KoreConX on Streamlining Private Capital-Raising Opportunities

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Midas Letter

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

KoreConX is a secure, all-in-one platform to streamline global private company capital markets. Wth the goal, to give small- to medium-sized enterprises (SME) a single location to manage all of their corporate records, funding, investors and investment brokers, users can efficiently take advantage of innovative new capital-raising opportunities. CEO Oscar Jofre joins Midas Letter to introduce the company, the opportunities that arose with the emergence of blockchain, and explains the platform’s applications in detail.

Transcript

James West: Oscar Jofre joins me now. He’s the CEO of KoreConX. Oscar, welcome.

Oscar Jofre: Thank you.

James West: Quick overview, Oscar: What does KoreConX do? 

Oscar Jofre: Well, quick overview: we are the world’s first all in one platform that helps companies and other stakeholders gain access to information that they may need. So, shareholders need to look at their portfolio; Board of Directors look at the Board packages; management look at the direction of their capital structure of their entity.

James West: So it’s a management platform for publicly traded companies? Private companies?

Oscar Jofre: Actually, dominant is the private. About 99 percent of our clients are privates; it’s all about the numbers, right? It’s the, I mean, I like the public capital market, it’s efficient, it works fantastic, but we’re moving into a new emergence in the private capital markets.

James West: Right.

Oscar Jofre: And for that reason, there are going to be more private companies today, like KoreConX, that are acting like public companies, but we remain private.

James West: Okay, so tell me: what is the, like, you mentioned to me just before we started that you think private companies are about to explode, and why is that?

Oscar Jofre: That’s a great question. So, up until now, we’ve always been focused on the public companies. You and I, we get a three-letter word for a stock symbol, we pick up our phone, we get everything, right? That power of that efficiency gives us the ability to trade and move that security around. That’s why anybody can invest.

James West: Yes, right. Liquidity.

Oscar Jofre: In the private world, we don’t have that. We haven’t had it, even though the securities allow liquidity. But now, with the emergence of blockchain, everything has changed. What does that mean? It means that we have a community of 450 million private companies worldwide.

James West: Wow, there’s that many?

Oscar Jofre: There’s that many. There’s only 100,000 publicly traded, that’s it, worldwide, versus 450 million. So people go, Oh, that’s a great big number! Let’s look at Canada and the US. So between Canada and the United States, every year, 152,000 companies raise capital privately. In 2018, the SEC issued that private companies raised 3 trillion, versus 1.5 trillion on the public markets.

So, what does that mean? It means that investors are keeping the money in the private market. But having now, finally, the ability to have liquidity in the private capital markets.

James West: Sure. Through this platform?

Oscar Jofre: Through our forms of platforms, and many others. So there’s going to be broker-dealers operating, not stock exchanges, we call them secondary markets, where investors will be able to sell their securities, and others will buy.

James West: Exempt market dealers.

Oscar Jofre: Thank you! And there’s already in the United States, 16 operational ATS’s. So there’s already more ATS’s operational than there is stock exchanges.

James West: ATS standing for?

Oscar Jofre: Alternative Trading Systems, for the secondary market. So, what does the private markets need? Visibility. That’s where the public markets really have a great control on. So with visibility comes responsibility. Companies need to act like public companies.

James West: Transparency.

Oscar Jofre: Transparency. What better way to provide transparency than using a form of technology that is immutable? So once the information is in, when you own that security, nobody can dispute it; it’s yours. You own 10,000 shares, and you can now trade it, real-time, and update the cap table of the company.

James West: Wow. So basically, this gives the same assurance to an investor on the portion of the company that they own, should it be an equity share, or the amount that is owed to them in the form of debt, if it was a debt structure, and they have that certainty, the same level of certainty as the publicly traded companies. But it sounds like even more so, because it’s blockchain.

Oscar Jofre: Agreed. Even more so, because in the public world, my biggest, my experience has been that the shareholder is no longer connected to the company, you know that? I mean, the CO doesn’t really know you personally as a shareholder. In a private company, you know them by name. I have companies that have 250,000 shareholders; there’s one shooting for 1 million privately held shareholders.

James West: Really?

Oscar Jofre: One million. Imagine that, as a private company. So, where does KoreConX? KoreConX comes in because now you need a platform to manage all this.

James West: Right.

Oscar Jofre: You need a platform to allow the broker-dealers to know, does Oscar really own those shares? Is the company real? All of that, on blockchain.

James West: Okay, this is really intriguing to me. So I have a private company that is about to conduct a raise. They’re going to raise $2 million with an eye towards getting a public listing on the CSE. And so we have a network of individuals who the company is going to market their offering to. Now, if we get the company on KoreConX, this cements the surety of their shareholdings, where all the shares are, any debt the company has, any liens against the company…like, everything?

