How to conduct ICOs and STOs that conform to US SEC securities regulations;
There are two primary SEC Regulations that are well suited to raising capital through the sale of securities to investors online. They are Reg D 506C and Regulation A+. These rule systems are used widely and are well understood. Either one of them can be used with STOs, as long as the Security Token Offerings are carefully developed with compliance to these rules built in. Reg A+ is a more natural fit because it allows investors of all wealth levels anywhere in the world to invest, which is one of the highly appealing aspects of STOs.
In the investment process, companies can use the usual Smart Contracts, and convertible notes can be used to raise investment capital before the tokens have been completed.
Reg A+ and Reg D 506C offer a legitimate method for ICOs and STOs to be made for US companies when care is used (Reg D and Reg S work well for non-US companies).
- Regulation D 506c is the form that is most suited. Makes a good pair with Reg S for non-US investors. Reg S investors are not required to be accredited. We accept Reg S and Reg D investments in combined offerings on the Manhattan Street Capital funding platform and handle the restricted access that the SEC requires to ensure that Reg S investors are non-US and that US investors must not see the Reg S.
- Can use a convertible note to raise capital before the Tokens exist. In the convertible note offering, the issuer company is allowed to use discount-steps to reward early investors. Subsequently, the notes are converted into investments in Tokens through the Reg D.
- No cap on how much capital can be raised.
- Only accredited US investors are allowed to invest, non-US investors are not required to be accredited via Reg S. We do the investor KYC and AML as an automatic part of our process.
- The offering company has to take reasonable steps to verify that its Reg D investors are accredited. The Accreditation Verifications and AML checks are done by Manhattan Street Capital as an automatic part of our investment process.
- The Reg D Form D must be filed with the SEC, but this is a simple notification filing, not a lengthy process - a few days to file, no SEC qualificationl involved.
- The Tokens bought by investors are not liquid and can only be sold to accredited investors after the one year holding period has passed, unless a liquidity event such as an IPO or a Reg A+ occurs. These restrictions should be built into the smart contract.
Pairing the Reg D with a Reg S for non-US investors is a good way to cover all markets.
- Note that implementing an ICO/STO so that it conforms to Regulation D can be complex and must be approached in a thorough manner with advice from expert securities attorneys who we work with closely and introduce to you.
- Allows companies to raise up to $50 mill from investors of all wealth levels worldwide.
- Can use a special Manhattan convertible note to raise capital before the Reg A+ is SEC Qualified, and offer big discounts to early investors.
- Ability to accept investment from non-accredited investors (not into the convertible note though).
- Anti Money Laundering (AML) checks for all investors included. The AML checks are done by Manhattan Street Capital as an automatic part of our investment process. We also do the investor KYC as an automatic part of our process.
- Up front SEC legal filing required. The offering of securities to investors via Reg A+ is not allowed until the SEC Qualifies the Form 1-A filing. This takes time and involves upfront costs. Using our convertible note that is tied to the Reg A+ makes it possible to raise capital early, with discount bonus tiers while the Reg A+ filing is in process and provides liquidity to those investors when/if the SEC Qualifies the offering.
- Tier 1 level offers some advantages for raises of less than $20 mil. Tier 2 goes from 0 to $50 mill
- The purchased tokens are liquid, the buyers can sell them immediately in many cases.
- Note that implementing an STO so that it conforms to Regulation A+ can be complex and must be approached in a thorough manner with advice from expert securities attorneys that we involve.
Bitcoin, Ether, Stellar, ACH, Wire, check and debit cards accepted to increase the ease with which investors can pay.
Digital currency payments are offered in addition to other payment methods such as debit cards, check, ACH, and wire transfer, at the companies' option.
We conduct KYC, AML and accredited verifications (where relevant) as a part of our funding platform, automatically, for investors worldwide.
Rod Turner is the founder and CEO of Manhattan Street Capital, the #1 Growth Capital marketplace for mature startups and mid-sized companies to raise capital using Regulation A+. Turner has played a key role in building successful companies including Symantec/Norton (SYMC), Ashton Tate, MicroPort, Knowledge Adventure and more. He is an experienced investor who has built a Venture Capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris (AMRS), Ask Jeeves and eASIC .
Manhattan Street Capital, 5694 Mission Center Rd, Suite 602-468, San Diego, CA 92108.