While this collapse is leading to mistrust in crypto, the blockchain technology that powers it is still safe and relevant. Used in all manner of private capital-raising activities, the blockchain still offers a secure and reliable platform for companies to use. By focusing efforts on maintaining compliance with the SEC and building trust with their customers and investors, companies raising private capital in this space can create a more secure future for themselves and help restore public confidence in the industry.

 

Looking Back on KoreSummits in 2022

Posted on by Oscar Jofre Tags: , ,

Throughout 2022, KoreConX has hosted a variety of live, educational events designed to shed light on essential topics in the private capital markets. The KoreSummit event is a leading industry event that brings together industry thought leaders to provide valuable insight for companies looking to raise capital and investors looking to explore opportunities in the private markets. This year, three virtual KoreSummits were held, offering an incredible array of topics.

 

What you need to know about the Pros and Cons of Equity Crowdfunding

 

In March, the year’s first KoreSummit covered topics related to equity crowdfunding, specifically in a franchise scenario. The event kicked off with the story of a company that was successfully utilizing Reg CF to raise capital. The event continued with discussions on how to plan the raise, what partners you’ll need, and how to build an investor base that is also excited to be brand ambassadors. And more importantly, we covered topics including legal considerations and what happens once an offering is live. 

 

How to do a Successful RegA+ for a MedTech Company

 

This year’s June KoreSummit was focused on how to do a successful RegA+ for a MedTech company. The summit began with an introduction to the process of registering a MedTech company with the SEC and then moved on to cover topics such as preparation of Form 1A, going live preparations, the importance of selling the story, and the value of a secondary market. These presentations and conversations provided attendees with a comprehensive overview of how to navigate the process successfully of raising capital for a MedTech company with RegA+.

 

Empowering Growth in Cannabis

 

The October KoreSummit was a unique, multi-day event for cannabis entrepreneurs and industry experts alike. This event was focused on this exciting new market, providing an opportunity to hear from leaders in the field, learn about best practices, and explore investment opportunities in cannabis. KoreSummit Empowering Growth was a cannabis-centric summit designed to inform attendees of the requirements, regulations, and best practices when it comes to fundraising with RegA+ and RegCF.

 

Videos from these and other KoreSummits can be found on the KoreConX website. In the end, these events were an invaluable resource for anyone looking to learn more about how to do a successful RegA+ or Reg CF offering. With expert guidance from some of the top industry professionals in the field, the KoreSummits from 2022 and beyond will continue to provide valuable insights and expertise in the world of capital raising.

 

KoreClient Spotlights: A Year in Review

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At KoreConX, we love showcasing our innovative clients, who we believe are making a difference in the world, through our KoreClient Spotlight. Here are just a few of the clients we’ve had the pleasure of working with this past year.

 

Wealthcasa

 

Wealthcasa is looking to change the way everyday investors can access investment properties by leveraging Reg A+. Using its parent company’s experience with development and construction in the greater Toronto area, Wealthcasa aims to develop planned communities in areas such as Florida, Tennessee, and California. Wealthcasa also seeks to offer a rent-to-owner program that will allow people to build equity in their homes over time and eventually purchase the unit or share the accumulated value of the asset. Wealthcasa’s platform provides an accessible way for people to become investors in the real estate market. 

 

Consumer Cooperative Group

 

Consumer Cooperative Group (CCG) is an innovative real estate cooperative focused on creating jobs, generating revenue, and nurturing its local community. Founded by Tanen Andrews, the company has a mission to provide people a chance to be involved in business ownership and real estate investment. The CCG methodology is to purchase real estate, specifically in properties where tenants are already generating revenue, providing an immediate investment return while building a long-term wealth base. 

 

Tech Chain Software

 

Tech Chain Software is a provider of innovative technology solutions that drive efficiency, productivity, and safety in the trucking industry. The company provides a platform to connect truckers on the go to mobile repair services, giving them access to skilled mechanics quickly and conveniently. With Tech Chain’s cutting-edge technology, they can instantly connect drivers with certified mechanics, allowing them to get their trucks back on the road with minimal downtime. Their mobile repair services reduce trucking companies’ expenses and expedite repairs and payment processes. Additionally, Tech Chain Software is also committed to helping local trade schools increase their capacity by providing access to qualified mechanics, enabling blue-collar workers to serve this industry cost-effectively.

 

Orion Capital

 

Orion Capital is a private investment firm that provides equity crowdfunding opportunities to smaller investors. Utilizing Regulation CF, they offer high-quality investments that would otherwise be unavailable to the average person. Through their focus on main street investments, they provide exposure to various industries and strategies while minimizing risk by spreading investment across multiple assets. Their mission is to provide investors with attractive returns while helping to drive innovative solutions and positive change in the world.  

 

Budding Technologies

 

Budding Technologies, Inc. is a company that is changing the way the cannabis industry works. With their use of blockchain technology, they are helping customers verify the quality of the products being sold while also giving businesses valuable data about what products are being used in their area and providing users with insight into what cannabis products may be right for them. By utilizing their Connect dashboard and BudboTrax supply chain management system, companies can keep product information up to date and track the quality of cannabis products. This transparency allows customers to have confidence in the safety and quality of their purchases while businesses benefit from increased sales and reduced waste. 

 

Fist Assist

Fist Assist is a medical device company that has developed a product to help patients with poor arm circulation. The Fist Assist product is a battery-operated pneumatic focal compression device that can be worn for 1-2 hours a day to increase circulation and decrease present and future pain in your arm. The company is raising capital through RegCF to finance its future FDA submissions and commercialize its product. After being designated as an FDA Breakthrough for potential vein dilation to renal failure patients in December 2021, Fist Assist needs to formally show the FDA the complete dataset for eventual DeNovo authorization for the renal failure community. If successful, this device has the potential to significantly change the way physicians treat and care for renal failure patients with better outcomes and fewer costs. 

