Three Experts, Three Answers: How to Work Through Conflicting Reg A+ Advice
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Quick Answer
When three experts give you three different answers on a Regulation A+ question, there is more work to do. I dig deeper rather than treating any one answer as the verdict. Even advice that every advisor agrees on can fall behind as SEC practice evolves.
Founders and CFOs assembling an advisory team can run into conflicting guidance from securities attorneys. This article describes how I think about that situation. It is a decision process, not a legal conclusion.
What Conflicting Reg A+ Legal Advice Tells You
When you speak to three experts and you get three different answers, you have more work to do. In my experience, that happens often with securities attorneys. I have been in many situations where the advice I received was contradictory, and I have had to dig deeper.
I treat that kind of disagreement as information that the question needs more work. I do not treat it as a verdict. For context, Reg D, Reg A+, and Reg S each have nuances, and in my experience Reg A+ has the most.
Weighing conflicting advice on your Reg A+ raise? Talk to an MSC strategist.
A Case Where Long-Standing Advice Changed
Companies sometimes run a Reg D offering alongside a Reg A+ offering, or use bonus shares, to give large investors advantageous terms so that institutional investors will participate.
For many years, the best securities attorneys told me the same thing whenever a company wanted to run both offerings at the same time. If the company is selling the same security in both, they said, it should have the same share price. The SEC would not allow even the smallest share price differential
Then I saw an instance where a company ran both Reg D and Reg A+ offerings with deep discounts available for Reg D investors that invested huge amounts of capital. In the Reg A+ offering, discounts are delivered via bonus shares, which work as an effective discount - the max discount the SEC allows by this method is 20%. An institutional investor putting in millions of dollars demands a much lower share price than an investor putting in $300.
SEC practice has evolved to allow companies to follow that model of discounting for institutional investors via the Reg D. This is now common practice. Not everyone knows this.
What Evolving SEC Practice Means for Advice
The advice in that case came from the best securities attorneys, and it still fell out of step with SEC practice. SEC practices evolve.
Frequently Asked Questions
What does it mean when securities attorneys give different answers on Reg A+?
When I get conflicting answers from securities attorneys, I treat it as a sign that there is more work to do, and I dig deeper before making a recommendation to my customer CEO.
Why can Reg A+ advice conflict?
SEC practices can evolve, and there have been situations where long-standing advice no longer matched up-to-date practice. Some attorneys were up to date, some were not.
Questions?
Email us at [email protected] with any questions. To hear more, watch the full episode, where Rod Turner joins Jason Fishman on Test. Optimize. Scale.
Email us at [email protected] with any questions.
About the Author
Founder & CEO, Manhattan Street Capital
Rod Turner is the founder and CEO of Manhattan Street Capital, where he built the platform growth-stage companies use to run Regulation A+ raises online.
He previously helped build Symantec/Norton, Ashton Tate, MicroPort, and Knowledge Adventure, and built the venture capital firm Irvine Ventures, investing in companies including Bloom, Amyris, Ask Jeeves, and eASIC.
The commentary on this page reflects Rod's observations of what tends to work in online capital-raise marketing. It isn't legal, accounting, or investment advice.
Manhattan Street Capital is not a law firm, valuation service, underwriter, broker-dealer, or Title III crowdfunding portal, and does not engage in any activities requiring such registration. Manhattan Street Capital does not provide investment advice and does not structure transactions. Do not interpret any commentary from Manhattan Street Capital staff as a replacement for advice from qualified service providers in these professions. When Rod Turner provides commentary, it is based on his observations of what works and what does not from a marketing perspective in online offerings; he does not tell readers what to do, only what is most likely to be cost-effectively marketed online. All decisions about the terms of any offering are made by the companies making those offerings.
