Crowdfunding is real. Whether it is equity or debt platforms, the trend is very much alive with regional variations and adapting regulations.
A real global market opportunity
The simple explanation is “Capital continues searching for investment opportunities, as deposit rates remain low” & “Companies continue searching for funding as “normal” capital market functions have been crippled”. Seems like an ideal matchmaking opportunity. Seems like a huge market opportunity with undoubted social value. No wonder there are thousands platforms around the world catering to these needs. The biggest markets are the US, UK, and China.
The UK is leading the Transparency movement for corporate records, with an open and freely accessible portal, The Companies House, that anyone can obtain info on registered companies. In the US, this process is fragmented across states and with a cost incurred to access incomplete information (financial filings are typically not available). One has to go through a Company registry firm and pay fees up to $200. The US on the other hand, is the most demanding country in terms of corporate governance and securities law and even more erroneous in terms of disclosure guidelines for foreign corporations of the Common Wealth attempting to access the US market. It only recently, adapted the regulatory framework via the JOBS ACT Title III opening up the private equity market from across the spectrum (i.e. how private companies can access potential investors; which investors can invest in private companies; who can operate a crowd funding platform). China nearly 2yrs ago also opened up the equity crowdfunding market by allowing local accredited investors to inject capital in foreign private companies through the Equity Crowdfunding exchange in Shanghai.
Extremely low rates of acceptance &
Extremely high declined-to-list rates
95% of the attempts to list a company on a crowdfunding platform fail! Portals turn down customers-companies mainly because of lack of sufficient and appropriate information.A company preparing to access one of the many platforms (Angel List, Syndicate Room, Seedrs, Lufax, etc) typically may approach 5-7 different portals before finding the one that is the right match. The main reason for this costly, time consuming process is lack of resources in small businesses, the variation in requirements by portal, and the niche focus (some by funding size, some by industry sector, debt or equity etc)
Private companies have to provide a broad range of financial information of corporate records, accounting, legal, insurance etc. that constitute the pieces of the puzzle relating to Corporate Governance and Corporate securities laws. These regime may differ somewhat by region but not in their essence. Countries are actively looking to harmonize corporate governance laws because it is clearly the interest of international trade. The International organization of securities commission is a global body also working towards the harmonization of corporate securities laws. Private companies accessing capital markets and investors, has been a segment dominated by privacy. We are just now seeing the first moves towards Transparency. Most of the platforms and the aggregators (like DealIndex) are still keeping the data private to their subscribers.
KoreConx, the chip inside online private capital markets
KoreConx is a 3yr old Freemiun Fintech with a Global outreach. As they state on their site:
“KoreConX is a free all-in-one solution that helps companies navigate the process of raising equity capital, and simplifies shareholder communications to reduce risk.”
I spoke to Oscar A Jofre Jr., President and CEO of KoreConx, which is one of the many pleasures of researching Fintech trends. Found him in Canada even though he is as mobile as it gets, running a business that is present in UK and Ireland; in the process of expanding into Germany, Brazil, Israel, and Shanghai also. Oscar is also involved in the Crowdfunding Intermediary Regulatory Advocates in the USA and is the Founder of the Equity Crowdfunding Alliance of Canada (ECFA Canada). When I approached him, I thought of Koreconx as #Regtech with a focus on Corporate Governance and Securities law; and a value proposition to reduce the compliance due diligence cost associated with crowdfunding.
After listening to him, I came to the conclusion that Koreconx is a great example of tech enabled growth rather than cost reduction in the compliance department. The complex web of corporate governance and securities laws, the disclosure requirements associated, the numerous entities involved (shareholders, board, investors, accountants, lawyers, regulators, advisors, insurers, bankers) can be seen as frictions but also as growth opportunities.
Think of the technology that KoreConx offers as a company differentiator. Any company that joins the KoreConx platform will have a complete online corporate profile from all the necessary points of view. The numerous entities involved will have a one-stop location to access the fully transparent information that KoreConx warehouses. It isn’t just a repository of financial info. It is a platform that can offer Investor relations (IR) capabilities or Annual General meetings (AGM) online. It can handle shareholder communications effectively for a small company with thousands of shareholders. It can handle the complexity of a large enterprise public or private; or of a small company of $50mil valuation. As Oscar said to me:
”A good company doesn’t necessarily mean a unicorn, or a high tech innovation”.
For a small ($50mil-$100mil) company using the KoreConx technology can be a competitive advantage; both by reducing the risk of being declined a listing on an crowdfunding platform and by continuously providing updated corporate information to all the value chain involved. Insurance companies are the other large group that is partnering with KoreConx to offer better service to their corporate clients. #Insurtech is on the rise as the conventional broker business model is being cannibalized. Conventional insurance companies are already looking to serve their corporate clients in a faster and cheaper way. KoreConx can clearly help insurance companies price specific insurance policies that are typically pooled (e.g. Errors & Ommisions insurance) by using the KoreConx technology to evaluate the corporate risk correctly much like the Telematics innovation.
KoreConx isn’t only value add for those companies that are preparing to raise capital (equity or debt), it is a platform to host a transparent continuous dialogue with shareholders and all stakeholders. KoreConx is already collaborating with crowdfunding platforms and insurance companies. Also, focusing on companies looking to go global (e.g. expand into Asia).
Some of the portals that businesses can access directly through KoreConx are:
In Canada it is innovating by offering accredited investors the possibility to invest on any Canadian equity and debt portals via VISA or MasterCard; therefore facilitating, growth for Canadian companies.
KoreConX is certified by VeriSign. With KoreConX, all parties will be able to see and edit documents in real time, making version control easier and reducing legal fees. KoreConX is perfect for companies that prefer to focus on running their business rather than being distracted by the process of complying with ever-changing regulatory obligations. Alng those lines, KoreConX continues to integrate a wide range of partners on their platform. Examples of these are:
IDisclose is a #LegalTech disruptor that provides a way for a lawyer and a company to create the documents needed to access capital on line.
EarlyIQ is a #RegTech focused on Reg D and Reg A which covers the requirements for background checks, ID verification and Investor verification.
AlgoValue is another #Regtech focused on FASB specific requirements for accurate valuation of post Series companies. Customers are VCs, lawyers, and fund raising companies.
CrowdCheck yet another #Regtech in the online capital raising space, that helps investors, entrepreneurs, and platforms in their due diligence process. Focus is on REG CF, which covers investor communications and exemption registrations.
At DailyFintech we have discussed that
Customer centric rebundling is nascent in capital markets but we signs in various categories. Before speaking to KoreConx, I thought I was researching a #Regtech company in Canada. After speaking to KoreConx and connecting the dots, it is clear in my mind that KoreConx merits a early Triple Fintech score.
Koreconx is a real example of freemium rebundling in capital markets. It is happening on a global scale. It is demonstrating that regulation and compliance can be a business differentiator and growth engine.
Any other examples of Fintech platforms starting integrating on a global scale, using regulations and compliance as a differentiator, in another space?