The JOBS Act as the Founding Father Of A New Economy

April 5th, 2012. On this day, Barack Obama, 44th President of the United States, signed the JOBS Act into law. This has touched so many lives in so many ways that simply saying the JOBS act has democratized access to capital, does not fully capture the impact. We are talking about creating jobs, and helping people realize their dreams by developing solutions, and not only about capital markets. We can call the it The Founding Father Of A New Economy.

David Weild IV, father of the JOBS Act, has remarked that this was not a political action; it was signed in “an incredibly bipartisan fashion, which is really a departure from what we’ve generally seen. It actually increases economic activity. It’s good for poor people, good for rich people. And it adds to the US Treasury”.

Expanding Benefits In A New Economy

Five years later, in July, 2017, the SEC started expanding access to the JOBS Act benefits originally available only to emerging growth companies (EGC). These could submit draft registration statements relating to initial public offerings for review on a non-public basis. Permitting all companies (not just EGCs) to submit registration statements for non-public review, provides companies with more flexibility to plan their offerings. 

More Investors empowered by the JOBS Act

Private capital markets have grown more important, as both accredited and non-accredited investors started to be a bigger part of raising capital and actually becoming shareholders. There are more than $5 trillion of uninvested funds currently available, and this number is only expected to grow in the coming years.

ESG

This strategy that considers environmental, social, and governance factors. This investing style has been gaining in popularity in recent years, as more and more investors are looking for ways to invest in companies that positively impact the world. The focus on this kind of company, with strong commitment to ESG concerns, will grow especially among equity crowdfunding. 

Is it safe?

With the private capital markets blooming and so many new firms and platforms surfacing, it is only natural that users, issuers, and even broker-dealers and transfer agents feel confused and overwhelmed with logins and uncertain about compliance issues. This is something that the regulations were very careful about: protecting both investors and issuers, creating safe investment ecosystems.

As the JOBS Act has really opened up new ways to operate as the Founding Father of a new economy, there will be many opportunities for new players to enter the markets. These are very exciting times for being optimistic about the future of our startups.

Why RegA+ Offerings Fail

When it comes to RegA+ offerings, there are several reasons they may fail: a failure to comply with regulatory requirements, a failure to budget for the offering properly, or a failure to assemble sufficient expertise. Most of these can be attributed to a lack of commitment; if organizations do not take these necessary components of the process seriously, then RegA+ offerings are set up for failure from the start.

 

Compliance for RegA+ Raises

 

Complying with regulations is one of the most important aspects of a RegA+ offering. However, many companies try to cut corners regarding compliance, thinking they can save time and money. This is a huge mistake that can have disastrous consequences. Not only will failing to comply with regulations result in fines and penalties, but it can also jeopardize the entire offering. When experiencing an audit or investigation, companies that have not been compliant with regulatory requirements often face much harsher consequences than those who have made an effort to stay compliant. Even if the raise completes without fines or penalties from the regulator, sloppy or half-hearted compliance raises the risk of being sued by an investor for some real or imagined offense. By wholeheartedly committing to the spirit and letter of the regulations from day one, and with the assistance of professionals well-versed in the regulatory requirements (a FINRA broker-dealer, an escrow agent, or an SEC-registered transfer agent), you can increase your chances of a successful RegA+ offering while protecting your company from potential legal problems down the road.

 

Budgeting for a RegA+ Raise

 

Budgeting is essential for a successful offering. Companies must have the proper funding to hire professionals, comply with regulations, and market the offering effectively. Without adequate funding, a company is likely to run into problems along the way. A RegA+ raise is a complex and costly undertaking, and companies should be prepared to commit the necessary funding before beginning the process. Including a well-thought-out budget in your business plan is one of the keys to success when raising capital through a RegA+ offering.

 

Affinity Marketing

 

Many companies turning to RegA+ aren’t just looking to raise capital; there’s something they want to do with the capital. Whether this is a product they want to make or a service they want to provide that they’re passionate about, they’re committed to that mission. Affinity marketing is a great way to connect with like-minded investors, show them that commitment, and bring them on board. This is much harder to do if the company isn’t actually committed to that mission in the first place.

 

Technology and Expertise

 

For issuers learning new technologies and working with experts in a field that they don’t know much about, it can be a daunting process. It takes commitment to learn these new technologies or do what the broker-dealer is advising, understanding that this is the path toward a successful offering. If you’re not sufficiently committed, you might just shrug this off as not worth the cost or effort.

 

Companies should take away from this that a successful RegA+ raise requires a commitment to the process from start to finish. Commitment is a willingness to put in whatever it takes to succeed: to invest the time and resources necessary, comply with regulations, budget appropriately for the offering, and assemble a team of experienced professionals. With a commitment to these essential components, a company can increase its chances of success and avoid the pitfalls that have led to the failure of other RegA+ offerings.

 

Is Equity Crowdfunding Immune to Market Volatility?

