A Checklist of Goals for Businesses Considering Raising Money with a Title IV Reg A+ Crowdfunding Campaign
Austin, Texas – Trying to figure out if Title IV Reg A+ Equity Crowdfunding is the right fundraising tool to help your company move to the next level? Most people consider Reg A+ to be one step below issuing an IPO (Initial Public Offering) at a fraction of what it usually costs, thus it is also known as a Mini-IPO.
Most financial analysts consider existing businesses with several years of operations and generating significant revenue from multiple product/service lines to be the best candidates to launch a Reg A+ crowdfunding campaign. Smaller investment bookrunners will argue that even startups and small businesses are good targets to raise money using Reg A+, especially if they have goal of going public in 18-to-24 months based on certain revenue milestones.
Top Title IV Reg A+ Crowdfunding Questions:
- Do you have a strong management team?
- Do your founders or investors have any “Star Power?”
- Do you need to raise more than $1 million?
- Have you developed an effective 30-second elevator pitch?
- Have you developed a 3-minute crowdfunding pitch video with a strong call-to-action?
- Have you developed a “Pitch Book” for investors?
- Do you have a lead investor of $25k+ or more?
- Have you raised at least $100,000+ or more from prior investments?
- Is your business growing at 20% or more month over month?
- Have you generated at least $100,000+ of lifetime revenue?
- Is your business projecting 2x to 3x year-on-year profit growth?
- Can you provide investors with a 3x to 10x ROI over the next 3 to 5 years?
- Is your market valuation worth $5 million or more?
- Is your market capitalization realistic from a VC’s point of view?
- Have you run a successful rewards/perks-based crowdfunding campaign?
- Do you have a database of at least 5,000+ customer email accounts?
- Do you have a database of at least 1,000+ investor email accounts?
- Have you generated at least 3 or more press articles in the trade press?
- Do you have a $20,000 or more for a advertising/crowdfunding PR budget?
- Do you have a strong LinkedIn resume and a large social media following on Facebook and Twitter?
If you cannot answer “yes” to the majority of these questions, then your business may not be ready to launch a Reg A+ equity crowdfunding campaign. These are many of the milestones that private equity investors and venture capitalists like see in a pitch deck to make your company worth serious consideration for a seed stage or private equity investment. If not, use this list to set some goals and objectives for your business and work hard to achieve them.
Title IV Reg A+ vs. IPO
If you think you are serious about issuing a Reg A+ offering, it would be wise to read through the following white papers on Title IV Reg A+ vs. IPOs. Learning how a bookrunner works with various investment banks, institutional investors, venture capital and private equity firms can provide valuable insight into how Wall Street has been raising money for startups for the past 100 years.
The white papers will also provide key insights into how much money it will cost as well as the actual fundraising process including what it takes to put together a “Pitch Book” and how to market it via “Dog and Pony” investment road shows. The key to raising for a company’s management team to travel from city to city meeting with potential investors to pitch Reg A+ investment opportunities.
- A Guide to Title IV Reg A+ – White Paper
- IPO (Initial Public Offering) Guidebook – White Paper
- Managing Key Investors in IPOs (Initial Public Offerings) – White Paper
- Fatal Flaws in Selecting an IPO (Initial Public Offering) Underwriter Selection – White Paper
Title IV Reg A+ Background
The SEC has previously stated that the primary purpose in adopting Reg A+ was to provide a simple and relatively inexpensive procedure for small business use in raising limited amounts of needed capital. Reg A+ issuers submit a paper-based offering statement to the SEC; this offering statement is essentially an abbreviated version of an IPO prospectus and it must be “qualified,” or cleared, by the SEC and delivered to prospective purchasers.
In addition to SEC review, Reg A+ offerings have traditionally been subject to review under state securities laws (also known as “Blue Sky” laws). In comparison, a traditional registered IPO listed on a national exchange is exempt from Blue Sky requirements. Securities sold in a Reg A+ offering are freely transferable in the secondary market, though Reg A+ issuers are not subject to Exchange Act reporting requirements.
Title IV Reg A+ as Outlined by 2012 JOBS Act
Title IV of the 2012 JOBS Act directed the SEC to expand Reg A to exempt offerings of up to $50 million in equity, debt or convertible securities. The law mandated that issuers relying on this new exemption would be required to file audited financial statements with the SEC on an annual basis.
However, without infrastructure currently in place for A+ securities to trade on national exchanges, lawmakers left it within the purview of the SEC to settle the state jurisdiction question by establishing the definition for “qualified purchaser” in the rulemaking process.
The 2nd Tier of Title IV Reg A+ Offerings
The SEC’s final rule was adopted on March 25, 2015, and became effective during the summer of 2015. In the rule, the SEC expanded Regulation A into two tiers: Tier 1 for offerings of up to $20 million and Tier 2 for offerings up to $50 million.
By removing key procedural obstacles and introducing common-sense investor protections, this new Reg A+ framework creates a viable capital-raising alternative for issuers that want to remain independent and innovative. Below are some of the key provisions included in the SEC’s Reg A+ rule:
- Testing the waters: Issuers may solicit interest in a potential offering with the general public, either before or after the filing of the offering statement.
- Blue Sky: Offerings made under Tier 2 are generally exempt from state securities law registration and qualification requirements. And while Tier 1 offerings would still be subject to state Blue Sky regulations, the states’ new Coordinated Review process has dramatically reduced the burdens associated with this process.
- Offering Circular: Issuers can confidentially file statements for SEC qualification. Offering circular must include audited financial statements and balance sheets for the two most recently completed fiscal year ends. The Offering Circular format is narrative disclosure, similar to what is required from smaller reporting companies in a prospectus, but more limited in certain respects.
- Proceeds: For Tier 2 offerings, there is an annual offering limit of up to $50 million in equity, debt or convertible securities, including no more than $15 million from selling security holders. For Tier 1 offerings, the annual limit is $20 million, with not more than $6 million from selling security holders preceded or accompanied by a preliminary offering circular.
- Transferability/Liquidity for Investors: Securities sold in these offerings are not “restricted securities” under the Securities Act, and thus are freely tradable in the secondary market.
- Ongoing Reporting: Issuers that conduct a Tier 2 offering must electronically file annual and semiannual reports with the SEC, but those who conduct Tier 1 offerings generally have no ongoing reporting obligations.
Are Title IV Reg A+ Shares More Liquid?
Securities offered under Reg A+ are freely tradable, which makes them more valuable to employees, investors and founders. This is beneficial for investors but also for issuer constituents, who may be early investors or insiders, seeking liquidity. The issuers’ choice of venue is mostly to do with the size of the offering and the company’s market capitalization.
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