Communications and publicity by issuers prior to and during a Regulation CF (RegCF) Offering

The idea behind crowdfunding is that the crowd — family, friends, and fans of a small or startup company, even if they are not rich or experienced investors — can invest in that company’s securities. For a traditionally risk-averse area of law, that’s a pretty revolutionary concept.  

In order to make this leap, Congress wanted to ensure that all potential investors had access to the same information. The solution that Congress came up in the JOBS Act with was that there had to be one centralized place that an investor could access that information — the website of the funding portal or broker-dealer that hosts the crowdfunding offering (going forward we will refer to both of these as “platforms”). 

This means (with some very limited exceptions that we’ll describe below) most communications about the offering can ONLY be found on the platform. On the platform, the company can use any form of communication it likes, and can give as much information as it likes (so long as it’s not misleading). Remember that the platforms are required to have a communication channel — basically a chat or Q&A function — a place where you can discuss the offering with investors and potential investors (though you must identify yourself). That gives you the ability to control much of your message. 

So with that background in mind, we wanted to go through what you can and cannot do regarding communications prior to and during the offering. Unfortunately, there are a lot of limitations. Securities law is a highly regulated area and this is not like doing a Kickstarter campaign. Also, bear in mind this is a changing regulatory environment. We put together this guide based on existing law, the SEC’s interpretations that it put out on May 13, and numerous conversations with the SEC Staff. As the industry develops, the Staff’s positions may evolve. 

We do understand that the restrictions are in many cases counter-intuitive and don’t reflect the way people communicate these days. The problems derive from the wording of the statute as passed by Congress. The JOBS Act crowdfunding provisions are pretty stringent with respect to publicity; the SEC has “interpreted” those provisions as much as possible to give startups and small businesses more flexibility. 

What you can say before you launch your offering 

US securities laws regulate both “offers” and sales of securities; whenever you make an offer or sale of securities, that offer or sale must comply with the SEC’s rules. The SEC interprets the term “offer” very broadly and it can include activity that “conditions the market” for the offering. “Conditioning the market” is any activity that raises public interest in your company, and could include suddenly heightened levels of advertising, although regular product and service information or advertising is ok (see discussion below). 

Under new rules which went into effect on March 15, 2021, companies considering making a crowdfunding offering may “test the waters” (TTW) in order to decide whether to commit to the time and 2 expense of making an offering.1 Prior to filing the Form C with the SEC, you may make oral or written communications to find out whether investors might be interested in investing in your offering. The way in which you make these communications (eg, email, Insta, posting on a crowdfunding portal site) and the content of those communications are not limited, but the communications must state that: 

  • 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 filed and only though the platform of an intermediary (funding portal or broker-dealer); and 
  • A person’s indication of interest includes no obligation or commitment of any kind.2 

You can collect indications of interest from potential investors including name, address, phone number and/or email address. The rule does not address getting any further information, such as the manner of any potential payment. If you do make TTW communications, you must file any written communication or broadcast script as an exhibit to your Form C. And TTW communications are subject to the regular provisions of securities law that impose liability for misleading statements. 

Before the point at which you file your Form C with the SEC, the TTW process is the only way you can make any offers of securities, either publicly or privately. This would apply to meetings with potential investors, giving out any information on forums which offer “sneak peeks” or “first looks” at your offering, and public announcements about the offering. Discussions at a conference or a demo day about your intentions to do a crowdfunding offering must comply with the TTW rules and you should read out the information in the bullets above. Any non-compliant communication made prior to filing the Form C may be construed as an unregistered offer of securities made in violation of Section 5 of the Securities Act — a “Bad Act” that will prevent you from being able to use Regulation CF, Rule 506, or Regulation A in the future. 

Normal advertising of your product or service is permitted as the SEC knows you have a business to run. However, if just before the offering all of a sudden you produce five times the amount of advertising that you had previously done, the SEC might wonder whether you were doing this to stir up interest in investing in your company. If you plan to change your marketing around the time of your offering (or if you are launching your company at the same time as your RegCF offering, which often happens), it would be prudent to discuss this with your counsel so that you can confirm that your advertising is consistent with the SEC’s rules. 

Genuine conversations with friends or family about what you are planning to do and getting their help and input on your offering and how to structure it, are ok, even if those people invest later. You can’t be pitching to them as investors, though, except in compliance with the TTW rules. 

What you can say after you launch 

After you launch your offering by filing your Form C with the SEC, communications outside the platform fall into two categories: 

  • Communications that don’t mention the “terms of the offering”; and 1 We are talking here about Crowdfunding Regulation Rule 206. There is another new rule that permits testing the waters before deciding which type of exempt offering (eg, Regulation CF or Regulation A) to make, which does not preempt state regulation; using that rule may be complicated and require extensive legal advice. 2 We advise including the entirety of this wording as a legend or disclaimer in the communication in question. The convention in Regulation A is that “it it fits, the legend must be included” and if the legend doesn’t fit (eg, Twitter) the communication must include an active hyperlink to it. 3 
  • Communications that just contain “tombstone” information. 

Communications that don’t mention the terms of the offering 

We are calling these “non-terms” communications in this memo, although you can also think of them as “soft” communications. “Terms” in this context are the following: 

  • The amount of securities offered; 
  • The nature of the securities (i.e., whether they are debt or equity, common or preferred, etc.); 
  • The price of the securities; 
  • The closing date of the offering period; 
  • The use of proceeds; and 
  • The issuer’s progress towards meeting its funding target. 

There are two types of communication that fall into the non-terms category. 

First, regular communications and advertising. You can still continue to run your business as normal and there is nothing wrong with creating press releases, advertisements, newsletters and other publicity to help grow your business. If those communications don’t mention any of the terms of the offering, they are permitted. Once you’ve filed your Form C, you don’t need to worry about “conditioning the market.” You can ramp up your advertising and communications program as much as you like so long as they are genuine business advertising (e.g., typical business advertising would not mention financial performance). 

Second, and more interestingly, offering-related communications that don’t mention the terms of the offering. You can talk about the offering as long as you don’t mention the TERMS of the offering. Yes, we realize that sounds weird but it’s the way the statute (the JOBS Act) was drafted. Rather than restricting the discussion of the “offering,” which is what traditional securities lawyers would have expected, the statute restricts discussion of “terms,” and the SEC defined “terms” to mean only those six things discussed above. This means you can make any kind of communication or advertising in which you say you are doing an offering (although not WHAT you are offering; that would be a “term”) and include all sort of soft information about the company’s mission statement and how the CEO’s grandma’s work ethic inspired her drive and ambition. 

You can link to the platform’s website from such communications. But be careful about linking to any other site that contains the terms of the offering. A link (in the mind of the SEC) is an indirect communication of the terms. So linking to something that contains terms could mean that a non-terms communication becomes a tombstone communication (see below) that doesn’t comply with the tombstone rules. This applies to third-party created content as well. If a third-party journalist has written an article about how great your company is and includes terms of the offering, linking to that article is an implicit endorsement of the article and could become a statement of the company that doesn’t comply with the Tombstone rules. 

Whether you are identifying a “term” of the offering can be pretty subtle. While “We are making an offering so that all our fans can be co-owners,” might indirectly include a term because it’s hinting that you are offering equity, it’s probably ok. Try to avoid hints as to what you are offering, and just drive investors to the intermediary’s site to find out more. 

Even though non-terms communications can effectively include any information (other than terms) that you like, bear in mind that they are subject, like all communications, to the securities antifraud rules. So even though you are technically permitted to say that you anticipate launching your “Uber for Ferrets” in 4 November in a non-terms communication, if you don’t have a reasonable basis for saying that, you are in trouble for making a misleading statement. 

Tombstone communications 

A tombstone is what it sounds like — just the facts — and a very limited set of facts at that. Think of these communications as “hard” factual information. 

The specific rules under Regulation CF (RegCF) allow for “notices” limited to the following, which can be written or oral: 

  • A statement that the issuer is conducting an offering pursuant to Section 4(a)(6) of the Securities Act; 
  • The name of the intermediary through which the offering is being conducted and (in written communications) a link directing the potential investor to the intermediary’s platform; 
  • The terms of the offering (the amount of securities offered, the nature of the securities, the price of the securities, the closing date of the offering period, the intended use of proceeds, and progress made so far); and 
  • Factual information about the legal identity and business location of the issuer, limited to the name of the issuer of the security, the address, phone number, and website of the issuer, the e-mail address of a representative of the issuer and a brief description of the business of the issuer. 

These are the outer limits of what you can say. You don’t have to include all or any of the terms. You could just say “Company X has an equity crowdfunding campaign on SuperPortal — Go to www.SuperPortal.com/CompanyX to find out more.” The platform’s address is compulsory.

“Brief description of the business of the issuer” does mean brief. The rule that applies when companies are doing Initial Public Offerings (IPOs), which is the only guidance we have in this area, lets those companies describe their general business, principal products or services, and the industry segment (e.g.,for manufacturing companies, the general type of manufacturing, the principal products or classes of products and the segments in which the company conducts business). The brief description does not allow for inclusion of details about how the product works or the overall addressable market for it, and certainly not any customer endorsements. 

“Limited time and availability”-type statements may be acceptable as part of the “terms of the offering.” For example, the company might state that the offering is “only” open until the termination date, or explain that the amount of securities available is limited to the oversubscription amount. 

A few “context” or filler words might be acceptable in a tombstone notice, depending on that context. For example, the company might state that it is “pleased” to be making an offering under the newly- adopted Regulation Crowdfunding, or even refer to the fact that this is a “historic” event. Such additional wording will generally be a matter of judgement. “Check out our offering on [link]” or “Check out progress of our offering on [link]” are OK. “Our offering is making great progress on [link]” is not. Words that imply growth, success or progress (whether referring to the company or the offering) are always problematic. If you want to use a lot of additional context information, that information can be put in a “non-terms” communication that goes out at the same time and through the same means as a tombstone communication. 

The only links that can be included on a tombstone communication are links to the platform. No links to 5 reviews of the offering on Kingscrowd. No links to any press stories on Crowdfund Insider or CrowdFundBeat. No links to the company’s website. The implicit endorsement principle applies here just as with non-terms communications, meaning that anything you link to becomes a communication by the company. 

An important point with respect to tombstone notices is that while content is severely limited, medium is not. Thus, notices containing tombstone information can be posted on social media, published in newspapers, broadcast on TV, slotted into Google Ads, etc. Craft breweries might wish to publish notices on their beer coasters, and donut shops might wish to have specially printed napkins. 

What constitutes a “notice” 

It is important to note that (until we hear otherwise from the SEC) the “notice” is supposed to be a standalone communication. It can’t be attached to or embedded in other communications. That means you cannot include it on your website (as all the information on your website will probably be deemed to be part of the “notice” and it will likely fail the tombstone rule) and you cannot include it in announcements about new products — again, it will fail the tombstone rule. 

We have listed some examples of permissible communications in Exhibit A. 

Websites 

It’s a bad idea to include ANY information about the terms of the offering on your website. However, some issuers have found a clever solution: you can create a landing page that sits in front of your regular website. The landing page can include the tombstone information and two options: either investors can continue to your company’s regular webpage OR they can go to the platform to find out more about the offering on the platform. We have attached sample text for landing pages on Exhibit A. 

“Invest now” buttons 

Under the SEC’s current interpretations as we understand them, having an “invest now” button on your website with a link to the platform hosting your offering is fine although you should not mention any terms of the offering on your website unless your ENTIRE website complies with the tombstone rule. Most of them don’t. 

Social Media 

As we mention above, the medium of communication is not limited at all, even for tombstone communications. Companies can use social media to draw attention to their offerings as soon as they have filed their Form C with the SEC. Social media are subject to the same restrictions as any other communications: either don’t mention the offering terms at all or limit content to the tombstone information. 

Emails 

“Blast” emails that go out to everyone on your mailing list are subject to the same rules as social media: either don’t mention the offering terms at all or limit content to the tombstone information. Personalized emails to people you know will probably not be deemed to be advertising the terms of the offering, so you can send them, but be careful you don’t give your friends any more information than is on the platform — remember the rule about giving everyone access to the same information. 

Images 

Images are permitted in tombstone communications. However, these images also have to fit within the “tombstone” parameters. So brevity is required. Publishing a few pictures that show what the company does and how it does it is fine. An online coffee table book with hundreds of moodily-lit photos, not so much. Also, a picture tells a thousand words and those words better not be misleading. So use images only of real products actually currently produced by the company (or in planning, so long as you clearly indicate that), actual employees hard at work, genuine workspace, etc. No cash registers, or images of dollar bills or graphics showing (or implying) increase in revenues or stock price. And don’t use images you don’t have the right to use! (Also, we never thought we’d need to say this, but don’t use the SEC’s logo anywhere on your notice, or anywhere else.) 

While the “brevity” requirement doesn’t apply to non-terms communications, the rules about images not being misleading do. 

Videos 

Videos are permitted. You could have the CEO saying the tombstone information, together with video images of the company’s operations, but as with images in general, the video must comport with the tombstone rules. So “Gone with the Wind” length opuses will not work under the tombstone rule, although they are fine with non-terms communications. 

Updates and communications to alert investors that important information is available on the platform 

Updates can and should be found on the crowdfunding platform. You can use communications that don’t mention the terms of the offering, to drive readers to the platform’s site to learn about updates and things like webinars hosted on the platform. They may include links to the platform. 

Press releases 

Yes, they are permitted, but they can’t contain very much. Press releases are also laden with potential pitfalls, as we discuss below. Press releases that mention the offering terms are limited to the same “tombstone” content restrictions that apply to all notices. Companies may say that they are pleased (or even thrilled) to announce that they are making a crowdfunding offering but the usual quotes from company officers can’t be included (unless those quotes are along the lines of “ I am thrilled that Company will be making a crowdfunding offering,” or “Company is a software-as-a-service provider with offices in six states”). The “about the company” section in press releases is subject to the same restrictions and if the press release is put together by a PR outfit, watch out for any non-permitted language in the “about the PR outfit” section of the press release (nothing like “Publicity Hound Agency is happy to help companies seeking crowdfunding from everyday investors who now have the opportunity to invest in the next Facebook”). 

You could also issue non-terms press releases that state you are doing an offering (and you can identify or link to the platform) but don’t include terms and still include all the soft info, including quotes, mission statements and deep backgrounds. It’s likely, though, that journalists would call asking “So what are you offering, then?” and if you answer, you are going to make your non-terms communication into communication that fails the tombstone rule. 

Press interviews and articles 

Interviews with the media can be thorny because participation with a journalist makes the resulting 7 article a communication of the company. In fact, the SEC Staff have stated that they don’t see how interviews can easily be conducted, because even if the company personnel stick to the tombstone information (which would make for a pretty weird interview), the journalist could add non-tombstone information later, which would result in the article being a notice that didn’t comply with the tombstone rule. 

The same thing could happen with interviews where the company tries to keep the interview on a nonterms basis. The company personnel could refrain from mentioning any terms (again, it’s going to be pretty odd saying, “Yes, we are making an offering of securities but I can’t say what we are offering”), but the first thing the journalist is going to do is get the detailed terms from the company’s campaign page on the platform’s site, and again the result is that the article becomes a non-complying notice. 

These rules apply to all articles that the company “participates in.” This means that if you (or your publicists) tell the press, “Hey, take a look at the Company X crowdfunding campaign” any resulting article is probably going to result in a violation of the rules. By you. 

Links to press articles are subject to all the same rules discussed in this memo. If you link to an article, you are adopting and incorporating all the information in that article. If the article mentions the terms of the offering then you can’t link to it from a non-terms communication (such as your website) and if it includes soft non-terms information, then you can’t link to it from a tombstone communication. And if it includes misleading statements, you are now making those statements. 

Remember that prior to the launch of the offering you should not be talking about your campaign with the press (or publicly with anyone else). If you are asked about whether you are doing a campaign priorto launch you should respond with either a “no comment” or “you know companies aren’t allowed to discuss these matters.” No winking (either real or emoji-style.) 

Press articles that the company did not participate in 

In general, if you (or your publicists) didn’t participate in or suggest to a journalist that he or she write an article, it’s not your problem. You aren’t required to monitor the media or correct mistakes. However, if you were to circulate an article (or place it or a link to it on your website), then that would be subject to the rules we discuss in this memo. You can’t do indirectly what you can’t do directly. 

Also, if you add (or link to) press coverage to your campaign page on the platform’s site, you are now adopting that content, so it had better not be misleading. 

Demo Days 

Demo days and industry conferences are subject to many of the same constraints that apply to press interviews. In theory, you could limit your remarks to a statement that you are raising funds through crowdfunding, but in reality people are going to ask what you are selling. You could say “I can’t talk about that; go to SuperPortal.com,” but that would lead to more follow-up questions. And following the tombstone rules means you can’t say too much about your product, which rather undermines the whole purpose of a demo day. 

Demo days might be easier to manage when you are still in the testing-the-waters phase. 

“Ask Me Anythings” 

The only place you can do an “Ask Me Anything” (AMA) that references the terms of the offering is on the 8 platform where your offering is hosted. You can’t do AMAs on Reddit. Unless you limit the AMA to nonterms communications or tombstone information. In which case, people aren’t going to be able to ask you “anything.” 

Product and service advertising 

As we mentioned above, once you’ve filed your Form C, ordinary advertising or other communications (such as putting out an informational newsletter) can continue and can even be ramped up. Most advertising by its nature would constitute non-terms communication, so it couldn’t include references to the terms of the offering. So don’t include information about your offering in your supermarket mailer coupons. 

What about side by side communications? 

You are doubtless wondering whether you could do a non-terms Tweet and follow it immediately with a tombstone Tweet. It appears, at least for the moment, that this works. There is the possibility that if you tried to put a non-terms advertisement right next to a tombstone advertisement in print media or online, the SEC might view them collectively as one single (non-complying) “notice”. It is unclear how much time or space would need to separate communications to avoid this problem, or even whether it is a problem. 

“Can I still talk to my friends?”

Yes, you can still talk to your friends face to face at the pub (we are talking real friends, not Facebook friends, here) and even tell them that you are doing a crowdfunding offering, even before you file with the SEC. You aren’t limited to the tombstone information (man, would that be a weird conversation). After you’ve launched the offering, you can ask your friends to help spread the word (that’s the point of social media) but please do not pay them, even in beer or donuts, because that would make them paid “stock touts.” Don’t ask them to make favorable comments on the platform’s chat board either, unless they say on the chat board that they are doing so because you asked them to. If they are journalists, don’t ask them to write a favorable piece about your offering. 

“What if people email me personally with questions?” 

Best practice would be to respond “That’s a great question, Freddie. I’ve answered it here on the SuperPortal chat site [link]”. Remember the Congressional intent of having all investors have access tothe same information. 

Links 

As we’ve seen from the discussion above, you can’t link from a communication that does comply with the rule you are trying to comply with to something that doesn’t. So for example, you can’t link from a Tweet that doesn’t mention the offering terms to something that does and you can’t link from a tombstone communication to anything other than the platform’s website. 

Emoji 

Emoji are subject to antifraud provisions in exactly the same way as text or images are. The current limited range of emoji and their inability to do nuance means that the chance of emoji being misleading is heightened. Seriously people, you need to use your words. 