In a recent TechCrunch article, author Rebecca Szkutak asserts, “With the fundraising climate now showing cloudy skies, equity crowdfunding is getting ready for a field day.” The stigma associated with crowdfunding is reversing; once viewed as a fundraising method for companies “not good enough” for venture capital, it has grown substantially in the past few years. Better yet, 2022 is “​​poised to be monumental for equity crowdfunding.” From the start of this year to the end of May, companies have raised $215 million through this method of capital raising, an increase of $200 million from the same period last year. Favorable evolutions to regulations in this space are only contributing to this growth. 

It will be exciting to see how these trends continue to develop and enable companies to raise capital through to the end of the year. To read the full article on TechCrunch, click here.

There’s a Lot of Private Capital to Go Around

With all the turbulence in the public markets, private markets look even more attractive to investors.  The private markets are 4x the size of public markets. Investors are and will continue to look for investment opportunities and right now, there is a lot of private capital to go around when we see these numbers.

 

A Staggering Amount of Private Capital

 

The private capital available in the world today is staggering. A recent report by Bain & Company found that there is more than $5 trillion of uninvested funds currently available from private equity firms, and this number is only expected to grow in the coming years. With this influx of cash, private equity firms can engage in mega-deals and drive up valuations in the process.

 

The increased availability of private capital is not just limited to traditional private equity firms. Family offices, sovereign wealth funds, and pension funds play a more prominent role in the private equity space and have experienced sweeping changes in 2021. With all this capital available, it’s no wonder that the private market is growing. While some people may be concerned about a potential bubble, it’s important to remember that the private equity industry is still relatively small compared to other asset classes. So even though there may be some risk of over-inflated valuations, the private equity industry still has much room to grow

 

Accessing Private Capital

 

We are witnessing record-breaking investment levels reaching billions of dollars. Several reasons for this influx of cash include:

 

  • Low-interest rates
  • An improving global economy
  • A renewed focus on private equity and venture capital

 

The wealth of private capital available today is staggering and growing. The options for accessing this capital are many and diverse, so there’s no one-size-fits-all solution for each private company looking to raise capital. However, some general guidelines will help you find the right resources for your business. You must understand what stage your company is in. This will help you identify the right kind of capital, as well as the right source of that capital. There are generally four stages of funding for a business:

 

  • Pre-seed Stage: This is when you have an idea but no product or service to sell. You will need to raise funds to develop your concept and bring it to market.
  • Seed Stage: This is when you have a product or service but no sales. You will need funds to finance your product development, marketing, and initial sales efforts.
  • Early Stage: This is when you have initial sales but are not yet profitable. You will need funds to finance your growth and expand your business.
  • Late Stage: This is when you are profitable and looking to scale your business. You will need funds to finance your expansion plans.

 

There are many private capital sources, including family and friends, angel investors, venture capitalists, accredited investors, nonaccredited investors, and private equity firms. Each has its strengths and weaknesses, so it’s essential to understand the differences before approaching them for funding.

 

Additionally, we are even beginning to see a growing player in this market: JOBS Act exceptions. These exemptions, Regulation A+, Regulation CF, and Regulation D, are game-changer for companies and investors alike. These exemptions allow companies to raise significant capital from accredited and nonaccredited investors alike, which continues to widen the pool of potential investors. 

 

The private capital market is booming, with record-breaking investment levels reaching billions of dollars. There are several reasons for this influx of cash, including an improving global economy, low-interest rates, and a renewed focus on private equity and venture capital. Not to mention, the JOBS Act has introduced new sources of capital outside of the traditional VC and private equity round. The everyday investor is showing significant interest in the ability to get in on the ground floor with a promising company to grow their wealth. With so much private capital available, it is time to take advantage of it.

 

Private Equity’s Primetime Has Arrived

Private equity’s primetime has arrived! This stems from a number of reasons, including favorable economic conditions for the private capital market. In fact, 42% of private equity limited partners report a 16% net return in this space. Here are three factors in particular that have caused private equity to outperform public equity in 2022.

 

1) Interest Rates:

A survey found that 71% of global private equity investors have indicated that their equity investments have outperformed their public equity portfolios since the global financial crisis. This is in part because private equity firms are less reliant on debt financing than public companies. Higher borrowing costs will hit public companies harder, putting them at a competitive disadvantage over private companies with rising interest rates.

 

2) Economic Uncertainty:

Some degree of uncertainty characterizes current economic environment. This can be attributed to the ongoing trade conflicts between the United States and China, Brexit, and the coronavirus pandemic. These factors have made it difficult for public companies to make long-term plans and invest for the future. Private equity firms, on the other hand, are better suited to deal with economic uncertainty. This is because they can take a longer-term view and are not as reliant on short-term results.

 

3) Regulation:

The increased regulation of public companies has made it more difficult and expensive for them to operate. Private companies are not subject to the same level of regulation, giving them a competitive advantage. Additionally, private companies can benefit from registration exemptions, like RegA+ and RegCF, which allow them to raise capital from everyday investors without the need to go public. This provides private companies a significant tool they can use to their advantage and fuel their growth.

 

These combined factors show that private equity has arrived and is here to stay. This will likely continue in the future, making private equity an attractive investment for investors. More individuals are involved in the private markets with the rise in forms of private investment for regulated and non-regulated investors, such as the JOBS Act regulations. This means more capital is flowing into private markets, which drives up valuations. With the current market conditions, investors would be wise to allocate a portion of their portfolio to private equity to protect and grow their wealth and prepare their portfolios for the future.

