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The importance of working with a well-experienced team for your RegA+


Oscar Jofre  00:22

Okay, we are now ready to go. Well, good afternoon, everyone, and welcome once again to KoreConX KoreSummit webinar series. 2021. What a week we are having. Yes, it’s Wednesday. Yes. I just remembered. It’s Wednesday and it just feels like it’s Sunday. But maybe I want it to be Sunday. Obviously, we, we are having so much fun. These educational series, so much great discussions are, are starting to arise. And I cannot imagine a more timely discussion today. In lieu of what’s been happening in the last 72 hours, so we’re gonna have a great discussion. But as always, before I get started, please, let’s take a moment to introduce our guests and panelists. You’ve seen them before. But it’s always good to reacquaint ourselves. Douglas, please.

Douglas Ruark  01:17

I’m Douglas Ruark. I’m president of Regulation D Resources. And we are a firm that specializes in providing offering preparation services for securities offerings, specifically regulation D, regulation A+. And we’ve been operating for 22 years. And we are really here is to serve a specific part of the process, which is to assist in getting the filing in place and really quarterbacking the entire process for putting the reg A plus in place and making sure that the client gets to market in an efficient manner and obviously in a compliant manner.

Oscar Jofre  02:01

Perfect. Thank you. And, Etan, please.

Etan Butler  02:06

Etan Butler here. I’m the chairman at Dalmore Group. We are a FINRA and SEC registered broker dealer. We are headquartered in New York, we have offices nationally, active in all 50 states founded in 2005. Since 2013, or so we have been obsessed with coming up with innovative ways to take advantage of some of the jobs act born exemptions to help companies raise capital online at scale through Regulation D, A and CF. We’re here to talk about reg A, I believe and we’ve been fortunate to be the broker dealer of record on I think it’s 106 or 107 reg As now over the last 18 months. So obviously, that’s been a it’s been a very busy time for us, we’ve certainly been able to learn a lot about what works well, what doesn’t work well. We’ve done a number of transactions and I’ve shared clients with REG D resources, Reg D resources, if you Google reg A, they’re always at the top. So they’re doing something right. And of course, Oscar, we I’ve been developed a very great personal relationship with Oscar and his amazing growing team at KoreConX, we’re doing a lot of stuff together with them as well. Pleasure to be here again, good.

Oscar Jofre  03:20

But it’s great, we are going to have a really, really good discussion because you know, it is going to be around reg A, but it could be applied to any regulation. I think it’s just as important to make that distinction. For those who are listening in we are going to focus on reg A because it does take a large group of people to work with. But the the discussion today is the importance of working with a well experienced team. And you notice we we have the word team team is the key word here in this discussion, and so obviously Etan, your team, like you said 106. So I You’re the broker dealer, you’re one, a very important piece like all the pieces in this puzzle that needs to go well together to work. How important has this been for you? Since you’ve Been there right from the beginning, and if you can give me some examples in areas where you feel companies really need to focus on when it comes to experience, please.

Etan Butler  04:32

So there’s a number of groups companies, individuals that have to come together to to launch a reg A they include obviously the securities attorney, the broker dealer, the funding platform technology, the transfer agent, and obviously investor relations is important as well. I think it’s critical to work with a experienced team to one that has been able to see, you know, high volume offerings, how they work, what works, what doesn’t work, what the expectations should be, a group that has worked together with each other, I think, is very beneficial for a first time issuer, it adds a level of predictability and efficiency to the process, which I think are very important, it’s hard enough to focus on raising money for your offering, you really want everything else to work together as seamlessly as possible. And, and by working with you with a group and certainly with an ecosystem that has experienced working together hand in hand deal after deal. It just makes the process so much more efficient for the service providers. And, you know, for and most importantly, for the issuer, right, who’s approaching us for the first time, and they’re hearing about all these different pieces, these moving parts, how do you decide what do you do? Who do you listen to, you know, everyone has a pitch about what differentiates them what they’re great about, you know, but but to work with a team that just is over and over again, doing deal after deal. I know that if I was in the shoes of the issuer, that would be very valuable to me, and I personally see how valuable that could be for our issuers. So that’s my view on that. And, and it’s, you know, I think it’s, it’s becoming more and more apparent, as as, as we see, folks that don’t always have the best experience elsewhere. And learn the hard way about not setting things up right from the beginning. And so I feel very blessed and fortunate to be with you guys. Both of you guys. I know, we do a lot of work with KoreConX, we certainly think the world of you guys, not only from from an educational resource perspective, but from food as a service provider perspective, I know you’re you guys are up at 11 at night, midnight, sweating the small stuff to make sure that things work. And those are the types of folks and those are the types of providers that you really want on your team done it before that are committed to the process that could add value. And I could say the same thing about Doug and your team. You guys have been at this for a while I know we’ve we have a number of clients together. I know you’ve referred a few over recently as well. So thank you for that. But again, this is an example of a group coincidentally, that has some experience working together and I can’t stress how important I think that is.

Oscar Jofre  07:24

We are moving into some people refer were coming into the second inning, like anytime you get a new playbook. And we obviously this discussion is not meant to discourage anyone else who wants to enter the market to participate. Not at all, I mean, at least from my point of view is to indicate that you can’t do this alone. You just can’t. Any company that’s telling you no. And it’s okay. We do that on a we do that we do that we do that there. That’s just not possible. We’ve not seen that. In those who made that attempt to obviously, Douglas, you know, you your name came up yesterday in another discussion with a client. And it was, it’s rather funny, I got to tell you a story, because I found it rather interesting, as I’m talking about reg A talking about team sport, and working collaboratively with providers who have the advisory services, and we don’t. And this kind of goes, you know, I have this great company that I need you to meet. Because I’ve known Doug for 10 years or so. And I go, and Doug in a good Yeah, sure. I love to meet him, what’s the name of the company? Regulation D. So isn’t that great? We’re already working. So you know, immediately when people start recognizing that there’s a value in why we work together is that and Douglas, your firm does a few things which are unique to your firm. So talk about how important that has become for you to be able to scale and bring on more business as well. And why it’s important, obviously, from a reg A perspective, right?

