By Diane Abruzzini
On June 19th, Lafayette Real Estate CFO Graeme Humpreys, finLawyer.com Principal Scott Anderson, and VENTURE.co Head of Real Estate Greg Brown joined host and IMS VP of Business Development Ron Rossi for Investor Management Service’s newest webinar: The Full Stack Capital Raise.
Before the JOBS Act, noted Greg Brown, raising funds for commercial estate was fragmented and inefficient: flying from family office to retail investors to accountants, and hopping on road shows to pitch your deal. Change has produced new opportunities, and the opportunities from the 2012 JOBS Act are still being tested and realized.
While there has been a good deal of attention paid to real estate crowdfunding, the real value lies in something much simpler: the investment banking process has moved online.
Scott Anderson, former FINRA enforcement director and current fintech attorney, walked us through what it means to utilize an exemption, and what considerations are involved with the newly established Regulation D 506 (c) exemption that enables the use of technology and advertising.
So what opportunity can issuers seize, based on these changes? While there has been a good deal of attention paid to real estate crowdfunding, the real value lies in something much simpler: the investment banking process has moved online. This simplified process allows for greater access, options, transparency, and investor focus.
As a broker-dealer, VENTURE.co is bound by SEC regulations around the sale of securities. This is a highly regulated environment, and it requires a certain amount of expertise to operate compliantly and effectively. Moving the process online has proven more cost effective for issuers than legacy model broker-dealers, and those lower costs open up investor access to smaller size offerings.
Crowdfunding sites will advertise that they have tens of thousands of people registered, and you can blast your offering out to that many people. When using a broker-dealer, you don’t need tens of thousands of eyes and ears–those who are most interested in your deal will often be close in relationship or proximity. Because the capital raising process has been so inefficient, what issuers don’t realize is that the million-dollar check is down the street, not across the country.
The questions from listeners poured in when the conversation moved to compliance around the issuer exemption and Reg D offerings. Scott Anderson started by noting that the issuer exemption, a popular way for company directors and issuers to raise funds without a broker-dealer, is much more limited than people understand it to be.
Once your offering is published on the internet, it is that much more risky.
The fact is, compliance for raising funds for private placements is a priority for the Securities and Exchange Commission (SEC), says Scott Anderson. There have been a number of cases in this area over the past few years to send a clear message to participants using the issuer exemption. For example, a number of immigration lawyers helping their clients with EB-5 transactions were all charged as “unregistered broker-dealers” because they were making a securities recommendation and receiving transaction-based compensation.
When you are putting together a deal privately with people that you know or have been introduced to, the notion that federal regulators are going to scrutinize your deal is unlikely (except in the event of deal failure and litigation). But once your offering is published on the internet, it is that much more risky.
Graeme Humphreys, CFO of Lafayette Real Estate LLC, spoke to the benefits his firm has seen from implementing new technology. Graeme noted that the level of transparency associated with custom, cloud-based technology, combined with the new regulatory landscape, has made it easy reach and track investors. “As we grow”, he said, “we need to be more efficient in how we interact with our investors in both raising funds and managing investors”.
Have a question? Get in touch. We’re happy to direct your inquiry to any of the panelists or the moderator.