How to choose the right trusted cap table provider

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

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

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

What is a Cap Table Provider?

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

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

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

What Do They Provide?

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

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

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

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

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

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

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

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

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

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

1. Expertise and Accuracy

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

2. Scalability

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

3. Transparency

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

4. Security and Confidentiality

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

5. Regulatory Compliance

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

Choosing a trusted cap table provider

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

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

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

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

Cannabis: An Emerging Market for RegA+

Despite remaining illegal at the federal level, the idea of legalizing cannabis is continuing to gain public acceptance, especially in recent years. As of April 2021, 35 states have made medical marijuana legal, with 18 of them legalizing it recreationally. This growth has been tremendous, raising the industry’s value to over $13 billion and directly supporting 340,000 jobs. As of 2019, 67% of Americans believe that regulators should legalize marijuana, an astounding 20% increase from a decade ago.

These factors have created an excellent opportunity for companies in this space. As public perceptions continue to rise, investments in cannabis companies may become more attractive to retail and accredited investors. In 2019, cannabis companies received nearly $117 billion in investments, displaying some of the investors’ significant interest in the space. Opportunities will only continue to increase as the industry progresses. Projections show that by 2028, cannabis will be an industry worth $70.8 billion globally. In the US alone, cannabis sales in the US in 2021 alone are predicted to reach $21 billion. 

The combination of investor interest and industry valuation could mean that raising capital through exemptions like Regulation A+ could prove to be an incredible opportunity for companies and investors alike. Already, many cannabis companies are seeing success through these opportunities. Early this year, Gage Cannabis closed their Regulation A+ offering after securing $50 million in funding and adding 1,000 shareholders to their cap table. This one success is not an outlier, as other issuers have been seeing success as well. 

It will be interesting to see how the industry and investment opportunities within cannabis will expand with the upward trend of public perception. Additionally, as more states continue to legalize, more businesses will emerge, jobs will form, and investors will invest in an emerging market.

Along with our partners, KoreConX hosted a webinar on why RegA+ may be the perfect fit for companies in the cannabis space. If you missed the live event or want to rewatch it, visit our YouTube channel to access the full recording of the event. If you would like to contact any of our speakers or view the full schedule, please visit our KoreSummit site.

Stock Options for Employees

Stock exchanges have a long history within America. The first was the Philadelphia Stock Exchange, originally the Board of Brokers of Philadelphia, founded in 1790 and was followed by the New York Stock Exchange two years later. For nearly as long as the United States has been a country, they have had brokers buying and selling stocks. 


Since the latter half of the 20th century, however, the idea of stock options for employees has been popular as an incentive tool for employees to have a vested interest in the company’s success. For both publicly traded and private companies, offering employees the opportunity to be awarded or purchase shares is a powerful incentive. This practice has continued into the modern-day, as grantees (the employee or executive of a company) can receive the option to buy stock in the company for a fixed price in a finite time. This process also includes a vesting period, which is a period of time that a grantee will need to wait before they can exercise their stock options.


There are two main types of stock options, Incentive stock options (ISOs) and Non-qualified stock options (NSOs). The difference between these types is that the former is usually offered to top talent and executives while being treated as capital gains when taxed, while the latter is granted to employees of all levels and considered income when taxed after being exercised. For example, as an incentive to continue excellent performance, a company can give an employee or executive the option to buy 500 shares in the company at $5. As the name indicates, this is an option that an employee is granted the right to do, but it is not an obligation. If the employee buys the stock at $5 over the period designated by the company, the employee will then have the option to sell the share after the vesting period has passed. 


Most plans for employee stock options allow a percentage of stock to be sold each year. In our example, if the company allows for 20% of the stock to be vested each year, after one year, an employee will have the ability to sell the 100 shares of their stock options, and so on for each year as the stocks continue in the vesting process. The advantage for employees granted the right to exercise stock options in the company that they are working for is that they will, in most cases, receive that stock at or lower than the market price. The purpose of this is to make an employee feel like the company’s success is tied to their success as well. If they can work to further the company’s goals and raise the price of the company’s stock on the stock market, the employee can sell their stock options and make a profit. 


Continuing our example, if the employee has $2500 in shares in the company and the market price increases, they will make the difference. So, if the company reaches $8 per share by the time the employees’ stock is fully vested, they can sell it for $4000, for a $1500 profit. 


The typical scenarios for this type of stock option are in start-up companies or as incentives to bring the best talent to a larger company. For the company, the incentive does not come from the operating budget but helps to involve employees in the company’s success. The success of the company is a success for all. 


Nominee vs. Direct: How does this affect investors?

Today, there are many ways to buy and sell securities. For publicly traded companies, 75% of Americans are familiar with investing apps or online accounts. For private companies, many investors in companies invest with a broker-dealer and or maintain their own investments. In the first situation, an investor deals with a broker-dealer who holds the investors’ assets in a nominee account, while the second is a direct investing method controlled entirely by the investor. Both accomplish the same goal, buying or selling securities for profit or dividends, but the effect on an investor varies. 


A nominee is an account held by a broker-dealer, and securities owned by an investor are held as a means of separation between the broker’s business and the assets owned by the nominee account. This separation established a level of protection for the investor. In the event of the broker’s business failing, the securities held in the nominee account cannot be ascertained by any creditor claiming assets. The stocks will still be the asset of the investor, regardless of what happens to the broker. 


The issue that comes forth in this model is that, while regulators and exchanges review these accounts periodically, they do not get checked daily, which opens the door for a bad actor to commit fraud and move the assets without permission. For example, fraud could occur if the broker-dealer ‘borrows’ a client’s assets to keep them afloat, potentially. An even more extreme example would be if a broker was to take all of the money and run, though this is less likely. 


The main thing to consider is that while the investor is the beneficiary of the stock, the broker has the authority to move it and sell it on the investor’s behalf. This is why it is important to look into the investor compensation programs with a broker, and for further protection, separate your assets between multiple brokers. While this option comes with risks, the broker will ultimately handle the operations of the account. If you are working through direct investing, account operations are maintained by the investor. 


