Bringing Private Placements into the Digital Age

How blockchain-based technology will transform private markets


Remember the first time you drove a car with a rear-facing camera? The first time you streamed an on-demand movie at home via the Internet, or used GPS instead of a fold-out paper map to find your way on a trip? Similarly, emerging digital technologies have the potential to significantly streamline the cumbersome process of issuing and trading private securities, while automating regulatory compliance and enhancing secondary-market liquidity, transparency, and price discovery. The best part? All these benefits can be captured within existing market structures.


The growing popularity of private placements over public listings in recent years is a well-documented phenomenon, driven by tightened regulatory requirements for public issuers and a widening search for returns among investors in a low-interest-rate world.


Strong Growth in Private Markets

Acknowledging that raising capital in private markets is simpler than floating public offerings, the path to private issuance is still lengthy and complex. After capital is raised, issuers incur ongoing costs for stock transfers, escheatment, dividend payouts, and compliance. Meanwhile, participants in secondary markets must cope with complexities in making legal and transfer arrangements. Indeed, the timeline for executing trades in privates is currently calculated not in hours or days, but in weeks and months. Throughout, the process is larded with paper, paper, and more paper, stuffed into a file cabinet or residing on email servers.


Contrast that with the way new digital mechanisms can transform how private markets operate.

Source: Preqin


Blockchain based technologies help ensure that regulated securities are allowed for trading, execute and track payment and receipt of dividends, and validate that transactions have been executed solely with approved investors.  Post-trade processes leverage blockchain’s single “source of truth” — that is, the immutability of a blockchain ledger — working with SEC registered transfer agents.  Alternative trading systems (ATS) are now live for secondary trading of private yet regulated digital securities.

This is no pie-in-the-sky, far-in-the-future scenario. Industry standard-setting bodies like the FIX Trading Community (aka FIX), the Digital Chamber of Commerce, and the Global Digital Asset & Cryptocurrency Association, operating within the framework of the International Standardization Organization (ISO), are at work developing ways to integrate trading of digital securities into existing market structures. For example, FIX has a globally represented working group focused on adapting its widely used messaging standards to communicate and trade digital assets.


In short, digitization of private securities can ease capital raises, streamline compliance, improve liquidity and transparency, and save issuers and investors money — all within a regulated ecosystem. In future articles, we’ll explore what the emerging digital trading landscape means specifically for issuers and investors.


Continue reading “Bringing Private Placements into the Digital Age”

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. With the implementation of Title IV of the act, the amount that companies can raise was increased to $50 million (since increased to $75 million), offering 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 calls 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 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 is 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.

Meet the KorePartners: Andrew Corn, CEO of E5A Integrated Marketing

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the partners that contribute to its ecosystem.


From the first project he worked on while still in college, Andrew Corn has been involved in financial marketing. After his first analyst’s presentation, “and then second, and then fifth, I decided to drop out of college and focus on that full time. Soon after, I wrote my first IPO roadshow, built a company around that, and a few years later, also started working for money managers,” Andrew said. After selling that company, Andrew went to work for a publishing company specializing in investingas the chief marketing officer.


Then, for 9 years, Andrew left the marketing industry and created a multi-factor model used to analyze the stocks available on US exchanges to select them for separately managed accounts, and he and his team designed the index behind six ETFs, eventually selling that company to a bank, where he served as the chief investment officer. “When E5A was born, it was born as an investment house, and then I got sucked back into marketing in 2012 and switched E5A over into a marketing firm in 2013,” Andrew recounted. At E5A, they acquire investors through systematic, data-driven marketing.


For companies that are looking to raise capital, marketing plays an incredibly important role. For RegA+ offerings, a company’s first target is typically its existing network of customers. However, a marketing firm such as E5A can help companies to understand the behavior and demographics of current customers. Knowing how customers behave will allow companies to targetpeople that are demographically and behaviorally just like their current customers.


With RegA+ offerings, the majority of the money will be raised through marketing. “The beauty of that is that it’s passive,” Andrew says, “we can look at entirely new groups of prospects who are the most likely people who would be interested in investing in a company like yours. Sometimes we can find them through behavior or demographics, hopefully, it’s a combination of both.” Once potential investors have been found, marketing agencies can come up with the messaging platform that will raise money through these investors. Companies are often surprised that their existing network raises little money, but the investors they can gain through marketing helps them reach their goals.


Through the use of marketing, Andrew is excited about how companies benefit from acquiring investors at scale. “If you’re a restaurant chain, you want as many people to know about it as possible. If you have a direct-to-consumer product, you want many people to know about it. So a byproduct of raising capital is promoting the brand or the business.” Both investors and the companies get more engaged as information is put out regularly.


