Here are some of the key questions, and their answers, from Rialto Markets recent webinars:
How is Rialto Markets’ platform different from other crowdfunding platforms?
“We believe there will be such a proliferation of different crowdfunding platforms and direct investment offerings in a fast-expanding marketplace that we won’t be competing with many existing players.
But we will stand out and be a strong competitor in crowdfunding where most are portals and you see many issuers raising capital within their ecosystem.
Our approach offers a self-hosted landing page website to issuers who tend to have an existing community and are trying to establish their own brand. As they spend money on digital marketing, which they will do no matter what type of raise they do, they then own the data about the people coming onto that site, enabling further refinement of the marketing strategy.
In the secondary market there are two types of competitor: those focussed on venture-backed private companies – not private investors – which works more like old-style Wall Street where you build ‘a book’ through calls and relationships with the investor community.”
How will you work with venture capitalists and external partners to help raise money for companies?
“We believe in partnerships, particularly at this early stage of expanding the business and the key problem with the private securities industry: issuers struggle to find investors and investors struggle to find issuers – they are like two ships passing in the night, but we can bring them together.
So, we will work with investment banks and others and speak to our issuers. We won’t do the investment banking – we do the broker dealer, tech and introductions – then let the investment bank do what they do and then we get paid accordingly.”
What kind of companies are approaching Rialto Market?
“We have a wide-ranging pipeline of different types. On the primary side, some are really at seed stage, others want to get the business moving a little, while others are well advanced, making revenues, looking to expand, or developing a new product line.
But they are all looking for a way through to this new and fascinating way of raising capital, not only allowing investors to get involved in great companies from a financial perspective but also allows them to vote with their feet – or invest with their feet – and their heart in the community or industry they are interested in.
So, we are seeing a lot of investor interest in biotech, new age medical, environmental and renewables – they are saying “I want to be able to put my money to work in things that are going to help”.
Companies using Reg CF and A+ are also acting in a very different way to the past, treating the investment like a series of building blocks: issuers know they are not just raising capital but building a community that then accelerates their next raise by getting the word out about the company. This is really clear in emerging sectors like pioneering medical processes and green energy.”
I read that the regulators are clamping down on NFTs and other cryptocurrencies and saying they are really securities, and they should be traded as such, what do you think is going to happen?
Could this platform be potentially developed and used for NFT trading?
I know about the recent crackdown by regulators on the financial sector, how secure is Rialto Markets when it comes to aligning with these regulations?
Where does Rialto Markets fit with NFTs and crypto currencies?
“Well, we can see from the number of questions this is an area of the market that is exercising minds – not least the US Securities Exchange Commission.
And it is a world still up in the air and until that settles our position is clear: we work with regulated security – if it’s not, then we are not involved.
From a tech perspective, our platform technology and infrastructure would be able to handle all those types of issues and assets with the same ease with which it deals with all regulated securities. If they become regulated, we will be able to be involved literally from day one.”
You reference a lot about your infrastructure and technology, what do you mean by infrastructure?
“An issuer raising capital needs to take multiple steps – paperwork and various organisations. What we do is take all those various steps and integrate them: maybe you need auditors, banks, payment rails, credit card processing, transfer agents, broker dealers, alternative trading systems.
So, from the moment that you as the issuer decided to raise capital to the moment your investor decides to sell out of their holdings and monetize whatever their investment was, all those component parts are within the Rialto Markets structure that we built. You don’t have to use all those parts but, wherever you are, you are safely on track.”
What sort of timescale are we talking about when a company comes to you for crowdfunding?
“Regulation A+ is the bigger and more intense exercise and takes more time. Assuming the company paperwork, audits, financials, corporate documents etc are all set up, filing with the regulators can start from that moment, and you can then expect to wait about 120 days/four months until you can start raising capital.
The time taken to raise your target capital is obviously then based on the amount and then several other factors: if your company has a great fanbase, loads of customers, and a database filled with people who want to invest, you’ll get there a lot quicker. And if you are in an industry that is ‘hot’ or if you have a marketing firm then these will also accelerate matters.
Otherwise, it can be a long process, but it’s worth noting that a Reg A+ filing is good for 12 months and you won’t need to go through another filing process, though you do need to renew.
On a reg CF the timelines are significantly shorter. More like four weeks rather than four months, providing everything is in order, to the start of raising capital.”
What are the major barriers to entry for a company like Rialto Markets trying to enter the space?
“Several regulatory approvals are required, whether you decide to go as funding portal or broker dealer on the primary side or, on the secondary side through registration for an ATS.
Right now, there are around 60 ATS available in the US – a limited market. Not many parties that have capability and experience to set up and operate one.
