Why SPV for RegCF


Oscar Jofre

CEO and Co-Founder


Oscar Jofre

CEO and Co-Founder

Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide. Oscar is a featured speaker on Fintech, regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business.

Marty Tate


Carman Lehnhof Israelsen

Marty Tate


Marty is a nationally recognized securities, finance and fintech attorney and counsels clients throughout the U.S. and internationally on various forms of structured finance, private and public securities offerings, fintech, real estate financings, venture capital and angel financings, fund formation and compliance, business formation and corporate governance. Since 2009, Marty has been active in advising clients in the crowdfunding and peer-to-peer lending space, with a particular focus on the JOBS Act, Regulation D offerings, intrastate offerings and Regulation A. His clients in this space include nationally and internationally recognized platform operators, sponsors, issuers, REITS, funds and service providers. He has been recognized as one of the top crowdfunding attorneys in the United States and continues to provide expertise and play a leading role locally and nationally in this area of securities law.

Jonathon Whaley

Chief Compliance Officer


Jonathon Whaley

Chief Compliance Officer

Since graduation from Ave Maria School of Law in 2012 I have successfully guided BeManaged through ten external audits, including a routine examination conducted by the Securities and Exchange Commission. I have demonstrated an ability to establish and refine a strong culture of compliance within the parameters established by SEC rules and regulations for Investment Advisers. BeManaged promoted me to CCO in 2014 for my commitment to the culture of compliance embraced by the firm and my dedication to the well being of BeManaged's clients. I supplemented my education by completing a year long, intensive compliance program with National Regulatory Services and was designated an Investment Adviser Certified Compliance Professional in 2013. Additionally, I completed the Claritas Investment Training program with the CFA institute in 2014. Most recently I passed the Series 65 Investment Exam through FINRA for Registered Investment Advisers. Throughout my educational career, at both Ave Maria and the University of Dayton, I demonstrated great ability to balance the rigors of full-time academia and work success. Achieving honors at both Universities, I also managed a full-time work schedule including the operation of two businesses.

Oscar Jofre  00:01

We’re almost there, just be patient. Ok, there we are. We are now live and with our guests. So first of all, let’s, let’s get started. It is 3:29. Oh, no, no. We are going to wait for that 3:30 I’m sorry. Hey, Marty, are you still in Hawaii?


Marty Tate  00:37

I’m not back in back in Utah in the cold.


Oscar Jofre  00:42

I’m so happy when you’re there. All right. Welcome, everybody to KoreSummit webinar series 2021. My name is Oscar Jofre, myself and with my colleague co panelists this afternoon, we’re gonna have a fun discussion. For those of you that are new to it, our format is very simple. We have no presentation. This is purely for you to listen to the the real hard knocks of people doing the work not reading PowerPoint slides. And we’re gonna have a conversation for about 45 minutes and give you an opportunity to put up your hand there’s a little button there where they can click on it, ask your questions. And of course, as that of our panelists, I’m going to get our panelists to introduce themselves one by one. So let’s start with Marty.


Marty Tate  01:31

So I’m Marty Tate. I am a partner at the law firm Carman Lenhof Tate Israelson in Salt Lake City, practicing securities law for about 20 years. A large chunk of that in the crowdfunding space. Doing Regulation CF RegCF offerings and a lot of RegA offering so active in that space. Met Oscar, I don’t know, a dozen years ago. So we’re both both infants. So yeah. Most of my clients are are either platforms or issuers or service providers in this space.


Oscar Jofre  02:10

Perfect. Thank you. Great. Have you alongside Jonathan, please. You’re on mute.


Jonathon Whaley  02:20

Hi there, sorry. Had the mute on. Jonathon Whaley, I’m the Chief Compliance Officer for Wunderfund. Wunderfund is a crowdfunding portal out of Cincinnati, Ohio and we kind of focus on the underserved markets, Midwest, southeast, as well as demographically with minority based companies, LGBTQ, female founders, people of color that nature.


Oscar Jofre  02:45

Oh, fantastic. So let me get the afternoon started with some really good news. Because there was something buzzing about, obviously, with the new election. With the new administration, Marty, you probably got wind of this that the new administration had issued a letter to halt all incoming changes, and and today was the day we were waiting for whether the SEC was going to halt the new amendments, or proceed. We’re very excited. We proceed March 15 is still the day, which is great. A lot of champions at the table, Marty, and I’m sure many others were there as well. So for everybody that’s listening in here today, we’re we’re a full speed ahead for $5 million for Regulation CF, and $75 million for Regulation A, so let’s get this great discussion going today should drive up everybody. This one is very dear to me right now. Because I’m sure for the two of you. I’m spending a lot of time trying to answer this question. And there’s kind of miss mixed dialogue on it. But hopefully today we’ll have enough of a dialogue to get it really sparked up. So the regulator’s have provided this new structure but not a new structure but structure to be utilized under Reg CF: SPV. SPV for RegCF. Yeah, so we’ll get to that. Why for the SP for the reg CF. But let’s let’s unravel it. First of all, from the legal perspective, what is an SPV? Why, how has it been used to date? And, and then we can start going into with you Jonathon, how’s that gonna move into for a Regulation a company so Marty, let’s kick it off with you.


