Inside The Kore #35

The 35th issue of Inside The Kore is out!

Have a good read.

Small Businesses Need Capital

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

Raising Capital is Expensive

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

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

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

The Solution: Private Capital Markets

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

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

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

KorePartner Spotlight: Richard Johnson, CEO of Texture Capital

At Texture Capital , the mission is to revolutionize the two trillion-dollar market for private securities by leveraging blockchain technology and smart contracts. The company has received approval from FINRA to commence operations as a digital securities broker-dealer and operate an Alternative Trading System (ATS). This is an important milestone for Texture, enabling them to issue, tokenize, and trade digital securities. We recently spoke to Richard Johnson , the company’s CEO, to ask him about RegA+ and RegCF and their vision for the future of capital markets.

Q: Why did you become involved in the capital markets/digital securities/blockchain industry?

A: I have spent my whole career in capital markets. For most of that time, I was a trader working at different investment banks and broker-dealers in the electronic trading space. But then, in 2014, I discovered crypto… well really just Bitcoin back then. I came into the space with a trader’s mindset, thinking about how to build execution algorithms and electronic routers for the new asset class. However, I quickly went down the rabbit hole and realized there was something much more revolutionary about the technology. Since then I have been working in the space in one form or another – consultant, analyst, operator, and founder.

Q: What services does your company provide to companies looking to raise capital through the JOBS Act exemptions?

A: I started Texture Capital in 2019 as I recognized there was a strong need for regulated intermediaries to help companies compliantly issue tokens representing equity, debt, royalties, revenue share, or other investment contracts, and to provide a regulated venue for secondary trading. Texture Capital is a FINRA and SEC-regulated broker-dealer focused on digital securities. We help clients raise capital through exemptions such as Regulations, A, D, S, and CF and can also support certain registered offerings. We also operate one of the few Alternative Trading Systems for digital securities. Recently, we have been focusing on offering our digital securities market infrastructure on a ‘white label’ basis to fractional marketplaces. We are agnostic to the underlying asset class and work with clients across private equity, private credit, real estate, and alternatives.

Q: What are your unique areas of expertise?

A: The Texture team is steeped in fintech and traditional capital markets experience. We have built ATSs and marketplaces that have executed many billions of dollars of notional transaction value.?

Q: What excites you about this industry?

A: What excited me about this industry, and why I started Texture Capital, is that blockchain technology represents an entirely new (and better) way of recording financial transactions. Fundamentally, blockchain is about the transfer of value. And capital markets, particularly trading, are about the transfer of value. So what we have now is a once-in-a-lifetime opportunity to build a new market structure from scratch, using the best tech available, and improving how markets work throughout the economy.

Q: Why is a partnership with KoreConX the right fit for your company?

A: We are big fans of KoreConX. KoreConX serves a different, but complementary, part of the ecosystem. You provide the technology to help issuers raise capital and transfer agency services to help them manage the cap table, while we provide all the broker-dealer services. Texture and KoreConX are great partners, and on top of that, we share a commitment to API-driven, technology solutions.

Q: Anything else you’d like to add about RegA+, RegCF, or any other topic that you feel is relevant to your company, our partnership, and the ecosystem you’re a part of?

A: Yes. As a final thought, I want to say how important RegA+ and RegCF are in the capital formation process?right now. The current market environment makes it very difficult to raise capital through old-school VC channels. But through these exemptions, companies have a way to fundraise directly from their community, fans, friends, family, partners, suppliers, etc. I expect to see significant growth in the crowdfunding space going forward and tokenization will be the catalyst.

The future of capital markets is bright, and Texture Capital is leading the way with innovative solutions. We look forward to seeing what’s next!

5 Things You Need to Know About Transfer Agents

When a company issues securities, keeping track of ownership and distribution is necessary. This process is managed by?transfer agents?who become responsible for maintaining accurate records of security transactions, handling shareholder inquiries, distributing shareholder materials, and more. In this blog post, we will discuss the five critical things that companies need to know about transfer agents before they embark on their next capital raise.

1. Protecting Issuers and Investors

Transfer agents?protect issuers and investors by?ensuring that the issuance of securities maintains a high degree of accuracy and reliability. They keep track of owner information and can assist in situations where shareholder information is needed. Transfer agents also ensure that the issuance of securities is consistent with the applicable regulations, thereby protecting both the issuer and the investor. Transfer agents play a critical role in maintaining the integrity of the security issuance process. To do so, they closely monitor any changes in ownership or other company-specific details. This helps to prevent fraudulent activities such as double ownership or over-issuance of securities.

2. Issuing and Canceling Certificates

Another crucial function of transfer agents is to?issue or cancel certificates?reflecting shareholder ownership in the company. By doing so, transfer agents ensure that the shareholders receive accurate documentation that represents their investment in the company. The certificates are tangible evidence that shareholders own securities in the company and that they have the right to vote or receive dividends. Transfer agents must also cancel and decommission certificates to reflect trades or company-specific events such as stock splits, mergers, or acquisitions. Canceling or decommissioning certificates is a vital task in maintaining a current and accurate representation of who owns what within the company.

3. Managing the Cap Table

Transfer agents play a crucial role in?managing the cap table. The cap table reflects the ownership structure of the company, including the number of shares held and who holds them. It is essential to manage the cap table effectively to avoid conflicts, confusion, or discrepancies among shareholders. The transfer agent ensures that the cap table stays up to date with any changes that may occur due to equity issuances or mergers and acquisition activity involving the company. The effectiveness of the cap table management is critical for companies raising capital, going through mergers and acquisitions, investors conducting due diligence, and tracking the company’s overall value and growth.

4. Legal Compliance

Another significant responsibility of transfer agents is ensuring the company’s compliance with specific securities laws and regulations. The transfer agent makes sure that the company is aware of and adhering to the legislative guidelines and rules that dictate how the issuance and transfer of securities work. Transfer agents must comply with both federal and state regulations, making this a complex task. Companies need to work closely with their transfer agents to ensure they are clear on aspects of the legal requirements that affect their business. Navigating the regulatory landscape can be daunting, but a transfer agent can help make it smoother for companies.

5. Customer Service

Finally, transfer agents are essential for providing customer service to shareholders. Often, they are the first point of contact when shareholders have questions, concerns, or problems that require resolution. They help to answer any inquiries shareholders may have and maintain a clear line of communication. Excellent customer service is key to maintaining a positive relationship with shareholders. Shareholders who feel valued are more likely to remain invested in the company and can become valuable brand ambassadors. This, in turn, can lead to more significant investments in the company, improving overall shareholder value.

A?transfer agent?plays a critical role in ensuring that securities transactions are processed accurately and reliably, protecting the interests of the issuer and the investor. Utilizing an experienced and knowledgeable transfer agent has many valuable benefits for companies. They provide companies with a comprehensive solution for managing securities issuances, maintaining shareholder relationships, and navigating the complex regulatory landscape. Transfer agents are an essential part of the securities industry, and companies who work with them are better positioned to succeed.

We hope you have enjoyed to be Inside The Kore!

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