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Why Most Reg A+ Companies Don't Need a Broker-Dealer
If you're considering a Reg A+ offering, understand this: there's no SEC requirement to use a broker-dealer. And for most companies, adding one creates more problems than it solves.
The FINRA Delay Problem:
Here's what typically happens when you include a broker-dealer: The SEC reviews your filing and prepares to qualify your offering. But they won't actually qualify it until FINRA approves both your Reg A+ and your broker-dealer contract. FINRA operates on its own timeline—we've seen this stretch beyond six months. During this time, you're sitting idle, burning capital, unable to raise money. Many CEOs eventually cancel the broker arrangement, forfeit their upfront fees, refile without the broker, and get SEC qualification immediately.
Marketing Restrictions Kill Cost-Effective Campaigns
Broker-dealers are FINRA-regulated, which means FINRA's restrictive rules now govern your entire capital raise. These restrictions often make effective marketing nearly impossible:
- Severe limitations on offering page content
- Restricted language in email campaigns
- Constrained advertising messaging
You'll spend more money on less effective marketing while being blocked from strategies that actually work. For Reg A+ offerings where success depends on reaching investors and maintaining momentum, this is fatal.
The Real Costs
Beyond 4-6% commissions plus warrants, the true cost is opportunity cost. Every month of FINRA delay while you're burning cash, postponing product development, and stalling expansion plans represents real damage to your business. What brokers typically don't provide:
- Digital advertising campaigns
- Direct investor outreach or lead generation
- Marketing strategy or content creation
- Investor CRM management.
Most brokers won't leverage their investor networks until your offering is already succeeding. You still do the heavy lifting for the first 6-9 months—making the broker unnecessary during the critical launch phase.
When Brokers Actually Make Sense
Underwritten IPOs to NASDAQ/NYSE in strong IPO markets benefit from underwriters who provide market-making support. But for standard Reg A+ offerings or Direct Listings where you're building your investor base through direct marketing, there's no compelling reason to involve a broker-dealer. Consider this alternative: A Reg A+ Direct Listing allows NASDAQ/NYSE listing without underwriters, significantly reducing costs and timeline.
State Regulatory Changes Favor Direct Filings
Recent state changes have made broker-dealers even less appealing:
- Florida (Dec 2024): Eliminated issuer registration requirements for Reg A+ without brokers
- Texas: Streamlined filing process for straightforward approval
- New York, New Jersey, Nevada: Simple, quick filing processes
- Washington: Minimal active investor base
Direct state filings are now faster and far less expensive than adding a broker-dealer.
What You Should Do
Before committing to a broker-dealer, talk to us about your situation. Once you've paid upfront fees and filed with broker provisions, you're locked into a months-long, expensive process you could have avoided. We'll walk through your specific circumstances, explain realistic timelines and costs, and help you determine whether a broker-dealer actually serves your capital raising goals.
Disclaimer: This post is for informational purposes only. Manhattan Street Capital is not a law firm, underwriter, or broker-dealer. This does not constitute an offer to sell securities. Investments in early-stage companies involve significant risk. Consult professional advisors before making investment decisions.
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Rod Turner
Rod Turner is the founder and CEO of Manhattan Street Capital, the #1 Growth Capital service for mature startups and mid-sized companies to raise capital using Regulation A+. Turner has played a key role in building successful companies including Symantec/Norton (SYMC), Ashton Tate, MicroPort, Knowledge Adventure, and more. He is an experienced investor who has built a Venture Capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris (AMRS), Ask Jeeves, and eASIC.
www.ManhattanStreetCapital.com
Manhattan Street Capital, 5694 Mission Center Rd, Suite 602-468, San Diego, CA 92108.
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