Marty Tate  04:37

Yeah, yeah. And just to be clear, we’re not we’re talking to SPVs not STDs. So, um, so SP v stands for special purpose vehicle and, or sometimes they’re called SPEs or special purpose entities. Used a lot in financing with where you’ll you’ll, Where you’re raising capital for a specific purpose, used a lot in, like infrastructure deals or real estate deals where people will come together and invest in a real estate project, or come together to do into an equity investment to do it, then do a debt financing or something like that. So one of the rules with Reg CF, prior to this amendment was that you couldn’t use SPVs, basically, all of the investments had to be made directly into the operating company. So this created a couple of complications. One is that if you raise money from a large number of shareholders, you you had to and you’re going to do that selling stock, you would get a couple problems. One was that your cap table suddenly has, you know, 400 500, investors 1000, investors that have all come in and your Reg CF offering, or, and so that’s bad, because it might hurt future rounds and turn off a series A investor or something like that. The other is you under Section 12. g, if you have more than 2000 investors total or more than 500 non accredited investors, you’re required to register as a public company, which means you have to go through that process of registering, you have to be a portfolio reporting company. So there was a problem there with equity investors. That’s what a lot of the crowdfunding platforms give us, like a crowd safe instrument, because they’re not. It’s not equity. It’s not clogging up your cap table to work making you subject to 12 G or section 12. g. So. So that has been a problem. So one of the things that a lot of us started petitioning for immediately, even before the JOBS Act, and the rules came out there was the allowing the use of an SPV and investment vehicle where investors invest specifically into this newly formed product, most likely in LLC, a pass through entity, investors all go in there. And that SPV then turns and makes the investment into the the issuer or the the, into the project itself. So, to me this was, you know, the 5 million I think is great that to me, this is the most significant change in the and then.


Oscar Jofre  07:29

And so, obviously, the vehicle itself has been around for a long time. So there’s, we’ve seen it I often hear mostly in real estate, anytime people talk real estate, oh, yeah, they’re in an SPV. But now we’re bringing it into this new arena where it’s not an issue, whether you are young entrepreneur or not, it seems really exciting. And obviously, we’re going to go to you, Jonathon, now, because you’re being the CCO of a funding portal. How do you see that playing out? for you as a funding portal? How do you see that structure materializing based on what people have a perception of it.


Jonathon Whaley  08:12

So it’s definitely going to be interesting. SPVs, obviously, were not a part of anything we’ve dealt with so far. And so a lot of the issuers that have come to us, most of them, generally not being as sophisticated on the law, as securities attorneys probably didn’t even know of the existence of SPVs. But now, it’s been blasted out, everyone heard that there’s a special purpose vehicle. And you know, that’s kind of the new buzzword for what issuers want to do. So, it’s going to be interesting, because I think, especially with the increase to $5 million, it’s going to be much more relevant. When you’re raising $200,000. And you get 50 to 100. Investors, it’s not too difficult to deal with that from a cap table perspective. But as Marty mentioned, you know, if we’re truly looking for unaccredited investors, and you’re putting, you know, very small minimums, up to $5 million, you’re gonna have to account for that of what you know complying with the securities laws, specifically that 12 G. But also from a business standpoint, if you’re an issuer you’re going to need to understand how to organize these investors and, you know, just comply with all of the rules you have to as far as communication and cap table management and all that. So, there’s definitely still I think there’s more questions from the issuer side right now than there are answers. But it’s great, ’cause I know, you know, like people like Marty and Kore. And there’s a lot of other groups out there that are getting out this information. And conferences like this especially, are really important because it’s definitely we had not heard the word SPV from an issuer before and we probably four times this year already. So That’s kind of weird.


Oscar Jofre  10:01

I agree. I mean, the amount of people asking the questions. And so I mean, the way, I mean, the way we’re addressing it now, when we get asked that question, it’s really a vein, the two of us we’ve had this discussion before is, let’s just look at that. But let’s look at what journey you’re taking. It’s not the same. Hey, let’s put it in SPV. Because if you’re going to do a RegA, I mean, what’s the purpose? Right? Like I that’s my view on it if that the long term goal is that, but there’s something interesting that’s happening though with an sp the the entrance, and I wonder if you can cover this one Morty is that obviously the most of the people that are traditionally known about SPV have invested in SVP has been in real estate. So it’s a project that gets put there, boom, the company doesn’t even see it, in fact, but this one is different. This one is dramatically different. Because even though the, from my understanding, correct me if I’m wrong, was the regulator saying, Yes, company, ABC, you can put de investors in an SPV. But you’re still managing that SPV. And you still need to report to them as that I like to hear your comments on that.


Marty Tate  11:12

That’s correct. And and there’s still investors in your company. Right. And so I, and we’ve had discussions with this and I represent service providers that their whole business is forming SPVs. And and managing those and, you know, we’ve had discussions about that. And, you know, if they form an SPV, and they have a manager, Is that sufficient? And there’s not a clear answer yet. I think we’ll we’ll kind of understand that. But the I think the overriding concept is Yeah, those are still investors in your company, they’re going to invest through the website. And they will, you know, Jonathan, could probably talk a little bit about this, but you’re still going to have to issue reports to them. And you won’t just go to a single person who is then responsible, as far as I know, I mean, maybe there’ll be some evolution in that. And that process can be simplified. But the idea is there still investors, they still have to, you have to provide them the updates, you have to provide them the reports, and, and correspond. And when I say you, I mean, the issuer, the issuer will have to continue that communication and make sure that they’re managing them, even if they do just sit as you know, one single shareholder on the cap table. They’re still investors in your company, and you have fiduciary rules, there are obligations there.