With RegA+ allowing investors of all wealth, income and experience levels to participate, the restriction allowing only accredited investors is lifted. Additionally, Andrew believes that increasing the limit from $50 to $75 million will greatly improve the regulation since oftentimes companies require more funding. With IPOs on both the New York Stock Exchange or the NASDAQ often over $100 million, he believes increasing the cap to as much as $200 million in a few years would be better for companies looking to utilize RegA+.


For its clients, E5A is a “turnkey marketing company, so we do everything from messaging platforms to data-targeting to media buying and optimization, message testing, web development, etc.” Andrew expects that E5A will be held to a standard of success being measured by the amount of money raised. While looking to maintain as much control of the outcome, E5A also understands that many of the companies they work with have their own marketing or IT departments, and try to share as much work with them as possible and include them in the process.


E5A looks to work with companies that have a high probability of success, which requires an ecosystem of legal, accounting, technology, broker/dealer, consulting, and marketing services. Andrew says, “We feel that Oscar and the KoreConX team are putting together a world-class network of service providers who are experts in each of their individual tasks. We are glad to participate.

Warrant Issuers, Keep Your Offering Statement Evergreen

An increasing number of issuers have been using Regulation A to make continuous offerings of units, consisting of a combination of equity, often common stock, and warrants to purchase the same equity at a future date.  Under the Securities Act, the units, the shares of stock, the warrants and the shares of stock issuable upon exercise of the warrants are separate securities whose offer and sale must be registered on a registration statement or covered by an exemption from registration such as Regulation A.  That is why offering statements under Regulation A list each of these individually and why the SEC requires the validity opinion filed as an exhibit to the offering statement to cover all of them (See Staff Legal Bulletin No. 19, available at ).


Most warrants that are part of these structures are exercisable for more than a year after their date of issuance, often up to 18 months.  Since the exercise of the warrant and payment of the exercise price for the underlying shares is a new investment decision by the warrant holder, the offering statement covering the underlying warrant shares must continue to be qualified under Regulation A in order for the new shares to be covered by the exemption from registration. That means that an issuer must keep the offering statement “evergreen,” or qualified for at least 2 to 3 years to cover those exercises, even if the offering of the units is completed before the first anniversary of qualification.   Most Regulation A offerings permit rolling closings.  The effective date of a warrant is typically the date on which a closing is held and a warrant is issued to an investor.  For example, if an issuer commences a Regulation A offering on the date its offering statement is qualified (let’s say February 1, 2021) and holds its first closing of units on March 1, the warrants issued in that closing are exercisable until September 1, 2022, well past the anniversary of qualification.  Assuming the offering stays open for at least 9 months and the final closing is held on November 1, 2021, the warrants issued in that final closing are exercisable until May 1, 2023.


Under the securities laws, registration statements for continuous offerings are kept updated, or “evergreen,” when an issuer complies with its reporting obligations under the Exchange Act by filing timely periodic reports such as their annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.  However, since the analogous periodic reports under Regulation A are filed under the Securities Act, their filing does not keep the offering statement evergreen.  If an offering is to extend more than one year from qualification, issuers conducting continuous offerings need to file post qualification amendments (“PQA”)  in accordance with Rule 252(f)(i) every 12 months after the qualification date to update the offering statement, which includes incorporating the financial statements from the periodic reports filed during the previous 12 months.  If the original offering statement was scheduled to terminate before the warrant exercise period ended, the PQA would also need to extend the termination date. A PQA in those circumstances renders the offering statement un-qualified and subject to a possible new SEC review, which means an issuer may continue to make offers (so long as the financials are not stale yet) but may not make sales, such as the issuance of warrant shares upon exercise of warrants, until the SEC re-qualifies the offering statement (See our blog post on updating continuous offerings:  Using our example above, the issuer of units would need to at a minimum file a PQA in sufficient time before February 1, 2022 to allow for a possible Staff review and comment period to meet the annual requirement under Rule 252.  Moreover, if the unit offering lasts more than 6 months after the original qualification date, an issuer should anticipate having to file a second PQA in early 2023 to cover the exercise of warrants issued in the last closing of the offering.


Warrant issuers should also keep in mind some additional steps they will need to take.   The subscription agreement and the warrants themselves will need to include additional reps, warranties and covenants, such as a covenant to keep the offering statement evergreen.  Plus, even after qualifying the PQA with the SEC, the issuer will need to insure that it is current with state notice filings, which typically need to be renewed every 12 months as well.

KorePartner Spotlight: Etan Butler, Chair of Dalmore Group

With the recent launch of the KoreConX all-in-one RegA+ platform, KoreConX is happy to feature the KorePartners that contribute to its ecosystem. 