 

FirstString

 

FirstString is a mobile application that enables college athletes to connect, find jobs and internships, and train for success after college. With FirstString, employers can post jobs and internships and search for qualified candidates. Candidates can create a profile with a video introduction, skills, experiences, and references, allowing employers to get to know the candidate before even meeting them. It makes the hiring process more efficient by removing the outdated paper resumé and allowing student-athletes to display the leadership ability and other skills they bring to the table, even if they don’t have as much employment or internship experience as their peers.

 

Stenergy

 

Stenergy is a company founded by Samuel and Leyla Butero, two entrepreneurs passionate about helping people. After their experience with Leyla’s health issues during her pregnancy, they decided to focus on the development of GluCora. This revolutionary product is a natural supplement that supports healthy glucose metabolism. To rapidly bring this product to market, they decided to utilize Regulation CF and embarked on a journey of inspiring individuals through their mission and shared experiences. Through their funding efforts, Stenergy hopes to create an ecosystem that connects investors and potential consumers with an innovative solution for those facing similar challenges. 

 

Facible

 

Facible is a medical technology company that has developed a technology that takes hospital-grade diagnostics out of the lab and to the point of care. The Q-LAAD technology enables the development of faster and more accurate diagnostic tests that are easier to run, which can expand testing capabilities to underserved and rural areas, urgent care, and other applications. The company found Reg A+ to be the most promising way to bring its vision to market while allowing those who have supported them to invest. 

 

Notarized.com

 

Notarized.com is an online notarization platform transforming how people close real estate transactions, get documents notarized, and sign contracts remotely. Founded in 2016 by Omar Kubba, a second-generation title professional with over 20 years of sales experience in the title insurance industry, Notarized.com has developed a comprehensive suite of online notarization products and services for individuals and businesses. Through Notarized.com, customers can securely sign documents online with the click of a button, collaborate with other parties to get documents signed quickly and get paperwork notarized from anywhere in the world with its remote notary network. 

 

Durable Energy

 

Durable Energy is a company on a mission to make the transition to renewable energy easier and more accessible for everyone. They are focusing on creating more renewable energy-powered EV charging stations in the nation, offsetting the amount of energy produced by solar so that it can be stored and used when needed, and working on hydrogen fuel cells to provide a clean and renewable source of energy for cars and homes. Through Regulation CF, Durable Energy can connect with the end user who will be using these products, enabling them to become early investors in the infrastructure they will utilize.

 

Bullet ID

 

Based in Toronto, Canada, BulletID is a company that utilizes barcode technology to reduce gun violence by tracking ammunition. This company allows law enforcement and military personnel to instantly track essential information about a bullet, such as inventory, ownership history, manufacturer, and type. This is done through a barcode printed into the brass cartridge. With this information, it will be easier for authorities to trace a bullet back to its owner and determine if it was used in a crime. With BulletID, the process is as easy as scanning the cartridge on a smartphone. From anywhere worldwide, law enforcement and the military can see available details within 10 seconds.

 

Healthysole

 

HealthySole is dedicated to helping people live healthier lives by providing them with an easy-to-use, affordable solution to one of the most common problems in the world: shoes and floors that make our feet dirty and unhealthy. Their product, HealthySole PLUS, removes 99% of all germs, bacteria, and other contaminants from the soles of shoes. This is especially important in hospitals, where hospital-acquired infections can cause serious illness to patients. HealthySole helps to reduce the transmission of these illness-causing germs. 

 

McGinley Orthopedics

 

McGinley Orthopedics is a medical technology company specializing in developing and commercializing products that aid in the treatment of orthopedic injuries. During an orthopedic plate and screw surgery, the surgeon typically manually determines the depth of the screw, which can lead to further complications. The company’s IntelliSense Drill Technology® puts sensors in the tools that simultaneously measures depth, telling the surgeon what size screw to use, and has auto-stop features to help prevent plunging past the bone. 

 

Medical21

Medical21 is a company founded by Manny Villafaña, an experienced entrepreneur who has successfully led seven IPOs. The company is looking to innovate how cardiac care and surgical procedures are delivered. Medical 21 has developed a small-diameter coronary artery graft to be used in heart bypass surgery. Instead of harvesting blood vessels from a patient’s legs, arms, and chest, the company has developed a synthetic graft. With Reg A+, the company aims to raise the capital to conduct clinical trials.

___________________

Regulation CF(RegCF), D (RegD), A (RegA+) Disclaimer


This communication may be deemed to be a solicitation of interest under Regulation CF (RegCF), D (RegD), A (RegA+) under the Securities Act of 1933, in which case the following applies:

  • 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 qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and 
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

KoreTalkX’s Growth Throughout 2022

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After launching our podcast, KoreTalkX, earlier this year, we’ve seen it grow as we continue to host industry thought leaders to share their perspective on the private capital markets through empowering conversations. Our Spotify Wrapped tells a remarkable story of the success of a podcast that is looking to make a huge impact on the capital industry and its listeners.

 

A Year of Impressive Numbers

 

Throughout 2022, the KoreTalkX podcast released 1,071 minutes of new content, which is 92% more than other podcast creators in the business category. And, our global audience is a representation of how capital raising in the day of JOBS Act regulations is becoming a global industry. The podcast is listened to in 7 different countries, including Brazil, the United States, Canada, the United Kingdom, and Bulgaria.

 

The Top Content of 2022

 

When it came to the most listened-to talk of 2022, our episode titled Cannabis Businesses Need Capital had 287% more streams than the average episode. Our podcast also ranks among the top 10% of podcasts shared globally, reflecting one of the primary goals of this series–the share of information and knowledge.

 

The “Devotee” Audience

 

The KoreTalkX podcast also gained a lot of traction from our “devotee” audience, Spotify’s term for a listener who loves to listen over and over again. Throughout the year, KoreTalkX ranked as a top 10 podcast for 48 fans, a top 5 podcast for 36 fans, and a number one podcast for 14 fans showing the power of its content in the industry. 