Douglas Ruark  09:09

Well, yeah, I think too, you know, it’s important to understand that this is a complex process. And one of the things that that I think you’ve touched upon that’s important is you can’t do it yourself. It just requires a good team. There’s a lot of different pieces involved. And it can all it can even be driven back to simple things like for example, we have a lot of clients that when they get started with us, there’s there’s corporate cleanup issues that need to be handled. They may not have employment agreements with senior executives and so a lot of times it even you know, as far as the team aspect, I mean, it even goes beyond just, you know, getting on board, you know, a good broker dealer or a good transfer agent, or good Escrow Company. But but it even drives back to the council that the clients getting the issuer’s getting, even from their own team, you know, having a good corporate attorney on board that can be there to redraft bylaws or create a shareholder agreement. Because what we found is when people come into this process, you know, it is it’s a new process for them. And they maybe have even been through more simplistic offerings before like reg ds, and they think they’re, they’re gonna have a handle on what’s going to be required. And I think part of what to look at too is, is that there’s a benefit to that complexity. And that is that you end up with a sophisticated vehicle for raising money. And you end up with something that while it does require a team is really going to set you up hopefully, for success in the long term, in terms of raising money, but but I think that that the team aspect is important, because, you know, part of the issues we find sometimes as far as delays and getting clients to Market is a lot of times that maybe the clients working with a CPA that doesn’t quite understand what we need for the filing, or they’re working with a corporate attorney, and he doesn’t quite understand, you know, changes to bylaws that that need to be made to get it congruent with the offerings. So, so these are things that, you know, at the end of the day, part of what we try and do, and again, this is, you know, working with a client is align them with Best of Class vendors, because it’s going to make their life easier if they’re working with people that understand the process, and are going to be able to get work done in a timely manner and get it done accurately.

Oscar Jofre  11:44

You know, you touched on a really good point there, I was going to go right into the broker dealer side, but I’m gonna wait for you I’m not one that I cannot emphasize that element that you just brought up there on the legals. A good wake up call for everyone. I often hear I’ve got a great corporate lawyer, I’ve had him for 10, 15 years I’ve got that’s fantastic, you’re going to need them. But guess what, what you need now is that transactional lawyer who understands this regulation, who understands all the bits and bits and has filed and has been qualified, that’s what you need now. And you’re right, this is like, a lot of the times people get guarded to go, Well, I’m a lawyer, I should be able to do this. Of course, you can, you can take a year or two years to learn this. Or you can go to somebody that knows how to do it and get it done in 30 days, it’s entirely up to you. It’s the or it’s X dollars, or X dollars. It’s a I’ve ran into that in a number of cases. And it’s been quite positive actually, meaning that the client has been able to understand the difference by allowing them to speak to the professionals directly and for them to see it. But we’ve also run into an issue where those who have attempted have gotten clients into a bit of a hot water per se, because again, when they don’t know they don’t know, and there are a number of issues that reg A brings up, you know, you’re talking about the bylaws. I’m talking about a simple thing, like I’m gonna issue warrants, and people were what’s so cool about that? Well, and reg A. It’s very different than any other regulation, you know, reg A you can offer warrants, and just like that, but in reg A, no, no, no, it’s very different. It’s a, it’s just like selling securities, and you got to have a whole new agreement. And, you know, it’s a, again, experience working with a team collaboratively. One thing that I’m going to share just in my experience working with all of you, everyone, I love the way everyone comes together when we have a problem. I think this is the I want to touch on that because I want everybody to be prepared for this. There will be a problem. Write it down, Would you not agree there?

Etan Butler  14:09

I mean, look, we are at a time, like I mentioned before, where there’s new regulations, and there’s tremendous innovation, there’s new technology and, and it’s all coming together at the same time. So a lot of what we do is the first time doing it. So things come up and you learn and we’re still learning you know, we’re still learning a lot we got reg A pretty much down pat and reg A and reg CF is a totally different animal. It’s a totally totally different set of regulations totally different relationship with the with a client and these are learning experiences right and and you and you going through that process together with with other service providers that you’ve developed a relationship with for years and you know each other and your friends at this point. It’s like you kind of all have your back each other back, and you know how to work together and bring the teams together from a compliance to a technology to from a tech perspective, to a, you know, communication to the clients perspective, to just really be transparent, and, and learn and evolve, right. So I consider reg CF still a pretty new phenomenon, right, it’s just really just taken off over the last year or year or so. And certainly what we’re doing with which is kind of on the CF side, which is, again, it looks and feels more like a reg A process where it’s giving the issuer really their own domain to launch their, their reg CF offering from with that comes, you know, a host of opportunities, challenges, and and we’re still getting better, right, you know, after doing as many reg As as we have, we’re still learning every day. So I agree with you, Oscar, I think that going through that process together, when a problem comes up, it could be a technology problem, it could be a regulatory concern, right? We don’t we have all these we can relate to all these types of things. How do you handle that together? And how do you rely on each other to look out for each other and work together as a team, and then handle it properly with the clients as well, and then learn from that, and then so that you could try to prevent it next time around by making changes on the policies and procedures side on the technology side on the disclosure side? So it isn’t, that’s another really good point you brought up, you know, the working with good people that you that you trust that you respect in a transparent way. That’s part of the team, right? It’s having those team members that you can rely on and are capable for really handling but their responsibilities are?