 

After the offering 

These limitations only last until the offering is closed. Once that happens you are free to speak freely again, so long as you don’t make any misleading statements. 

And what about platforms? 

The rules for publicity by platforms are different, and also depend on whether the platform is a broker or a portal. We have published a separate memo for them. CrowdCheck is not a law firm, the foregoing is not legal advice, and even more than usual, it is subject to change as regulatory positions evolve and the SEC Staff provide guidance in newly-adopted rules. Please contact your lawyer with respect to any of the matters discussed here. 

 

Exhibit A Sample Tombstones

  • Company X, Inc. 

[Company Logo] 

 

Company X is a large widget company based in Anywhere, U.S.A. and incorporated on July 4, 1776. We make widgets and they come in red, white, and blue. Our widgets are designed to spread patriotic cheer. 

 

We are selling common shares in our company at $17.76 a share. The minimum amount is $13,000 and the maximum amount is $50,000. The offering will remain open until July 4, 2021. 

 

This offering is being made pursuant to Section 4(a)(6) of the Securities Act. 

For additional information please visit: https://www.SuperPortal.com/companyx or Invest Button URL Link direct

  • Freddy’s Ferret Food Company is making a Regulation CF Offering of Preferred Shares on FundCrowdFund.com. Freddy’s Ferret Food Company was incorporated in Delaware in 2006 and has its principal office in Los Angeles, California. Freddy’s Ferret Food Company makes ferret food out of its four manufacturing plants located in Trenton, New Jersey. Freddy’s Ferret Food is offering up to 500,000 shares of Preferred Stock at $2 a share and the offering will remain open until February 2, 2021. For more information on the offering please go to www.fundcrowdfund.com/freddysferretfoodcompany. 

 

Sample “non-terms” communications 

  • We are doing a crowdfunding offering! We planning to Make America Great Again by selling a million extra large red hats and extra small red gloves with logos on them, and to bring jobs back to Big Bug Creek, Arizona. The more stuff we make, the greater our profits will be. We think we are poised for significant growth. Already we’ve received orders from 100,000 people in Cleveland. Invest in us TODAY, while you still can and Make Capitalism Great Again! [LINK TO PLATFORM]. 
  • Feel the “Burn”! We are making a crowdfunding offering on SuperPortal.com to raise funds to expand our hot sauce factory. Be a part of history. Small investors have been screwed for years.This is your chance to Stick it to the Man and buy securities in a business that has grown consistently for the last five years. 

 

Sample Communications on Social Media:
Note all these communications will have a link to the platform. 

 

  • Company Y has launched its crowdfunding campaign; click here to find out more. 

 

  • Interested in investing in Company Y? Click here. 

 

Sample Landing Page: 

Thanks to Regulation CF, now everyone can own shares in our company. 

 

[Button] Invest in our Company 

[Button] Continue to our Website

 

CrowdCheck is not a law firm, the foregoing is not legal advice, and even more than usual, it is subject to change as regulatory positions evolve and the SEC Staff provide guidance in newly-adopted rules. Please contact your lawyer with respect to any of the matters discussed here.

My Company is Based in Canada: Can I Use RegCF to Raise Capital?

Recently, we received a question from an issuer, asking if Canadian companies can use RegCF to raise capital. We believe that education is an essential part of the capital raising process, so don’t hesitate to reach out to our team with any questions that could help you along your capital raising journey.

 

Crowdfunding is a popular way for small businesses, startups, and entrepreneurs to raise capital without necessarily needing the support of venture capitalists or angel investors. Regulation Crowdfunding (RegCF) provides an avenue for companies to legally raise capital through equity crowdfunding in the United States and is regulated by the Securities and Exchange Commission (SEC). 

 

Although RegCF is available to US companies, many Canadian companies have questions regarding whether they can also use this exemption to raise capital. This article will answer those questions and provide insight into the legal requirements and structures that work for Canadian companies.

 

Legal Requirements for Raising Capital Through RegCF in Canada

 

In short, the answer is yes, Canadian companies can use RegCF. However, certain requirements must be met for a company outside of the U.S. to take raise capital through this exemption.

 

The main legal requirement is that the company must establish a US entity, such as a corporation or a limited liability company (LLC), which will be managed from within the U.S. The SEC states that “the issuer’s officers, partners, or managers must primarily direct, control, and coordinate its activities from the U.S., and its principal place of business must be in the U.S.”

 

It is also recommended that Canadian companies considering using RegCF to raise capital should provide evidence of their plans to engage the US market. This could include investing in marketing and advertising initiatives, setting up offices or physical locations within the US, hiring personnel from the US, etc.

 

Using RegCF in Canada

 

There are a few different ways that Canadian businesses approach a RegCF offering. One option is to create a wholly-owned subsidiary in the United States that will operate the business and raise funds through RegCF. This subsidiary must have its own business plan and financials, and cannot simply be a shell company. Alternatively, Canadian companies can create a US-based holding company that will own the Canadian entity and operate the business in both countries. This structure can be beneficial for companies looking to expand their operations into the US market while also raising capital from US-based investors. Canadian companies can also create a new US-based company that licenses the product or service of the Canadian company. 

 

Ultimately, a Canadian company seeking to raise capital using RegCF must create a US-based entity with a primary place of business in the US. The company raising capital cannot simply be a shell company that directs capital raised back to the parent company.

 

Alternatives for Canadian Companies

 

There are several other options for raising capital for Canadian companies that cannot or do not wish to use RegCF. These include traditional venture capital and angel investing, as well as debt financing from banks and other lenders. Additionally, many Canadian provinces have their own provincial securities commissions that offer exemptions from the registration requirements for businesses looking to raise funds from investors within their jurisdiction. But because of RegCF’s benefits of allowing companies to advertise offerings, as well as its low minimum investment requirements, it is certainly worth considering for Canadian businesses looking to raise capital.

 

Deciding whether or not to use RegCF for a Canadian company is ultimately a decision that should be made on a case-by-case basis. Although US securities laws may present some additional regulations, there are many benefits to using this platform if it is done properly. The ability to access capital from a larger pool of investors, as well as the streamlined process of RegCF, can make it an attractive option for Canadian businesses looking to raise funds.  Ultimately, Canadian companies should discuss their capital raising options with a securities attorney if they have questions about the process and their options.

Small Businesses Need Capital

Small businesses are essential to the economic well-being of a country, but unfortunately, many find it challenging to obtain the capital they need. It is expensive to access the public capital markets at the best of times, but in times of economic hardship and uncertainty,  traditional financing options become especially scarce as well. Fortunately, private capital markets have emerged as a viable and advantageous solution for small businesses to raise the funds they need to grow, sustain jobs, and contribute to their communities. 

 

Raising Capital is Expensive

 

Small businesses are often faced with tedious and expensive processes when trying to access traditional capital sources. Raising capital for companies when going public compared to private can be expensive and complicated. The costs associated with this type of fund-raising include:

 

  • Underwriting fees
  • Exchange listing fees to launch on the stock exchange or other public markets
  • Professional fees for attorneys, accountants, and other financial advisors
  • Printing and distribution costs for prospectus and registration statements
  • Costs associated with filing regulatory paperwork such as the SEC Form S-1

 

These costs can add up, and the process of going public is also typically long and complicated, requiring a great deal of time and energy from company founders. In addition, many banks impose strict guidelines limiting the amount of capital small business owners can borrow, and it might not be enough to cover the cost of going public.  For small startups especially, the possibility of going public may be decades away, if it exists at all. For organizations that need to raise capital more immediately, the private market is a much more viable option than raising capital publicly.

 

The Solution: Private Capital Markets

 

Fortunately, private capital markets provide a viable solution for small businesses during tough economic times. With private businesses able to use JOBS Act regulations like RegA+, RegD, and RegCF to raise millions in capital from accredited and nonaccredited investors, they need not rely on traditional lenders. The cost of raising capital privately using JOBS Act regulations compared to taking a company public is significantly lower. This is because:

 

  • Although there are still securities regulations to protect investors, the reporting requirements are much lower and less costly.
  • Private capital markets avoid the lengthy legal process involved in taking a company public, thereby saving time and legal fees.
  • Private capital markets offer more flexibility than traditional financing sources, allowing businesses to craft more creative and advantageous terms for the capital they need.

 

This makes it easier for small businesses to access the funds they need without having to worry about high costs and long wait times. Furthermore, leveraging private capital markets provides an opportunity for small business owners to cultivate relationships with investors who can provide valuable insights and advice that they may not be able to access through traditional lenders. And that can open more doors.

Approaching the 11th Anniversary of the JOBS Act

Eleven years ago, the Jumpstart Our Business Startups (JOBS) Act was signed into law in a White House Rose Garden ceremony. Looking back on this landmark legislation, we see its impact has been far-reaching. From increased access to capital for small businesses to the rise of new markets for investment opportunities, the JOBS Act has reshaped how companies raise funds and spur economic growth. In 2022, $150.9 B was raised through Regulations A+, CF, and D, showcasing the tremendous power of these regulations for companies. As we mark the 11th anniversary of this game-changing law, let’s look at what it has accomplished and how it is (still) changing the capital formation landscape.

 

David Wield: The Father of the JOBS Act

 

David Weild IV is a veteran Wall Street executive and advisor to U.S. and international capital markets. He has become well known as a champion of small business as the “Father of the JOBS Act”. Signed into law by President Barack Obama in April 2012, the Jumpstart Our Business Startups (JOBS) Act has opened up access to capital markets, giving small businesses and startups the ability to raise money from a much larger pool of investors. Wield has remarked that this was not a political action; it was signed in “an incredibly bipartisan fashion, which is really a departure from what we’ve generally seen. It actually increases economic activity. It’s good for poor people, good for rich people. And it adds to the US Treasury”.

 

As such, Weild is seen as a leading figure in the JOBS Act movement, inspiring the startup community to break down barriers and build the future. He has helped make it easier for companies to become public, empowering a new generation of entrepreneurs looking to start or grow their businesses. Furthermore, Weild’s efforts have allowed more investors to participate in capital markets.

 

Benefitting from the JOBS Act

 

At the inception of the JOBS Act in 2012, non-accredited investors were only allowed to invest up to $2,000 or 5% of their net worth per year. This was designed to protect non-accredited investors from taking on too much risk by investing in startups, as these investments would likely be high risk and high reward. Since then, the JOBS Act has expanded to allow non-accredited investors to invest up to 10% of their net worth or $107,000 per year in startups and private placements.  

 

For companies they were initially allowed to raise:

 

  • Up to $50 million in RegA+ offerings
  • $1 million through crowdfunding (RegCF)
  • Unlimited capital from accredited investors under RegD

 

These numbers have grown significantly since 2012, with:

 

  • Reg A allowing $75 million to be raised
  • Reg CF allowing $5 million to be raised

 

These rules have opened the door for startups to access large amounts of capital that otherwise may not have been available to them. This has allowed more companies to grow, innovate and create jobs in the U.S.

 

How Much has Been Raised with JOBS Act Regulations?

 

The JOBS Act regulations have revolutionized how capital is raised by companies and how investors access new markets. According to Crowdfund Insider, companies have raised:

 

  • $1.8 Billion from July 2021 to June 2022 with RegA+
  • $2.3 trillion with RegD 506(B)
  • $148 trillion with RegD 506(C)
  • $506.7 million with RegCF

 

Since its formation in 2012, the JOBS Act has opened up a variety of avenues for entrepreneurs to access capital. The exempt offering ecosystem has allowed innovators to raise large sums of money with relatively fewer requirements than a traditional public offering, while still requiring compliance and offering investors protection. This has enabled companies to stay in business and grow, allowing the US economy to remain competitive on the global stage.

 

Insights from Industry Leaders

 

Expanding the discussion about capital formation, KoreConX launched its podcast series, KoreTalkX in April 2022. Through this platform, we’ve hosted many thought leaders and experts to share their insights on capital-raising strategies and compliance regulations. Guests have included renowned thought leaders including David Weild, Jason Fishman, Shari Noonan, Joel Steinmetz, Jonny Price, Douglas Ruark, Sara Hanks, and many others. Each of these episodes has explored topics in-depth to provide entrepreneurs with the tools they need to be successful when raising capital from investors.

7 Things You Need to Raise Capital Online in 2023

. ising capital online can be a great way to a vast pool of potential investors. With the JOBS Act exemptions and many online funding portals available, it’s easier than ever to get started. Here are 7 Things You Need to Raise Capital Online in 2023.

 

1. Know Your Options

 

From Regulation D 506(c) offerings to RegCF and RegA+ offerings, it’s important to understand the differences between them. Each option has different requirements for time, cost, and resources. Plan accordingly for whatever option you choose by considering the trade-offs. Many issuers start with a RegD, then move on to a RegCF, and then a RegA+ because of the costs and compliance efforts required with each exemption.

 

2. Plan for a Higher Cost of Capital

 

Raising capital can be expensive. Especially when doing so online, you should plan on paying more than you usually would because of the additional costs associated with marketing, platform fees for using a crowdfunding platform, etc. These costs, along with fees for broker-dealers and legal counsel, can add up quickly, but understanding the potential costs will help you to plan accordingly. While raising capital online will cost more than a brokered or VC deal, you will retain greater ownership and control and suffer from less dilution, which may be a valuable tradeoff.

 

3. Find the Best Online Capital-Raising Platform

 

Before you embark on your journey to raise capital online, you need to find the right platform for your needs. You will want to make sure that you are working with the best platform possible. The first step is to do your research and find out which platform suits you best. You should look into the fees each platform charges, their customer service ratings, and whether or not they have any special features such as automated investing tools or portfolios with pre-set risk profiles.


Be wary of platforms that promise unrealistic returns or make promises about how easy it will be to raise capital in a short amount of time. Seek out platforms that have built up a good reputation and are transparent with their fees and services. Platforms do not raise money for you. Be sure to have a clear strategy in place before you launch your capital-raising campaign, and do not use a platform that promises too much. You can explore the list of FINRA-regulated funding platforms
here.

 

4. You’re Responsible for Marketing

 

You’ll need to craft an effective message and have the resources available to get it out there – whether that’s through social media, email campaigns, print ads, or other forms of advertising.  When you sign up for a capital raising platform, they do not help you with marketing or getting investors. This is left up to your organization or you can hire a marketing firm that is experienced in marketing for online capital raises. Ensure you know your target market and audience so that your message resonates with the right people who will invest in your cause or project. Researching trends in the current market can help you refine your strategy over time as well. Focus on building relationships with potential investors by providing value upfront before asking them for anything monetary related – this can go far towards building trust and credibility between both parties when marketing for your capital raise.

 

5. Launch with an Announcement and Target Multiple Investors

 

Announce the closing of your last smaller raise and its success when launching your next round. You can create a sense of urgency that will attract investors and help drive interest in your offering. This proven strategy can be rinsed and repeated as often as needed (though it can be overdone, and your audience will eventually catch on that this isn’t really the last chance to invest). Another way to maximize your chances for success when raising capital online is to target multiple investor types. While it’s important to target self-directed investors online, you can also retain marketing partners to reach out to family offices and institutional investors. By targeting multiple investor types simultaneously, you’ll improve your chances of raising more capital.

 

6. Focus on Marketing and Platforms

 

It is essential to have a well-structured marketing plan. That will help you reach your target audience and create awareness of your offering. It’s also important to focus on choosing the right platform for your capital-raising efforts. Consider your capital-raising goals, the platform you plan to use to meet those goals, and the availability of resources to help you achieve success. Will your campaign primarily use affinity marketing? Or will you utilize tools such as advertising, email campaigns, and social media?

 

7. Get a Valuation Report and a Securities Attorney

 

During the process of raising capital online, understand the value of your assets and make sure that you are compliant with security laws. A 3rd-party valuation report can give you a better understanding of your company’s worth and help inform investors about its potential. These reports are available from many reputable firms, and retaining one can help you to make a more convincing case for the worth of your company. It is also essential to hire a securities attorney to ensure you comply with JOBS Act exemptions. Without a lawyer experienced in securities law on your side, you could be risking legal violations and hefty fines.

 

5 Tips for Frictionless Capital Raising

Raising capital can be a tricky process. Fortunately, with the JOBS Act and its exemptions from SEC registration under RegA+, RegCF, or RegD, entrepreneurs can now access capital raising 24/7/365. Here are five tips to help you make the most of this opportunity and enjoy frictionless capital raising.

Use Mobile Apps for Online Investments

Mobile apps are becoming an increasingly popular way to access capital markets and make investments online. When a company raises capital under a JOBS Act exemption, a mobile app can streamline the investment process for investors. For example, the KoreID Mobile App allows investors to manage current and pending investments and reinvest with ease. KoreID allows investors to securely manage their personal information so that they don’t have to reenter the same information each time they go to invest.

Utilize Affinity Marketing

What better way to raise capital than to leverage your existing network of customers? Customers that align with your company’s mission and values can become powerful brand ambassadors when they invest. This type of marketing also helps give potential investors a sense of trust and familiarity, which can be invaluable when it comes to securing investments. By utilizing affinity marketing, you can easily create an affinity network and unlock new capital-raising opportunities.

Seek the Crowd

Over the last year, the amount of venture capital funding has dropped significantly. Instead, online capital formation facilitated by the JOBS Act has become a powerful player in the private capital market. RegA+ and RegCF allow companies to raise capital from the general public, creating a wider pool of potential investors. And, since online capital raising is open 24/7/365, these sources of capital can be a valuable alternative to traditional funding routes.

Have a Plan and Tailor Your Pitch

Before you even consider approaching potential investors, you should always have an airtight business plan in place. This includes your stated objectives, financial projections, and any other details that provide an in-depth look into your venture. Once you’ve mapped out the specifics of your venture, it’s time to start crafting a tailored pitch that resonates with potential investors. Creating a compelling presentation with the right balance of facts, figures, and storytelling can help draw investors in and establish trust. Think about the investors you are pitching to and tailor your pitch accordingly. Are they venture capitalists and angel investors? Or are you targeting family and friends or seeking equity crowdfunding? Each type of investor has different requirements, so it’s key to understand who you are pitching to and adjust your strategy accordingly. Regardless of who you’re targeting, it’s vital that you fully understand your business plan, because investors will ask you questions that a memorized sales pitch might not answer adequately. By doing this, you can ensure that the capital-raising process is as seamless as possible.

Prioritize Compliance

When raising capital, adhering to securities regulations is essential for success. While there are many components to compliance, using a broker-dealer is one of the first things that any company should consider when raising capital. Broker-dealers can also help you navigate the complexities of securities regulations. By selecting an experienced and reliable broker-dealer, you’ll have peace of mind knowing that the process is compliant and secure. With these raises sometimes having thousands of investors on a cap table, you want to be sure that your investors are managed properly and that your raise is in compliance with the law.

Raising capital for your venture doesn’t have to be a daunting task. By following these five tips for frictionless capital raising, you can make the process as smooth as possible so you can be well on your way to securing the funds needed for growth. 

 

Seeking Opportunities in Times of Crisis

The collapse of Silicon Valley Bank has sent shockwaves through the financial sector, sending bank stocks plummeting, heightening stresses, and leaving many people with feelings of anxiety and uncertainty about the future. However, amidst this chaos lies a unique opportunity to innovate and create jobs, which can stand as a shining message of hope. We see this as a time for ingenuity and entrepreneurial spirit to uncover a unique solution to this crisis and serve as the spark that sets off further development in the sector. This blog will discuss how opportunity and crisis are closely linked, showcasing the potential for businesses to use this moment of disruption as a chance for growth and renewal.

