Podcast Summary
The Evolving World of Private Capital Markets: From Regulations to Investment Opportunities: Equity crowdfunding and cybersecurity companies like Atakama offer potential diversification and asymmetrical upside in a trillion-dollar private capital market. It's crucial to understand capital formation and stay informed on evolving regulations and advancements to seize accessible investment opportunities.
Private capital markets have evolved over time with new regulations, affecting investment opportunities for individual investors. Equity crowdfunding offers the potential for asymmetric upside and can be a valuable diversifier in a portfolio. Cybersecurity companies like Atakama have faced exponential growth due to increasing demand, making them an attractive investment opportunity. Understanding capital formation and venture capital is essential to grasping private capital markets. With regulations and advancements, private capital markets have transformed from nothing to a trillion-dollar industry. It is essential to stay informed in the evolving markets and take advantage of accessible investment opportunities that are available.
Understanding Venture Capital as a Corner of Capital Formation: Venture capital targets high scalability potential companies with multibillion-dollar potential, caring about networking effects, intellectual property, and growth from the ground up. Non-scalable businesses may struggle to attract VC investments.
Capital formation is the process of providing funding to new ventures, either in the form of equity or debt. Venture capital is a specific corner of capital formation that looks for businesses with high scalability potential, like software or biotech companies. The venture industry emerged in the 1980s and has since grown to a $750 billion industry, although still small compared to the $40-45 trillion market cap of all US equities. The returns of the venture space vary widely across different VC groups, with some outperforming the public markets. The venture industry cares about networking effects, intellectual property, and multibillion-dollar potential from the ground up, making it difficult for non-businesses with low scalability potential, like car washes, to attract VC investments.
Success Breeds Success in the Venture World: To evaluate returns on venture capital, consider the manager's performance and competitive advantage rather than simply aggregating data. General solicitation for raising capital is prohibited due to historical scams, and regulations exist to prevent fraud.
Success in the venture world can create more success as it grants increasing access to better deals and opportunities. This trend is especially visible in the top tier club of venture groups, while smaller groups often get left out in the cold. However, it is crucial to consider the manager's performance and competitive advantage while evaluating returns on venture capital, rather than just aggregating the data. General solicitation for raising capital is prohibited in most developed market countries, including the US, due to historical scams and misconducts. The Securities Act of '33, the Exchange Act of '34, and the Investment Advisor Act of '40 were enacted in response to the Great Depression and aimed to regulate securities and prevent fraud.
Regulations and Exemptions for Capital Solicitation: Regulation requires private individuals to go through proper channels for soliciting capital, but the assumption that accredited investors are more sophisticated is flawed. ESG investors should be aware that buying and selling shares does not always benefit the company directly.
The Securities Act of '33 and '34 put an end to general solicitation and instead required private individuals to go through proper channels for soliciting capital, such as accredited investors who meet certain thresholds for wealth or income. This assumption that accredited investors are more sophisticated or less likely to cause disruption if they lose money is flawed, but it's the way the world and regulations were set up. There are exemptions for companies to go public, such as Reg D, which enables accredited investors to provide capital to new entities, and the IPO process. Primary capital is distinct from the secondary market of buying and selling shares of stock for your brokerage, and ESG investors should be aware that buying and selling shares does not necessarily mean their money is going to the company.
The SEC's mission to expand capital formation through new regulations: The Jobs Act brought two new regulations enabling capital formation from non-accredited investors. This changed the landscape of capital formation, allowing people to seek investments from their own community and gain insight into demand for their ventures.
The SEC's mission has always been about capital formation. Earlier, capital formation was restricted to approaching wealthy people or established entities. In 2012, the Jobs Act brought two new regulations, i.e., Reg A+ and Reg CF, allowing for a general solicitation targeting non-accredited investors and enabling capital formation from people who are not necessarily accredited investors. These new regulations changed the landscape of capital formation, which was followed by an increase in the limit of the amount that could be raised. These regulations allowed people to go into their own community and seek investments for their ventures. This was important because people from the same community might have a better understanding of whether there is a demand for the venture or not.
Regulations allowing non-accredited investors to invest in companies.: Reg A+ and Reg CF enable non-accredited investors to invest in companies, stimulating capital formation and fostering innovation in real estate ventures and more. Equity crowdfunding provides equity ownership, but reform is needed to reduce fees and encourage innovation.