With direct investments, the trade-off for increased security is that an investor is responsible for buying and selling decisions. A direct stock plan can allow you to buy or sell stock in some companies directly through them without using a broker. However, according to, “Direct stock plans usually will not allow you to buy or sell shares at a specific market price or at a specific time. Instead, the company will buy or sell shares for the plan at set times — such as daily, weekly, or monthly — and at an average market price.” Both options have merit, but the choice is between complete security at the cost of time and energy. 

What are Options?

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 RegTech?

In the wake of the 2008 economic crisis and the subsequent recession that followed, there was a push to create new regulations to govern financial institutions in the United States. With these regulations came requirements that businesses had to follow to be compliant with the new laws. What followed the new regulations was a rise in companies offering services to help companies manage compliance easily and efficiently, both in time and cost. This is the purpose and application of RegTech.

RegTech, or Regulatory Technology, is more specifically the use of technology to manage regulatory processes within the financial industry. The goal of companies that offer RegTech is to use cloud computing, machine learning, and big data to drive automation and lift a majority of the burden of complicated compliance requirements of the compliance teams in businesses, to reduce human error, and accomplish difficult tasks more efficiently. As regulations become more robust and regulators are demanding more transparency in the forms of auditability, traceability, and automation, a company that is required to comply with a lot of regulations cannot easily subsist without some form of RegTech to help them avoid the risk of sanctions.

RegTech services help to compile large amounts of data in secured and compliant ways, as well as comb that data for risks to the organization. While these services affect the budget of a company, it is arguably canceled out by the amount of time and energy saved by simplifying the complex processes. 

For example, let’s say a bank was previously doing all of their regulation audits manually, scanning the compliance law and solving what pertains to them, what they need to do, and how they need to do it to be compliant. While they could feasibly do this, it will take a considerable amount of time if the compliance officer tasked with this job is not a master of the laws pertaining to their enterprise. Then, following that long process, the bank will need to show the reporting, who did the reporting, when it was pulled, and keep the information secured. 

This type of manual process is solved by RegTech. Not only will your data be secured, but it will also be accessible and timestamped, so you can demonstrate who complied, how they complied, and when they complied by logging all of the actions a user takes and creating a trail.

This is one example of how RegTech helps in a compliance situation, but it is also used by regulators to help reduce the time it takes to investigate compliance issues. While these are the more well-known aspects of RegTech, it also helps in many more categories within the financial sector, such as:

  1. Reporting
  2. Anti-money Laundering 
  3. Compliance
  4. Governance
  5. Risk Management
  6. Management and Control 
  7. Transaction Monitoring

As the financial industry continues to rely more and more on data and technology, RegTech will continue to grow to keep up with the demand for more applications from companies and regulators alike. 

What is 409(a) and Why Does My Company Need it?

Whether your company is a new startup or an established private company, understanding and proper use of a 409(a) is essential to your company’s success. Thinking about it early will help you avoid potential setbacks and challenges later on, giving you more time to focus on growing your company, rather than tackling penalties. If that doesn’t convince you that a 409(a) is something that your company needs, a better understanding of what it is will convince you. 


To start with the basics, what is a 409(a)? First added to the Internal Revenue Code (IRC) in 2005, 409(a) outlines the taxation on “non-qualified deferred compensation,” which includes common stock options for employees. For companies to be able to offer their employees the ability to purchase stock in the company, they must complete a 409(a) valuation to determine the “strike price,” or the predetermined price at which employees can purchase the stocks. 


Undergoing a 409(a) valuation ensures that the strike price is at or above the fair market value and that the company remains compliant with the IRC. For companies who the IRS find to be noncompliant with the code, some penalties include an additional 20% tax penalty and penalty interest. 


So, how do you ensure that your company accurately determines the fair market value of your common stock? This can be done a couple of ways, either by someone within the company or by a third-party valuation firm. Whether you’re planning on completing 409(a) valuation in-house or hiring a firm, there are a few key things to keep in mind. 


For valuations done in-house, whoever is chosen must have at least five years of experience related to valuation. Since this can be subjective, the IRS could rule that the individual did not meet the requirements and that the valuation is inaccurate. Additionally, only private companies that are less than 10 years old can choose to complete their valuation in-house. It is also important to remember that if the IRS were to investigate, it would be the company’s responsibility to prove their valuation was correct. 


Hiring an outside firm, while often the more costly option, is usually more reliable. As long as the firm maintains a consistent approach to valuations and is independent, meaning that the firm is only providing the company with valuation, the company is given “safe harbor” protection. A safe harbor protects both the company and its employees, as it would be the IRS’s responsibility to prove that the valuation was inaccurate. 


Once your company has received its 409(a) valuation, how long does that last? It is considered to be valid for one year after the valuation. After that, it must be redone to ensure compliance. If your company closes a round of funding or undergoes any material changes before that period is up, a new 409(a) valuation would be required. 


Armed with the knowledge of what exactly a 409(a) is, you can help your company achieve success and maintain IRC compliance. Even early on, being compliant with tax codes ensures you avoid severe penalties and expensive delays should the IRS decide to audit your company as it begins generating revenue. 


Using a Transfer Agent Doesn’t Mean You Have a Single Entry on Your Cap Table

Many issuers are concerned that “Crowdfunding will screw up my cap table.” In response, several Title III funding portals offer a mechanism they promise will leave only a single entry on the issuer’s cap table, no matter how many investors sign up.

The claim is innocuous, i.e., it doesn’t really hurt anybody. But it’s also false.

The claim begins with section 12(g) of the Securities Exchange Act. Under section 12(g), an issuer must register its securities with the SEC and begin filing all the reports of a public company if the issuer has more than $10 million of total assets and any class of equity securities held of record by more than 500 non-accredited investors or more than 2,000 total investors.

17 CFR §240.12g5-1 defines what it means for securities to be held “of record.” For example, under 17 CFR §240.12g5-1(a)(2), securities held by a partnership are generally treated as held “of record” by one person, the partnership, even if the partnership has lots of partners. Similarly, under 17 CFR §240.12g5-1(a)(4), securities held by two or more persons as co-owners (e.g., as tenants in common) are treated as held “of record” by one person.

With their eyes on this regulation, the funding portals require each investor to designate a third party to act on the investor’s behalf. The third-party acts as transfer agent, custodian, paying agent, and proxy agent, and also has the right to vote the investor’s securities (if the securities have voting rights). The funding portal then takes the position that all the securities are held by one owner “of record” under 17 CFR §240.12g5-1.

