Online Capital Formation for Private Companies

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

Table of Contents

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

 

Making Capital Formation Accessible for Private Enterprises

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

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

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

The Complexity of RegCF and RegA+

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

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

Beyond Conventional Crowdfunding

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

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

Seizing the Future with Online Capital Formation

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

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

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

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

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

Final insights

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

KoreClient Spotlight: Steve Beaman, Chairman & Chief Executive Officer of Elevare Technologies

Elevare Technologies is a technology company aiming to lead the digital economy revolution through Virtualization as a Service (VaaS). They promote and accelerate virtual adoption globally creating custom virtual experiences and worlds for teams, clients, and partners. Businesses can digitize their current physical office and access a digital twin-layout with cutting-edge Web 3.0 solutions.

 

Virtualization as a Service

 

“Elevare Technologies was created to help digitize the American business economy. We are creating a movement from the real world into the virtual world. It is the best of the two worlds. We specialize in offering a digital office system where businesses can build a digital twin of their current physical office and then have a digital office adjacent to it,” said Elevare CEO, Steve Beaman. 

 

The company is developing a powerful virtual meeting solution, the Eleverse. That provides organizations with the ability to connect, collaborate and communicate seamlessly in a secure and private online environment. The technology allows users to conduct presentations and video conferencing while providing a reliable platform for communication and integrating a powerful AI assistant. Similar to familiar video conferencing platforms like Zoom, Microsoft Teams, or Google Meet, private meeting rooms come with a unique ID code that makes the virtual space secure and private. Without the private meeting code, uninvited individuals are unable to join in, ensuring security for businesses’ sensitive information. 

 

Up to 400 people

 

The virtual meeting can occur in a boardroom setting and be modeled after your real-world conference room. Companies can also leverage the virtual auditorium for large-scale meetings for up to 400 people. There is a smart screen capability currently in the works, allowing you to conduct a full presentation in the virtual space. With an integrated AI virtual assistant named Iris that can help with any questions you have during meetings, the workspace is more efficient and productive. There is even a video conferencing feature that allows you to have video conferencing abilities at your fingertips virtually, enabling users to connect with colleagues across the world digitally. At the same time, virtual office spaces can be located within a virtual office building, allowing companies to interact and network with neighboring individuals and companies.

 

To help Elevare achieve its goals, the company is opting to leverage Regulation CF to nurture relationships with investors. The ultimate goal is to make them brand ambassadors. “Crowdfunding can take you to a whole new level. We believe it democratizes [capital raising] and provides an ability to scale. We believe the technology involved gives the form that people will adopt and the functionality that supports the business needs. And we believe that we’ve developed a solution to accommodate this demand,” added Beaman.

 

Regulation CF (RegCF) Disclaimer

This communication may be deemed to be a solicitation of interest under Regulation CF under the Securities Act of 1933, in which case the following applies:

  • No money or other consideration is being solicited, and if sent in response, will not be accepted;
  • No offer to buy the securities can be accepted, and no part of the purchase price can be received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

 

Who Does Due Diligence on Companies Using RegCF?

When it comes to raising capital using Regulation Crowdfunding (RegCF), due diligence is an essential part of the process. Due diligence helps ensure that the company offering securities complies with all applicable laws and regulations and that investors are fully informed about the risks that come with investing. We are going through who does due diligence on companies using RegCF

 

Conducting Due Diligence for Reg CF

 

The responsibility for conducting due diligence on companies using RegCF lies with a variety of parties. To offer securities through a RegCF raise, companies must use an SEC and FINRA-registered Broker-Dealer or crowdfunding platform. The broker-dealer or crowdfunding platform needs to ensure that the issuer provides accurate company information and complies with securities regulations at both the federal and state levels. These parties also ensure that any investors pass KYC and AML checks to ensure they are not bad actors or other people unable to invest.

 

The issuers themselves also have responsibilities when it comes to due diligence. They must provide investors with accurate and complete information about the company, its securities offering, and the risks associated with investing. Investors also have an obligation to thoroughly review any information regarding the investment opportunity so that they can understand its potential risk and determine if it is an appropriate investment.

 

Types of Information Gathered During Due Diligence

 

When conducting due diligence on companies using RegCF, there is an information-gathering process, notably from your Form C, such as:

 

  • Business plans
  • Background checks on key officers
  • Financial statements and tax returns
  • Intellectual property registration filings
  • Proof of ownership in any subsidiaries of the company
  • Legal documents related to the business, such as contracts and bylaws

 

This information provided during the due diligence process allows investors to better understand the company and its business operations. 

