Interactive Video Interview: How to Succeed At Raising Capital Using Regulation A+

 

 

Please read the disclaimer below the index

 

Chapters

1. Current and future size of Reg A+ market
2. General overview of Reg A+
3. Liquidity/IPO with Reg A+
4. Reg A+ vs Title III (Reg CF)
5. Early stage of Reg A+ comparison to early PC stage
6. Recent numbers in Reg A+ market
7. liquidity of shares
8. Reg D requirements vs Reg A+
9. Companies most likely to succeed using Reg A+
10. eREITS (Real Estate)
11. Manhattan Street position on Reg CF (Title III) and 506C
12. When Reg A+ should be considered
13. New administration effect on Reg A+
14. Length of time to complete Reg A+
15. Most critical component of success using Reg A+
16. Testing the Waters (Audition)
17. No set amount of time to raise money
18. Funding minimum in Reg A+
19. Broker/Dealer and Reg A+
20. Phases of Reg A+ offering
21. Companies headquartered in Canada+
22. Non-US/non-Canadian companies
23. Requirements of taking company public with Reg A+
24. Greatest risks associated with Reg A+
25. Final points by Rod

 

Related Content:

What is Regulation A+?

Timeline Schedule for a Regulation A+ Offering

Cost Guide for a Regulation A+ Offering

What is RegA+ Audition(TM)? 

 

MSC 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. MSC does not structure transactions. Do not interpret any advice from MSC 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.

 

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.

[email protected]

www.ManhattanStreetCapital.com

Manhattan Street Capital, 5694 Mission Center Rd, Suite 602-468, San Diego, CA 92108.

 

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Patrick Henry:

Uh, Regulation A+, uh, or a Reg A+ as we sometimes call it, which, uh, is a, you know, large scale crowdfunding thing that, you know, everything about pretty much, I'm more of a novice. We do have an expert. So let me give a little bit of Rod's background. This is rod Turner, he's the founder of Manhattan street, capital, the number one growth capital platform for the best mid-size us and Canadian companies. Uh, he has been a senior executive of two IPOs to NASDAQ, Ashton, Kate and Symantec. Um, Ashton take bath back in the early days, um, provided the database software for the original PCs, uh, back in the DB two DB three days. I remember that when I used to use Lotus one, two, three, and used a word. Perfect. So those were the early applications on the personal computer. Uh, he also worked for Symantec in the early days, uh, even before they bought Norton antivirus.

Um, so very experienced guy. He's also been an angel investor in many companies, including ask Jeeves. Uh, I NFM AMRs, uh, EA basic and bloom energy. Uh, he's a high energy strategic thinker with an engineering background and skills in the areas of business is also an experienced M and a expert. And Rob is a contributing writer to Forbes and you can find him on at, I am rod Turner on Twitter. So, um, welcome rod. Thank you. Thank you very much. That was very nice to, nice to hear. So how, how big is the Regulation A+ market likely to become over time? So, um, I've done a lot of work on this, starting from different points and different assumptions sets to build, uh, scenarios. And when I do that, I look to see that the results are similar and then I'm okay if they're very, very different than I know I've got a problem.

So essentially 50 to $60 billion of growth capital will be raised using Regulation A+ based on my, my overall over, over what period of time. Yes. Per annum, once it's fully established. Wow. That's huge. Yes, it is. I mean, it makes sense if you look at the, the size of the angel and VC business, which is 75 billion a year in the U S only in an average year, not in a good year, but in an average year and a initial public offerings and secondaries for those same companies, uh, raising 140 billion a year in an average year, is that global or is that just, wow. Wow. Because Regulation A+ is us centric in the sense that companies have to have the headquarters here. Yeah. So we're using it as the basis, you know, then when you say to yourself, well, all the startup companies, there are many, they all well supplied in general. Um, and the companies that are strong enough and far enough, along enough, along that they can do a IPO

Rod Turner:

Raising an average it's 300 million in that initial public offering. That's 140 billion makes sense as big as sometimes 250 billion a couple of years ago for Regulation A+ for all of the mid-stage companies. And there are more than a million of them, even in setting aside startups, just of the companies that are established and don't have a good place to go to re sizable formats of growth, capital 40 or 50 billion is right in the zone. Okay. So let's, let's

Patrick Henry:

Step backwards. And Jennifer, the, the entrepreneurs and investors out there that aren't as experienced with Regulation A+ can you just give kind of the layman's overview of what, what it is?

Rod Turner:

Sure. So it's, it replaces regulation a, which has been around for a long time and it kind of went out of fashion in the eighties because of limitations and, uh, regulation, a plus the little plus sign. Doesn't really, it doesn't let you know how big a shift there is. It's huge. So these are the fundamental differences, private investors worldwide at any wealth level they're allowed to invest. So for all of those people that have been really interested in these kinds of interesting public companies, attractive companies that this new for them companies

Patrick Henry:

Just gets away from kind of the accredited investor requirements that are required for prior to this for, for companies, for individuals investing in private. Yeah.

Rod Turner:

Yes. And a very nice, a very practical part of the rule system is that the company does not have to prove that where we can accept the credits and investors as well for us and institutional investors, but you don't have to prove the wealth level. We trust the investor. Yeah. And that's a nice situation that makes it much more time efficient for the investor to make a, you know, make their investments and complete the process retail on, on the internet anyway, going back to the main thing. So anyone, anyone can invest anywhere in the world, okay. Companies can raise up to $50 million per year and they can do another offering every year, a secondary, if you will. And there, if they do it, what's called a tier two offering. The companies are, uh, essentially they don't require, they're not required to satisfy the States believe sky filings, which means it's practical to raise money.

