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Why Successful Reg CF Issuers Should Consider Reg A for Their Next Raise

Post on: October 11, 2018 | Ryan Gunn | 0

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Regulation CF (also known as crowdfunding) is an exemption to the Securities Act that allows issuers to raise up to $1.07 million per year. Reg CF is a small but fast growing market, with 178 offerings in 2016 and 481 in 2017. Last year, those offerings accounted for $49.2 million raised. Issuers that have been successful with crowdfunding may look to expand beyond the exemption’s low offering limit. A logical next step would be a Regulation A raise.

Reg A, like Reg CF, is an exemption that allows issuers to raise funds from the public. However, with a higher raise limit of up to $50 million, Reg A offers fast-growing issuers an opportunity to raise capital more quickly, while still maintaining the flexibility that comes with public availability.

In fact, successful Reg CF issuers may be particularly well suited for a subsequent Reg A raise. Other than simply being familiar with the process of raising capital and working with the SEC, there are some tangible benefits former Reg CF issuers can realize when conducting a Reg A.

Financial Statements

During a Reg CF raise, issuers are required to submit financial statements to the SEC. Depending on the raise amount, these statements may be required to be audited. While this can be a hassle at the time, having those audited financial statements on-hand will make life easier when conducting subsequent raises. Considering the more stringent requirements for Reg A – which is sometimes treated like a full-fledged public offering – having previously audited statements will give issuers a head start on the regulatory process. Similarly, much of the information issuers will be required to gather for a Reg A, in terms of disclosures and marketing documents, will already be compiled for the crowdfunding campaign.


DOWNLOAD WHITEPAPER | The Risks and Rewards of Regulation A

Investor Interest

Once an issuer completes a capital raise, they have demonstrated investor interest. Not only are those connections available to mine for future raises, but new investors will be able to see a track record of successful raises. While previous raises are not an indication of future success, investors may be influenced by the fact that other investors found a previous offering worthwhile.

Technology

Reg CF raises are required to be administered through a funding portal that is registered with FINRA. These funding portals serve to host an offering’s online presence, as well as facilitate and process investment transactions. While these portals do not offer much in the way of flexibility, experience using one should demonstrate to issuers the importance of having a technology solution to help process a high volume of investors.

When moving from crowdfunding to a Reg A raise, funding portals are no longer required. However, issuers with previous experience can avoid the pitfall of attempting to raise public funds without a technology solution. Issuers may want to consider working with a broker-dealer that specializes in Reg A, some of whom even offer integrated technology solutions, which can be customized and white-labeled, offering more flexibility than a crowdfunding portal.

 

While Reg A offers a higher raise amount and more flexibility in terms of not using a funding portal, but it is not without its drawbacks. A Reg A offering is expensive and risky. However, when conducted smartly and compliantly, the rewards can be great.

 

Are you considering a Reg A capital raise? 
Read our whitepaper, The Risks and Rewards of Regulation A:

DOWNLOAD YOUR WHITEPAPER

 

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.

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About author

Ryan Gunn

Ryan is Senior Marketing Specialist at WealthForge, where he applies digital marketing expertise gained through his prior agency experience to create content and analyze web performance. He earned his bachelors from Virginia Tech and MBA from the College of William & Mary. Outside of work Ryan enjoys cooking spicy food, listening to his record collection, and watching entirely too many movies.
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