 

Protecting Investors and Issuers 

 

Performing due diligence on companies using RegCF is an important part of protecting investors. It helps ensure that only qualified and legitimate businesses can raise capital. It also provides investors with the information they need to make informed decisions about their investments.

 

Due diligence is important for companies raising funds through RegCF because of the number of new-to-the-space investors. Issuers will demand their broker-dealer to complete all due dilligence. Raises can be successful and investors need to be sure of that, as well. Additionally, platforms should also have procedures in place to collect information from companies and investors before they are allowed to raise funds, such as background checks. By doing so, platforms ensure that investors are protected and companies meet all necessary criteria before raising funds.

 

Proper due diligence has clear roles: From broker-dealers and the platforms that facilitate the RegCF transactions to issuers and investors themselves. Accurate and complete information about companies using RegCF protects issuers and investors. For investors, it allows them to make better-informed decisions about their investments. For issuers, it provides an opportunity to demonstrate commitment to compliance and build credibility with investors for a successful raise.

Why Use RegCF for Real Estate?

Companies in the real estate industry have a variety of financing options available for their projects, but one that is often overlooked is the use of Regulation Crowdfunding (Reg CF). Equity crowdfunding is becoming an increasingly popular tool among companies due to its potential to provide access to potentially high-yielding investments and the ability to offer new ways for investors to diversify their portfolios. 

 

What is Reg CF for Real Estate?

 

Reg CF is a type of equity crowdfunding that allows companies to raise capital from everyday individuals, not just accredited investors. Unlike traditional real estate investments, the price tag for Reg CF investments is much smaller, making it more appealing to a wide range of investors. Companies can sell securities such as stocks or debt instruments in exchange for investor funds. For real estate, this can be done in various ways such as selling shares in a real estate investment trust (REIT), selling property-specific investments, or launching a syndication.

 

Benefits of Reg CF for Real Estate

 

Using regulation CF for real estate offers a wide range of benefits to both investors and issuers that may not be readily available with other forms of capital raising. These benefits include:

 

It Can Provide Access to High-Yielding Investment Opportunities: Real estate investments can offer higher returns than traditional stocks and bonds, with an average annual return of 12.9% according to a study by the Cambridge Centre for Alternative Finance in 2017. By using Reg CF, investors can tap into this high-potential market and issuers can access the capital to fund their real estate projects.

 

It Offers a More Diverse Investment Portfolio: Real estate equity crowdfunding allows investors to invest in specific projects or properties, rather than having to invest in an entire REIT or development company. This provides more control and transparency for the investor as they can see exactly where their money is going.

 

It Can Offer Lower Investment Requirements: When using Reg CF, the minimum investment is typically much lower than traditional real estate investments, meaning that anyone can invest as little or as much as they want in a given project. This makes it easier for companies to attract a larger pool of potential investors and increase their chances of successfully raising the necessary funds.

 

It Can Help Facilitate Market Research: When using Reg CF, issuers must provide investors with all the information they need to make an informed decision, in-depth market research included. This can increase investor confidence in the project and potentially lead to higher returns for real estate agents.

 

Reg CF is an effective tool in the real estate space, allowing companies to access capital quickly and easily from a wide range of potential investors. As the popularity of crowdfunding continues to grow, it is becoming increasingly important for companies in the real estate space to understand how Reg CF works and how it can be used in conjunction with other financing methods to maximize their fundraising efforts.

The Need for Compliant and Safe Online Capital Formation

In the State of the Union address given by President Joe Biden on February 7th, 2023, he remarked: “Every time somebody starts a small business, it’s an act of hope.” This followed a statement citing the record 10 million Americans who applied to start a new business within the past two years. The President also remarked that Vice President Kamala Harris would continue her work to ensure that these businesses can access the capital they need to thrive. But what does this look like? 

 

As he shared in his speech, there are already major changes to the economy underway. From increasing taxes on capital gains to boosting infrastructure spending, many of Biden’s plans are focused on driving domestic growth. But one area that needs more attention is online capital formation – particularly how to do so in a compliant and safe way. The sheer number of Americans applying for small business startups sheds a light on an urgent need to provide access to capital for these entrepreneurs. 