Oscar Jofre  16:37

Well, yeah, it does. They don’t crumble on you at the last minute, right? They don’t go around the corner, and run away, everybody needs to come together, we recognize. And I think that’s the one thing that I I’ve been using, we’ve all have, and I apologize, I shouldn’t say I but we all have been using this term, we keep telling people, it’s a team sport over and over again. But the sport is not just to win, but it’s also the team is there to deal with these bumps along the way that are going to come up that could be unforeseen by anyone. But as a team, we can solve it so much quicker, because everybody is doing instantaneous, reaching out to all contacts to bring a constructive answer, bring it back to the to the nerve, and then boom, there’s our answer. Yeah. I mean, I, I saw it in full hand number of months ago, when we were having the credit card issue. I you know, we brought it out in the open, whom we started getting swimming in, and then solving it like that. And I think that’s one of the biggest values that people need to ask is, it’s people go well Douglas what’s been your success rate? Well, Douglas, you’re you’re not based on success, you’re creating the information, my successes, my documents were properly created, the real question I think people should be asking. So if something goes wrong, what happens? Well, we have a team of people that are going to be there. And that’s the one thing that I am emphasizing a little bit more. Now, I just did a demonstration, I said, look, as much as the pretty picture I painted for you, they’re going to be unexpected surprises. And the good thing is, you’re going to have a broker dealer there for one part, you’re going to have the lawyer and the other, you’re gonna have the auditor, you’re going to have us and you’re going to have all of us in the room 20, 30 people that are going to solve this problem with you, you’re not alone. That’s what makes the difference to getting this completed. And you know, it, it all starts with making sure that we have all the right partners in place. Douglas, you mentioned the lawyer. Well, now I’m going to move into the broker dealer. You know, Dalmore has created a niche in the marketing what you’ve done, but there are other beings who are trying to get in and they’re struggling with this. And this is ultimately when something like that struggles, you know, who pays the price. So this is a cautionary thing that I tell people as well. So tell me the journey that you guys went through as you decided to move pivot into reg A, because I think that’s just as important because it is your culture, right?

Etan Butler  19:18

Yeah, totally. So So again, we’ve been at this since 2005. And right through the Jobs Act, we were amongst the first broker dealers to really focus on 506 C, right. So so we we serve that and we still do as the broker dealer of record for a number of what I call high profile, serial online syndicators of equity and debt, many of whom are in the real estate space. Like into.com, as an example, they acquired Realty shares and a number of others. And so we were already set up from a compliance and an infrastructure and support perspective to handle online capital raises to oversee KYC AML, suitability, oh FAK diligence filing with FINRA, etc. And so that was a natural progression when reg A presented itself there was a law firm, a national law firm that introduced the client that was raising money for something called a reg A plus offering. And fortunately, we had some members of our compliance team that had some experience. And there’s only a few people that actually had experience kind of going through a reg A at the time. And so we took it on. And, and then another one came, and then another one came, and then we started getting calls from issuers who did their homework and said, Hey, I saw that you’re the broker dealer on this offering, that I want to model my business to be like, Could you put together the team for us, we want to be like that, right? And then it kind of grows based on that. It’s all publicly available. If you Google SEC, one, dash a and I encourage every issuer to do that, you could see everything, it’s a little cumbersome to how to find it and search for it. But you can see who the broker dealer is you can see who the providers are, who the attorneys are, how much we’re paid, what our structure is, it’s all available, and you definitely should check it out. But I think that the more research people do, the more times they come across your name, the more comfort they have, in recognizing you’ve done this before, you’ve been the broker dealer, we’ve had issuers who have raised 50 million, 40 million, 30 million, 20 million, you know, over and over again. And so again, we’ve learned what we’ve learned what’s right. So that’s kind of how we got involved in reg A. I look at reg A, almost like a souped up reg D. To an extent, obviously, there’s reporting requirements, there’s qualification, there’s a different regulation completely. But in essence, what it does is it allows you to, you know, market your offering online to anyone as opposed to just to accredited investors. And that’s profound, because you’re not limited to 5% of the investors, you’re you have, you have 100%. So, so that was a real natural progression with our experience in 506. C, focusing on reg A, and by extension, it was a you know, that applies to our current focus on reg CF as well. We didn’t frankly care too much about it at a million, you know, you don’t get the qualification, you don’t get the no objection, you don’t get the audited financials, right. So for for an investment bank broker dealer to take on 1,070,000 raise is not that exciting. But at 5 million, it’s a natural first base. For many of our larger reg A issuers, it’s almost like a test the waters, for a bigger reg A, that’s what we’re seeing, right, it’s a lot more cost effective to get started, it’s a matter of weeks as opposed to months, right? You don’t need the audit, unless you have to raise over 1.07, unfortunately, which we learned last week, but you know, at least he got up to 1,070,000 without having to worry about that for now. So it’s it’s a natural first phase. And so and so that’s kind of the evolution of our focus, you know, break through the jobs act 560, reg A reg CF, and and it’s been it’s been an interesting ride so far.