Um, by just registering with the sec, you can use a broker dealer or not. You can use a platform like my company, Manhattan street capital, or not, that's up to the company doing the transaction. Um, and then when you get down to some very important aspects, uh, these shares that are purchased through Regulation A+ are considered liquid by the sec, immediately upon purchase. Now the company can restrict them, but if they don't do so, the shares are liquid immediately. Then it's a matter of where, what does the company provide in the form? Liquidity? Is it listed or not? It doesn't have to be, is listed on an OTC market or is it on the NASDAQ or even on the New York stock exchange, you have a wide berth of flexibility as to where you put the company, uh, when you've completed the transaction. So,

Patrick Henry:

So that's kind of interesting. So on the, one of the big benefits of taking a company public, you know, we took, um, and traffic public and late 2007. So, we went through the IPO process, all the different things that you have to do in terms of S one filing with the sec, very arduous requirements, in addition to all the requirements that are in place, once you're a public company, Regulation A+ reduces a lot of that, but you're still able to trade on the same instance.

Rod Turner:

Well, no, yes or no. So that we can clarify if you choose to use Regulation A+, and then list on the NASDAQ of the New York stock exchange, then there is a process to, to sort of, to convert the form one filing to the same level as [inaudible]. Okay. All right. And it is, it ends up costing you as much time and effort as it would have done as spread out. But the advantage of doing the IPO that way is that unlike a conventional IPO, where you have to ha have to meet a minimum funding level to get listed on the NASDAQ. For example, if you don't meet that funding level in a traditional IPO, then it's sorry, guys, what a waste of time, this was egg on the face, right? Pack your bags and go home and didn't raise dollar one with the Regulation A+ method. Then you can raise, let's say your minimum was 15 million for the NASDAQ, and you only raise 13 million. You complete the transaction, raised the money and you don't list on the NASDAQ and you put the company on the OTC QX, okay. And stay there until you are ready to up this to the later day.

Patrick Henry:

So if you, if you don't get to kind of upgrade to the minimum kind of Aswan thresholds and all the other things that you have to do after you're a public company, is there an aftermarket for the, you know, so-called liquid stock, but is there an aftermarket kind of Regulation A+ shares? I'll call them. Yeah.

Rod Turner:

So this is the, this is what's happening in that regard. If you list a company, by the way, you can list the company on the OTC QB, and it costs $2,500 for a ticker symbol, a fresh new ticker symbol, which is pretty amazing. If you go to the OTC QX it's $20,000. Uh, but the point is that then you're listed. And of course you need market makers to provide to, which is a function of engaging with them, as well as having enough debt for your company that they're interested. So they want to provide liquidity. And the fact that we're generally seeing a lot of consumer investors, so a lot of shareholders down in Regulation A+ transactions lend itself to being interesting to them. Because if you raised $50 million from five people, there is no inherent liquidity in that. Yeah.

Patrick Henry:

Yeah. But are you, are you just seeing kind of individuals kind of what we would call retail investors come in and regulate plus offering? Are you also seeing institutions come

Rod Turner:

In and take shares at the moment? Almost exclusively consumer investors. Okay. But let me get back to the liquidity issue. There's some important things for a company that does not list it chooses not to list because they don't want to worry about having to dis to, to justify as a fluctuations in their share price. They cannot list, but then they can either provide liquidity to their investors through a mechanism, which they define upfront as part of the offering. So now the investors know where they stand, maybe quarterly liquidity. And the other thing which is coming, coming together is there are a number of startup companies that are being built to provide digital trading platforms for Regulation A+ shares that are not listed. Okay. And they, when they exist, there'll be a good way to go. There are some broker dealers now, but it's too difficult to find them in the main, so very early or very early endings.

Can you distinguish Regulation A+ from title three reg CF? Yes. All this stuff is related primarily to the jobs act, correct? Those came into existence based on their, yeah. Yeah. So, um, reg CF or title three is it's also called, which has been effective since May of 2016 allows companies to raise up to $1 million from any level of wealth, from any investors, a much smaller scale equity crowdfund, very similar in concept it's similar to Regulation A+, but for small foresee brands, you can raise a hundred or 200 K the more you raise, the more that due diligence process becomes involved. But I don't think it's an unreasonably involved process, no liquidity. Post-transaction it's like, you know, it's a bit like reg D used to be for accredited investors. You're liquid, you're stuck, you know, whether the company does great, then you have a chance to make a lot of money.

You don't know when that's fair enough additional private investing, but it lowers the threshold that you don't have to be an accredited investor early stage. Yes. And it's doing well. It's doing quite well as a space for, for companies in this. You have to have the same kind of appeal in a reg D reg CF company, as you do in a Regulation A+ company. And the point here is that because these are both new forms of, of raising capital, these, the cynics being the institutions and accredited investors, you have so many other choices for where to put their money, tend to be slow to adopt new funding methods. So they're looking and they're monitoring the case, the situation, and when there are enough newsworthy, great success companies that are gradually we'll get past the perception that this is a new and risky thing. And part of the fact also the bigger issue is that since 1934, we've known that you can't do this stuff.

Right, right. You have a quiet period and now we're allowed to actually market our company instead of having to be silent and don't do anything unusual. And now, you know, you've had a minimum of heart minimum. You couldn't do an IPO without that. Suddenly you can, you could now ordinary people can invest $300 in your company, which has some attendant issues of how many investors you have, but that can be a benefit for listing and getting so many little differences. The main issue there is that the bigger companies that I think are ideally suited to Regulation A+, you know, think 20 to 60 million in revenues. They're the ones that have the more seasoned, conservative board members and executive teams. And they're saying, and they're either happy where they are and unaware because they're not looking or they're aware of Regulation A+, and they're waiting for it to prove itself.