The Innovation Opportunity

 

When crises arise, they can often be overwhelming and unsettling. But, in times like these also lies a unique opportunity for entrepreneurs to shine, by innovating solutions that meet the challenges of the moment. This is an opportune time for businesses to:

 

  • Make a meaningful difference.
  • Find creative solutions to problems.
  • Identify new markets for their services.
  • Develop products that can meet the unique needs of those affected by this crisis.
  • Offer creative solutions that can help bring stability and growth back to the sector.

 

When businesses take advantage of these types of opportunities, it can result in job growth and increased economic activity. But, to take advantage of this opportunity, companies need access to capital that can fund innovation and job creation. Fortunately, RegA+ and RegCF exist to fund businesses. And because retail investors can make investments into companies through these JOBS Act exemptions, it provides companies a source of capital even if there is decreased venture capital or private equity activity.

 

Raising Capital During a Crisis

 

In times of crisis and disruption, finding capital can also be difficult. This is especially true for start-ups that do not have access to the same resources as large businesses. Fortunately, there is a range of ways that companies can raise capital, such as through RegA+, and RegCF

 

Through RegA+, companies can raise up to $75 million from both accredited and nonaccredited investors. And since it offers companies the ability to turn current customers into investors and brand ambassadors, the exemption 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.

 

Like RegA+, RegCF allows both accredited and nonaccredited investors to invest in the offering. However, offerings are limited to a maximum of $5 million per year. Compared to other regulations, Reg CF is one of the most popular due to its lower cost and ease of implementation. 

 

These options offer companies a way to raise capital to fund innovation, job growth, and other related activities when traditional means might be less available.

 

The collapse of Silicon Valley Bank has sent shockwaves throughout the financial sector. But despite times of crisis like this, entrepreneurs can find unique solutions and opportunities to innovate, create new jobs, and make a meaningful difference. By seeking creative solutions that are tailored to the unique needs of those affected by this crisis, entrepreneurs have the potential to help bring stability and growth back to the sector. In addition, through access to capital through the JOBS Act, businesses can have the resources necessary to fund their growth during a time of disruption. All-in-all, the opportunity is closely linked with times of crisis, providing companies and entrepreneurs with a unique chance for growth and renewal.

What is Affinity Marketing?

Affinity marketing is an effective way to increase brand recognition and reach a larger target audience, especially when it comes to raising capital. By leveraging existing connections with customers, companies can improve their visibility and attract more investors. With the right strategy and tools, affinity marketing can be a powerful tool for businesses looking to expand their customer base and create trust between parties. 

 

Affinity marketing is a type of marketing strategy that focuses on creating relationships between a company and its customer base. This connection could be due to things like shared values, such as environmental sustainability or ethical labor practices. The main goal of this approach is to create loyalty and increase brand recognition. The idea behind affinity marketing is that a brand can appeal to an audience that is connected by brand loyalty, shared values, or other aspects that would make them like to make a purchase, return as a customer, or even become investors. 

 

Using the JOBS Act and Affinity Marketing

 

With Regulations A+ and CF, affinity marketing is an effective way to raise capital. By leveraging existing connections with customers, companies can reach a larger target audience and increase their chances of success. When beginning new capital-raising efforts, affinity marketing promotes a sense of trust and credibility.

 

Whether you have had several raises in the past or this is your first capital raise, affinity marketing is an effective way to reach a larger target audience. Leveraging your existing connections can help you gain exposure and attract more investors because people trust the brands they already know. By leveraging this group of investors, you can improve the visibility of your company and reach a larger pool by utilizing these people as a type of brand ambassador for your marketing.

 

Tips For Implementing Affinity Marketing Effectively

 

When implementing an affinity marketing strategy, there are certain steps you should take to ensure success. Here are some tips for using this type of marketing effectively:

 

Identify your target audience: Identify a customer base that shares similar values or had displayed brand loyalty. This will help you create a more tailored marketing plan that is specific to the target audience.

 

Set clear objectives and goals: Setting clear, measurable objectives and goals will help ensure that your affinity marketing strategy is successful. It will also allow you to track progress and make necessary adjustments as needed.

 

Communicate with your partner: Establishing a strong relationship with your affinity marketing partner, like an investor acquisition firm, is essential for success. Communicating regularly and discussing expectations, challenges, and successes will help foster collaboration and ensure successful outcomes.

 

Measure results: Tracking metrics such as customer acquisition rate, customer engagement rate, or return on investment (ROI) is important to determine the success of your affinity marketing strategy.

 

Affinity marketing is an effective way to increase brand recognition and reach a larger target audience. Especially when raising capital. By leveraging existing connections with customers, companies can reach more potential investors and create trust between parties. Additionally, tracking specific metrics can help measure success and ensure that you are meeting your goals. With the right strategy and tools, affinity marketing can be an effective way to increase brand visibility and reach a larger pool of investors.

 

Addressing the Decrease in VC Funding to Women-Led Startups

In recent years, the number of female entrepreneurs has grown exponentially. Many women have decided to turn their business ideas into reality. Others have leveraged the resources available to expand an existing business. Despite data suggesting that female-led startups outperform male-led startups, studies have shown that women-led startups only received 1.9% or around $4.5 billion of the total venture capital allocated in 2022, a startling statistic when $238.3 billion was raised from VC investments according to PitchBook, a decline from 2.4% the previous year. The gender gap in VC funding to women-led startups has become more pronounced.

 

What are the Causes of this Gender Gap?

 

Various factors cause the gender gap in venture capital (VC) funding, but most importantly it’s due to an overall lack of access to resources, networks, and mentors that can help female entrepreneurs succeed. Male investors dominate most venture capital firms, making it difficult for women to receive funding. Furthermore, women are not as well-represented in the technology industry. That is a key factor in obtaining VC investments due to the high growth potential of tech companies.

 

How Does This Affect Female Entrepreneurs?

 

The gender gap in VC funding can have a huge negative impact on the success of female entrepreneurs. Without adequate startup capital, developing a successful business and scaling it to profitability is difficult. This is especially true compared to male-led startups that receive more access to resources that can help foster growth.  And it’s a vicious circle. Less investment in woman-run companies makes it harder for them to succeed, which feeds the perception that they’re not good investments. With a drop in the female-owned businesses in VC funds, alternative means of capital raising like RegA+ and RegCF offer female entrepreneurs a chance to access the capital they need.

 

The Benefits of Alternative Capital Raising Options for Women-led Startups

 

With VC funding becoming increasingly difficult to attain, there are other options that female entrepreneurs can tap into to secure the resources needed for their companies. RegA+ and RegCF offer two alternatives that allow private companies to raise capital through more accessible means.

 

Regulation A+ is a type of private offering, exempt from SEC reporting requirements, that allows companies to raise up to $75 million from accredited and non-accredited investors. This makes it an attractive option for female entrepreneurs looking for significant sources of capital. Regulation Crowdfunding allows companies to raise up to $5 million from both accredited and non-accredited investors as well. The main advantage of this type of capital raising is that it is typically more cost-effective than a RegA+ raise. For early-stage companies, it is the ideal option.

 

What Can Female Entrepreneurs Do To Combat this Gender Gap?

 

The best way for female entrepreneurs to fight the gender gap in VC funding is by taking advantage of alternative capital-raising options. By utilizing RegA+ and RegCF, female entrepreneurs gain access to much-needed resources to launch their businesses and scale them. Additionally, female entrepreneurs need to continue networking with potential investors and other entrepreneurs to build their own trust networks. By leveraging the power of these networks, female entrepreneurs can gain access to capital from a diverse pool of investors.

Overall, the gender gap in venture capital funding is an issue that needs to be addressed and overcome by women-led companies. Regulation A+ and Regulation Crowdfunding offer two viable solutions for female entrepreneurs to gain access to the resources they need.

To sum up: With these capital-raising options, female entrepreneurs can take their businesses to the next level.

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.

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

 

How is Equity Crowdfunding Different Than Kickstarter?

Kickstarter and equity crowdfunding are two different ways to raise money for a project or venture. Kickstarter is a platform where people can donate money to projects in exchange for rewards, such as early access to the product or a copy of the finished product. Equity crowdfunding, on the other hand, allows people to invest in a company or project in exchange for a percentage of ownership in that company or project and has raised over a billion since it was introduced. But what are their differences and similarities, and how do you ensure your crowdfunding platform is compliant?

 

A Unique Way to Raise Money: Kickstarter Vs. Equity Crowdfunding

 

Kickstarter is a crowdfunding platform that allows people to donate money to projects in exchange for rewards. The project creator sets a fundraising goal and a deadline, and if the goal is reached, the project receives the funding. Rewards can be anything from early access to the product or a copy of the finished product. Kickstarter is an all-or-nothing platform, meaning that if the project doesn’t reach its fundraising goal, the project creator doesn’t receive any of the money.

 

On the other hand, equity crowdfunding is a way for people to invest in a company or project in exchange for a percentage of ownership in that company. Equity crowdfunding is different from Kickstarter in a few ways. First, with equity crowdfunding, investors are actually investing in the company, rather than just donating money. Second, equity crowdfunding is not an all-or-nothing platform. Even if a company or project doesn’t reach its fundraising goal, the issuer still receives the money that was raised.

 

If you are trying to choose between the two platforms, it is crucial to consider your goals. If you are looking for a way to raise an amount of money quickly without giving up a percentage of your company, Kickstarter may be the better option. This is because of the all-or-nothing nature of Kickstarter, which means that you either reach your fundraising goal and receive the money, or you don’t receive any money and do not need to pay a fee.

 

However, if you are looking to raise millions of dollars while gaining not only investors but brand ambassadors, equity crowdfunding may be the better option. This is because, with equity crowdfunding, people are actually investing in your company and will want to see it succeed. Additionally, even if you don’t reach your fundraising goal, you will still receive the money that was raised, which can be used to continue growing your company.

 

Ensuring Your Crowdfunding Platform Is Compliant

 

If you are using a crowdfunding platform, it is important to ensure that the platform is compliant with securities laws, especially when it comes to equity crowdfunding. This means that the platform follows all the rules and regulations set by the government. To ensure the equity crowdfunding platform you use is compliant you to consider:

 

  • Does the company actually exist?
  • Has the SEC approved these securities?
  • Have they been filed with the board of directors?

 

Knowing who and who is not doing this is often difficult to determine from the outside. If you are an investor, you look at the actual filing from the company to understand what the company has filed for and its ongoing obligations.

 

If you are looking for a quick way to raise money without giving up equity in your company, Kickstarter may be the better option. However, if you are looking to raise money and gain investors, equity crowdfunding may be the better option. Additionally, it is important to ensure that the platform you are using is compliant with all the rules and regulations set by the government, whether you are raising capital or you are an investor.

How Much Can I Invest in a Company with RegCF?

As Regulation Crowdfunding offerings continue to grow in popularity, more and more investors are looking to get involved. RegCF gives investors the ability to invest smaller amounts of money into early-stage companies as non-accredited investors. This is why investors put $1.1 billion into RegCF offerings in 2021 and this is predicted to double in 2022. But what exactly is Regulation Crowdfunding? And how much can you invest in a RegCF offering?

 

Why Invest in RegCF?

Reg CF allows you to invest in some of the newest and most innovative companies. This is because early-stage startups often have a difficult time accessing traditional forms of funding, such as venture capital. Other offerings have fairly large minimum investment amounts, which non-accredited investors might have trouble affording (since this prime directive of investing is never to invest more than you can afford to lose). This traditional approach to capital raising meant that only wealthy investors could afford to participate.

 

Since RegCF is specifically set up around the crowdfunding paradigm, the minimum investment amount is more affordable to more people. This is why in 2021 over 540,000 investors put their money into over 1,500 Reg CF offerings, double the number of offerings in 2019 and 2020 combined. This showcases the clear and continued interest in this type of investment from the public.

 

Investing in a RegCF Raise

Regulation Crowdfunding is a process through which companies can offer and sell securities to the general public. This process was created by the JOBS Act, and it allows companies to raise up to $5 million per year from non-accredited investors. So what does this mean for investors? Well, basically, it means that you have the opportunity to invest in some of the newest and most exciting startups, even if you’re not an accredited investor. And while you can’t sell your shares for the first year, there are several other benefits of investing in a RegCF company, but you must be aware of how much you can invest before doing so. Because of the inherent risk of investing, the SEC has placed limits on how much nonaccredited investors can invest within any 12-month period.

 

In a 12-month period, nonaccredited investors are limited in the amount they can invest in a RegCF offering. This limit is based on the investor’s annual income or net worth, whichever is greater. If an investor’s annual income or net worth is less than $124,000, then the investor can invest up to the greater of $2,500 or 5% of the greater of their annual income or net worth. If both an investor’s annual income and net worth are more than $124,000, then the investor can invest up to 10% of their annual income or net worth, whichever is greater. However, the total amount invested in RegCF offerings during a 12-month period cannot exceed $124,000.

 

Accredited investors have no limit to how much they can invest in RegCF offerings and are defined as individuals that meet at least one of the following criteria:

  • Annual income greater than $200,000 (or $300,000 with a spouse or spousal equivalent);
  • Net worth of over $1 million (with or without a spouse and excluding the value of the individual’s primary residence);
  • OR holds certain professional certifications, designations, or credentials in good standing, including a Series 7, 65, or 82 license.

 

Calculating Net Worth

To determine how much an individual can invest in securities through crowdfunding, it is vital to understand how Regulation Crowdfunding defines net worth. There are a few ways to calculate net worth, but the most common is to add up all your assets and subtract all your liabilities, according to the SEC. The value of an individual’s primary residence is not included in the calculation of their net worth, and neither is any loan against the residence up to its fair market value. Any increase in the loan amount in the 60 days before the purchase of securities will also be disregarded, to prevent artificially inflated net worth.

 

For joint calculations, you can also determine your combined net worth or annual income by adding your spouse’s income and assets to the calculation, even if the assets are not owned jointly. In these cases, the maximum investment cannot exceed that of an individual with the same net worth. 

 

Once you understand how much you can invest, the only thing left is to do your due diligence! You’ll want to review the provided disclosures so that you can get the full picture of the investment’s risk to ensure it aligns with your level of risk tolerance. 

KoreClient Spotlight: Live Retail

There are about 5.5 million businesses that operate in the U.S. under the license of a brand, typically franchises like McDonald’s or 7-11 and even real estate groups like Century 21. Because of the nature of the franchise, advertising must follow corporate guidelines and be pre-approved, a process that can be costly and time-consuming for franchisees. In addition, many small franchisees can be faced with budgetary constraints that make the process even more challenging.

 

Founder and Chief Strategy Officer of LiveTechnology Holdings, Wayne Reuvers, described the typical process: “Branded entities and businesses selling branded products account for about $133 billion in media spend every year in the US. If I’m a Nissan [dealership] and I want corporate to support me, I have to build the ads, I pay an agency a fortune, it goes through the approval process and most get rejected, and then it turns around and I can run the ad.”

 

This is where LiveRetail comes in. Offering a free platform for these businesses to easily create and run compliant ads, LiveRetail removes this barrier by helping franchise locations drive higher sales, beating industry benchmarks consistently. Each location benefits from personalized creatives and messaging to effectively reach the target audience.

 

“We’ve turned this entire model on its head. We built a technology that allows us to onboard an entire brand – all of their stores, the brand details, the brand guidelines, the color, the items they want to promote, and everything else – in under four hours”, said Reuvers. Once this process is complete, LiveRetail can easily build a campaign for all the entities, prebuilding an ad for every product using the platform’s CreativeMatrix feature. The ads, compliant with brand guidelines, are sent to local entities. The ads can be posted for free on social media or can be run as ads using the hyper-targeted campaign that LiveRetail develops.

 

“Those who manage or run a franchise, whether they’re an owner or an operator, do not have time to build ads and the cost of getting a local entity to build ads is $400 to $4,000 but they still need to be brand compliant. We get rid of that by providing all the ads free to the entity, ready to run, and they look more professional than hiring a local agency. We remove the biggest barrier to small to medium-sized advertising spend on the internet, which is the cost of producing ads,” said Reuvers.

 

Within two clicks, a franchisee can share an ad on social media platforms like Facebook. They also have the option to subscribe to weekly posts on social media or run the creative as a paid ad. Paid ads can be sent to a hyper-targeted audience, ensuring it is seen by people most interested in the product or service being advertised. This is a game-changer for local franchises.

 

The company is using RegCF to raise capital, and one of the most attractive aspects of the exemption was the number of small business owners and entrepreneurs who are investors. They hope to develop strong relationships with the company’s investors, who in turn have the potential to be powerful brand advocates.

 

Seeking to simplify the creative process behind marketing, LiveRetail is creating innovative technologies aimed at reducing the cost and brand compliance burden for small franchisees and other branded entities. In turn, this will help these businesses drive more traffic to their stores and generate business.

 

___________________

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: Tech Chain Software

The trucking industry in the United States is a vital part of the economy, responsible for transporting trillions of dollars worth of goods each year. However, it is also an industry that has been plagued by inefficiencies and low productivity for many years. This is where Tech Chain Software and their ResQ TRX app come in, changing the game for truckers across the US.

 

The ResQ TRX app from Tech Chain Software is designed to help truckers be more efficient and productive, while also reducing downtime. It streamlines the entire repair process, allowing drivers, owners, and fleet managers to request and approve service, monitor vehicle and repair status, and send payments all through the app. This makes it easier and faster for truckers to get their trucks repaired, reducing downtime and helping the industry as a whole run more smoothly. By connecting trucking companies to dedicated services, ResQ TRX also provides new business to the service companies that keep America moving. This makes it a win-win for both truckers and the industry as a whole. Telha Ghanchi, the founder and CEO of Tech Chain Software, is passionate about helping and serving truckers, and ResQ TRX is his company’s way of doing just that.

 

As the owner of a small trucking company himself, he knows firsthand the pain that truck drivers and owners go through when a truck goes down. That’s why he created ResQ TRX, to make it an easier and more efficient process for all involved. From the smallest owner-operator to the largest fleets and logistics companies, ResQ TRX is changing the game for how trucking companies do business. The app helps truckers stay on the road by providing them with access to rescue trucks, mechanics, and other resources when they break down. Additionally, Reg CF benefits the company by allowing them to transform investors into brand ambassadors that truly believe in the company and its vision.

 

Mega carriers make up only a small fraction of the companies in the industry and have access to mega repair centers if their trucks break down. However, since the majority of the industry is made up of small businesses, they are often left relying on Google to find the help they need when their truck breaks down. And in remote places, especially in the US, you need to sometimes look miles away to find a mobile mechanic who can look at the project. Since many truck drivers don’t carry the cash on hand to pay for the services, payment is a significant issue at these times as well as the trust of not knowing the job that the person is going to do to fix your truck. 

 

“Every ten minutes you are late on a delivery it snowballs to how much the consumer pays. If you had three trucks and one of them breaks down you are losing 33% of your business,” said Ghanchi. With the trucking industry relying on invoices to be paid about 90 days after delivery, keeping operations afloat can be tricky when a truck is out of commission. This ultimately affects company owners, customers, and employees who rely on the shipment to be made on time.