Etan Butler is Chairman of Dalmore Group, a FINRA registered national Broker-Dealer, founded in 2005. Dalmore provides a full range of investment banking services and specializes in assisting companies that seek to raise investment capital online through the SEC’s Regulation D, Regulation A+, and Regulation CF.  Etan is recognized as a pioneer in the Regulation A+ industry and is an active participant in industry summits, panels, interviews, and publications. 


Dalmore is among the most active Broker-Dealers for Reg A+ offerings, having been involved in more than 85 such offerings in 2020 – including some of the most successful listed and private Reg A+ offerings in history. A number of Dalmore’s Reg A+ clients have met their offering goals and have pursued follow on Reg A+ offerings to raise even more.  Some of Dalmore’s clients have gone on to be listed on Canadian and US public exchanges.


“From our wide and varied experience as the broker-dealer on these offerings, we share what we have seen work well (and not so well) with our new issuer clients.  This experience is particularly valuable to the entrepreneur who is approaching a Reg A+ capital raise for the first time, and who can tap into our network of quality service providers, including legal, marketing, and syndication specialists.  We also offer our clients potential alternative trading solutions, and otherwise provide our issuers with the tools they require to enter the field equipped to have the greatest chance of success.”


Dalmore Group also provides business planning, development, and capital introduction services to public and private companies in a range of industries, and has participated in various capacities in significant investment, development, and other structured transactions. Over the course of their 15 years of investment banking activity, Etan and his team have been involved in the development of cutting edge, regulatory compliant approaches for the management of business development – including the raising of funds — and the oversight of complex due diligence activities in the heavily regulated area of U.S. and multinational transactions. 


“What drew me to investment banking and the buildout of the Reg A+ division at Dalmore was the excitement of working with other entrepreneurs in cutting edge industries, and assisting them in the pursuit of their dreams.  The recent launch of Dalmore’s DirectCF platform, which offers Reg CF issuers a direct, cost-effective, and open access solution for their Reg CF offering – untethered to a marketplace that lists other, competing offerings — reflects Dalmore’s obsession with giving issuers full control of their capital raising activities.” 


Etan is also President of EMB Capital, LLC, which invests in early-stage ventures with a focus on real estate acquisition and financial services.

Foreign Issuers Using Regulation A and Regulation CF

For some reason, this issue has been coming up a lot lately. Our usual response to the question “Can non-US issuers make a Regulation A or Reg CF offering?” is to point to the rules:

  • Rule 251(b)(1) says Regulation A can only be used by “an entity organized under the laws of the United States or Canada, or any State, Province, Territory or possession thereof, or the District of Columbia, with its principal place of business in the United States or Canada.”
  • Reg CF Rule 100(b) says Reg CF may not be used by any issuer that “is not organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.”

Slightly different formulations, as you can see, and note that Reg CF doesn’t say that the company needs to have its primary place of business here. But both exclude non-US or Canadian companies.

But we are getting a lot of pushback and “what if?” questions, so here are responses to a few of the most common:

  • What if we redomicile to the US? Well ok, that might work for Reg CF. It might work for Reg A too, if your management changes their domicile too (you need a bona fide principal place of business here). However, have you considered the tax consequences in your original home jurisdiction? Also, note that you’ll still need two years audited or reviewed financial statements, in US GAAP and audited or reviewed in accordance with US auditing requirements (US GAAS).


  • What if we form a subsidiary and it makes the offering? Yes, you can form a subsidiary here (it’ll have to have its principal place of business here too, for Reg A) and it can raise money under Regulation CF. But the money it raises here has to be legit used for the sub’s own purposes. It can’t be upstreamed to the parent, because that would likely make the parent a “co-issuer” that needs to also file a Form C or 1-A and can’t. So the sub needs to be planning to undertake its genuine own business. Even then, if it’s not a new business but just taking over some part of the parent’s business, then the sub might need to produce financials (again, using US GAAP and US GAAS) from the parent’s business or the part of business it’s taking over, because that’s a “predecessor.”


  • What if we create a holding company in the US? Yes, although the same issues come up. If using Reg A, you need to move your principal place of business here. For either exemption, the foreign company that is now your subsidiary will be the “predecessor” company and so again we have the need for two years’ audited or reviewed financials using US GAAP and US GAAS.


  • What if we create a new company that licenses the foreign company’s product or service? This may be the most promising option, but it’s really going to depend on facts and circumstances. Proceeds of the offering have to be used for the new company’s operations, in the case of Regulation A the company’s primary place of business has to be here, and you’ll have to look carefully at whether there are any predecessor issues.

How to be Ready for Raising Capital

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


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


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


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


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


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


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

Why is a Broker-Dealer Important for Private Company Offerings?

If you’re looking to raise money for your private company, chances are that you’ve at least heard the term “broker-dealer.” However, if you’re new to the process, you might not be too familiar with what they do and why they are a key component of the fundraising process. 