 

All in all, it has been an incredible year for the KoreConX Podcast. From a global audience who is quick to support new releases to the ‘devotee’ audience who continues to prove their loyalty by returning to listen over and over again, looking to the future, it will be exciting to see what KoreTalkX has in store for the coming year. And if you are not already following the KoreTalkX podcast, check us out so you can stay up to date on the capital markets year-round. 

What You Need to Know About Cap Table Management

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More than a simple spreadsheet, a cap table (short for capitalization table) records detailed data regarding the equity owned by shareholders. When it comes to raising capital, your cap table will help you make sound decisions regarding your offering. So, what exactly is cap table management?

 

A clear and well-managed cap table paints a detailed picture of exactly who owns what in the company. Whether a founder is looking to raise additional capital or offer incentives to employees, a correctly-managed cap table will show the exact breakdown of shares, digital securities, options, warrants, loans, SAFE, Debenture, etc. This information enables founders to understand how equity distribution is impacted by business decisions.

 

Proper cap table management ensures that all transactions are accounted for and that potential investors are easily able to see the equity structure during funding rounds. Founders are also able to better negotiate the terms of a deal when they have the entire picture of their company’s structure available for reference. Without a cap table, companies can face challenges when it comes to raising capital, due to a lack of transparency in the ownership of the company.

 

But, it’s not enough to simply have a cap table. Once created, it must be maintained properly and updated each time an equity-based transaction is conducted. In the early stages of the company, the cap table will be relatively simple to manage but as rounds of funding progress, it becomes more complex as shares are distributed amongst investors and employees. Some of the key features of a well-managed cap table management include: 

 

  • Records the voting rights of each shareholder.
  • Documents when shares are issued and diluted.
  • Keeps track of all equity holders, past and present.
  • Records who owns what percentage of the company.
  • Increases transparency among shareholders and investors.
  • Enables quicker and more efficient transactions due to up-to-date information.
  • Shows how much money each shareholder has invested in the company.

 

While simple cap tables can be created in programs such as Excel, a cap table management software may provide a better solution as it becomes more complex.  As part of its all-in-one platform, KoreConX provides companies with the tools to properly record every transaction in their cap table. Encouraging transparency of shareholders, every type of security (including digital securities, shares, options, warrants, loans, SAFEs, and Debentures) that may be offered is accounted for and kept up to date as deals occur. By maintaining transparent records, companies can benefit from both shorter transaction times and expedited due diligence.

 

With an understanding of the importance of keeping a properly managed cap table, founders can arm themselves with the ability to make well-informed business decisions. Detailed insight into a company’s financial structure allows potential investors to feel confident in their investments, secure with the knowledge that their share is accurately accounted for. Even if the task of creating a cap table may seem daunting, it is simplified with a cap table management software so that everyone is on the same page.  

Oscar Jofre Shares Thoughts of Banking Reform with StratCann

Posted on by Oscar Jofre Tags: , , ,

Oscar Jofre, the President and CEO of KoreConX, has long been a proponent of expanding access to capital for cannabis companies in the US and Canada. He recently spoke to StratCann about the current state of banking for these types of companies in both countries. Despite conversations within the US proposing changes to how banks handle working with cannabis companies, Oscar says: “Even with the SAFE Act, the bigger banks aren’t going to put it under their risk profile. They’re going to do the same thing our banks are doing in Canada. They’re not looking at it from the legal point of view anymore. They’re looking at it from the optics point of view. They’re big banks and don’t want to be seen doing business with cannabis.”

His thoughts are that smaller US banks could be a likely partners to both US and Canada-based cannabis companies. Still, a widespread banking reform within the US is unlikely to relieve much of the challenges Canadian cannabis companies currently face. Read the rest of the article at StratCann to see what Oscar and other thought leaders predict if the SAFE Act were to pass.

What You Need to Know About RegCF

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Raising capital is always a challenge, especially in the startup sector, which means that it’s vital to understand all the options available and how they can help you attain your goals. We will discuss Regulation Crowdfunding (RegCF), which has proved to be an increasingly popular method among early-stage companies looking for funds due to its exemption from SEC registration and access to a vast pool of potential investors, in addition to being cost-effective. This blog post will outline some essential things you need to know before taking advantage of RegCF as a form of raising capital. Understanding what challenges you may face along the way and what resources are at your disposal will hopefully give you greater insight into whether this capital option is right for your business.

 

What is RegCF?

 

  • RegCF refers to equity-based crowdfunding.
  • This type of financing method raises money through small individual investments from many people.
  • Startups and early-stage businesses can use RegCF to offer and sell securities to the investing public.
  • Anyone can invest in a Regulation Crowdfunding offering, but there are limits based on annual income and net worth for investors who are not accredited.

 

What do you need to know about RegCF?

 

RegCF is a type of securities-based crowdfunding that allows startups and early-stage businesses to offer and sell securities to the investing public. This type of financing method raises money through small individual investments from many people, and it has seen a surge in popularity since its enactment in 2012. In 2019, the SEC passed amendments to RegCF, making it even easier for companies to raise capital, such as increasing the offering limit to $5 million. As of 2021, over $1.1 billion has been raised through RegCF.

 

Who can invest in a Regulation Crowdfunding offering?

 

Any person can invest in a Regulation Crowdfunding offering. However, there are certain restrictions based on annual income and net worth for those who are not accredited investors. According to the SEC, an individual will be considered an accredited investor if they have earned income that exceeded $200,000 ($300,000 together with a spouse or spousal equivalent) in each of the prior two years and reasonably expects the same for the current year, have a net worth over $1 million (excluding the value of their primary residence), or hold certain professional certifications.

 

What are the investment limits for non-accredited investors?

