A successful Regulation A+ (Reg A+) offering requires careful planning and execution. Understanding the key components needed for a successful RegA+ offering is crucial for companies seeking to raise capital.
The comprehension of these components and how to utilize them effectively is a game changer. This way, the future issuer can significantly increase its chances of making a compelling and successful offer.
In this blog post, we will explore key aspects for companies seeking growth through RegA+, providing valuable insights for companies navigating this fundraising strategy.
Hands-on: Reg A+ Offerings
If your company is looking to raise funds, you’ve probably considered many options for doing so. One notable development in the financial landscape is the introduction of Regulation A+ by the Securities and Exchange Commission (SEC) through the JOBS Act.
This regulatory framework has empowered companies to raise substantial amounts of up to $75 million in funding rounds, with participation open to both accredited and non-accredited investors. This expansion presents a significant opportunity for businesses to access capital from a wider range of potential backers.
If you have decided to move forward with a RegA+ offering, you’ve probably become familiar with the proces. However, what are the essential components that will contribute to the success of your offering?
Companies that are using RegA+ as a way to raise capital for their companies are successful. However, in 2022 and 2023 we saw increased activity by the SEC targeting RegA+ companies. So, to be truly successful, you need to read the items below so you do not fall victim to the SEC.
Compliance: Secure Your Reg A+ Offering
It’s important to understand you can have the best company ever and the most successful offering, but if you do not follow the regulations while you are raising the funds, your company might be sanctioned by the SEC or the company will need to refund investors.
To be 100% compliant you need to be working with partners (legal, audit, FINRA Broker-Dealer, technology, marketing and PR) that can assure you that none of their RegA+ clients have been penalized by the SEC. This is a major Red Flag if they are associated.
Remember this, your partners for your offering do not get the penalties from the SEC. Rather, you and your company do! You get listed as a “Bad-Actor”. Now you need to do your homework and only work with partners who will not introduce risk into your offering.
| * Bad Actor: (…) those who seek to evade regulatory requirements and harm investors for their own personal gain. |
Font: Financial Industry Regulatory Authority (FINRA)
Marketing strategies for issuers
Since the SEC allows RegA+ offerings to be freely advertised, your company will need a marketing budget to spread the word about your fundraising efforts. If no one knows that you’re raising money, how can you actually raise money?
Once you’ve established a budget, knowing your target will be the next important step. If your company’s brand already has loyal customers, they are likely the easiest target for your fundraising campaign. Customers who already love your brand will be excited to invest in something that they care about.
After addressing marketing strategies for attracting investments in your company’s offering, creating the proper terms for the offering will also be essential. Since one of the main advantages of RegA+ is that it allows companies to raise money from everyday people, having terms that are easy for them to understand without complex knowledge of investments and finance will have a wider appeal. Potential investors can invest in a company with confidence when they can easily understand what they are buying.
Cost of Raising Capital
The cost of doing an offering for RegA+ has spiked once again in the past few years. Here is what you need to know and watch out for. It’s the small items that add up. Do not be fooled by statements like “you are high risk.” Remember, you are NOT high risk. You have been qualified by the SEC to raise your capital compliantly
| Description | Costs |
|---|---|
| Legal Form 1 A Preparations | $35,000 – $75,000 (unchanged for the past 4 years) |
| Audit | $2,500+ (unchanged for the past 4 years) |
| FINRA Broker-Dealer | 1-3% (some firms offer capabilities beyond compliance) |
| FINRA 5110 | Fees unchanged |
| Escrow | $1,000 (fees decreasing; paying more is excessive) |
| Credit Card | Max 2.8% (no company qualified for RegA+ should pay more) |
| ACH | Max 0.80% (no ACH NSF fees) |
| ID, AML | Investor screening for US citizens <= $1.50 per investor |
| eSignature | No fees for adding eSignature to subscription agreements |
| Wire Transfers | Flat fee from a bank; percentage charges are a red flag |
Pay attention to the above in blue. In many cases, this is where some providers will take from 4-10% or even more of your capital raise amount.
After completing a Reg A+ offering
For a successful offering, companies should also keep in mind that they need to properly manage all their regulatory obligations once the offering is completed.
KoreConX makes it simple for companies to keep track of all aspects of their fundraising with its all-in-one platform.
The platform enables companies to easily manage their capitalization table, selling securities, and awarding equity to shareholders. Integration with a transfer agent facilitates the issuance of electronic certificates.
Even after the round, the platform provides both issuers and investors with support and offers a secondary market for securities purchased from private companies.
Final thoughts
Knowing your audience, establishing a marketing budget, creating simple terms, and having an accurate valuation will give your Regulation A+ offering the power to succeed and can help you raise the desired funding for your company.
Through the JOBS Act, the SEC gave private companies the incredible power to raise funds from both everyday people and accredited investors, but proper strategies can ensure that the offering meets its potential.
Successful companies are those who are 100% compliant with their offering and have partners who are not only 100% compliant but also protect you and your investors..