Simply put, a broker-dealer is an agent that assists you in raising capital for your private company.  Broker-dealers can be small, independently working firms or ones that operate as part of large banks and investment firms. Both are subject to registration with the SEC and must join a “self-regulatory organization” such as FINRA. If a broker-dealer is not registered they can face penalties enforced by the SEC.  You can check a broker-dealer’s registration here:


For private companies looking to raise money, working with a broker-dealer will be a key part of their capital raising activities. Certain states require issuers to work with a broker-dealer to offer securities, so working with a broker-dealer allows issuers to maintain compliance with the SEC and other regulatory entities. Ensuring that issuers are compliant with all regulations is essential to a successful round of capital raising and good business practices. If issuers are not compliant, they can face penalties from the SEC including returning the money raised.


Broker-dealers are intermediaries in a fundraise transaction between the private company and the investors.  As such, they are mandated to perform a variety of compliance activities.  If you retain a broker-dealer, they will first be responsible for performing due diligence on your private company. This is important so that there are no false representations to investors.  Investor protection is one of the main responsibilities of the SEC, so the broker-dealers must ensure they are performing appropriate steps to ensure the information presented to investors is accurate, appropriate, and not misleading.


Once the broker-dealer has completed the due diligence, they work with private companies to prepare appropriate information to share with investors and set timelines.  This can involve liaising with your legal counsel to ensure the offering documents are complete and to ensure what type of investors they can approach with your offering.  Each country has its own regulations around how you can approach investors, which is why it is important to have a good broker-dealer and legal counsel in each region you intend to offer your securities. 


There are different types of investors that can be approached depending on jurisdiction and securities regulations. They include Venture Capital, Private Equity firms, Institutional investors, or individuals. While most of these are professional investors, the individual investor group is further broken down into accredited/sophisticated investors and the general public.  Accredited investors have to meet income or wealth criteria to invest in accredited investor offerings (Regulation D type of offerings in the USA).  The popular mechanisms in the USA to present your offering to the non-accredited or general population (over 18 years) are Regulation CF and Regulation A+.


As the broker-dealers reach out to investors and find interested participants, there are steps that they have to perform to ensure that the investor is appropriate for the company.  Typical checks that broker-dealers have to conduct on investors can include performing identification verification, anti-money laundering checks, assessing the suitability of the investment to the investor, and doing accreditation checks. 


With the help of a broker-dealer, companies can raise the funding their company needs while being confident that they are maintaining compliance with the regulations that are in place. With over 3,700 registered broker-dealers in the United States alone, every issuer looking to raise capital can be confident of finding at least one well-suited broker-dealer that meets their needs.

How to Manage Investments in Private Companies

For investors, investing in private companies can be a beneficial way to diversify their investment portfolios. Whether the investment was made through private equity or RegA+, proper management can contribute to long-term success. However, once the investment is made, investors need to ensure that they are correctly managing their shares. With this in mind, how should investors manage their investments once they have been made?


Investments made in private companies can often come with voting rights. Being a part of company decisions is an important aspect of being an investor and helps to elect company directors and resolve issues. Investors exercising their voting rights can be a major aspect of managing their portfolio. 


Whether information is provided directly to the investors by the company or through a transfer agent, as companies release reports and other key information, shareholders should maintain current knowledge of the information. Understanding the company’s direction and changes that are occurring can give investors a picture of the future so they can determine how their shares will affect their portfolio. The investor should also know where the data can be found so that they are easily able to access and assess it. 


Additionally, investors should monitor the liquidity of the shares. Since some private company shares can be traded in a secondary market, understanding the value and the option to trade is important for investors. If they know how much their shares are worth, and they have the ability to sell them, investors can freely trade their shares. This is key if they decide that they no longer want to be a shareholder in a particular private company. 


However, for investors who own shares in multiple different companies, managing this information can become a burdensome task. With an all-in-one platform that incorporates portfolio management for investors, KoreConX streamlines and simplifies the process. KoreConX Portfolio Management allows investors to manage their investments from a centralized dashboard. Investors are easily able to see the shares that they own in each private company they’ve invested in. Through the platform, investors can access critical company information and performance data in one place, eliminating the need to remember where each piece of information is kept. Investors are also notified of upcoming shareholder meetings and can exercise their voting rights through the KoreConX platform. When companies and investors utilize the KoreConX platform, they can achieve higher success rates by maintaining compliance with necessary regulations. Utilizing KoreConX Portfolio Management is a powerful tool for investors to make informed decisions regarding their investments. 


When dealing with private company investments, it is incredibly important that investors properly manage their portfolios. Remaining up-to-date on company decisions and performance can help them plan for the future of their shares while allowing them to make decisions to increase the success of their investments. When investors understand their voting rights, company developments, and the liquidity of their shares, they can be an active participant in their financial success. 