You also need a team capability. Public markets are very different from private and Reg CF and Reg A+ have their own nuances. Our team has been working through with these for at least 18 months and know the structures are very different from other marketplaces – not having that skill set is a barrier to entering the market.
Finally, you must also create the rails (payment methods such as credits cards, etc) for banking and other different parties in the ecosystem. To do it all at retail scale and industrial strength is quite difficult.”
How much control would I have over my capital raise with Rialto Markets?.
“You have a self-hosted investment site, so you are building your own web presence – the details would vary for Reg CF and Reg A+ – but, in general it would be branded like the issuer.
We would stand behind that and work with other industry partners to ensure a smooth operation. We enable you to be out there in a digital domain as your own branded site with digital marketing driving traffic to it and you have a much better footprint to show where those visitors came from. Should they begin the investment process and then lapsed, you have a potential follow-up.
We always say that data is the most precious commodity in every business. You may not even recognise the of value of it right now, but it’s to consider that and how you can harvest and maintain all that data to ensure your future.”
You stress the importance of the data, but who owns that data after you handle a raise?
“Generating the data relies on the digital marketing strategy and engagement with the site and if we have been engaged by the issuer then we will contact those people. But are we taking that information and doing something else internally on the back of that campaign? No. That info is owned by the issuer. Yes, we see that information but it’s on an independent self-hosted site from our own.
Rialto Markets tend to prefer to talk about these as ‘price discovery’ because there are so many variables involved:
- The diversity of the subscriber base – if everyone is a buy-side investor it doesn’t bode well. We need retail players, family offices, institutions, liquidity providers, broker dealers – the diversity of community – to ensure that there are buyers and sellers for price discovery.
- Get all data: historic, current, trends that might impact, and what is working within that data. Then have analysed, filtered and delivered to the customer so they have everything they need to make their choice.
- Ours is unique because we look at it from a professional and academic perspective for greater understanding. You can see where the market is because of the diverse community we have, historical trends and what industry pundits are saying.
All of the above should give a good indication of price discovery when you put your order in as a buyer or seller.”
How long did it take the regulators to approve your secondary trading platform, as I heard that it’s a painful process if you are not steeped in compliance?
“We received our first ATS mandate in 2017 but then decided we had to expand it so we could work across all private markets and across both digital and traditional formats.
Digital meant integrating blockchain-based securities, that extra element took us over two years – we finally gained approval in April 2020.”
What can Rialto Markets tell prospective investors about their own revenue streams?
“On the primary business side, we help issuers raise money and generate money from two places:
Firstly, by acting as a broker dealer and ensuring that all the anti-money laundering and ‘know your customer pieces’ are automated, the infrastructure is connecting the payment rails to the banks, the escrow agents etc. All those pieces of puzzle we do as broker-dealer, uniquely in all 50 states and get paid a percentage of the raise. We don’t receive an upfront fee, but if the company makes money then we get paid.
Secondly, we use our network to help companies supplement the capital raising. We don’t do it ourselves but have a long-standing network of niche players who can reach out to accredited investors, high net worth individuals, maybe some VC firms, investment funds, or family offices. We charge a fee for that, but it’s performance-related again – we only get paid for success.
Finally, an Issuer pays a one-off set up fee and an annual maintenance fee and then there is commission per trade – charged to subscribers themselves.”
What can you tell us about the companies and the sectors Rialto Markets are involved in and the contracts pipeline?
“It’s not important what industry they are in, but they must all go through thorough vetting to ensure they are legitimate – there is an anti-money laundering process – and adhere to multiple systems checks to protect the investor, but we are not vouching for the company’s ability to make money – we are not advisors in that way.
Most of these companies are Regulation A+ and Regulation CF, allowing them to raise up to $75 million capital each year and $5 million respectively, and they can seek this money from non-accredited investors, also known as retail investors.
We are seeing a wide range of businesses: real estate, space ventures, medical technology, biotech and many more, and looking to raise anywhere between $1 and $75 million; some are young companies – pre-revenue – others post-revenue and really making money, looking to expand or finance other projects.
As far as trading on our ATS is concerned we are equally agnostic. It doesn’t matter the type of company or industry, but there are rules and regulations that we put on our ATS that require the issuers to uphold and remain tradeable.
We currently have 22 contracts to raise capital with companies and we are working with more pipelines that will produce serial issuers plus several groups of companies who want to be listed on our ATS.”
Could this platform ever be adopted on a global scale?
“Yes. The technology has been designed from the ground up to be completely flexible in whatever market or situation it operates in, even if that is another country or region of the world – it can adapt to whatever rules and regulations apply there.”
How can I find out more about and invest in Rialto Markets and its clients?
“Simply go to our website, where you can sign up for newsletters and we will keep you aware of opportunities, or you can email us at info@rialtomarkets.com.”