Flashback: Grofolio presentation at [i4c] Campaign Finals

A year ago, Grofolio, then Funding Launchpad, presented to an audience of 1,000 as part of the [i4c] Campaign finals at Denver’s Ellie Caulkins Opera House. This presentation’s focus was the potential social impact of expanding access to capital to America’s startups and growth companies.

Regulation D Rule 506 – A Primer

In the United States, selling securities generally requires registering with the United States Securities and Exchange Commission (SEC), in accordance with the Securities Act of 1933. There are qualifications that exempt a fundraiser from having to register with the SEC, which are outlined in Regulation D of that Act.

Regulation D Rule 506 provides a “safe harbor” under Section 4(2) of the Securities Act. An issuer using the Rule 506 exemption can raise an unlimited amount of funds. The purpose of this exemption is to aid small businesses and entities that may not be able to afford the registration fees of the SEC. In order to be in compliance with Section 4(2) exemption, the following standards must be upheld:

• The offering must be “private“; the fundraiser cannot use general solicitation, or advertising, to attract potential investors.
• The fundraiser may sell securities to an unlimited number of accredited investors.
• Issuers may also sell securities to up to 35 non-accredited, “sophisticated” investors. These investors must have credentials that enable them to properly evaluate the merits and risks of the potential investment. Due to the incremental effort of ensuring sophistication, many issuers forego the opportunity to sell to non-accredited investors.
• The company or fundraising entity must make itself available to answer questions from prospective buyers.
• The issuer chooses what information they provide to prospective investors, provided it does not violate the antifraud prohibitions of federal securities laws.
• The financial statement requirements for financial documents are the same as for Rule 505 of Regulation D.
• Investors receive “restricted securities” which cannot be resold for at least a year without registering them.

Using a Rule 506 exemption does not completely eliminate documentation to the SEC; a “Form D” – a brief summary of the names and addresses of the company’s owners and stock promoters – must be filed after their first sale closes.  Unlike registered securities, the Form D is a simple document with minimal disclosures.

For accredited investors, Grofolio is your digital market for finding private placements to diversify your portfolio. Please contact us to learn more about Reg D Rule 506 offerings or alternative assets.

A “Free Lunch” – Portfolio Diversification

Diversification is an investment portfolio risk management technique that mixes a broad range of investment securities within a portfolio. The rationale is that an investment portfolio containing different types of assets will yield higher returns and pose a lower risk than any individual investment.

Modern Portfolio Theory pioneer and Nobel Prize in Economics winner Harry Markowitz said “diversification is the only free lunch”. The ‘free lunch’, or benefit achieved without a cost, is higher returns without greater risk. Studies have shown that maintaining a well-diversified portfolio across a broad range of asset classes will provide the most cost-effective level of risk reduction.

Diversification works to smooth out unsystematic risk in a portfolio. As a result, the positive performance of some investments will neutralize the negative performance of others. It’s important to understand, however, that the benefits of portfolio diversification only if the securities in the portfolio are uncorrelated. If investments in a portfolio are too closely correlated, their performance will tend to track each other; a portfolio of highly correlated investments increases risk with no increase in expected return.

A truly diversified portfolio should contain multiple assets classes. Depending on the portfolio’s objectives, diversification could include both traditional assets and alternatives investments.

Traditional Assets:

• Domestic publicly traded equities
• Bonds
• Cash equivalents

Alternative Investments:

• Domestic private equities (e.g., investments in early-stage stage companies, hedge funds, private equity funds)
• Foreign equities
• Real property

In the past mutual funds provided some opportunity for the individual investor to benefit from holding diversified investments. Now, Grofolio makes it easy for all accredited investors can take advantage of the same kinds of investment opportunities previously available only to wealthy individual and institutional investors.

If you’re looking for ways to diversify your portfolio by investing in truly non-correlated alternative asset classes, please contact us today.