Oscar Jofre  22:56

Yeah, it’s obviously you, you pivoted just in time, while others waited and waited. And now they’re coming in. And I personally see where the same way some broke law firms are struggling to, to meet what or do the kind of work that Douglas and others do in the ecosystem in the way they do. They’re not structure for that same thing. Some BDs are very rigid in their way they operate right there. They’re still in the mentality of reg D, and you go, no, no, that’s all, you know, no, no, we need to have this. And I said, Well, you can put all that there, but it’s not going to fly, the investor is just going to go, Okay, I’m done. I’m not going to invest. So that’s why I say, it’s just as important to ask the question of the from the partner that the company is going to work with, is to ensure that not only have they’ve done it before, but how they resolved their issues when problems go wrong. And we’re now experiencing that there could be a number of areas. And that’s why the team sport is needed. Right? There is a it could be from a legal perspective, as Douglas said, it could be from a broker dealer perspective, could be compliance could be the front end on the on the technology side. So so that isn’t going to go to you. I mean, you’ve been doing this for a while as well. How are you orchestrating your clients as you navigate them because you’re providing quarterback plus legal services at the same time and a little bit of compliance, I believe, but I know you’re not doing the broker dealer at others, but you’re navigating them to all this. How are you doing that? Now now that the the the reg A ecosystem has even grown? Because it now it even has investor acquisition providers? Does that change it for you? Does it make it easier, more valid? Love to hear your thoughts on that?

Douglas Ruark  24:51

Yeah, I mean, we really we have a specific role that we play, which is, you know, quarterbacking, the process working with the client on structuring getting the form on a drafted, and obviously assembling all the needed exhibits. And then we do file directly. That’s one of the processes we internally decided to handle. We didn’t want to use outside filer agents. So we have all the Edgar conversion software in house, we do all that in house. And, you know, I think one of the things that, that I try and get people to understand when they’re getting ready to do a high profile offering or an offering, shall I say, that’s going to go out to the public, whether it be you know, especially reg A plus, but even a 506 C, but especially reg A plus with the team aspect, and that is this, we’re going to put you on stage, you’re going to take your company, and your fundamentals and your opportunity, and you’re going to be put out on stage. And you’re going to have the public as far as the investing public have an opportunity to decide whether they want to invest into what you’re offering. And I think then, when you look at it that way, one of the key things to really keep in mind that is you only get one shot at making a solid first impression with investors. And that’s why then it’s key to have a good team on board. And again, it starts in the very beginning. But especially when you’re going to market I mean, you know, having a good broker dealer on board, having a transfer agent that makes the investor experience seamless, you know, if someone’s going through a process to invest in your company, and you’ve made it hard for them to just get through the process of them purchasing shares in your company. That’s not good. And I think that’s the interesting part of this industry right now is you’re seeing a democratized you’re seeing the the process of raising money become democratized, right, so you’re seeing smaller companies getting the ability to go execute the kind of offering that used to cost several $100,000 or more just to prepare. And, and it’s good. I mean, these are the kind of things that we want to see, because we want to see small, medium sized businesses get better access to capital, and reg A plus is that really that just a great middle ground, it’s not for everybody. But it is a great middle ground between the simplicity of a reg D. But unfortunately, you’re you know, you’ve got a small you know, amount of the investing public, you can reach 506. C, obviously accredited investors versus a full on, you know, s one where you know that that’s a bridge too far for a lot of companies, nor do they need that. And yet reg A is that great middle ground, it’s going to give you the capability to treat your offering, like a full on public offering. And it is essentially, and yet, you can reach the entire market, and you’re not being subjected to a lot of the regulatory overhead and compliance burdens that a full fully public company would be subjected to most companies are probably going to benefit from remaining private, or at least staying private for a period of time after they capitalize. And so I think as we as we stepped into this space, because we were huge proponents for 506. C, we’ve been operating since 1999. And as we operated through the 2000s, we were lobbying the SEC to make changes to the solicitation rules, because we were watching Social Media develop. And we’re watching the internet developer watch and all these things develop that were, you know, incredible tools to get exposure for an offering. And yet, if you were doing reg DS, you couldn’t touch it. So watching these programs, progress has obviously been exciting, it but it really does then require that you’ve got in place the infrastructure to execute properly. And that’s part of what we then try and do. And part of the expectation I set with clients is you shouldn’t try and bootstrap a reg A plus, you shouldn’t you should not try and cost cut, or gee, we’re going to do this, but we don’t really want to have Dalmore on board as our administrative broker dealer, because we’re trying to kind of, you know, do this and bootstrap it, I mean, it’s just you’re you’re going to end up then having a situation where you’re going to run into issues or you’re not going to have the investor experience that you really want. And ultimately, if you had come in with a little bit better have a budget and put the proper team in place, put the A team in place, you’re going to position yourself for success better, your investors are going to have a better experience. And if a problem does arise, you’ve got a team of experts there guys that have been there and done that that are going to be able to solve that problem for you efficiently. And and and you know, look the ultimate goal here is get these companies out, have them capitalized, have them do it in a proper manner and get them through the process as efficiently as possible. And that just requires a certain team and that’s going to require some money and I that’s like I said that’s the other thing that I really try and set as far as expectation with clients that come into this process is that they really should come in properly capitalized so they can put in place the proper, proper team to do it properly.

