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.

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.

Lack of a campaign plan to map out the algorithmic path to their goal raise amounts. I've built out a model that I call the "8-Point Plan that I recommend for building out a proper Strategy:

1. Industry Overview

2. Competitor Marketing Audit

3. Target Audience Personas

4. Channels

5. Creative Plan

6. Partnerships

7. Projections

8. Activation Summary

Realistically, issuers need 50k visitors per 1k investments (reflecting a 2% conversion rate) per $1m raised on a Reg CF, based off a $1k avg investment value (following stats/articles on Kingscrowd). It's important to draft our these traffic sources accordingly, and feature as much Social Proof as possible to validate the deal.

Here are links to more info:

Deck

Video Presentation at Equity Crowdfunding Week (full session here)

"Testing the waters" (TTW) in crowdfunding refers to the practice of gauging interest and collecting potential commitments from potential backers BEFORE officially launching a crowdfunding campaign. This pre-launch phase allows creators to assess the viability of their project and gather insights into how well it might be received by the crowdfunding community.

Creators often create a preliminary campaign page or use a specialized "pre-launch" page on a crowdfunding platform to showcase their project idea, outline key details, and, in some cases, offer early incentives or exclusive rewards for those who express interest or make a commitment to back the project once it officially launches.

During this testing the waters phase, creators can collect email addresses or other contact information from interested individuals. This information can be used to build a mailing list and keep potential backers informed about the project's progress, updates, and the official launch date.

Testing the waters serves several purposes:

1. Assessing Interest: Creators can gauge whether there is sufficient interest in their project before investing time and resources into a full-fledged crowdfunding campaign.

2. Building a Community: Gathering a list of interested individuals allows creators to build a community around their project, which can be beneficial when the campaign officially launches.

3. Feedback and Refinement: Creators can receive feedback on their project idea and make necessary adjustments based on the responses they receive during the testing phase.

It's important to note that while testing the waters can be a valuable strategy, creators should be transparent about their intentions and clearly communicate that the project is in the pre-launch phase. Additionally, not all crowdfunding platforms have specific features for testing the waters, so creators may need to use alternative methods to gauge interest, such as social media or a dedicated website.

The SEC has been relatively lenient with crowdfunding issuers (as opposed to crowdfunding intermediaries), possibly so as not to stifle this emerging industry, so as yet there is not really a "most common" way to get in trouble.

They have brought a series of actions against companies raising under Regulation A for failures to comply with the very technical requirements relating to how Reg A offerings are modified, extended or expanded. They have also brought actions against Reg A issuers for misleading statements.

However, I am not aware of Reg CF issuers getting into the same sort of trouble, even though I have seen significant violations of the various ways they can get into trouble (companies not eligible to use Reg CF, companies failing to extend or expand offerings in compliance with Reg CF, companies making misleading statements, companies violating the Reg CF communications rules). I have heard anecdotally of the SEC warning issuers that they should get advice from a securities lawyer, though.

Yes, an issuer can run both a Regulation Crowdfunding (Reg CF) campaign and a Regulation A+ (Reg A+) campaign at the same time, as long as they comply with the requirements of both regulations.

Reg CF and Reg A+ are both securities offerings that allow companies to raise capital from the general public. However, there are some key differences between the two regulations, such as the amount of money that can be raised, the disclosure requirements, and the eligibility criteria for issuers.

Under Reg CF, issuers can raise up to $5 million in a 12-month period, and they must file certain disclosures with the SEC and provide ongoing updates to investors. Reg A+, on the other hand, allows issuers to raise up to $75 million in a 12-month period, and they must file an offering statement with the SEC and provide ongoing reports to investors.

Issuers must ensure that they comply with the requirements of both regulations, which may involve preparing separate disclosures and reports for each offering. They must also consider how the two offerings may impact each other, such as how investors in one offering may perceive the risks and opportunities of the other offering.

Overall, running both a Reg CF campaign and a Reg A+ campaign at the same time requires careful planning and compliance with regulatory requirements.

Yes, Regulation A+ (Reg A+) was introduced as part of the Jumpstart Our Business Startups (JOBS) Act, which was signed into law in 2012. The JOBS Act was designed to make it easier for small businesses and startups to access capital and grow their businesses by easing some of the regulatory burdens and costs associated with raising capital.

Reg A+ is an enhanced version of the existing Regulation A offering, which was first introduced in the 1930s. Reg A+ expands the scope of the existing Regulation A by allowing companies to raise up to $75 million in a 12-month period from both accredited and non-accredited investors, as compared to the previous limit of $50 million. It also streamlines the offering process, allows for ongoing reporting requirements, and provides preemption of state securities laws.

Reg A+ was intended to provide a more flexible and accessible fundraising option for small and medium-sized businesses, while also providing investors with greater access to investment opportunities. By allowing companies to raise larger amounts of capital from a wider pool of investors, Reg A+ is seen as a way to foster innovation, create jobs, and stimulate economic growth.

Thanks for the great question. With nearly 90 FINRA regulated funding portals and thousands of broker dealers all eligible to facilitate issuers for their crowdfunding raises, you aren't alone in looking for deals that meet certain characteristics (e.g. impact investments). Luckily, there do exist aggregators that collect data about live offerings and sort them into categories. 

KingsCrowd is one such aggregator and you can find companies with live offerings that they've sorted as having "Social Impact" by clicking on this link: https://kingscrowd.com/companies/search/?social_impact=true&status=Active I believe they have a team of analysts that tag issuers with certain labels to make them easier to sort. 

Another place where you can learn more generally about companies operating at the intersection of impact investing and crowdfunding is at the SuperCrowd conference where companies, including impact companies with live offerings, pitch, present, and discuss case studies. It's a major gathering of leaders in this sector and you can find more info here: https://thesupercrowd.com

#impactinvesting #socialimpact @Devin Thorpe @Brian Belley