Netcapital is a private securities market that allows firms to raise capital under the various exemptions available including Reg CF. A FINRA regulated funding portal, Netcapital also works with Livingston, a broker-dealer, to raise money under Reg D 506. Netcapital caters to both non-accredited and accredited investors empowering issuers to raise capital from both. Netcapital explains its mission as providing investors a path to accessing an asset class previously unavailable. Netcapital’s website explains that “with fewer companies going public, more returns staying private, and too many investors locked out, it’s the wake-up call Wall Street needs.”
Netcapital also has established a partnership with Rialto Markets, a registered broker-dealer, an entity that is operating an alternative trading system (ATS). Netcapital utilizes Rialto’s ATS to provide issuers and investors with the potential for expanded distribution and liquidity – in other words there you do not necessarily need to hold onto an investment in a private firm until there is a merger or acquisition to generate an exit.
An interesting aspect of Netcapital is that its parent company, Netcapital Inc., has listed its shares on the OTCMarkets (OTC: NCPL). The company’s market cap is currently hovering around $30 million.
In mid-2021, CI spoke with Netcapital founder and CEO Jason Frishman said that the increase in the Reg CF funding cap to $5 million that issuers that otherwise would not have considered raising money online with a funding portal are now excited about the opportunity.
Recently CI spoke to Frishman once again for an update on the performance of Netcapital. Our discussion is below.
How did Netcapital perform in 2021?
Jason Frishman: Netcapital, a publicly-traded company (NCPL), had strong growth in net income in the first half of Fiscal 2022. Net income of $1,183,254 increased by 1,843 percent from the same period a year earlier. Earnings per share of $0.47 increased 213 percent from a year earlier.
The securities crowdfunding sector is becoming more competitive. What is Net Capital’s competitive advantage?
Jason Frishman: It’s our people. Our level of customer service is extremely high; our customers consistently affirm this.
What about deal flow? Does being based in Boston help with access to promising younger firms?
Jason Frishman: Deal flow has been strong. Our business development team is spread across the country and deals are sourced from many locations. But Boston is a hub for innovation and entrepreneurship and it is useful to interact with the incubators, academic institutions, early-stage investors, and other segments of the ecosystem there.
Tell me about your partnership with Rialto markets? Is it just for the secondary trading platform? Will you be partnering in other areas?
Jason Frishman: The secondary transfer features are temporarily unavailable. We are hopeful that, when available, the secondary transfer features may enable access to a number of retail, strategic, institutional, and financial investors.
Rialto is currently raising capital on your platform. How is that proceeding?
Jason Frishman: As of today, February 8, 2022, they have raised $247,423. Their progress can be tracked on our website at: https://netcapital.com/companies/rialto
How does the relationship with NetCapital Inc. operate?
Jason Frishman: Because they are currently raising capital on our site we are restricted in what we can say about the relationship.
The rules for Reg CF were improved by the SEC this past year. How did this impact Netcapital?
Jason Frishman: It’s been a boon. As one example, Magfast, which offers a revolutionary new family of wireless magnetic chargers for mobile phones and other devices, sold out its initial offering on Netcapital in November 2020 of $1.07 million, at that time the SEC limit, within 24 hours. Following the SEC rule change to raise the limit, Magfast raised another $3.4 million in December 2021 in a similarly rapid fashion. Overall, the change has opened the door to an entirely new type of issuer, including more mature companies, who previously may not have considered this as a viable means to raise capital. It also opened the door for investors to a wider array of investment opportunities.
What are your expectations for 2022 in regards to online capital formation?
Jason Frishman: We expect to see continued robust growth in online capital formation as more and more entrepreneurs realize the advantages of this means of raising capital and investors grow increasingly excited about the prospects of early-stage investing.
What other verticals are you considering? What about geographical expansion?
Jason Frishman: Geographically we have investors all over the world. In the U.S. we have good coverage across the country. We are not focused on other verticals at this time.