 

The Benefits of Online Capital Formation

 

In 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law. This legislation was designed to make it easier for small businesses to raise capital by loosening specific regulations. Most notably, it enhanced Reg A+ and created Reg CF which allows companies to receive investments from everyday people, sometimes referred to as retail investors. The exemptions from SEC registration have since expanded to increase the amount of capital that can be raised by private companies. As a result, more companies have begun to see Reg A+ and Reg CF as viable alternatives to traditional VC and private equity funding, like medtech, real estate, and cannabis companies.

 

The exemptions have also allowed for capital to be raised online, reducing barriers for entrepreneurs as well. Online capital formation has the potential to provide a great benefit to entrepreneurs by providing access to investment opportunities that they can use to scale their businesses faster and more efficiently. This expansion of capital availability can also help drive economic growth across industries, as well as help create jobs in tech and start-ups. Furthermore, it will allow investors to diversify their portfolios and access new markets.

 

Gary Gensler’s Remarks to the Small Business Capital Formation Advisory Committee

 

In a separate speech also delivered on February 7th, Gary Gensler of the SEC discussed the importance of private funds and their advisers. He noted, “the people whose assets are invested in private funds often are teachers, firefighters, municipal workers, students, and professors.” While addressing the Small Business Capital Formation Advisory Committee, Gensler stated that “there may be somewhere in the range of $250 billion in fees and expenses each year” for private funds. This is money that portfolio companies, like small businesses, do not get to use. He called for greater transparency, efficiency, and competition between intermediaries to help both investors and the companies who benefit from these funds.

 

The Need for Compliance and Safety

 

Although online capital formation can be beneficial for entrepreneurs, investors, and the economy at large, it is important that measures are taken to ensure compliance with laws and regulations. This is especially true for private funds and their advisers, as Gensler discussed. The SEC is focused on protecting not just the investor, but also the companies that are seeking capital.

 

To do this, there must be rigorous enforcement of laws and regulations that govern online capital formation. Companies need to ensure that they understand disclosure requirements so that investors can make informed decisions. Additionally, safeguards must be put in place to protect against data misuse and cyber-security risks that can occur when seeking capital online.

 

The Biden Administration’s Role

 

President Biden has expressed his commitment to creating an environment where entrepreneurs can access the capital they need to grow their businesses. He is in support of the JOBS Act and other key initiatives that have been put in place to help small businesses. Additionally, he has directed his Administration to focus on creating more jobs, including ones in tech and alternative energy sectors.

 

For entrepreneurs to access capital more efficiently and safely, online capital formation must be optimized with compliance in mind. This can be done through the implementation of strong regulations, while also encouraging innovation within the sector.

 

What Are the Costs for a RegCF Issuance?

Raising capital is necessary for many companies, but it comes with a price tag. This is why we often receive questions from companies seeking to understand how to budget for the fundraising process. With Regulation Crowdfunding (Reg CF) issuances becoming increasingly popular in the United States, understanding the costs associated with these offerings is essential to successful capital raising. 

To shed a light on this topic, we have worked with our KorePartners to research the estimated budget for a Reg CF offering. However, this estimated budget is based on a variety of factors that can influence the total cost of capital raising. Thus, this information will not apply to all companies but is a general guide to the expenses involved in a Reg CF raise.

Estimated Reg CF Costs for US-Based Companies:

What Why/Work to be done When Estimated Cost
USA Lawyer To file your SEC Form C and state filings First step in moving forward $7,500-15,000k 
Auditors Are required to be filed with your Form C First step requirement $2,500 +
FINRA Broker-Dealer States require you to have a Broker-Dealer to sell securities to investors  Begin engagement when you start with a lawyer  3-5% fees + $2,600-$10,000 (these are upfront fees) 
Escrow Provider SEC requires that funds be held in escrow during the capital raise for a RegCF Required to file Form C $1,000 – $3,500 one time fee

Closing fees TBD

Investor Acquisition

  • Investment Page
  • PR Firm
  • IR Firm
  • Video
  • Social media
  • Media Firm
  • Advertising
  • Webinar
  • Newsletter
  • Publishers
The sooner you can begin to start building your community, the more it increases your company’s chance of achieving your offering goals Before you file your Form C  $10,000 to $15,000/month 

Plus any additional advertising you will do

Investor Relations Director If not already available in house, you may look to hire an internal resource to manage incoming inquiries from potential investors, in order to handle outbound calls to investor leads compliantly. This is only an option to consider $4,500/month
Data Access Providers with Data set up to access 1.5B records $2,500-$5,000 one-time fee