What is Needed for a Successful RegA+ Offering

If your company is looking to raise funding, you’ve probably considered many options for doing so. Since the SEC introduced the outlines for Regulation A+ in the JOBS Act, companies have been able to raise amounts up to $50 million (which increases to $75 million in January 2021) during rounds of funding from both accredited and non-accredited investors alike. If you’ve chosen to proceed with a RegA+ offering, you’ve probably become familiar with the process, but what do you need for your offering to be a success?


When beginning your offering, your company’s valuation will play a key role in the offering’s success. While it may be tempting to complete your valuation in-house, as it can save your company money in its early stages, seeking a valuation from a third-party firm will ensure its accuracy. Having a proper valuation will allow you to commence your offering without overvaluing what your company is worth. 


Since the SEC allows RegA+ offerings to be freely advertised, your company will need a realistic marketing budget to spread the word about your fundraising efforts. If no one knows that you’re raising money, how can you actually raise money? Once you’ve established a budget, knowing your target will be the next important step. If your company’s brand already has loyal customers, they are likely the easiest target for your fundraising campaign. Customers that already love your brand will be excited to invest in something that they care about. 


After addressing marketing strategies for gaining investments in your company, creating the proper terms for the offering will also be essential. Since one of the main advantages of RegA+ is that it allows companies to raise money from everyday people, having terms that are easy for people to understand without complex knowledge of investments and finance will have a wider appeal. Potential investors can invest in a company with confidence when they can easily understand what they are buying. 


For a successful offering, companies should also keep in mind that they need to properly manage their offering. KoreConX makes it simple for companies to keep track of all aspects of their fundraising with its all-in-one platform. Companies can easily manage their capitalization table as securities are sold and equity is awarded to shareholders, and direct integration with a transfer agent allows certificates to be issued electronically. Even after the round, the platform provides both issuers and investors with support and offers a secondary market for securities purchased from private companies. 


Knowing your audience, establishing a marketing budget, creating simple terms, and having an accurate valuation will give your RegA+ offering the power to succeed and can help you raise the desired funding for your company. Through the JOBS Act, the SEC gave private companies the incredible power to raise funds from both everyday people and accredited investors, but proper strategies can ensure that the offering meets its potential.

Regulation A Offering Limits Increased to $75 Million

On Monday, November 2, exciting news was announced by the SEC regarding Regulation A offerings. The Securities and Exchange Commission approved long-awaited amendments to offering limits to “promote capital formation and expand investment opportunities.” These amendments, going into effect on January 2, 2021, drastically increase the amount of capital that issuers can raise through RegA+ offerings.


Before the Jumpstart Our Business Startups Act (JOBS Act) of 2012, Regulation A was a relatively obscure and underutilized regulation since adherence to Blue Sky Laws in all 50 states made it time-consuming and costly. The JOBS Act transformed RegA into a company-friendly law allowing businesses to raise millions of dollars. Broken down into two tiers, Tier 1 allows companies to raise a maximum of $20 million after meeting compliance with Blue Sky Laws in each state, while Tier 2 previously allowed up to $50 million to be raised after the offering statement has been reviewed and accepted by the SEC. While neither tiers place limits on the amount an accredited investor can invest, Tier 2 limits individual investors to either 10% of their net worth or annual income.


With this latest amendment to Regulation A, companies will now be able to raise a maximum of $75 million under Tier 2 offerings. This comes as great news for companies looking to raise capital through RegA offerings since Tier 2 offerings comprise the majority of those conducted, with 73% of qualified offerings falling under this tier. This substantial increase allows issuers to raise larger sums of capital to fund their business and its development. In addition, the updated Regulation A raises the offering limit of secondary sales from $15 million to $22.5 million. With Tier 2 offerings preempting Blue Sky Laws in each state, it offers companies an efficient tool for efficiently raising capital on a nationwide scale. 


With an increase of $25 million, this drastic improvement to Regulation A offerings will empower more companies to raise the capital they need for success.

FINRA BD Requirements for RegA+ & Digital Securities

FINRA BD Requirements for RegA+ & Digital Securities

The private markets are receiving a much updated revamp by the SEC which is having a major impact on registered FINRA Broker-dealer firms.  Here are two (2) of the most common activities for which FINRA Broker-dealers (BD) are approached by companies.  Most BD’s are not aware that in order to help companies raise capital utilizing these regulations, there is a registration they must first do with FINRA.

We went to the source that has been helping many FINRA Broker-dealers and put the responses in a simple way.  Ken Norensberg, Managing Director, Luxor Financial provides the answers to which all BDs need to pay extra attention to make sure you are fully compliant.