Oscar Jofre  30:02

Yeah, that that is interesting. I mean, proper capitalization is a critical element. And sometimes it’s overlooked. I shouldn’t say overlooked. Some people don’t say you don’t need as much. But the reality is, that’s, that’s putting people at risk because they’re coming unprepared, right? They think that, Oh, I got 100,000, I’m ready to go. Like, it’ll cover everything. And, you know, I do feel bad for certain issuers that come like that. But you’re right, I mean, the this ecosystem, all of us in a team recognize now the value that everybody brings, there is a fee with a broker dealer, people go, Well, I just paid them the fee for nothing. No, that is not true, the broker dealer needs to submit a form to FINRA, the same way you are getting approved with them, FINRA is approving new with them. So this is really an interesting element that people just think that it’s just throwing money at providers for the sake of them earning a fee, they’re gonna earn their fee when they do the raise, but there are some regulatory issues that need to go prior to that, and there is an expense to it. And, again, our team that knows and keeps working together and expanding that, right. So I’m a firm believer that we need to keep expanding it because it’s the we’re going to need more, we need more distribution. As you know, as of Monday, we can now raise 75 million with reg A. So we’re, we’re under a lot of pressure to find new distribution channels for that. And the only way we’re going to be able to do that is finding other partners to work with, who have access to that, and they need to feel a comfort of what we built here in the in the ecosystem. 

Douglas Ruark  31:44

So the other thing to Oscar is, here’s the thing is, is so much of this comes down to investor confidence. Right. And obviously, a big part of that is the company itself, is the company well positioned to they have good fundamentals. But the other part of it is the team. And and like for example, you know, with Etan and with Dalmore, you know, I mean, in my opinion, what they provide, that is the the fees for that are so reasonable. I don’t know why you wouldn’t go with that. And I think part of the thing here is, is that one of the things that people, yes, they’re going to earn their fee, yes, they’re going to have certain things that they’re doing. But let’s not forget that the fact of having a broker dealer affiliated with the offering, just in general is going to build confidence with investors. And I think that’s the other thing to look at is yes, that you know, Dalmore, and you know, any broker dealer is going to be serving that capacity. Yes, they’re going to have fees. And yes, they’re going to have certain duties and responsibilities, and they’re going to earn their fee. But it goes beyond that. It really it really drives down to the fact that you’re putting in place this this, essentially, you’re like I said, putting the client on stage. And the competency investor then has that there is a you know, 50 state, you know, FINRA broker dealer on board. That’s invaluable to me, if I was doing an offering, I would want that because I know from experience that an investor looking at that offering is going to have a different confidence level, then looking at offering that doesn’t have a Dalmore on board or even transfer agent wise. Like I said, that investor experience, it’s one of the things that we love about KoreConX, you guys have really taken the time to look at how can we make this investor experience in this process as efficient and as seamless as possible? And that matters as well. So I think that’s the thing is, is the team isn’t the team. Yes, the team is there to get you through the process properly. But it also is there so that it builds confidence with the investors. And that’s going to hopefully lead to a successful offering.

Oscar Jofre  33:58

Yeah, I do you know, that that it’s a great point to bring up. I mean, I’m a big advocate of having broker dealers involved in an offering. In fact, Etan and I last night, we were chuckling about a particular client as to why we decided to go with him. I only went with because they said they were gonna go with Dalmore. The only reason we took them on is because so because we won’t take on a client without a broker dealer. And even though we’re a technology company, we created the standard ourselves because we understand the dangers that it could possess for all of us. All it takes is one bad deal gone the wrong way badly. It affects us all. It won’t shut us down. No, it won’t do that. David Weild said it best he goes Oscar, this is the year where there’s going to be a blow up. That’s fine. We’re ready for it as an ecosystem. As a team. Players working together, we’re ready for it. We can embrace it. We can come out and say why that happened? And why won’t happen here? And I think it starts with that, you know, it’s given most of them with a lawyer, but it’s not a given so many times with the broker dealer, and I’m not going to blame the issuer anymore on this one. I’m not. I think the industry itself needs to take a little bit of that. Grant, because they’ve been, I’ve heard a webinar just recently, as yesterday, from a provider who does reg A is saying, Well, you know, you can just get a broker dealer, all they do is they stopped, you know, they collect a percentage fee. And, you know, don’t worry, they’re in the background. And it’s sort of like, whoa, whoa, whoa, what do you mean, they’re in the background? So I’m an advocate in it. I don’t know. Etan. I mean, you Dalmore’s really coming out in the forefront of this? Right. And we’re emphasizing the, the importance of it, but I believe it’s part of the educating part of the role that the broker dealer, so I’m just going to ask you just high level items, because I think it’s important for people to know just to what Douglas was saying, just exactly all the things a broker dealer is doing and what you’re responsible for, for that insurance policy, because that’s what I call it.