Patrick Henry:

Okay. Yeah. So, I mean, from a, I guess a product life cycle standpoint, we're in the early adopter stage of this kind of new funding mechanism and, you know, to kind of cross the chasm, you know, from a Jeffrey Moore standpoint, you know, there has to be more stuff that comes in to kind of get into that early majority stage. Yeah,

Rod Turner:

Yeah. Reminds me of the early days in the PC industry when I was at Ashton Tate. Right. And I would meet people in all sorts of walks of life, especially mainframe hardware. And they would just blow off my computers. My, maybe my, maybe my assistant could use it, but it would just be for entertainment, you know? And of course what we've seen is, you know, the microcomputer took over the whole industry and the internet even more. Yeah.

Patrick Henry:

So, what, um, what are some of the recent metrics and the Regulation A+ market?

Rod Turner:

So, Regulation A+ went live in may the end, excuse me, the end of June in 2015. Yeah. And there's a lead time in getting transactions done. So the first offerings went live at the end of October of 2015. And since then I did an update, uh, in Forbes recently essentially assembling all the metrics on the status so far. And, um, we've had 32 companies complete successful offerings. So then since then, which really means to me from November 1st of 2015 through the period I looked at, which was the end of February, um, 32 companies completed successful transactions in that time. And that's actually pretty good. That's a bag 25% of the companies that went about that got qualified by the sec, meaning they persisted through the process, which many companies did. So

Patrick Henry:

Still smaller in terms of number of companies in the IPO market than the traditional private equity market. Yes. But yeah, but still, still pretty good. I mean, 32 over a few months, it's that? Not anything to sneeze about

Rod Turner:

Tobacco companies a month raising, you know, on average about 30, $32 million per month, roughly speaking. And, um, yeah,

Patrick Henry:

That's, that's pretty good for private equity. That's one of the things I, when entropic made the decision to go public and, you know, part of was giving investors liquidity obviously, but the public markets just have so much more capital, you know, orders of magnitude more capital than the private equity markets. So it's hard to raise that kind of money, private equity. So this is, I mean, 32 million is a, is a big number.

Rod Turner:

Yeah. Yeah. Because as you say, even a private equity companies look at the size range of businesses and say, you're too small. Yeah. Banks say we'll lend you money, but only a million bucks. I'll do receivables with ridiculously high rate. Exactly. Yeah. Venture capitalists say it too late. You may even be our portfolio company and it's still, it's too late. We've we have

Patrick Henry:

Limited kind of narrow group of investors or these crossover funds that might do something, but that's pretty narrow slip masters. There's not that much capital in those guys. And that's, it's kind of a supply and demand thing. You know, they're not really going to invest in a few companies.

Rod Turner:

Anyway, it's a very narrow, I was surprised to find that the whole private, um, private placement area, um, maybe I get, I have the terms slightly wrong. Uh, 1 billion, a year of capital raise private equity, private placements, where you have a broker that goes out, right? So this is the deal. It's hard to get those guys on board. And that's only 1 billion it's really scratching the surface. And then reverse mergers are a place that these companies can go to. That's raising on average 10 billion a year there right now, except the expense is that the significant and the risks, you mean

Patrick Henry:

Very clean public shell. And you know, if you find something that you don't, if it's not clean and you carry forward, a bunch of lines

Rod Turner:

Never earn your way out.

Patrick Henry:

Yeah. That can be big challenges for sure.

Rod Turner:

There's one other snippet on liquidity, which people are not generally aware of up to 30% of an offering in Regulation A+ can go to insiders and a significant number of transactions. The 2020 1% is the average to date for tier two transactions. But the other part that no one really knows is that because the shares of the company aren't are public, even though they're still in preferred and common and unchanged by the fact that you did the new issuance of Regulation A+ shares.

Patrick Henry:

So there isn't like a forced conversion, like interesting.

Rod Turner:

So you can go on raising money from preferred if you choose to go into your preferred on, on whatever terms. Uh, but also those shareholders, once they've exceed, once they pass their rule, one 44 holding period, then they can be liquid too. As long as their trading volume, doesn't exceed the maximums, which are already there in place by the sec. And as long as they do it, after the company has made an announcement of its result. So, which is an issue that I didn't explain too much, but once a year audit's, and once every six months a profit and loss of revenue report is required for tier two companies, which are the primary domain, the primary focus. Okay, cool.

Patrick Henry:

So we're here with, with rod Turner for those that you didn't join at the beginning, uh, he is the founder and CEO of Manhattan street capital, the number one growth capital platform, uh, doing Regulation A+ offerings in the U S and Canada. Um, just a wealth of information here. So if you have questions, you know, you can submit questions at any time and, uh, we'll, we'll go from there. So you, something triggered when you were talking about that. Um, when I was running a public company, there's all the requirements around, um, reg FD fair disclosure, do those same kinds of reg FD requirements apply when you do a Regulation A+ offering or it's, there's more latitude there,

Rod Turner:

Much more latitude. Um, I've been told by people that are experts in S one public company reporting of compared that it's one 10th as onerous. So you need an audit and you don't need to have a whole bunch of dedicated employees. So the actual expense is really primarily the audit and some bandwidth from your insight team. And that's it. Now then if you go to the QX, if you put the OTC QX, then quarterly, quarterly reporting is required for that market, but still once a year audit, it's pretty reasonable. Yeah. It's not too bad. Yeah.

Patrick Henry:

Um, so what, what types of companies are most likely to succeed with like a Regulation A+?