Two points before going further:

  • Title III issuers don’t need 17 CFR §240.12g5-1 to avoid reporting under section 12(g). Under 17 CFR §240.12g6(a), securities issued under Title III don’t count toward the 500/2,000 thresholds, as long as the issuer uses a transfer agent and has no more than $25 million of assets.
  • 17 CFR §240.12g5-1(b)(3) includes an anti-abuse rule:  “If the issuer knows or has reason to know that the form of holding securities of record is used primarily to circumvent the provisions of section 12(g). . . . the beneficial owners of such securities shall be deemed to be the record owners thereof.”

But put both those things to the side and assume that, by using the mechanism offered by the funding portal, the issuer has 735 investors but only one holder “of record.”

Does having one holder “of record” mean the issuer has only a single entry on its cap table? Of course not. At tax time, the issuer is still going to produce 735 K-1s.

The fact is, how many holders an issuer has “of record” for purposes of section 12(g) of the Exchange Act has nothing to do with cap tables. The leap from section 12(g) to cap tables is a rhetorical sleight-of-hand.

As I said in the beginning, the sleight-of-hand is mostly harmless. Except for some additional fees, neither the issuer nor the investors are any worse off. And the motivation is understandable:  too many issuers think Crowdfunding will get in the way of future funding rounds, even though that’s not true.

Even so, as a boring corporate lawyer and true believer in Crowdfunding, I’m uncomfortable with the sleight-of-hand. When SPVs become legal on March 15th perhaps the market will change.

What is Cap Table Management?

More than a simple spreadsheet, a cap table (short for capitalization table) records detailed data regarding the equity owned by shareholders.  For companies at any stage, proper cap table management is essential for good business practices. For founders and shareholders alike, it is important to fully grasp the concept of cap tables. 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, the cap table, when managed correctly, will show the exact break down of shares, digital securities, options, warrants, loans, SAFE, Debenture etc. This information enables founders to understand how the 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.


Once the cap table is created, it must be maintained properly, updated each time the company or the assigned registered transfer agent/share registry provider who performs equity-based transactions. 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.


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 (digital securities, shares, options, warrants, loan, SAFE, Debenture) 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. The 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.  

How to be Ready for Raising Capital

Whether you’ve raised capital in the past or are preparing for your first round, being properly prepared will help your company secure the funding it needs. Proper preparation will make investors confident that you are ready for their investments and have a foundation in place for the growth and development of your company. So if you’re looking to raise money, what must you do to be ready for raising capital?


From the start, any company should keep track of shareholders in its capitalization table (commonly referred to as the cap table). Even if you have not yet raised any funds, equity distributed amongst founders and key team members should be accurately recorded. With this information kept up-to-date and readily available, negotiations with investors will be smoother, as it will be clear how much equity can be given to potential shareholders. If this information is unclear, deals will likely come with frustrations and delays. 


Researching and having knowledge of each investor type will also help prepare your company to raise money. Will an angel investor, venture capital firm, crowdfunding, or other investment method be suited best for the money that is being raised? Having a clear answer to this question will help you better understand the investors you’re trying to reach and will help you prepare a backup option if needed. 


Once your target investors have been decided and you have a firm grasp on the equity you’re able to offer, preparing to pitch your company to them will be a key step. Having a pitch deck containing information relevant to your company and its industry will allow you to convince investors why your business is worth investing in. Additionally, preparing for any questions that they may ask will ensure investors that you are knowledgeable and have done the research to tackle difficult problems. 


Before committing to raising capital, you should make sure that your company has an established business model. Investors want to see that you have a market for your product and are progressing. If investors are not confident that the product you’re marketing has a demand, it will be less likely they will invest. Investors will also want proof that the company is heading in the right direction and the money they invest will help it get there faster. 


Once you have determined that your company is ready for investors, managing the investments and issuing securities will be essential. To streamline the process and keep all necessary documents in one location, KoreConX’s all-in-one platform allows companies to manage the investment process and give investors access to their securities and a secondary market after the funding is completed. With cap table management, the all-in-one platform will help companies keep track of shareholders and is updated in real-time, ensuring accuracy as securities are sold. 


Ensuring that your company has prepared before raising capital will help the process go smoothly, with fewer headaches and frustrations than if you went into it unprepared. Investors want to know that their money is going to the right place, so allowing them to be confident in their investments will ensure your company gets the funding that it needs to be a success. 

409A – A Guide for Startups

We “Get It”

We understand that the last thing any start-up wants to worry about is tax compliance, especially when you have so many other things to worry about. Like product development, sales, recruiting, etc.… But it is wise for a start-up to think about compliance early on to avoid potential penalties and distracting complications from lack of compliance later down the road. If you don’t know about an issue ask a professional like your lawyer, accountant, etc.…here is a little background on 409A valuations and choosing the right 409A provider.


What is 409A

What is 409A?

409A refers to Section 409A of the Internal Revenue Code for the Internal Revenue Service (IRS) of the United States of America. This code governs the taxation of non-qualified deferred compensation. Section 409A was added to the Internal Revenue Code in January of 2005 and issued final regulations in 2009.

Stock options give employees, consultants, etc. (any grantee) the right to buy stock at a predetermined price (the strike price). But you first need to determine what the strike price should be. The IRS 409A regulation stipulates the strike price must be equal to the Fair Market Value (FMV) of your company’s common stock.

But how do you value the company stock, especially if the company has a complex capital structure (i.e. has raised money via equity or debt)? Third party valuation firms with experience in these valuations are your best bet for staying compliant. But be careful. Not all firms are created equal.

There are three “safe harbor” methodologies provided by the IRS regarding setting the fair market value (FMV) of common stock for privately held companies. Almost all VC or angel-backed startups follow will use a third-party firm and follow the Independent Appraisal Presumption: A valuation performed by a qualified third-party appraiser. The valuation is presumed reasonable if the valuation date is set no more than 12 months prior to an applicable stock option grant date and there is no material change from the valuation date to the grant date. If these requirements are met, the burden is on the IRS to prove the valuation was “grossly unreasonable.” If the valuation does not fall under “safe harbor” then the burden of truth falls on the taxpayer.


