5 Escrow Agents for Crowdfunding in the US
In the USA, to conduct a crowdfunding deal between investors and fundraisers you need to work with an escrow company.
An escrow agent or a title company is a third-party that is authorized to hold investors money on an escrow account until the offering is completed, settled and money is ready to be transferred to the fundraising company.
Funding portals in the US normally partner with an escrow account provider because when an issuer is registering the deal with the SEC to raise capital, it has to disclose where it’s going to be raising funds and where those funds will be stored.
Here’s an example of an agreement between an issuer and an escrow account provider such as Prime Trust:
While Prime Trust is well-known in the industry, it’s not the only escrow account provider in the US market.
In this article we’ll review 5 escrow agents for crowdfunding, such as North Capital, GoldStar Trust, Boston Private, Bryn Mawr Trust and Kingdom Trust.
What you will learn in this post:
The company works with different types of regulations suitable for private fundraising such as Reg CF, Reg A, Reg D and Reg S for international deals. North Capital is a registered broker-dealer and an authorized escrow service provider.
NorthCapital helps to set up an escrow account, conduct due diligence and identity verification and also helps with the money processing.
North Capital escrow services fees include, but not limited to:
- $500 – escrow administration
- $100 – per amendment
- $100 – transactional costs for each additional escrow break
Other costs may include reporting, transaction processing, due diligence, etc. and are capped at $5,000, according to the agreement in the SEC database.
GoldStart Trust developed a payment solution – CrowdPay which also works as an escrow agent. The company helps with due diligence, KYC/AML, document management. They also offer investor and issuer dashboards.
At the CrowdPay website, it’s said that they work with the same regulation types as NorthCapital – Reg CF, Reg A and Reg D as well as the International Reg S and intrastate rules.
In 2017, Boston Private was an escrow agent for a firm that was raising capital under the Regulation A on a famous crowdfunding platform called WeFunder.
Boston Private escrow account fees at the moment included:
- $3,500 – the initial escrow agreement + legal fees
- $2,000 – annual fee
Currently, it’s hard to tell for sure if Boston Private still provides escrow services. At their landing page for the law firms, they mention that they have “Escrow and Agency Services” and some random mentions also found elsewhere on the website.
However, the focus of the Boston Private company is clearly set upon private banking, private lending, wealth management and digital banking.
Bryn Mawr Trust
Bryn Mawr together with North Capital worked on a deal with SeedInvest, an Issuer in the deal, and also a famous equity crowdfunding platform.
The escrow administration services amounted to $500 per escrow account.
In another case, Bryn Mawr and North Capital also worked on another deal with a different issuer where the pricing was as follows:
- $1,000 – initial acceptance fee
- $500 – escrow administration fee per crowdfunding sub account
The date of these deals is hard to differentiate and tell for sure, but the relation to the crowdfunding is clear.
At their website, Bryn Mawr vividly describes that they provide escrow account, escrow administration and trust services, however, there’s no direct mention of crowdfunding in particular.
Kingdom Trust is among the few providers that actually directly mention crowdfunding as one of their industries of interest.
Customers mostly choose Kingdom Trust for its self-directed IRA investment opportunities and administration services. On their website, they say that they work with multiple crowdfunding platforms and allow investors to invest in the private lending or private equity opportunities.
Similar to Bryn Mawr Trust and apparently other Trusts in the industry, Kingdom Trust worked with NorthCapital to provide escrow services to an Issuer where the pricing for the escrow services was:
- $500 – escrow administration
- $100 – for each individual escrow break
- $30 – per domestic wire
- $45 – per international wire
This pricing model is very similar to the above mentioned ones where North Capital was engaged, so apparently it’s their escrow account services costs even though Kingdom Trust is mentioned as an Escrow Agent in the agreement.
Why is there a need for an escrow agent?
In 2016, CrowdfundInsider released an article which outlined the problem FINRA had with Trusts’ escrows.
FINRA wasn’t particularly happy with the Reg CF funding portals using the Trusts’ escrow accounts, and insisted that all trust should be Qualified Trust Providers and prove that qualification by showing a banking license “under 3a6 of the 34 act and they are permitted to hold funds under state law.”
At the time, CrowdfundInsider contacted FINRA and found out that all trusts were questioned. It was unclear if Trusts that normally work with banks are qualified enough to provide the escrow services to the funding portals.
Banks themselves were not as interested in the Reg CF crowdfunding, so they wouldn’t rush to provide the escrow services to the small portals.
The conclusion was that maybe FINRA was trying to “undermine the young Reg CF” industry and have all platforms become broker-dealers.
It’s hard to tell for sure.
As of 2021, in another article at CrowdfundInsider, it was mentioned that the number of Reg CF portals plateaus. Even though it’s generally cheaper to register a funding portal compared to a broker-dealer platform, there’s something holding back new crowdfunding platforms to launch under the funding portal regulations.
One thing clear, in order to run your crowdfunding business in the US, you probably need to have an escrow agent, title company, or work with an authorized payment gateway which also has a license to hold investors money in an escrow account.
At LenderKit, we provide crowdfunding software for private lending and private equity businesses and integrate with the industry-leading escrow agents such as Prime Trust. Launching your portal based on LenderKit will help you build out the necessary ecosystem to run a regulations-compliant crowdfunding business in the United States.