It All Started with the JOBS Act

This month, we launched our newest series, KoreTalkX, during which we have hosted exciting, one-on-one conversations with industry experts to expand the knowledge base on capital raising in the private markets. We’re recapping the episodes so far and look forward to the next live event on Tuesday, May 31st, when Dr. Kiran Garimella (CTO, KoreConX) and Andrew Bull (Founding Memeber), Bull Blockchain Law) discuss digital securities. 

 

KoreTalkX #1: 10th Anniversary of the JOBS Act

In this conversation, David Weild IV, Father of the JOBS Act, and Oscar Jofre discuss the importance of the JOBS Act concerning small businesses and entrepreneurship. An important focus has been how the Act has helped increase innovation and expand access to capital for smaller companies, which is crucial for paving a brighter future.

 

Listen to the full episode on Spotify, Amazon, or iTunes!

 

KoreTalkX #2: How Can ESG Reshape Capital Raising?

This talk between Peter Daneyko and Paul Karrlsson-Willis, CEO of Justly Markets, discusses impact investing and ESG (environmental, social, and governance) criteria. Since the JOBS Act has allowed more people to invest in companies and given rise to the popularity of crowdfunding and investing for non-accredited investors, they discuss how many people are investing in businesses with missions they’re passionate about. 

 

Listen to the full episode on Spotify, Amazon, or iTunes!

 

KoreTalkX #3: How to Start and Manage a Cap Table?

In this discussion, Amanda Grange and Matthew McNamara, Managing Partner at Assurance Dimensions, talk about starting and managing a cap table. A primary focus is how the SEC compliance guidelines protect companies and how a good transfer agent will help a company stay within those guidelines. They also talk about how a well-managed and structured cap table can streamline a raise.

 

Listen to the full episode on Spotify, Amazon, or iTunes!

 

KoreTalkX #4: Thoughts on Investor Acquisition

Jason Futko and Tim Martinez, co-founder of Digital Niche Agency, talk about how to acquire investors for your startup. They highlight how important it is to have a good strategy before launching your campaign and how companies have a powerful opportunity to transform investors and customers into brand ambassadors. Additionally, they suggest entrepreneurs be prepared for a long marathon to achieve success and how to help achieve this in today’s climate.

 

Listen to the full episode on Spotify, Amazon, or iTunes!

 

Can Cannabis Companies Use RegCF?

In recent years, public perception of cannabis is gaining positive momentum. 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. Additionally, 91% of Americans believe that regulators should legalize cannabis for medical and recreational use.

 

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. Projections show that by 2028, cannabis will be an industry worth $70.8 billion globally

 

The passing of the JOBS Act in 2012, and its subsequent amendments, have made it easier for companies to raise money from investors. But can cannabis companies use RegCF to raise money? The answer is yes, but there are a few things they need to keep in mind. In this blog post, we’ll take a closer look at how cannabis companies can use RegCF to raise money and how it can benefit companies and investors alike.

 

RegCF and Cannabis

 

Crowdfunding has become a popular way to raise money, especially for small businesses and startups. It’s a way to get funding from a large pool of investors, each contributing a small amount of money. This can be helpful for companies looking to forego traditional funding sources, like venture capitalists or angel investors. Another factor contributing to the growing popularity of RegCF for cannabis companies is the growing legalization of cannabis products, especially across the United States and Canada.

 

RegCF is an exemption from securities laws that companies use to raise money from the public, without having to be registered as a publicly-traded company. This allows greater access to capital, without having to go through the arduous and expensive process of going through an IPO. 

 

So far, RegCF has been a successful way for cannabis companies to raise money, especially in an industry where traditional loans or going public may not be an option. The benefits of cannabis companies using RegCF to raise capital are:

 

  • Raising money from accredited and non-accredited investors.
  • Reaching a large number of potential investors through online platforms.
  • Enabling founders to retain more ownership of their company, while raising needed capital.

 

RegCF is a flexible way for all-sized companies to get funding, and it’s helping to fuel the growth of the cannabis industry. 

 

Growing with RegCF

 

The premise of the JOBS Act was to fuel the economy, create jobs, and allow startups to flourish. Cannabis companies can now capitalize on the success other companies have had using RegCF over the past decade and cannabis companies are seeing exciting potential in this ability. This democratization of capital will help fuel the industry’s growth and create jobs. In addition, RegCF provides a cost-effective way to raise money, which is critical for early-stage companies. The future looks bright for RegCF and cannabis companies as more states legalize marijuana and businesses continue to enter the space. The industry is still in its early stages, and RegCF provides an excellent opportunity for companies to raise the capital they need to grow.

Credit Cards, Escrow, and Broker-Dealers for RegA+ = $75 Million for Cannabis Companies

 

“It’s About Time”

 

Up until now, it was a real challenge for Cannabis companies to take advantage of Reg A+ exemptions that allow private companies to raise up to $75 million from the crowd; accredited and non-accredited investors alike.  So you have the investor community’s appetite, the table is set and they are ready, willing, and able; but what else do you need?

