Regulation A+ (Reg A+) is best described as a capital-raising method rather than a "tool." It is a legal framework established by the Securities and Exchange Commission (SEC) that allows companies to raise capital from a broad range of investors, including both accredited and non-accredited individuals. While it involves various tools and strategies such as marketing campaigns, SEC filings, and investor outreach Reg A+ itself is fundamentally a method or system for raising funds.
Understand the Basics of Reg A+
Before diving into whether Reg A+ is suitable for your business, it’s essential to understand how it works. Reg A+ is divided into two tiers:
- Tier 1: Allows companies to raise up to $20 million annually. It requires compliance with state Blue Sky laws, which can be time-consuming and costly. Audited financials are not mandatory for Tier 1 offerings.
- Tier 2: Allows companies to raise up to $75 million annually. It preempts state Blue Sky laws, making it more streamlined for nationwide offerings. However, audited financials are required, and non-accredited investors are limited to investing 10% of their annual income or net worth.
Both tiers allow companies to publicly advertise their offerings and accept investments from anyone, regardless of their accreditation status. This democratization of investment is one of the key advantages of Reg A+.
Evaluate Your Capital Needs
One of the first questions to ask is how much capital your business needs to raise. Reg A+ is most cost-effective for companies seeking to raise between $4 million and $75 million. If your capital needs are below $4 million, other funding options, such as Title II Equity Crowdfunding, may be more suitable due to lower costs and regulatory requirements.
For companies with larger capital needs, Reg A+ can be combined with a Reg D offering, which has no dollar cap, to raise additional funds. This flexibility makes Reg A+ an attractive option for growth-stage companies with ambitious expansion plans.
Assess Your Business Model and Market Appeal
Reg A+ works best for companies that have a strong consumer-facing element or a compelling story that resonates with a broad audience. Since Reg A+ offerings rely heavily on marketing to attract investors, businesses with products or services that appeal to everyday consumers are more likely to succeed.
For example:
- Consumer-facing companies: Businesses that sell directly to consumers, such as retail, technology, or entertainment companies, often perform well in Reg A+ offerings.
- Innovative or disruptive businesses: Companies with unique, groundbreaking products or services can generate excitement and attract investors.
- Brand enthusiasts: If your business already has a loyal customer base or a strong social media following, you can leverage this audience to drive investment.
On the other hand, companies that primarily serve other businesses (B2B) or operate in niche markets may find it more challenging to attract the broad investor base needed for a successful Reg A+ campaign.
Consider Your Stage of Development
Reg A+ is suitable for startups, mid-stage, and late-stage companies. However, if your company has been operating for two years or more, you will need to provide two years of audited financials as part of the SEC filing process. Startups without this operating history can still use Reg A+, but they must be prepared to provide audited financials for the period they have been in operation.
Evaluate Your Marketing Capabilities
A successful Reg A+ offering requires a robust marketing strategy to attract investors. Unlike traditional funding methods, Reg A+ allows companies to publicly advertise their offerings, which means you’ll need to invest in digital marketing, social media campaigns, and other outreach efforts.
Key considerations include:
- Budget: Marketing costs can be significant, and you’ll need to allocate sufficient resources to promote your offering effectively.
- Expertise: Partnering with experienced marketing agencies can help you craft compelling campaigns and reach your target audience.
- Support from Manhattan Street Capital: At Manhattan Street Capital, we provide guidance on marketing strategies and introduce you to top-tier marketing agencies to ensure your campaign is as effective as possible.
Understand the Costs Involved
While Reg A+ offers significant advantages, it’s important to understand the costs involved. These include:
- Audited financials: For Tier 2 offerings, you’ll need to provide audited financial statements, which can cost between $25,000 and $40,000 for early-stage companies.
- Legal fees: You’ll need a securities attorney to prepare your SEC filing, which can cost $50,000 or more.
- Marketing expenses: Ongoing advertising costs are typically sizable and depend on the amount of capital being raised and the efficiency of your marketing outreach.
- Technology and admin fees: Manhattan Street Capital charges a low per-investment fee for processing investments, making it cost-effective for companies.
We recommend building these costs into your financial plan to ensure your Reg A+ campaign is successful.
Assess Your Readiness for SEC Compliance
Reg A+ requires companies to file with the SEC and comply with ongoing reporting requirements. For Tier 2 offerings, this includes semi-annual management financials and annual US-GAAP audited financial reports. While these requirements are less stringent than those for a traditional IPO, they still require a commitment to transparency and regulatory compliance.
If your company is prepared to meet these requirements, Reg A+ can be a powerful tool for raising capital while maintaining control over your business.
Leverage Expert Guidance
Navigating the complexities of a Reg A+ offering can be challenging, but you don’t have to do it alone. At Manhattan Street Capital, we specialize in helping companies determine whether Reg A+ is the right fit for their needs. We provide comprehensive support, including:
- Introducing you to experienced auditors, attorneys, and marketing agencies.
- Advising on how to structure and promote your offering.
- Offering our proprietary back-end software system to streamline the investment process.
Our goal is to help you maximize the efficiency and effectiveness of your Reg A+ campaign.
Take the Next Step
If you’re still unsure whether Reg A+ is right for your business, the best way to find out is to consult with experts. We encourage you to email [email protected] to discuss your specific needs and goals. Our team will provide personalized guidance to help you make an informed decision.
Conclusion
Reg A+ offers a unique opportunity for companies to raise capital while maintaining control and engaging with a broad investor base. However, it’s not suitable for every business. By evaluating your capital needs, market appeal, stage of development, and readiness for SEC compliance, you can determine whether Reg A+ is the right fit for your company. With the right preparation and expert guidance, Reg A+ can be a game-changer for your business’s growth and success.
If you're a founder at the growth stage (working through Reg A+, Reg D, or the path toward a public offering) and you want to make sure your company is actually showing up when the right investors go looking, reach out. And if we can help you succeed with your capital raise - just let me know by replying to this email.
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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 is not a law firm, valuation service, underwriter, broker-dealer or a Title III crowdfunding portal and we do not engage in any activities requiring any such registration. We do not provide advice on investments. Manhattan Street Capital does not structure transactions. Do not interpret any advice from Manhattan Street Capital staff as a replacement for advice from service providers in these professions. When Rod Turner provides advice this advice is based upon his observations of what works and what does not from a marketing perspective in online offerings. Rod does not tell the audience what to do, or how to do it. He advises the audience what is most likely to be easier to market cost effectively in the online context. The choices of all aspects of companies' offerings are made by the companies that make offerings.
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