 

For non-accredited investors, the amount they can invest in a RegCF offering depends on their net worth and annual income. If an individual’s annual income or net worth is less than $124,000, then during any 12 months, they can invest up to the greater of either $2,500 or 5% of the greater of their annual income or net worth. If their annual income and net worth are equal to or more than $124,000, then during any 12 months, they can invest up to 10% of annual income or net worth, whichever is greater, but not to exceed $124,000.

 

What Are the Benefits of RegCF?

 

Any startup or early-stage business can use RegCF to raise capital. This financing is beneficial for companies that do not have the resources or connections to access traditional forms of financing, such as venture capital or bank loans. RegCF also provides an alternative to Initial Public Offerings (IPOs) for companies that are too small for a public offering.

 

RegCF is an excellent way for startups and early-stage businesses to access capital. It offers increased access to capital and no restrictions on who can invest. RegCF is expected to reach $5 billion in raises in the future, and with the popularity of this financing only growing, it’s clear that RegCF is here to stay. By understanding the basics of Regulation Crowdfunding, startups and small businesses can make informed decisions about when and how to raise capital to achieve their business goals.

Online Capital Formation And Why You Have To Understand It

Posted on by Jason Futko Tags: , ,

The JOBS Act reached its tenth anniversary in 2022. We celebrated the date with the launch of our Podcast, KoreTalkX, recently mentioned by Spotify as in the top 10% of the most shared shows globally. But the regulations that brought a lot of novelties to the capital raising process still face some misconceptions. Especially regarding Crowdfunding. We are introducing Online Capital Formation and why you have to understand it.

We do write a lot about the democratization of capital because we believe that everyone should be able to participate and share in the benefits. Whether as entrepreneurs, brand advocates, innovators, or investors (both accredited and non-accredited). What we may be missing here is that Regulation CF (RegCF) has matured over the past decade, and it is time to look at it in a more complex way.

Crowdfunding?

For many individuals, the word  “crowdfunding” still evokes Kickstarter as a Top of Mind idea. Entrepreneurs that need money to launch a product pitch their ideas online. People can contribute based on a variety of rewards listed on a website. But that is far from being a regulated entity.

RegCF helps companies turn investors into shareholders. Companies and product makers are not selling their stories anymore. They are selling their stock. And that is why we feel the word “crowdfunding” doesn’t encompass the whole idea behind it.

That is why we put together our KorePartners, like Sara Hanks (CEO/Founder of CrowdCheck) and Douglas Ruark (President of Regulation D Resources) to help us put a flag in the ground to what we believe is the new era in Crowdfunding: Online Capital Formation.

Sara Hanks, Douglas Ruark. and Oscar A Jofre, our CEO and co-founder, will join our communications coordinator Rafael Gonçalves in a webinar next Monday, on December, 19th, at 4 PM EST, to remind us all of the paths we have traveled while pointing the way forward for the Online Capital Formation idea.

Join us on LinkedIn Live or subscribe on Airmeet.

What You Need to Know About RegA+

Posted on by Oscar Jofre Tags: , , , ,

If you are an entrepreneur looking to raise funds, you may have heard of Regulation A+, often referred to simply as Reg A+. This alternative to traditional venture capital, private equity, or other funding sources allows companies to sell securities to the public without going through the lengthy and costly process of registering with the SEC. Since it was expanded in 2012 with the JOBS Act, Reg A+ continues to evolve, facilitating increased capital formation for companies within the private capital market.

 

What is Reg A+?

 

The goal of Reg A+ is to make it easier and less expensive for small businesses to access capital while still providing investors with the protection of an SEC-qualified offering. The offering is exempt from complete SEC registration, allowing companies to raise up to $75 million in capital, with certain restrictions and requirements. To qualify for this exemption, a company must file an offering statement (Form 1-A) with the SEC that includes all pertinent information about the business and the offering. The company must also provide ongoing disclosure about its business, including financial statements and other material information.

 

Who is Reg A+ for?

 

Reg A+ is aimed primarily at small and medium-sized businesses looking to raise funds from the public, but larger companies can also use it. Because there are fewer restrictions and requirements than traditional SEC registration, Reg A+ offers a more affordable option for companies that do not have access to venture capital or other significant funding sources. Because Reg A+ is such a robust option for companies looking to raise capital, many companies stay private longer instead of going public through an IPO. 

 

Advantages of Reg A+

 

Beyond lower costs than going public, Reg A+ offers additional benefits for issuers and investors alike. It is a unique opportunity for investors to get involved with early-stage companies since the offering allows both nonaccredited and accredited investors to invest. At the same time, these investors can benefit from the potential for higher returns and the ability to diversify their portfolios. Investors also benefit from SEC oversight, which aims to protect them and ensure that they are investing in legitimate investment opportunities. Investors may also have options for liquidity, as securities purchased through a Reg A+ offering can be traded on a secondary market.

 

Reg A+ benefits companies because it offers a relatively simple and cost-effective way to access the public markets while accessing an increased pool of potential investors than a traditional offering. Unlike conventional VC or private equity funding routes, issuers can also retain more ownership over their business while finding investors who share the vision for the mission and direction of the company. Issuers can also benefit enormously from building brand advocates out of their investors, which can, in turn, inspire new investors or customers. 

 

Reg A+ offers an excellent alternative for small businesses looking to raise capital without going through the lengthy and costly process of registering with the SEC. With a maximum offering cap of $75 million, Reg A+ can be used for companies of all sizes and offers investors the opportunity to access early-stage companies that they may not otherwise have access to. 

How Does Technology Improve Transparency and Sustainability?

Posted on by Oscar Jofre Tags: , ,

Technology has significantly impacted many different aspects of our lives, and the world of capital raising is no exception. With the help of technology, we can more efficiently raise capital and improve transparency and sustainability in the process. Here is a closer look at how technology is helping to improve transparency and sustainability in the world of capital raising and investment:

 

Improving Transparency

 

One of the biggest ways technology improves transparency in capital raising is by providing more information to investors. In the past, it was often difficult for investors to get a clear picture of where their money was going and how it was being used. However, thanks to technology, there are now a number of platforms and tools that provide investors with real-time updates and insights into how their money is being used. This increased transparency gives investors more confidence in the process and helps build trust between them and the companies they invest in.