Oscar Jofre  12:36

Yeah, of course, of course, the key element, but what I’m getting from your comment is this, basically, even though you’re able to put it there, you’re still the one that owns that entity, and you got to manage it as if it was here. What this is just giving you the ability to show as one holder, you just did I and the reason I’m emphasizing this point, is because you can’t imagine how many people I deal with I’m sure we all do, where they think they’re going to put it in an SPV, someone’s going to do the management and say, Oh, I’m only gonna have one shareholder? No, you still have them all. It’s just, it’s gonna show one on the cap table. But you still got all the other issues to deal with. You still got a you got to pretend its still there? Like I this is the the emphasis that I at least I make an effort. I don’t know, Jonathan, from your end, are you? Is it the same?


Jonathon Whaley  13:31

Yeah, that’s the you know, I mean, there’s still a couple concerns with the SEC’s rule, and how they wrote some of the rules. And again, hopefully, we’ve definitely seen them willing to make some changes going forward. But for example, in Europe, it’s a nominee system. And so a lot of crowdfunding portals in Europe, actually, it becomes the crowdfunding portal itself, that is the manager of the SPV. And it really, truly is, it’s, you know, the crowdfunding portal that does the management. And then it reports to the issuer just reports to that one entity, so much more like a real estate. As Marty mentioned, the SEC didn’t provide much guidance or clarification on who is the manager of an SPV. So that’s still going to be something that’s going to be really interesting. And I’m sure Marty is going to have a lot of fun writing the legal documents for these spvs really trying to clarify that without guidance from the SEC. But that’s definitely going to be one of the things that we are very clear within our issuers is you still have these obligations, and you can’t just because your investors are put into one vehicle, and you put a manager in charge of that vehicle. That doesn’t mean that your obligations are done and you only had to do it to that one individual or the group whoever’s managing, you still had to report to each individual. So from a cost perspective in terms of complying with Follow on rules, it’s not going to mitigate much for the issuers. And so that’s one of the things we really need to be clear with that. It’s not going to be, you know, an SPV isn’t going to solve all of your problems. And you’re going to need to make sure you’re prepared to do the due diligence after you raise a campaign, because otherwise, you’re still going to get in trouble with the SEC and FINRA.


Oscar Jofre  15:24

Yeah, actually, you brought up an interesting point is that on? When you do opt for an SPV? It makes sense. You have to account for that additional costs, because there are administrators depending on the but you can retain to manage that. And I mean, I know we’re struggling at the moment, from an industry perspective, the the typical SPV providers to the go, yeah, we’re excited. You know, how many holders are going to be 5000? Yeah, no, it’s the pushback has been, you know, if you’ve got 100 200, we’ll do it. But we don’t want to do 5000 or 1000. And the reason for that is because there’s a reporting requirement to your point, Jonathan, so it, it in the surface, it looks really, really good. And and, and people like Marty will provide you the here’s the SPV model, here’s this model, and not, but I think they always I think that the underlying question is what is the journey that your company’s taking to do the capital raising that will assist you on the SPV? So I mean, whether the SPV makes sense for for a company, so it’s the I mean, right now, I haven’t seen any cracked it. I mean, I’m, if you guys haven’t either, but Marty, have you done? Have you been approached yet to create an SPV yet? For RegCF? Yep, have we gotten there yet?


Marty Tate  16:59

We haven’t. And, and like I said, I represent a company that, that they’re actually based here in Utah as well, that that’s been their whole business is setting up these SPVs for 506 c offerings. And they worked with seed invested and a lot of the, the platforms. And so I anticipate it will be the same. Now, again, they’re a third party administrator, there’s fees associated with that they charge you fees to set up the SPV, they charge you fees to administer it, they, you know, they’ll handle the tax, you know, tax issues and distribution issues. And they’ll handle all of that. But again, there’s fees. So there’s, that’s something you have to think about, but I don’t anticipate it will be, you know, significantly different than the actual SPV. Setting up is pretty simple and straightforward. I think that where the rubber hits the road would just be like Jonathon mentioned, who’s going to administer that? Is that are the platform’s going to be the administrators, administrators have those SPVs? And if so, is there going to be a fee for that? I would expect so because there’s there’s additional work. So I you know, I think there’s nothing to you know, out of the ordinary, I think it’ll be very similar to what we did with 506 C, these types of entities for 506 C? See, I mean, basically, you’re, you’re setting up an entity these, these investors won’t have will have very limited rights. They’re probably won’t have I mean, they’re not going to be able to vote on a lot of things. I mean, I think they’re their rights are going to be very limited. Which is not unlike, you know, let’s say for something now. So but that’s just something that that’ll be there’ll be some additional disclosure in the form see that we’re going to have to add around this, these SPVs. I think there’ll be there will be additional risks. There’ll be you know, I think some additional, we haven’t seen anything from the SEC about what we have to provide. But I suspect you’re going to provide information about that SPV, the administrator, the manager, voting rights, all of that. So it’ll be interesting. I haven’t been approached yet. But I, you know, I think so.


Oscar Jofre  19:15

But if somebody was, let’s take the scenario, actually. And Marty, you’re right, it? We haven’t. I think everybody’s curious. But let’s talk about now the ideal scenario clients, where the SPV makes sense, what is that ideal? Maybe that maybe we can take it from that approach? Right, the raising $5 million. Right. So what are the key trigger questions that’s going to say, you know, what the SPV is the right vehicle for you what kind of though, what items are there? And I’ll come back to you, Jonathan, as well, because you’re you’re the funding portal.


