The missing link in Reg CF and Reg A+ securities offerings

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By Vanessa Malone

As we discussed in last week’s blog, the amount of capital raised through exempt securities offerings has outpaced the level of capital formation through registered securities offerings.

The SEC’s recent capital formation report outlines a set of amendments to simplify and improve common securities exemptions issuers utilize to raise capital.

Included in the proposal, the capital raising maximum would increase from $1.07 million to $5 million for Regulation Crowdfunding (Reg CF) securities offerings and from $50 million to $75 million for Tier II Regulation A+( Reg A+) offerings.

We believe raising the capital raising limits along with the SEC’s proposed investor eligibility upgrades will fuel Reg CF and Reg A+ securities offerings, which in turn will increase the opportunity for everyday investors to make early stage investments in quality companies they believe in.

Unfortunately, in the current Reg CF and Reg A+ market infrastructure, there is a critical missing link. If you look at the graphic below, the securities offering journey runs smoothly through primary issuance — then comes to an abrupt roadblock when it comes to secondary trading.

Current market infrastructure:

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Of the thousands of Reg CF and Reg A+ offerings conducted, only a handful have secondary trading.

This is a big problem. How big, you ask?

Investors put in an estimated $2.4 billion in Tier 2 Reg A+ and Reg CF offerings in 2019 alone.

That’s $2.4 billion in locked liquidity potential for retail investors as there are no active trading venues currently licensed in the U.S. for Reg CF/Reg A+ secondary trading. And to reiterate, of the 144 Reg A+ offerings since 2015, only a handful listed on a national exchange.

We believe that in order to support capital formation and retail investors in the U.S., liquidity needs to be part of the equation. Further, regulated Reg CF secondary trading venues should be encouraged by regulators and made available to investors.

This is why Horizon developed its integrated securities ecosystem that we’re licensing to U.S. broker-dealers eager meet the demand for Reg CF and Reg A+ secondary trading from issuers and retail investors alike.

In finding the missing link, the Horizon team first delivered a secondary trading technology and worked backwards from there to deliver a complete, streamlined process from issuance and investor onboarding through to secondary trading.

This journey led us to integrate a transfer agent phase into our methodology, allowing us to compliantly support issuers, truly, from start to finish. We license our cap. table lifecycle management platform​ CustodyWare to U.S. transfer agents so they can custody Reg CF and Reg A+ securities, pay dividends, and make shares available for secondary-trading on upcoming Reg CF regulated marketplaces.

Horizon’s vision to unlock Reg CF and Reg A+ secondary markets:

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Reg CF and Reg A+ have only been around for 5 years. They’ve since made incredible strides in fueling growth for the perpetual wave of innovative companies.

We hope that by us finding the missing link and adding our own innovations via our proprietary securities ecosystem, we will help increase accessibility and opportunity for retail investors and the issuers they invest in.

By incorporating regulated secondary trading technology into the mix, we believe Reg CF and Reg A+ securities offerings have the potential to become the go-to capital raising vehicles for the U.S.

About Horizon

Horizon offers a suite of integrated securities software applications for compliant issuance through secondary trading of electronic securities.

Truly a compliance-first business, our solutions combine Wall Street and Silicon Valley to power the next generation of exchanges and securities offerings in the U.S. and globally. Visit us at https://www.horizonfintex.com/.

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