Etan Butler  36:17

Yeah, it’s significant. It starts with diligence. It starts with bad actor checks on the company and all the officers and directors, it continues to kind of coordinating the process with the various different providers and overseeing that the supervisory access, it continues to reviewing and approving or commenting on all of the advertising and promotional materials, right, that’s easy to overlook, but it’s not something you want to overlook. So you’re having a broker dealer involved, that’s going to efficiently review and comment and approve and not slow the process down but also keep you out of trouble. From that perspective is important. And then it goes on to capturing, maintaining and storing all of the due diligence on the investors. Right, the the, the KYC AML, suitability, OFAC you know, investor, you know, suitability attestations, the signed subscription agreements, were the regulated entity who’s responsible for making sure that’s done, and for storing it. So when the regulator’s come knocking, and they do every year, whether it’s the SEC or FINRA or the states, we’re the ones they come to, and show us the diligence, shows the reports, show us this show us that and and we need to be, we need to have our game, you know, our a game in play, and be very organized and prepared for that because it comes the beauty of the regulated marketplace. So we’ve been at this for 16 years, is that it forces transparency, if there’s no shortcuts allowed, everything is going to combed with a fine tooth comb, the lights are going to be on and every decision you make now you have to be prepared for it to be in the public eye tomorrow. And that’s how you have to think as a regulated entity, as a broker dealer, if you want to be in business, if you want to survive, especially if you’re in the if you’re in the you know crowdfunding space where you’re, you’re helping to facilitate, you know, non accredited investors to participate in new companies, you need to make sure that disclosure, disclaimers, the advertising, the diligence, all these things have to be in harmony. And that’s kind of the role, but it goes beyond that. It goes well beyond that it goes into what is investor acquisition, who to work with, what’s our expectations, who to stay away from what have you see, who have you seen perform? What is the budget for this? How long does it really take the real question? Well, you know, and, you know, not the initial roles, but like, the real value add or, or, or, or this provider is charging me this amount credit card processing, and we’re telling them okay, 70% of your investors are going to using credit cards, if we can help you get that down a point or two, that’s more value add than our entire fee. And an additional the other focus that the big value I think we provide is we happen to be the broker dealer on many of start engine and Republic’s own reg A offerings, right ones that they have are either co managers or, or CO owners of the issuer that required them to use a, a third party BD, right as opposed to their own for that purpose. So we’ve really good relationship with a number of the leading kind of platforms out there. And we’re also able to get some of our selected issuers listed on those platforms. I mean, the issuer has to want to start engine or republic have to choose to accept them. But we’ve done that and we’re doing that. And it’s very interesting because it allows for an issuer to contract with us set up their own offering at a at a very low relative cost, and direct all of their promotional efforts, all of their marketing all their PR all their friends and families, all potential institutions, to their own page to transact. And then they could from a position of strength say okay, what other platforms do I Want to get listed on people say how do you syndicate and distribute, it’s very different than Reg, then then reg D, where there was a lead broker and a syndicate group where, you know, you pay the lead broker 8% in this, and then the lead broker would pay the syndicate. Now, the selling group member 7%, it’s very different. It’s reverse. In this model, the issuer pays Dalmore 1%. And then, if you want to go and pay Republic or start engine, they’re much higher fees. They deserve it if they’re delivering you, clients that you otherwise wouldn’t have seen. So you know, so there’s a lot of innovation going on as far as how to assist with what I call digital syndication. It’s a new thing. And that just gives the issuer the ability, really only on a success fee basis, to get in front of a lot more eyeballs that they otherwise wouldn’t have come across through their own network or their own advertising or promotion. So that’s a big area of focus. I think that’s going to continue as well.

Oscar Jofre  40:58

Yeah, it’s, it’s, you know, it’s inevitable. Obviously, all of this is evolving. And it’s going to become even more critical as we start making sure that everybody we’re working with I mean, the, it’s an honor, remind everyone, again, we’re in an industry of forward momentum that’s evolving at the same time. So you the same way that you got into it, when you pivoted and you made the change, you got to keep making the change, because this is one of those regulation, that it’s not just simply sitting there waiting for it to happen. There’s other pieces involved legals, accounting, technology. It’s amazing how much technology is playing a role. And during that time, we’re dealing with a crisis. What’s the crisis? Well, Apple and Google are fighting. And people will wait a minute, what does that have to do with online investing? Well, as a great deal to do with it, because marketers are doing their job. And the This fight has a huge impact. Sorry, Google, Apple, Facebook, my sincerest apologies, I forgot to add the third piece to that care, which has made it very, has changed everything. Once again, Apple’s blocking things, it’s working on one world, it’s not another, this had nothing to do with Dalmore. It had nothing to do with you on the legals, it’s now just a new component is so it’s not so simple anymore. And these are the challenges that are going to continue the evolving in this industry. And they’re going to come at ask where, you know, it comes regulatory, and how does that affect the technology? People think, well, it’s just a regular No, no, maybe there’s something now they want us to ask that we didn’t ask before. And people just added on, it’s not that simple. Everybody thinks it’s so simple, just adding the checkmark and yeah. So these are, these are all the things that I think we’re taking in consideration as we move forward. 

Douglas Ruark  43:02

And, you know, Oscar to add one thing to to what Etan was saying, let’s not forget that there’s the problem states out there as well. So one of the other benefits of having a broker dealer on board, is that you don’t have to worry about the additional filing work in those problem states. And that’s something to I mean, you’re you know, Texas, Florida, Washington, New Jersey, Nevada, Arizona, I mean, there’s, you know, there’s a number of states that don’t make it, you know, easy on an issuer to directly sell. And that’s another big advantage of having, you know, a Dalmore on board is, is, you know, you don’t have to worry about having that extra filing work to try and sell in those states.

Etan Butler  43:43

That’s very true. And you know, what, it’s a perception issue, because when people think about broker dealer, they think about 6% and warrants, that’s what people think about when I think of like a broker, by hire a broker dealer, I’m gonna have to, they’re gonna take like, you know, investment banker fees, right? And, and maybe I’ll hire them, they could raise me money, but this whole, you know, but the reality is that, you know, at least with us, we make it very cost effective for the broker dealer, you know, for the coverage that allows for you to freely kind of sell securities in all 50 states. And that’s important, because, you know, the numbers that we’re seeing, I don’t know what you guys are seeing, but it could be 20 30%, if you add up like, you know, of total national online investment activity and some offerings, if you could, because Florida and Texas are huge, as far as, you know, investment activity online. And so, it’s actually cost effective to hire BD as opposed to trying to navigate through that process of registering as a broker in each of these specific states and you’re paying a lot more legal, legal fees. It’s, it’s very challenging thing to do. But I don’t think people are, I think now they’re becoming more aware of this, but I think the perception of hiring a broker dealer was like, whew, you know, people would shy away from But But yeah, very good point.