$2.00-$5.00 for investor lead

KoreConX All-In-One platform RegCF Solution

  • Mobile App
  • Private Label
  • RegCF Invest Button
  • Shareholder Platform
  • Portfolio Platform
  • DealRoom Platform
  • KoreID
  • KoreID Verified
$550.00/month

$3,500 Set up Fee

SEC-Transfer Agent KoreConX End-to-end solution includes the RegCF Investment platform and

SEC Transfer Transfer Agent as required to file your Form C

Required to file Form C Included with KoreConX All-in-One Platform
Investment Platform for RegCF Requires 10-14 days to set up After you retain your lawyer  Included with your KoreConX All-In-One Platform 
Live Offering During the live offering you will have to pay for KYC (ID, AML), search fees required   Ranges from $1.50/person-$15/person. With KoreConX these fees are provided at cost and vary depending on country; with no markups
Live Offering During the live offering you will have to pay for your Payment processors (Credit Card, ACH, EFT, Crypto, WireTransfer, IRA) With KoreConX these fees are provided at cost with no markups

 

What You Need to Know About RegCF

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

 

What is RegCF?

 

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

 

What do you need to know about RegCF?

 

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

 

Who can invest in a Regulation Crowdfunding offering?

 

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

 

What are the investment limits for non-accredited investors?

 

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

 

What Are the Benefits of RegCF?

 

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

 

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

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

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

 

Regulation A+

 

Offering size per year: Up to $75 million

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

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

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

 

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

 

Regulation CF

 

Offering size per year: $5 million

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

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

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

 

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

 

Regulation D

 

Offering size per year: Unlimited

Number of investors allowed: 2000

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

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

 

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

 

Regulation S

 

Offering size per year: Unlimited

Number of investors allowed: 2000

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

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

 

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

 

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

KoreClient Spotlight: Consumer Cooperative Group

When it comes to real estate, most people think about buying and flipping properties for a quick profit. But what if you could buy a property, have the tenants already in place, and generate revenue from the time you acquired it? That’s what the Consumer Cooperative Group (CCG) is all about on a larger scale than individual properties. CCG is a cooperative of investors all across America who work together to purchase turnkey properties – including commercial, residential, and industrial – and generate revenue from the outset.

 

What makes CCG different from other real estate investment groups is its focus on education. “We don’t just tell you about our company; we also educate our investors at the same time because it is a requirement that our investors are not passive,” said CEO and Founder of CCG, Tanen Andrews. “There is a level of participation that we require from them because if they have equity they are part owners. So we require them to be active in what we are doing.”.

 

This focus on education means that CCG members are truly invested in the company and its success. “Cooperative members are the ones with the voting rights and the investors are the ones with no board voting rights but they have an opportunity to be a part of the membership to create multiple streams of income,” said Andrews. This allows for a two-way street of investment and education – both parties benefit from each other. But it’s not just about making money for CCG. They also want to make an impact on their local community. “Activating social events and making a change in a community are two separate things and we want to fund social aspirations that we want to see done and we want to be self-sufficient at the same time,” said Andrews. That’s why they focus on creating jobs as well as generating revenue.

 

“This is a multi-phase venture and the initial phase is the real estate. With Consumer Cooperative Group being a real estate cooperative, and we use that cooperative methodology to purchase real estate, pooling the funds of the people who could not traditionally invest in startup companies of this magnitude in exchange for equity,” said Andrews. “In addition to that, now we have access to go to Wall Street and directly list and provide liquidity for them on another level that they were never able to access,” said Andrews. 

 

Owning real estate is a great way to build wealth, but not everyone can or should assume the active duties of a landlord, and CCG takes that element out of it. With tenants already in the properties, they are already generating revenue from the time that they are acquired.”We can buy these turnkey properties and have something to build upon instead of building from scratch,” said Andrews. “Our business plan is wrapped around our community. We are thinking about the financial growth of our market so they can compete. That’s why I love KoreConX. KoreConX is a platform that can be used in conjunction with what we are doing to keep some type of sustainability of our growth and manage what we are doing as we progress to the next level,” said Andrews. CCG wants to make sure they are educating as they are progressing, they are trying to maximize what is already there and build upon that.