 

FINRA Broker-dealer

 

The regulation is meant to create jobs, allow private companies another way to raise capital, and allow for the investor community at large to participate. Before RegA+ exemptions, many potential investors were left looking into the candy store without any way to invest.  So with the democratization of capital and the ability of an untapped investor community to now have a seat at the table, the broker-dealer becomes an all-important intermediary.  In a highly regulated environment, the Broker-dealer takes the onerous task of KYC, ID verification, and AML ( anti-money laundering) off the issuer’s shoulder;  so you, the Issuer, can run your business without worrying about this important compliance requirement. As a result, you not only have the opportunity to gain large groups of investors but also develop brand advocates who share in your story.

 

Escrow Agent 

After the broker-dealer, you need an escrow agent that can hold funds from investors in all 50 states and territories and only charge you one flat fee. 

 

This key intermediary holds the investors’ funds on behalf of the Issuer until the broker-dealer completes the ID, KYC, and AML verification. Once these checks are complete, the escrow agent can release the funds. Until recently, a couple of historical challenges for industry sectors such as cannabis included the inability to get Escrow for their capital raises. Not only is Escrow now available but also at a cost-effective price point and with normalized fees, which is really the way it should have always been.  

 

Credit Cards 

 

Now below 2.9%  allowing both cannabis companies and their shareholders to be fairly treated when investing in the growth of their companies;  bringing jobs to communities and opportunities to those that believe in the company. Being responsible with your credit cards is common sense. Still, the ease of use and points as an added bonus is certainly one of the nice perks and perhaps a big reason for their high usage via crowd participation in private capital raises.

 

If you’re part of the Cannabis ecosystem looking to learn more about how KoreConX can help you on your capital raising journey, please fill out the form here.

Accredited Vs. Non-Accredited Investors: What’s the difference?

There is a big difference between accredited and non-accredited investors. Understanding the difference is key to knowing which type of investor you are or understanding the type of investor your offering is targeting. Let’s look at each type of investor and find out more about their specific benefits and limitations.

 

Accredited Investors

 

An accredited investor is an individual or institution that has been approved by the Securities and Exchange Commission (SEC) to invest in certain types of securities. These investments are typically unavailable to the retail investor, as they are considered high-risk and high-return. Historically, accredited investors have been able to:

 

  • Access to exclusive investment opportunities: Traditionally, many startups and early-stage companies will only accept investments from accredited investors, as they were considered to be more sophisticated and able to handle the higher risk.
  • Invest in private companies: Many accredited investors choose to invest in private companies, as they can offer higher returns than public companies. Before the JOBS Act, only accredited were able to invest in these companies.

 

To become an accredited investor, an individual must meet certain criteria set forth by the SEC. These include:

  • Entities that have assets of $5 million.
  • Earning an annual income of $200,000 (or $300,000 for couples) for the past two years.
  • Having a net worth of $1 million (excluding their primary residence).

 

Investing in private companies is often considered a high-risk investment, as there is often less information available about these companies than public companies. However, accredited investors are typically seen as more sophisticated and able to handle the higher risk.

 

Non-accredited Investors

 

A non-accredited investor is an individual who does not have the financial qualifications to be deemed an accredited investor. This can be due to a low net worth or a lack of investment experience. Historically, many non-accredited investors may have missed out on beneficial investment opportunities, especially in the private market. However, with the rise of JOBS Act exemptions, we are seeing more companies looking toward nonaccredited investors. The benefits of being a nonaccredited investor include:

 

  • No SEC qualification: Anyone with the desire to invest can be a non-accredited investor. There are no criteria set by the SEC that must be met. 
  • Access to new and exciting companies: Companies can tap into a new pool of potential investors by marketing toward non-accredited investors. These investors can also tap into a broader range of investment opportunities that may have been unavailable before the JOBS Act was passed into law.
  • The ability to invest smaller amounts of money: For non-accredited investors, the minimum investment amount is often lower than it is for accredited investors. This can be helpful for those who want to get started in investing but don’t have a large sum of money to put towards it.

 

As the private market continues to grow, both non-accredited and accredited investors alike can take advantage of exciting opportunities to invest in growing companies. The JOBS Act has also done an incredible job leveling the playing field for investors, which will only incentive more companies to tap into the growing pool of potential investors.

A Look Back on the Last Year of RegA+

Marking a huge step forward in equity crowdfunding opportunities for entrepreneurs and investors alike, one year ago, the SEC’s game-changing decision went into effect that allowed businesses to raise $75 million through RegA+ and $5 million from RegCF. These new limits were a significant increase from the former $20 million and $1.07 million limits for RegA+ and RegCF, respectively. To celebrate this one-year anniversary, we take a look back at the progress that has been made and how this new fundraising avenue is benefiting startups and businesses of all sizes.

The History of RegA+ and RegCF

Regulation A+ and Regulation CF are securities offerings brought to life through the JOBS Act, passed in 2012. They allow companies to raise money from investors without going through the process of a complete initial public offering.

Regulation A+ was created by the US Securities and Exchange Commission (SEC) as an amendment to Regulation A of the Securities Act of 1933. It allowed companies to raise up to $50 million from unaccredited investors, a limit increase to $75 million in March 2021.