 

Another way that technology is improving transparency is by making it easier for companies to comply with regulations. In the past, companies often had to spend a lot of time and money on compliance, which could cut into their profits. However, thanks to the advent of compliance automation, companies can now more easily and efficiently comply with regulations, which frees up more time and resources to focus on other areas of their business.

 

Improving Sustainability

 

In addition to improving transparency, technology is also helping to improve sustainability in the world of capital raising. One of the biggest ways technology does this is by making it easier for companies to access alternative funding sources. In the past, companies often had to rely on traditional funding sources, such as banks and venture capitalists. However, thanks to JOBS Act regulations like Reg A+ and Reg CF, companies can now more easily raise capital from a wider pool of investors, including regular people. This not only helps to improve the sustainability of businesses but also helps to create more opportunities for people to invest in the companies they believe in while having customers that not only help you raise capital but can be seen as brand ambassadors.

 

Another way that technology is improving sustainability in capital raising is by making it easier for companies to track their progress and impact. In the past, it was often difficult for companies to track their progress and impact due to a lack of data. However, thanks to technology, companies can now more efficiently collect and track data related to their business. This data can then be used to help improve companies’ sustainability by helping them track their progress and make necessary adjustments. 

 

Thanks to technology, we can raise capital more efficiently and create more opportunities for people to invest in the companies they believe in while improving transparency and sustainability. This means more confidence in the process and trust between investors and the companies they are investing in. For businesses, this means more time and resources to focus on other areas of their business. And for the world, this means a more sustainable future where anyone can invest in the companies they believe in.

 

Real Estate Revolution: Democratization Through Tokens

Posted on by Oscar Jofre Tags: , , , ,

The real estate market has seen a substantial uptick in value, with more and more people looking to invest in this asset class. However, the high barrier to entry – requiring significant capital – has traditionally limited participation to only those with deep pockets. But with tokenization and the blockchain technology that supports it, anyone can get in on the action.

 

What is Tokenization?

In simple terms, tokenization is the process of converting something of value – in this case, real estate – into digital tokens that can be bought and sold on a blockchain platform. This allows for fractional ownership of assets, which opens up investment opportunities to a much wider pool of people. Tokenization is a process that can facilitate investment in fractional portions of real property, thus lowering the barrier to entry for retail investors. By digitizing real estate ownership and using blockchain technology to track transactions, tokenization makes it easier and faster to buy and sell property and reduces the costs associated with traditional real estate transactions.

 

Why Tokenize Real Estate?

There are a number of benefits to real estate tokenization. For investors, lower minimums and smaller investment amounts can lead to higher returns as they benefit from the potential appreciation of the underlying real estate asset. For issuers, access to a wider pool of investors is facilitated by the ease of transferability and liquidity of tokens. In addition, through automated processes and a permanent, unchangeable digital ledger, blockchain technology has the potential to streamline investment transactions and reduce transaction costs.

 

For real estate agents, the benefits of tokenization are twofold. First, it presents an opportunity to increase business by working with clients interested in tokenizing their property. In addition, real estate agents who are early adopters of this technology will have a competitive advantage as the industry moves towards greater adoption of blockchain-based solutions. With tokenization, an asset can be transferred and sold much more easily and quickly than through traditional methods, so real estate agents who can help their clients navigate this new landscape will be in high demand.

 

How Does Tokenization Work?

 

The tokenization process begins with the asset owner working with a platform provider to create a digital token representing property ownership. The asset is then appraised, and a value is assigned to the token. Once the token is created, it can be bought and sold on a blockchain platform, similar to how cryptocurrency is traded. When the asset is sold, the tokens are transferred to the new owner, and the transaction is recorded on the blockchain.

 

The entire process is facilitated by smart contracts, self-executing contracts that can be programmed to execute certain actions when certain conditions are met. For example, a smart contract could be programmed to automatically transfer ownership of the tokens when the asset is sold. This would eliminate the need for a third party to facilitate the transaction and ensure that the transaction is completed promptly and efficiently.

 

While there are many advantages to real estate tokenization, issuers should know the securities law implications of issuing tokens. Tokenizing real estate is a complex process, but the benefits are significant for both investors and issuers. By lowering the barrier to entry and increasing liquidity, tokenization has the potential to revolutionize the real estate industry.

 

What is Two-Factor Authentication?

Posted on by Oscar Jofre Tags: , ,

According to a recent report published by Microsoft, hackers make 921 attempts to steal a password every second. This means that accounts secured by weak passwords are at an increased risk of falling victim to a hack, which means there has been no better time to focus on securing vulnerable accounts. This is where two-factor authentication, also known as 2FA, comes in.

 

How Does Two-Factor Authentication Work?

 

2FA is a security process that requires two different forms of identification from the user to log in. In addition to your username and password, you’ll often be asked to provide a code that may be sent via text or email. By providing this code, you can gain access to your account. Without access to the physical device the code is sent to, the username and password alone are unable to grant you access to your account. This effectively prevents hackers since even if they successfully gained access to your password, that information is essentially useless without the code. 

 

However, there are also other types of 2FA, like using your fingerprint to log in or a physical device like a USB to access a digital code. 

 

Why Use Two-Factor Authentication?

 

Two-factor authentication is a vital security measure for online accounts because it adds an extra layer of protection beyond passwords. Passwords can be stolen or guessed, but the user cannot log in without access to the second factor. This makes it much more difficult for hackers to access your account.

 

2FA is also useful for preventing fraud. If someone else tries to log in with your username and password, they will not be able to get past the verification step without access to your device or code. This can help protect against phishing attacks and other types of fraud.