Rod Turner:

Yeah, so we, we mentioned earlier that the accredited investors in the main are not participating very much yet and institutions the same. So we need to focus on companies that can raise money from consumer investors, from consumers, people that are not accredited because the ones that are accredited currently, you know, risk averse, sheriff, that people, regular people that maybe have to love the company enough that they wanted to prosper, or they need it to prosper. And they're hoping it'll open a branch around the corner. And I have a company that we've been working with in the background for a while, more than a year, probably. And they have an incredible pain treatment system. Uh, so, you know, everyone has a relative or a family relative, or a friend that is in agony and taking painkillers, which are gradually killing them. And this is a tested system, FDA approved and patented that when they get the, uh, the other things that they're working on prepared, I think that'll be very appealing to consumers.

Patrick Henry:

So things that have kind of that consumer base understanding and appeal, just like the things that have done best in terms of pre-sales crowdfunding, Kickstarter and Indiegogo. Those, those are things that if it's super technical or something that consumers can relate to, that's tough unless you bring your own network to play on.

Rod Turner:

Yes, that's right. So there are, there are those, I mean, there are some companies that are already funded that have enough happy customers that they've already got the money lined up, but that's the exception. Um, another example is a STEM cell company, which we've been working for some time. It's such an appealing treatment. I believe that will be remarkably engaging, even though that is a business to business company, which makes it a little more difficult. But on the other hand, everyone wants their doctor to have the STEM cell treatment, fix the vertebrae in your desk or your shoulder or whatever. So that's another example. And obviously, as you said, the gadget companies, they're relatively easier to raise money for. And the best example so far was Vidia angel, where in October last year they raised, uh, their full raise was $10 million in the space of two weeks live on the market. Two weeks of actually running, raising money. They only in what they did, they did some, a little bit of social media, but their email, their most active customers, that 30,000 active customer. Wow. That's so the question,

Intermediary:

Um, so Paula says I've seen our E I T S gain traction. Do you agree? Yeah.

Rod Turner:

Yes. So this is, uh, he reads, uh, that's the new term that's being used, we're saying is the most successful component or group real estate investment trust for those of you that don't know the rate term. Yes. Yes. So the appeal of being paid a dividend, uh, as well as you can see, you know, the building is tied in, so that there's some D there's a degree of security and the concept isn't rocket science to understand, right. You know, we're getting, we're seeing a lot of success in, uh, in that area. And the return is being used because some of the more successful ones have been structured like weeds. One of the ones I like the most is fun rise. I'm talking not about their investments. I haven't any idea how great their investments are, but they are structured where they do not allow they lock the shares, but they provide stated terms of liquidity and quarterly liquidity with reasonable notice. And they've gone through Regulation A+ they have three, one of the great advantages of real estate. Is it so far, it's the only, only place where, because you can geographically divide, uh, the U S or other parts, you can do three offerings simultaneous. So your four or five or six, normally it's just one per company per year. But what they've done is done three simultaneous up to 50 million transactions and they're marketing themselves incredibly well. That's interesting that packet with liquidity is very good.

Intermediary:

I have another question. Um, does your platform allow for non-Regulation A+ offerings such as five O six C understanding that we can only then look at accredited investors for a five O six and perhaps even titled three CF deals?

Rod Turner:

Yeah, so we, yeah, we don't do, we're not doing a title three reg CF deals for two reasons. One is that your required to accept all comments, you, when you do that, you yourself as a platform and you cannot be selective about the companies that you take on that to me is really bad news. I wanted to be selective and have a carefully picked company. Um, and there's a lot of regulatory requirements to go through, which is fair enough, but I don't want to divide. And de-focus the business we are doing, um, title two or reg D transactions, five O six C for select companies where they're, they're subsequently doing a Regulation A+. So kind of like a pipeline, you know, it's a sequential process. Okay,

Intermediary:

Well, we have two other questions at what stage should a company consider growth capital using Regulation A+?

Rod Turner:

So, what's happening, what's happening sort of happened so far is more early-stage companies that I think are ideal are using Regulation A+ in which case they have to have the emotional appeal to consumers and enough credibility and enough progress that the real and that they make it through the sec process. And if there's a broker dealer involved that they're credible enough to pass their tests as well as our tests. Um, so you can do it for a very few. I, I, I call them mature startups, startups that took four years to get here. They could go to VC if they wanted, not someone that just has a concept. The sweet spot though, is for the companies that are established and are too mature or too far along for the DC, but still too small for private equity or regular IPO. So, of the 32 companies that have gone out and using Regulation A+, and you may, or, you know, like metrics, I think about it, you know, do they have revenue?

Do they have, uh, you know, are they, you know, are they of a particular size? Is there a particular minimum amount of money that they're trying to raise? So the minimum raise amount is there are some exceptions, but generally three or 4 million, the economics don't make sense below that. And, um, the, the percentage of those companies that are actually, I lost my train of thought, there were three things I was going to say, so revenue. Yeah. So, uh, 30% of them are revenue, but back 16% of them have profits of the tier two companies. The tier one companies so far have been almost exclusively banks because they're local. It makes sense to do it in one or two States. Okay. Interesting. You have a big headache if you want to go across to that question.

Intermediary:

And then, um, I have a question from Cal, how will the new presidential administration affect the Regulation A+ and crowd funding industry?

Rod Turner:

Yeah. What a great question. I was going to write a column on that and I just couldn't find a way to write it and have it be, you know, pop-up just positive, you know? So anyway, the point is that, um, it seems to me that we'll see less regulation and it will be easier to do Regulation A+ transactions. That's the bottom line, the specifics of that we are yet to the new, the guy that is going to be the new chair of the sec, seems like a very seasoned professional with a very pragmatic view on a lot of relevant experience. And so I'm hoping that fin Randy sec will knock down some of the hurdles that we face. This is a complicated business. That's why we don't have, you know, 30 competitors because it's difficult to figure this all out and navigate the lines properly. Sure.

