Inside The Kore #64

The 64th issue of Inside The Kore is out!

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Global Capital Raise: 7 things you need to know now!

Raising capital is the lifeblood of any business, and doing so on a global scale can open up vast opportunities. In today’s interconnected world, the ability to attract investors from around the globe is more accessible than ever before. Yet, it comes with its own set of complexities and challenges. Navigating this landscape successfully requires a deep understanding of the tools, regulations, and strategies involved in global capital raising.

For businesses looking to scale, diversify their investor base, or tap into new markets, global capital raising can provide the necessary funds and strategic partnerships. However, it’s not just about accessing more money—it’s about doing so in a way that aligns with your company’s growth strategy and complies with various international regulations. 

In this blog post, we will explore 7 aspects of global capital raising that every entrepreneur, business owner, and finance professional should know. From leveraging the internet and social media to understanding the intricacies of international securities laws, we’ll provide you with the insights needed to understand this complex landscape. We will also highlight the unique advantages offered by the U.S. regulatory framework, particularly the provisions under the JOBS Act that facilitate global investment.

Whether you are a startup looking to raise your first round of funding or an established business seeking to expand internationally, understanding these key elements will expand your knowledge on  how to raise capital more effectively and compliantly.

1. The Internet Brings Us All Together Faster

The internet has revolutionized the way we communicate, collaborate, and conduct business. This is particularly true in the realm of capital raising. Thanks to the internet, companies can now reach potential investors worldwide quickly and efficiently. Online platforms and virtual roadshows have made it possible to present investment opportunities to a global audience without the need for physical travel. This not only saves time and resources but also significantly expands the pool of potential investors.

However, this increased accessibility also comes with the challenge of standing out in a crowded online marketplace. A compelling online presence and a clear, attractive investment proposition are crucial to capturing the attention of global investors.

2. Social Media Allows Us to Communicate Instantly

Social media platforms are powerful tools for engaging with potential investors. They allow companies to share updates, news, and investment opportunities instantly. Platforms like LinkedIn, Twitter, and Facebook provide channels to build relationships with investors, create awareness, and drive engagement.

Effective use of social media can help companies build credibility and trust with their audience. Regular updates and interactive content can keep investors informed and engaged. Moreover, social media’s targeted advertising capabilities enable companies to reach specific investor demographics, enhancing the efficiency of their marketing efforts.

3. Fintech Companies Enable Efficient Capital Raising

Fintech innovations have transformed the capital raising landscape. Platforms like KoreConX offer end-to-end solutions for managing the entire capital raising process. From compliance and investor management to communication, trustworthy fintech solutions can streamline operations and enhance efficiency.

When choosing a platform to raise capital, make sure it  provides a transparent and secure environment for both issuers and investors.

4. Each Country Has Securities Laws You Must Follow

While the internet and fintech solutions make it easier to reach global investors, it’s essential to remember that each country has its own securities laws. Compliance with these laws is non-negotiable. Understanding the regulatory landscape of each target market is crucial to avoid legal pitfalls.

Engaging with local legal experts and registered broker-dealers can help you to understand these complexities. They can provide guidance on compliance requirements, documentation, and best practices for each jurisdiction.

5. Engaging Registered Broker-Dealers

In many countries, working with registered broker-dealers is a regulatory requirement. Broker-dealers play a critical role in facilitating transactions, ensuring compliance, and providing market insights. They can also help companies tap into their networks of potential investors.

Choosing the right broker-dealer can significantly impact the success of your capital raising efforts. Look for partners with a strong reputation, a robust network, and a deep understanding of the regulatory environment in your target markets.

6. Licensed Lawyers Practicing Securities Laws

Navigating the legal complexities of global capital raising requires expertise in securities law. Each country has its own legal framework governing the issuance and trading of securities. Engaging with licensed lawyers who specialize in securities law in each jurisdiction is essential.

These legal experts can help draft and review documents, ensure compliance with local regulations, and provide strategic advice on structuring your offering to appeal to investors while meeting legal requirements.

7. The Unique Advantage of the USA’s Regulations (Reg D, Reg CF, Reg A+)

The United States has introduced several regulations that facilitate the compliant sale of securities globally. Regulations D, CF, and A+ under the JOBS Act have opened up new avenues for companies to raise capital from both accredited and non-accredited investors.

• Regulation D allows companies to raise unlimited capital from accredited investors with fewer disclosure requirements compared to a public offering.
• Regulation CF (Crowdfunding) enables companies to raise up to $5 million from both accredited and non-accredited investors, making it a viable option for startups and small businesses.
• Regulation A+ allows companies to raise up to $75 million from the general public, providing an alternative to traditional IPOs.

These regulations provide a framework for reaching a global investor base while maintaining compliance with US securities laws. They also allow for general solicitation, enabling companies to market their offerings widely.

Opportunities and Challenges of Global Capital Raise

Opportunities

Going global with your capital raising efforts can significantly enhance your company’s growth potential. Access to a diverse pool of investors can provide the capital needed to scale operations, enter new markets, and drive innovation. Additionally, global investors bring different perspectives and expertise that can contribute to your company’s strategic direction.

Crowdfunding regulations such as Reg CF, Reg A+, and Reg D make it possible to raise substantial capital from a broad audience. These options provide flexibility in structuring your offering to meet your company’s specific needs and goals.

