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Chapters:
- Challenges when raising capital using Reg D
- Advantages of raising capital via Reg D
- What are the SEC marketing restrictions when raising capital via Reg D (506 C) offerings?
- Beneficial Reg D flexibility for your company
- Specific tools you can use to make your Reg D more attractive to investors
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The content in this webinar is not and shall not be construed as investment advice. This information is meant to be informative and for general purposes only.
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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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Disadvantages of RegD, I've touched on a couple. Investors tend to be skeptical. Most RegD investors that by definition are already billionaires. Many of them have burned their fingers as I have. So they're more savvy and they're more difficult to reach because they have a bazillion options. So many companies are raising money and providing them accredited investors opportunities to invest. It's harder to get their attention. For the issuer company, you guys are probably most all of your public issuers, you will get a lower valuation raising money in a RegD from accredited investors typically. Then you would via a RegA+. RegA plus is a public offering with restrictions that go along with that, but you can generally get a higher valuation in that offering. And the accreditation verification step that I already mentioned, that's something which will irritate some people or put them off online investing. Advantages of RegD, you're allowed to make projections unlike in a RegA plus or an S1 IPO where we have to protect the investors from naive or greedy founders. I'm going to close the door for a minute because my dog is barked.
So unlike in a RegA plus where we have to provide a great deal more protection, in a RegD offering you're allowed to make a projected internal radio return statement. You're allowed to project how many buildings you intend to buy or how many acquisitions you might accomplish, you intend to accomplish over a period of time, depending what it is that your business plan is. Those types of projections are a luxury that you get because the SEC says, they don't say this to me, you know, the SEC's behavior indicates that they consider accredited investors to be sophisticated enough that they don't need to be so protected. They can interpret with the right degree of skepticism the statements and claims that you are making in your RegD offering. Another advantage is you don't need audited financials in a RegD. The process of filing with the SEC is very simple. You don't file and ask for feedback, you don't expect any response from the SEC. You're supposed to file a Form D offering within 30 days of accepting your first investment. So it's very, very relaxed. That's a remarkably demanding thing.
But the SEC then obviously reserves the right to audit, that is to say, to check your filing at any time in the future and compare it to what you're doing and make sure that what you're doing is legitimate. But it's a heck of a lot simpler than an S1 IPO or a RegD A-plus filing, for example. I would say the marketing restrictions in RegD offering 506C are very straightforward. You're not allowed to make hyperbolic kind of statements. You can't say we are revolutionizing the entire AI chip business. You can't make grandiose claims like that. What you say has to be based on fact and be reasonable. But you are allowed to do broad-based marketing via advertising vehicles online. And I think it's pretty straightforward, frankly. I don't think the SEC's restrictions are unreasonable. The legal filing documents are a lot less expensive than an S1 IPO or a RegD A-plus. PPM is required, private placement memorandum. It has other people call it other things. But this is a document that provides extensive risk factors in it to warn the investor and to reduce the risk of future lawsuits. It also describes the terms of the offering. And it's essentially a statement of credibility for the company. It states what the business is. It states who the principles are, what the terms of the offering are, et cetera, et cetera. And that's less expensive by far than some of the other capital-raising methods.
RegD is widely known and accepted. The last time I checked, it was something like $6 billion a year being raised by RegD. And that probably severely understates how much money is raised. You are allowed to provide investor optionality. For example, you're doing a real estate project and you will offer the option at the three and five year points for investors to redeem their investment with whatever gains that they have accumulated or to stay on board and reinvest. That optionality is a very powerful thing which you have in RegD that you don't have in a RegD A-plus or an S1, for example. And you can use more sophisticated instruments in a RegD, which you can probably use in other methods, but it doesn't work so well. So because the investors in a RegD offering are accredited, more sophisticated, you can offer things like warrants that might confuse investors in a public offering, in a RegD offering, sorry, or in a RegA-plus offering.
THIS TEXT TRANSCRIPT HAS ERRORS IN IT THAT WERE CAUSED BY THE SPEECH TO TEXT CONVERSION SOFTWARE WE USED. DO NOT DEPEND ON THE TEXT TO BE ACCURATE. WATCH THE RELEVANT PARTS OF THE VIDEO TO MAKE SURE YOU ARE PROPERLY INFORMED. DO NOT DEPEND ON THIS TEXT TRANSCRIPTION TO BE ACCURATE OR REFLECTIVE OF THE STATEMENTS OR INTENT OF THE PRESENTERS.