Benefiting from JOBS Act Regulation

The main benefit of Regulation A+ is that it allows companies to avoid some of the more demanding regulatory requirements that are usually associated with a public offering. It is also less costly, which is essential in creating more opportunities for issuers to take advantage of the exemption. For Tier I offerings, companies are required to file audited financial statements and ongoing reporting. On the other hand, Tier II offerings do not have requirements to register with state securities regulators.

RegCF allows companies to offer and sell their securities to the general public, including unaccredited investors, through crowdfunded ventures. Both Regulation A+ and RegCF are a way for companies to raise money without giving up significant equity or control of their company. The main drawback to both RegA+ and RegCF is that they are not as well-known as other fundraising methods, such as an IPO or private equity. As a result, it can be more challenging to find investors who are willing to invest in a company through either of these methods, but there are ways to be ready for this capital-raising journey.

Despite this, there has been a surge in companies using Regulation A+ and RegCF in the past year. This is likely because traditional fundraising methods are becoming increasingly difficult  and cost-prohibitive for startups and small businesses. Another main reason is the substantial increase in the amount a company could raise with these regulations, making it also an attractive way to raise capital for larger offerings like in real estate or Medtech.

Increase in Capital Raised

Once more reliable Q1 numbers become available, we can better estimate how much was raised in the year since the capital that RegA+ could raise was increased. In 2020 before the change in the amount of capital companies could raise, it is estimated $1.48 billion was raised from RegA+. In 2021, when the increased capital raise was available for most of the year, over 2 billion was raised.

In 2020, $239 million was raised using RegCF before the changes to how much capital could be raised. When the amount that RegCF could raise was increased from a little over a million to $5 million, the total amount raised in these campaigns soared to $1.1 billion in 2021. We do not have exact numbers yet on how much has been raised in the year since the capital increase, but this figure is expected to double in 2022. This would mean that in the three years since the increase in how much capital could be raised, over $3.5 billion has been raised with these methods. This number will continue to grow as people become more comfortable with these types of investment vehicles and as the infrastructure surrounding them becomes more robust.

By lowering the requirements for entry into capital raising with these regulations and increasing the amount that can be raised, the JOBS Act has allowed more people to invest in the growth of small businesses. This, in turn, is helping to create jobs and support the economy.

David Weild, Former Chairman of the NASDAQ and Father of the JOBS Act, had this to say about the increase in how much capital companies could raise; “It means more capital will be available for entrepreneurs, allowing their ideas to become realities and helping create living wage jobs across the U.S.”

This is a huge win for small businesses, investors, and the economy. The increase in how much capital can be raised has allowed more people to invest in small companies, which helps create jobs and support the economy.

In the past year, there has been a surge in the number of companies that have used Regulation A+ and RegCF to raise capital. This is likely due to these methods being less well-known than other forms of fundraising, such as an IPO or private equity. The increase in how much can be raised with RegA+ and RegCF has allowed entrepreneurs more access to capital without giving up ownership or control over their company.

Can I Use My IRA for Private Company Investments?

Individual retirement accounts (commonly shortened to IRAs) allow flexibility and diversity when making investments. Whether investing in stocks, bonds, real estate, private companies, or other types of investments, IRAs can be useful tools when saving for retirement. While traditional IRAs limit investments to more standard options, such as stocks and bonds, a self-directed IRA allows for investments in things less standard, such as private companies and real estate. 

 

Like a traditional IRA, to open a self-directed IRA you must find a custodian to hold the account. Banks and brokerage firms can often act as custodians, but careful research must be done to ensure that they will handle the types of investments you’re planning on making. Since custodians simply hold the account for you, and often cannot advise you on investments, finding a financial advisor that specializes in IRA investments can help ensure due diligence. 

 

With IRA investments, investors need to be extremely careful that it follows regulations enforced by the SEC. If regulations are not adhered to, the IRA owner can face severe tax penalties. For example, you cannot use your IRA to invest in companies that either pay you a salary or that you’ve lent money to, as it is viewed by the SEC as a prohibited transaction. Additionally, you cannot use your IRA to invest in a company belonging to either yourself or a direct family member. If the IRA’s funds are used in these ways, there could be an early withdrawal penalty of 10% plus regular income tax on the funds if the owner is younger than 59.5 years old. 

 

Since the IRA’s custodian cannot validate the legitimacy of a potential investment, investors need to be responsible for proper due diligence. However, since some investors are not aware of this, it is a common tactic for those looking to commit fraud to say that the investment opportunity has been approved by the custodian. The SEC warns that high-reward investments are typically high-risk, so the investor should be sure they fully understand the investment and are in the position to take a potential loss. The SEC also recommends that investors ask questions to see if the issuer or investment has been registered. Either the SEC itself or state securities regulators should be considered trusted, unbiased sources for investors.

 

If all requirements are met, the investor can freely invest in private companies using their IRAs. However, once investments have been made, the investor will need to keep track of them, since it is not up to their custodian. To keep all records of investments in a central location, investors can use KoreConX’s Portfolio Management, as part of its all-in-one platform. The portfolio management tool allows investors to utilize a single dashboard for all of their investments, easily accessing all resources provided by their companies. Information including key reports, news, and other documents are readily available to help investors make smarter, more informed investments. 

