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 earlier this summer.
The Reg A Conference and its featured 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.
An interesting aspect of Reg A is its allowance for fractional shares. This can be likened to real estate, fine art, or other asset classes where fractional ownership is more common.
Nate Dodson, an attorney with Crowdfunding Lawyers, was the next presenter to take the stage. He laid out a cogent explanation of fractional ownership and some of the unique nuances of that facet, along with corresponding pros and cons.
Reg A’s flexibility encompasses options such as:
- Breaking down a Reg A raise into different series, (A, B, C…)
- Various series can contain different asset pools, locations, business divisions and product lines controlled by the issuer via syndication.
- Increased crowdfunding opportunities for investment beyond “accredited investor” qualifications as defined by Reg D.
- A more streamlined process if structured properly, with Reg A as a primary offering and the other syndication series as subordinate.
Dodson also warned about the need to avoid violation of the Investment Company Act of 1941 (by keeping under 99 investors) when using fractional ownership via control of the primary asset, majority of voting shares, or comparable tools such as those utilized in the real estate sector.
Reg A After 1 Million+ Investments
One of the key breakthroughs mentioned repeatedly throughout the conference was the opportune timing of revised rules to coincide with the latest digital technologies and social media platforms that can accelerate marketing and capital raise initiatives. The Jobs Act revisions to Reg A (a.k.a. “Reg A+”) also allow for companies raising funds through this filing to remain private, provided they stay within the aforementioned investor headcount cap and other compliance requirements.
Non-traditional industries, such as cannabis and robotics, can be ripe candidates for Reg A capital raises if they are smart about using all of the tools and resources available to them in the digital world, according to the Dalmore Group, a broker dealer specializing in Reg A financings.
Chairman Etan Butler and Managing Partner Dawson Russell (Managing Partner) represented Dalmore, a broker-dealer that has built a substantial amount of Reg A+ business, thanks to their methodology of combining cutting-edge digital technology with an understanding of the SEC compliance labyrinth that often stymies entrepreneurs and small businesses who may be neophytes in the capital markets realm.
Butler and Russell delivered a litany of helpful steps that outlined their general M.O. in helping their clients to Reg A+ success:
- Leveraging the right team – This is a critical early step needed by all applicants for organizing all of the moving parts. Selection of the right attorney, accountant, and a Broker/Dealer who can handle the SEC required due diligence, distribution, promo materials approvals, is crucial. Additionally, having someone on the team with UX tech expertise for processing digital investments was a key component for success, as 90% of Reg A+ investments are now made digitally over a computer or smartphone.
- Recognition of the Value of Community – Early fans and supporters are the core of the larger community that will advocate on social media and elsewhere for your company’s product or service. The more that this community is cultivated and grown, the stronger the capital raise for the company, thus the issuer can have a series of A, B, C…. funding rounds.
- The Need for Frictionless Tech – To expeditiously and efficiently handle follow up marketing, promotion for future rounds, etc., frictionless and ergonomic technology is of paramount importance. The Amazon Prime internet experience is the standard for ease of navigation and automation, and any company undergoing the Reg A+ process needs their website, app, and functionality to measure up, by comparison. Data driven workflows are key, as nearly 90% of Reg A+ investors do their investments and get all of their info on a prospect company via smartphones.
- Marketing Strategies – Companies based in various industrial sectors and offering products or services all have different nuances and quirks peculiar to their sector and demographic appeal. The smart company executive team will mix and match the elements that work best for their brand, product or service. One can look at the B/D, attorney and details of other Reg A filings on EDGAR for reference as to how other companies do it and what players and elements they deploy.
Dalmore noted that Reg A/A+ lends itself better to retail products and branding, since marketing to individual users and potential customers and investors, and the word of mouth inherent in viral marketing in social media is ubiquitous. On the other hand, Industrials or B2B companies may find Reg A to not be the best vehicle unless they can target their clients and others who meet investment criteria, vs. a more traditional Reg D filing.