There are severe penalties for Section 409A violations which include, immediate tax on vesting, additional 20% tax penalty, and penalty interest.

So why is safe harbor important and how you can get it?

Ideally, safe harbor insulates you from persecution. Luckily, IRS has provided avenues for companies to safely offer deferred compensations. If you have a safe harbor, IRS will only reject the valuation if they can prove that it is grossly unreasonable. The burden of proof is with IRS to prove that you are in error. However, this burden of proof is shifted to the company and BOD if don’t have safe harbor. In this case, you are treated as having granted cheap stock unless you can prove otherwise and defend your strike price.

For the valuation to be treated as safe harbor valuation, it must be done in any of the following ways, but we will focus on the first two.


Valuation be done internally by a qualified staff

Valuation be done by a qualified third-party valuation company

Stock be offered through a generally acceptable repurchasing formula

Using Internal Value

In this option, the company will appoint a qualified individual from the internal team to conduct the valuation. This can be one of the easiest and cheapest options, but it has several other conditions attached to it. The individual doing the valuation and the company must meet set standards.

The individual appointed to do the valuation must have at least five years’ experience in a field related to valuation. This includes business valuation, private equity, investment banking, secured lending, or financial accounting. This can be tricky because there is room for subjectivity. IRS, upon its discretion, may determine that the individual who did the valuation did not meet the required standards. Further, what we have seen too often is the internal valuation results in values way to high or just plain wrong. Experience matters.

Moreover, a company can only use this option if it can meet the following requirements:

  • It is a private company
  • Has no publicly traded stock
  • Is less than ten years old
  • Has no stock that is considered as a call, put, or similar derivative

Appointing a Third-Party Firm

While this may be the most expensive option, it is also the safest. The only condition is that the firm should follow consistent methodologies in the valuation. So, it is important to supply the firm with all the necessary information to carry out the valuation. The information includes the following.

With the requested information, a qualified firm can do a reasonable valuation. In some instance, a third-party firm may arrive at a favorable fair market value without going too low to raise alarm. The advantage of working with a third-party firm is that you get double protection. Most firms will be interested in saving their reputation, so they are more likely to protect you. Moreover, the burden of proof lies with IRS.


The Dangers of Working with Non-independent Valuation Firms

For a company to be deemed as independent, in IRS context, it should only provide you with valuation services. Some companies may be tempted to register a separate LLC company to handle valuations, but the conflict of interest is their regardless.

409A independent valuation

To qualify for a safe harbor, valuers must be seen to be independent. They should also employ objective judgment in arriving at their conclusion. In this case, there should not be any conflict of interest, and valuation should be based on merit, free of bias. Therefore, if a valuation company receives other forms of income that are not related to valuation from your company, then that amounts to a conflict of interest. There is even a bigger conflict of interest if the valuation firm offers liquidity to the same shares it is valuing.

Legally, conflict of interest indicates the presence of economic benefit. In that case, IRS requires valuation firms to declare that there have no relations with their clients. On top of this, they should also attest that the compensation is not based on the results they deliver. The bottom line is that you will not achieve safe harbor if is there is a conflict of interest.


So, when can you say you have fully achieved safe harbor?

If your valuation has respected all the requirements for achieving a safe harbor, then you are almost guaranteed of protection, but you are not off the hook yet.

The following caveats need to be taken into consideration:

  • If there is material change that might have a direct impact on the value of the company, then the valuation will become invalid
  • The valuation is valid for 1 year, so if you are issuing additional shares after 12 months, then you should do a new valuation
  • IRS still has room to determine if the valuation was grossly unreasonable

It may seem like a daunting task to do 409A valuation the right way, but it is worth the effort because the consequences for violations are severe. Remember that safe harbor is the best way to protect yourself against harsh penalties.

How Do I Get a 409A Valuation?

In order to get a 409A valuation you want to work with a reputable firm that has experience in rendering valuation opinions. We recommend staying away from 409A only shops, firms that are not independent, or are “giving away” in conjunction with a software sale.

How Much Will a 409A Valuation Cost?

409As are relatively new. When they were first introduced in 2005, everyone scrambled to comply. Valuation firms were born into a world where they were desperately needed but without a precedent to set a price for their services. Since then, with more options becoming available, the costs have decreased. The DIY and qualified individual methods are typically more cost-effective, but significantly riskier, so if you want safety and a good deal, keep reading…

It can be difficult to know what market or fair prices for valuation services are if you have not had experience with these services before. Below we are presenting what we feel are middle of the road prices for quality service and reports with technical rigor that would pass a big four auditor. You can find cheaper, but you run all kinds of risk for your company, employees, and board.

409A market prices

No matter what, make sure you choose a valuation firm you trust and that you can see yourself having a good relationship with because that relationship may be a long one. If you’re ready to get your 409A valuation and start issuing stock options to employees.

Reg CF Investment Vehicles: What Are They Good For?

In its recent rulemaking, the SEC added new Rule 3a-9 under the Investment Company Act to allow for the use of “crowdfunding vehicles” for Reg CF investments. It is important to recognize that crowdfunding vehicles are quite limited, and not at all similar to the special purpose vehicles (“SPVs”) used to aggregate accredited investors in angel or venture capital funding rounds.

In that type of SPV, there is often a lead investor or manager who may act on behalf of the investors in the SPV. Those persons could be exempt reporting advisers under the Investment Advisers Act, or even fully registered investment advisers. In this way, SPVs create real separation between the investors and the underlying issuer, with some person or entity acting as an intermediary when making decisions or providing information to investors.