 

Once investors have done their due diligence and have been careful to avoid instances that could result in penalties and taxes, investments with IRAs can be beneficial. Since it allows for a diverse investment portfolio, those who choose to invest in multiple different ways are, in general, safer. Additionally, IRAs are tax-deferred, and contributions can be deducted from the owner’s taxable income. 

What is Regulation S?

It is essential to be familiar with the different regulations that govern how companies can raise capital in today’s business world. One important rule is Regulation S. This article will give you a basic overview of Regulation S, how it affects businesses, and how companies can use it to raise capital.

 

What is Regulation S?

 

Regulation S is a set of rules that govern security offerings to offshore investors. It is an attempt by the SEC to clarify its role in regulating securities offerings sold by US companies outside the United States. The regulation allows companies to offer and sell securities without registering the offering with the SEC, as long as the securities are only offered and sold outside of the United States. This excludes investors within the US from participating in the offerings. If an offering is for foreign and domestic investors, it would not fall under Reg S exemptions because it would have to be registered with the SEC.

 

Benefits of Reg S

 

Regulation S is an important securities regulation because it allows companies to offer and sell securities offshore without registering with the SEC. This is important because it enables companies to raise money from investors worldwide, and it also protects investors because it ensures that all offerings are made lawfully. At the same time, it enables companies to have a greater reach for their security offerings, as they can now globally raise money from investors all over the world.

 

As it was designed, Reg S was always intended for large transactions made by large companies to sophisticated investors. The primary use case of Reg S is still the Euro bond or an extensive offering by a U.S. or foreign company that is made outside the United States. Because Reg S can be used for such a large-scale offering by large corporations, companies will always continue to use it as an option when they need to raise funds globally.

 

The Pitfalls of Regulation S

 

The problem is many companies do Reg S offerings incorrectly in this particular space of crowdfunding. Many think all they need to do is sell to somebody outside of the United States, but they ignore that Reg S has three separate categories. These categories are based on the likelihood of the transaction being made in the U.S. or the securities returning to the U.S. The most effortless use case of Reg S is a foreign company selling securities under their own rules. An intermediate use is a reporting company registered with the SEC. For startups, the rules of non-reporting U.S. companies are stricter, but many businesses are not complying with these rules.

How Can Companies Keep Their Offering Out of the US?

 

No offer sold under Reg S should be advertised or be made known in the U.S. To this effect, companies should Geo-fence any offering site so individuals with U.S. IP Addresses can not see what you are offering. However, if you have Geo-fenced your offer and implemented the proper protections to ensure a US investor cannot invest, and someone found their way around it, it’s not on you. Companies do not need to police the internet, but they should ensure that their Reg S offerings are only available internationally with Geo-fencing. 

 

While Reg S does not have as wide of a use case as Reg A or Reg D, Reg S is helpful if you feel you will exceed the $75 million of Reg A and can capitalize on international investors. However, companies must be aware that Reg S only tells how to comply with the U.S. rules, not another countries regulation. With most countries having restrictions on making offerings to less sophisticated investors, you want to ensure you meet all these standards if raising capital internationally. 

 

The Regulation S exemption was implemented to help companies raise capital from non-US investors without SEC registration. It has its benefits, but it is not always accessible or appropriate for every company.

What is Regulation A+?

Regulation A+ (RegA+) was passed into law by the SEC in the JOBS Act, making it possible for companies to raise funding from the general public and not just from accredited investors. Since March 2021, companies have been able to take advantage of the limit’s increase to $75 million. This provides companies the ability to pursue equity crowdfunding without the complexity of regular offerings. So, what investments does RegA+ allow?

Outlined in the act, companies can determine the interest in RegA+ offerings by “testing the waters.” While testing the waters allows investors to express their interest in the offering, it does not obligate them to purchase once the Offering Statement has been qualified by the SEC. Also allowed by the Act, companies can use social media and the internet to both communicate and advertise the securities. However, in all communications, links to the Offering Statement must be provided and must not contain any misleading information.

It is important to understand the two tiers that comprise RegA+. Tier I offerings are limited to a maximum of $20 million and call for coordinated review between the SEC and individual states in which the offering will be available. Companies looking to raise capital through Tier I are required to submit their Offering Statement to both the SEC and any state in which they are looking to sell securities. This was a compromise for those who opposed the preemption that is implemented in Tier II.

For offerings that fall under Tier II, companies can raise up to $75 million from investors. For these offerings, companies must provide the SEC with their offering statement, along with two years of audited financials for review. Before any sales of securities can take place, the SEC must approve the company’s offering statement, but a review by each state is not required. It is also important to note that for Tier II offerings, ongoing disclosure is required unless the number of investors was to fall below 300.

In contrast to typical rounds of fundraising, investors are not required to be accredited, opening the offering up to anyone for purchase. Under Tier I, there are no limits that are placed on the amount a sole person can invest. For unaccredited investors under Tier II, limits are placed on the amount they can invest in offerings. The maximum is placed at ten percent of either their net worth or annual income, whichever amount is greater. To certify their income for investing, unaccredited investors can be self-certified, without being required to submit documentation of their income to the SEC. Additionally, there is no limit placed upon the company as to the number of investors to whom it can sell securities.

