Thanks to Regulation A+, small companies no longer need to restrict their offerings only to accredited investors. Now your everyday “mom and pop” can get involved with investing previously available only to the “big boys”. The idea behind Regulation A+, which is really called the JOBS Act of 2012 (Jumpstart Our Business Startups) was to address the weak economic recovery and provide a new means of raising capital for businesses of all sizes. Even though Congress approved it in 2012, the real implementation of Reg. A+ just recently took place this year meaning the timing is right for companies to consider implementing Regulation A+ options as an excellent means of crowdfunding.
But not so fast – like anything else that’s entirely new, there’s a bit of a learning curve involved, which is why it makes sense to consult with those experienced in the industry for insights and guidance. The industry is still trying to “figure out” Regulation A+, which has caused the industry to develop slower than expected, but make no mistake, when all is said and done, you’re going to see a system that delivers a major amount of wealth creation and liquidity in the private markets. No more traditional IPOs… say hello to the “IPO to go”!
Here are five items of consideration that every business should understand regarding Regulation A+ crowdfunding:
1) You can’t rely on a single funding platform or broker-dealer to get your deal sold for you. It takes a ton of resources to pull off a successful Reg.A+. Marketing (done by YOUR company) is huge! You need to constantly promote your brand, products, and services to develop a loyal social media following well before and during your Regulation A+ timeframe. If you don’t have a passionate fan-base behind you at the start, your Reg.A+ campaign will most likely fail. If you don’t have a great story, your story will be one of failure – and it’ll cost you time and money, a lot of money.
2) And speaking of money, there are no guarantees when you launch a Reg.A+ project! The fees involved with such a registration are not cheap – nor are they refundable. There are significant costs in marketing and conducting the offering once it’s live as well. You better budget some serious cash for that entire process before deciding to move forward with your deal. Make it easy for your investors to invest. Your offering document should be concise, direct, and easy to sign. Take the time to understand your investors before spending huge sums of time and precious working capital on the Reg A offering so you launch with something you know they will buy.
3) Reg. A+ deals will take approximately 4 months (probably more) to launch. Many players such as lawyers, accountants, auditors, regulators, etc. are involved and documents need to be drafted and forms filed with the SEC and FINRA. Add due diligence procedures and marketing campaigns and you’re looking at a very time consuming process. Have you budgeted that time factor into your cost and carrying numbers?
4) Also consider the fact that not every brokerage house understands that Reg. A+ is NOT a traditional IPO deal. Even though Reg. A+ opens the doors for non-accredited investors, they still have limitations placed on them that the clearing houses are not yet equipped to address. In fact, it seems the big institutional buyers aren’t interested in Reg. A – yet.
5) Your initial valuation is very important to your offering’s success. If you price it out at a crazy valuation, even non-accredited investors aren’t that dumb, plus you’ll get a black-eye with banks, brokers, and professional investors that may even like your company but won’t invest due to a valuation that appears arbitrary. Reg. A+ can be a nice stepping stone towards becoming a “fully reporting” public company on the OTC or NASDAQ, but there are no requirements to do so at any time, which makes Regulation A+ even more attractive. Remember, the majority of investors participating in a Reg.A+ offering want a direct relationship with the offering company as they are investing out of passion, not with a desire to flip shares.
Since Regulation A+ is so new, there’s an understandable amount of fear and disbelief that such a program could actually exist legally. It does! This new world of “general solicitation” is a crowdfunding game-changer that industry professionals of all types will definitely embrace. But like everything new, it’ll take time.
As we’ve mentioned many times, Regulation A+ is the future of wealth creation investments and its impact will transform the capital marketplace. The above issues we’re seeing with Reg.A are being addressed and will no doubt work themselves out over time. You’ll soon see the “big boys’ get involved with this as well, since Regulation A+ is all about building relationships with your loyal brand evangelists, who just happen to be investors in your company as well! Let the Reg A+ Funding Group help start you out on that journey.