RegA+ (Regulation A)

Broker-dealers today have the ability to help companies that are using either Regulation D (RegD) or regulation A(RegA+).  Now what they are not aware of is that in order to allow them to help companies with RegA+ they do need to be registered with FINRA. If that registration isn’t done, they are not allowed to proceed in offering those services. This process can take anywhere from 60 to 90 days or it could happen sooner.  Most firms are not aware that when they take on a RegA+ client, they must apply to FINRA to represent them in the offering. This is done at the same time the company is filing their Form 1A with the SEC for their RegA+ offering.

Digital Securities

Digital Securities are now becoming main street language and most Broker-dealers want to offer this to investors. Unfortunately, if they do not have FINRA approval for digital securities, it’s not a product they can represent or offer to investors.  Digital Securities require registration. The process is like putting a full new member application, and it will take anywhere up to four (4) months.  Your firm must file with FINRA for each of the exemptions you want to use for Digital Securities (RegD and or RegA+.  Here is what your firm will be required to answer to FINRA in its application.

  • You will need a detail business plan
  • What entities are the holders of the “private keys” in the DLT network that would be required to gain access to the digital securities, cash-backed digital securities holdings or digital currency? 
  • Are multiple keys needed to gain access or is a single key sufficient?
  • Who controls or has access to the DLT network where the assets are held?
  • What happens in the event of a loss or destruction of assets (either due to fraud or technological malfunction) on the network?
  • If the broker-dealer was to fail and is liquidated in a proceeding under the Securities Investor Protection Act of 1970, as amended, how would customers’ securities and funds be treated, and how would customers access their assets?
  • In instances where firms have established partnerships with other firms to serve as their back-ups and to carry out critical functions in the event of emergencies, what type of access would those back-up firms have to the private keys?
  • How will customers or the Securities Investor Protection Corporation (SIPC) trustee access the customers’ assets in the event of a defaulted broker-dealer? What parties will be involved, and what are their roles and responsibilities?
  • How does the use or application of the DLT network affect the market risk, liquidity or other characteristics of the asset?
  • What information is maintained using the DLT network?
  • What will be deemed as the physical location of the firm’s records maintained on a node of a DLT network that may extend over multiple countries?
  • What parties have control or access to the firm’s records? What are their rights, obligations and responsibilities related to those records, and how are they governed?
  • What is the firm’s (and other participants’) level of access to the data, and in what format would it be able to view the data?
  • How does the DLT network interact with the firm’s own systems for recordkeeping purposes?
  • How would the records be made available to regulators?
  • How will the firm’s traditional exception reporting, used to supervise transactions, be generated from a DLT network?
  • How will the firm protect any required records from tampering, loss or damage?
  • Clearance & Settlement?
  • Anti-Money Laundering (AML) Procedures & Know Your Customer (KYC) Rules?
  • Customer Data and Privacy?
  • Trade & Order Reporting Requirements?
  • Supervision & Surveillance of Transactions?
  • Fees & Commissions?
  • Customer Confirmations & Account Statements?
  • Anticipated Customer Base?
  • Facilities, Hosting?
  • Licensed & Qualified Staff

As the market is evolving to provide more alternatives to companies and investors, FINRA Broker-dealers need to also make sure their licenses are up to date to be able to offer these updated alternatives.  It’s not enough that you are registered with FINRA.

Thank you to Ken Norensberg, Managing Director of Luxor Financial, who provided this valuable information to assist Broker-dealers to stay compliant.  Ken has been helping FINRA Broker-dealers manage these new registration requirements. 

About Ken Norensberg & Luxor

Luxor Financial Group, Inc. a NY based Broker-Dealer Consulting Firm that specializes in setting up Independent Broker-Dealers. We are experts in New Member Applications, Continuing Membership Applications, Expansion Filings, FINRA and SEC Audits, Anti Money Laundering Reviews, Business Development and general compliance and business development services.

Ken is a former Member of the FINRA Board of Governors. FINRA oversees the regulatory activities and business practices of over 4,500 Broker-Dealers, 163,000 Branch offices, 630,000 registered representatives and 3,500 employees and consultants with annualized revenues and a budget of approximately $800,000,000 (Eight hundred million dollars.)

The Board contends with many complex issues that affect large organizations from generating revenues, managing expenses, personnel, legal, regulatory, political and operational issues.

Additionally, Ken was a Member of the following committees and subcommittees:

  • Regulatory Policy Committee
  • Emerging Regulatory Issues (Subcommittee)
  • Financial, Operations & Technology Committee
  • Pricing (Subcommittee)
  • Ex-Officio of the Small Firms Advisory Board (SFAB)

What is Reg A plus versus Reg A?

The simple answer is that today, Regulation A (Reg A) and Regulation A+ (Reg A+) are the exact same law. There is no difference, and the two terms may be used interchangeably.