Marty Tate  19:46

So I would think it’s going to vary. I mean, I think there’s a lot of circumstances like Jonathon mentioned, you know, on a $5 million raise, you’re potentially bringing in a lot more investors. So that might be a primary consideration. If The amount you’re raising. The other might be, you know, if it is an equity investment, you know, and you have evaluation, then you might swing them towards that otherwise, you know, one of the reasons why people one of the other reasons why people use a safe is that they haven’t. It’s a startup, they haven’t, they don’t have a firm valuation yet. And so there, it’s safe is a nice instrument, because you’re not pegging a valuation for the company or being asked to do so. So that would be another time that a company would might veer towards a SPV? is they have a valuation? Perhaps they are they’re trying trying to set one. The other thing is in and I haven’t looked at this yet, but it was just as I’ve thought about this, you know, it might be useful in the type of investments. So say, for example, your you need to do a, an equity investment, maybe we really are starting to get investment. Maybe it’s a real estate project. And it’s easier to say, Hey, we want to go into this project. This real estate project is debt. So we’re going to form an SPV. And that SPV then is going to turn around and make a loan to the the entity that the issue. That might be a possibility. I don’t know we haven’t I haven’t crossed that yet, or played with that with any of my clients yet. But I think that could be a potential as well. I think it just opens up a lot of possibilities that you just didn’t have before in a lot of different fields. And like I said, if it’s more project specific. So say you’re trying to raise capital for a specific project within a business, you could set up an SPV. And that SPV is related to that market. So I think there’s there’s a lot of uses for it. And it will be up to the platform’s the issuers and their attorneys and advisors to kind of navigate to that.


Oscar Jofre  21:51

That’s perfect. Jonathon, back to you, sir. 


Jonathon Whaley  21:55

Yeah, I’ll just piggyback off the kind of last point Marty there, the that type of raise is going to be really important. Like I know, we’re working right now with a group in it is a real estate investment. And we’re trying to structure it in a way that makes sense for a crowdfunding campaign. If we did an SPV, if the SPV was available, it would be easy. And so definitely, if you know a type of investment comes through the door, that’s something we would work with the issuer on. But and this goes back to Oscar, we had our you know, a webinar last week, the preparedness of the issuer is really going to be important. As Marty mentioned, there’s going to be a lot of cost to this. And you don’t necessarily just because you launch a campaign doesn’t mean you get that money, this isn’t Kickstarter, you have to reach that minimum. So if you’re going to go undergo the cost of starting up an SPV. Before you do that, I’m going to say one, can you afford it upfront? You know, all the costs of the SPV and the crowdfunding campaign? And to do you have people who are going to invest right away. Because if you’re not going to reach your minimum investment, you set up an SPV for a failed crowdfunding raise, and you’ve basically wasted that money. And so I think, preparedness, you know, it’s one of those things that we had to kind of talk with people about that they always have the next home run company, and everything’s gonna work great with this raise. Well, that’s, you know, unfortunately, not true a lot of the time. And so, you know, that’s going to be a big one is SPVs aren’t for everyone. And they’re costly. And so I think the big ones are going to be are you ready to raise money? How much money are you trying to raise? And then the type of company that your type of issue is that you have will be the three major things we look at


Oscar Jofre  23:48

what you know, and listening to the both of you. As an entrepreneur, I would say, well, that’s interesting, because the whole thing about Regulation CF was to make it easy and smooth and coming in. And Marty, I know you, you and I deal with that with clients all the time we try to make it seems like the SPV isn’t, it’s going to be a little bit bumpier, more bumpy here, because there’s a lot of ambiguity about the unknown. And that unknown, as we all know, can call will have an additional cost. And as to your point, Jonathon, when there’s so much additional work to be done to marketing your offering, balancing the dollars and cents of back and forth. It but excuse me, so one thing that strikes in my mind and I mean it we we will all run into an entrepreneur like this that will say I only need $5 million. And that’s it. That’s it. That’s all I need. And I’ve dealt with dealing with one arena I only need $5 million and this is a home run I said okay, look, I I would say plans are the best the which is five is all you need. But what if you need no No, no. If I need more, I did something wrong. So well. Okay, so this individual, it’s $5 million and nothing else, they won’t look at doing it a RegCF again or a RegA nothing else. And because they’re set on the spvs, the the ideal scenario because they only have to deal with one holder and I bring this up because it within the audience, I’m sure somebody’s thinking I only need button only. And I only want to show one older there. And I just want to put the holders on the side. And again, I’m iterating this back because the everybody’s trying to look for what is the ideal scenario client for this particular vehicle? If I hear correctly, you guys can correct me. One, you obviously need to plant out additional capital, which we don’t know yet what the true cost is yet from the SPV providers? I’m sure we’ll find them and and then the reporting requirement, and then to what effect could this have in your long term journey as the company proceeds? So I’m going to go to that point now. And I’m going to go to Marty on this one. So Marty, you and I do with a lot of RegA’s, right. So RegA the beauty of that regulation is, you know, for those who listening in, you know, the reg CF a 12 month old RegA, no hold. But once they’re combined, which they can be, it’s a glorified. So what happens if the company chose to do the SPV? That then makes the choice to do the RegA? What where is the balance? Or is there a balance? You’re on mute, but I like that part of it. See, the stars look nice.


