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.

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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.

 

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.

 

Graphical art representing the RegCF brochure available for download

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.