 

Benefits of Two-Factor Authentication

 

Two-factor authentication is a great way to increase the security of your online accounts. It gives you an extra layer of protection that makes it much more difficult for hackers to access your data. Here are some of the benefits of using two-factor authentication:

 

Increased Security: Two-factor authentication adds an extra layer of security to your accounts, making them much harder to break into. This is especially important if you have sensitive data stored in your account that you don’t want anyone else to access like banking and other financial information.

 

Easier Logins: Using two-factor authentication can make logging into your accounts easier. Instead of typing in a complex password every time, you can enter your username and a verification code. This makes it much faster to log in and access your account.

 

Improved User Experience: Two-factor authentication can improve the user experience by providing an extra layer of security without adding complexity. It’s easy to understand and use, and it also helps protect your data from unauthorized access.

 

Two-factor authentication is a great way to increase the security of your online accounts and protect your data from unauthorized access. It adds an extra layer of protection beyond passwords, making it much harder for hackers to access your account. Overall, two-factor authentication is an important security measure that can help keep your data and online accounts safe.

 

KoreClient Spotlight: Wealthcasa

Posted on by Oscar Jofre Tags: , , , ,

For many people, investment properties come with a price tag that is cost-prohibitive to everyday investors. However, as Reg A+ sees wider use in the real estate market, it opens up new opportunities for investors.

 

Wealthcasa also aims to make real estate accessible to everyday investors through a Reg A+ offering. Cesare Bauco, CEO of Wealthcasa, says that “the whole [idea] behind Wealthcasa is to be a vehicle for the average person to get into the [real estate] investment market.” This allows people who may not fit the criteria of a traditional investor to invest in real estate. “Reg A+ was very intriguing when it was brought to light to us,” added Bauco. This gives people who may not have had the opportunity to invest in real estate before the chance to invest in Wealthcasa. “We thought this would be a good opportunity to raise funds that way and bring along Americans that normally can’t get into that.”

 

“Our parent company, located in Canada, is a new home builder by trade, with over 20 years of development and construction experience and 800 units currently under development in the greater Toronto area. We like to position ourselves where we can actually enter the US markets in many areas; we have been scouting opportunities, like Florida, Tennessee, and California,” said Bauco. This experience will lend itself well to developing the planned communities. 

 

Once the first Wealthcasa property has been developed, the company also seeks to offer a rent-to-owner program, giving people other ways to get into the real estate market. This program allows people to rent a home and build equity in the home. Eventually, usually after 5-7 years, they will either have the ability to purchase the unit themselves. Or, if they are not in a position to buy, the accumulated value of the asset will be shared with that buyer-renter.

 

Ultimately, Wealthcasa wants to create a platform for people to become investors in the real estate market by offering an accessible way and a rent-to-owner program that will allow renters to build equity over time.

___________________

Regulation CF(RegCF), D (RegD), A (RegA+) Disclaimer


This communication may be deemed to be a solicitation of interest under Regulation CF (RegCF), D (RegD), A (RegA+) under the Securities Act of 1933, in which case the following applies:

  • 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 qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and 
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

What are the Differences Between Regulations A, CF, D, and S?

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

When it comes to raising capital, there are various ways you can raise money from investors. And while they all have their own specific compliance requirements, they all share one common goal: to protect investors while still providing them with opportunities to invest in private companies. Let’s look at the four most popular types of equity crowdfunding; through Regulation A, CF, D, or S. 

 

Regulation A+

 

Offering size per year: Up to $75 million

Number of investors allowed: Unlimited, as long as the issuer meets certain conditions.

Type of investor allowed: Both accredited and non-accredited investors.

SEC qualification required: Reg A+ offerings must be qualified by the SEC and certain state securities regulators and must also file a “Form 1-A”. Audited financials are required for Tier II offerings.

 

This type of crowdfunding is popular because it allows companies to raise up to $75 million per year in capital and is open to accredited and non-accredited investors. Offering the ability to turn current customers into investors and brand ambassadors (like several JOBS Act regulations promote) can bring a company tremendous value and help to grow the business. A Reg A raise is excellent for companies that have a wide customer base or need to raise a large amount of capital. Compared to other regulations, Reg A+ is a bit more complex and time-consuming to implement. Yet, it still offers a great deal of potential with the ability to market the offering to a wide pool of potential investors.

 

Regulation CF

 

Offering size per year: $5 million

Number of investors allowed: Unlimited, as long as the issuer meets certain conditions.

Type of investor allowed: Both accredited and non-accredited investors

SEC qualification required: The offering must be conducted on either an SEC-registered crowdfunding platform or through a registered broker-dealer. Audited financials are required for companies looking to raise more than $1,235,000. Companies must fill out a “Form C.”

 

Compared to other regulations, Reg CF is one of the most popular due to its lower cost and ease of implementation. Regulation CF offers companies the ability to raise up to $5 million per year and allows accredited and non-accredited investors to invest in the company. Companies that need a smaller sum of capital while still leveraging the power of marketing can benefit from utilizing this type of regulation. 

 

Regulation D

 

Offering size per year: Unlimited

Number of investors allowed: 2000

Type of investor allowed: Primarily accredited investors, with non-accredited investors only allowed for 506(b) offerings.

SEC qualification required: Reg D offerings do not need to be registered with the SEC but must still meet certain filing and disclosure requirements.

 

A Reg D offering must follow either Rule 506(b) or 506(c). Both allow up to 2000 investors but differ slightly in that 506(b) offerings allow up to 35 non-accredited investors. Additionally, 506(b) offerings do not permit general solicitation. This means that companies will have to rely on their own network of investors to reach their goals. While this type of offering is more restrictive than others, it can be attractive to companies that need a smaller sum of capital and have access to a network of accredited investors. 

 

Regulation S

 

Offering size per year: Unlimited

Number of investors allowed: 2000

Type of investor allowed: Foreign (non-US) accredited and non-accredited investors

SEC approval/qualification required: Reg S offerings are not subject to SEC rules, but they must follow the securities laws in the countries issuers seek investors from.