Patrick Henry:

So how, how long does it take to complete a Regulation A+ offering? I mean, no one in Tropic went public. You know, we, we had the initial thought process, like in December, January, we needed to complete an acquisition. And then we went really fast track and it still took us like five months to get, so it was Regulation A+ similar,

Rod Turner:

Similar, no, it is similar once you have the audit done, which of course, if it's an early stage company or a newly formed entity, which some companies are doing and the audit can be quicker, but once the audit is complete, then it's 60 days. If you do a good job of execution, which is critical, critically important to project manage this stuff. Well, 60 days later you could be raising money. And then the question is, how long does that take? And that's going to be at least a month, except for companies that already have their investors lined out, which I've got a couple of companies like chat, that's delightful. It can be done in a week, but you know, the norm is going to be two, three, four months.

Patrick Henry:

So it's similar. I mean, I just did, I did, I did, I did a Kickstarter for many new book, so, and I never even thought about doing that. But, you know, I talked to John Lee Dumas podcaster, and he didn't want for his books. And I said, it's good enough for John Lee. It's good enough for me, but I always thought of Kickstarter as a platform, primarily for gadgets and stuff like that. But I did it, but my experience with it was that farming my own network, as opposed to allowing the platform to kind of drive the demand was essential. So, do you see the same kind of phenomenon and a Regulation A+ offering where you got to do the groundwork and get investors excited on your own? Talk to me a little bit about that.

Rod Turner:

So the most critical component of success for these offerings is once you've got a company once, once the company is identified as being a viable transaction, because they have enough consumer appeal and all the other things, then having a marvelous marketing agency that knows what to do, loves the company and proposes a reasonable budget to do it. So that's usually two to 4% of the, of the capital that's raised. It's not charged as a percentage obviously, but I'm just framing it. Sure. And the, uh, when it's done, right, it's very similar technique, frankly, to what you see on Kickstarter when it's done. Right? Yeah. And it's, it's amazing how much work has to be done in the project management that needs, that needs to be done. All the different marketing bases that have to be covered. We got so much better tools these days than ever before, but I'm sorry.

Patrick Henry:

Are there PR and are public relations investor relations agencies that are now specializing in this?

Rod Turner:

Yes. Well, not so much. That's usually considered for later. Right. But during the, yes, there are agencies specializing in this we've picked four that we work with and, you know, we, we have a relate a rapport with them, but we don't control them. Sure. But they want to see the continuing flow of companies from us and the people, you know, so I'm involved, we're involved in maximizing the likelihood of success, making sure there's no missed bits and that the pricing is reasonable and the execution works really well, but that is absolutely critical. The great thing is with digital marketing, you don't have to spend long to figure it out, right. If you're testing it and you can test it on a low budget and do that quickly, and if you're ramping up and it's working, you know, and if it's not working, you know, this isn't mystery, you don't like.

Patrick Henry:

So talk to me a little bit about that. Testing the waters and kind of what, what does that mean in terms of writing applause? So testing the waters

Rod Turner:

Is a very neat aspect of Regulation A+ that hasn't really been used properly yet in my view. So the idea of it is that I actually suggested this to the sec in 2012, frankly, the idea of it is you don't have to pay for the audit and you don't have to get a legal firm to do your filing and start the big book spend just to test your company hat and see if it engages with enough interest. So that's the idea what's happened to date is the companies that have used it. It's been, they're already committed. They're already doing everything. They put the offering up and test the waters for a while to generate a lot of enthusiasm so that when they turn on funding, they will be more successful kind of pre demand generation. In my view, you should only do it for a couple of weeks because if you do it longer than it actually makes it harder to re-engage those people, because they went stay up, you know, they'd been waiting for two or three months. They get tired of it. Yeah. They do something else with that money or focus their enthusiasm on something. So that's, what's been done what needs to be done. And what we're offering is I'm calling it, test the waters auditions companies can inexpensively, just check it out and put together an offering. We'll help them where we can help them test messages to see what the appeal is, and then run a low budget advertising campaign to see how much enthusiasm.

Patrick Henry:

Yeah. So is it kind of like AB testing where you'll pass a couple okay.

Rod Turner:

Two different messages that are right on and you get surprised sometimes as you know, because you think it's going to work with that other one over there.

Patrick Henry:

Yeah. It's incredible.

Rod Turner:

Yeah. So that's the way to do it in my view. And then you, you don't have a lot of money in play. You can take any big risks and we set the stage, you know,

Patrick Henry:

Do you, do you raise any money in that? Or you're just kind of testing,

Rod Turner:

No, this is you are not allowed to raise money. And any of the test, the waters incarnations, that's the part that the sec is most concerned with is that, that it's done cleanly without hype and that you don't do anything remotely, like raising money.

Patrick Henry:

Okay. So in the IPO process, you know, even though it took, I guess, five months, most of that time was in the back and forth with the sec around getting the [inaudible] approved. Then we did the IPO roadshow and the IPO roadshow lasted two and a half weeks. And that included a trip to Europe. Yeah. So the actual time spent in, in raising money was two and a half weeks. Even though there was a lot of PR, you know, like, people know, Hey, this is coming in the Kickstarter, you know, all of this stuff that I read was don't do a Kickstarter longer than 30 days, you know? So other similar kind of rules of thumb that you use in Regulation A+ around, you know, the amount of time that you're actually out there raising money while not yet. Okay.