Marty Tate  26:39

Yeah. So you know, there are considerations that you have to think about. And we talked about this actually, on our last little webinar. And the whole if you’re thinking about the process, and and I think it’s always smart to think about capital raising and a process and saying, okay, what’s our next step? And if you are going to do a reg, Regulation A offering? How is that going to look? Now, you know, that that SPV could sit on your cap table, and you could raise additional capital under RegA. Now, one of the benefits of a RegA offering is that you can register up to 30% of the current for up to 30% of your raised can be current. shareholders, right. And so, a lot of times a, an issuer will take advantage of that. And they will, sorry, they will qualify, they will include part of their current shareholders as part of that RegA offering and therefore allowing those to be unrestricted shares. So, if you have this SPV, how did you know, how does that work, you would have to, it becomes a little bit more complicated because the SPV holds the shares, not the individuals. And so, they would have to be, you’d have to basically unwind that SPV and then distribute the shares to them and that they’re securities implications of that. So, there’s there, it’s not impossible, it’s just something you have to think through. It doesn’t prohibit doing a RegA in the future. It just, it’s just something you have to think about and say, okay, is that if that’s something we’re going to do, and we, you know, do we is doing a reg CF and having these shareholders sitting on our cap table, how does that affect it, but that happens if you do a Save as well. I mean, if you do RegA, you’ve got to, you know, convert those shareholders at that or convert that instrument anyway.


Oscar Jofre  28:51

Okay, but that’s an interesting point you brought up there. So I got I get the safe because the safe is directly into the company. So could the SPV be something that you utilize, and then it can convert right back to the company again? Can it be written that way? Is that what I’m hearing or? Or I’m misunderstanding this part?


Marty Tate  29:12

So you could I don’t know you’re thinking about this on the fly?


Oscar Jofre  29:18

No, no, no, no.


Marty Tate  29:20

But the I, you could have registered basically like registration rights that associate with that SPV, so that if you do a RegA plus that they would be included in that process that those shares. But again, you’re still you’d still have to figure out, you’d have to figure out the best way to get those to the actual shareholders. And there’s going to be securities implications associated with that. So again, it’s not out of the realm. It’s just something and that’s something to think about. I hadn’t thought about that. It’s just adding those sort of registration rights or qualification rights.


Oscar Jofre  29:54

Yeah, of course, that so. Jonathan, I I’ll bring that back up. I mean, I’ve never asked you I mean, you’re just looking at from the reg CF you’re trying to, but obviously the journey could continue, they could come back again. Of course you like that to do a reg CF. But let’s say the next race is 20 30 million RegA makes more sense. Are you putting that consideration if they work in undertake DSP view or at this moment, you’re just gonna put the SPV on the on the side?


Jonathon Whaley  30:24

Yeah, that is, so we haven’t had an issuer yet. were jumping to a RegA as their next step would make sense. I think as we get some larger issuers, that is going to be the case. So right now yet, if if for those clients, or those issuers that we do an SPV for, it would just be as simple as an SPV can get it this case, obviously, it’s very important to us that we design our offerings in a way that’s attractive to the next round of financing. But right now, for most of our issuers, the next round of financing is either another crowdfunding campaign, or then stepping up to VCs and angels. So I think maybe our company’s just a little too in its infancy to be doing some of the larger RegA deals yet. So that’s something I’m certainly no idea getting prepared for down the road. So But yeah, I know, SPV plan right now, is we’re going to be very selective with its use and, you know, try to make it as simple as possible for management going forward.


Oscar Jofre  31:39

Yeah, it does seem like in this conversation, we’re having that for those who are considering or thought that you know how headlines are, right? I’ve read every headline, you can now do an SPV with reg CF, and everybody’s so excited. But then when you go into the weeds of it, it does change. So here’s a couple more questions I have around it, because I just want to make sure. So obviously, we we need an SPV administrator, there’s a few companies out there that specialize in that, which will produce reports. So and then we have the legal entity here. So from what you’ve known so far, Marty, is is the company having to do financial statements from both entities or just from that main entity to that entity? So this is a, you know, it’s


Marty Tate  32:30

I don’t know. But I would suspect the issuer is still and it becomes complicated, because the issuer is actually the SPV. Not the underlying issuer, the operating company. But I would think that just the financial statements of the operating company would be sufficient, because those are really the only ones that are important, the SPV is not going to have it’s going to be blank. So I don’t think those would be important. But I haven’t heard anything to that effect. I would assume it’s just similar to like a 506. c SPV. And you’re really looking through that 506 C, that s sorry, you’re looking through that SPV to, to the underlying issuer.


Oscar Jofre  33:15

Know that, and that is the you know, these are all the random questions that are coming out. Like what, what happens here? Do I need two sets of books or records do I need? I mean, the one thing that’s clear is that, even though they’re two, you’re still going to treat it as one. And what does that all mean from from a reporting element? But I think the bigger picture here is what I’m hearing is that because of the ambiguity, it’s not something that we’re all going to be jumping on



guests like that.


