This article was written for Entrepreneur magazine by our own Christine Wetzler. To read the original click here.
Regulation A+: The Entrepreneur-Friendly Way to Secure Capital
Reg A+ stands as an extremely attractive option because it enables a company to raise capital from both accredited and non-accredited investors.
Capital is often the difference between success and failure in the world of business.
According to the Small Business Administration, the average entrepreneur requires $10,000 to start a small business successfully, with startups costs comprising everything from materials and services to employee wages and rent for business premises. Yet for many, the funds required to turn an idea into a reality and kickstart a company are simply not available.
For established enterprises, similar finance-centric headaches can come into play quite quickly. Many may hit the proverbial glass ceiling within a couple of years, and without further funds to easily expand their enterprises overall potential is drastically limited.
Under such circumstances, investment can be the holy grail. Indeed, for those small- and medium-sized enterprises (SMEs) looking to take the next vital step, Regulation A+ (Reg A+) stands as an extremely attractive option.
The “Mini IPO”
In simple terms, Reg A+ is a type of offering that enables a company to raise capital from both accredited and non-accredited investors.
Dubbed the “Mini IPO,” it is a set of rules designed to ease the regulatory burden associated with funding on SMEs by allowing them to conduct an offering in which they may offer up and sell securities to the public without having to follow a time consuming and costly SEC registration process.
In this sense, Reg A+ has transformed the funding prospects of countless companies that don’t have access to venture capital funding and wouldn’t have otherwise considered pursuing a traditional IPO in their current state. Through Reg A+, such companies have gained the opportunity to raise capital from smaller investors.
While the maximum amount a company may raise through Reg A+ per year is $75 million, it comes in two tiers. In tier one you can raise up to $20 million. This tier allows for public advertisement, the ability to secure investments globally, it’s subject to financials and Blue Sky Laws and there’s no limit on individual investments. In tier two you can raise up to $75 million. This tier allows for public advertisement, the ability to secure investments globally, audited financials, no state registration is necessary, and non-accredited investors are limited to 10 percent of annual income.
Why should a company do a Reg A+?
Indeed, the most obvious reason why an organization might pursue Reg A+ is that it can provide much-needed capital. Yet, beyond the financing side of things, such an offering can provide a plethora of other benefits.
For many companies, Reg A+ can be a sound marketing technique, attracting customers, fans, clients and followers as well as traditional investors in supporting a company on its mission for growth.
With Reg A+ open to non-accredited investors, it is a way in which a company can compound loyalty in these relationships and heightened support from an army of company ambassadors, who are more likely to become astute company advocates upon investing.
Equally, investment rounds are a sound means of attracting media and press coverage, creating something of a snowball effect while heightening a brand’s reputation.
Efficiency should also be noted. Other means of raising up to $75 million can be tedious and hard to come by, often entailing pitches to individual venture capitalists and other prospective investors. In Reg A+, however, the company in question can more easily invite prospective investors of all kinds, all while maintaining greater control over the number of shares they’re willing to part ways with.
Testing the waters
Indeed, for any company, a Reg A+ is a monumental landmark in its progress. Getting it right, therefore, is of paramount importance. Thankfully, the Securities and Exchange Commission (SEC) that dictates Reg A-centric rules has ensured this can be achieved with proper planning and preparation.
Any issuer considering a Reg A+ is invited to “test the waters” by soliciting potential investors and the public through advertisement.
In essence, testing the water allows an enterprise to get a feeling for the level of interest that investors might have in a business prior to committing any significant funds and resources to the process. The SEC explains, “All issuers will be allowed to gauge market interest in a possible initial public offering or other registered securities offering through discussions with certain institutional investors prior to, or following, the filing of a registration statement.”
Gauging sentiment in this way drastically reduces the risk involved in any offering. It is a way in which a firm may gain key insights and make informed conclusions about potential outcomes before proceeding.
Making the most of your Reg A+
To make the most of the opportunity available, and truly ensure the success of a Reg A+, the advertisement process must be executed in an effective manner. Marketing is therefore vital. Through proper planning, a company can ensure that it is garnering the attention of investors by communicating the right messages, in the right ways, at the right time.
Consider the Reg A+ marketing funnel. The goal is to attract the attention of potential investors, educate them about your organization – its market potential, values, goals and aspirations – and eventually obtain investment.
To achieve this, each communication must be tailored and relevant to provide value, while these core messages also need to reach the right people with optimal frequency.
A public relations (PR) specialist with expertise in investor relations can provide key knowledge and support, helping you to tap into the right variation of marketing channels (be it email, social media, traditional media or other), maximize the exposure of your Reg A+ to potential investors, and transform your advertisement efforts.
In optimizing advertising efforts with a dedicated, logical, strategic marketing plan, companies will be able to test the waters as effectively as possible while equally gauging, galvanizing and sustaining investor attention. Indeed, without such planning, a Reg A+ is far less likely to result in the desired capital-centric outcome.