Rod Turner:

Right. I mean, I have my perception on all these different parts, um, by observing offerings and seeing how they're working quickly, they work. But, um, I do believe frankly, that because by its very nature, this is a public funding method, right. You need to succeed and you need to be seen to succeed rapid that's where the 30 days thing early momentum's key. Yes. Because now everyone jumps on board. But when you're doing, when you're raising money, there are other methods that you can use that are legitimate and that create excitement. So that's something that we are innovating in. I think we'll do, we'll do well with that. So that, that that's an latitude you don't have with, with a Kickstarter situation. But basically the same thing applies. You've got to show momentum quickly and the faster it is, the easier it is to do the rest of the race. And then it's all the obvious things about marketing.

Patrick Henry:

Yeah. Why that that's been the case, anytime I've raised capital and private situations are public situations. You got to find that anchor tenant to kind of come in and, and lead and get show that early momentum, then everybody else kind of comes in. Yeah. It was interesting. I was lucky in that at Kickstarter when I was, when I was running

Rod Turner:

Section a rarity value. Yeah.

Patrick Henry:

So the, I would say on the kind of, they've got a page like these, these, uh, funding campaigns that are ending most, you know, within the next week. And so, and I just looked at the non-fiction publications because that's the category I was in, but it was fascinating to me, like only maybe 20%, 15, 20% of them were getting funded. Yeah. And it's a, you know, you have to reach your funding threshold are, you don't get it.

Rod Turner:

It's digital managing expectations. Right. Starting out. That's another issue with Regulation A+ there's so many companies say, well, I can go to 50, so let's have a 50 maximum. But then when you start raising the money, it's four weeks in, you raised $4 billion. Everyone's celebrating $4 million. It didn't have now we've got it. But 4 million compared to 50, it's boring. It's not enough. So you've got a perception issue there, which is actually totally manageable, but you have to manage it. Yeah. So is there, is there, do you have to set a funding threshold where if you don't raise that much, so Regulation A+ is more open and you can have a zero minimum, as long as you're not buying something, you're buying a building for 6 million. He did a bit of moving 6 million. Okay. Right. But beyond that. Okay. Interesting.

Intermediary:

Asks, can you address what can be done to make the broker dealer community comfortable with writing?

Rod Turner:

Wow, great. I was thinking to talk about, so there are a number of active broker dealers now in the Regulation A+ space and I get regular calls, not frequent, but regular calls from relatively bigger underwriters who were interested to see this and how would we work together? The beginnings of the change Paul's bracket guys are more kind of second tier and second tier, but that, you know, they're calling me to find out about how we could work together and that's a pretty positive thing. So, um, but having said that the biggest single issue that there's a misunderstanding about, uh, bank broker-dealers in book, they do, they add a lot of value, but only once you've already shown that you have a success at the retail investor level. If you ha, if you're dragging and it's not working there, then the broker dealers are not going to risk their relationships with their clients and go to bat for you because the likelihood is it's going to fail.

Rod Turner:

The dialogue will fail. Do you, do you need the broker dealers to make a market and the stock or post-op frame? You do. Yes. Yes. You do post offering. But in the offering is optional to have a broker dealer involved. They can add a lot of value. So for example, we instrument when people go through the investment process, but gets stopped part way through. And we flag that information and send it to the broker dealer and they're allowed to, and it's what they do to call those investors up and help them understand the nuances of the business. And they can take an investment that way if they choose, if it makes sense for the investor. So doing that in the right method is important, but the point is that that's a natural thing for a broker dealer to do. And they can do that day one when you're live.

But when it, what people really want is they want their investor clientele, which generally are accredited investors and institutions. And then you're back to the same point again, which is realistically, once we've already made it successful, where it's full, you know, they raise 4 billion on a sixth goal. Well, they raised 12 million on 20 goal and they did it in four weeks flat. Okay, this is looking good. And they raised the share price. Now we've got reasons to call your client because they just raised, it's a harder deal. But until that happens, they will not add that value. They will not bring in their investor clients. Sure, sure. So, I mean, similar to kind of being picky when you're looking at they'll pick and choose what companies they want to take public to, you know, so you've got to kind of meet as a two way, two courting process, according to them, they're courting you. Yeah. They don't want to roadshow when nobody shows. No, exactly. Yeah. So what are the various phases of an offering plus offering? Um, bear with me a second. I'm just wanting to make sure I answered that question to get your question answered.

So your question was one of the phases. Yeah. So yeah, so flirting with the idea, checking it out, right. Evaluating would, should we do this pass that, that it's, um, an audit and then, because that's the critical path item. And then in parallel with the audit, get the form one eight, finding done and get the marketing agency on board. And then in the 60 days after the audit is completed, you can be done with the sec part and as quick as 55 days, but 60 days is repeatable. The average is 78. Do you still get the kind of same level of comments back and forth? If not Assisi. Okay. Okay. The greys of freedom have far fewer, it's a simpler transaction and the sec has been super with this. You know, we were worried that they wouldn't have enough resources. Uh, they've been great are the audit fees and legal fees typically lower versus a public offering.

So the full one eight finding fee, you can pay as much as you want. Right. But, uh, it starts off at 50 K pull in, okay. Including the offering circular, which is the, you know, the red herring equivalent that's online, right. And then audit is do whatever it is. You, you know, you don't get a special deal. Although the amount of work that the auditor has to do as a part of the S of the sec filing is reduce that reduced costs. And then, um, the marketing service, the marketing costs, you know, the biggest issue, one of the biggest issue tends to be how much is the upfront cost. And it's a minimum of ADK. If you're really careful who you use for small raise, that's marketing and a legal service provider and not counting the audit because the audit is, you know, depends on the complexity of the business.

