We’re fielding more and more interest in Reg A+, but that doesn’t mean we’re slam dunkin’ it. In fact, the number of companies who’ll make great candidates for a Regulation A+ offering is much smaller than the crowdfund evangelists would have you think. The reality is that the best crowdfund deals–namely, those that are worth an advisor’s time to consult on–are about as rare as any other type of investment. Reg A+, which is being touted as the new mini-IPO, is a good hybrid between traditional venture capital and microcap stocks.
In the venture capital world, it’s all about dealflow. It’s about finding those unicorn deals that haven’t been heavily-touted to other investors. It’s about finding those deals that can scale with a massive audience with little to no DA on the EBITDA. It’s about being able to put less in for the same amount of massive impact and worldwide touch.
But perhaps the biggest similarity Regulation A+ has is with the microcap stock world. The smaller alternative and direct public offerings of the world are never successful without a large investor-base. Large groups of retail investors flock to the sizzle, not the steak. They’re less interested in some oil rights or even real estate.
True, startups are eligible, but investor confidence is greatly bolstered by the required two years of financials. The list that follows will be helpful in understanding who might be a better candidate for a Regulation A+ crowdfunding deal, including what sets companies apart from the pack. This list is not meant to be exhaustive. It’s also not a checklist. I expect that there will be many firms that fit within the confines of some of these characteristics that will likely fail in their efforts to raise their desired funding using Regulation A+. Without adieu:
“What’s in it for investors?” Is also a good question to ask. What’s the sweetener for those you’ll be pitching in your Reg A+ offering.
When it comes time to consider the implications of a Reg A+, it is wise to consider whether your company would make a good candidate. Does the company meet any of the above qualifications? Can you sell the sizzle and not the steak? I would expect some of the most successful Regulation A+ deals we’ll be seeing will include all the aforementioned components with a few likely twists. In any event, we continue to expect to kiss a lot of frogs before we find the unicorn that will take to the bank.
What do you think?