Some confusion stems from the two similar terms, and there is much misleading information about this online. I’ve even spoken at events where I’ve heard other lawyers claim the two laws are different. They are not.

Historically, there was no Reg A+, there was only Reg A. Regulation A was an infrequently used law that allowed a company to raise up to $5,000,000 from the general public, but with the company still having to go state-by-state to get Blue Sky law approval for their offering.  This expensive and time-consuming process of dealing with review of an offering by 50+ state regulators made Regulation A far too expensive and time-consuming for most issuers to only be allowed to raise $5,000.000. 

 In 2012, the Jumpstart Our Business Startups Act (JOBS Act) became law, and Title IV of that act amended Regulation A in many ways, most notably (a) doing away with the state by state blue sky law requirement and (b) raising the limit from $5,000,000 to $20,000,000 or $50,000,000, depending on which “tier” of the law is used. Congress took a virtually worthless law, and turned it into an excellent and company friendly law that has allowed many companies since to raise millions.

Interestingly, since in 2012 when the law went into effect, and even since 2015 when the SEC passed its rules allowing the law to actually be used, the law is still officially called Regulation A. But, both the SEC, and commentators also started simultaneously calling the law “Regulation A+” or “Reg A+” to note that it was a supercharged version of the old Regulation A law.

Finally, to get super-lawyer-nerdy here, the official name of the law is Regulation A – Conditional Small Issues Exemption, and is part of the Securities Act of 1933, found at 17 CFR §§ 230.251 – 230.300-230.346.

What are investor limits on investment size of both?

As noted in my other blog article, these is no difference between Regulation A (Reg A) and Regulation A+ (Reg A+). They are the exact same law.  The two terms may be used interchangeably. Therefore, investor limits on investment size are the same for either term.

However, there are investor limits on how much an investor may invest in Regulation A. These limits depend on which “tier” of the law is being used.

Tier 1 of Regulation A allows a company to raise up to $20,000,000, but the company must go through Blue Sky law compliance in every state in which it plans to offer its securities. There are no limitations on whether someone can invest, or how much someone can invest, in a Tier 1 offering. 

As a side note, Tier 1 offerings tend to be limited to one state, or a small number of states, because of the added cost of Blue Sky compliance. The SEC does not limit the amount of investment, but states may have limitations in their securities laws, so an analysis of each state’s securities laws is necessary if doing a Tier 1 offering.

Tier 2 of Regulation A allows a company to raise up to $50,000,000, and the company does not have to go through Blue Sky law compliance in any state in which it plans to offer its securities. However, there are limitations on how much someone can invest, in a Tier 2 offering if the offering is not going to be listed on a national securities exchange when it is qualified by the SEC.  If the Tier 2 offering is going to be listed on such an exchange, there are no investor limitations.

For a Tier 2 offering that is not going to be listed on a national exchange, individual investors are limited in how much they can invest to no more than 10% of the greater of the person’s (alone or together with a spouse) annual income or net worth (excluding the value of the person’s primary residence and any loans secured by the residence (up to the value of the residence).

There are no limitations on how much an accredited investor can invest in either a Tier 1 or a Tier 2 Regulation A offering.

SEC changes to RegA+ and RegCF

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

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

Regulation Crowdfunding (RegCF): 

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

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

Regulation A (RegA+) 

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

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

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

If you want to learn more please visit:

Here is the complete news release by the SEC

Reg A+ Webinar: Q&A Part I

The content on this webinar and associated blogs are provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.

During our last Regulation A+ webinar with Sara Hanks and Darren Marble, we received dozens of questions about the topic.

As promised, we have answered each one of these questions and we are publishing the results here. To make things simple, we are diving it in Part I (Sara Hanks answers) and Part II (Darren Marble answers).

If you haven’t watched the webinar or want a recap, you can access the full version here.

Reg A+ Webinar – Q&A Part I

  • Is there a specific exemption that can be used in Canada along with Reg A to sell in Canada?

You need to check with Canadian counsel. Canada does not generally have federal securities laws as we do in the U.S., and you have to find an exemption from the Canadian equivalent of registration in each Canadian province you want to sell in. Some provinces have crowdfunding-type exemptions (not Ontario) and most have some type of exemption for sales to accredited investors.

  • If a company decides not to list on an exchange, can they have a bulletin board on their own website where their own shareholders can buy and sell their shares to others?

Under limited circumstances, yes. Any kind of “matching platform” will need to follow existing no-action letters that specify the circumstances in which a company operating some kind of introduction service for buyers and sellers will be deemed not to be a broker-dealer. You need to make sure the service does not amount to acting as a broker or an “alternative trading system” (ATS). In very general terms, the more sophisticated and automated a matching platform gets, the more it is likely to be deemed to be an ATS.