For crowdfunding vehicles, on the other hand, the SEC requires that investors receive the same economic exposure, voting power, ability to assert claims under law, and receive the same disclosures as if they invested directly in the issuer itself. In particular, a crowdfunding vehicle:

  1. Is organized and operated for the sole purpose of directly acquiring, holding, and disposing of securities issued by a single Reg CF issuer;
  2. Does not borrow money and uses the proceeds from the sale of its securities solely to purchase a single class of securities of a single Reg CF issuer;
  3. Issues only one class of securities in one or more offerings under Reg CF in which the crowdfunding vehicle and the Reg CF issuer are deemed to be co-issuers;
  4. Receives a written undertaking from the Reg CF issuer to fund or reimburse the expenses associated with its formation, operation, or winding up, receives no other compensation, and any compensation paid to any person operating the vehicle is paid solely by the Reg CF issuer;
  5. Maintains the same fiscal year-end as the crowdfunding issuer;
  6. Maintains a one-to-one relationship between the number, denomination, type and rights of Reg CF issuer securities it owns and the number, denomination, type and rights of its securities outstanding;
  7. Seeks instructions from the holders of its securities with regard to:
    1. The voting of the Reg CF issuer securities it holds and votes the crowdfunding issuer securities only in accordance with such instructions; and
    2. Participating in tender or exchange offers or similar transactions conducted by the Reg CF issuer and participates in such transactions only in accordance with such instructions;
  8. Receives, from the Reg CF issuer, all disclosures and other information required under Reg CF and the crowdfunding vehicle promptly provides such disclosures and other information to the investors and potential investors in the crowdfunding vehicle’s securities and to the relevant intermediary; and
  9. Provides to each investor the right to direct the crowdfunding vehicle to assert the rights under State and Federal law that the investor would have if he or she had invested directly in the Reg CF issuer and provides to each investor any information that it receives from the Reg CF issuer as a shareholder of record of the crowdfunding issuer.

The result is that no lead investor or manager can be used, and investors will have the same rights and responsibilities as if they invested in the issuer directly.

The biggest practical effect is that Reg CF investors will appear on one line on the issuer’s cap table (addressing the “messy cap table” issue), and that line will represent the full number of beneficial owners, who each must still be notified by the issuer in the event of any decisions requiring investor action. The issuer could hire an administrator to handle communications with the investors in the crowdfunding vehicle, but there was nothing preventing an issuer from doing that previously.

However, by only existing as one line on the issuer’s cap table, and confirmed in its rulemaking, crowdfunding vehicles will count as one “holder of record” for the purposes of Section 12(g) of the Securities Exchange Act. This is the provision that says that a company has to register with the SEC and become fully-reporting when it reaches a specified asset and number-of-shareholder threshold. Up to now, crowdfunding companies have relied on a conditional exemption from Section 12(g) but some companies have worried about what will happen when they no longer comply with those conditions.

The SEC further opined that with these changes, it is possible that issuers will provide greater voting rights than has been common in Reg CF offerings. I am not sure that will be the case, as use of crowdfunding vehicles will not simplify obtaining votes for any necessary corporate consents unless the rights of investors are curtailed by the use of drag-alongs or similar provisions.

Setting up a crowdfunding vehicle will require documentation tailored to follow the terms of the securities being sold in the crowdfunding offering, and arranging for administrative tasks such as issuance of K-1s to the investors.  CrowdCheck is available to talk through the implications of using crowdfunding vehicles and whether it makes sense for your Reg CF offering.

The SEC proposes expanding the “accredited investor” definition

The SEC has proposed amending the definition of “accredited investors.” Accredited investors are currently defined as (huge generalization here) people who have net worth of $1 million (excluding principal residence) or income of $200,000 ($300,000 with spouse) or entities that have assets of $5 million. Here’s the full definition.

The whole point of the accreditation definition was that it was it was supposed to be a way to determine whether someone was able to “fend for themself” in making investment decisions, such that they didn’t need the protection that SEC registration provides. Those people may invest in private placements. The thinking at the time the definition was adopted was that a financial standard served as a proxy for determining whether an investor could hire a professional adviser. Financial standards have never been a particularly good proxy for investment sophistication, though, and some people who are clearly sophisticated but not rich yet have been excluded from being able to invest in the private markets.

The proposal would:

  • Extend the definition of accredited investor to natural persons (humans) who hold certain certifications or licenses, such as the FINRA Series 7 or 65 or who are “knowledgeable employees” of hedge funds;
  • Extend the definition of accredited investors to entities that are registered investment advisers, rural business investment companies, LLCs (who honestly we all assumed were already included), family offices, and other entities meeting an investments-owned test;
  • Do some “housekeeping” to allow “spousal equivalents” to be treated as spouses and tweak some other definitions; and
  • Create a process whereby other people or entities could be added to the definition by means of a clear process without additional rulemaking.

We are generally in favor of these proposals. However, we worry that the more attractive the SEC makes the private markets, the more that people of modest means will be excluded from the wealth engine that is the American economy. We also believe that the concerns raised about the integrity of the private markets by the two dissenting Commissioners, here and here, should be taken seriously. The real solution to all of this is to make the SEC registration process more attractive, and better-scaled to early-stage companies.

In the meantime, read the proposals and the comments, and make up your own minds. The comment period ends 60 days after publication in the Federal Register, which hasn’t happened yet.

Wefunder Interviews Oscar Jofre co-founder KoreConX

WeFunder the #1 Equity Crowdfunding platform in the USA interviews Oscar Jofre co-founder of KoreConX.

(1) What is a Transfer Agent

This a great question. As each entrepreneur enters the world of raising capital, new responsibilities are brought on.  In many instances, the company will need to engage with a registered transfer agent to manage the corporate records of the company.   This can seem like a disconnect since as entrepreneurs know their business best. However, in order to bring confidence to investors, you appoint a third party Transfer Agent, to ensure your book of records are up to date and accurate. 

So what is a Transfer Agent 

A stock transfer agent or share registry is a third party company, which records all entries and manages all transactions of the company’s equities.  We are holding the book of records for the company and to make sure all trades, transfers and corporate actions are undertaken properly.

(2) What are the requirements for companies that run Regulation Crowdfunding campaigns, with respect to Transfer Agents. 

Once you decide to do a Regulation Crowdfunding (RegCF) or RegA+ you will need to undertake a number of regulatory activities before you can get started first, you will need to apply and receive regulatory approval from the SEC.  Wefunder provides you all the guidance you need to make sure it’s done correctly and timely.

As you prepare for your offering, you need to start planning for how you will manage and report to all your new shareholders post your capital raise.  This can seem overwhelming but we are here to provide you the platform that will help you with all that.

Since you need to appoint a transfer agent, here is what really sets us apart from a traditional transfer agent. We not only provide you the services as mandated, but we also provide a whole platform where you can manage your shareholders, communicate with them, report to them, send them updates, hold your annual shareholders meeting including an included evoting feature and has a free portfolio management feature for your equity and debt holders to always see their investment information and updates. So you can pick a traditional transfer agent that will operate in a silo with none of the above features, or you can select KoreConX that not only meets your regulatory obligations, but also provides you access to an all-in-one platform to help you manage your business. 

