The larger Reg A crowdfunding deals I've followed tend to be high-risk. The companies have gone to crowdfunding, in part, because they've likely struggled to convince VCs to invest. That they can go to the crowd to raise is great, but I fear investors are participating because of exceptional marketing and storytelling rather than investment fundamentals.

I've seen and invested in some deals where existing customers who know the product are invited to invest. This is a positive trend that investors are hoping will increase with traditional IPOs (Reddit offered shares to customers, for example). 

But the Reg A+ IPOs haven't caught on, and private companies pursuing the traditional IPO are waiting longer. Plenty of VC dollars out there for strong business models.

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The costs associated with a Regulation A (Reg A) offering are generally lower than those for a traditional S-1 filing (also known as an Initial Public Offering, or IPO). However, the S-1 process has its own set of advantages, such as access to a broader pool of institutional investors and the ability to list on a national exchange. Here's a breakdown of the cost comparison between a Reg A offering and an S-1 IPO:

1. Filing and Regulatory Fees

Reg A (Form 1-A) Filing Fees:

The filing fee for Form 1-A (Reg A) is calculated based on the amount of securities being offered. The SEC charges a fee of $118.20 per $1 million in securities offered.
Example: For a $75 million Reg A offering, the filing fee would be about $8,865.

S-1 (IPO) Filing Fees:

The filing fee for an S-1 registration statement is based on the offering amount as well. The SEC charges $129 per $1 million of securities offered.

Example: For a $75 million S-1 offering, the filing fee would be about $9,675.

Comparison: The filing fees for Reg A and S-1 are relatively close, but an S-1 filing can be marginally more expensive. The real cost difference comes from other areas, such as the legal and underwriting fees.

2. Legal and Accounting Fees

Reg A Legal and Accounting Fees:

For Reg A offerings, legal and accounting fees tend to be lower than those for an IPO because the process is less complex. The company is not subject to the same level of regulatory scrutiny, and the disclosure requirements are less stringent.
Typical range: $50,000 to $250,000 (for a Tier 2 offering, which is more common for larger deals).

S-1 Legal and Accounting Fees:

The legal and accounting fees for an S-1 IPO are significantly higher because of the more intensive SEC review process, greater disclosure requirements, and the need to meet the listing standards of a national exchange (e.g., NYSE, NASDAQ).
Typical range: $500,000 to $2 million (or more), depending on the complexity of the offering and the size of the company.
Comparison: Legal and accounting fees are significantly higher for an S-1 IPO, largely due to the additional regulatory requirements, extensive due diligence, and ongoing compliance obligations post-offering.

3. Underwriting Fees

Reg A Underwriting Fees:

In a Reg A offering, underwriting fees generally range from 5% to 7% of the total amount raised, though this can vary based on the type of offering and the underwriters’ relationship with the company.

Example: For a $75 million offering, underwriting fees could range from $3.75 million to $5.25 million.
S-1 Underwriting Fees (IPO):

Underwriting fees for an S-1 IPO tend to be higher than those for a Reg A offering. They typically range from 6% to 7%, but the size and complexity of the deal could push these fees higher.

Example: For a $75 million offering, underwriting fees could range from $4.5 million to $5.25 million.

Comparison: Underwriting fees are generally similar between Reg A and S-1, but for larger IPOs, underwriting fees could be slightly higher due to the greater number of institutional investors and a more complex underwriting process.

4. Marketing and Investor Relations Costs

Reg A Marketing Costs:

Reg A offerings often require significant marketing efforts, particularly if the company is using an online platform. Marketing costs typically range from $100,000 to $500,000 depending on the scale of the offering and the target investor base.

Reg A offerings can be marketed to both accredited and non-accredited investors, meaning a more extensive retail investor outreach may be necessary.

S-1 Marketing Costs (IPO):

IPO marketing costs can be significantly higher due to roadshows, institutional investor targeting, and broader media outreach. Marketing costs for an IPO can range from $500,000 to several million dollars.

Unlike Reg A, IPO marketing is targeted primarily at institutional investors, and the company typically needs to travel internationally to promote the offering.

Comparison: Marketing costs for an S-1 IPO tend to be much higher, especially due to the extensive roadshow and media campaign required to target institutional investors.

5. Ongoing Compliance and Reporting Costs

Reg A Ongoing Costs:

Tier 1: Less expensive compliance, as the company only needs to file with state securities regulators in addition to the SEC.

Tier 2: Requires more extensive ongoing reporting, including semi-annual and annual reports, as well as compliance with ongoing SEC regulations. These costs are typically lower than the ongoing costs for a public company with an S-1.

Typical range: $50,000 to $200,000 per year.

S-1 Ongoing Costs (IPO):

After an S-1 IPO, the company must comply with Sarbanes-Oxley Act requirements and file periodic reports (e.g., 10-Q, 10-K, 8-K), as well as proxy statements, and other disclosures required by the SEC. Additionally, there are the costs of being listed on a stock exchange.

Typical range: $500,000 to $2 million per year or more, depending on the size and complexity of the company.

Comparison: Ongoing compliance costs are significantly higher for a public company after an S-1 IPO, especially considering the more rigorous reporting requirements and additional governance requirements (e.g., Sarbanes-Oxley).

6. Total Cost of Capital

Reg A Total Costs:

Total cost of capital for a Reg A offering typically ranges from 7% to 15% of the total funds raised, depending on the size of the offering, the complexity of the business, and the professional fees involved.

S-1 (IPO) Total Costs:

The total cost of capital for an IPO can be much higher, typically ranging from 10% to 20% of the total offering amount. This includes underwriting fees, legal and accounting fees, marketing costs, and other expenses.

Comparison: Reg A offerings are generally less expensive than an S-1 IPO, particularly in terms of legal, accounting, and compliance costs.

7. Key Differences Beyond Costs

Investor Base: Reg A allows for both accredited and non-accredited investors, meaning a broader retail investor base can participate, while an IPO typically focuses on institutional investors and accredited individuals.

Regulatory Requirements: IPOs involve more detailed SEC scrutiny and extensive due diligence, which increases the complexity and cost of the process.

Time to Market: Reg A offerings can often be completed more quickly (e.g., 3 to 6 months) compared to an IPO, which may take 6 months to over a year due to regulatory review, roadshows, and other steps.

Liquidity: An IPO provides liquidity by listing on a major exchange like the NYSE or NASDAQ, while Reg A can result in a listing on smaller exchanges or over-the-counter (OTC) markets, which may have less liquidity.

Conclusion

Reg A is more cost-effective than an S-1 IPO and is often used by companies looking for a faster, lower-cost alternative to going public, especially if they don't need to raise large sums of capital or are targeting a retail investor base.

S-1 IPOs are better suited for larger companies with significant capital needs, as they provide access to institutional investors and listing on major exchanges, but they come with a significantly higher cost and more regulatory scrutiny.

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