Oscar Jofre  33:47

Because it it I think, personally, I think an SPV makes a great deal of sense for a larger deal. And when I mean larger deal, dollar amount to justify the cost and everything. You know, providers, I gave them the dollar amount they liked it. They have no problems with the dollar amount. Let me put it this way. Anything from a million to 5 million they go Yep, we can do it. Just the next question where I fail. So next thing I want, and they go so how many shareholders and that’s where, right because I go Alright, so companies are raised a million got 4000 so if you’re gonna do 5,000,005 times four it’s a math game right? There. They just get scared to go you kidding me? No, I’m not kidding. No, that’s the that’s the model that that that’s going out. So I think I think we need to figure that part out. It’s it’s like any other component in the industry when when bardi you know this before you launch the Jonathan. I’ll never forget 2012 Well, you knew I know you remember Marty in the in the early days, everybody He was talking about. So what’s going to be the role of the lawyer if the funding portals are going to do the form? See? So people that well, you’re not Canadian look, you do, you still need a lawyer to review, you need legal advice that doesn’t go away. Some people came up with a form filler program, which was great. It’s a nice little, you know, to x accelerated, but it doesn’t change the fact that the JOBS Act did not say this is to help you raise money. So we, so you don’t need the lawyers, the auditors, the broker dealers or the planning board, it was quite the opposite. And I think the SPV intent was the same, to use the current infrastructure, we just need to get the infrastructure. So we have a little bit better clarity on that. So just a couple questions I’ve got to you, Jonathan, first, what would you like to have seen from the regulators for the SPV that you feel this missing? That kind of gives you kind of a wary moment as to whether this makes sense for a company or not? Yeah, it’s


Jonathon Whaley  36:03

something we’ve kind of talked about a little bit is, I think one of the things that the SEC, I’d like to see that they’re growing, and, you know, raising the minimum to 5 million is great. But I would love to see this process simplified. Not just the SPV. But crowdfunding in general, as askers, you just talked about, you know, part of the young gate that was in the way of a lot of entrepreneurs was just that cost and the complications of raising money, because of the SEC rules. And crowdfunding has done a great job of making it a little easier. But it’s still pretty complicated. I know. Like I was floored when I was talking with a regulator from the state of Georgia, and he said they had like a simple crowdfunding, intrastate. And it was two pages, and you just had to file that. And I was like, I mean, that would, that would be a beautiful thing. Obviously, for bigger raises, that’s impossible. But if you’re raising less than a million dollars, why do you need to do a full offering statement and stuff? So I would have loved to have seen that from the SPV as well is like just a, you know, just like, I think there should be a simple crowdfunding for filing, there should be a simple SPV. And it would accomplish exactly what the SEC wants, which is, you still have someone monitoring the rights of the investors. But they never really clarified who that is. And so it’s up to a bunch of lawyers to kind of figure out I’m a lawyer too. So I get it. It’s, you know, it’s up to a bunch of lawyers to kind of figure out, write these documents, as opposed to saying, Alright, here’s a very simple way for you to spot violent SPV. It only really relates to crowdfunding this, you know, you do a crowdfunding raise. Here’s a simple SPV. Here’s who’s in charge go. So I just I think that simplifying it similar to mean, in Europe, like I said, they have that now a nice system where the issue of the crowdfunding portal is actually in charge of the SPV. something simple like that would have really made me a little happier.


Marty Tate  38:17

And I, I think, Jonathan, I think that will I think that will come I mean, you know, give me a call. And we’ll we’ll figure that out and put that in place. I think, I don’t think I don’t think it’s a huge hurdle. I think we can create something that’s, you know, and I think you’ll see stuff that really simple. You’ll see, basically, really, you know what, one of the things would just be cost, where are you organizing those, you know, you’re putting that in Delaware, Nevada, or wherever. But you know, if you think you’ll create something that’s we can create something that’s really simple a simple operating agreement. It’s not, you know, that standard, and you’ll see that kind of across the board. I think, just like the safe has been sort of standardized, and a lot of these documents have been standardized. I think that will come. I think it’s just a matter of being asked to do that. But hopefully, and I agree with you, I think that it would be wonderful if if we had something similar to what Georgia has done with their interstate offering. That’s a really simple process. Arizona has that a bunch of states have stuff like that. And it’s, it’s nice, I think, anytime you’re talking about doing an offering across 50 states, so it’s, it’s going to be a little bit more complicated.


