Interestingly, the questions that I receive from prospective clients and my current clients are very much in line in the security token context as they are in traditional capital raising scenarios. For example, they call and they want to know, which exemption should we be working with here, and they tell me a bit about their objectives. Sometimes they have investors in mind, sometimes they’re hoping to bring retail investors into the deal. Sometimes they’re looking to generally solicit.
So we go through the analysis of what their plans are or intended plans are and how the different securities exemptions would impact their overall strategy. What’s really exciting to me is that since the JOBS Act, these issuers can utilize both Regulation Crowdfunding and Reg D simultaneously. Which is great given that the total maximum offering limit and a Reg CF offering is just over a million dollars.
When we embark on an STO with a client, we initially do due diligence on where the company is organized, whether it’s an LLC or corporation, which jurisdiction they’re formed in. Delaware is certainly a very promising jurisdiction for companies that want to rely on distributed ledger technology for Cap Table management purposes, due to the Delaware blockchain statute.
We get a lot of inquiries from offshore issuers who are looking to tap into the U.S. market. From them, the questions are, do we need to incorporate inside of the U.S.? Should we form a subsidiary there? Which securities exemptions are available to us? Thankfully Reg A+ is available both to Canadians and to U.S. organizations, whereas Regulation Crowdfunding is not, and of course Reg D 506(b) or 506(c) is available to everyone who wants to do capital raise inside the United States.
It’s interesting to hear that you say that there’s been an exodus based on what’s happened over the last few years. Specifically in the crowd funding context, they released just recently, the SEC released that there’s actually been no instance of fraud among the issuers who have utilized the Regulation Crowdfunding exemption.
So from my perspective, if you’re a retail investor, you’re not accredited and you’re looking to get involved in a digital securities offering, going to a funding portal like Republic or like SeedInvest or StartEngine engine, or MicroVentures, and reviewing the offerings that they have on site, would be likely a safer bet than some other off-platform activities.
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