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Raising Capital Or IPO: Regulation A+ Works Best For These 14 Company Types
Find out how well Regulation A+ suits your company as a way to raise $4 mill to $50 mill of growth capital, provide liquidity to founders and investors and optionally take your company public.
Click here to read this article written by Rod Turner for Forbes.
I am often asked what types of companies Regulation A+ will work best for. Here I describe the ideal types of companies for which Reg A+ is well suited, to help you determine if Regulation A+ is a good fit for your company.
Regulation A+ is an increasingly popular method of raising up to $50 million per year and more of equity growth capital. It provides liquidity to insiders and long-standing investors. It's also a versatile system that can optionally be used to conduct IPOs to the NASDAQ or NYSE, or to the OTC markets.
At this stage, consumers are critically important: Institutional and angel investors are generally cautious about getting into new investment types until thoroughly proven. So in most cases, we do not see much activity from them in Reg A+. At this stage, Reg A+ offerings must appeal deeply to consumers to be viable, because consumers are early adopters and will invest if they love what your company does. They don’t second guess the relatively new Reg A+ SEC rule system. As awareness of Reg A+ grows and its track record builds out, we will see the funding window broaden to include far more companies than at this stage.
Now let’s explore the types of companies where Regulation A+ is likely to be a good fit as a capital raising method:
Lifestyle companies that fit the way people aspire to live: Fashion, clothing, footwear, healthy food and beverage companies can have great consumer appeal.
BrewDog launched their Reg A+ offering in August 2016 and just eight months later in April 2017 private equity firm TSG Consumer Partners committed to invest in the craft brewer, pushing its valuation to $1.2 billion. That makes BrewDog the first Reg A+ Unicorn, a significant accomplishment, and provides a handy step up in valuation for the Reg A+ investors.
The trendy casual shoe maker XeroShoes launched their Reg A+ four weeks ago, and have already taken commitments of $432k by marketing to their customers only, so far. They are doing well against their $3 mill goal.
Businesses that are essential to their customers: Service providers to large groups of partners that view them as essential for their well-being are often, of course, attractive investments for those same members. A good example here is Social BlueBook, which is a rapidly growing marketplace for online creative people to market their services to buyers on far more favorable terms than in the old world. Their Tier 2 Reg A+ launched in April and they have raised over $1 mill in six weeks by low-cost marketing to their customers. Another example is VidAngel, not really essential to their customers, but highly valued by them. VidAngel raised $10 mill in 5 days live to investors, by promoting their offering to their most active customers. They set the record for the fastest Reg A+ raise to date.
Real Estate: So far real estate is the first segment in Reg A+ that is engaging wealthy investors in a meaningful way. The combination of three factors helps: investors understand real estate and many would love to buy a building but don’t have the time or the capital; the inherent security of having a tangible asset underpinning the investment is clear cut; and the third factor, interest payments for many deals makes them highly desirable.
Fundrise has raised $140 mill in three simultaneous Reg A+ eREIT offerings covering three different regions of the US. Real Estate as a whole is running at a 40% share of Reg A+ capital raised to date.
New Opportunity – Real Estate Holding Companies: Real Estate developers that up till now have had no choice but to sell their properties to provide capital for further front end projects are now able to sell or transfer their improved properties into a purpose built Reg A+ funded entity and then continue to benefit from the properties' appreciation and profit stream.
The ability to raise multiple $50 mill Reg A+ offerings in parallel (one for each geographic region) provides an attractive scale for this approach. Combine this with the known appeal of real estate offerings to investors in Reg A+ and you have the makings of a winning strategy.
Medical and biotech companies. Many of these companies are B2B of necessity – they supply doctors, hospitals, and clinics. But their products can be very appealing to consumers anyway. Pain treatments, early cancer detection and treatment, along with heart disease prevention, stem cell treatments and editable DNA – all of these can be highly appealing to consumers. We all know someone that is suffering and needs help “yesterday."
IoT for Consumers: Many Internet of Things devices and services are inherently appealing to consumers. Home automation, security, and energy saving are examples that can appeal strongly. I want one of those automatic AC vents myself!
VR and AR for the Consumer: Augmented Reality and Virtual Reality products that consumers are excited by, such as immersive gaming, travel, new car test drives, enriching tourist experiences and in general “doing what you can’t” by virtual means can be hugely appealing to consumers. The yells of delight from my wife when she did a VR mountain climb (and the crowd that formed in Best Buy to watch!) tell the story. This is one exciting field.
Online Games and eSports: Addictive appeal to very large bases of customers and fans, along with direct relationships with customers make this a very rich category for Regulation A+. Every interaction with a customer is an opportunity to pitch the Reg A+ investment, making for very cost effective marketing.
Companies that have achieved scale: I am seeing a growing number of more established companies that want better access to capital and liquidity. These companies have customer engagement that often makes raising capital relatively easy. Some are targeting a Reg A+ IPO to the NASDAQ and have the scale to do so.
Wearable technology: As smartphones are augmented, extended and replaced by wearable technology, by definition devices here are often very appealing to consumers. The lure of increased productivity and convenience, plus the excitement of being on the leading edge make for strong consumer appeal.
Consumer Drones: This burgeoning category includes drones for enhanced selfies, extreme sports video making, semi-virtual tourism, even racing. A sizable segment of consumers loves them.
Alternative transportation: Electric, fuel cell, personal jet packs and solar-powered vehicles that are affordable to the consumer can have the right kind of consumer appeal.
In a future column, I will explore company characteristics that make it much easier to have a great success with your Reg A+ capital raise.
I hope you find this guidance informative and helpful. Keep me posted on your progress!
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.
Manhattan Street Capital, 5694 Mission Center Rd, Suite 602-468, San Diego, CA 92108.