And on which order do you choose. So about ADK go up to 200 K you know, maybe 300 for a large raise in terms of preparing the ground properly. And then you can usually raise funds, use proceeds to pay for the ongoing marketing, if you choose to do that. Okay. Yeah. But you asked about schedule so audit for money filing, which is two months, as well as PR marketing preparation going on, go live. I would rather not go live and test the waters when you know, you're marketing it to investors. It's a better test. It's real. And then one, two, three, four months of marketing to bring in investment. Okay. So it's out loud. Yes it is. But the good news relatively good news is you're bringing in investment money right away. You can do the first [inaudible]. So you can do kind of mini closing and actually get the cash every two weeks. Oh, wow. Gone all or nothing thing.

Patrick Henry:

Well, not only I'm not all or nothing. It's not, you know, you have to get to

Rod Turner:

Before you basically bring the money. Right. It's a definite transaction as long as you're not buying something.

Patrick Henry:

Okay. Interesting. Yeah. That's a big

Rod Turner:

Difference. It is huge. Yeah. From a cashflow point of view. Yeah.

Intermediary:

Question from Rosaria. What if a company is headquartered in Canada? Can it still avail of right?

Rod Turner:

Yes, it can. So, it's, uh, companies in Canada have the same rights that us companies do to conduct a Regulation A+ transaction. Um, they are not able to sell shares to Canadian citizens because they are, that is regulated by the Canadian government. Right. But Regulation A+ allows them to raise money for all other countries. And from the U S something else that's happening is that we're seeing more established non us non-Canadian companies coming here to lose their headquarters here to raise money. So they have to have a physical headquarters here.

Patrick Henry:

Like most of these companies are Delaware corporation.

Rod Turner:

Yeah. Usually, yeah. So similar to like Nevada, most more Delaware. But the point is that generally speaking, that's its own selection criteria. You know, somebody that can afford to move their headquarters over here to do this transaction. Um, they're much further along. Sure. Of course. So we're seeing more mature companies from outside the U S

Patrick Henry:

Okay. Interesting. Yeah. So we're here with rod Turner, the CEO and founder of Manhattan street, capital, the number one growth capital platform for the best. Mid-size us Canadian companies talking about Regulation A+, uh, we're taking your questions. How, how are we doing on time? Amanda?

Intermediary:

It's 1121 right now. Okay.

Patrick Henry:

So we have about another 10 minutes. Um, are there other questions from the audience? And I've got a few more here for rod, you know, as we kind of go through that, um, are you required to take a company public after Regulation A+?

Rod Turner:

Great question. And the answer is it's a double barrel answer. Technically you do, because the shares are tradable far as the sec is concerned. If you lock them, for example, you might say, lock them for five years or lock them until the company lists. Then they are not tradable, so you're not public. Right. And you can, then you choose to provide liquidity or not. And that's a part of the offering. It's all open and above board, the risk factors. So then you're not actually taking the company public, you're raising money through a convenient method, or you can take it public as discussed. So it's your choice. But do some people do think that they're forced to do an IPO to the NASDAQ, which is absolutely not true. Okay. Yeah. I think the sweet spot, frankly, for some time is going to be a OTC QB and OTC QX because along with a reduced reporting requirements, so you can stay legitimate. Yeah. The listing requirements are much less onerous as exchanges as the number of companies there increases. And then we see we're actually going build our own research analyst service because these companies need low costs and others following. So,

Patrick Henry:

So is there, is there a big, um, public market for these kinds of microcap stocks or are they, you know, more small cap stocks that are just on a lower exchange?

Rod Turner:

They are, they are micro-cap stocks so far, you know, some of the companies that, uh, that I'm seeing are far, far further along, you know, they're big small caps. Okay. Yeah. But that's, you know, there, aren't going to be a lot of those right away. It's going to be a few over the next 12 months. Okay.

Patrick Henry:

Yeah. So it really is kind of that micro-cap. I want some liquidity, I, you know, I want to raise a decent amount of money. I want to have fewer restrictions, lower costs.

Rod Turner:

Yeah, yeah, yeah. Cause you know, VC venture capital is a superb way to go. As you know, and I know you've worked with Michelin ventures and others, great firms, and I've worked with, uh, finding Perkins and other great firms, but they're the creme de LA creme, the exception that proves the rule and all that. Sure. Sometimes it's that, you know, the founder doesn't want to risk being booted because there's the VC firms decide they have a different agenda and schedule for, for the growth of that company.

Patrick Henry:

Yeah. Yeah. For sure. There can be a lot of different agendas going on there. Yeah. Interesting. So, um, any other questions from the audience, Amanda? Okay. I've got a couple more cool. Um, is a Regulation A+ available for companies whose operations are outside the U S or Canada.

Rod Turner:

Yes. I mentioned that. So that's happening or

Patrick Henry:

They have to move their headquarters here. Headquarters have to be here. Um, and one of the Regulation A+, the greatest risks associated with a Regulation A+ offering.

Rod Turner:

That it doesn't succeed. Okay. So then as in a Kickstarter environment, you know, some people are afraid to list their company in a public forum because they're worried they'll give away their strategy, which you certainly almost certainly did. Yeah. Yeah. So they're worried that by tipping their hand to their potential competitors, they'll create a landslide or competition. And then if it doesn't succeed, that's the worst case scenario. Right? You went out with an idea that kind of actually harvest without the capital and it doesn't work. That's the worst case scenario. Every company isn't going to choose to take this route because some companies are such that they're concerned about that. And then there are others. You know, I, uh, the biggest thing that I do up front with companies is help them understand if they really are a fit for Regulation A+, or really if Regulation A+ is a fit for them at this stage of the game, but don't waste their time or money. If it won't work,

Patrick Henry:

That's how you communicate, you know, companies that communicate effectively don't necessarily give away all their secrets.

Rod Turner:

You can have this black box over here. You can talk about what it does, but no one knows how it exactly. Right. Yeah. Yeah. That's it. That's true. Isn't it? You get to that, that there are a whole bunch of those like that where it's actually fine. No risk. Yeah.