 

As the market continues to grow, Ghanchi sees this as having a positive effect on truck drivers. A larger repair market will enhance repair service competition, allowing truck drivers to receive better repair pricing. Additionally, the company hopes to offer its debt function, with which the company will loan out the repair cost, allowing ResQ TRX to pay the mechanic and get the work done much faster to get back on the road instead of saving up money to fix this. This is one way they see they can make a huge impact on the industry. “If the truck is running the cash is rolling and they will have money to pay for [the loan],” said Ghanchi. “Our goal is to lower overall downtime in the trucking industry. We are also working with local trade schools to increase the capacity and mechanics of blue-collar workers. Mechanic shops can not take in more work without the resources so we are helping both sides, both the truckers to get their trucks back on the road quickly so they don’t go out of business and the mechanics so they can better serve this industry through ResQ TRX’s innovative solution.” 

 

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.

What is the Role of FINRA?

When it comes to investment, there are a lot of things to think about. You want to make sure that you’re making smart decisions with your money, and that you’re not being taken advantage of. That’s where the Financial Industry Regulatory Authority (FINRA) comes in. FINRA is an independent regulator for securities firms, and its job is to make sure that all firms operate fairly and honestly, and that investors are protected–giving investors confidence in the legitimacy of their investment while holding securities companies to a high standard. Keep reading to learn more about the role of FINRA and how they help to protect investors.

 

What is FINRA?

 

FINRA is a not-for-profit regulatory organization authorized by the US Congress to protect investors. FINRA oversees all US-based securities firms and is considered the front line of defense when it comes to investor protection. FINRA’s rules and regulations ensure that all securities firms operate fairly and honestly and that investors are given the information they need to make informed investment decisions. Operating under the auspices of the US Securities and Exchange Commission (SEC), FINRA is the largest independent regulator for securities firms doing business in the United States.

 

Who does FINRA protect?

 

FINRA exists to protect investors, which means that they provide rules and regulations that apply to all securities firms to create a level playing field. They do this through a variety of means, including registration and licensing, monitoring and examining firms, conducting enforcement actions, and providing investor education. FINRA also offers assistance and support to investors who have been wronged by a securities firm. By educating investors about their rights and responsibilities when it comes to investing, FINRA helps protect them from being taken advantage of. In terms of security firms, FINRA’s job is to make sure they are adhering to all relevant rules and regulations, and that they are providing accurate and complete information to their investors.

 

Why is FINRA important?

 

FINRA plays an important role in the investment landscape by ensuring that all securities firms operate fairly and honestly. This helps to create trust between investors and the industry, which is essential for a thriving economy. In today’s day and age, with crowdfunding being available to accredited and non-accredited investors, FINRAs role is more important than ever. Giving peace of mind to investors is one of the most important roles that FINRA plays.

 

What is the role of FINRA as it relates to investment crowdfunding?

 

Investment crowdfunding is a relatively new phenomenon, and FINRA has been working to create rules and regulations that will protect investors while still allowing this innovative form of investing to flourish. The role of FINRA in investment crowdfunding is to protect investors by ensuring that issuers are providing accurate and complete information about their offerings, and that platforms are properly registered and compliant with all relevant rules and regulations. By doing so, FINRA is helping to create a safe and transparent environment for this growing industry.

 

One of the key issues that FINRA is concerned with is the disclosure of information by issuers, which is essential to ensuring that investors can make informed investment decisions. When it comes to Reg CF offerings, FINRA Rule 251(a)(3) requires issuers to file a Form C with the SEC before they can solicit investors. Form C must include information about the issuer, the offering, and the use of proceeds. In addition, all materials that are used to solicit investors must be filed with FINRA. These filings give FINRA the ability to review the offering and make sure that it is compliant with all applicable rules and regulations.

 

KoreClient Spotlight: Budding Technologies

Budding Technologies, Inc. is looking to change the cannabis industry with innovative technology and the use of blockchain through its product, Budbo.

 

The Budbo ecosystem consists of three unique products; Budbo App, Budbo Connect, and BudboTrax. Together, these touch all aspects of the cannabis industry from growers and product manufacturers to dispensaries and consumers.

 

The Budbo App features a patent-pending technology that allows cannabis users to log into the application and enter some demographic data that is then used to make suggestions on strains and products of cannabis that would be best for the user. Users are also rewarded for providing this data with cryptocurrency tokens that can be spent on merchandise or accepted by dispensaries. With this technology, new users can feel more confident in choosing the strains and products that would be best for them based on data like their weight, gender, and experience level. After answering several questions on a 1-10 scale, the algorithm can make these suggestions. Pick-up and delivery options are available to consumers with an easy-to-use interface.

 

For dispensaries, growers, and product manufacturers, Budbo Connect enables them to access the data provided by Budbo customers and other third-party APIs. In the Connect dashboard, companies can keep product information up to date so that it can be found by the most appropriate customer. In turn, companies can see what types of products are popular or sought after by cannabis users in their region. With companies able to tailor their inventory to what customers are looking for, they can reduce waste, increase sales, and find the right product manufacturers for these products.

 

Lastly, BudboTrax, is a supply chain management system built on blockchain technology that gives users the ability to track products and lab results so that they can know exactly where their product comes from and if it meets the quality standards that they are looking for. This feature allows cannabis users to be confident in the product by providing much-needed clear visibility into the chain of custody of the cannabis plant and subsequent product.

 

Working together, these three elements create a robust suite of tools to empower the cannabis industry and to serve cannabis users with access to the safest and best product available.

 

To aid in the company’s growth, Budding Technologies, Inc. is using Regulation Crowdfunding to raise funds for their company. “We chose the Reg CF as the vehicle because it’s a grass-roots way to raise capital that is for everybody, and we feel cannabis and our technology is for everybody. What makes the Reg CF so great, is that it allows anyone interested in Budbo, cannabis, and blockchain, to have the opportunity to invest in Budbo and get involved with the company,” said Luke Patterson, the company’s CEO.

 

Budbo is an innovative company that is changing the way the cannabis industry works. With their use of blockchain technology, they are helping customers verify the quality of the products being sold while also giving businesses valuable data about what products are being used in their area and users on what cannabis is right for them.

 

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.

KoreClient Spotlight: Fist Assist

Fist Assist Devices, LLC, a medical device company from Las Vegas, NV, is on a mission to increase and improve arm circulation around the world. As the brainchild of Dr. Tej Singh, a vascular, endovascular, and vascular access surgeon trained at Stanford University Hospital, First Assist aims to solve a common problem he saw in many patients needing focal arm circulation benefits. Currently, the Fist Assist is an FDA 510k Authorized, minimally invasive device that a patient would wear on their arms to increase focal arm blood flow and relieve pain. However, the company had also been designated  Breakthrough Device status by the FDA for potential arm vein dilation to assist the renal failure community (Formal FDA submission pending for this Indication ).

 

“Throughout my surgical training, first at the University of Chicago, then at Sanford University, I always thought there had to be a way to make a wearable device that could help patients with their veins, especially on the arms. The basic science, clinical science, and exercise science were all there. When we’re looking at arm veins, we’re thinking of patients who need those veins for their medical care, whether it’s for IV placement, chemotherapy access, or possible dialysis access. Arm veins are really important,” said Dr. Singh, CEO and Founder of Fist Assist. In one study, it was reported that 59.3% of highly complex patients exhibit difficult venous access, meaning that for these patients, who may have heart disease, liver failure, diabetes, or other chronic conditions, healthcare providers often have difficulty when attempting to start an IV or draw blood. This often causes pain and discomfort for the patient, as multiple attempts are often required before it can be successful. 

 

“Right now patients have limited choices to improve arm circulation. If they need a medical procedure and it requires access to their arm veins, they’re at the mercy of whatever arm veins they have that distend. If someone is active and they exercise, they probably have decent veins, but if someone doesn’t have good arm veins, there was nothing out there to help them except a compression ball,'” Dr. Singh added. He continues: “Our device is a battery-operated pneumatic focal compression device that you wear below your shoulder or elbow. It gives intermittent compression to your arm up to a pressure of 60 mmHg and can be worn for 1-2 hours a day to increase circulation and decrease present and future pain in your arm in America. In the rest of the world, it can do vein dilation and help with vascular access based on regulatory approvals,” said Dr. Singh.

 

Fist Assist is currently raising capital through RegCF to finance its future FDA submissions and commercialize its product and expand its availability through direct-to-consumer, direct-to-business, and direct to big box stores. The company is excited about its crowdfunding and its upcoming FDA submissions which Will allow more patients to have this device. Outside of the US, the device has been granted CE Mark and approved to sell in Europe, Canada, Australia, and India as an arm massager, a vein dilation device, and to assist dialysis.

 

Dr. Singh said “After being designated as an FDA Breakthrough for potential vein dilation to renal failure patients in December 2021,  we need to formally show the FDA the complete dataset for eventual DeNovo authorization for the renal failure community. If we clear the final FDA hurdles, one day these wearable devices will be marketed to increase arm vein size to help renal failure patients receive better care, meaning they’re able to get a fistula or get better dialysis because they have a better arm vein. That hopefully will translate into significant changes to the way physicians treat and care for renal failure patients with better outcomes and fewer costs. Helping the global community for improved arm blood circulation is our important Mission and its important”, added Dr. Singh

 

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.

KoreClient Spotlight: FirstString

As father and son, Barry and Tyler Jones share a common goal of revolutionizing the job-seeking and hiring process. Together they founded FirstString, a career technology company that aims to reimagine the hiring process for collegiate athletes, to nurture the next generation of leaders in the workforce. FirstString was founded with the belief that an individual’s skills and professional assets go far deeper than a paper-thin resumé.

 

Barry Jones is a US Army veteran with over 20 years of experience in sales and business development. When he transitioned to civilian life and the corporate world, he first joined pharmaceutical giant Johnson & Johnston. Seeking to use his creativity to help businesses grow, Barry moved on to work with startup biotechnology companies. After working with startups for over a decade, Barry sought to apply his knowledge to the field of executive recruiting. However, he immediately realized there was something wrong with the way recruiting worked and decided to create an application that would be more efficient for all involved. “The recruiting industry is stuck in the 1990s, it’s so inefficient. I started to develop a mobile application; I had this vision of how it could work and how it could really make the recruiting system much more fair and efficient for everyone involved. Everybody wins,” said Barry of his motivation. 

 

At the same time that Barry was working as a recruiter, Tyler was a student at the University of Georgia, where he was a Division-1 collegiate athlete, running track and cross country. Through his years as a scholarship athlete and team captain, Tyler learned the importance of hard work, consistency, teamwork, discipline, and leadership. But, like many of the 480,000 other collegiate athletes across the US, the dedication toward athletic performance often leaves little time for meaningful summer jobs or internships that fill out a college grad’s resumé when applying to their first post-college job. “Their resumés are so thin, they can’t even compete with someone they sat next to in their chemistry class that got to do summer jobs or internships that lasted months,” added Barry.

 

“By the time I walked across the stage to receive my degree, I was still competing. People would ask me, ‘what are you going to do now?’ I would tell them I didn’t know because I didn’t have the time to really figure it out yet, I had been competing,” said Tyler. Post-graduation, Tyler jumped on the first job offer he received from a wealth management firm. “In the interview, they make it sound like it’s sunshine and rainbows. Quite frankly, I jumped the gun. I didn’t know what to expect or how to negotiate and the right questions to ask. I realized very quickly that being bolted behind a desk just wasn’t for me but I didn’t want to feel like a quitter so I stuck it through,” he added. And, as COVID-19 became a factor, Tyler experienced firsthand what it was like to feel exposed and helpless in a competitive job market. 

 

Having experienced the challenges of the hiring and job-seeking market, Barry and Tyler realized that many qualified and overlooked student-athlete candidates have extraordinary talents and passions for their work, so they worked to develop a system that would enable new college graduates to win job interviews far outside of their experience level but within their skill level. Together, their mission is to help college athletes identify the right career trajectory so that they can build fulfilling and rewarding careers.

 

As Tyler and Barry began to build FirstString, they had the opportunity to make a difference in people’s lives, and show that there is so much more to a job candidate than what is on their resumé. FirstString is the first mobile application that enables college athletes to connect, find jobs and internships, and train for success after college. 

 

With FirstString, employers can post jobs and internships and search for qualified candidates. Candidates can create a profile with a video introduction, skills, experiences, and references. This allows employers to get to know the candidate before even meeting them. It makes the hiring process more efficient by removing the outdated paper resumé and allowing student-athletes to display the leadership ability and other skills they bring to the table, even if they don’t have as much employment experience as some. 

 

The pair had several large investors in their app that they ultimately turned down because of unfavorable terms. However, having received significant interest in the app from day one from everyday people, the father-son team feels RegCF can be a very powerful capital-raising tool for them. This ability to find investors who are equally as passionate about their mission highlights what the JOBS Act is all about. With RegCF, they can offer equity in FirstString to anyone, not just wealthy accredited investors.

 

Barry and Tyler Jones are changing the game when it comes to job seeking and hiring for student-athletes. With FirstString, they are providing a platform for athletes to connect and find jobs. This is just the beginning for the Jones duo and their goal of easing the transition for college athletes from school to employment.

 

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.

 

Labor Day: Democratization and Opportunities to Create Jobs

The growth in Regulation A+ and Regulation CF offerings fuels entrepreneurship and job growth in the United States. Since 2016, there have been over 4,600 capital offerings utilizing Reg A+ or CF, with over $500 million raised in 2021 alone. This capital helps companies grow, create jobs, and positively impact their local communities. Crowdfunding is a robust tool for businesses to secure funding, with an average of 43.8% of pre-revenue startups successfully using this method.

 

Crowdfunded Capital and Democratization

 

When businesses utilize crowdfunding, they can access a much larger customer base, allowing them to have a more significant impact on their local communities. it is particularly well-suited for getting loyal customers, employees, suppliers, and other stakeholders to become investors in your company. Crowdfunding enables the democratization of the private capital market by giving these parties an opportunity to participate in the investment process, something that has not been practical before with traditional investing. For many companies, this unlocks a powerful opportunity and  42% of raises reach their goal in 3 days. 

 

Creating Job Opportunities

 

With over $1 billion in capital raised through Reg CF at an average of $1.3 million per raise, these businesses create innovation and bring economic change to local communities in the form of spending and jobs. An estimated $2.5 billion went into local communities from crowdfunded companies in 2021 alone, with money changing hands as much as six times before leaving the local economy. This demonstrates how crowdfunding directly impacts many communities across the country. It brings money to a community by creating jobs; companies that utilize regulated crowdfunding support over 250,000 American jobs across 466 industries. That number is expected to grow as the private market continues to expand. 

 

Crowdfunding allows all types of businesses to access the capital they need to grow and create jobs through Reg A+ and Reg CF. Between 2000 and 2019,  small businesses created 10.5 million US jobs, while large companies only created 5.6 million, according to 2020 data from the US Small Business Administration. This highlights the importance of small businesses within the economy. However, many small businesses have not traditionally had the same access to capital as large ones. This changed with the JOBS Act, increasing the availability of capital for these small businesses and leveling the playing field. As these companies continue to receive capital from the JOBS Act exemptions, the economy continues to benefit from the democratization of capital. 

 

It’s not only the number of jobs that are important but also the quality of those positions. Good jobs lead to a better living standard. When people have good jobs, they can afford to make purchases, give their children better access to education, access healthcare whenever needed, and many other positive benefits for these individuals. At the same time, they support businesses within their community, which helps those grow as well. A strong economy also attracts business investment from other parts of the country and the world. All of these factors lead to more jobs, and the cycle continues.

 

Investing in the Future

 

The expansion of crowdfunding presents opportunities for anyone interested in becoming an investor, with a chance to get in on the ground floor of the next big thing, while also supporting businesses and creating jobs. It’s a win-win for everyone involved, and it all starts with the democratization of capital. When you invest in a company through crowdfunding, you can invest in your community. The money that is raised through these offerings stays local, and as the businesses grow, they pump even more money back into the economy.

 

Crowdfunding is an excellent way to support businesses and create jobs, but it’s also a great way to invest in the future. With the industry expected to continue to grow, now is the time to get involved. With opportunities for everyone, from accredited to retail investors, there has never been a better time to get involved in the democratization of capital. So this Labor Day, remember that when you support businesses through crowdfunding, you also help create jobs and create a brighter economic future.

 

KoreClient Spotlight: Durable Energy

Durable Energy is on a mission to expand access to renewable energy and electric vehicle (EV) charging across the country. Partnered with  dealerships, parts companies, and other key service providers in the automotive industry, Durable Energy is decentralizing energy so everyone can have access to clean energy and offset their utility bills. We recently spoke with Xavone Charles and Anastasia Rivodeaux about the mission of Durable Energy and how Reg CF is helping them get there. 

 

Improving EV Infrastructure with Durable Energy

 

Currently, 60.8% of all electricity in the US is generated from fossil fuels. The output of this electricity production is 1.55 billion metric tons of carbon dioxide, which contributes significantly to global climate change. Renewable energy only accounts for 20.1% of the total energy produced, in part because of its perceived cost.  So increasing the accessibility and affordability of renewable energy sources can help to make renewables more competitive, thus reducing reliance on carbon-heavy sources. That’s the vision of Durable Energy, a company dedicated to transitioning the way we live, starting with EV.

 

Durable Energy believes in a 3 step plan to achieve its goal of energy decentralization:

 

  1. They are focusing on creating more renewable energy-powered EV charging stations in the nation, not only in the city but in rural locations and at businesses like dealerships. This will help increase the number of EVs on the road and provide people with a place to charge their vehicles when they are away from home.
  2. They are working to offset the amount of energy produced by solar so that it can be stored and used when the sun isn’t shining. This will help to make renewable energy more reliable and allow it to be used even when, and where, the weather isn’t cooperating. While southwestern states may have an abundance of sunlight, with this technology, that energy can be stored and transferred to the East Coast, where they have more of a need for it.
  3. Hydrogen systems are the future of cars and homes. By focusing on hydrogen fuel cells, Durable Energy will be able to provide a clean and renewable source of energy that can power both homes and vehicles. This will help to reduce reliance on fossil fuels as well as help reduce emissions from cars and trucks.

 

Changing EV with Reg CF

 

With Durable Energy, any dealership can open its own charging facility for private and public use. People could pay for a membership to have a certain amount of energy per month. “We are a part of a global transition. Everyone in the renewable energy space is trying to figure out how to tackle this large hurdle. Through Regulation CF, the end users who benefit from this technology can be a part of this as well,” said Xavone Charles from Durable Energy.

 

Through RegCF, Durable Energy can connect with the end user who will be using these products, enabling them to become early investors in the very infrastructure that they will utilize. “The existing grid is pretty much a monopoly. We’re building the new grid, the new infrastructure, and the new principles, and we want people to be a part of it. Our goal is to make EV transition in the US possible,” said Anastasia Rivodeaux of Durable Energy.

 

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 apply:

  • 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.