Once investors have purchased securities through RegA+ investments, the trading and sale of these securities are not restricted. Only the company that has created the offering can put limits on their resale. This allows investors to use a secondary market for trading these securities.

Through Regulation A+, companies are given massive power to raise funds from anyone looking to invest. With the Act allowing for up to $75 million to be raised, this enables companies to raise capital from a wide range of people, rather than only from accredited investors. With two tiers, companies have the freedom to choose the one that best fits their needs. Regulation A+ and the JOBS Act have the potential to drastically change the investment landscape.

KoreConX Partners With LSI Emerging Medtech Summit 2022


Medtech and Life Sciences main event will be held next March in California. KoreConX is one of the supporting sponsors.

KoreConX is pleased to announce its partnership with LSI Emerging Medtech Summit 2022, which will be held March 15-18, 2022, in Dana Point, California, USA. This is a major event managed by Life Science Intelligence (LSI) in the Medtech environment and will bring together investors, strategic partners, and experts within the Medtech, Life Sciences ecosystem.

Oscar A Jofre, Co-founder and CEO of KoreConX, highlights the importance of this partnership and event to the sector: “We at KoreConX are delighted to be part of this huge event focused on an industry that is flourishing like Medtech. This sector is critical to saving lives with its innovative solutions and healthcare impact. We are confident that this particular segment will reap the biggest benefits from Regulation A+, and we are honored to sponsor this summit. Also, we will be there in-person for the first time after two years, so we are more than excited to join LSI and our partners to be part of this.”

“A major current trend in the medtech industry is the democratization of capital through programs like Reg A+. We are embarking during a monumental time where we can finally achieve this grand goal and bring companies to market that have a fundamental impact in our lives,” says Scott Pantel, CEO of Life Science Intelligence.

This event will also feature the participation of an icon of the JOBS Act movement, David Weild IV, considered the “Father of the JOBS Act”. He will be giving a keynote address to stimulate and encourage everyone in this industry who wants to raise money using Regulation A+.

LSI is part of the Medtech ecosystem of KoreConX’s partners focused on Life Sciences companies. They are an essential part of this vertical, as they offer valuable insights to help investors and executives make decisions based on data provided by their team of market researchers, economists, and analysts.

LSI Emerging Medtech Summit 2022 will take place March 15-18, 2022, and attendees can participate in person or online. KoreConX will be represented by its Co-founder and CEO, Oscar A Jofre, its Chief Scientist & CTO, Dr. Kiran Garimella, and its CRO, Peter Daneyko. Visit their website for more information: https://www.lifesciencemarketresearch.com/medtech-summit-2022

About KoreConX

Founded in 2016, KoreConX is the first secure, all-in-one platform that manages private companies’ capital market activity and stakeholder communications. With an innovative approach and to ensure compliance with securities regulations and corporate law, KoreConX offers a single environment to connect companies to the capital markets and now secondary markets. Additionally, investors, broker-dealers, law firms, accountants and investor acquisition firms, all leverage our eco-system solution.

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Media Contacts:
KoreConX
Carolina Casimiro
carolina@koreconx.com

Private Securities and Crowdfunding Surge is Forecast to Continue in 2022

This article was written by our KorePartners at Rialto Markets. View the original post here.

 

Crowdfunding had another record year in 2021 and is forecast to soar even higher in 2022.

According to Pitchbook data, global crowdfunding exploded from $8.61 billion in 2020 to $113.52 billion last year – a 1,021% increase. The US market alone doubled year on year through Regulation CF and A+, with much higher numbers being raised and over 32% oversubscribed, according to SEC (Securities & Exchange Commission) filings.

Recent analysis of key US private equity crowdfunding platforms such as Wefunder and Republic, showed their top 50 most invested Regulation CF (raises of up to $5 million) crowdfunding offerings raised more than $171 million in November alone from over 113,000 investors – an average of $1,315 per investor – while December tracked at similar levels going into the holiday season.

In the Regulation A+ category, where private companies can raise up to $75 million annually, SEC EDGAR filings for 2021 show 343 US-based high growth private issuers raised $8.6 billion in total.

The peak months for Regulation A+ capital raises were November and December, suggesting that 2022 will double the amount raised last year.

The market is also expected to expand significantly in 2022 and 2023 as regulated alternative secondary market trading platforms, known as ATSs, start to offer more potential liquidity in a private securities market set to grow from $7 trillion in 2021 to $30 trillion in 2030, according to Forbes.

Innovative US-based broker-dealer and a leading ATS provider specializing in private securities, Rialto Markets, predicts this trend will continue as more and more ambitious private companies in the US and worldwide apply this approach to their fundraising, leading to future secondary share trading.

Rialto Markets’ COO and Co-founder Joel Steinmetz said: “There were record months in the US crowdfunding sector during the first half of 2021 – with May being the highest – but there was a much steeper growth curve in the second half of the year, with record investment levels in the final quarter.