  • I am quarterbacking a Reg CF offering, they have a product that used to exist and want to bring it back. What are the top two questions I should be asking?

Do you still have the intellectual property rights to the product? And if a different/earlier company sold the product before, is that company a “predecessor” under the accounting rules?

  • Do you need to complete the offering before filing Form 211 for a listing?

In general, we have found that the market maker for a company that is going to be listed or quoted on OTC (a minority of Reg As) want to be able to confirm that all the existing shareholders were acquired in legit offerings before it files the 211, which would mean you would need the Reg A offering to be closed, but it may depend on the market maker.

  • I understand that there is a Blue Sky nuance if you do not use a BD, is this correct?

Yes. If you don’t use a broker, there are some states that won’t let you offer (Nebraska) or require the issuer to file as an “issuer-dealer.” More details here.

  • Sara and Darren have mentioned real estate, etc. in terms of companies best suited for Reg A offering, are there any Blockchain/DLT based startups that have successfully gone through the process yet?

Not yet; perhaps coming soon.

  • Can you comment, in general, on the Blockstack filing?

I’ll wait till I see the correspondence between the lawyers and the SEC (published when the offering qualifies) before I comment on the implications of this offering.

The second part of the Q&A will be published next week. If you want to read more from Sara Hanks, you can visit the CrowdCheck Blog. We highly recommend it. You can also contact Sara and her team here.

Reg A+ Webinar: The Highlights

In our last webinar, we’ve talked about a very complex topic in the startup industry: The Regulation A+.

For those of you who have never heard of it (no shame in learning, folks), Regulation A+, or Reg A, is a section of the JOBS Act that allows private companies to raise up to $ 50 Million while offering shares to the general public.

This can have a profound impact on how startups work. Unfortunately, there’s still a great deal of confusion surrounding the topic.

That’s why we brought in Sara Hanks, a top attorney with over 30 years experience in the corporate and securities field and Founder of CrowdCheck, and Darren Marble, Co-Founder and CEO of Issuance, with extensive experience in the capital raising process.

Here are some highlights of the discussion:

Sara Hanks: Regulation A+ is a popular name for a series of amendments to existing laws there were made in 2015. The Regulation A was an exemption for full regulation with the SEC, that permits a company to make a public offering, without the restrictions on the security being sold, but not to go through the full SEC process. So it’s an exemption for a public offering.

And that’s important because it’s public, the securities that are sold are not restricted, they can be free traded, if you can find a place for them to trade, you can trade them immediately, after the qualification of the offering. The companies who can use Reg A are U.S. or Canadian companies.

Darren Marble: The most interesting question to me is what companies are ideal candidates to use the Reg A Securities exemption as a capital raising tool. And just because you might be eligible to do a Reg A offer doesn’t mean you should. You know, if there’s a cliff that’s 50 feet above the ocean and you’re on that cliff, and you can see the ocean, doesn’t mean you should dive in. You probably need to be a professional diver.

I say that you don’t choose Reg A, Reg A chooses you. And what I mean by that is I think the Reg A exemption discriminates in that aspect. They will save a very particular type of issuer and it will punish or harm another type of issuer.

We also talked about:
– Marketing strategies that need to be considered for a Reg A+
– Who qualifies for it?
– What are the benefits?
– What does the Due Diligence look like?
– What liability is there for the issuer?
– What liability is there for any who promotes the offering?

To watch the full webinar, click here.

You can also watch the full version of our previous webinars:

Digital Securities Webinar

Marketing Your Raise Webinar


Webinar sheds light on Digital Securities Terrain

The regulator’s message is clear: there’s no room for tampering with the regulation when it comes to capital raising, and many companies that invested time and energy on ICOs (Initial Coin Offering) are now facing the consequences.

But that doesn’t mean that the private capital markets are dead when it comes to digital assets, on the contrary. Companies have been tirelessly researching to find an alternative to ICOs that is compliant with regulations.

The private market industry is now being inundated by terms such as Digital Securities, Tokenization, STOs, ICOs. To decide the fate of their business in the digital arena, entrepreneurs need to be on top of the game and know the concepts, the differences, and who are the stakeholders behind every new term.

Having all this in mind we, at KoreConX, put together a Webinar “An Industry Evolving: Digital Securities, Tokenization, STOs, ICOs… What are they? How do they differ? Who’s regulating them?“.

To provide the public with the most up-to-date information about the topic, we invited two experts in the field. Oscar Jofre, CEO and Co-Founder of KoreConX, and Darren Marble, CEO and Founder of Issuance, will discuss the landscape for traded securities utilizing different forms of distributed ledger technology.

The webinar will happen this Wednesday, April 17th, at 11 am EDT.

Click here to register for free.

Click on the link below to watch our previous webinars:
Marketing Your Raise From Traditional Capital to Digital Securities