 

Opportunities to Invest in the Private Capital Market

The private equity market is rapidly growing, fueled by expansions to the JOBS Act exemptions in 2021. By 2030, the private capital market is anticipated to grow to a total value of $30 billion. This is largely driven by more companies seeing the potential in regulated crowdfunding through RegA+ and RegCF, and the rising interest of retail investors looking to move into the private space. Plus, research has shown that there is nearly $5 trillion in uninvested funds held by private equity firms alone. In addition, retail investors now represent 25% of the security trading volume in the public markets, a significant increase from the previous decade. According to BNY Mellon, “a new generation of younger retail investors are purchasing equities with the intention of becoming long-term market participants.” These factors have coalesced to create a favorable environment for investments in the private capital market. 

 

With favorable conditions to invest in public companies, there are many emerging and attractive industries for investors. Some of these include:

 

  • Medtech: Every day, companies are creating lifesaving technologies to improve human health and revolutionize medical care. Medtech companies often require high amounts of capital to fund clinical trials, research and development, and the many other processes they must go through. Since offerings limits for RegA+ were expanded to $75M, Medtech companies are increasingly viewing the exemption as a viable choice for raising capital.

 

  • Cannabis: The cannabis industry is rapidly growing, especially as public perception grows more favorable and legalization at the state level spreads across the US. However, cannabis companies are often underserved by traditional financial institutions due to the illegality at the federal level. With RegCF and RegA+, cannabis companies can tap into a vast market of retail investors who are willing to invest in an evolving industry.

 

  • Real Estate: Traditional real estate investments are capital intensive, making them cost prohibitive for many investors who are not high net worth individuals, private equity, or institutional investors. However, with RegA+ and RegCF, retail investors can own fractions of properties. And in, 2020, insurance, finance, and real estate accounted for 53% of qualified RegA+ offerings and 79% of the funds raised through the exemption. This indicates that real estate is an attractive investment opportunity for many investors. 

 

  • Franchises: JOBS Act exemptions create new opportunities for franchisees and franchisors to raise capital. These companies often have existing customers, who can become investors and brand ambassadors.

 

Regardless of the industry, a key component of any offering is the broker-dealer. Many states require issuers to work with a broker-dealer when selling securities in those states. A broker-dealer ensures that the issuer follows all SEC and state securities laws. More importantly, working with a FINRA-registered broker-dealer gives investors confidence by verifying that the issuer has provided all required information for the investors to make a sound investment decision. FINRA protects American investors by ensuring that brokers operate fairly and honestly. Plus, the broker-dealer also completes compliance activities, such as KYC, AML, and investor suitability and due diligence on the issuer themselves. 

 

Working with a broker-dealer ensures that the issuer behaves compliantly and gives the investor peace of mind when investing in one of the many investment opportunities within the private capital market.

 

The JOBS Act as the Founding Father Of A New Economy

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

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

Expanding Benefits In A New Economy

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

More Investors empowered by the JOBS Act

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

ESG

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

Is it safe?

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

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

Jumpstart Our Business Startups: Democratizing Access To Capital

The JOBS Act (Jumpstart Our Business Startups) reached its 10th anniversary in 2022 and we keep working on education to empower people through private capital markets. Even though it has already been a decade, we are still clearing the land to open up more opportunities. The Wharton Magazine anticipated that the JOBS Act would be as impactful in changing how we allocate capital as social media has been in how we manage time. Both entrepreneurs and regular people, such as customers, are able to be part of the financial market. Brand advocates, for example, can easily become shareholders, democratizing access to capital.

 

Meaningful changes

 

Title V in the JOBS Act raised the number of possible shareholders to 2,000, while 499 can be non-accredited. To give an exact feel of how deep this change is, before the JOBS Act, the maximum number of shareholders was 500, all of whom had to be accredited. This opens up opportunities for nearly everyone who wants to invest in the private capital market. And the bigger pool of potential investors also benefits the companies looking to raise capital. 

 

With regulations such as A (RegA+) and crowdfunding (RegCF), both accredited and non-accredited investors can be part of capital raising. Companies do not need to go public anymore to raise capital as entrepreneurs maintain control. Using RegA+, companies can now raise up to $75 million every 12 months. For RegCF, the limit is $5 million.

 

Market size

 

There are plenty of possibilities that arise from the regulations and how they change companies’ perspectives. The available pool of capital is expected to reach up to $30 trillion by 2030, making it a promising resource for companies. Also, there are several online services and platforms that have come up in recent years, such as KoreConX, but we will talk about those in other posts.

 

Equity Crowdfunding with RegCF

 

This form of capital raising for non-accredited investors is very new (2016) but it has shown steady growth since it was introduced. In its first full year (2017), $76.8 million were raised like this. In 2021, this number skyrocketed to $502 million. Startup customers, closest clients in a database, and closest network members can become valuable investors. Brand advocates can be more motivated to make a difference in a startup’s life once they can become shareholders.

 

RegA+

 

Although there are great possibilities for companies going for a RegA+, there are still some important investments involved. As a general rule, it is a good idea to be ready to spend at least $250,000 on a successful RegA+ offering. There are several steps that have to be accomplished, such as filing, which involve fees for lawyers and auditors, broker-dealer firms, investor acquisition costs like PR/advertising and social media, and online roadshows.

 

How Regulations Democratize Access to Capital

 

If you think about it, democracy is all about empowering as many people as possible to participate in and have a say in how society develops. The JOBS Act does that first and most directly by giving ordinary people more opportunity to own a stake in businesses, to become shareholders. But that wider pool of potential investors also empowers more entrepreneurs to get the funding to bring their ideas to fruition, which in turn creates jobs, empowering still more people to participate and, if they choose, to make their own investments. The entire ecosystem flourishes.

 

If you want to understand more about how the regulations help business grow and jumpstart our business startups, you can take a closer look at presentations from the father of the JOBS Act, David Weild IV, founders, funding portals and investors in our YouTube Channel.

Oscar Jofre Speaks at Franchising Event in Denver, CO

We are always looking for ways to help our clients and the franchise community grow and succeed. That’s why we’re excited that our CEO, Oscar Jofre, got a chance to speak at the “Living in the Roaring 20s: Looking Ahead to a Wild Decade in Franchising” event in Denver, Colorado this week. The event featured dynamic panels of industry leaders. It was a great opportunity to take advantage of a hands-on learning experience, designed to help franchise businesses reach new heights and share key lessons learned from a global pandemic, tools and strategies for risk mitigation, and explore critical trends and new opportunities on the horizon.

 

Oscar was there to share his valuable expertise regarding raising capital. He joined two panels to discuss how crowdfunding can be used by franchisees and franchisors and how NFTs and cryptocurrencies are permanently altering the franchise landscape.

 

In addition to Oscar’s presentation, the event also featured panels on franchise strategy, industry outlook, sustainability, post-COVID best practices, navigating mergers and acquisitions, and much more of interest to anyone in the franchise industry, from those just starting to explore franchising to established professionals looking for ways to take their businesses to the next level. 

 

KoreConX is proud to have been a sponsor of this event, and we hope to see you at the next one!

Examining RegCF Trends

The internet has put financial literacy resources at the tip of our fingers and has done the same for investment opportunities. Whether it’s an app that allows you to buy and sell stock or cryptocurrencies, or a website that allows you to invest in a company that could be the next Uber, Tesla, or SpaceX, the average person now has access to new and exciting ways to invest that never existed before. 

 

The private capital market has been transformed by the JOBS Act and its exemptions, like Regulation CF, that allow companies to raise growth-fueling sums of money from accredited and nonaccredited investors alike. And, with companies now able to raise larger amounts than ever before, Reg CF investments are enjoying increasing popularity. This type of crowdfunding allows entrepreneurs to tap into the wallets of thousands of potential investors, providing not only the capital they need but also new networks, brand ambassadors, and more.

 

While the number of companies raising capital online decreased between 2018 and 2019, this number rebounded substantially since according to data shared by KingsCrowd. Between 2019 and 2020, the number of deals nearly doubled from 541 to 1024. The 2019 decrease could be attributed to multiple factors. One possible reason is that online crowdfunding was still considered a new space at the time, so investors and founders still had their reservations. The increased number of deals in 2020, 2021, and so far throughout 2022, suggests that this hesitation is starting to dissipate. This is supported by the tremendous milestone RegCF reached last year; over $1 billion has been raised through this exemption This could be due to a better understanding of how crowdfunding works or increased confidence in the industry as a whole. Whatever the reason, it’s clear that RegCF is becoming more popular among startups and investors alike.

 

When the COVID-19 pandemic began spreading across the US in the spring of 2020, it crippled and even bankrupted thousands of businesses. However, startups that raised capital with Reg CF didn’t appear to be affected the same way, possibly because of exploding demand in industries like telehealth, med-tech and delivery services, creating urgent new investment opportunities, coupled with large numbers of potential investors suddenly working from home and becoming more exposed to and accepting of online transactions and crowdfunding campaigns. 

 

This trend can also be seen in VC funding, which decreased during 2020 by 9% and 23% for the first quarter and second quarter of the year. The negative effect of the pandemic on VC funding largely impacted female founders more heavily than male founders, with female founders receiving only 2.3% of VC funding in 2020. That drove many founders to seek alternatives, which may explain some of the uptick in crowdfunding deals.

 

2022 is seeing a good flow of new crowdfunding deals as well. We’ve seen 429 new deals in the first quarter, according to KingsCrowd, and this number is only expected to increase as the number of founders and investors who recognize the power of crowdfunding continues to grow. With as little as $100, non-accredited investors can now own a part of a company and support a cause they believe in. This democratizes startup investing like never before.

 

Other trends we’re seeing are an increase in the mean amount raised per deal and a decrease in the median amount raised per deal, suggesting that while the biggest deals are getting bigger, the number of smaller deals is also growing, reflecting more participation by small businesses and small investors This has increased the amount of capital raised through RegCF from $239 million in 2020 to $1.1 billion in 2021, and this number is expected to double by the end of 2022. This means that more money is being funneled into startups and small businesses than ever before.

 

Will we see more startups turn to crowdfunding to compensate for the lack of VC funding? Only time will tell, but we’re excited to see how the rest of the year unfolds for the Reg CF community.

What Does ATS Mean in Trading

Many investors are turning to the private capital market to make long-term investments in light of the current market conditions. This has increased alternate trading systems and secondary market trading for RegA+, RegCF, and RegD securities. An alternate trading system (ATS) is a non-exchange trading venue that matches buyers and sellers to trade securities. In the United States, an ATS must be registered with the Securities and Exchange Commission (SEC) and must comply with specific regulations.

 

Different Forms of ATSs

 

There are many benefits to using an ATS, such as increased liquidity, lower costs, and greater flexibility. For example, an ATS can provide more liquidity for a security by providing shareholders with a means to sell private company shares. In addition, an ATS may offer lower costs than an exchange, such as no membership fees or listing requirements. In addition, an can often be categorized as an electronic communication network, dark pool, crossing network, or call market.

 

  • Electronic Communication Network: An ECN allows buyers and sellers to exchange shares without a middleman. Trades can also happen outside of business hours, which means that hours are not tied to the traditional stock market.
  • Dark Pools: A dark pool is a type of ATS that does not publicly display the prices or orders of its participants. Dark pools are typically used by institutional investors, such as hedge funds, to trade large blocks of shares without moving the market.
  • Crossing Network: A crossing network is very similar to a dark pool, meaning that the details of a trade are not made publicly available 
  • Call Markets: In a call market, trades are only executed once a certain number of orders has been reached, often at a set interval of time. 

 

Secondary market trading of RegA+, RegCF, and RegD securities can take place on an ATS, which is typically a registered broker-dealer platform. These platforms allow investors to buy and sell these securities even if the buyer did not invest in the initial offering. The secondary market for RegA+ securities is the most developed due to the long history of these securities. The main difference is that RegCF and RegD shareholders are required to own their securities for a longer period of time before they can be traded in a secondary market.

 

What is the Difference Between an ATS and Exchange?

Many people are familiar with the concept of an exchange; whenever you buy stocks in publicly traded companies, you go through a stock exchange like the New York Stock Exchange or NASDAQ. National securities exchanges are self-regulatory and their members, or listed companies, must meet the requirements established by the exchange. Exchanges are also SEC-registered

 

An ATS is much like an exchange in that it brings together buyers and sellers of securities. However, the main difference is that an ATS does not take on regulatory responsibilities. Therefore, an ATS can trade both listed and unlisted securities, like those purchased under a JOBS Act exemption. ATSs are also regulated by the SEC but must be operated by a FINRA-registered broker-dealer.

 

The Impact of Liquidity on Investing

 

Liquidity is an important concept to understand when trading securities and refers to the ability of a security to be bought or sold quickly and at a fair price. A security that is easy to buy and sell is said to be liquid. A security that is difficult to buy or sell is said to be illiquid. An investor might consider the liquidity of a security when making an investment decision. For example, an investor might choose to invest in a liquid security if they plan on selling it quickly. An investor might choose to invest in an illiquid security if they are willing to hold it for a more extended time. When trading securities on an ATS, it is crucial to consider the security’s liquidity. A security that is not liquid may be challenging to sell, and worth considering the liquidity of a security before investing in it.

Can Cannabis Companies Use RegCF?

In recent years, public perception of cannabis is gaining positive momentum. As of April 2021, 35 states have made medical marijuana legal, with 18 of them legalizing it recreationally. This growth has been tremendous, raising the industry’s value to over $13 billion and directly supporting 340,000 jobs. Additionally, 91% of Americans believe that regulators should legalize cannabis for medical and recreational use.

 

These factors have created an excellent opportunity for companies in this space. As public perceptions continue to rise, investments in cannabis companies may become more attractive to retail and accredited investors. Projections show that by 2028, cannabis will be an industry worth $70.8 billion globally

 

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

 

RegCF and Cannabis

 

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

 

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

 

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

 

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

 

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

 

Growing with RegCF

 

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

The 4 Things You Can’t Do While Marketing a New Reg CF Fund

This post was originally written by KorePartner Dawson Russell at Capital Raise Agency. View the original article here

 

Your Reg CF Marketing has qualified, and it’s time for the next step! As exciting as this is, there are several things to be aware of before throwing any marketing ‘out there.’ It all includes having a marketing professional, the verbiage and images used, and types of marketing. Now let’s take a closer look at each of these marketing aspects of a Reg CF Marketing to know better Reg CF meaning and Reg CF platforms. The following details apply to ‘test the waters’ (TTW) and marketing after your Reg CF qualification.

Use of Improper Verbiage and Images

Marketing in the general sense is to sell a product, sometimes with slight fabrications or indications of potential success or future opportunities. Keep a keen eye to separate Reg A vs Reg CF verbiage. With Reg CF platforms, these are common pitfalls that must be avoided. Did you know something as simple as the word amazing, promising, commit, or golden is considered improper in Reg CF Marketing? These words are over-the-top statements implying merit, interest, offering anything ‘special,’ or a return of any degree. As for images, it is similar in thinking to verbiage. No money, cash registers with overflowing tills, graphs with arrows pointing skyward, and the like are a no-go.

Lacking an Online and Digital Presence

Strategic digital and online marketing plans are no longer an option. Potential investors, especially new generations, will expect a significant digital presence including a well-structured website, social media presence, and more often than ever, a related app. Social media is essential because each follower gained is a potential investor (and their followers will see they’ve followed your Reg CF, which means more potential investors).

Making Investors Search for You

With any marketing plan, you have to stay top of mind. Potential investors will expect ‘face time’ to build a connection with your Reg CF mission and vision. The term ‘face time’ is about communication from you or your executive team through webcasts, online video events, and meet and greets with question-and-answer sessions. After all, they may be investing in your Reg CF, and it’s by far the least you can do.

Do-it-Yourself Reg CF Marketing

While setting up a website is an easy task in our digital world, it does take considerable time and effort to keep up with constant content. As seen above, ensuring your website complies with Reg CF advertising rules and regulations is another task altogether. To get your best return on investment hiring a professional who understands the Reg CF world is worth every penny. Professional marketers can provide the initial setup of a website, regular updates, social media posts, videos, regular email notices, and additional marketing pieces. Plus, it frees up your time to interact with potential investors.

What is the Opportunity in RegCF for Franchisees and Franchisors?

Raising capital is a critical part of any business, and it can be especially challenging for franchisees and franchisors. Fortunately, there are several options available, notably Regulation CF crowdfunding. This regulatory framework, which was created as part of the JOBS Act, allows businesses to raise up to $5 million per year from a wide range of investors and introduced significant opportunities within the capital raising journey.

An Opportunity for Franchises

Regulation Crowdfunding, RegCF for short, is a securities regulation that allows companies to offer and sell securities to the general public through a crowdfunding portal. Since being passed into law just over 10 years ago, companies have raised over $1B in capital through this exemption.

Of course, there are also risks associated with investing through RegCF. As with any investment, there is always the potential that it may not gain the traction issuers anticipate and the desired capital may not be raised. However, if done carefully and with due diligence, RegCF can be an excellent way for franchisees or franchisors to raise capital.

Advantages of Reg CF for Franchisors and Franchisees

Several key points should be highlighted when it comes to the advantages of crowdfunding through Regulation CF for both franchisors and franchisees. Reg CF opens up a new way to raise capital for franchisors while retaining full ownership and control of their company. This is thanks to the lower investment minimums required and the ability to raise capital from both accredited and non-accredited investors. On the other hand, franchisees can use Reg CF to improve the reach of their franchise (with the approval of the franchisor) and raise the necessary capital to get their franchise off the ground or expand it.

When it comes to Regulation CF, there are a few key advantages that both franchisors and franchisees can enjoy, including:

  • Lower investment minimums are one of the key selling points of Reg CF for both franchisors and franchisees. This means that issuers can raise capital from their fans, customers, and others who already support the company.
  • The ability to raise capital from both accredited and non-accredited investors is another key advantage of Reg CF, which allows issuers to tap into a larger pool of potential investors.
  • Improved reach is thanks to the fact that Reg CF allows for the use of social media and other online platforms to reach a wider audience of potential investors and increase the likelihood that an offering will receive the exposure needed to be successful.

Getting Involved in Reg CF

For franchisees and franchisors, the opportunities are plentiful with Reg CF. However, the main thing to remember is that to be successful in Reg CF campaigns, you need to have a great product with an even better message.

The first step is to get your product in front of potential investors. This can be done through several channels, including social media, online advertising, and PR. Once you have people interested in your product, it’s crucial to provide them with more information about why your product is worth investing in. This is where having a strong value proposition comes in. Once you have an audience for your product, you can begin the process of getting your offering qualified with the SEC and listing it on a funding portal.

Your value proposition should be clear, concise, and compelling. It should address the needs of your target market and explain how your product can meet those needs. Additionally, your value proposition should be supported by data and customer testimonials. These will help to show potential investors that your product is the real deal.

Finally, it’s important to remember that raising money through Reg CF is a team effort. To be successful, you’ll need to build a strong network of support. This includes family, friends, members of your target market, and a supporting team of key players from lawyers to broker-dealers and marketing professionals to help you reach your goal in the most efficient way possible.

Preparing for the Future with Reg CF

This regulatory crowdfunding framework offers numerous opportunities for early-stage businesses to raise capital from a large pool of investors. Through RegCF, startups and small businesses can offer securities to the general public, allowing investors of all income levels to participate in their growth. Franchising is a great way to expand a business and bring it to new markets. With RegCF, there is now an opportunity for franchisees and franchisors to raise capital from everyday investors through equity crowdfunding.

