Many stand to benefit from the new, altered rules for small business finance through Reg A+–and no, it’s not the issuing companies. As we’ve rightly noted before Reg A+ has it’s limitations, but as a method for raising capital for successful companies and businesses, it may stand as the perfect gap between private and public enterprise. This is only one of the reasons you’re seeing the folks over at the OTC Markets take extreme interest in Reg A+ offerings.
When the NASDAQ shifted from a venture exchange to compete with the big boys, the void was filled by the Over the Counter market. It’s been the unfortunate case for small-cap companies that the illiquid market of the OTC, Pinks and Grays has been further decimated by the rise of electronic trading. That’s one of the contributing reasons we’ve seen less smaller companies use the “go public” approach to raising capital in quite some time. We’re (and the OTC Markets) are obviously seeing the potential of Regulation A+ to change the dynamic for OTC listed companies.
Why OTCMarkets is Gearing-up in a Big Way for Regulation A+
Cromwell Coulsen, President/CEO of OTCMarkets has PR-touting Reg A+ for the last few weeks. Rightfully so. The new laws put the OTCMarkets, and those that do business there in a great position for performing IPOs, APOs and DPOs with companies that used Reg A+ to source their initial capital.
Most smaller companies have individual investors, not institutions. I would expect a typical Title IV and eventually Title III offering would be no different. Not only will companies be corralling cats, but they’ll also likely be closer to being public and require public status after a Reg A+ offering. I’ve written previously about how crowdfunding will fuel more public offerings than we’ve seen in a while. This is where the OTC will shine.
Intermediaries are dead. History proved that with electronic trading and the Internet. The platforms that exist, including the OTCMarkets will further assist this along. In essence, the OTC has all the tools in place to be a great Title III or Title IV crowdfunding portal. Every other portal is just looking to now reinvent the wheel.
In short, the reasons for staying a private company begin to ebb away once you’ve successfully raised enough money to fully subscribe a Title IV offering. That doesn’t mean
With this nascent method for raising capital, no one has yet to crack the code. Mr. Coulsen of OTCMarkets said it well:
“I think some of the offerings will be quiet ones, but then we will find out which of the companies do real mini IPOs where they raise $40 million but have an order book of $400 million. With Reg A+ there are going to be some first movers who figure out how to use it. The big part for us is will there be a group of first movers who use it and become successful and others follow?”
Reading between the lines:
Regulation A+ is only the beginning for capital formation for small business. Once companies raise $50M in Reg A+, they can now use the OTCMarkets to truly “go public” and raise a massive amount more.
This is nothing but a complete boon for OTCMarkets (and frankly those that know how to navigate the waters).
Not everyone will be a good candidate. In fact, it’s likely that many will spend money on filings with very little to show for it. That doesn’t mean that someone isn’t truly going to crack the proverbial code. Once they do, the copycat artists will begin. My guess is the real money will be with companies like the OTC that can facilitate the entire process. There will also be a market for taking crowdfunded companies public, which will likely be larger than we think.