(3) What are the other services provided by KoreConX? 

When we launched KoreConX to serve the JobsAct. It was designed by founders to help founders of a business and to bring everyone together, thus giving companies more control while spending less time doing redundant paperwork.

KoreConX provides the world’s first all-in-one platform providing companies: cap table management, document management, boardroom tools, investor relations, AGM planner, eVoting for shareholders, dealroom, reporting, valuations, and for their shareholders’ a free portfolio management to manage the investments in the company.  

The KoreConX all-in-one platform is for by entrepreneurs, CEO, President, CFO, COO, CCO, board of directors, corporate secretary, investor relations, legal counsel, auditors, and shareholders. 

One platform to serve the entire company.

(4) What are some of the biggest mistakes you have seen companies make with respect to Transfer Agents?

Having spent over 20 years in the public listed company world, it was not a surprise for us to see some of the issues private companies are facing.  For private companies today adding the role of Transfer Agent can be very difficult. 

The biggest mistake we see is not disclosing the full captable of the company.  This is often because of the way securities have been issued to other shareholders, founders, etc.   As the Transfer Agents, the only way to provide proper records is to have all the securities that the company has issued: shares, options, warrants, debentures, SAFE, Digital Assets, Loans, Promissory Notes, etc.

The second biggest mistake we see is that there is no documentation for the securities that have been issued prior to the RegCF offering.  

(5) What advice would you have for founders using Transfer Agents?

Like any relationship your company needs to have in the growth of your company, a Transfer Agent is very important.

Find a Transfer Agent firm that not only serves your needs but the needs of your shareholders, and provides you a way to be connected to them in a very effective and efficient manner so you don’t have to keep duplicating your efforts.

A Transfer Agent of the 21st Century needs to grow with you and understand the private company, and how you are going to use regulations to raise your capital.

(6) Why is KoreConx better than Carta? 

The major difference with KoreConX and companies like Carta, we design and built KoreConX from the ground up from the founders and the company’s perspective. Most people in the finance industry build products from a transactional and/or a dealermaker perspective.   

KoreConX emerged from the creation of the JobsAct and we knew the demands for Transfer Agents would be very difficult to undertake, given the size of the new shareholder bases and that capital raises would be too small to support the added cost of compliance. 

We created a platform to help a company who is just getting started through to full maturity.

The KoreConX all-in-one platform is there to help companies of all sizes and providing a journey for an entrepreneur to grow on the platform.

(7) How much does KoreConX cost?

Understanding the Regulation Crowdfunding (RegCF) and RegA+ we knew that pricing for this service would need to be aligned with the company. The service of transfer agent should not be based on the metrics of the past but rather what the companies of today need to operate and meet their regulatory obligations

Our pricing model is there to help companies not punish them.

For RegCF we have a 3 tier pricing model, and this is not based on how many shareholders they will have but rather how much capital they raised:

  • $0-$250k $25.00/month
  • $250-$500k $50.00/month
  • $500k- $1M $75.00/month

All our programs include all the same features:

  • Dedicated Agent
  • No onboarding fees
  • Unlimited transactions
  • Investor Relations
    • Ability to send reports to shareholders
    • Ability to send news releases to shareholders
    • Manage your Annual Shareholders Meeting
    • Give your shareholders the opportunity to vote online for company Annual Shareholders Meeting
  • Free Training for you and your shareholders

Why is my cap table so important for my company?

It’s never too early in the process of building a company to start managing your capitalization table (otherwise known as a cap table). As a detailed document recording all information regarding shareholders and the equity owned in the company, a well-managed cap table will become essential to long term success. Even if you’re thinking that your company does not need to keep such detailed records early on, understanding its importance may change your mind. 

At first, keeping track of equity might be a simple task. In the early stages, perhaps equity had only been distributed amongst cofounders. However, as the company grows, equity might be given out to key team members and employees, which all needs to be recorded accurately.  Without numbers correctly recorded, it will likely be hard to know exactly how much equity is remaining for the future. Also, with proper recording, it will allow founders to easily determine how certain deals may affect the equity distribution of the company. 

For potential investors, the cap table will be a key resource. Before investing in a company, investors will want to become familiar with current shareholders and the equity that each one possesses. The transparency a well-managed cap table allows will help avoid delays and increase investor confidence. During rounds of funding, the founder should also be concerned with how awarding investors with equity will affect their ownership in their company. For both parties during investor negotiations, the cap table will be essential. 

Once the company has received investments from investors, managing shareholders will also become an important task, which can be done in the cap table. The cap table will typically include investor information, such as who they are, their voting rights, and the number of shares that they own. With this information in one centralized place, if voting was to take place, the cap table ensures that all investors would be included as necessary.

One major benefit of starting to manage a cap table as soon as possible is that it will save time and resources in the long run. As the company begins to seek funding, the cap table would be already prepared and up to date. If the company did not already begin to keep records in their cap table, they would need to go back and create one, which could increase the chances for errors since it could be possible for them to have lost documents or records that they would need.

So what is the best way to manage your company’s cap table? Even though you can make a simple spreadsheet in Excel, using software such as KoreConX’s all-in-one platform might be more beneficial for long-term success. As deals occur, the cap table is automatically updated, eliminating errors that could result from manual changes. The platform also provides investors with the transparency they need to feel confident in their investments. Companies will benefit immensely from the increased transaction speeds and expedited due diligence that results from a properly managed cap table.

SEC changes to RegA+ and RegCF

On 04 March 2020, the US Securities Exchange Commission (SEC) has laid out the proposed changes that are going to have a major impact on the private capital markets.  This is very positive for the market. These changes have been in the works for a number of years and many in the industry have advocated for these changes that are now materializing.

The Commission proposed revisions to the current offering and investment limits for certain exemptions. 

Regulation Crowdfunding (RegCF): 

  • raise the offering limit in Regulation Crowdfunding from $1.07 million to $5 million;

This is going to benefit the 44+ online RegCF platforms such as;  Republic, Wefunder, StartEngine, Flashfunders, EquityFund, NextSeed.   These online platforms have paved the way and now more US-based companies will be able to capitalize on this expanded RegCF limit.  