 

“We have a Reg A going through the process right now after we went Reg CF first. Most people have never heard of the JOBS Act and most are jumping into traditional capital raising platforms, and I feel that is confusing. What we try to do is focus specifically on the JOBS Act so that we can eventually qualify for listing. We do not want to just make investors and members but we also want to create real entrepreneurs, we want to show them how to create a real viable business and repeat the process,” said Andrews. CCG provides those who did not always have the opportunity the means to be a part of business ownership.

___________________

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

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

  • No money or other consideration is being solicited, and if sent in response, will not be accepted;
  • No offer to buy the securities can be accepted and no part of the purchase price can be received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

KoreClient Spotlight: Stenergy

When Samuel and Leyla Butero decided to start their own business, they knew they had to offer a product that would make a difference in people’s lives, and with Stenergy, they hope to do just that. Stenergy is a health and wellness company that manufactures GluCora, a natural supplement that supports healthy glucose metabolism, and has received approval from Health Canada, the Canadian equivalent of the US Food and Drug Administration. In this recent interview, Samuel and Leyla shared their story of entrepreneurship and why they chose to do a Regulation CF campaign for their business.

 

Working as consultants for EastGate Biotech, a Canadian pharmaceutical company that creates insulin drug delivery technologies for the treatment of Type 2 diabetes, Samuel and Leyla discovered GluCora, a product the pharmaceutical company had decided not to focus on while it developed its core product lines. Leyla, who has long struggled with blood sugar levels, saw the potential of the product and the couple negotiated a licensing agreement with EastGate to be the exclusive manufacturer and distributor of GluCora in the US, Canada, and Central and South America, with first rights to the rest of the world. 

 

The active ingredient of GluCora is the Banaba plant, native to Southeast Asia and known as the crepe myrtle tree in the US. Banaba produces corosolic acid and has demonstrated the ability to improve the metabolism of glucose. The plant has been used for hundreds of years in traditional medicines, but GluCora makes it available in a product that has been approved by the Canadian health regulatory agency and that is available over the counter. Samuel said: “That it’s been shown to be effective and do what it says it’s going to do is really important and we feel that sets us apart from a lot of other natural supplements. We’re not paying a doctor to do an infomercial and say that it works. That’s a very common marketing gimmick, in our opinion, that a lot of supplements use. Health Canada is a third-party, objective health agency from a country that is widely respected for healthcare.”

 

For both Samuel and Leyla, the journey with GluCora has been deeply personal. When Leyla was pregnant with the couple’s first daughter, doctors would tell her that she had high blood sugar, despite avoiding foods that would cause this. They felt an intense stigma–as soon as a doctor saw Leyla’s weight, the doctor would attribute it to poor eating habits and no exercise, even though that was an inaccurate assumption. “We started to do our due diligence and our research and felt that this was something experienced by a lot of women that were having this same issue. Doctors weren’t hearing them,” said Samuel. “With our second daughter, I gained 90 pounds, I had gestational diabetes, and I could not control the weight. No matter what I did, the weight was just coming on,” added Leyla. Additional issues continued post-partum and she sought the help of her doctor, who, unfortunately, was not listening to the concerns that Leyla expressed. “No one would hear me.” 

 

It was at this point that the couple discovered GluCora. “Leyla started taking GluCora and within two weeks, lost 14 pounds,” said Samuel. She was feeling better and had more energy, and the couple realized that bringing GluCora to market was something they would have to do themselves. “I had been doing side hustles before that was even a word,” Samuel said of their journey to become entrepreneurs. “I had also worked in venture capital and private equity for some time, so I knew what it took to put a business together. The number one thing I always noticed from the successes versus failures was that successful businesses have a revenue-generating product or service that is scalable and works. That’s what we feel we’ve discovered in GluCora. We know there’s demand out there from people who have no place to turn to.”

 

To further expand the company, Stenergy has opted to raise capital under the Regulation CF exemption. “The biggest attraction to Regulation CF was visibility and building an ecosystem of not only investors but potential consumers, giving a way to legitimately raise money and work with our investors who are not only excited about the company but a product that could change so many people’s lives,” Samuel finished.

 

By utilizing Reg CF, organizations like Stenergy can bring their product to market quickly and efficiently while interacting with their potential consumers. This provides a unique opportunity for entrepreneurs like Samuel and Leyla Butero to connect with their target market and get the funding they need to bring their products to life.