“We see Regulation CF and Regulation A+ public offerings complementing each other and while April was the lowest capital raising month, the sector surged in late summer, and November closed as the highest month.

“December in the US now looks like it may have matched or exceeded November, which sets the tone for a buoyant 2022, according to our research, and data coming from the major crowdfunding platforms and authorities like Pitchbook.

“We are seeing this pattern ourselves with over $730 million in signed contracts for Rialto Markets at the start of 2022 alone from high growth private companies in the primary market, using our broker-dealer infrastructure and technology.

“Additionally, in the secondary market, we are being swamped with requests from high growth private companies and marketplaces that offer fractionalized securities wishing to offer regulated trading to their investors through our SEC and FINRA regulated ATS secondary trading platform.”

Digital Twin pioneer Cityzenith, a company with three successful crowdfunding raises in three years, saw a big upsurge in investment during December and early January towards the 1st quarter 2022 close of its final $15 million crowdfunding raise.

It will then move onto funding from institutions that have followed the company’s rise during this process.

Cityzenith CEO and Founder Michael Jansen said: “Crowdfunding isn’t for the faint-hearted. You must have a strong strategy, a large following, and investors who are going to back the offerings from the outset.

“But it’s also about positioning the brand to win new partnerships and potential larger institutional investors due to the momentum you build through these Regulation CF and Regulation A+ investment offerings.”

The electric vehicle company Atlis Motors had one of the fastest and most over-subscribed Regulation CF raises of 2021, attracting its full $5 million in just a few weeks with 4,123 new investors, further illustrating the importance of building a community of investors and advocates for the future of your brand.

Shari Noonan, CEO and Co-founder of Rialto Markets – the broker-dealer for both Cityzenith and Atlis Motors – responded: “These are impressive and ambitious private companies who know what it takes to prepare and build a community for either a smaller Regulation CF raise or a much larger Regulation A+ offering.”

“2022 is going to be a massive year for the private securities market, especially Regulation CF and Regulation A+ capital raising campaigns for high growth private companies.

“We are especially excited about movement in secondary trading for private companies, and by providing a platform to potentially unlock value for investors much earlier through a regulated ATS such as our own Rialto Markets secondary trading platform.”

How Have the JOBS Act Exemptions Impacted Company Founders?

Since the JOBS Act was passed in 2012, it has been easier for company founders to raise money with exemptions like Reg CF and Reg A+, changing the landscape of private capital investments. 

 

The JOBS Act provides exemptions from registration for private companies raising money with key benefits, like:

  • Ability to keep the company private
  • Not having to disclose everything publicly
  • Less regulatory burden when raising money
  • Access to accredited and non-accredited investors

 

Reg A+ & Reg CF

Regulation CF is an exemption outlined in the JOBS Act that lets companies raise a maximum of $5 million in any 12-month period by selling securities to accredited and non-accredited investors. Regulation A+ allows issuers to offer and raise up to $75 million in funding without having to comply with all the strict requirements of a traditional IPO. This has allowed company founders to bypass some of the red tape and paperwork associated with more traditional fundraising methods and raise millions of dollars for their organizations. 

 

With RegA+ and RegCF, private companies have increased opportunities to raise capital. Before the JOBS Act, private companies were only invested in by wealthy individuals and firms like venture capital or private equity, but now investment opportunities have been opened to the non-accredited investor as well. This increases the pool of available investors for any given deal since the number of non-accredited investors is immense, which is powerful for companies seeking capital with these methods. 

 

Impacting How Capital is Raised

WIth the doors the JOBS Act has opened up, entrepreneurs who have a great idea but no funding to realize their vision have the opportunities to raise the capital needed to grow their businesses. Companies in the private sector can connect with their investors in ways not typically seen in the public market; investors may be loyal customers or passionate about the cause or mission the company believes in. This is a unique opportunity for companies to build and maintain relationships with their shareholders that may be interested in investing in future offerings as well. 

 

Company founders can also retain more control over their company raising money through the JOBS Act exemptions, another significant benefit. There is a little more flexibility for founders to set the valuation they’re looking for and construct a deal more favorable. In other traditional funding scenarios, venture capital or private equity investors may seek more equity than the founder is hoping to give up or disagree with the valuation. 

 

The JOBS Act has created opportunities for companies to secure the funding they need to grow and sustain their businesses. Compared to traditional funding routes, RegA+ and RegCF are often more cost-effective and enable them to raise significant amounts of capital.

The Evolution of Reg A+

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

 

Reg A+’s Creation

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

 

Effect on Small Business

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

 

Reg A+ into the Future

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

 

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

Has RegA+ Killed the IPO?

Has RegA+ Killed the IPO?

 

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

 

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

 

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

 

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

 

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

 

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

 

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

End to End for RegCF

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

 

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

 

Getting Started with RegCF

 

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

 

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

 

What do RegCF Broker-Dealers Need?

 

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

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

 

What Compliance is Needed?

 

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

 

What Does an Issuer Do to Prepare?

 

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

 

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

 

Investment Process for RegCF

 

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

 

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

 

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

 

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

 

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

How Does a Transfer Agent Protect Issuers and Investors?

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

 

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

 

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

 

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

 

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

 

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