Secondary Market Trading for RegA+, RegCF, and RegD

As more and more companies look to raise capital in the private capital market, it’s essential to understand the different exemptions available for this purpose. In this blog post, we’ll look at three common types of capital raises; Reg A+, Reg CF, and Reg D. We’ll discuss the critical differences between each one and how they are traded on the secondary market. By understanding the nuances of each type of raise, you’ll be better equipped to make informed investment decisions.

If you are raising capital, three main exemptions will be used in the private market. Before we discuss the differences, let’s cover what each regulation does:

  • RegA+ is a securities exemption that allows companies to offer and sell securities to US investors and raise up to $75 million in a 12-month period through Reg A+.
  • RegCF allows companies to offer and sell securities to US investors and raise up to $5 million through online marketplaces and crowdfunding sources in a 12-month period.
  • RegD is a securities exemption that allows companies to raise capital from accredited investors without limit within a 12-month period.

There are a few key differences between the three types exemptions but today we’re focusing on those differences as they pertain to the secondary market. The important thing to consider is the time an investor is required to hold the security before selling it on a secondary trading platform. Reg A+ is the closest to an IPO, and assets can be sold the next day, and there is no lockout period. On the other hand, securities sold under RegCF cannot be sold for the first 12 months after buying it unless it’s sold to an accredited investor, back to the issuing company, or a family member. With Reg D, investors can not sell these assets for six months to a year unless they are registered with the SEC.

We’ve covered other differences between the three exemptions in a previous article, including the number of investors and the amount they can invest. However, once the raise ends, the secondary market is the next important difference to be aware of so that shareholders can be properly informed before, during, and after the raise is complete.

How to Ensure Your Marketing is Compliant During an Equity Crowdfunding Raise

You may be wondering, “Why is a marketing agency talking about compliance?”.

We’re obviously not lawyers, but it is pivotal that compliance is offered at the forefront of your marketing planning.

Now we are not soliciting any legal or financial advice today. The purpose of the webinar is to give you a good introduction to the most common rules so you can better plan your campaign and protect yourself from trouble.

Today we’re going to cover some of the basics and get into some of the tactics that you can use to ensure that your marketing is compliant.

Why is Compliance Important?

If you’re going to run an equity crowdfunding campaign, then you need to be aware of all the restrictions.

With the SEC enforcing strict regulations on what you can and can’t say, running an equity crowdfunding campaign is much different than your traditional marketing campaign.

When you are creating your marketing campaign, it is important to make sure it is compliant with current regulations regarding the promotion of securities. If you do not comply with these guidelines, then you do not only risk your investments but are also subject to penalties from the Securities and Exchange Commission (SEC).

What Can You Say Before the Launch?

Do not publicly or privately mention your equity crowdfunding raise if it is not a test-the-waters campaign!

That might sound obvious, but you would be surprised at how frequently founders get this wrong. By “publicly mention”, we mean:

  • Put a link to your offering on Linkedin, Facebook, Twitter, Instagram, etc.
  • Email your extended network and encourage them to invest.
  • Post your offering in any online group.
  • Encourage friends or family to share or forward the offering to anyone they know.

By “privately mention”, we mean:

  • Mention the offering to people you meet for the first time, such as at networking events, conferences, meetups, etc.
  • Contact anyone who has done business with you in the past and ask them to invest.

Now, What Can You Say After?

The two types of communications that are permitted by the SEC post-launch falls into two categories:

  • Communications that don’t mention the “terms of the offering” (Non-Terms).
  • Communication that just contains “tombstone” information (Terms).

A term, or you’ll also hear it referred to as tombstone information, is communications regarding the share price of a particular equity. As stated earlier, Non-Terms are any communications that do not mention terms.

In addition, it’s also very important to mention that mixing terms and non-terms in your marketing communications is a no-no.

Can I Use My IRA for Private Company Investments?

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

 

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

 

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

 

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

 

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

 

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

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.

How Does Social Media Impact RegCF Offerings?

Reg CF allows companies to raise up to $5 million through an SEC-registered intermediary.  Since increasing this limit from $1.07 million in 2021, private companies have raised over $1 billion in Reg CF offerings. This highlights Reg CF’s incredible success in opening the doors to capital for these issuers. For many of these offerings, social media is a key component to success by increasing investor awareness and conducting a successful offering.

 

Social Media’s Impact on Reg CF

 

Social media is essential for companies looking to make a Reg CF offering. It can build awareness and interest among institutional and retail investors and help generate traffic to their offering’s listing on a funding portal or the broker-dealer who hosts the offering. It can expand your crowdfunding campaign’s reach using social tools to raise more money.

 

As soon as companies file their Form C with the SEC, they can begin to communicate outside the funding platform about their offering. However, they must be careful about what they say. They are limited to communications that don’t mention the terms of the offering and “tombstone” communications. Issuers can continue marketing their product or service as usual, as securities regulations understand that the issuer still is running a business and trying to generate a profit. After the Form C has been filed, issuers can also increase the amount of marketing materials they create, as long as they follow SEC guidelines. Issuers are also subject to anti-fraud rules, even in non-terms communications.

 

Capitalizing on Campaigns

 

Building awareness and interest in your Reg CF offerings using social media, you reach investors who may have been unaware of opportunities to invest. Thanks to Reg CF,  startups and established companies alike can get started fundraising quickly with lower initial costs than traditional methods of raising capital. When combined with social media, the result is an effective way to get the word about the raise to many people hoping that they turn into an investor.

 

It has been made clear that social media and mobile marketing are necessary parts of Reg CF offerings. Social media marketing is an increasingly important part of any company’s digital strategy, so having these platforms as part of Reg CF efforts will give issuers the best chance for success with campaigns. It also helps businesses target their current audience to invest in their offering.

 

Social media is an excellent tool for companies to use when making Reg CF offerings. Whether you are looking to raise more money or get the word out about your company, social media can be used in various ways that will help your business grow and succeed with Reg CF.

What Franchisees and Franchisors Should Consider when Crowdfunding

With franchisees and franchisors looking to secure capital, a growing trend is using Regulation CF to raise capital from accredited and nonaccredited investors. Since RegCF’s expansion to $5M in early 2021, the updated limit provides even more potential for franchises to raise the money they need to fund operations and expansions. 

 

Here are some things franchisees and franchisors should consider:

 

Anyone Can Invest

 

Regardless of income, anyone can invest in a RegCF offering. This means that both wealthy accredited investors and everyday investors can also become shareholders. With this in mind, the pool of potential investors increases substantially compared to traditional private investments. 

 

Fees and Compliance

 

When conducting a RegCF offering, franchisees and franchisors should be prepared to pay portal fees, potential broker-dealer fees, and legal fees to prepare the offering documents, for example. There will also be a cost to engage with an investor acquisition firm to market the offering to potential investors. 

 

Building the Franchise 

 

While one of the most obvious advantages of a crowdfunding campaign is securing funding to grow, there are other benefits. For example, some investors may become franchisees while others are incentivized to become loyal customers. A successful RegCF campaign can also be useful for brand marketing. 

 

Alternative Financing

 

For some franchisees, getting a traditional bank loan is not possible. Some banks have requirements for how long a franchise has been open when applying, so this option is not feasible for newer franchises. Instead, crowdfunding can provide the necessary funding to open or expand to new locations. 

 

More Favorable Terms

 

Sometimes, offers from private investors like venture capital or private equity firms can be unattractive to franchisors. The investor may request too much control over the company that the owner would not want to give up, making the deal impossible. Instead, crowdfunding allows companies to dictate the deal and retain control over the company. 

Is Email Still King for Reg A, Reg CF, and Reg D Marketing?

This article was originally written by KorePartner Dawson Russell of Capital Raise Agency. View the original post here.

 

Email marketing has been around for a while. You might even be surprised to read that email has been around since the ’70s — over 50 years ago!

 

You’d think that as fast as the digital world moves, such a dinosaur of a marketing strategy would be nothing more than a relic or extinct.

But it’s not.

In fact, email marketing is somewhere in the ballpark of 40 times more of an effective marketing strategy than social media marketing, according to a study conducted by McKinsey & Company.

So why is that?

How is email marketing still king when we now have search engine optimization (SEO), social media marketing, mobile marketing, pay-per-click, content marketing, and influencer marketing all at our fingertips?

Here’s are 3 of the main reasons:

1. It’s Highly Customizable

The most crucial and effective way to have success with your email marketing strategy is to implement what’s known as “customer segmentation.” This means you can use customers’ recent and relevant searches & interests to your advantage and generate custom-made emails for them in a way that is MUCH more effective than other approaches. Customer segmentation also allows you to be much more tactful with your email timing, so you can avoid spamming their inboxes.

Even better, you can pivot your customer segmentation strategy quickly by reviewing click rates, bounce rates, and subscribe & unsubscribe rates.

2. It Provides Better Conversion Rates

It doesn’t matter if your focus is on Reg A email marketing, Reg CF email marketing, or Reg D email marketing, it will still have a better conversion rate than any other method.

Email has been traditionally regarded as the most transactional part of a company or business.

Think about it.

You can generate traffic to your business and/or convert a visitor to an investor with just a single click of a link. They can reply directly, sign-up for other newsletters, forward the email to other potential investors, and more.

According to a study done by Statista, over 93% of Americans between the ages of 22-44 used email regularly, and over 90% of Americans between the ages 45-64. Even 84% of people 65+ were regular email users.

3. It’s a Cinch to Automate

Once you get everything written out and running properly, you can launch a highly effective Reg A, Reg CF, or Reg D marketing campaign, with minimal effort compared to other methods.

With the right automation tools to go along with your campaign strategy, you can create and deliver automated emails that are not only relevant to your subscriber list but generate leads and new investors at the same time.

In Conclusion…

Email marketing really is still the best way to reach out to potential investors and remains the king of the digital marketing world. When utilized and implemented properly, it can build leads to potential investors, and strengthen brand trust and loyalty in a way that enables your fund to grow more than you would’ve thought possible.

PS: did you know that adding PS to your email marketing campaigns could increase click-through rates by an extra 2%?

End to End for RegCF

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

 

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

 

Getting Started with RegCF

 

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

 

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

 

What do RegCF Broker-Dealers Need?

 

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

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

 

What Compliance is Needed?

 

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

 

What Does an Issuer Do to Prepare?

 

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

 

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

 

Investment Process for RegCF

 

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

 

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

 

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

 

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

 

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

What are the Benefits of Digital Securities for Issuers and Investors?

With the emergence and development of blockchain technology, digital securities have seen wider adoption by investors and investment firms. Arising from the need for protection against fraud and as a way for investors to ensure asset ownership, digital securities are a digital representation of traditional securities and follow the same regulatory rules. Since their first appearance, digital securities have come to represent any debt, equity, or asset that is registered and transferred electronically using blockchain technology. 

 

Digital securities are made possible by blockchain, also known as “distributed ledger technology”. Distributed ledger technology is a database where transactions are continually appended and verified across by multiple participants, ensuring that each transaction has a “witness” to validate its legitimacy. By the nature of the system, it is more difficult for hackers to manipulate, as copies of the ledger are decentralized or located across multiple different locations. Changes to one copy would be impossible, as the others would recognize it as invalid.

 

Distributed ledger technology allows digital securities to be incredibly secure. Ownership is easily recorded and verified through the distributed ledger, a huge benefit over traditional securities. Any transfer of digital securities is also recorded and with each copy of the transaction stored separately, multiple witnesses of the transaction exist to corroborate it. 

 

With traditional securities, investors can lose their certificate of ownership or companies can delete key files detailing who their investors are. Without a certificate, proving how many shares an investor owns would be incredibly challenging. In contrast, digital security ownership is immutable. Investors are protected by always being able to prove their ownership since the record cannot be deleted or altered by anyone. Additionally, investors can view all information that is related to the shares they’ve purchased, such as their voting rights and their ability to share and manage their portfolios with both accuracy and confidence. 

 

Since the record is unchangeable, it also serves as a risk management mechanism for companies, as the risk of a faulty or fraudulent transaction occurring is removed. Digital securities are also greatly beneficial to the company when preparing for any capital activity since the company’s records are transparent and readily available. With traditional securities, the company would typically hire an advisor to review all company documents. If the company has issued digital securities, this cost is eliminated, as it is already in an immutable form.  

 

Also making digital securities possible are smart contracts that eliminate manual paperwork, creating an automated system on which digital securities can be managed. Integrated into the securities is the smart contract, which has preprogrammed protocols for the exchange of digital securities. Without the time-consuming paper process, companies can utilize digital securities to raise funds from a larger pool of investors, such as the case with crowdfunding. Rather than keeping manual records of each transaction, the smart contract automatically tracks and calculates funds and distributes securities to investors. 

 

Companies that are looking to provide their investors with the ability to trade digital securities must be aware that they are required to follow the same rules set by the SEC for the sale and exchange of traditional securities such as registering the offering with the SEC. This ensures that potential investors are provided with information compliant with securities regulation worldwide. According to the SEC, investors must receive ongoing disclosures from the issuer so they can make informed decisions regarding ownership of their securities. Companies that are not compliant with the SEC can face severe penalties and may be required to reimburse investors who purchased the unregistered offerings. 

 

Besides the companies offering securities, broker-dealers must also register with the Financial Industry Regulatory Authority (FINRA). Similarly, platforms on which digital securities can be traded must register as an Alternative Trading System operator with the SEC. Both broker-dealers and ATS operators can face severe penalties if not properly registered. 

 

Possibly the greatest benefit of digital securities is that it allows for smoother secondary market transactions. With records of ownership clear and unchangeable, an investor can easily bring their shares to a secondary market. Transactions are more efficient and parties have easy access to all necessary information regarding the securities being traded, removing the friction that is typically seen with traditional securities. 

 

At KoreConX, the KoreChain platform is a fully permissioned blockchain, allowing for companies to issue fully compliant digital securities. Records are updated in real-time as transactions occur, eliminating errors that would occur when transferring information from another source. The platform securely manages transactions, providing investors with support and portfolio management capabilities. Additionally, the KoreChain is not tied to cryptocurrencies, so it is a less attractive target for potential crypto thieves. KoreChain allows companies to manage their offerings and company data with the highest level of accuracy and transparency.

 

Since digital securities face the same regulatory rules as traditional ones, investors are protected by the SEC against fraudulent offerings. This, together with the security and transparency that blockchain technology allows, creates a form of investment that is better for investors and issuers alike. Since the process is simplified and errors are decreased without redundant paperwork, issuers have the potential to raise capital more efficiently. They will also be better prepared for future capital activity. For investors, a more secure form of security protects them from potential fraud and losses on their investments. With digital securities still in their infancy, it will be exciting to see how this method of investment changes the industry. 

$1 Billion Raised Through RegCF

It seems 2021 is the year where we continue to break new ground for the JOBS Act, and today marks a momentous milestone in its history. Fundamentally, the act was designed to empower businesses and democratize capital. Not only has it succeeded in this goal, but it has also allowed companies to create jobs and return ownership to company founders. Recently, the amount of capital raised under Regulation CF offerings has reached an amazing milestone: $1 Billion USD over the lifetime of the exemption. 

 

This tremendous achievement would not have been achieved without the great work done by those in this sector. As of June 2020, there were 51 active RegCF funding platforms, a number that continues to grow as we see continued expansion on offering limits from regulators to make this funding method even more powerful. Now, over a year later, and after RegCF offering limits increased to $5M USD, we see nearly 70 regulated crowdfunding portals registered with FINRA.

 

We would not be arriving at this milestone today without the great work our of KorePartners in the industry, many of which have the same mission of creating equal access to the private capital markets for the everyday investor and include:

 

 

And perhaps most importantly, we would like to thank you: the investors who have poured capital into causes and businesses you are passionate about. Without your investments, we would be a long road away from the milestone we celebrate today. You have made the JOBS Act a reality and a phenomenal success that we could not have achieved without you. The everyday investors have been the lifeblood of this industry, fueling innovation, company growth, and job creations with your investments.

 

With more capital poured into private companies through these regulations, there is more opportunity than ever before for companies to succeed and investors to get involved with innovative, industry-changing companies. Such opportunities were previously unavailable to Main Street investors, but the JOBS Act has radically changed this landscape. After the incredible growth over the last nine years since the JOBS Act’s initial passage, it will be exciting to see how the space progresses over the next decade. 

 

Hooray to $1 Billion USD and counting!

 

As we move into the future, this is the group that will advance RegCF to raise $5 Billion USD for private companies:

Reflecting on Canadian Small Business Week

As Small Business Week comes to a close in Canada, KoreConX reflects on the role small businesses play in the economy. Our mission has long been to empower the private capital markets with the tools needed to take advantage of innovative capital raising opportunities. 

 

Earlier this week, Canadian Prime Minister Justin Trudeau shared his statement on Small Business Week. He said, “As we mark the start of Small Business Week in Canada, we recognize that the past year and a half have been difficult for small businesses, their owners, and their employees. Small businesses across the country were asked to make countless sacrifices to protect the health and safety of people and communities. Through it all, they have shown incredible courage and resilience, and an unprecedented ability to adapt and innovate. And while some businesses have now reopened their doors, many still need support as they continue to grapple with the impacts of the pandemic.”

 

This idea comes jointly with unprecedented access to capital raising opportunities. In March 2021, updated to offering limits under Regulation CF increase to $5 million USD, which small businesses can use to fuel innovation and job creations. When RegCF was first signed into law through the JOBS Act in 2012, the mission was to democratize capital to allow anyone to invest, give company ownership back to founders, and create jobs.

 

With 8.4 million individuals or 68.8% of the Canadian workforce employed by small businesses, it is clear to see their vitally important role in the economy. Similarly, small businesses were responsible for 35.8% of the employment growth between 2014 and 2019. “Small businesses drive our economy by creating the goods and services we need while employing millions of Canadians,” added Trudeau in his statement. 

 

Even as small businesses continue to recover from the global pandemic, capital raising opportunities like RegCF, which are cost-effective, can provide needed relief. Additionally, they can be incredibly successful, especially for small businesses with dedicated and loyal customers willing to invest. 

 

The Role of Investor Acquisition in Capital Raising Activities

The goal of any capital raising activity is to secure capital for the growth and development of the business. Without needed capital, it can often be challenging to expand; whether that means hiring more employees to keep up with demand, improving production facilities to manufacture a product, or funding research and development to bring more products or services to the market. However, in order to actually raise the capital required, potential investors need to be made aware of the offering and the opportunities becoming a shareholder entails. This requires marketing.

 

When it comes to RegA+ and RegCF offerings, the potential to sell securities to the everyday investor is powerful, opening up the market to a vast pool of potential investors not available to private companies before the 2012 JOBS Act. However, this also creates the need for companies to find the best way to reach their target audience and make them aware of the investment opportunity. Through marketing, you are able to inform prospective investors of the opportunity to invest in your company. 

