CrowdCheck reduces risk, so we will reward their customers with lower insurance costs
We are showcasing CrowdCheck from our growing list of partners because we love their dedication and alignment of ensuring increased due diligence and risk mitigation across the crowdfunding industry. That admiration is why we are ecstatic to share the following conversation; we hope you enjoy it as much as we did:
It's simple to us. CrowdCheck reduces risk; therefore, we want to reward their customers with lower insurance costs. In our opinion, it's the way the entire insurance industry should operate, and we are committed to partnering with key industry stakeholders like CrowdCheck to maximize cost savings.
CrowdCheck is known as the go-to company for due diligence in the crowdfunding industry, and Assurely is an insurance innovation leader. Since the beginning, our stories and goals have aligned, making partnership natural. Allow us to explain…
Back in 2011, in tune with the emergence of the JOBS Act, CrowdCheck’s CEO Sara Hanks and co-founders, Brian Knight and Thaya Knight were discussing how transformative the new legislation (JOBS Act) would be BUT were stuck on one simple question that, little did they know, would frame the ‘why’ for CrowdCheck: “We've got early-stage companies and inexperienced retail investors being sold shares over the Internet, what could go wrong with that?”
Assurely is familiar with this story. Ty Sagalow, Assurely’s co-founder, was influential in creating some of the first insurance products for the internet and e-commerce. In 2011, Ty noticed the tangential societal shifts in the JOBS Act and said, "I've seen this before, and it's big," an analogous statement that complimented Sara and her colleague's compelling question.
Present-day, the ideology behind CrowdCheck is increasingly important now more than ever. During the COVID-19 pandemic, Sara mentioned the rise in high-risk crowdfunding investments as people slowly got tired of baking sourdough.
CrowdCheck's dedicated and efficient work since 2011 has provided a safer environment for all stakeholders, earning it the industry's well-deserved appreciation.
Assurely respects CrowdCheck’s process and dedication; the quality of their work is unrivaled in the market. As a result of our admiration, Assurely provides significant cost savings and key capital raising features through our TigerMark D&O insurance program for companies involved with CrowdCheck. Our collaboration reduces risk and saves money for the end client, lowering overall costs for the entire capital-raising ecosystem.
In our recent conversation with Sara, she explained the risks arising for companies participating in crowdfunding.
Sara explained,
“You don't have that [lawyers opinions] in Reg A, or Reg CF; these are very early stage, very risky companies. You've got more risk, and fewer fail safes. And that's where we come in; we try to make sure that the offering is not just compliant but also doesn't include any misleading information. And that's very different from most of the other offerings in this space.”
Assurely conforms to the simple idea that underpins CrowdCheck's relevance. We recognize the importance of using a symbol to communicate trustworthiness to end-users of online transactions.
When symbols of trust and insurance are combined, it unlocks risk-averse users and allows for widespread adoption of online transactions and marketplaces. TigerMark and CrowdCheck are great examples and help ensure a secure marketplace and industry.
Earlier this week, Assurely’s CEO, David Carpentier, and Rachel Stevenson caught up with Sara Hanks to discuss the symmetrical values Assurely and CrowdCheck share, along with a conversation about the best ski slopes in the US; a transcript of the discussion is below.
If I am an investor or entrepreneur within the crowdfunding industry- why is CrowdCheck essential? Can you speak on the importance of due diligence and affordable support for investors & entrepreneurs.
“This is where investors and entrepreneurs have the same interests; getting the correct information to make informed investment decisions.
I want to draw a contrast with my previous life, where I used to do multibillion-dollar IPOs. With those sorts of offerings and transactions, you have teams of accountants and lawyers. Everybody is poring through all of the information filed with the SEC and making sure there are no misstatements or typos. Because in my old life, if I had an associate who let a typo get through, they may not be employed next week!
And that's very different from Reg A and Reg CF offerings. There's an opinion issued by both sets of lawyers in the registered world – the underwriter's lawyers and the entrepreneur's lawyers. The opinion states that there's nothing in this offering document that's incorrect or missing from it.
You don't have that in Reg A, or Reg CF; these are very early stage, very risky companies. You've got more risk, and fewer failsafes. And that's where we come in; we try to make sure that the offering is not just compliant but also doesn't include any misleading information. And that's very different from most of the other offerings in this space.
If we're not involved, and it is just a traditional lawyer in this space, you aren't getting the stamp of approval from CrowdCheck, saying, “We looked to make sure the Board of Directors approved this offering. We looked at these material statements that the company made and asked them for backup.” You're just not getting that. And so that's what we do, and we wouldn't do it if we didn't think it was an essential thing to do.”
Why is right now a pivotal time in the crowdfunding industry to help investors make sound decisions and assist entrepreneurs in ensuring that they meet legal requirements?
“Well, it's been a very interesting time over the pandemic because we saw that, in general, there was an increase in the quality of companies and the number of companies. And so everybody was hunkered down in their house, and first, they made sourdough bread, then they made tik-tok videos, and then they made investments in startup companies.
So you've got several different developments going on here; you have the SEC putting up the offering limits for Reg CF and Reg A. You have, in general, a greater knowledge that crowdfunding is actually a thing. And you have greater knowledge from investors that this is something they can do with their money, which is not tied to the normal stock market.