 

Regulation CF Disclaimer

 

This communication may be deemed to be a solicitation of interest under Regulation CF under the Securities Act of 1933, in which case the following applies:

 

  • No money or other consideration is being solicited, and if sent in response, will not be accepted;
  • No offer to buy the securities can be accepted, and no part of the purchase price can be received until the offering statement is qualified, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date;
  • A person’s indication of interest involves no obligation or commitment of any kind; and
  • An offering statement, which would include a preliminary offering circular, has not yet been filed with the SEC.

How Regulation Crowdfunding Will Reach $5 Billion

“We are adopting amendments to facilitate capital formation and increase opportunities for investors by expanding access to capital for small and medium-sized businesses and entrepreneurs across the United States.” – SEC, 2021

 

The continuous maturation of the crowdfunding industry has resulted in growth in the development of businesses and innovation. Since 2016, there have been 4,683 capital offerings, a third of which happened in 2021. This increase in crowdfunding spurs entrepreneurship while allowing startups to bring new technologies to market that will have a lasting impact. With over $775 million raised in crowdfunded investments in 2021 alone, this brings the total value of investments to $1.7B. This capital raised fuels companies to grow, create jobs, and positively impact their communities.

 

Growing with Crowdfunding

Before Regulation CF (RegCF), it was challenging for early-stage companies to access the capital they needed since it was often cost-prohibitive. However, this capital is essential for companies to succeed. Regulated crowdfunding is a robust tool for businesses to secure funding, with an average of 43.8% of pre-revenue startups being successful using this method of fundraising. Crowdfunding utilization has been steadily increasing since 2016, but in 2020 the success of startup companies declined to 39% due to COVID. This rebounded in 2021, with overall company success improving and 37% of all capital raised to new-revenue corporations.

 

Crowdfunded Capital

Out of 4,131 companies that have received crowdfunded capital, 2,700 were able to fund enough to innovate in their industry. Ninety-six of these organizations obtained three or more rounds of VC attention utilizing crowdfunding to improve their reach and innovation. With over 1 billion in capital deployed at an average of 1.3 million, these businesses create innovation and bring economic change to local communities.

 

An estimated $2.5 billion was pumped into local communities from crowdfunding companies in 2021, with money flowing as many as six times before leaving the local economy. Another way investment crowdfunding brings money to a community is by creating jobs; companies that utilize regulated crowdfunding support over 250,000 American jobs across 466 various industries. Crowdfunding helps industries grow and prosper, with 28% of funding going to manufacturing industries in the USA to rebuild the American manufacturing industry. Innovation grows with successful crowdfunding, with over 24% of capital being spent on IT services that make our future.

 

The Future of Innovation

 

With substantial growth in hundreds of industries, crowdfunding supplies businesses with the tools to simplify their success. With sizable exits leading to media and returns coverage, over $1 billion has been funded in over 2,500 offerings. This has led to other changes in the market, like a rise in technical innovations and digital assets like NFTs, which has also increased the growth of a secondary market.

 

Crowdfunding is an essential resource for startups, allowing companies to raise capital and turn dreams into reality. Crowdfunding efforts are an investment opportunity that helps organizations reach their goal by gaining the means to build an innovative business. We have seen the growth to $1 billion in record time, following the increase in investment limits earlier this year. Continual innovation and crowdfunding support will only help drive successful raises forward towards $5B.

Investing in Startups 101

This article was originally written by our KorePartners at StartEngine. You can view the post here

The high-speed world of startups, and the risks of investing in them, are well documented, but startup investing can be complicated and there is a lot of information you should know before making your first investment.

This article will try to answer the question “why should you invest in a startup?” by giving you information about the process and what to expect from investing in an early-stage business.

Why invest in startups?

Through equity crowdfunding, you can support and invest in startups that you are passionate about. This is different than helping a company raise capital via Kickstarter. You aren’t just buying their product or merch. You are buying a piece of that company. When you invest on StartEngine, you own part of that company, whether it’s one you are a loyal customer of, a local business you want to support, or an idea you believe in.

Investing in startups means that you get to support entrepreneurs and be a part of the entrepreneurial community, which can provide its own level of excitement. You also support the economy and job creation: in fact, startups and small businesses account for 64% of new job creation in the US.

In other words, you are funding the future. And by doing so, you may make money on your investment.

But here’s the bad news: 90% of startups fail. With those odds, you’re more than likely to lose the money you invest in a startup.

However, the 10% of startups that do succeed can provide an outsized return on the initial investment. In fact, when VCs invest, they are looking for only a few “home run” investments to make up for the losses that will compose the majority of their portfolio. Even the pros expect a low batting average when investing in startups.