Oscar Jofre  39:28

But that that actually brings up an interesting point Morty in that is that we shouldn’t always wait for the regulator’s to tell us what to do if they’ve given us a framework. We’re diligent enough and is Marty’s offering here. Here’s an opportunity, I think, the safest the same way. Well, isn’t it funny, because I remember people were We were having these discussions even before reg CF went live, how are you going to deal with 12 G and this and that and Oh, wait, and then eventually, you know, there’s the safe and then there’s Republic, but the crowd says, I mean, ultimately, it was a creativeness of a lawyer, legal opinion and making sure that it the A, everything was done accordingly. And but it doesn’t change the mechanics what the issuers need to do absolutely not. This was just a vehicle to protect you from rule 12 G, which is really the why this has been created. But I like the way you open that door, I think that’s where it starts, it starts here, constructing it presenting it. And, as they say, when the real key though, within SPV that makes it a little bit different is that we still need another third party. And that being said, wherever that third party is, if they’re listening in right now, this is your door opener. And you’ve got more detail here good Jonathan for where you got to knock on their door to say, Hey, I can do this. And I’m happy to say that as as this conversation has been going on our team is is been talking to different sources saying, you know, we’re really looking for somebody who can do k ones and, and nav reports for 1000s of users. Are you scared of that? And, you know, most runaway, and we’re talking to one right now. So I’m gonna I’m gonna play optimistic that we’ll see where it goes. But if that is the case, if we can find, because we found out what the issue is. So it’s like everything else. It’s when you know where the problem is, and why people won’t take it on, is because imagine creating 1000 reports. Like, we go, Oh, that’s easy. Just click a button and they print it. But the part that everybody forgot is the manual input. Somebody is getting married. So there is the problem. Now. Now we know where the roadblock Well, guess what? It’s not that long ago, six, seven years, eight years ago, we had the same problem. How is anybody can ever do KYC? If withdrawal been done on paper? And I remember lawyers asking, Come on, guys, this is the way you do it. No, no, no, we’re gonna do it online. Now. We still have a few of them out there that can’t believe it. So we’re evolving it. And and so this discussion for those who are listening in today is not to discourage the use of SBV. We’re just saying that the discussion has now begun, like in many other areas, we’re in the second iteration of the second wave of the jobs act right now, which is exciting, because we’re being presented with a number of great things. As we spoke previously, the accredited investor can get involved where before we didn’t have that, now you got an SPV? Well, it’s going to be accredited. It’s much easier to take on this one. We need some thinking out on to make it work. And I think, Jonathan, you touched on a great point, you’re looking at some of the examples from Europe where the funding portal becomes a representative. I’m rather curious from your point. Marty, I don’t know if you know, the new incoming Commissioner, just some high level highlights on this new individual is very pro protecting investors. So how does one How does the if the funding portal becomes a representative of the SPV? Let’s just hypothetically say that that’s a model we move forward with on where is the rights of the holders in this case, when the funding portal is the the overarching, you know, party for, for this investment? shareholder rights?


Marty Tate  43:37

And I think I talked about that earlier. And is, I think they’re going to be pretty limited, right? I mean, the shareholder rights are going to sit at the level of the SPV. And typically, these spbs will have a manager or an administrator, you know, an SPV, if it’s set up as an LLC can either be member managed, which, you know, it’s that means, you know, it’s managed by the members, or it’s or it’s managed or managed, I think most of these fact I think all them would be managed or managed, so that those rights, and the way that they’ve been done in 506. c land is that that managers is best with all the rights to vote, you know, on any issue that’s presented to the shareholders, that that manager has the right to vote on behalf of the SPV. And a lot of times, you’ll have language in there that says basically, they have to, they just have to vote along with the majority, whatever it might be. So if a majority of the people are saying yes to this transaction, then you have to vote yes. So it’s interesting. A lot of times those are just pre dictated. So you’re not going out to 4000 people saying, hey, what should we do on this? That’s the way I’ve seen in the past.


Oscar Jofre  44:50

Yeah. And Jonathan, I mean, obviously, you brought up the example. I mean, how do you think they’re having nominating somebody to be like the funding portal to be Do you think You guys can take that on if that the are you equipped from a governance and compliance structure to be balanced, you know, first bring in investments and then playing shareholder advocate.


Jonathon Whaley  45:12

Yeah, so I mean, right now we are because we’re not allowed to do it. And so but if that became, you know, a source because one of the things is we’re really restricted in what we can do as far as what we can collect fees for. And really, truly all we can do is, you know, collect fees for running a campaign. But if it came to a point where, you know, like, we could have a wing or a division that was like, you have the onboarding of the issuer, and then you had someone running the campaign, well, then we’re done. Really, that’s really where the crowdfunding ends for us right now. But if we could grow, allow to continue on with those issuers and manage an SPV, or their cap table or something. I mean, again, for us, it’s thing Marty has been saying, it’s not that difficult for someone who’s experienced in it to understand and manage an SPV and stuff. But we can’t right now. And I would definitely feel comfortable, you know, getting up a program where maybe not wonderful in itself. But like I said, just a consulting group that was related to us that we could pass it off to, we could definitely handle that. And especially because at that point, you know, if we’re designing a new bicycle, you’re you’re going grade about talking about the life of the campaign, if we get someone into our pipeline, and they want to raise money through crowdfunding, and we know like, we’re going to do their campaign. And then we’re going to do the SPV. And then you know, perhaps the next round, whatever it is, and we can design everything in a way that makes it really easy for us to manage all the way through, instead of having to pass it off from group to group to group as the life of the business grows.


Oscar Jofre  46:57

Okay. I mean, like I said, the conversation has now begun, there’s a lot of choices in front of us that what needs to happen now is did you got a little working group right now between a lawyer and a funding portal that could accelerate that to explore it, and but I, I think, the way I’m gonna look at it is the same way when RegCF first got introduced, this funding portals are going to have to take the lead on it with a lawyer presented and move on with it. And as we all know, people keep saying the regulator’s really don’t like the safe, but yet, here it is, it’s working. It’s not the prettiest instrument in the planet, by all means, but it’s an effective one for now. And we can always improve. So for those who are not familiar with that, you’ll encounter that as you engage with some of these funding portals. And there are many more that we are going to introduce here throughout these webinars. But we’re up to that point out that we’d love to hear from you. I’m sure as you as entrepreneurs ready to raise money. You’re probably wondering how this may work for you. So, Michael, we’re bringing you in right now. Ask away. Can you hear me? Okay? Yes, we can.



So what is the issue? Is it going to go to 75 million and 5 million because I saw where the regulators are questioning this and they want a 60 day holding period. I’m sure you saw the same thing.


Oscar Jofre  48:32

So that’s what Oh, you missed the beginning. So it officially it does go live March the 15th 2021. Really? Yes. Yes. And so it is reg. Oh, that’s



great. Thank you. I’m sorry. I must have missed the No,


Oscar Jofre  48:45

no, it’s okay. It’s okay. Don’t worry. No bad questions at all. All right, we got another one. David shoot away. 