 

An excellent complement to Reg D, Reg S allows companies to raise capital from foreign and non-U.S. investors. This regulation was made for big deals, allowing companies to reach a larger and more diverse pool of investors. Reg S is great for companies looking to raise a large amount of capital or to break into foreign markets. Issuers must be careful not to make the terms of the offerings available to US-based people.

 

Depending on the size of your offering, the number of investors you’re looking to attract, and the type of investor you want, one regulation may be better suited for your needs than another. Still, it is important to consult with a professional when making these decisions to ensure that you meet all necessary compliance requirements.

Misconceptions About Regulation S

Posted on by Oscar Jofre Tags: , , , ,

Continuing our last post on Regulation S, then are still a few things that should be known to issuers looking to explore this method of raising capital. Perhaps most importantly, “nobody in the US should be able to know that you are doing a Reg S offering,” said Sara Hanks, CEO and co-founder of CrowdCheck. This means that issuers should geofence any offering site, preventing people with US IP addresses from accessing the offering and viewing its terms. Unlike the other JOBS Act exemptions that permit general solicitation in the US, Reg S does not. 

 

Why Do Companies Use Reg S?

 

Despite the challenges of raising money under Regulation S, many companies still find it the best option for them. This is because the rules offer several benefits that can be very helpful for businesses. One of the biggest advantages is that it enables issuers to raise money from foreign investors. It also does not limit issuers to how much they can raise, unlike Reg A+ or RegCF.

 

What Are the Drawbacks of Using Reg S?

 

Despite the many advantages that come with using Regulation S, there are also several risks that businesses need to be aware of. One of the biggest dangers is that companies can inadvertently violate the rules if they are not careful. This can lead to significant penalties, including fines and other penalties. As a result, businesses need to make sure they understand all of the requirements before they begin raising money under Regulation S. Another risk is that companies may have difficulty finding investors who are willing to invest in their business. This is because the pool of potential investors is much smaller than it is for other types of securities offerings. As a result, companies may need to offer more attractive terms to entice potential investors. 

 

Those are not the only factors that would be a challenge for potential Reg S issuers. “The only reason to add Reg S is if you think you are going to exceed the $75 million [limit for Reg A+] and you think there are people overseas who would be interested in investing. We rarely see the $75 million exceeded. But the problem is Reg S only tells you how to comply with US rules, it does not tell you how to comply with anybody else’s rules. Most developed countries have rules that limit the extent you can offer securities to less sophisticated people. Reg S tells you how to comply with US rules but it doesn’t tell you how to comply with French or German rules so you would still have to learn those rules in whatever country you are making the offering in,” said Hanks.

 

Did Reg A+ Replace Reg S?

 

While some people may think otherwise, Regulation A+ did not replace Regulation S. Regulation A+ is an alternative securities offering process that was expanded by the JOBS Act of 2012. Unlike Regulation S, which only allows companies to raise money from foreign investors, Regulation A+ allows businesses to raise money from both foreign and domestic investors. Additionally, Regulation A+ has many requirements that are not imposed on Regulation S offerings. For example, companies that use Regulation A+ must file a disclosure statement with the SEC and provide ongoing reporting after their offering. Additionally, only companies that are qualified by the SEC can use Regulation A+. As a result, Regulation A+ is generally considered a more complex process than Regulation S in terms of compliance. However, companies that use Reg A+ can raise capital from a large number of accredited and nonaccredited investors within the US and market the offering to them, which enhances the visibility of that offering.

What eBAY Tells Us About Secondary Markets For Private Companies

Posted on by Mark Roderick Tags: , , , ,

This blog was originally written by KorePartner Mark Roderick. You can view the original post here. 

 

The securities of private companies are illiquid, meaning they’re hard to sell.

Since 2017 I’d guess a billion dollars and a million person-hours have been spent by those who believe blockchain technology will create liquidity for private securities. Joining that chorus, a recent post on LinkedIn first noted that trillions of dollars are locked up in private securities, then claimed that blockchain technology (specifically, the technology created by the company posting) could unlock all that value.

This is all wrong, in my always-humble opinion. All that money and all those person-hours are more or less wasted.

My crystal ball is no clearer than anyone else’s. But when I try to believe that blockchain will create active secondary markets I run up against two facts:

  • Fact #1: Secondary markets for private securities have been perfectly legal in this country for a long time, yet there are very few of them.
  • Fact #2: The New York Stock Exchange and other exchanges around the world were vibrant even when they were using little slips of paper.

Those two things tell me that it’s not the technology that creates an active secondary market and hence that blockchain won’t change much.

An active secondary market is created when there are lots of buyers and lots of sellers, especially buyers. When millions of people wanted to buy Polaroid in the 1960s they didn’t care whether Polaroid used pieces of paper or stone tablets. Conversely, put the stock of a pink sheet company on a blockchain and you won’t increase the volume.

As described more fully here, there are a bunch of reasons why there aren’t lots of potential buyers for a typical private company:

  • It probably has a very limited business, possibly only one product or even one asset.
  • It probably has limited access to capital.
  • It probably lacks professional management.
  • Investors probably have limited voting rights.
  • There are probably no independent directors.
  • Its business probably depends on one or two people who could die or start acting like Elon Musk.
  • Insiders can probably do what they want, including paying themselves unlimited compensation.
  • No stock exchange is imposing rules to protect investors.

All that seems obvious now and was obvious in 2017. But now I’m thinking of another company with lessons about secondary markets: eBay.

If there’s anything even less liquid than stock in a private company, it’s a used refrigerator, a bracelet you inherited from your grandmother, the clock you haven’t used for 15 years.

