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What are the costs involved in raising capital via Regulation A+?

Costs Guide for a Reg A+ Offering on Manhattan Street Capital

This article is intended to summarize the costs for guidance and information purposes. Most fees below are paid directly to the relevant service provider. The team at Manhattan Street Capital introduces practiced and competitively priced service providers as needed, and assists you with the project management of the process and the integration of all the parts required. 

Total cash costs: A good guide is to expect cash costs of approximately 12%* of the capital raised (this only holds true on raises that are above about $8 mill, because fixed costs for things like the securities attorney and audits become a larger factor for smaller raises).

Costs incurred prior to going live to investors: The primary expenses before going live are for Marketing, Form 1-A legal filing, Audit, Broker-Dealer up-front fee (when a broker is involved), plus payments to Manhattan Street Capital. See below for more detail. I generally recommend that you have at least $300k available before you begin your Reg A+ so that you can pay all the costs involved (the largest is the marketing content creation and the advertising media spend) before the capital raising process becomes efficient enough to easily cover the ongoing costs of the capital raising process.

The SEC permits capital proceeds to be used to pay the expenses of the offering in most well-prepared Reg A+ offerings. It's certainly possible to start your Reg A+ with less money on hand, and this can work. But having extra money available is a smart move to give you extra runway if the early stages of the offering are tougher than expected. Start with enough cash and be very careful how you spend it (we help with this) so you can adjust as needed and succeed.

 

General Costs:

  • SEC Form 1A filing. $50k or more, payable to the legal service provider to do the work of gaining SEC qualification for a Tier 2 offering. (More for a Tier 1, amount and time depends on which States you select).
  • The cost of a two-year US GAAP audit by your choice of provider. Ranges from $2k for a new startup to far higher amounts for established, complex businesses. We will introduce you to experienced and cost-effective auditors. If your company was started 6 months ago then you are required to provide the audit for the 6 months.
  • Marketing costs will depend on the specific situation. Expect early set up and content creation costs of $50k to $100k and sometimes more prior to going live to investors. Expect media/advertising costs of 2%* to 6%* of the raised amount after efficiency has been achieved. The early marketing efficiency will generally be lower until the advertising tuning has been optimized and an audience has been built. These fees go direct to the media firms like Google and Facebook. Marketing agency fees are paid direct to the agency. If your company has a large fan base or customer list then the cost of marketing can be far lower. We assist you in managing the agency and their work - but what they do is all your choice, your decision. The agencies and media money spent on digital advertising via Google Adwords and Facebook are paid in cash according to the budget that you select, and can be adjusted easily as needed).
  • Transfer Agent, Escrow fees will be approximately 0.5%* of capital raised.
  • For Broker Dealer involvement in order to allow access to investors in the US States that are not cooperating with the SEC, we recommend a broker-dealer to our client companies that charges a 1% fee.
  • For an IPO it is usual to engage one or more Broker-Dealers as Underwriters. When broker-dealer syndicates are involved, they will charge approx. 7.5% of the capital they bring in and may levy a 2 to 3% fee on the capital raised through the Manhattan Street Capital site. They also charge an upfront cash fee, the amount varies; approximately $20k on a small deal and much more on larger deals. The team at Manhattan Street Capital will help you prepare your pitch to the underwriters, and approach them on your behalf as needed, and assist you in your negotiations with them.

Ongoing Expenses after the Reg A+ is completed:

  • SEC required annual audit at US GAAP standard - depends on your provider - this applies if you list on the OTCQB or QX also.
  • PCAOB quarterly audit required after you use Reg A+ to list on the NASDAQ or NYSE - but the PCAOB level is only needed after listing on the major exchanges.
  • Each six months report management financials to SEC on company profits and revenues un-audited - moderate direct cost. (Far more stringent requirements for companies that have completed their Reg A+ IPO and have listed on the NASDAQ or NYSE - then quarterly PCAOB level Audits are required).
  • Transfer agent fee per investor, nominal, only applies while the shares are held at transfer agent.

Optional Fees:

  • If you choose to list the company on the OTCQB marketplace, the cost of registration and ticker is $2,500 paid to OTC Markets. Higher price for OTCQX - $20k. Staying listed on the OTC costs $10,000 per year for the QB – paid to OTC Markets. Higher price for OTCQX. In most Reg A+ IPOs, marketing costs can be reduced because more of the work is done by the underwriter syndicate.
  • DTCC Filing fee to make your stock easier to transfer to investor brokerage accounts, $12k-18k.
  • For the RegA+Audition(TM) (it is a market test of your company) MSC charges a standard price of $10k/mth including marketing for a minimum of two months. Note that the marketing services provided in the program are provided by a separate marketing agency, not by Manhattan Street Capital.  See the  RegA+Audition(TM) FAQ.
  • See our clickable video on how to make your Reg A+ work

*(NOT charged as a percentage - we use % here as a guide only). 

You might be interested in our FAQ that explains the Regulation A+ offering process in details.  We have broken up the process into steps and illustrated it with a summary view flowchart. 

 

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Related Content: 

Summarize Regulation A+ for me

Timeline Schedule for a Regulation A+ Offering

Timeline Schedule for a Regulation A+ IPO