 

More than ever before, social media has become an integral part of marketing activities across all business sectors. It allows you to reach your audience where they’re at, and as nearly seven in ten Americans are on social media, that place is online. Through social media, businesses can tell their story and use that to drive investors (and even new customers) to support their brand. Beyond social media, marketing becomes a key component of investor acquisition. Through investor acquisition, a company is able to target investors based on demographics; whether that is people who exhibit similar behaviors to shareholders, by age, by location, or by any other meaningful factor that allows you to identify the right investor for your company. The methods to target these prospects are just as diverse. While we’ve already mentioned social media, email marketing is still an effective media channel, along with online advertising, and many more channels of marketing. The importance is to use whichever channels allow you to best reach your target audience. 

 

The key to marketing is that it helps publicize your offering and find the best investors for your company. Successfully marketing an offering, as long as advertisements are truthful and not misleading, can make a significant difference in the raise’s success. Similarly, finding the right investor acquisition partner with experience in marketing capital raising activities can help ensure you meet compliance and use the most effective strategies for reaching the right audience. 

How to Select a Crowdfunding Platform for Your Capital Raise

One of the significant advancements brought to the financial sector in recent years was the enaction of the JOBS Act signed into law by President Obama on April 5th of 2012. Within that legislation contained a form of raising capital for private companies available to any American, whether they were accredited investors or not. This was Regulation CF or regulated crowdfunding.

When Reg CF was implemented, it limited the amount an unaccredited investor could invest and how much a private company could raise. In March 2021, the limit a company can raise increased to a maximum of $5 million within 12 months. Previously, before the introduction of Reg CF, it was challenging for the average investor to invest in a private company, as they did not have the capital to do so. This is now possible through Reg CF, which uses equity crowdfunding platforms to connect investors and private companies. 

Funding portals are regulated by FINRA, which imposes compliance on the organizations that provide the service and includes regulatory oversight and reporting requirements. FINRA has a list of funding portals registered and regulated by FINRA, which is the first thing to check when considering a funding portal. 

Part of the value of crowdfunding platforms for private companies is establishing demand and a proof of concept. If people are willing to invest in a Reg CF offering, it shows that people want a product or service to succeed. So, choosing the correct equity crowdfunding portal for you depends on the user base of that platform. For example, let’s look at three portals to see the differences of who is investing on those platforms. 

FanVestor is a platform predominantly for celebrities looking to raise money for a product or a charity. If, as a private company, you are among this group of people, this would be an effective platform, as investors would look here for you. In contrast, if you are a startup, you would be looking at portals like Republic or WeFunder. These two portals focus on startups, with Republic focused on real estate, video games, and crypto, and WeFunder, focused on giving small businesses and startups an alternative to venture capital and banks; their focus is “fixing capitalism.”

Look at where the investors are and what they are excited about, and then match that with your goals and vision. This is the best way to choose the right funding portal. It puts your company in the best place to raise the most capital and take your vision from dream to reality, with the backing of investors that believe in you. 

Beyond that, look to see which platform is the most beneficial for your situation. Consider how much they will charge and help you with the campaign. The purpose of working with a funding portal is to put your company, product, or service in the best possible position for success. The right crowdfunding platform will balance your weaknesses with their strength. 

Using RegCF to Raise Money for a Non-US Business

To use Reg CF (aka Title III Crowdfunding), an issuer must be “organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.” That means a Spanish entity cannot issue securities using Reg CF. But it doesn’t mean a Spanish business can’t use Reg CF.

First, here’s how not to do it.

A Spanish entity wants to raise money using Reg CF. Reading the regulation, the Spanish entity forms a shell Delaware corporation. All other things being equal, as an entity “organized under, and subject to, the laws of a State or territory of the United States,” the Delaware corporation is allowed to raise capital using Reg CF. But all other things are not equal. If the Delaware corporation is a shell, with no assets or business, then (i) no funding portal should allow the securities of the Delaware corporation to be listed, and (ii) even if a funding portal did allow the securities to be listed, nobody in her right mind would buy them.

Here are two structures that work:

  • The Spanish business could move its entire business and all its assets into a Delaware corporation. Even with no assets, employees, or business in the U.S., the Delaware corporation could raise capital using Reg CF, giving investors an interest in the entire business.
  • Suppose the Spanish company is in the business of developing, owning, and operating health clubs. Today all its locations are in Spain but it sees an opportunity in the U.S. The Spanish entity creates a Delaware corporation to develop, own, and operate health clubs in the U.S. The Delaware corporation could raise capital using Reg CF, giving investors an interest in the U.S. business only.

NOTE:  Those familiar with Regulation A may be excused for feeling confused. An issuer may raise capital using Regulation A only if the issuer is managed in the U.S. or Canada. For reasons that are above my pay grade, the rules for Reg CF and the rules for Regulation A are just different.

 

This blog was written by Mark Roderick of Lex Nova Law, a KorePartner. The article was originally published on Mark’s blog, The Crowdfunding Attorney.

What Forms of Alternative Finance are Available?

Starting a business can be difficult. Most young companies enter the scene with little capital to help them grow. Taking a loan out from the bank is a good start, but some options can end in higher rewards without a loan hanging over your head. These are alternative finance options, like raising seed capital from friends and family, angel investors, or crowdfunding. Today, we will explore forms of alternative finance available to you as a private company and where in the life cycle of your business they may appear. 

Friends and Family

In the early stages of your company’s business life cycle, raising capital from family and friends is a great place to start securing safe, additional funding if you are able. When your family and friends are early investors, they are not required to register as such, making it easy for them to help your growing company. In this stage of your company’s development, entrepreneurs will want to retain as much equity as possible. Friends and family investors make this possible without needing to give up part of a growing company. 

As you begin to accelerate your business plans, there are several avenues available that can help you raise significant capital and increase your valuation if (or when) you plan to offer your company later on the public market.

Angel Investors or Venture Capital Firms

As a private company, one of the traditional ways for you to raise capital is through an angel investor, a wealthy individual, or a venture capital firm, a group of investors that invest in companies on behalf of their clients to make them money. Both of these investors will generally invest early, requiring equity and hoping for a successful return on investment later on. 

Peer-to-Peer Lending 

Peer-to-peer lending is a pretty straightforward form of alternative finance. Typically, through online platforms, investors can enter a pool of lenders, which a borrower can pull from and then repay. This form of investment cuts out the bank as the middleman, which opens up access to companies that may not have good credit. 

Crowdfunding

Crowdfunding is a great mechanism for investments that build a company’s proof of concept because crowdfunding success relies on having a product or service people want or believe in. As the name would imply, crowdfunding is sourcing small investments from a large number of investors and falls into one of two categories rewards-based or equity-based offerings. 

Rewards-Based Crowdfunding

Rewards-based crowdfunding is an investment that expects compensation in the form of the product a company is producing. A good platform for this form of crowdfunding is Kickstarter. You will often see independent video game developers or small business owners looking to raise capital for a particular product and offer rewards based on how much an investor invests. 

Equity-Based Crowdfunding or Regulation CF

Regulation CF is a crowdfunding tool regulated by the SEC signed into law in 2012. However, it has recently expanded to allow more investing opportunities. The JOBS Act allows non-accredited investors to invest in private companies in exchange for equity in the company. More specifically, for investors with either a net worth or annual income less than $107,000, investments in Reg CF offerings are limited to $2,200 or 5% of the greater of their annual income or net worth. 

This tool allows companies to raise as much as $5 million in 12 months from many investors. In 2020, 358,000 investors participated in Reg CF campaigns. 

Regulation A+

Another method of allowing companies to have non-accredited investors invest in their companies is Regulation A+, by exempting the offering from SEC registration. Many companies have begun to offer securities through the RegA+ exemption following a successful RegCF raise. Proceeding this way will elevate your chances of raising more money, up to $75 million annually, because the Regulation CF will show potential investors that the products or services offered by the company are of great interest to many individuals. It is important to note that non-accredited investors are limited to investing 10% of their annual income or net worth, whichever is greater.

 

There are many avenues of alternative finance to investigate before going to a traditional financing option as a private company. We encourage you to look into all of these types and see which is right for you and your business. 

 

What is Regulated Crowdfunding

On April 5th of 2012, President Obama signed into law legislation called the JOBS Act. Four years after that act was signed, Title III of the JOBS Act was enacted. This was Regulation CF, which allows for private companies in their early stages to use crowdfunding to raise money from any American, not just accredited investors. This opened the doors with funding portals for companies to trade securities to a larger pool of investors to raise needed growth capital and allow average people to benefit from the possibility of investing in an early-stage company.

When it was first implemented in Spring 2016, Reg CF allowed companies to raise a maximum of $1.07 million within 12 months. Now, with new amendments added to the law by the SEC that went into effect in March 2021, companies can raise a maximum of $5 million. You may be familiar with the idea of crowdfunding with the success of websites like Kickstarter, and this works similarly. Instead of donation tiers that would award you merchandise from the campaign, investing in a private company with Reg CF will give you securities or equity in the companies. Previously, the barrier for entry into this investment type was very high, as you needed a lot of capital to invest in a private company. 

The new amendments still have a limit on how much a particular individual can invest when it comes to non-accredited investors but removed the limits on accredited investors. More specifically, for investors with either a net worth or annual income less than $107,000, investments in Reg CF offerings are limited to $2,200 or 5% of the greater of their annual income or net worth.

Reg CF is typically used for early-stage startups to build capital and has significantly changed the road map for entrepreneurs, allowing them to look to crowdfunding options before venture capital investments. Because the cost and barrier to entry for Regulation CF lower than with Reg A, many companies are using this after their first round of funding to prove the viability of their concepts and build a business. Then after a successful Reg CF, raising up to $5 million, this proves that there is interest in what you are building. In turn, this improves your valuation and allows for a much more successful Reg A campaign that could help you raise even more capital. 

There is a significant benefit to everyone involved in a Reg CF. The companies running the campaign are raising money to prove their viability, fuel the growth, and democratizes capital, allowing everyday Americans to participate in a system that was until recently closed to them. In 2020, 358,000 investors participated in Reg CF campaigns, a significant increase from the 15,000 investors participating in 2019. RegCF is a way for Americans to diversify their investment portfolio. They can grow as an investor by investing in a private company with a much lower entry cost.

With Reg CF garnering much success for both investors and issuers alike, it will be exciting to see how it continues to evolve in the future. We may see even higher raise limits, further expanding access to capital, increasing the number of American jobs, and further democratizing investment opportunities.

 

Reg A and Reg CF Issuers: Time to Count Your Shareholders!

Reg A and Reg CF have been around for a few years now and we are finding that some of our clients, especially those that have made multiple offerings, are getting to the point where they need to consider the implications of Section 12(g) of the Securities Exchange Act, which requires companies to become registered with the SEC when they meet certain asset and investor number thresholds.

Let’s start with the requirements of Section 12(g). It says that if, on the last day of its fiscal year, an issuer has assets of $10 million and a class of equity securities held of record by either 2,000 persons or 500 persons who are not accredited investors, it has to register that class of securities with the SEC.

Drilling down on each of those elements:

  • Assets: This is gross, not net, and it will include any cash that a company has raised in an offering but not spent yet.
  • Class of equity securities: Issuers with multiple series of preferred stock or multiple series in a series LLC will need to talk to their lawyers about what constitutes a separate “class.”
  • Held of record: Brokers or custodians holding in “street name” count as a single holder of record. Crowdfunding SPVs created under the SEC’s new rules also count as one holder, and as discussed below, there are special, conditional, rules for counting Reg A and Reg CF investors.  But check with your lawyers whether you need to “look through” SPVs formed for the purpose of investing in Reg D offerings.
  • Accredited status: Issuers are probably going to have to make assumptions as to the accredited status of their investors unless they maintain that information separately, and assume investors in Reg D offerings are accredited, and investors in Reg A and Reg CF offerings are not.
  • Registering a class of securities in effect means filing a registration statement with all relevant information about the company and becoming a fully-reporting company. This includes PCAOB audits, quarterly filings, proxy statements, more extensive disclosure and all-round more expensive legal and accounting support.

Since becoming a fully-reporting company is not feasible for early-stage companies, both Reg A and Reg CF are covered by conditional exemptions from the requirements of Section 12(g). The conditions for each are different.

Issuers need not count the holders of securities originally issued in Reg A offerings (even if subsequently transferred) as “holders of record” if:

  • The company has made all the periodic filings required of a Reg A company (Forms 1-K, 1-SA and 1-U);
  • It has engaged a registered transfer agent; AND
  • It does not have a public float (equity securities held by non-affiliates multiplied by trading price) of $75m, or if no public trading, had revenues of less than $50m in the most recent year.

Issuers need not count the holders of securities issued in Reg CF offerings (even if subsequently transferred) as “holders of record” if:

  • The company is current in its annual filing (Form C-AR) requirements;
  • It has engaged a registered transfer agent; AND
  • It has total assets of less than $25m at the end of the most recent fiscal year.

It’s important that the issuer’s transfer agent keep accurate records of which exemption securities were issued under, even when they are transferred. As of March 15, 2021, Reg CF also allows the use of “crowdfunding vehicles”, a particular kind of SPV with specific requirements for control, fees, and rights of the SPV in order to put all of the investors in a Reg CF offering into one holder of record. This is not available for Reg A, and still comes with administrative requirements, which may make use of a transfer agent still practical.

If an issuer goes beyond the asset or public float requirements of its applicable conditional exemption, it will be eligible for a two-year transition period before it is required to register its securities with the SEC. However, if an issuer violates the conditional exemption by not being current in periodic reporting requirements, including filing a report late, then the transition period terminates immediately, requiring registration with the SEC within 120 days after the date on which the issuer’s late report was due to be filed.

It’s good discipline for companies who have made a few exempt offerings and had some success in their business to consider, on a regular basis, counting their assets and their shareholders and assess whether they may be about to lose one or both of the conditional exemptions and whether they need to plan for becoming a public reporting company.

Shareholder Rights and Why They’re Important to Know

The first thought that comes to mind when someone says “shareholder,” is Wall Street, understandably, as Wall Street is home to the New York Stock Exchange and NASDAQ, the two largest stock exchanges in the world. In this sense, becoming a shareholder is dependent on owning stock. A common word in the financial industry, a stock is a unit of measure for how much of a company a shareholder owns. When it comes to the stock market found on Wall Street, those are stocks being traded in public companies, like Apple, Microsoft, and Amazon. These are household names, but there are also privately-owned companies that you would know by name, like Koch Industries, Bloomberg, Staples, and Petsmart. These private companies also have shareholders, who have rights associated with their ownership in a private company. For private company shareholders, there are three major rights; access to information, voting rights, and the ability to attend and participate in meetings.

 

One quick comparison we can make between private and public companies is the number of shareholders they have. Because a public company has shares available on the stock market, there is a greater opportunity for everyday people to grab at least one share, while private companies traditionally have far fewer shareholders because there is less access. However, the JOBS Act is changing the landscape, allowing the everyday investor to access more investment opportunities in private companies through Regulation A+ and Regulation CF. These regulations allow investors to invest smaller amounts of money in exchange for shares of a private company. No longer are these types of investments limited to accredited, angel, and venture capital investors. 

 

However, this plays a role in the rights of shareholders due to the volume of your voice in meetings and decisions. One right that shareholders have is the ability to attend meetings on major decisions in the company. When there are fewer investors in a company, the louder your voice will be in the room. This is important because by owning a part of that company, shareholders gain the right to participate and attend meetings to protect their investment from decisions that they feel would misuse their funds.

 

As a shareholder, you have the right to vote on major decisions being made by the company that could very well change the direction of the company. This again goes back to protecting your investment, as investing in a private company is often a long-term investment. Private company earnings can be paid out to shareholders, but the more likely scenario for a shareholder in a private company, especially if it is not a particularly large company, is a liquidity event, such as going public, buying out shareholders, or by being able to offer shares for sale on a secondary market alternative trading system. Making sure that your investment is safe is why you have the right to vote on major decisions. The same is true for your access to information. As a shareholder in a private company, you have a right to know how the company is doing, to see how your investment is playing out.

 

It is important to know your rights as an investor whether it is in a public or private company because you have put your money in the hands of others with the expectation that they will use it to grow and make more money for you in the future. As an investor in a private company, you have more say than an investor in a public company by the fact that you are one of few as opposed to one of many. Use that power and protect your investment; remember that if you own stock, you own part of the company and have rights. 

What is Portfolio Management?

Portfolio management, at its most basic level, is the way that an investment portfolio is designed to align with the wants and needs of the investor. Portfolio management focuses on creating an investment strategy that factors in the goals set by the investor, the timeframe involved in the investment, and the risk tolerance of the investor.

 

This is done by picking a variety of kinds of investments like stocks, bonds, and other funds and monitoring and adjusting them as needed. There are two ways that portfolios are managed: actively and passively. Often, this will be decided by the risk tolerance that a specific investor has. With Regulation A+ and Regulation CF, the everyday investor can choose to invest in private companies as well, which significantly expand opportunities to be a part of new and exciting investments.

Active portfolio management is a hands-on approach that involves hiring portfolio managers who buy and sell stocks intending to outperform investment benchmarks. To try and outperform these benchmarks, portfolio managers have to take some risks in the investments they make. Some of these risks lead to big rewards, but as with all risks, they can also lead to large losses to the investor. Portfolio managers have a fiduciary responsibility to act in good faith regarding the investment, and also have fees attached to them based on the size of the portfolio and the return on investment of the portfolio. 

 

Passive portfolio management is a mostly hands-off approach where the investor is trying to match investment benchmarks rather than trying to outperform them. Portfolios that are managed passively are frequently managed by the investor, so no fees are going to a portfolio manager. Instead of buying and selling specific stocks, passive portfolios are usually invested in exchange-traded funds, index funds, or mutual funds. This is a very low-risk approach that values slow and consistent growth over time, making it a great long-term investment strategy.

 

There are four pillars in portfolio management: asset allocation, diversification, rebalancing, and tax minimization. Asset allocation is the practice of spreading your investment into a variety of different assets like stocks, bonds, and mutual funds. Good asset allocation means that an investor takes on a smaller amount of risk because investments are protected due to the various places that assets are allocated. Diversification is about making sure that investors don’t put all of their eggs in one basket, because if that investment fails, there is a lot of money to be lost.

 

Rebalancing is done every so often as a way to hit the reset button on asset allocation. Over time, some investments might be doing very well, while others might be doing very poorly. To maintain a low-risk nature, it is important to sell both assets that are doing well and ones that are not. Over time, market fluctuations might cause a portfolio to get off course from the goals that were originally set, so rebalancing keeps the train going down the right track. Tax minimization focuses on trying to keep as much of the money that your investment made as possible. Capital gains get taxed differently depending on what investments they came from and where. Investments in exchange-traded funds or mutual funds, for example, get taxed at a much lower rate than investments in stocks. The goal is to keep as much money as possible!

 

Whether you’re saving for your first house or saving for your dream house, good portfolio management will result in investors being able to set, meet, and surpass their financial goals. The right portfolio management strategies will help to build a worthwhile return.

 

What is Alternative Finance?

By definition, alternative finance includes any financing source outside of the traditional realm of the traditional finance systems like regulated banks and stock markets. Such methods include raising seed capital from friends and family, angel investors, venture capital firms, peer-to-peer lending, or crowdfunding. In contrast, traditional finance options require companies to apply for loans from a regulated bank or publicly offer stocks for sale to the public.

