Regulation A has been in existence for nearly a century since it was added in 1936 to The Securities Act of 1933. Due to its limitations, such as its 1992 total raise allowance of $5 million, the requirements for subscribers to have a prior relationship with the issuer, and other restrictions, it was long regarded as a “friends and family” type of fundraising niche for closely held public companies that could meet its parameters.
The Jobs Act of 2012 and subsequent 2015 revisions to Reg A upended the paradigm and reshuffled the deck for savvy entrepreneurs and investment bankers in multiple industrial sectors, by significantly raising the capital amount limits and loosening some restrictions. The timing couldn’t have been better: the digital marketing age was tailor made for mobilization under the revised guidelines.
DealFlow Events has been organizing topical conference events for the institutional financial community for 20 years. Its latest symposium, The Reg A Conference 2023, was held in June. The one-day event featured two dozen speakers across a range of professional disciplines.
The Reg A Conference presenters acknowledged the current state of the market and came prepared to address those issues with potential solutions as well as examples of successful steps being taken to ameliorate regulatory problems and other obstacles that can add to expenses.
The conference opened with an overview of the complex Reg A preparation and application process from Jonathan Stidd of DealMaker Reach:
Key Strategies to Drive Reg A Success
With an analogy comparing the Reg A process to a spaceship launch, Stidd broke down the three primary stages as Planning, Launching and Orbiting.
Stidd stressed that while certain regulatory burdens were looser than with a Reg-D or other kinds of larger capital raise platforms, deficiencies and oversights on documents in the submission filing could make things harder for companies down the road. Among the critical points Stidd cited during the planning stage were:
- Preparing for audit
- Obtaining the Letter of No Objection from FINRA
- Educating investors with prepared talking points ( because Reg A relies on heavy digital marketing)
- Clear and actionable deal terms.
Stidd emphasized that a key advantage of Reg A was that it no longer restricted the potential investor pool to familiar entities and thanks to technology, a greater number of participating retail investors could easily do so via phone. This gave companies the option to avoid having to deal with venture capitalists at this financing stage, since it can often result in lower net valuations due to institutional demands for dilutive warrants and other incentives.
Stidd discussed the flexibility of digital marketing during the launch process and offered tips for using digital tools to expedite matters:
- The use of test messages, website versions, etc. to gauge interest.
- The use of incentives, such as early investor perks. These perks could take the form of lower prices, but could also be manifested via branding or other means, depending on the type of company. Stidd cited one client’s offering to early investors of an opportunity to name a character in a forthcoming virtual reality video as an example.
- Stidd strongly advised using storytelling aspects that work in a digital context. Must include video, not just text.
- Education – how to nurture interest to expand the pitch to get to close each investor.
- Digital marketing makes gathering metrics easier and more pertinent for refining the pitch.
- Community building – creating an online B2B, consumer or other advocacy group can drive pre-purchases and awareness.
Following the capital raise, a company would enter the “Orbiting” or operational phase. Of course, use of proceeds would need to be executed, but Stidd added:
- Community engagement needs to be maintained between, as well as during campaigns, to enable subsequent funding rounds.
- Community can be considered an additional asset class.
After the raise, the company’s brand loyalty was explained as the most important aspect of the orbiting step. The ability for the company to enter into subsequent financings was largely contingent upon the care and expansion of the company’s community of followers, advocates, and supporters – all made much easier thanks to digital marketing technology.
This article is the first in a series recapping The Reg A Conference 2023.