Dear Friends of Seismic –

Starting off with important news … we have signed non-binding letters of intent to acquire our first three companies into Seismic, once we’re funded and able to make some investments. Two of the companies are in the financial-technology space (FinTech), democratizing investments and raising of capital both domestically and internationally, and one is in process improvement, creating huge efficiencies and more profitability in an established industry. We believe they will form an excellent start to the portfolio. Details will follow as the transactions firm up.

The LOIs make a clear demonstration that we have shifted from “it’s an idea that we have” to “this is what we are actually doing.” Aside from being good for business generally, that’ll help us give a strong answer to the only substantive question we received from the SEC last week, which basically was asking for evidence that we were not a SPAC (Special Purpose Acquisition Company) looking for a deal. SPACs cannot raise money under the SEC Regulation A. Holding companies are eligible. Beyond this one question, there were three others – all ministerial.

Meantime, we’re continuing to raise capital for our seed round, though it’s just about sold out. We’ve completed FINRA due diligence with our placement agents, and they are setting up the “invest” button on their platform. Our share register has been on our transfer agent’s platform for several months now (our early investors can see their shares there already), so that part is good to go. We expect once our final qualification comes through from the SEC, all the pieces will be in place so the selling process can begin.

About QSBS

This is one of the topics we’d promised in our first update that we’d be writing about, and one of the features of our offering … Qualified Small Business Stock (QSBS).

QSBS shares can be issued by certain small businesses, and they offer tax protection to certain investors.

First, why is it advantageous? Investors who hold their shares for five years or more are shielded from capital gains taxes when they sell. There is a cap of $10 million (or 10x the original investment, whichever is greater) plus the original investment per shareholding under which all capital gains are protected. If the company manages to return more than that per shareholder, then capital gains are reduced for the remaining amount. If individual investors hold their shares for fewer than five years, there are reductions in the amounts of capital gains that can be excluded.

Second, how to qualify? You need to buy your shares directly from the company (“at original issue”) at a time when the gross assets of the company are less than $50 million. This is why our Offering Memorandum pegs our offering at $49 million – so there won’t be any question as to our gross assets from inception through the sale of the stock.

Third, what are the restrictions?

• From the Company side, a QSB (qualified small business) can’t be in certain sectors such as farming, mining, hospitality, personal services or the financial sector (banks, investment houses, insurance companies, real estate brokers, consumer finance companies, mortgage lenders, real estate investment trusts … As a holding company, Seismic is not considered to be in the financial sector). A QSB can be in technology, retail, wholesale and manufacturing sectors. QSB companies are required to invest 80% of their assets or more in qualified businesses to maintain the QSBS designation. Cash held by a QSB generally counts toward the 80%.
• From the investor side, investors cannot be a corporation. They need to purchase their shares with cash, property or in exchange for services. They are subject to the holding period of five years to attain the maximum capital gains exclusion. If investors sell shares prior to the end of the holding period, they may be able to defer capital gains by investing the proceeds in another company’s QSBS.

Important note: These are just a summary of the key terms regarding QSBS. This is not investment advice, and anyone considering investing in any QSB should consult with a financial advisor before proceeding.

The QSBS is a tool that we expect will help Seismic create good returns for all its investors (those who invested through the seed round, and, once our offering is qualified, through our market offering. But it’s just one component – we still need good portfolio companies, good ideas, good implementation, good management of both the portfolio companies and the holding company – and, hopefully, that unicorn.

We’d also promised to feature another of our advisors in our upcoming newsletters. Meet Demetrio Cuzzocrea:

Demetrio Cuzzocrea
Technology, Web Analysis and Gaming Advisor

• Pioneer with two decades of experience in the interactive/entertainment industries.
• As CEO of EmergentApps, co-founder of a multitude of start-ups, from social networks, to human resources and pharma solutions to movie trivia games like Fireback Movies.
• He led development effort for animation and game development of Stan Lee’s Superhero Ball Wars.
• Celebrity clients include Super Nanny Jo Frost and Dance Moms reality star Abby Lee Miller.

In other news, we had an interview with Crunchbase News (“Where startups meet money” https://www.crunchbase.com/). The interview was about our unique way of investing, not about us looking for money from traditional sources. Nothing published yet … we’ll let you know if something comes out.

We also had an intro interview with Impact Alpha (“redefining business journalism around social and environmental value. We work to enable a more just, equitable and sustainable world”). They want to write about our concept of democratizing capital by welcoming all sorts of investors, not just the well-heeled and well-connected. We’re aiming for around the same time that our offering is ready to go to market.

Eric published a byline piece on Grit Daily about lessons startups can learn from the colossal failure of Quibi. Grit Daily says it the top news source on Millennial and Gen Z brands — from fashion, tech, influencers, entrepreneurship, and life. Here’s a link to Eric’s article: https://gritdaily.com/author/ewhite/

Please let us here from you, via the emails below.

• Eric White, President ebw@seismic.company
• Alice Neuhauser, CFO apn@seismic.company
• Yann Geron, SVP yg@seismic.company

Wishing everyone in the Seismic family a Happy Thanksgiving!

Thanks for reading all the way to the bottom.

Best,

Steven Weinstein, CEO
spw@seismic.company
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