Regulation A (RegA+) 

  • raise the maximum offering amount under Tier 2 of Regulation A from $50 million to $75 million; and
  • raise the maximum offering amount for secondary sales under Tier 2 of Regulation A from $15 million to $22.5 million.

As you saw in our recent announcement of our RegA+ all-in-one investment platform, we expect more companies to now start using RegA+ for their offerings and they need a partner that can deliver an end-to-end solution.

These two changes are momentous and will have far-reaching consequences in democratizing capital and make it very efficient for companies to raise capital. This also increases the shareholder base, which makes it even more important for companies to have a cost-effective end-to-end solution that can manage the complete lifecycle of their securities.

If you want to learn more please visit:

Here is the complete news release by the SEC

Life of a Company

I know, the title is odd. But the goal is to show how a company is formed and what is required for it  to be maintained. What most of the public sees is only related to sales or marketing, never the insides of the corporate structure or management.

The first step each of us make is to incorporate our organization, and we are provided with the company’s papers, also known as theMinute Book”.

The Minute Book
For entrepreneurs, board directors, management, lawyers, auditors, shareholders, and broker dealers, the Minute Book is a lifeline. It is the historical log of all the key decisions and corporate actions made in the company.  Now, some of you will go to your lawyer and get a Minute Book binder, and some will go online and construct your binder.

One very important thing about your company’s Minute Book is that there is only ONE original and you must protect it. At the same time, you are required to provide access to your lawyers, auditors, board directors, shareholders, and anyone who is doing due diligence on your company.

What do you get in your Minute Book:

        • Certificate of incorporation – this provides a unique number to your company
        • The official date of incorporation in your jurisdiction
        • Bylaws: the rules you must follow in operating your company, such as
          • Number of directors
          • How many shares you can issue and class of shares
          • How to conduct board meetings
          • How to conduct shareholders meetings
          • Quorum for board and shareholders meetings


  • The Minute Book also has many other tabs for you to insert the ongoing corporate actions in the company.
  • The Minute Book is a living document and it requires that you update it as you are conducting your corporate actions. Those actions need to be recorded in your Minute Book and properly documented, so in the future when you are going through due diligence—for financing, acquisitions, going public, or opening a bank account—this information will be ready so you can move forward.Here is a list of some of the corporate actions your Minute Book needs to have. Some of these corporate actions will be in different sections of your Minute Book depending on how many documents are created.
          • Appointing director
          • Appointing officers
          • Notice of Shareholders Meeting
          • Opening a commercial bank account
          • Appointing auditors
          • Granting options
          • Accepting new shareholders
          • Accepting a loan, debenture, SAFE
          • Name change
          • Merger
          • Acquisition

      For each of these corporate actions, you will need directors’ resolution and/or shareholders’ resolutions and, in some cases, agreements, government filings, and regulatory filings. All of these documents will need to be stored in different sections within the Minute Book.

      This is important to know because as your company grows, more and more of these documents start to add up and the historical tracking becomes even more challenging to maintain.

      If your records are not up to date or properly recorded you will spend thousands and thousands of dollars to get those completed so that you can proceed with a transaction such as raising capital, loan, merger, acquisition, going public, etc.

      Along with managing all the corporate documents, you are also required to manage, report, and track all your shareholders on a timely basis. Depending on which exemption you used, the company would be required to provide quarterly,semi-annual, or annual reporting to your shareholders.

      I know all this might seems overwhelming. Welcome to being an entrepreneur! There are no shortcuts, but there is a way to do it so you are not burdened by all this and end up spending thousands of your hard earn money to fix issues when they emerge.

      As a fellow entrepreneur, I felt this pain. Having all these documents and no central place that everyone (board directors, shareholders, lawyers, auditors, regulators, etc.) could access 24/7, created further strain on my time.

      For a long time, I found apps that did only one thing but were not able to do all that I needed to meet my fiduciary obligations as an officer and director of my company.  It was very frustrating, but finally, in 2015 we launched the world’s first all-in-one platform—yes, an all-in-one platform—that takes care of everything I described above and so much more.

      Once you have a secure and centralized platform to bring your stakeholders, you have the assurance to meet your obligations and focus on growing the business rather than managing paper.

      No more duplicating your efforts – only do it once and KoreConX takes care of the rest.

      As you grow, the platform provides even further enhancement, so if you are a one person company or a company with 500,000 shareholders or more, KoreConX is your all-in-one platform.

Shareholders = Customers = Ambassadors

Each interview I’ve had in the past two weeks has asked a question about how some companies or outsiders believe that having a large pool of investors is not good for a company and is distracting. I pondered my response on a number of occasions and then I reflected on comments from the founders of the JOBS Act (Sherwood Neis, Jason Best and Douglas Ellenoff) that crowdfunding is the democratization of capital and the “publification” of private companies. They went on to state that when investors invest in companies through these equity crowdfunding portals, the investors become the best ambassadors to the company.

So the creators of the JOBS Act envisioned what really was going to happen, and for it to work, the relationship between the company and its shareholders would change. Since the entire world is being disrupted by this new crowdfunding sector, it makes sense that even the roles of companies and the relationships they have with shareholders would fundamentally change.

Let’s Look at the Attributes of the “Customer” from a Company Perspective

A company cannot survive without customers. In fact, it’s often said the first customer the company receives is really investing in the company. Wow – “investing”.

So how does the company go about getting this customer, attracting new ones and managing them? The company employs a sales and marketing team to attract and maintain customers, and will also provide customer support. I only need look at our own company. At KoreConX we have invested heavily on attracting the best for each of these roles.

These individuals are responsible for learning about the needs of the customers today and tomorrow. Understanding what customers are looking for in a company and where the customers can be found is crucial to effectively marketing to them. It is important to demonstrate your thought leadership in your sector and why your product or service is better or unique.

All the work we do to attract customers and maintain them is truly amazing. All of these activities are being managed by a number of tools such as HubSpot, Salesforce and Lynkos that can manage all your activities with the customers and documents you send, tracking tools to see if they read it, etc. Companies around the world spend billions in this area because they understand that the more automation we add, the better we are at serving our customers.

