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3 Ways Reg D Issuers Can Control Offering Costs

Post on: July 26, 2017 | Kyle Engelken | 1

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For issuers, launching a successful Regulation D offering can be an expensive and time-consuming endeavor. To keep the process manageable, there are several ways you can save money, or—an arguably more valuable resource—time.

Legal Fees

Law firms provide a number of valuable services for issuers of private capital, including formation of private placement memoranda (PPM), subscription agreements, operating agreements, advice on offering structure, and required regulatory filings.

A well-prepared, custom offering document can bring a level of sophistication and professionalism to the closing table that would be difficult to achieve without the help of a law firm.  However, issuers should be cautious not to include overly complex or superfluous language that can cost them money and potentially confuse an investor. Ask yourself if the legal necessities are being met, risk disclosures are properly highlighted, and the investment terms are clearly communicated. When it comes to subscription agreements, issuers would be wise to consider the regulatory requirements for capturing investor information. In other words, are you asking capturing too little, or too much information?

In some cases, law firms offer additional services for issuers such as cap table administration, stock certificate administration and regulatory filings (State Blue Sky, SEC Form D, FINRA 5123). Raising capital is stressful enough and having your outside counsel complete these tasks is helpful. But, before you take advantage of these services, evaluate the cost. Many times it may be more cost effective to do them yourself or to have a broker-dealer take care of them for you. Some broker-dealers will submit state and federal regulatory filings on behalf of issuer clients at a very reasonable price.

Offering Administration and Subscription

It is 2017. We are living in an age of technology where virtually everything is…well, virtual. Despite this trend, setting up a private offering is typically a disproportionately paper-heavy process. But it doesn’t have to be. New financial technologies are popping up every day to make this process easier. Few have garnered wide adoption, which is why the industry remains rooted in manual processes. If you want to be ahead of the curve, and save some money while you’re at it, you can reduce your administrative burden by embracing some of these technologies and by going paperless.

Any private capital raise requires that you capture certain information about investors, get their signatures on the requisite documentation, and collect payment. Doing all of this manually is not only time-consuming, but requires an unnecessary amount of printing and scanning that can quickly eat up reams of paper. A single piece of paper costs about $0.06, which may not seem like a lot, but it can add up quite quickly if you are printing documents from multiple investors on multiple offerings. The more exorbitant cost, however, comes in the form of your own time. By centralizing investor data capture for subscription through the use of streamlined transaction technology, and by using e-signature technologies, like Docusign, you can collect investor identification and suitability information through an automated, online, and user friendly process, saving yourself and investors hours of back-and-forth.

But communication with investors does not end once your offering is funded. You’ll need to maintain frequent correspondence, sending them management updates, distribution notices, capital call notices, K-1s, audited financials and more. Investor dashboards, such as WealthForge’s own Investor Portal,* give investors a one-stop shop to keep track of their investments with you, and you don’t have to send out individual emails to keep everyone up to date.

Regulatory Compliance

Issuers of a private securities offerings have specific requirements to maintain compliance with state and federal securities laws. Proper communication with investors, complying with anti-fraud provisions of the Securities and Exchange Act including bad actor provisions, maintaining books and records, and verifying investor accreditation are just a few examples.

These requirements can be confusing, time consuming, and costly for issuers that lack the expertise and resources to manage the process. In our experience, one of the best ways to ensure compliance and avoid liability is through engaging the services of a registered broker-dealer. An experienced broker dealer with sufficient back office resources can be a valuable partner.

If you are a serial syndicator already engaging a BD to administer your offerings, be sure to consider the full cost of your registered activities including advertising review, continuing education, FINRA registration, escrow account administration, and supervision. Are you getting the appropriate level of support and transparency commensurate with the cost?

These cost control strategies boil down to asking yourself two questions: “What am I paying for that I could do myself?” and “What am I doing myself that could be done better by someone else?” With these questions in mind, how much could you save on your next offering?


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* WealthForge Securities, LLC, Member FINRA/SIPC does not review documents before an issuer places them on the Investor Portal and makes no representation as to the accuracy or truthfulness of documents an issuer provides through the Investor Portal.  The Investor Portal is a technology-only product licensed to issuers to facilitate communications with investors after an offering has closed. 

Disclaimer: WealthForge provides this information to our clients and other friends for educational purposes only. It should not be construed or relied upon as legal advice. Private securities offerings may have a long holding period, be illiquid, and contain a high degree of risk. Investors must be able to afford the loss of all of their principal. Projected returns may significantly differ from actual results. Past performance does not indicate future results. Potential investors should consult with a knowledgeable tax advisor prior making an investment.

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About author

Kyle Engelken

Kyle brings a deep understanding of portfolio management and private investments to WealthForge from his tenure at Cambridge Associates. Kyle received his bachelor's at University of Richmond and MBA from the College of William and Mary. Prior to joining WealthForge, Kyle managed a portfolio of microloans in Nicaragua for a US-based non-profit.
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