Great question! While we feel like we are about to enter into a heightened regulatory environment (due to FTX and similar), blockchain, crypto, NFTs and CBDCs will definitely innovate the space. Possibly not quite in 2023, but soon.

Because securities have heavy regulatory oversight (and that oversight has country borders) our prediction is that the focus will be on CBDCs (Central Bank Digital Currencies) as they act as a country's 'digital currency'. As more and more Equity Crowdfunding deals look to have global investors, these could play a key role.

What are CBDCs?

Central Bank Digital Currencies (CBDCs) are digital tokens, similar to cryptocurrencies that are essentially the digital equivalent of the country’s currency. Over 100 countries are currently experimenting with CBDCs, and some have even implemented them.

Essentially, CBDCs can play a key role in draining unnecessary intermediaries from the existing financial system into the digital realm. Besides reducing economic friction by reducing counterparties needed in payments, trade, and banking, the technology can slash financial services costs for consumers and enterprises alike by facilitating trusted, direct connectivity between transacting parties. 

There is less risk when compared to NFTs or crypto, where almost anyone with a computer can build a 'coin' and add it to a wallet.

In the United States, companies looking to raise funds through crowdfunding must comply with the rules and regulations set forth by the Securities and Exchange Commission (SEC) in Regulation Crowdfunding. Some of the requirements for companies include:

- The company must be organized in and have its principal place of business in the United States.
- The company must provide certain disclosures to the SEC and to potential investors, including financial statements and information about the management team and the business.
- The company may only raise a certain amount of money in a 12-month period, currently $5 million
- The company must use an SEC-registered intermediary, such as a broker-dealer or a funding portal, to conduct the crowdfunding offering.
- The company must also provide certain investor protection measures, such as allowing investors to cancel their investment commitments within a certain period of time.
- The company must also make sure that their campaign adheres to anti-fraud regulations and that their investors are accredited or not.

It is important to note that these requirements and rules are subject to change and depending on the legislation of different countries the requirements may vary.

Investing in startups can be risky, and it is important for investors to carefully consider the pros and cons of different investment instruments. Some pros and cons of investing in startups via equity (common stock) versus a SAFE (simple agreement for future equity) instrument are:

Pros of investing in equity:

- The potential for high returns: If the startup is successful, investors may be able to earn significant profits through the sale of their equity or through dividends or other distribution of profits.
- Voting rights: Holders of common stock typically have voting rights in the company, which allows them to have a say in important decisions related to the company's direction and management.

Cons of investing in equity:

- High risk: Startups are high risk investments, and it is possible that the company may fail and investors may lose their entire investment.
- Dilution: As the company raises additional rounds of funding, the ownership stake of earlier investors may be diluted.

Pros of investing via a SAFE instrument:

- Simplicity: SAFE instruments are simpler and faster to execute than traditional equity financing documents, which can save time and legal fees.
- Flexibility: SAFE instruments can be customized to fit the specific needs of the company and the investor.

Cons of investing via a SAFE instrument:

- No ownership stake: SAFE instruments do not convey ownership in the company, so investors do not have voting rights or the potential for dividends or other profit distributions.
- Potential for low returns: If the company is successful and subsequently issues equity to investors, holders of SAFE instruments may receive less favorable terms than later investors who invest via equity.

Hi Ray,

Congratulations on your graduation from law school. I always recommend to someone new to investment crowdfunding to start by visiting a platform looking around, finding a company you like, and investing in the company. Experiencing a crowdfunding campaign as an investor is a significant first step. Going through the due diligence process reviewing the form C to get a better understanding of the required compliance and then experiencing the marketing and investor acquisition process reading campaign page updates, asking questions, reading the responses from the founders and reading your emails, attending founder webinars, and engaging the investor community with your questions and insights. This would be the first step in better understanding the process as an investor. I find the larger platforms do a great job of providing regulatory information for both investors and founders so digging into the FAQ section will provide some deep practical insights into the process. If you enjoy the process begin looking for your place in the industry connecting with the platforms and securities attorneys to learn that aspect of the business.  

It is difficult to predict exactly how regulated investment crowdfunding will evolve in 2023, as it depends on a variety of factors such as changes in the regulatory environment, technological developments, and market trends. However, here are a few potential developments that could shape the future of regulated investment crowdfunding:

1. Increased use of blockchain technology: Blockchain technology could potentially be used to streamline the crowdfunding process, making it faster and more secure.

2. Development of new regulatory frameworks: Governments around the world may develop new regulatory frameworks to address the unique challenges and opportunities presented by crowdfunding.

3. Growing popularity of alternative forms of financing: Crowdfunding may become more popular as an alternative to traditional forms of financing, such as bank loans or venture capital.

4. Increased competition: As crowdfunding becomes more popular, more platforms may enter the market, leading to increased competition among platforms.

5. Greater focus on investor protection: As the industry evolves, there may be a greater focus on protecting the interests of investors, including through the use of measures such as disclosure requirements and investor education.

Overall, it is likely that regulated investment crowdfunding will continue to grow and evolve in the coming years, with a focus on using technology to improve the efficiency and effectiveness of the process. 

*Written by OpenAI's ChatGPT* 

There are three main types of crowdfunding:

1: Rewards-based crowdfunding: This type of crowdfunding involves individuals contributing money to a project or business in exchange for a reward, such as a product or service, rather than a financial return on their investment.

2: Donations-based crowdfunding: This type of crowdfunding involves individuals donating money to a cause or project without receiving any financial return on their investment.

3: Equity-based crowdfunding: Also known as regulated investment crowdfunding, this type of crowdfunding involves the sale of securities, such as stocks or bonds, to raise capital for a business or project. Investors receive a financial return on their investment, either through the sale of their securities at a later date or through the receipt of dividends or interest.

Donations-based crowdfunding and investment crowdfunding are two different types of crowdfunding. In donations-based crowdfunding, individuals make contributions to a project or cause without expecting anything in return, other than the satisfaction of knowing they have helped support something they care about. In investment crowdfunding, individuals invest money in a project or venture with the expectation of receiving a financial return on their investment. *Written by OpenAI's ChatGPT* 

The Howey test is a legal test used to determine whether an investment contract exists and, therefore, whether certain securities laws apply. The test is named after a U.S. Supreme Court case called SEC v. W.J. Howey Co., in which the Court set out a four-part test to determine whether an investment contract exists.

The four elements of the Howey test are:

- There is an investment of money.
- The investment is made in a common enterprise.
- There is an expectation of profits from the investment.
- The profits are to be derived from the efforts of others.

If all four elements are present, the investment is considered to be an investment contract and is subject to securities regulation. The Howey test is used by the U.S. Securities and Exchange Commission (SEC) to determine whether a particular investment is a security and whether it must be registered with the SEC. The test is also used by the courts to determine whether a particular investment is a security and whether it is subject to securities laws.

*Written by OpenAI's ChatGPT - Not Legal Advice* 

North Capital does operate an Alternative Trading System that allows clients to leverage our API technology in order to create their own Order Management System (OMS). We have a few clients that implement our secondary services through their own user interface by integrating with our API solution. You can always reach out to a North Capital representative in order to discuss in more detail.