Hey, guys, um, what’s really interesting for me about the SPV vehicle, is the change in the in the fish or in the feed that’s collected by the portal, right. So instead of taking a broker fee, like a BD model, you could be potentially taking the fee as a fund manager. In that case, you think you would have to go and then register as an ria, considering that you’re managing, you know, unaccredited investor money in the SPV vehicle.


Marty Tate  49:20

So, I’ll take a shot at that. It kind of it kind of depends on the compensation structure, but say, for example, that you’re you’re acting as the manager and there’s, you know, a fee associated with that. One of the things in order to that in the in the definition of an investment advisor is you have to have discretionary control over the funds. and in this situation, there’s no discretionary control for that. advise that the advisor or the manager, basically the money’s going into this pool. And they’re investing it directly as the investors have stated. So that’s not going into a blind pool where they would could then turn around and make investment decisions or have that discretionary control. So I don’t see that being a problem. Thank you.


Jonathon Whaley  50:16

Yeah. And I’ll just follow on real quick. That’s definitely one thing I have seen, I’ve seen people talking about kind of the evolution of an RIA, or even an era and exempt reporting advisor, like an office cropping up and doing similar to, you know, groups that do advising for SPV’s, maybe there’s just arrays out there that strictly do crowdfunding. But I think Marty’s right in that it would be such a unique business model that I don’t really know, especially early on in the process, who would really want to take that on and whether or not it’s necessary, you know, kind of still up in the air.


Oscar Jofre  51:00

You know, it for me is deja vu. I’m sorry, I, I have to I don’t know about you, Marty. But I’m having a little bit of deja vu moment in our early days. Just before RegCF was going on. I know, for most of you, I please appreciate this comment in the in, in, in the most positive manner is that it’s great that we’re having it again, because we’re that means it’s getting better it this is not a bad thing. If it was just like this, you know, that’d be boring. But the fact that we’re having to once again try to figure out things that need to work in to make this thing go away just only goes to show you that the the momentum that it’s on and the only great thing now that we didn’t have then is we have a lot of people that have been doing this for a while both from the funding portal, the legal the audit. So we can bring these experts very, very quickly where then we didn’t was just kind of you bringing people together and you didn’t really no who would bring it on. And you know, only a few materialized as the leaders if Marty being one of them. Douglas Allen off and other Sarah Hanks, Louis Bevilacqua, Mark Roderick. I mean, there’s some names that constantly come up over time, because they put their entire themselves into it. And if you don’t notice that, that’s where my gray hair comes up. Yeah. So it’s exciting. I’ve lots of questions. And are there any other questions here from


Jonathon Whaley  52:37

he had had one following up on that, too? I it kind of popped in my head. I was think about the explanation. So Marty, correct me if I’m wrong, but I believe the rule also says that these SPVs are one use. Right? So you couldn’t like establish an RIA and an SPV that, you know, investment multiple crowdfunding campaigns, like if you use an SPV? For one crowdfunding campaign? That’s it. That’s all you can do the SPV for? So it’s not like a mezzanine fund where you get a bunch of accredited investors who invest directly in a private equity. It’s a you know, a strictly on one use SPV to


Marty Tate  53:15

correct Yeah, the S sometimes stands for single purpose. So yeah, correct. That’s correct. Yeah. And so that discretionary authority just wouldn’t exist, because you’re basically investing in that and then turning it around.


Oscar Jofre  53:32

Alright, so look, I’m gonna we’re gonna close it off at here unless there’s some questions here from the audience. The discussion lead that we get, we gave you an overview what it means how it can be used, what do you need to watch out for there, there still is some unknowns. The webinars never know webinars going to be able to unravel it all, but you now have some thinking questions to, to deal with. But the key element that if you are looking to do in a reg CF, and you are looking to do the 5 million please, please, please, please talk to the experts reach out to Marty reach out to Jonathan reach out to will more than willing to help you out to talk to them but before you start making any decisions so and and as always speak to them in the most candid way you can so they have a way to understand your journey that you’re going to take. So this way they can specifically tell you what is the right path for you in this journey that you’re undertaking because regulation CF is only getting better. I truly mean that I I bought in 11 years ago, my goodness. Marty probably. We’ve been at this for a long time, and it’s enjoyable. It’s exciting. I’m pumped out today. You know, when I got the little message, it’s a go. I was jumping out of my seat because probably like you guys, you probably have A lot of clients that I just been sitting on the fence with a little, you know, I heard about this wording that they were gonna say you were raising a million but if if should something happen with a five and we were gonna go for the five or something like that some legal word. And now we don’t have to worry about that. So I want to thank both of you today. Jonathan is always great to see you, Marty as well. Both of you will be coming back again for the rest of you. Thank you so much for spending this wonderful Friday afternoon. With us closing off the January. We have an entire great slate of webinars coming up for the month of February. We have 26 of them coming just in the month of. And you’re going to hear from an array of different topics that you can see them on LinkedIn, we’ll be emailing them out. I want to thank you all of you have a great weekend. If you want to see this again, they are being recorded. You can go to our YouTube channel at KoreConX YouTube KoreConX, you can subscribe, you’ll get all of it there. Anything you need from us just reach out. We’re here to help. Have a wonderful journey today. Thank you, Jonathon Marty. We’ll be talking soon.

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