Challenges

However, global capital raising is not without its challenges. Compliance with multiple regulatory regimes can be complex and resource-intensive. Building trust and credibility with international investors requires a well-thought-out strategy and ongoing communication.

Cultural differences and varying market dynamics also play a role. Understanding the preferences and expectations of investors in different regions is crucial for tailoring your approach and maximizing engagement.

Conclusion

Global capital raising presents a wealth of opportunities for companies looking to grow and expand. By leveraging the internet, social media, and fintech innovations, companies can reach a global audience efficiently. However, compliance with local securities laws, engaging registered broker-dealers, and working with licensed securities lawyers are essential to navigate the complexities of global capital raising.

The unique regulations in the USA, particularly Reg D, Reg CF, and Reg A+, provide a robust framework for compliant global capital raising. These regulations enable companies to access a diverse pool of investors, raise substantial capital, and drive their growth ambitions.

Disclaimer: This blog post is for informational purposes only and does not constitute legal or investment advice.  This article reflects conditions up to the first quarter of 2024. Numbers and data may change over time.

How to Decide How Much Capital to Raise?

Deciding how much capital to raise is a key decision for any business, especially in the ever-changing landscape of private capital markets. This decision not only impacts your company’s immediate financial health but also its long-term strategic growth. 

In this blog, we’ll explore the complexities of determining fundraising needs, the strategic approaches that can support sustainable growth, and the importance of managing compliance with confidence, particularly under the JOBS Act’s evolving regulations.

Understanding the Challenges When Raising Capital

One common question among founders is, ‘How do you determine how much money you need to raise?’ This involves more than just covering immediate operational costs; it requires a thorough assessment of your business model, market conditions, and strategic growth targets. One of the biggest challenges is balancing between raising enough capital to achieve growth targets without diluting ownership excessively or overburdening the company with debt.

The process is influenced by various factors including:

• – Current financial health:Analyzing your company’s cash flow, debt levels, and equity.
• – Market conditions: Understanding the economic environment and industry-specific trends.
• – Growth objectives: Aligning capital raising with strategic goals for expansion, product development, or market entry.
• – Risk tolerance: Determining how much uncertainty you can manage in relation to financial commitments and business forecasts.

The Strategic Approach to capital raising

A well-planned approach to raising money for a startup is crucial. This section outlines the steps to develop a comprehensive strategy that addresses both immediate needs and future sustainability:

1. Business Valuation: Understanding your company’s worth is crucial for setting realistic expectations for investors and aiding in negotiations. For instance, methods like discounted cash flow or market comparables can be used.
2. Financial Modeling: Develop detailed financial projections to outline the use of funds, expected returns, and post-fundraising financial health. For example, a detailed example could illustrate how financial projections influence fundraising decisions.
3. Capital Structure Optimization: Decide the right mix of debt and equity to balance tax implications and control over your company.
4. Exit Strategy Considerations: Clearly defined exit strategies enhance your attractiveness to investors, detailing the potential return on their investment.

Managing Compliance and Regulations

Navigating the complexities of the JOBS Act and its regulations is critical when considering how to raise capital safely and effectively. We discuss how KoreConX can assist through our trustworthy capital raise platform, ensuring compliance and strategic cap table management.

– Regulation A+ allows companies to raise up to $75 million from the public, including non-accredited investors, subject to SEC review and ongoing reporting requirements.

– Regulation Crowdfunding permits raising up to $5 million over a 12-month period through SEC-registered intermediary platforms, with scaled disclosure requirements based on the size of the offering.

– Regulation D provides exemptions for raising capital without extensive registration, typically from accredited investors, with varying reporting based on the rule applied (e.g., Rule 506(b) or 506(c)).

Working with trustworthy partners

In an ever-changing financial landscape, professional guidance is not just beneficial; it’s essential. Experts who understand the details of the law and have a pulse on regulatory changes can provide strategic advice that aligns with your business goals and compliance requirements. 

Here’s how professional help can make a difference:

• Expertise in Compliance: Professionals stay up-to-date with changes in regulations, helping ensure that your fundraising activities remain compliant.
•  Strategic Financial Advice: From structuring deals to financial modeling, experienced advisors can provide insights that go beyond basic compliance, aiding in strategic decision-making.
• Access to Networks: Professionals often have networks that can be used for fundraising, providing access to potential investors and partners.

Conclusion: Emphasizing Strategic Planning and Professional Guidance

Deciding how much capital to raise is a key decision that requires careful consideration and strategic planning. It’s not just about numbers; it’s about aligning those numbers with your company’s vision for the future. In this context, the value of professional guidance cannot be overstated. As regulations under the JOBS Act evolve, having  trusted partners to manage these changes safely and compliantly is crucial. 

Remember, while this guidance is strategic and informed, it is not financial advice. Each company’s situation is unique, and specific decisions should be made in consultation with professional advisors who can tailor their advice to your specific circumstances.

By meticulously planning your capital raise and relying on the expertise of professionals, you can ensure not only compliance but also the strategic use of funds to drive sustainable growth. In the ever-changing world of private capital markets, being well-prepared and well-advised is not just a benefit; it’s a necessity.

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