Inside The Kore #54

The 54th issue of Inside The Kore is out!

Have a good read.

What Does Direct Listing Mean?

Recently, we received a question from an issuer wondering what “direct listing” means. In short, a direct listing, also sometimes referred to as a direct public offering , is an offering in which an issuer raises capital directly from investors without a third-party intermediary like a broker-dealer or funding platform.?

Direct listings can occur in both the public and private markets. In the private market, companies raising capital often do so under JOBS Act exemptions for SEC registration, such as RegA+ or RegD. Companies may opt for a direct listing because it lowers the costs of capital as there are often fewer fees that would otherwise be paid to an intermediary. Issuers can also use a direct listing to allow investors to invest through the issuer’s website, which can prevent investors from being directed to other offerings. This often gives issuers more control over the investment. In contrast, RegCF offerings cannot be conducted without using an SEC-registered intermediary .

However, there are significant downsides to opting for a direct listing. Some states require issuers to utilize an intermediary like a broker-dealer or funding portal to sell securities. Additionally, some Tier I RegA+ direct listings require the issuer to register the security in every state that it intends to sell the security, making the offering more burdensome and costly. Additionally, a direct listing can make it easier for companies to miss essential aspects of regulatory compliance, creating additional risks for themselves and investors. This, offerings made via a direct listing require a higher level of due diligence from investors to ensure they aren’t falling victim to fraud.

When using a registered intermediary like a broker-dealer or a funding portal, these entities often have defined processes and compliance requirements that ensure capital is being raised in accordance with securities regulations, protecting both issuers and investors. An SEC-registered intermediary ensures that an issuer has gone through due diligence like bad actor checks to validate that it is eligible to be listed on a portal.

Ultimately, any company seeking to raise capital through a JOBS Act exemption should talk to a broker-dealer and a securities lawyer to understand how they can compliantly and successfully raise the capital they need to grow in the private market.?

What is an Escrow Provider’s Role in RegA+?

An escrow provider is a neutral party that handles financial transactions between two or more parties. They are often used in the securities industry to ensure that all parties involved in trade receive their agreed-upon share of the investment. Escrow providers in RegA+ play an essential role, securely holding funds investors have paid until those investors can be verified. This article will explain what an escrow provider is, their importance in RegA+, and some of the benefits they offer companies.

An escrow provider is a financial institution or company that holds funds on behalf of two other parties until their agreement has been met. In the context of securities offerings, escrow providers are often used in Regulation A+ transactions to hold funds invested by investors until the broker-dealer has completed their due diligence on those investors. This due diligence includes verifying the investor’s identity and ensuring that the investment is legitimate.

The escrow provider plays an important role in protecting both the investor and issuer in a Reg A+ transaction. Holding the funds until the completion of the broker-dealer’s due diligence protects the issuer from fraud and also ensures that the buyer receives their money back if the deal falls through.?

Escrow providers help to make sure that all of the necessary steps are taken to complete the transaction and that everyone involved is satisfied with the outcome. Part of this process includes making sure that the correct paperwork is filed and that all of the right people have signed off on it and everyone involved is legitimate.?

Beyond using an escrow provider to ensure that your Reg A+ transactions are completed smoothly and efficiently, it is also required for companies utilizing equity crowdfunding . Therefore, choosing an experienced escrow provider can provide valuable assistance and peace of mind throughout the process.?

Escrow providers play an essential role in Reg A+ transactions by holding and managing the funds until the necessary due diligence has been completed. They also ensure that all parties involved in the transaction comply with securities laws. These factors make escrow providers in RegA+ a necessary component of a successful offering.?

Private Equity vs. Venture Capital

For companies looking to raise capital, there are many options on the table. From raising capital from friends and family and crowdfunding to private equity and venture capital, not every option is suited for all entrepreneurs. In this context, the question “Private Equity vs. Venture Capital” is becoming popular.

So in this article we will explore the difference between venture capital and private equity, as well as some alternatives for companies looking to secure funding in the private capital markets.?

What is Private Equity?

Private equity firms are investment firms that raise capital from accredited investors to make investments in private companies. In the case of private equity, these firms generally seek to take a majority stake in portfolio companies – which means that the firm will obtain greater than 50% ownership. Another characteristic of private equity firms is that they generally prefer to invest in established companies that have operational inefficiencies. The goal is to reduce these inefficiencies so that the company can turn profitable. If the firm sells a portfolio company or it goes public, it distributes returns to investors.?

What is Venture Capital?

Similar to private equity, venture capital (VC) firms raise capital from accredited investors. However, they take a different role in the private capital markets. VC firms seek to invest in early-stage and startup companies with high growth potential. They often control less than 50% ownership and take a mentorship role. Once a portfolio company is acquired or goes public through an IPO, it can distribute returns to investors.?

Alternative Capital Raising Opportunities

However, many companies find it difficult to secure VC or private equity funding. Since 2022, VC funding has dropped by more than 50% and late-stage investments have plummeted even more dramatically, down 63% . Still, there is hope for companies seeking to raise capital. During this time, the amount of capital being raised through JOBS Act exemptions had grown considerably, providing viable opportunities for entrepreneurs seeking capital. Through RegA+, companies can raise up to $75 million, and through RegCF, companies can raise up to $5 million. This capital can be raised from both accredited and nonaccredited investors , creating a wide pool of potential investors. At the same time, the minimum investment is typically much smaller, which allows everyday people to get involved with promising companies. It is also more cost-effective to raise capital through these alternatives than traditional VC or private equity firms, or going through an IPO.

Now that you know the key-points on Private Equity vs. Venture Capital, it’s easy to understand that learn about the differences can help you identify what capital-raising options may be best suited for your company. However, if you need additional guidance, reaching out to a broker-dealer or securities attorney can help point you in the right direction for your capital-raising journey.

We hope you have enjoyed to be Inside The Kore!

Stay tuned for more info on the private markets.