Reg A+ and Reg CF are regulations that allow non-accredited investors to invest in companies. They were proposed in 2012 to address pent-up demand for capital formation. Innovation in areas such as real estate ventures and collectibles is possible due to these regulations. Equity crowdfunding provides equity ownership and fits under Reg A+ and Reg CF. While these regulations have made it easier for companies to raise capital, more needs to be done to reduce onerous fees and complete the reform process. Loosening the regulatory caps can lead to more innovation emerging. Traditional crowdfunding on platforms like Kickstarter does not provide equity ownership.
Two options in Crowdfunding and how to make informed decisions: When investing in equity crowdfunding, do homework and take a portfolio-based approach. Access information through resources like newsletters, publications, and comparison websites. Remember that there are risks involved.
Crowdfunding provides two options: traditional crowdfunding, where contributors pre-buy a product and get access to it before it is released to the public, and equity crowdfunding, where contributors get shares of stock or other securities in the company conducting the offering. When investing in equity crowdfunding, it is important to do your homework and undertake a portfolio approach. Alternatively, if you have a specific familiarity with a project, you could make a reasonable decision based on inside information. There are a variety of resources available, including newsletters, publications, and comparison websites, to help you make informed decisions. With crowdfunding, investment opportunities are no longer limited to venture capitalists; anyone can invest, although it is important to remember that there are risks involved.
Equity Crowdfunding as an Opportunity for Non-Accredited Investors: Equity crowdfunding offers an opportunity for non-accredited investors to invest in promising startups. While it has not disrupted venture capital, it can be a healthy and symbiotic coexistence, especially for consumer-facing products. Atakama's success in fundraising through Reg CF and other regulations shows the effectiveness of equity crowdfunding.
Equity crowdfunding has not disrupted venture capital yet, but it provides an opportunity for non-accredited investors to get involved in opportunities they might not have had otherwise. The coexistence of the two can be symbiotic and healthy, especially for consumer facing products where users are excited about the product and want to put in capital. Atakama, a cybersecurity company based in NYC, raised $5 million under Reg CF and Reg D along with Reg S that enabled them to raise capital from anyone overseas, accredited or not. Equity crowdfunding is not always viewed as a quick process and might take a longer time, but Atakama found it to be an effective way of raising capital.
Atakama's Encryption Platform and Its Unique Data Protection Approach: Atakama's encryption platform allows users to split and store cryptographic keys in multiple locations, making it more difficult for hackers to access data. Its success with major clients proves the importance and effectiveness of this technology in ensuring data security.
Atakama has built an encryption platform that allows users to split their cryptographic key into pieces and store them on different devices or servers. When they want to decrypt data, the key shards are reassembled on the fly, making it extremely difficult for hackers to obtain the data. This kind of data exfiltration protection technology is not yet popular in the enterprise cybersecurity world, but Atakama's success with over 60 big customers shows its importance and effectiveness. The technology increases the difficulty of accessing data in a gargantuan manner, making it much more secure than traditional methods. As a result, Atakama's annual recurring revenue has grown between 30% and 40% on a year-over-year basis. The technology is super cool and serves a really important purpose.
Atakama's innovative investment approach to Cybersecurity: Atakama's equity crowdfunding offers investors with reasonable valuations and potential returns while addressing the need for cybersecurity in businesses amid the increasing risk of cyberattacks.
The cybersecurity industry is rapidly growing, and the need for cybersecurity is increasing due to the complexity of the internet and the increasing number of places where data is kept. Businesses are the primary targets of cyberattacks because they have opportunities to steal money or data, or extort businesses. Atakama, a cybersecurity company, opted for equity crowdfunding because they wanted to enable everyone to invest in their company. They picked a reasonable valuation where investors can participate and still make really great returns. Investors should be aware of valuations that are too high, especially when a company doesn't have any revenue. Atakama's team is working hard to push the company forward and provide investors with great returns.
Atakama - Invest in Cybersecurity without Restrictions: Atakama allows anyone to invest in their cybersecurity company through equity crowdfunding, with the confidence that building a strong business will result in a good exit through acquisition or IPO. Visit invest.atakama.com/wsb to learn more.
Atakama is a cybersecurity company that allows anyone to invest through equity crowdfunding with no restrictions based on their income or assets. Its focus is on building a powerful business with happy customers that will ultimately result in a good exit through acquisition by another cybersecurity company or other company, an IPO or acquisition by private equity. The team is confident that building a good business will result in a good exit in one of those forms or some other form. Investors can learn more and invest in Atakama by visiting invest.atakama.com/wsb. Atakama is named after the Atakama Desert and offers a variety of cybersecurity solutions to its customers.
