Frequently Asked Questions for Issuer
Consumer appeal is a key factor. A large and happy customer base and tremendous consumer appeal are very indicative of success. That said, if that’s not yet an established fact, that does not mean the offering will not succeed. This is where “testing the waters” comes into play.
Testing the Waters was created by the U.S. Securities and Exchange Commission (SEC). It allows companies to cost-effectively test their offering using social media, email, online advertising and more.
Although the SEC does not pre-review pre-filing advertising, you are cautioned to be very careful with what you say in the offering materials. That’s why it’s better not to try this on your own and use professionals like Raising Stakes Media who know the ins and outs.
The test typically lasts for a couple of months. It doesn’t take long before it’s clear if there is enough enthusiasm for your company to justify doing a Reg A+ offering. If you choose to move forward, you can then get an audit done, get the SEC filing underway and return to make your live investment offering when you are ready.
During this test the water process, we provide the ability for potential investors to make non-binding reservations in a company they like. For more information and cost structure, please contact your Raising Stakes representative or contact us here.
Here we look at the ratio of spend to investor dollars collected, and it’s as follows:
• 3.5% to 6% ratio indicates a hard sell in the market.
• 6.5% to 9% ratio is the sweet spot; this is right where you want to be.
• 9.5%+ ratio means you have a tiger by the tail. You have reached Reg A+ nirvana.
Reg A+ is amazing news for small and mid-market companies who could benefit from an enlarged investor pool.
Companies can raise up to $75 million and the reporting requirements are much softer than an IPO. Plus, you can raise money from non-accredited investors with lower fees and free-trading shares if you decide to go public later.
For private companies, Reg A+ offerings can facilitate a going-public listing on the NASDAQ/NYSE or on over the counter (“OTC”) markets, incurring fewer expenses and with greater efficiency than a traditional IPO.
For public companies, Reg A+ offerings can be used in conjunction with up-listing or simply to raise capital efficiently.
Reg A+ also significantly expands the pool of potential investors for an offering by allowing investments from non-accredited investors—though there are limits on how much a non-accredited investor may invest in a Reg A+ offering.
With Reg CF (or Crowdfunding), companies can raise $5 million with fewer legal and reporting requirements compared to Reg A+. Plus, non-accredited investors can also invest in Friends & Family.
Issuers can raise operating capital while building a loyal community: issuers can finance their startups from investors that believe in their product or service—creating a following of brand ambassadors.
Regulation A+ is split into two tiers: Tier 1 and Tier 2. Both tiers are open to US and Canadian companies, can solicit general audiences for investments, and have no resale restrictions on the securities (shares) purchased.
The two are different in several ways. Companies raising under Tier 1 can raise up to $20 million in a 12-month period from all investors. Tier 2 increases the total raise allowed to $75 million; however, non-accredited investors are subject to investment limitations such as income verification.
Regulation CF is also known as equity crowdfunding. It stipulates that companies may raise up to $5 million every 12 months from any investors (this cap increased in 2021 from $1.07 million). Campaigns are permitted to solicit a general audience to find potential investors. In addition, Reg CF offerings must be offered through an intermediary online platform or funding portal that’s been registered as a broker-dealer.