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The Protocol Newsletter Industry Spotlight: Crowdfund Capital Advisors

Read the latest edition of the Protocol Newsletter featuring Sherwood Neiss from Crowdfund Capital Advisors, as he discusses crowdfunding, the JOBS Act, and how digital securities are changing the funding game.

  1. What does Crowdfund Capital Advisors do?

    CCA is a consulting and advisory firm that works with certain government agencies around the world. We provide input and advice on regulatory frameworks to enable securities-based crowdfunding. We are also the creators of the CCLEAR Regulation Crowdfunding database that is a data aggregation platform for the online investment platform industry. Data from CCLEAR is available via Bloomberg terminal. We are investors in the online investment industry via our relationship with Vector Ventures as well as partners with GUARDD, a financial reporting tool for private companies that enables securities to compliantly trade on secondary markets as well as protect investors via ongoing company disclosures.


  2. You helped to write the framework for the JOBS Act, how have things changed for startups since its passage in 2012?

    Without much media coverage, capital formation has drastically changed for startups since 2012. First, Regulation Crowdfunding (Reg CF) came into existence which allowed startups for the first time in 80 years to raise capital from their friends and family without having to solely rely on accredited investors/venture capitalists. As the industry has grown we’ve seen startups and small businesses in over 450 different industries in almost 1,000 jurisdictions across the USA (and outside of VC-centric Silicon Valley and New York City) leverage this regulatory framework to raise capital. Now with the changes coming to Reg CF that increase the maximum raise to $5 million per issuer, allow for testing of the waters and allow investors to be grouped into a special purpose vehicle that does nothing to reduce their rights but streamlines communication, voting, and the ability for an issuer to more seamlessly access more sophisticated capital. Now startups that are seeking seed or series A capital can raise a viable round from those friends, family, and customers closest to the business without having to rely on venture capital. It is a fundamental shift that will bring more startups online for financing and also create more opportunities for investors in the private capital markets.


  3. What is the relationship between the JOBS Act and security tokens/blockchain?

    The JOBS Act created a regulatory framework for securities to be issued online. This was a fundamental shift from before where the majority of exemptions required no general solicitation. Now a security token issuer can leverage blockchain technology and online investment platforms to digitize security tokens, account for them on the blockchain, and allow for their transfer on online investment platforms. What the JOBS Act did not tackle, which GUARDD does, is securities that have been issued and are freely transferable must still deal with 50 different state securities laws that govern the secondary transfer of securities. GUARDD allows these securities to qualify for what is known as a Manual Exemption which states that if issuers provide ongoing disclosures in a National Securities Manual, an issuer does not need to register those securities in that state and those securities are allowed to trade on new exchanges known as Alternative Trading Systems (ATSs).


  4. What aspects of security tokens make them particularly useful for crowdfunding?

    One of the biggest challenges in crowdfunding is managing the investor cap table post-funding. This means tracking who owns what type of security, what rights are associated with each security, and who can vote on different issues within a company. Security tokens allow for both the issuance of the security and the tracking of it, so as a company grows and securities are transferred it is easier for a startup to track them and maintain proper voting. The tracking of security tokens also allows for easier investor communication since the technology can follow a security/investor around seamlessly.


  5. As issuing security tokens gets more affordable, do you envision them becoming a crowdfunding norm?

    I believe there is still a lot of learning for investors in the space. I do believe that since security tokens remove the friction that they will become more of the norm going forward. I also believe that there will be a time when digital is just “the norm” without anyone having noticed a shift because, like other parts of our lives, things just move online and we accept this is the way we do things going forward.


  6. CCA helps companies become better crowdfunders, what is the most common mistake you see companies make?

    The biggest mistake is assuming that just because the framework for raising money online exists, means that the process will be both easy and lucrative. The reality is that there is a ton of work that needs to be done to put one of these offerings together, which takes commitment, time, and money. Once this is done, an issuer needs to raise the majority of their capital from people who are closest to them. When we look at the data we see that 80% of the money raised in a Reg CF offering comes from investors that have a first or second-degree relationship with an entrepreneur/issuer/startup. Also among the crowd of investors, 80% of the money will come from accredited vs retail investors. So get ready for a lot of work and make sure you’ve soft circled who your investors will be and that you have some accredited investors in that group.


  7. How does a company decide whether to offer equity crowdfunding as opposed to something like Kickstarter where it’s basically a presale of goods?

    Kickstarter is great for businesses that have a prototype of a product where they are looking for market feedback. But it isn’t necessarily a great way to raise capital to grow and scale a business. A pre-sale campaign can pay for producing a product but an equity campaign can provide capital to help with hiring employees, expanding operations, and much more. We often tell issuers that you need to match the incentive to the offerings. If you are a brick and mortar, cash-flowing business without the potential for an exit (think a small bakery) then an equity campaign wouldn’t make sense since it isn’t likely that someone will buy the bakery. Hence they should go with a debt or revenue share type of offering. However, if there is an exit potential for the firm and your investor can buy into that vision, then an equity offering makes sense.


  8. What is your favorite crowdfunding success story?

    I particularly love to see crowdfunding offerings take place close to where I live in Denver. I love to visit these operations and talk to the entrepreneurs about their goals and business operations. It is so cool to see so many entrepreneurs in different industries leveraging Reg CF to raise money from the customers, friends, and followers. I’m also thoroughly impressed with the vast number of women and minority founders that are leveraging Reg CF to raise capital. These are the most underrepresented group in the private capital markets and it is great to see how Reg CF has allowed them to access capital where they are shut out of more traditional forms like Venture Capital.


About Crowdfund Capital Advisors (CCA) Global Fund Services

Crowdfund Capital Advisors (CCA) delivers strategic insights to government agencies, financial institutions, regulators and multilateral organizations seeking to both create and implement innovative strategies to utilize crowdfund investing (CFI) technologies to drive innovation, job creation and entrepreneurship. We created CCLEAR the most comprehensive Regulation Crowdfunding database that collects information on every offering. We also study and invest in the emerging ecosystem of crowdfunding and the new solutions being created that will impact the broader private capital markets. We are passionate about creating innovation, entrepreneurship and jobs through the use of crowdfunding. CCA delivers strategic services and implementation programs that create, proprietary deal flow for professional investors, better access to capital for businesses and policy and regulatory innovation for governments.

Learn more about Crowdfund Capital Advisors click here.

About Securitize

Securitize delivers trusted global solutions for creating compliant digital securities. The Securitize compliance platform and protocol provide a proven, full-stack solution for issuing and managing digital securities (security tokens). Securitize's innovative DS Protocol has the highest adoption rate in the industry and enables seamless, fully compliant trading across multiple markets simultaneously. Multiple Securitize powered digital securities are already trading globally on public marketplaces with many more in the pipeline.

To learn more, please visit our website.

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