Oscar Jofre  45:02

Yeah. And I’ll throw another part to this that we didn’t have this one all of this got started is that we have to consider the broker dealer then interacting and making sure we collected the right data. But why are we collecting all that data? Why is the purpose we’re obviously a broker dealer has a requirement with FINRA. But now there’s another piece to all this, why broker dealers are more important than ever. What is the one golden thing about a reg A that everybody likes is the fact that the investor gets a free trading security. Right? We’re all talking about it? Well, here is the one part that most people were severely overlooked. If the offering is not done by a broker dealer, and you did your own ID and AML. on your own. Guess what, as soon as that investor goes to the secondary market, it’s gonna have to go all over again. Yeah, so whatever you paid there, you’re gonna pay again, a second time, that that in itself is, is part of the because we can’t you’re not a regulated person to to understand, it wasn’t just the ID,  and [uncertain] is suitability that this investor invest the right amount of money into your company and not exceed their limit, because in secondary market, that’s, you know, it’s all tracks. So, I, this is where all of this is emerging to, I think we’re having these discussions, because everybody now has different amounts of experience, you bring in a 33, lawyer into the discussion, you hear from the issuer side and the investor, you bring a 34 lawyer in, he’s there to talk what Etan, and the broker dealer community can do, and you start putting everyone in, you can get there so much faster. Right, so much faster. I mean, I know I’ve certainly appreciate it in the last couple of weekends, you’re gonna appreciate it this weekend, again, as more challenges because they’re, the issuers need to be educated as well, right? We’ve been in situations people are all I don’t want any of that stuff. It’s not whether you want it there or not, it’s there for a reason, it’s there, because the broker dealer needs to transact, and be able to do this for you. If you don’t get it now, when do you want to get it? You mean, you want to the BD go and get fetch it for you? Well, that’s gonna cost you more, because somebody now manually has to go out there. And hey, Douglas, can you send me your, you know, driver’s license, or your social security number, whatever it is? And I need that in order to do an ID and AML check on you. Right. So I really believe that we’re at that stage where every little bit and piece is so important, that I’m not overlooking any part. In fact, I’m going to spend one webinar just on the investment process. And the reason for that is to educate the issuers why you need this, this and not because it isn’t some unbelievable how many of them believe that. It’s unnecessary, it’s unnecessary to them. But it’s an it’s necessary for everyone else doing their job. And recently, I’ve been giving them a bit of education on secondary market, you think primary, they wanted a lot more, wait till they get to secondary, what do you mean, they’re going to need to show a bank statement, government ID, they’re going to need to say whether they are an accredited sophistication level, they’re going to need to declare their income, their assets. So believe me throughout this journey, that information, if that’s what you’re promising them and prepare them properly, see what we’re doing. We’re preparing the companies, we now need to prepare the ecosystem. So everybody can go in with a bit of an expectation into this. So,

Douglas Ruark  49:00

You know, what’s funny Oscar is we get one of the ones we get in a lot is people look at tier one with rose colored glasses, because there’s no audit requirement. And one of the things that they miss is really two things. The first is that a lot of the states because you’re gonna have to qualify a tier one at the state level, a lot of the states their state rules are going to require audited financials anyways. And then the second thing they miss is you’re going to have to pay someone, a firm like ours or somebody to file at the state level. And, you know, if the client is looking to try and avoid doing audited financials, you know, after you’ve paid a firm to qualify at the state level, in just a handful of states, you’re probably past what the audit costs would have been. And you could have sold in all 50 states and then that also leads into the fact that if you’re going to onboard outside investors into your company, best practice would be you’re doing audited financials anyways to protect yourself, the company and the investors interests as well. And those are things that will unwind on the very first call a lot of times is we have people to call and say, Hey, we’re still doing a tier one, reg A plus. And the first question I ask is, well, why? And it’s almost invariably, well, we want to avoid the audit. And I’m like, Okay, well, let’s talk about that, because you’re really not going to escape it. And you’re certainly not going to probably come out of that equation better financially. But the real purpose of a reg A plus is that ability to go nationwide, and to be able to accommodate everybody as an investor. And I don’t know why you’d want to limit yourself, maybe there’s certain instances where a tier one might work. But for the most, for the most part, tier two is going to be the way to go. But that’s just a perfect example of the educational aspect, which is people look at tier one and go, Oh, great, no auto financials. Let’s do that. And then what they don’t realize is, is that it’s not really going to work out the way they think after they get into the process and have to qualify at the state level.

Oscar Jofre  50:59

Yeah, we had a client that went through that paid for it, and was mad as hell that nobody told them that they should have done at tier two. But again, back to the whole discussion. It’s about teaming yourself with the proper individuals. So you can do your offering. Look, what is the measurement of success. I mean, this is an interesting word, the measurement of success, of course, to the issue is doing their capital raise. But in order to do your capital raise successfully, you also need to do it fully compliantly. Because just because you raised your money, you’re not done yet. We already know that, the SEC can always come down and say, give it all back. And that’s already been done once. So I’m sorry, not by the SEC, it could be by the payment provider, or it could be by whatever form. So we really need to make sure that everybody understands success as measured, making sure this is fully compliant. So you’re successful, so you can sleep at night, you can rest, you can do your work. And then make sure that the dollar you got you paid everybody, and you can start operating the business and taking advantage of what the JOBS Act has to offer. So Etan I love to hear your last words. I mean, obviously you and I, and of course you to Douglas as well. But you and I lately have been dealing with these. It’s so imperative. And I thought it was so timely that we’re having this discussion, but I’d love to hear your last comments on working together as a team.