Oscar Jofre: Everything. Isn’t that powerful?

James West: How much does this cost a company?

Oscar Jofre: Actually, no more than it costs them today. It’s, the thing about blockchain is something you don’t see; you just know it’s there. 

James West: Right, but you can always go look at it.

Oscar Jofre: Through an application, which is what we provide. So the investor can log in, view that they own 10,000 digital securities, and that they can trade them or they can’t trade them, and with whom, what hold periods they may have, drag-along rights, tag-along rights, right of first refusal…try to imagine all the things that are in a subscription agreement, are now visualized in a way that gives the power to the shareholder.

And, by giving the power to the shareholder, the company can keep operating without being, you know, making sure that Oh, do you know everything what your rights are. It’s there, it’s immutable. And then broker-dealers can rely on it, as well.

James West: Right. Okay, well, that’s very intriguing. I am actually going to sign up. So, does this system provide for, like, let’s say that I’m a private issuer, and I want to issue some debt. And I create the terms of the debt and all of the covenants in a debenture agreement. Then, I can upload that debenture agreement onto KoreConX and so – I’m just curious about, so what level, how does the investor in my debenture who says, Okay, I’ll throw $100,000 in for you. How does he have certainty that you are not, you know, somehow compromised in your integrity?

Oscar Jofre: Perfect question. So, like any systems, integrity is everything, right? So we can thank the regulators once again. They created this infrastructure. What did they create? They created an infrastructure of broker-dealers. So we know broker-dealers have a regulatory obligation to do certain things before they’ll sell a security to an investor. They have to do due diligence on the company, and due diligence on the investor to make sure they qualify. On top of that, we have lawyers and auditors. We’re not removing any of that; we’re just empowering them, giving them a better way to store information that, once it’s been validated, how many more times do you need to be validated?

I mean, we’re re-entering our data over and over and over and over again. It’s getting redundant. So this ensures that, when the transaction is happening on that convertible debenture, and all the terms and conditions, what people don’t realize that, after it’s been validated, there’s always a lawyer. There’s a legal counsel attached to this, who indicates this has been done, and this has been verified. And then there’s the Board of Directors that need to okay it.

Now imagine: while all that’s happening, all that information is being captured on the chain, therefore you have this immutable footprint. Isn’t that wonderful? We’ve never had that before.

James West: Sure. So you’ve got a permanent record of all of the professionals who have put their stamp of approval on it, and have basically risked their own reputations by saying ‘this is done’.

Oscar Jofre: Thank you!

James West: Excellent, okay. Now I understand. This is actually very attractive to me. I’m going to become a big customer. Now, my next question is, so, let’s say that I am the private company and I have a funding requirement, and I decide to make use of the crowdfunding exemption. And so now, in terms of being compliant with that crowdfunding exemption, and ensuring the KYC provisions are met to under that exemption, does your platform have that sort of built into it?

Oscar Jofre: So, really good question. So crowdfunding, which is now called issuance – the terminology, how people are fidgeting with the words – so the way people can raise capital today are two ways. One, you can go by yourself, put on your website, and say I’m raising capital. Legally, you can. You’ve got to put your legal disclaimers in, and we provide a technology on there that will perform KYC ID verification, AML, investor verification, suitability, signing of the documents, and including the payment – all online.

So that’s if you choose to do an offering by yourself – no broker-dealer. Now, for the investor, you’ve got to trust whether that company is real, right?

There’s the other way: you can go to a broker-dealer, which we have over 375 worldwide. Our broker-dealer partners, what they will do is, they will do the due diligence on the company, and then they will post the deal on their platform, which happens to be our technology, again. And it will do the KYC ID verification. What does the investor gain here? The investor gains confidence that they’re looking at the deal, not having to do due diligence. 

I’m not, we’re not opposed to either; we’re just providing the technology for those to do it. We’re not a broker-dealer; our relationship with our entire ecosystem worldwide is non-financial, so we’re never compromised. We pride ourselves in our charter that, when a company comes to us and says, ‘Oscar, here’s my company, can you assist us, or can your platform help us find a broker-dealer in the US or in Canada?’ Yes. And the platform does it, and it does it all at no cost to the company.

The company has to meet its regulatory obligations. Now, if it wants to do it itself, we will license them the technology, but we have nothing to do with the actual raise; they’re doing it themselves.

James West: Amazing. Okay, Oscar, we’re going to leave it there for now. That’s a great introduction to the company. I’ll be happy to have you back as I make use of your platform, which I’m going to do.

Oscar Jofre: Okay, perfect.

James West: Thank you for joining me today.

Oscar Jofre: Thank you.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.