The justification for the cost or investment by the company is simple. Companies do all this so the customers will keep buying, in essence re-investing in the company.

Great companies like Google, Inc. ($GOOG) have shown the world that every person is a customer and a shareholder that can eventually become your ambassador, and that is priceless to your brand and company.

The New View of a “Shareholder

The first investor in a company is often a customer who sees the great opportunity and vision the company is building.

The problem is that companies see shareholders as a burden, and make no effort to apply the same logic or business sense as they do for their customer acquisition and maintenance. In reality, shareholders are even bigger brand ambassadors than customers, and should be afforded the same care and consideration. Since shareholders identified the company as being worthy of investment, and they have a vested interest in the success of the business, they will always be the best brand ambassadors.

Yes, I said Shareholder = Customers = Ambassador!

Think of a time when you have either heard from a friend or told a friend the following: “Wow, Apple ($AAPL) iPhone and Apple Watch is a great combo, and see all the great things it does? If you use it so often and talk about it so much you must own shares.” This implies that if you are a true brand ambassador you must be a shareholder.

Equity Crowdfunding and the Growth of your Brand Ambassadors

In today’s social media driven world, people are connecting on a much more personal level to businesses and/or products that they are interested in. The emergence of equity crowdfunding presents an amazing opportunity for companies to capitalize by turning their loyal and dedicated ambassadors into shareholders and vice versus.

Because in today’s world, they will be connected with you and your company and your team using all the social media properties that they can find you in so they can feel connected. They want to be cheerleaders for your company because they believe in what you are doing.

The interesting thing that companies have severely overlooked with shareholders is that these individuals invested in their company and did not receive a product, and that these individuals will sell more of your products/services than any new customer you attract to your business.

Companies need to apply the same principles they have for operating the front lines of their business to the way they deal with their shareholders. Spending time cultivating, converting, empowering and managing shareholders will yield exponential returns. Which means you need to see both customers and shareholders as equally vital to the company’s success and be vigorous in using tools like KoreConX.

KoreConX provides you with the missing piece to efficiently and effectively bring the companies together with their shareholders, to manage them, empower them, connect them, and make them the best ambassadors of your company. Equity Crowdfunding is about disrupting how things have been done, not just for raising capital, but for creation of legal documents, due diligence processes, and most importantly how you manage those valuable new shareholders/ambassadors.

So embrace the 50, 100, 1000, or 4000 new shareholders! I’ve never known any company that does not want customers to help them grow their business. What is great about equity crowdfunding is that the more shareholders you have, the more ambassadors for your brand, and the more new customers they will drive to you to help you grow your business.

I say welcome and embrace equity crowdfunding, and make it work to your advantage.

Register today to manage your new ambassadors:

How should I manage my shareholders?

Just raised money via crowdfunding? Have you raised money traditionally several times and have lots of shareholders to manage? So, what is the best way to manage all your shareholders?

Managing one’s shareholders via equity crowdfunding is something that gets raised a lot. It is a hot topic because now companies are finding they have shareholder bases of well over 50 shareholders and find this burdensome. This can also be the case if you have raised money outside of crowdfunding also. Are your shareholders a burden? If you answered yes, then there is a problem. Shareholders are and should be your biggest advocates. They believe so much in what you are doing they invested their money in your business. There are fewer bigger advocates then those willing to stick their necks out with the founders and help your business grow. See Oscar Jofre’s article on making shareholders your business champions….

The quickest way to turn a shareholder into a burden is by avoiding them. Keeping them in the dark, failing to communicate, and waiting for them to harass you for an update turns them from champion to burden. Remember that the customer that has a bad experience is 10 times more vocal than the happy customer, well the same applies to shareholders. We believe that frequent updates and transparency on how your business is doing is the best approach to keep the engine running smoothly and the engage your shareholders.

But my business isn’t going as well as I had planned and I’m afraid to tell my shareholders. If this is your concern, it is a common one. However, by not telling them you are failing to give them a chance to help you. Your shareholders bought into your business because they like it. Some of them may have run businesses themselves and may have valuable input or advice for you. Proper engagement will bring you advice and the possibility of more financing if the well has run dry. In my experiences, shareholders can be understanding and helpful even if you give them the opportunity.

To manage the shareholders in an optimal manner requires firstly that the entrepreneur knows his investors. Knowing the investors or shareholders goes far beyond just sending them updates or asking for more money. It involves building a professional relationship where the worries and struggles of the company are shared by all and not by one.

The entrepreneur also needs to regularly e-mail about the progress of the company so that trust, transparency and openness within the boundaries of the company are norms that are expected of everyone. Having a proactive attitude and taking the initiative to sharing new updates regarding internal accounting and auditing, financial information, product and manufacturing, research and development, marketing strategies and sales forecasts should happen regularly.

The entrepreneur should also reach out to collect shareholder feedback via polls and personal communication in a way that makes shareholders feel as though their views are really being taken into consideration. Obtaining feedback and keeping abreast of shareholders in a personal way can significantly affect their willingness to support you when the going gets tough, and makes for a better experience for everyone!

Hopefully you now agree that keeping your shareholders engaged is important. Now, what is the best way of doing that? There are many tools to help and I bet many people started with an excel list and outlook, maybe even progressing to mailchimp or some other mail program. While this is a common approach it is rot with inefficiencies and risk. What if a shareholder moves or changes their contact details? Did you know email is NOT secure and that once you send it from your server it becomes in the public domain? Are you comfortable with your private information being publicly available? How are you tracking their engagement?

There is one tool that can help you do all of this and much more. At KoreConX all-in-one free platform have been building tools to help small and medium sized businesses operate more efficiently and save money in the process. For instance, did you know that our free version allows you to: Manage your boardroom activities, manage your Cap Table, manage your due diligence processes using our deal room, provide portfolio management to your shareholders, and much much more. Check out to learn more.

By providing portfolio management to your shareholders for free in KoreConX you are allowing them to stay connected with you at all times within a secure environment. When they move or change any of their contact details in the system that information automatically updates your records so you are always up to date. Our Investor Relations module allows you to communicate and engage directly through the platform and track the results. It offers a variety of other features to manage meetings, perform and tally evotes for shareholder meetings, perform outreach to potential investors, etc. This is the true way of optimizing your shareholder value.