Your Modern Transfer Agent

Not necessarily. Section 12(g) of the Securities Exchange Act says that if, on the last day of its fiscal year, an issuer has assets of $10 million and a class of equity securities held of record by either 2,000 persons or 500 persons who are not accredited investors, it has to register that class of securities with the SEC.

However, the Act specifically exempts investors acquired from Reg CF offerings, so long as the issuer files the regular annual reporting for Reg CF companies (Form C-AR), engages a Transfer Agent (like DealMaker Shareholder Services), and has less than $50M in annual revenue.

A SAFE (Simple Agreement for Future Equity) is an agreement between a company and an investor. An investor invests capital into a company using a SAFE and, in exchange for the capital, the investor receives the right to purchase stock in a future equity round (if and when one occurs), subject to certain parameters of the SAFE.

As Regulation Crowdfunding was signed into law in 2012 and grew in popularity through the 2010s, a variation of the standard SAFE was introduced by some crowdfunding portals in 2016. The standard terms and process for a Reg CF offering using the Crowd SAFE involve a “Nominee” to consolidate the relationship with (and rights of) investors within a single individual, and a “Custodian” to hold the securities for investors.

The traditional Crowd SAFE and process sacrifices investors’ control over their holdings and makes the company reliant on a middleman (the Custodian or portal) on an ongoing basis, accruing cost.  It allows the intermediary to own investor data and continue to retarget them with deals, which is of no benefit to a company or founder.  While it claims to minimize ongoing administration and reporting requirements, the reality is that both of these goals can be accomplished more easily without creating an intermediary custodian, by a properly structured direct relationship with investors.  This can be done by relying on i.) a registered Transfer Agent to manage shareholders and ii.) the existing exemption from 12g reporting requirements for Reg CF shareholders. 

No. The practice of using a custodian has been introduced largely to benefit the organizations controlling the custodians themselves, creating a long-term reliance on them as a middleman. The benefits of this structure can be achieved a more cost-effective, issuer-controlled structure. Most online platforms act as the custodian themselves, and are not incentivized to share this information.

An SPV (Special Purpose Vehicle) is an entity set up for the purpose of investing into a company. When investing, investors’ capital is pooled into the SPV, and the SPV invests into the company as a single entity. The use of SPVs is a useful tool in Venture Capital (where General Partners may pool the capital from other Limited Partners as they evaluate investment opportunities), but introduces further complexity and lack of transparency for investors in Reg CF offerings, where keeping costs down is crucial.

Most issuers’ primary motivation for considering an SPV structure is to organize their Cap table. SPVs are often a poor fit for this if i.) the investors are subscribing to Reg CF or Reg A+ offerings (as these investors are already exempt from 12(g) reporting requirements) or ii.) the anticipated size of the offering exceeds 2,000 investors (as this is the limit for a single SPV, and new entities will need to be formed).

No. SPVs are an unnecessary tool in Reg CF and Reg A+ offerings. When SPVs are used, most online platforms are directly involved in their setup, and therefore are not incentivized to share this information.