All those things and thousands more were once completely illiquid and therefore worth nothing. eBay changed that, almost miraculously adding dollars to everyone’s personal balance sheet. Just as every ATS operating today seeks to create an active market for securities, eBay created a market for refrigerators, bracelets, and clocks. Quite amazing when you think about it.

eBay didn’t create the market by turning refrigerators, bracelets, and clocks into NFTs. To the contrary, when you sell something on eBay you have to ship it, physically, using the lowest of low technology. eBay created the secondary market simply by connecting buyers and sellers using Web2. Just like another company that has created a pretty active market, Amazon.

If any ATS operating today had a thousandth of the registered users eBay has, its founders and investors would be even rubbing their hands with glee.

As a Crowdfunding advocate, I wonder what the world would look like if all those dollars and person-hours had been spent improving the experience of initial investors rather than pursuing secondary markets and blockchain, things dreams are made of. As the shine comes off blockchain maybe we’ll find out.

Regulation S: What is it and How is it Used?

Posted on by Oscar Jofre Tags: , , ,

Created to help companies raise money from foreign investors, Regulation S has been successful for some companies, while others have fallen into trouble by not following the regulations closely. Because of the uncertainty surrounding RegS for many issuers, Sara Hanks, CEO and co-founder of CrowdCheck, sheds some light on the subject.

 

What is Regulation S?

 

Regulation S is an offering type that companies can utilize to raise capital from investors outside of the US. According to Hanks, as Eurobonds grew in popularity throughout the 1970s and 80s, the circumstances that required an offering made primarily overseas to register with the SEC were unclear. “Section 5 of the Securities Act says that if you make a public offering of securities you have to register with the SEC, but it does not say in the United States. Of course, in 1933 they really weren’t thinking about cross-border deals. As the Eurobond market developed, where large companies were selling debt securities, there was a series of requests for interpretation as to the extent that something overseas needed to comply with US rules,” said Hanks when talking about the emergence of Reg S.  As cross-border markets developed, whether someone is or is not in the US really was brought into question. Over the next few decades, no-action letters began piling up and the SEC decided there needed to be a rule to give guidance as to what it means to not be making an offering in the US.

 

One of the key requirements is that companies only offer their securities to investors who are outside of the United States. This ensures that American investors are not being misled about the investment. Those using Reg S can raise more than the $75 million allowed with a Reg A+ raise.

 

What Challenges do Companies Face Using Reg S? 

 

The Key advantage of Regulation S is that it allows companies to tap into a larger pool of potential investors. “The primary use case of Reg S is a very large offering by a US or foreign company being made outside the United States. It was always intended for large transactions being made by large companies to sophisticated investors,” said Hanks. However, she notes that in the crowdfunding space, many issuers are still conducting a Reg S offering incorrectly. “They ignore the fact that the transaction has three separate categories and all of these are based on the likelihood of the transaction actually being made in the United States or the securities coming back to the United States,” said Hanks.

 

Accordingly to Hanks, the easiest use case is a foreign company selling under its own rules. An intermediate use case would be an SEC-registered company. An important consideration is the likelihood that the company would be using Reg S to get around the SEC’s registration rules and how much harm the securities would cause if they ended up in the US. But, for companies in the crowdfunding space that are not reporting companies, the rules are much more strict. Unfortunately, many of these companies are ignoring the rules that apply to non-reporting US companies, which is a significant problem.

 

For companies looking to use Regulation S, it’s important that they understand the offering and SEC’s requirements, otherwise, it could lead them into hot water.

How Can an Update on RegD Impact Private Markets?

Posted on by Oscar Jofre Tags: , , ,

Far larger than the initial public offering (IPO) market, Regulation D is incredibly important within the private capital markets, facilitating over $1 trillion in capital every year. Now, the SEC is considering updates to the accredited investor definition, which would have a significant impact on Reg D offerings, the private market, and the economy as a whole.

 

Understanding Regulation D

 

To understand how an update to RegD could impact private markets, it is important to have a brief overview of the regulation. There are two types of Reg D – 506b and 506c. Both offer exemptions from Securities and Exchange Commission (SEC) registration requirements for securities offerings and require investors to be accredited. An accredited investor is an individual who meets certain financial criteria, such as earning $200,000 or more a year or having a net worth of over $1 million. The main difference between 506b and 506c is that 506b does not allow the issuer to solicit generally or advertise the offering to potential investors.

 

Changes on the Horizon

 

The SEC is currently considering updates to RegD, including changes to the definition of an accredited investor. Some changes could include raising the income or net worth thresholds, although it is still somewhat unclear as to what the SEC envisions. Raising these thresholds would mean fewer individuals would qualify as accredited investors and therefore have access to private securities offerings. The impact of these changes could affect different types of investors differently. Still, they will likely have a significant impact on private capital formation and the ability of entrepreneurs to access funding.

 

The update could also impact companies that use Reg D offerings as part of their fundraising strategy. Currently, these companies can access a much larger pool of capital than they would through an IPO or traditional venture capital, as nearly 15 million Americans qualify under the current definition. But if the definition of an accredited investor is narrowed, this could limit access to capital for smaller or startup companies. 

 

What Does This Mean for the Private Market?

 

Even though the SEC says that these changes are to protect investors, net worth and income are not the only way to determine whether an investor is accredited or not. The ability to make an educated investment decision also relies on the education and experience of the investors, which isn’t considered in the definition of an accredited investor. Some organizations, like the Investor Choice Advocate Network, believe that the definition should be updated to reflect non-financial measurements such as the professional certifications required for CPAs, registered investment advisors, financial planners, and other professionals. 

 

Updates could also mean that fewer individuals from underrepresented groups may be able to participate in a Reg D offering. With these groups historically facing obstacles to participating in capital markets, these updates could dramatically reduce investment opportunities for some individuals as well as make it more difficult for companies who are looking to raise capital from underrepresented communities.

 

Of course, it is difficult to say exactly what the impact of updated Reg D would be on private markets when we still do not know what those updates will be. Hopefully, we will have more information soon.

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