I mean, I don't want to give investment advice here. But of course, you should only invest in this sort of security when you've already got your emergency money and you've made investments in a wide variety of diversified funds. This is a different asset class, but it's an asset class that moves entirely differently compared to the traditional market. So we've seen a huge growth in the market itself.
At the same time, we've seen the SEC is so overloaded with IPOs and SPACs that they're not reviewing all of the offerings that are being made under Reg A. And none of the offerings that are made under Reg CF are reviewed by the SEC. We see scams all the time. First, people say there’s no fraud in crowdfunding. And then they will say, well, hardly any. But there is a lot of non-compliance, especially in the Reg CF space. And then we frequently see Reg A used for scams and used sort of as the end of a pump and dump scheme. We are seeing that all the time.
And so, right now, as these markets become more understood and as better companies are raising funds using crowdfunding, it is the perfect time to ensure that the non-compliance, fraud, and schemes don't damage the market as a whole.
So it's a significant time in our development. At CrowdCheck, we've grown tremendously. If you look like three years ago, we probably qualified about seven or eight Reg A offerings. Two years ago, it was 20. Last year, it was 41. So a huge growth trajectory there. And we're responding to this by hiring people (and by the way, if people are interested in talking to me, we're always interested in hearing from people with qualifications). Upping our staffing and increasing our training. We have an internal manual now, which is everything I know about Reg A and Reg CF; it's 200 pages long. If I get run over by a bus, the manual runs the company. So we've put a lot of time and effort into that kind of knowledge base.”
Was there a specific moment that triggered your motivation/drive to create CrowdCheck back in 2011?
“In fact, we were actually incorporated 10 years and 10 days ago, so we just celebrated our 10th anniversary. I mean, we were literally founded on the back of a cocktail napkin.
The origin story for CrowdCheck is: I had been working on Capitol Hill during the financial crisis, and the panel I worked on stood down. And a bunch of people from the panel had met for cocktails just before Christmas. I got talking to Brian and Thaya, who ended up being my co-founders. We were talking about all of the various pieces of draft legislation that were going through Congress at the time that eventually ended up being the JOBS Act.
There were about five different variations of what became Reg CF in the end. And we were looking at that and saying, “So, we've got early-stage companies, and inexperienced retail investors being sold shares over the Internet, what could go wrong with that?” We thought the answer to this is going to be in due diligence; we must create a product that says, “We are saying that this is a legit company, it’s got its internal approvals, and it's done all of the filings it needs to; we're not saying if it's a good idea or not; that's for you, the investors, to decide, but we will say it's legit.”
And that's when CrowdCheck started. And eventually, of course, we expanded not just from due diligence but into filing and documenting assembly and, eventually, the full legal service we provide through the CrowdCheck Law. But that's where we started – over cocktails.”
What role does risk management (and insurance) play in your services?
“The interesting thing about crowdfunding, in general, is that you've taken a level of regulatory complexity that a company didn't encounter until it did an IPO. It used to be in the pre-crowdfunding era, that all of the capital raising happened among accredited investors, venture capitalists, or people who knew the company, who would forgive it if things went wrong in terms of regulatory issues. And only at the IPO stage did you get retail investors involved. Now, that's been flipped.
Now, we have retail investors in the early stages of a company's life. That means you have people who don't necessarily understand the risks. And who may be more litigious because it used to be you'd do an IPO, and if the stock price went down, you'd get sued. And that was just part of the game.
Now we've taken those investors and moved them into a much earlier stage of the company's life, so companies must start thinking about insurance matters much earlier. When I used to deal with IPOs, we’d do the director's and officers’ insurance when you got to the IPO stage because the risks previously are something that the venture capitalists or the company could sort out.
But now you've got to start thinking about those things much earlier. And that's all part of the risk management continuum. It's not just making sure you don't say anything wrong. It's not just insurance. It's all part of the package; it is part of a mindset. An early-stage company needs to start thinking, “Well, I am taking money from the public. I need to protect myself, the founder, I need to protect my directors, I need to protect my company.” And it's all part of that package.”
What has been one of the unique societal differences you’ve noticed between England and the United States that has continued to stand out to you most?
“The one that matters most that we see everywhere in society is a different attitude towards elites, authorities, and qualifications on the American side. There's this mindset of, “I don't need experts telling me what to do; I can go out and do it myself.” And sometimes that is a supremely positive thing. For example, “I don't need people telling me I can't go out and explore the West, I'm just gonna go off and do it.” Or “I don't need people telling me that I can't create this blockchain company; I'm just going to do it.” Those are positives. But then, on the flip side, you've got the, “I am going to completely ignore people who know what they're doing, and not pay any attention to experts” attitude.
And I think, right now, the more traditional English attitude – “Well, you know, you got a degree from Oxford, you may know what you're talking about,” is, in my opinion, something positive and a difference we're seeing in stark relief right now. So, there are a lot of differences, but that's the one that strikes me at the moment. “
Bonus round: What is your favorite ski mountain, and what is your favorite aspect of skiing?
“Well, my favorite ski mountain at the moment, even though they gave us COVID last month, thank you very much, is Snowbasin, Utah. We love going to Salt Lake City because you're downtown, there's an interesting vibe, there's a lot of really great restaurants, and you can strike out to so many different resorts from Salt Lake City. But I could have done without the COVID.”