This is why the concept of diversifying your portfolio is important in the context of startup investing. Statistically, the more startup investments you make, the more likely you are to see better returns through your portfolio. Data collected across 10,000 Angellist portfolios supports this idea. In other words, the old piece of advice “don’t put all your eggs in one basket” holds true when investing in startups.

Who can invest in startups?

Traditionally, startup investing was not available to the general public. Only accredited investors had access to startup investment opportunities. Accredited investors are those who:

  • Have made over $200,000 in annual salary for the past two years ($300,000 if combined with a spouse), or
  • Have over $1M in net worth, excluding their primary residence

That meant only an estimated 10% of US households had access to these opportunities. Equity crowdfunding changes all of that and levels the playing field. On platforms like StartEngine, anyone over the age of 18 can invest in early-stage companies.

What are you buying?

The Breakdown of Securities Offered via Reg CF as of December 31, 2020

When you invest in startups, you can invest through different types of securities. Those include:

  • Common stock, the simplest form of equity. Common stock, or shares, give you ownership in a company. The more you buy, the greater the percentage of the company you own. If the company grows in value, what you own is worth more, and if it shrinks, what you own is worth less.
  • Debt, essentially a loan. You, the investor, purchase promissory notes and become the lender. The company then has to pay back your loan within a predetermined time window with interest.
  • Convertible notes, debt that converts into equity. You buy debt from the company and earn interest on that debt until an established maturity date, at which point the debt either converts into equity or is paid back to you in cash.
  • SAFEs, a variation of convertible note. SAFEs offer less protection for investors (in fact, we don’t allow them on StartEngine) and include no provisions about cash payout, so you as an investor are dependent upon the SAFE converting into equity, which may or may not occur at some point in the future.

Most of the companies on StartEngine sell a form of equity, so the rest of this article will largely focus on equity investments.

How can a company become successful if they only raise $X?

Startup funding generally works in funding rounds, meaning that a company raises capital several times over the course of their life span. A company just starting out won’t raise $10M because there’s no indication that it would be a good investment. Why would someone invest $10M in something totally unproven?

Instead, that new company may raise a few hundred thousand dollars in order to develop proof-of-concept, make a few initial hires, acquire their first users, or reach any other significant business developments in order to “unlock” the next round of capital.

In essence, with each growth benchmark a company is able to clear, they are able to raise more money to sustain their growth trajectory. In general, each funding round is bigger than the previous round to meet those goals.

When do companies stop raising money? When their revenue reaches a point where the company becomes profitable enough that they no longer need to raise capital to grow at the speed they want to.

What happens to my equity investment if a company raises more money later?

If you invest in an early funding round of a startup and a year or two later that same company is raising more money, what happens to your investment? If things are going well, you will experience what is known as “dilution.” This is a normal process as long as the company is growing.

The shares you own are still yours, but new shares are issued to new buyers in the next funding round. This means that the number of shares you own is now a smaller percentage of the whole, and this is true for everyone who already holds shares, including the company’s founders.

However, this isn’t a problem in itself. If the company is doing well, in the next funding round, the company will have a higher valuation and possibly a different price per share. This means that while you now own a smaller slice of the total pie, the pie is bigger than what it was before, so your shares are worth more than they were previously too. Everybody wins.

If the company isn’t growing though, it leads to what is known as a down round. A down round is when a company raises more capital but at a lower valuation, which can increase the rate of dilution as well as reduce the value of investors’ holdings

How can I make money off a startup investment?

Traditionally, there are two ways investors can “exit” their investment. The first is through a merger/acquisition. If another company acquires the one you invested in, they will often offer a premium to buy your shares and so secure a controlling ownership percentage in the company. Sometimes your shares will be exchanged at dollar value for shares in the acquiring company.

The other traditional form of an exit is if a company does an initial public offering and becomes one of the ~4,000 publicly trading companies in the US. Then an investor can sell their shares on a national exchange.

Those events can take anywhere from 5-10 years to occur. This creates an important difference between startup investing and investing in companies on the public market: the time horizon is different.

When investing in a public company, you can choose to sell that investment at any time. However, startup investments are illiquid, and you may not be able to exit that investment for years.

However, equity crowdfunding can provide an alternative to both of these options: the shares sold through equity crowdfunding are tradable immediately (for Regulation A+) and after one year (for Regulation Crowdfunding) on alternative trading systems (ATS), if the company chooses to quote its shares on an ATS. This theoretically reduces the risk of that investment as well because the longer an investment is locked up, the greater the chance something unpredictable can happen.

