Running a 3(c)(1) venture capital fund and want to add Reg CF and Reg A deals to your portfolio? Soon you should be able to do that.
Given the various structured finance applications for SPVs, there are probably other use cases here as well, but we’ll leave those eggs to the financial engineers to hatch.
The bottom line is that by permitting SPV participation for Reg CF and Reg A, the SEC is providing issuers utilizing these approaches the ability to try to keep their cap tables under control. The quintupling of the Reg CF capital raise limit brings with it five times the potential to clutter an issuer’s cap table into oblivion with small investors. But by allowing greater capital participation, increased engagement with institutions and a means to aggregate at least some (admittedly accredited and institutional) participants into a single investing entity, the regulator seems to be trying to offset that risk a bit.
And this is important, because the prospect of a cluttered cap table can serve as a headwind for early stage issuers. Lead investors in later stage financing rounds aren’t particularly fond of having to deal with thousands of often financially unsophisticated, sometimes impatient, and occasionally litigious de minimis investors. And while at first blush this dynamic could be thought of as one downside to the SEC’s proposal, the commission is at least attempting to blunt the impact with some of its secondary modifications to the current scheme.
All of these proposed changes are going to make it significantly easier for early stage companies to obtain access to capital and give regular investors the opportunity to participate in private capital markets to a degree never seen before. At the same time, the changes will leave some meat on the bone for interested institutions and HNW investors, as well.
And considering the recent volatility and uncertainty hanging over public equity markets these days like a shroud, that’s an opportunity well worth considering.
What Are You Going To Do About It?
Entoro Capital is excited about the expected Reg CF changes—we view them as a significant disruption to the status quo and thus, a great opportunity to get involved.
As such, we’ll be making technology changes to manage the Reg CF process and activities on OfferBoard. Entoro’s expanded securities offering brings differentiated value-add for both issuers and investors. Moreover, the firm will leverage its existing ties to the family office space (Family Office Networks and other family office groups) to bring lead investor potential to our Reg CF placements.
Entoro is increasing exposure to smaller capital raises once the regulatory changes take effect. We expect to be a leader in the Reg CF space because of our experience with online investing using OfferBoard and affiliates such as Entoro Wealth (RIA) and Clear Rating (valuation), amounting to a full suite of tools for the early stage issuer and its investors.
Sean Levine is managing director of Entoro Capital, a tech-enabled investment bank and advisory firm.