When the rules were quite new, Mark Elenowitz, CEO of Tripoint, was quick to recognize the potential of Reg A+, a securities exemption that has been likened to a mini-IPO type offering. In 2016, Elenowitz told CI;
“When the JOBS Act [the law the legalized crowdfunding] came out, we recognized immediately some of the issues that could arise and created BANQ to address some of those issues. We felt that the JOBS Act allowed Wall Street to catch up to Main Street, allowing issuers to now use social media and other electronic communications to market their offerings to the larger audience.”
Elenowitz went onto state that he views Reg A+ as an opportunity to bring back the small cap IPO.
Last month, CI had a chance to catch up with Elenowitz at a Reg A+ event in New York. He mentioned that it was the one year anniversary of MYOMO, the first Reg A+ offering listed on Banq. MYOMO (NYSE:MYO), a Medtech firm, completed their Reg A+ offering and then went on to list on the NYSE Mkt – the first issuer ever to accomplish this goal.
Elenowitz said the secret sauce of his company was in their approach to settle offerings the way Wall Street is used to. There are many people in the crowdfunding space that believe the sector must have institutional money to scale. By creating a methodology that looked a lot like an IPO, Banq was able to attract both big money and retail investors.
“This is what we demonstrated with MYOMO. We know the methodology works, we have the platform that works, now we have to tweak it. Its only been a year – we are in the infancy,” said Elenowitz.
Reg A+ 2.0
Elenowitz said that everybody became a crowdfunding expert in the beginning, and then they became an authority on Reg A+, and then a Cannabis expert. Now everyone is claiming to be an ICO (initial coin offering) expert.
“I am seeing the same thing happening again,” Elenowitz stated. “Issuers are doing offerings that are not compliant with US securities law.”
[clickToTweet tweet=”everybody became a crowdfunding expert in the beginning, and then they became an authority on Reg A+, and then a Cannabis expert. Now everyone is claiming to be an #ICO expert” quote=”everybody became a crowdfunding expert in the beginning, and then they became an authority on Reg A+, and then a Cannabis expert. Now everyone is claiming to be an #ICO expert”]
His company is morphing into a security token platform. They will do everything in a regulatory compliant manner: accounting, legal, transfer agent etc. Just like traditional securities but now on blockchain. Elenowitz said that many firms that are seeking to enable security tokens are simply not licensed to do it. That could become a problem.
“The roadmap is there you just need to be able to execute. We are doing a very large (crypto) mining, server, hosting company [offering]. An NYSE IPO Reg A+. I believe this will be the first $50 million Reg A+ offering.” [no token associated with it]
The First Step in the Blockchain World.
Elenowitz said they are working on a large blockchain deal that will enable investors to participate in the space. There will be a security token offering with an existing business that is tokenizing their operations. This is expected to take place later in the fall of this year.
In the more traditional Reg A+ space they have about 5 or more offerings coming out at about the same time. Elenowitz said these will be “highly visible brand names.”
“We built our tech to be open to all broken dealers. We have large banks that are looking to co-write with us. We are becoming advisors to other broker dealers so they can become market participants. As a whole, we want everybody to be successful.”
Elenowitz explained that their offering circulars are done to an S1 standard – IE just like a regular initial public offering.
“When you are filing for NASDAQ or NYSE you are receiving a full review. Its not a light review process. We need to be conscious of valuations. They are valued based on market comps and peers,” said Elenowitz – addressing a concern in the crowdfunding sector. “We do that on every deal. We have that comp on every deal because professional investors require it.”
He acknowledged that Reg A+ offerings are not perfect. But this is more about the shortcomings of the small cap market as a whole. Elenowitz said that after market trading is broken. This is a Wall Street issue.
Issuing securities under Reg A+ can be expensive too. Elenowitz says big law is charging from $250,000 to $350,000 to file for the exemption. The cost is higher if you intend on trading on an exchange following the crowdfunding round.
Jumping back to the crypto space, Elenowitz said they are working with a European partner on the ERC20 smart contracts to facilitate securities on blockchain.
“We have the ability to underwrite a Reg A+ security token and custody the tokens.”
[clickToTweet tweet=”‘We have the ability to underwrite a Reg A+ security token and custody the tokens.'” quote=”‘We have the ability to underwrite a Reg A+ security token and custody the tokens.'”]
We have heard on numerous occasions that mentioning blockchain in a Reg A+ offering circular means added scrutiny by the regulators. With FINRA – you mention Blockchain and you immediately get a document request. Although many token offerings have filed for the exemption, to date, we are not aware of any qualified Reg A+ offerings intending to use blockchain to issue securities. This caution is due, in part, to the investor protection mandate incumbent upon these agencies. Of course, the regulators are still working it all out. The good thing is the Securities and Exchange Commission has been vocal about engaging with issuers and establishing a dialogue. They appear to want to move forward with Fintech innovation.
“We want to make certain we are compliant. We want to make certain we create a standard that everyone is comfortable with,” Elenowitz explained.
He wants to establish a methodology that provides transparency, investor protection, and well defined risk disclosure. Something both small and large investors are comfortable with.
“We feel the risk factor disclosed in a Reg A is important. We actually have it as a separate document that investors must read … If a lawyer is not willing to write the opinion on the deal we are not doing it.”
In the end, it is inevitable that blockchain based securities under Reg A+ will happen. Tripoint / Banq may end up being the first to accomplish this task but there are a growing number of platforms looking to facilitate digital assets. Let’s check back this coming fall.