Patrick Henry:

So we're getting near the end here. Were there any kind of partying comments, anything you want to talk about with respect to Manhattan street capital or any kind of key points that we left out?

Rod Turner:

Yeah. So I would say the main issues are, um, I see a lot of companies making mistakes, you know, they'll come to me and they're partway through a journey where the, a, that they've been given some tough advice or they've advised themselves. And they're kind of spent quite a bit of money to get nowhere really because they're partway through the sec fighting. And it's like, okay, really, what you have to do is restart this puppy because it's going to cost significant amount of time and effort because the way you've gone is the wrong journey. And the fact that you got these things approved, doesn't help you because you're not going to succeed with that transaction. So my point really is to, to seek experienced advice, obviously I'm biased. I think they should all come to Manhattan street capital. Um, but it's okay to go to one of our competitors.

Rod Turner:

You know, I won't be offended. I will be offended, but that stuff does not me. But the point is to get professional advice from, and it's not a big law firm, a big auditing firm, uh, that our experience with IPO's and all that stuff, because actually this is different enough. You want people that are in this space regulation, an auditor's and, and particularly the marketing agencies and the law firms that are practiced in this space. Those are the people you want because they'll spend less money and get a faster result. Sure. Whereas you're educating the giant firms and that you pay through the nose for that. And it costs so much time.

Patrick Henry:

That's always great advice. And raising capital generally, you know, get, get the best partners, you know, get the best bank, get the best attorney and get the best auditor, get the best marketing firm, you know, pay a little bit more to get the best. If you can afford it or get the best that you can afford. Because there are so many people out there that really say they know what they're talking about.

Rod Turner:

And they have probably great intention, but they, they come from a different set of variables, a different place. I've seen some horrific stories, you know, where one company was in test the waters for six months waiting on outdated audit, you know, you come back, they weren't told it would be six months. I know they told me six months and they went to test the waters the whole time. Yeah. So at that point, yes it is. And it was known because the early adopters, they're the ones that jump on it first. They're the ones who you lose first, if you don't have a relatively close timeframe. So that's one thing I would say. And the other thing is, is to, is to make sure that you do a thorough job because you got to like the people you're working with, uh, because there's so much in this, like with you, when you did your IPO, this is simpler, but you got to like the other piece.

Patrick Henry:

Yeah. I mean, you're working with them, you know, shoulder to shoulder, hand in hand for months.

Rod Turner:

That's a long time. It's a lot of meetings, a lot of phone calls, a lot of trust. You can't predict every variable upfront. You have to know the other, guy's going to be the person who's going to be reasonable to deal with when that surprise comes along with some other ones. Yeah. It's a, it's a journey for sure. And it'll all get easier with time and practice.

Patrick Henry:

I just see more track record being established, you know, it's easier. But I think this does provide a very unique and new and valuable way to raise capital that previously didn't exist. I mean, this is, this is much, much different than what exists.

Rod Turner:

Yes, indeed. Yeah. I get, you know, from time to time, I'll have conversations with people from the investment bank. Uh, industry, many of them are very skeptical about anything, new and Regulation A+ to them as yet. I haven't, haven't heard about it enough, therefore it doesn't matter. But then there are others who look at it more closely and they're changing their entire business model, focusing on this and partnering with us, you know, bringing really solid companies, which is fantastic. You know, when you, when you meet the people that get it, and this, this does remind me so much again, of the microcomputer revolution as it did over from being, you know, a toy percent you, the perception was that it was a toy and then look what that toy did.

Patrick Henry:

Yeah. I mean, there's two things I kind of apply from a product standpoint, product company standpoint that they comply, or one is that crossing the chasm Jeffrey Moore concept where we're in that early adopter phase. But as that gets momentum and people get comfortable, broker dealers get comfortable, you know, the ecosystem gets comfortable. This thing can just skyrocket. The other thing is the innovator's dilemma. I mean, this is a much lower cost way of doing something that previously didn't exist. And in the beginning, everybody was skeptical. And like, you know, this is a toy. This is, this is for novices, this isn't for us professionals, but as it gets refined, there's

Rod Turner:

Absolutely right. Yeah. And I see this already that the costs are the fees we charge have been going down, reduced our fees. And I believe that's a part of the game. You know, we, if we, if we aren't able to reduce the cost of these transactions in time, then why the hell are we doing this? Right.

Patrick Henry:

Right, right. Yeah. It should be more efficient. It should be, you know, faster, lower cost, you know? So yeah,

Rod Turner:

Automated more and more state-of-the-art technology. We have an algorithm, which is a living breathing thing. I have to be if they're going to continue to set a state of the art, which monitors a bunch of interesting activities on, on our platform. And that's, it, that's an example right there it's AI. It is.

Patrick Henry:

So, I mean, it's big data. It's AI. It's going to allow you to be more efficient and making offerings over time. As you use that data in a, in a very intelligent way, we

Rod Turner:

Use it primarily to identify risky investors. Lawsuits are scary phenomenon in this course. So what's the best way to get ahold of first. Were there any other questions Miranda before we, uh, okay. So what's the best way to get ahold of you just send me an email, Ron Turner at Manhattan street, capital.com. It's way through the website too. There's a bunch of different touch points that you're welcome to reach out to us where it says us. It's, it's usually ends up in my lap when it's a new company discussion. Okay, awesome. So we're, I can also be found on Twitter at, I am rod Turner and, um, he is, uh, a contributing writer for Forbes. So definitely check out his existing articles there. I I've read a few of them and they're very, very good and thoughtful and really insightful on Regulation A+, and kind of what's going on there. So thank you so much for joining today and great to see you again. Yeah, same here. Thanks. Cheers guys. Thank you.

 

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