Etan Butler  52:32

So So I pretty much have been working from like 6am to like one or 2am It feels like every day, inbound. Thank God, it’s a really nice, great place to be. But it’s, but it’s been it’s a lot and the industry, it’s indicative of how much this industry is growing. And I know the three of us all feel this equally, right. In our schedules, we see the opportunity, we see the the number of clients that are that are moving in this direction. It’s it’s grown right through 2020. And it’s going to continue to grow at that pace or more through through 2021 wanting to read a really interesting space right now. And, you know, my last thoughts are, look, you know, there’s a couple utilizations of reg A that I’m seeing really trending here I’m seeing many, many of these series issuers, right the the fractionalized ownership interest in different assets, and that kind of how that feeds into digitization of securities and how that feeds into the transfer agent and how that feeds into the secondary trading side going on. A lot of strategies and pretty much every industry, from real estate to collectibles, to revenue streams to contracts, you name it. People are fractionalized in these things. You see the non fungible tokens as well. There’s a big trend towards companies that are that are getting qualified to raise up to the full 75 million and then launching individual assets one at a time and giving investors the ability to participate in specific assets, whether it’s a racehorse, whether it’s a Michael Jordan’s rookie card, whether it’s a single family home, we’re seeing a huge swing, a huge increase in those types of issuers. We happen to be the broker dealer on many of these series issuers. It happens to be my favorite utilization of reg A, because ultimately they create an app they create an ecosystem. They they do right by their investors, and then the investors tell their brothers and their uncles and their neighbors, and some of them as they release an asset they sell out in minutes. And that’s really interesting. I think we’re gonna see a continued trend but I will tell you that it’s it’s been a pleasure, you know, working with with Doug and your team at reg D I think you guys are a high class shop. I know that from at least in my travels to the industry. You guys have a really strong reputation. So it’s really a pleasure to work and be working with you guys to provide a really good comprehensive service to issuers that should definitely consider talking with you as they as they approach, you know, as they navigate the process and, and certainly Oscar and KoreConX, I see Oscar, I speak with you more than my wife. You know, and I know that we’re working on a lot of things together, really designed to make this seamless and predictable for the investors and for the issuers, right, because we sleep at night when they’re happy, right. And if there’s an issue, or if there’s a vulnerability from the investors perspective, or the issuers perspective, we’re the kind of guy that take that personally, and it affects our sleep, and we want it to be smooth, and we want to make it better. And, and so and that’s the importance of working with a team that has people that are committed, not just have done it before, but But you know, just really want to get it right. And, and, or not okay, until the ship is tight. And so it’s really blessed and grateful to be working with both of you guys. So thank you for that.

Oscar Jofre  56:00

Perfect Douglas, your words?

Douglas Ruark  56:04

Um, yeah, I would say this, first of all, thank you Etan for the nice words, I appreciate that. And, you know, I really excited to be, you know, affiliated with with both of your firms, and, you know, we only want to work with best in class vendors. And, you know, we understand the importance of that. And I think part of what what I want to focus on kind of here at the end is just that, you know, for the issuer, you know, they understand their business, they understand that you know that they’re a software company, or they’re a real estate developer, or, you know, they, they their manufacturing company, but you know, the most most of these clients that come into this process, don’t know what they don’t know. And it’s our job to help educate them on the pitfalls, it’s our job to work them through this process efficiently. And ultimately, the goal is, is like I said, put them on stage with the right team, and let their opportunity get the exposure, it needs to either succeed or fail, obviously, there’s, there’s no way to assure someone they’re going to have a successful offering. But the goal is set them up for success, put them on stage, let them get that market exposure, hopefully they have a successful offering. And, you know, really have to look at it as Who do you want to take the stage with? Do you want to be you know, with the, you know, the Grammy winners or or not. And that’s just the way I look at this process is, again, it’s not a process, you want to shortcut, you really want to put the right team in place, you want to have the right ingredients there, because it’s gonna make a difference in the end, and even little things make a difference. It’s like I’ve said, one of the things that I really love about Oscars company is the fact that they’ve really worked hard on the investor experience. And that matters, it really does. So, so I think, you know, when you’re contemplating this type of offering, it is a complex process. But ultimately, the goal is get on market with the right people with the right team. And it’s going to make the issuers life that much easier. Because you know, they’re gonna have that support they need to execute, hopefully be successful. And, you know, look back on the experience as a positive experience.

Oscar Jofre  58:28

Agreed. And obviously, we want them to come back the next year, and the next year, as Dalmore has experienced, it can be very fruitful when you’ve done it right the first time. And doing it right doesn’t mean again, it doesn’t mean you have to race at all, it just means that it went smooth, there are going to be bumps along the way. And as we discuss here today, the real key is working with a well qualified team, simply by asking the right questions of each of the people you work with, will be a determination of your success. And the nice thing about this particular regulation, all of this is available in the general public, it’s just it’s been very difficult to find. We’re trying to make it easy by bringing these education for you, Douglas and Etan’s details, you can find them at core some of that IO, you can see their LinkedIn profile, you’ll see their LinkedIn email account, other email accounts, so you can reach out to them directly. Or you can email us and we’ll be more than happy to make the introductions, show them with you. We want to remove the friction for you to get started to really be part of this phenomenal momentum of the Jobs Act, which allows you to raise up to 75 million. So Etan, Douglas, great having a conversation with you. Obviously, this ecosystem keeps growing because of companies like yourselves, and the fact that you’re both extremely open minded, in many different ways is your game. And my view is the way that you look at this. And what that means is that we’re open for new surprises that lie ahead so until next time everyone we look forward to seeing you again at another KoreSummit webinar series coming up tomorrow of course till then have a great week successful week for everyone cheers Have a good one

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