For companies in their earliest stages, raising capital from family and friends is often a safe way to secure additional funding. Friend and family investors are not required to register as investors, unlike traditional investors, making it easy for them to contribute to a growing company. Often founders do not need to relinquish equity to friend and family investors, allowing founders to retain as much equity as possible through their early stages.

If a company requires more financial resources, its next options may be angel investors and venture capital firms. With angel investors, wealthy individuals invest using their own money and meet the SEC’s accredited investor requirements. It is quite common for angel investors to act as a mentor to the companies they invest in, anticipating that it will help them secure a return on their investment. Venture capital firms often invest in startup companies that display the potential for a successful return and are SEC-registered and regulated. Rather than investing their own money, they invest money from other investors to generate profits for the investor. Typically, venture capital firms request equity so that they can have a share in the company’s development.

Another alternative form of financing is through peer-to-peer lending. Typically through online platforms, applicants are matched with lenders who are typically individual people. Interest rates are usually low and are not regulated by traditional banks. Platforms assess borrowers for risk to determine if they are eligible to invest.

One of the fastest-growing forms of alternative finance is crowdfunding and can include both rewards-based and equity-based offerings. With rewards-based crowdfunding, investors invest to be compensated with products that the company offers. Equity crowdfunding allows investors to exchange their investments for equity in the company. Equity crowdfunding is supported by Regulation CF, which allows private companies to raise up to $5 million from non-accredited investors, usually done online through the various crowdfunding portals presently available or a broker-dealer. Crowdfunding is extremely valuable in that it allows avid brand supporters to become investors and become an advocate for the companies they love. For non-accredited investors, the maximum investment per year is either $2,200 or 5% of their annual income, whichever is greater.

Regulation A+ is another method allowing companies to receive investments from non-accredited investors by exempting the offering from SEC registration. Companies can secure up to $75 million annually through this method of funding. Non-accredited investors are limited to investing 10% of their annual income or net worth, whichever is greatest.

The variety of alternative finance options are attractive to companies who would like to go routes other than a traditional bank loan or those who may not be eligible for one.

Are You Ready to Raise 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 investmentsand 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.

How a Member of the Crowd Made Crowdfunding Easier

A while back, one of our favorite start-up clients called me and asked me to speak to a potential investor. Paul Efron, a resident of Arizona, wanted to invest in the company’s Regulation A offering. However, when he went onto the company’s website to invest, his subscription was rejected. The company was accepting subscriptions from investors in every state but Arizona and Nebraska.

Why Arizona and Nebraska, asked Paul?

The reason was that while federal law and most states’ laws say that a company selling its own securities is exempt from broker-dealer registration, that’s not the case in a handful of states. These states say that if a company isn’t using a registered broker-dealer to sell in their state, the company has to register itself as an “issuer-dealer.” Depending on the state, that can involve letters to the regulators showing that the company and its officers are familiar with securities regulations, fingerprints, and, in the case of Arizona, a requirement that the company comply with “net capital” requirements as if they were an actual broker. Start-ups, of course, very rarely have any excess capital sitting around. So our client decided just not to sell in Arizona. (There were similar issues in Nebraska, which has since changed its rules.)

Paul could have done several things at this point. He could have pretended he lived somewhere else. He could have given up and invested in something else. But, being an entrepreneur himself, he decided the law needed to be changed, and set about changing it.

He reviewed the Arizona legislature website and saw that every legislator gets an email address on the website.  The way the website email system is setup, doing a mass email campaign with individual emails was possible.  Paul sent out an email to every one of the 30 Senators and 60 Representatives which took about an hour of click, click, cut and paste.  He found the autofill function very helpful.  Republican Senator Tyler Pace and Democratic Representative Aaron Lieberman replied to the email.  Having a member of both parties from both houses was perfect for this nonpartisan bill.  He brought me in to explain the issue to the legislators, their staff and the relevant committee staff. They listened, understood, and drafted. The first attempt at getting the legislation through was derailed because of COVID.  Paul contacted the legislators again.  The bill was reintroduced, passed this session, and the Governor signed it into law last week.

Start-ups (and Arizona investors) owe Paul. Not just for getting this roadblock removed, but for setting an example of what can happen when a citizen looks at a regulation and says “Well that doesn’t make any sense; how do I fix that?”

Managing Your 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.

Can IRAs Be Used for Private Companies Investments?

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

 

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

 

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

 

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

 

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

 

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

KoreConX CEO Oscar Jofre was Recently Interviewed on DNA Podcast

Recently, KoreConX President and CEO Oscar Jofre had the pleasure of joining Jason Fishman on the Digital Niche Agency podcast. Jason and DNA are valued KorePartners and their podcast Test. Optimize. Scale. feature actionable insight for industry leaders on how to grow and optimize brands. 

 

In this episode, Jason and Oscar discuss how he was able to test, optimize, and scale KoreConX. In addition, they discuss the growing potential of Regulation Crowdfunding (RegCF) and the impact it will have on the private capital markets. 

 

The full episode can be listened to on Spotify or YouTube

KorePartner Spotlight: Jonny Price, Vice President of Fundraising at Wefunder

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

 

Jonny Price has always had an interest in economic development and a passion for economic justice and equity. In his first role in the fundraising sector, he worked for a company called Kiva, which provided crowdfunded micro-loans to US entrepreneurs. With his experience as the head of Kiva US, it was a natural transition to Wefunder, where he serves as VP of Fundraising.

 

For too long, investments in private companies have been limited to only accredited investors. For the average person, their only chance to invest was once the company went public. Wefunder makes it so that private investments are not just limited to wealthy investors – through Wefunder, anyone can become an angel investor for as little as $100.

 

Jonny is excited about how this is changing the private investment space. When ordinary people can invest in brands they care about, more capital is available for founders and entrepreneurs to grow their businesses. Especially in minority and women-run businesses, there is a great disparity in access to capital. Only 1% of VC funding goes to black founders, and 3% goes to female-only founding teams. Crowdfunding helps to level the playing field tremendously.

 

Partnering with KoreConX was the right fit for Wefunder. Jonny said: “I have known Oscar for a while and am impressed with the services they offer. A number of Wefunder clients have used the platform, and had very positive things to say about the KoreConX team.”

Announcing the 2021 JOBS Act Program RegCF

KoreConX has long been dedicated to helping companies meet all regulatory compliance requirements in the most cost-effective way. This commitment continues with our complimentary 2021 JOBS Act Program for RegCF, which will enable eligible companies to use the KoreConX all-in-one platform for free. KoreConX pledges to make this available to companies who have completed, started, or are in the middle of their RegCF raise. 

 

The KoreConX platform meets the regulatory SEC transfer agent requirements in addition to a dedicated agent, Cap Table Management, Portfolio Management, Shareholder Management, and BoardRoom Management. Companies using the KoreConX platform can efficiently manage SAFEs, CrowdSafes, promissory notes, debenture, and digital securities.

 

The JOBS Act Program will begin accepting applications on March 01, 2021.  KoreConX has committed to supporting your RegCF raise up to $1.07M with our complimentary (100% FREE) JOBS Act Program solution, complete with an SEC-registered transfer agent. With this increased access to capital, private companies have the chance to grow and create jobs in an economy greatly affected by the ongoing COVID-19 pandemic. KoreConX is proud to continue to provide the solutions that companies are in need of, in order to compliantly raise capital cost-effectively and efficiently.

 

Eligible companies can apply on the JOBS Act Program website. Once a submission has been received, the KoreConX team will begin the review process and notify accepted applicants within 48 hours.

 

www.JOBSActProgram.com

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

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

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

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

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

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

Two points before going further:

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

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

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

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

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

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

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”

How Can a Company Raise Capital?

For companies looking to raise capital, there are many different options. While not every option may be best suited for every company, understanding each will help companies choose which one is best for them.

 

In the early stages of raising capital, seeking investments from family and friends can be both a simple and safe solution. Since family members and friends likely want to see you succeed, they are potential sources of funding for your company. Unlike traditional investors, family and friends do not need to register as an investor to donate. It is also likely that through this method, founders may not have to give up some of their equity. This allows them to retain control over their company. 

 

Angel investors and angel groups can also be a source of capital. Angel investors are wealthy individuals that meet the SEC requirements of accredited investors, who invest their own money. Angel groups are multiple angel investors who have pooled their money together to invest in startups. Typically, angel investors invest capital in exchange for equity and may play a role as a mentor, anticipating a return in their investment. 

 

Venture capital investors are SEC-regulated and invest in exchange for equity in the company. However, they are not investing their own money, rather investing other people’s. Since venture capital investors are trying to make money from their investments, they typically prefer to have some say in the company’s management, likely reducing the founders’ control. 

 

Strategic investors may also be an option for companies. Typically owned by larger corporations, strategic investors invest in companies that will strengthen the corporate investor or that will help both parties grow. Strategic investors usually make available their connections or provide other resources that the company may need. 

 

For some companies, crowdfunding may be useful for raising funds. With this method, companies can either offer equity or rewards to investors, the latter allowing the company to raise the money they need without giving up control of the company. Through the JOBS Act, the SEC passed Regulation A+ crowdfunding, which allows companies to raise up to $75 million in capital from both accredited and non-accredited investors. Crowdfunding gives companies access to a wider pool of potential investors, making it possible to secure the funding they need through this method. 

 

Alternatively, Regulation CF may be a better fit. Through RegCF, companies can raise up to $5 million, during a 12-month, period from anyone looking to invest. This gives companies an important opportunity to turn their loyal customers into shareholders as well. These types of offerings must be done online through an SEC-registered intermediary, like a funding portal or broker-dealer. In the November 2020 update to the regulation, investment limits for accredited investors were removed and investment limits for non-accredited investors were revised to be $2,200 or 5% of the greater of annual income or net worth. It is also important to note that now, companies looking to raise capital using RegCF are permitted to “test the waters,” to gauge interest in the offering before it’s registered with the SEC. The SEC also permits the use of SPVs in RegCF offerings as well. 

 

Regulation D is another method that private companies can use to raise capital. Through RegD, some companies are allowed to sell securities without registering the offering with the SEC. However, companies choosing to raise capital through RegD must electronically file the SEC’s “Form D.” By meeting either RegD exemptions 506(b) or 506(c), issuers can raise an unlimited amount of capital. To meet the requirements of the 506(b) exemption, companies must not use general solicitation to advertise securities, can raise money from an unlimited number of accredited investors and up to 35 other sophisticated investors, and must determine the information to provide investors while adhering to anti-fraud securities laws. For 506(c) exemptions, companies can solicit and advertise an offering but all investors must be accredited. In this case, the company must reasonably verify that the investor meet the SEC’s accredited investor requirements  

 

Companies can also utilize direct offerings to raise money. Through a direct offering, companies can issue shares to the company directly to investors, without having to undergo an initial public offering (IPO). Since a direct offering is typically cheaper than an IPO, companies can raise funding without having major expenses. Since trading of shares bought through a direct offering is typically more difficult than those bought in an IPO, investors may request higher equity before they decide to invest. 

 

Companies can offer security tokens to investors through an issuance platform. Companies should be aware that these securities are required to follow SEC regulations. It is becoming more common for companies to offer securities through an issuance platform, as it allows them to reach a larger audience than traditional methods. This is also attractive to investors, as securities can be traded in a secondary market, providing them with more options and liquidity for their shares. 

 

Additionally, companies looking to raise capital can do so with the help of a broker-dealer. Broker-dealers are SEC-registered entities that deal with transactions related to securities, as well as buying and selling securities for its own account or those of its customers. Plus, 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. This makes it likely that a company raising capital already has an established relationship with a brokers-dealer. 

 

Lastly, companies looking to raise capital can do it directly through their website. With the KoreConX all-in-one platform, companies can raise capital at their website, maintaining their brand experience. The platform allows companies to place an “invest now” button on their site throughout their RegA, RegCF, RegD, or other offerings so that potential investors can easily invest. 

 

Whichever method of raising capital a company chooses, it must make sure that it aligns with the company’s goals. Without understanding each method, it is possible that founders may end up being asked to give up too much equity and lose control of the company they have worked hard to build. Companies should approach the process of raising capital with a strategy already in place so that they can be satisfied with the outcome. 

Effective Date of the Amendments to Reg CF and Reg A

The amendments to Reg CF, Reg A, and other rules relating to capital formation utilizing exempt offerings have finally been published in the Federal Register, with an effective date of March 15, 2021.

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. 

Can I Use My IRA for Private Company Investments?

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

 

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

 

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

 

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

 

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

 

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

Reg CF Investment Vehicles: What Are They Good For?

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

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

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

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

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

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

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

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

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

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: https://brokercheck.finra.org/

 

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.

SEC Approves Increases to RegCF Maximum Offering and Investor Limits

On Monday, November 2, 2020 the SEC approved updates to Regulation Crowdfunding significantly increasing the limits of offering under this regulation. These changes will go into effect at the beginning of the coming year, January 2, 2021. This move will introduce new business opportunities to companies looking to raise capital. In their Monday press release, the SEC stated that “today’s amendments are the next step in the Commission’s efforts to improve the exempt offering framework for the benefit of investors, emerging companies, and more seasoned issuers.”

At the introduction of RegCF in Spring 2016, companies could raise a maximum of $1.07 million within 12 months.  Sherwood Ness, the principal of Crowdfund Capital Advisors, said: “When we began lobbying for Reg CF, we artificially set a low maximum target of $1 million so that we could test the model and make sure there was no fraud. Under those limits, more than 2,800 companies in 430 industries, across 50 states have raised over 500 million dollars in just 4 years, with no fraud.  The model is working incredibly well.” Now, this limit has increased to $5 million, which will allow more business access to the capital they need to grow, create jobs, and launch innovative products and services.

In RegCF’s initial form, the total amount of securities sold to an individual investor could not exceed $107,000 within 12 months. For accredited investors, this limit has been removed. For investors with either a net worth or annual income less than $107,000, investments in RegCF offerings were limited to $2,200 or 5% of the lesser of their annual income or net worth. With the November amendments to the regulation, for non-accredited investors, the limit was changed to the greater of their annual income or net worth.

In addition, companies raising capital through RegCF offerings are now permitted to “test-the-waters” before filing their offering with the SEC. “Demo day” communications are also now permitted and are not deemed to be a general solicitation or general advertising. Lastly, through this update to the regulation, Special Purpose Vehicles are permitted to facilitate investments in RegCF issuers. 

This update comes at a critical time in the US economy. For companies around the country, turning to their customers to invest the funds necessary to keep their doors open, the increase to RegCF will enable them to raise larger sums of capital in the new year.

Equity Crowdfunding Platforms (RegCF)

As of 02 JUNE 2020, there are 51 active RegCF Equity Crowdfunding Platforms helping companies raise up to $1.0M USD.

We are all anticipating that RegCF is going to be potentially increased to a $5 million funding cap.   The SEC has proposed this increase, along with some other changes, and many observers expect the Commission to move forward with a higher funding cap.    

We recently did a Q&A with  Wefunder on what RegCF companies require.

We have compiled the list of 51 Active Equity Crowdfunding Platforms along with the sectors they serve.

Company Name URL City State Sector
Bioverge Portal, LLC https://www.bioverge.com/ San Francisco CA Healthcare
Buy the Block https://buytheblock.com/ Denver CO Community
CollectiveSun, LLC http://collectivesun.market/ San Diego CA Social Ventures
Crowd Ignition https://crowdignition.com/ New York NY General
CrowdsourcedFunded https://crowdsourcefunded.com/ Chicago IL General
EnergyFunders Marketplace http://www.energyfunders.com/ Houston TX Energy
EnrichHER Funding, LLC https://ienrichher.com/ Atlanta GA Loans
Equifund Crowd Funding Portal Inc. www.equifundcfp.com Kanata ON General
EquityDoor, LLC https://equitydoor.com/ Austin TX Real Estate
Flair Portal ( Flair Exchange) https://www.flairexchange.com/ Vancouver BC Gaming
Flashfunders Funding Portal www.flashfunders.co Sherman Oaks CA General
Funders USA https://www.fundersusa.com/ Newport Beach CA Technology
Fundit http://fundit.com/ Fairfield NJ General
Fundme.com, Inc. www.fundme.com Murray UT Technology
Fundopolis Portal LLC https://www.fundopolis.com Boston MA General
GrowthFountain Capital www.growthfountain.com New York NY General
Honeycomb Portal www.honeycombcredit.com Pittsburgh PA General
Hycrowd https://www.hycrowd.com/ Jersey City NJ General
Indie Crowd Funder www.indiecrowdfunder.com Los Angeles CA Film
Infrashares Inc. https://infrashares.com San Francisco CA Infrastructure
IPO Wallet LLC https://ipowallet.com/ https://invest.ipowallet.com/ Sachese TX General
Jumpstart Micro www.jumpstartmicro.com Bedford MA General
Ksdaq https://www.mrcrowd.com Monterey Park CA General
MainVest, Inc. https://mainvest.com/ Newburyport MA General
Merging Traffic Portal llc www.mergingtrafficportal.com Orlando FL General
MinnowCFunding www.minnowcfunding.com Pasadena CA Real Estate
MiTec, PBC (Crowdfund Main Street) https://www.crowdfundmainstreet.com/ Fremont CA Impact
NetCapital Funding Portal www.netcapital.com Lewes DE General
NSSC Funding Portal (SmallChange) www.smallchange.com Pittsburgh PA Real Estate
OpenDeal (Republic) www.republic.co New York NY General
Pitch Venture Group LLC https://letslaunch.com/ Houston TX General
         
Raise Green, Inc. http://www.raisegreen.com Somerville MA Impact
Razitall www.razitall.com Basking Ridge NJ General
SeriesOne https://seriesone.com/ Miami FL General
SI Portal (SeedInvest) www.seedinvest.com New York NY General
Silicon Prairie Holdings, Inc. https://sppx.io/ St. Paul MN General
         
SMBX https://www.thesmbx.com/ San Francisco CA Bonds
Sprowtt Crowdfunding, Inc. https://www.sprowttcf.com/ Tampa FL General
         
StartEngine Capital www.startengine.com Los Angeles LA General
STL Critical Technologies JV I, LLC (nvested) www.nvstedwithus.com St. Louis MO General
         
Title3Funds www.title3funds.com Laguna Beach CA General
Trucrowd www.us.trucrowd.com https://fundanna.com
https://cryptolaunch.us
https://musicfy.us
Chicago IL General
VedasLabs Inc. https://vedaslabs.io/ New York City NY General
Vid Angel Studios (VAS Portal LLC) https://studios.vidangel.com/ Provo UT Film
Wefunder Portal https://www.wefunder.com San Francisco CA General
Wunderfund www.wunderfund.co Cincinnati OH General
WWF Funding Portal LLC https://www.waterworksfund.com/ Detroit MI Water

If you have any questions about how we can help you with your RegCF contact us

lily@koreconx.io

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.   www.koreconx.io/RegA

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:

www.KoreConX.io/RegA

Here is the complete news release by the SEC

https://www.sec.gov/news/press-release/2020-55?utm_source=CCA+Master+List&utm_campaign=40105b558a-EMAIL_CAMPAIGN_2020_01_02_09_01_COPY_01&utm_medium=email&utm_term=0_b3d336fbcf-40105b558a-357209445

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