Conclusion

Investing in startups is risky, but it is an exciting way to diversify your portfolio and join an entrepreneur’s journey.

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.”

Crowdfunding with IRAs

This blog is was written by our KorePartners at New Direction Trust Co. View the original article here

 

It would be an understatement to say the financial landscape has changed in the past decade. Businesses accept payments with Square, investors buy stocks through apps while listening to podcasts, and cryptocurrency went from geek niche to cultural phenomena overnight. Alongside these is another monumental shift: crowdfunding.

What is crowdfunding?

Crowdfunding is a type of investment in a business or venture. However, unlike angel investing or stock purchases, crowdfunding typically involves smaller sums from a large group.

There are multiple types of crowdfunding, each with a slightly different purpose:

  • Rewards-based crowdfunding: This type of crowdfunding is the most well-known, thanks to Kickstarter. In rewards-based crowdfunding, people invest in a company in exchange for a reward, typically a discounted final product or service.
  • Donation-based crowdfunding: This is charitable crowdfunding, in which people donate their money expecting nothing in return. Donation-based crowdfunding is typically used by charities looking to fund a project or to help with medical bills or recovery expenses via sites like GoFundMe.
  • Debt-based crowdfunding: This type of crowdfunding is used when a company needs a large sum of money to cover some kind of expense or acquisition. In exchange for donations, the recipient typically promises some kind of repayment to those donating.
  • Equity-based crowdfunding: In equity-based crowdfunding, investors put their money into a company in exchange for shares. This type of crowdfunding gives startups the chance to grow through funding, and investors the opportunity for a potential return on their investment.
  • Real estate crowdfunding: This type of crowdfunding involves multiple people pooling their money together to fund any kind of real estate project. Real estate crowdfunding can be as simple as buying a rental property with multiple people or funding a new building entirely.

Beyond the above-listed types, there are other types of crowdfunding that offer different returns and possibly perks for investors.

How does crowdfunding with an IRA work?

Crowdfunding with a self-directed account is surprisingly straightforward, thanks largely to the 2011 JOBS Act. Crowdfunding with a self-directed account involves only a few simple steps.

  • Verify you have the right kind of tax-advantaged account. Crowdfunding through your IRA or Solo 401k requires a self-directed IRA or Solo 401k.
  • Choose a trust company specializing in self-directed IRAs or Solo 401ks to custody the asset you’re interested in. This company will handle the details of ensuring your assets are used to crowdfund the asset of your choice.
  • Open and fund your account. This is typically done via a transfer or rollover of existing funds from an IRA or Solo 401k, or you can choose to contribute new funds subject to contribution limits.
  • Select what kind of investments you’d like to make, real estate crowdfunding or another type of crowdfunding.
  • Complete the investment process and monitor your account for performance.

If the above process sounds simple, good, it should be. The right trust company will take care of the transactions while leaving you in the driver’s seat.

Four Red Flags When Crowdfunding

Crowdfunding can make for great investment opportunities and generate excellent returns. But, like all investing, crowdfunding involves risks.

  • The company has no online footprint. If you Google the company or founders and find nothing, this is a big red flag. Any enterprise trying to raise money should have some level of awareness around their product or opportunity. And if nothing else, the founders should have some kind of presence online. If you’re unable to find any history about the opportunity or those behind it, proceed with caution and look for other opinions.
  • The opportunity guarantees returns. Some opportunities really are too good to be true. Language like “guaranteed returns” or “double your investment” and so on is a sign the company is trying to mislead you. There are few guarantees in life, and investments are far from them. While some investments, like government-backed certificates of deposit, are safer than others, you won’t find a guarantee on a crowdfunding opportunity.
  • The math is funky. This point is especially relevant when you’re dealing with real estate crowdfunding. Closely examine the numbers when looking at investment properties. If the account holder claims you’ll make a certain amount but you’re not arriving at the same number after expenses, taxes, and other costs are factored in, double check the math. You may need to move on.
  • The valuation is inflated. When you’re looking at crowdfunding a startup, pay close attention to the valuation. It’s not unheard of for companies or crowdfunding platforms to inflate the valuation of a startup to draw more investors. If a company is brand new with no backing, it’s unlikely they’re worth $600 million. If the deal feels too good to be true, it might be.