Guidance and tips how to succeed with your companies Reg A+ Offering:
There is more and more evidence that at this early stage in the Reg A+ funding market, companies must resonate strongly with consumer investors to succeed. That appeal, plus first rate marketing with front loaded impact and budget, is required to bring in consumer investors and to prove traction early. Even in offerings that are attractive to broker dealer syndicates, in most cases brokers will not act to promote an offering to their clients until early success is apparent from consumer investors.
The scope of companies that will fit Reg A+ will gradually expand as wealthy investors and institutions engage. Expect to see Registered Investment Advisors begin to allocate their clients' capital in small amounts to Reg A+ offerings over the coming year. AIG stepping in, as reported last month, is significant here.
In the open forum inherent to Reg A+ offerings, success in the first few weeks is a must to show all interested parties the offering is going well.
Companies should set a low funding minimum unless they are buying a fixed price asset. This makes easier to make the offering go live and conduct the first closing and to pay for subsequent marketing from capital raised.
Mistakes to Avoid with your Regulation A+ offering to maximize the prospects of success:
Below are the things that most typically go wrong. If you work with us at Manhattan Street Capital, we will help you avoid these mistakes as part of doing our job for your company.
Making an offering that isn’t a consumer investor fit: Because seasoned investors are skeptical about new developments in the financing business and generally hyper-cautious about jumping into anything that seems untested, Reg A+ companies must appeal deeply to consumers to be viable. This audience (and potential backers), however, may absolutely love a product or a company and be eager to participate in its growth. Just take a look at some of the big Kickstarter raises for some good examples.
Many companies that do not inherently appeal to consumers have tried Reg A+ anyway. This is the single biggest cause of under-performing offerings. Make sure your company is a good fit for Reg A+ before you move forward.
Relying on do-it-yourself marketing. Many companies have attempted to promote their own offerings with only partial professional support. But because equity crowdfunding is a very specialized field that requires 360-degree coverage, careful project planning, and highly effective methods, they may be doing themselves more harm than good. Reg A+ is a funding system that is truly open to the public, and as a result, early success must be delivered and shown in the first few weeks for the later weeks to work well. Weak early traction leads to failed offerings.
Spend the resources to find an excellent agency, agree on a budget, and manage the heck out of the project to maximize success.
Failing to engage a broker-dealer syndicate. Some companies have tapped out the available consumer investor pool without achieving their funding goal. The Elio offering, for example, was a tour de force of consumer marketing, but the company ended their raise at $16.9 mill, with a $25 mill maximum planned. Had they included a broker dealer syndicate they would have easily raised the full amount – brokers wanted in. The fact is, as a practical matter you cannot go back and retrofit a BD Syndicate after you started your offering.
It's a requirement that the syndicate file with FINRA and be included in a company's SEC filing. Don't expect broker-dealer syndicates to produce investment results before consumer investor traction has been shown. In almost all cases, syndicates will only actually engage when consumer investment momentum has been proven. Why should a Broker Rep call his clients till we have shown proof that it's already working?
To completely fill an offering it is prudent to include the investors that a Broker Dealer Syndicate can bring. Fill your offering – don't limit your options.
TestTheWaters™- falling for the Red Herring: In theory, TestingTheWaters™ is a great concept. It allows companies to test market to find out if their products are interesting enough to make a Reg A+ offering worthwhile. The trouble is that too many companies end up in this informal marketing mode for far too long. If there is a delay in the audit or in a part of the SEC filing, and a company is still in “test” mode, it risks losing its earliest and most enthusiastic would-be investors. Stretch the process out for 6 months and the impact can be fatal for an offering.
To avoid stringing along what could be your most valuable brand ambassadors, plan the timing of these key events early on so that you have nailed down the project plan before you start marketing the offering and creating enthusiasm among potential investors. It’s always easier to create excitement just once.
Audit surpises. Because a completed audit is required before filing a Reg A+ offering with the SEC, it tends to be the critical path item, and can delay the whole process. Audits are only required for Tier 2 Reg A+ offerings, but almost all deals are Tier 2. Choose an audit firm that has a track record of working with Reg A+ offerings and doing so without price and schedule suprises. Some adutit firms are abusing their position in the process.
A Reg A+ offering has to be thoughtfully managed. There are often unexpected snags along the way. But a well-crafted plan can usually avoid the worst SNAFUs.
Not enough capital available. 75% of Reg A+ companies need to raise Capital to fund their Reg A+ offering, before they can get started. This causes delays. In some instances companies move forward with their marketing process anyway, with a low budget marketing approach - which is a recipe for disaster. Early slow traction causes the rest of the offering to become extremely difficult, or impossible.
Only Allowing investors from the USA: Many companies have restricted themselves to US-only investors. International investors have fewer exciting investment options and can be more cost effectively reached through digital marketing. And of course, some companies' have a strong international presence that they can build upon. In many cases successful offerings will raise more money internationally than from US investors.
Bringing too much complexity: Instruments like convertible notes, bonds, and preferred investor returns may work when you can meet one-on one with each investor. But they complicate the picture for consumer investors that must be able to efficiently make their investment in large numbers with minimal interaction with the company selling it's shares. Keep your offering simple to avoid losing them. The moment you require them to study your offering to understand it, you will lose so many investors it can devastate your offering. Sell shares of common stock. Period.
My advice is to take your time and evaluate your Reg A+ fit carefully before you leap in. If you do move, do it right. Apply these guidelines to maximize the likelihood of your Reg A+ raise becoming a great success.
Rod Turner is the founder and CEO of Manhattan Street Capital, the #1 Growth Capital marketplace 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.
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