It’s been a long time in the making (and for good reason), but the law for equity crowdfunding for both accredited and non-accredited investors is finally out today. Everyone was holding their breath there for a while as well, when Montana and Massachusetts came clamoring in shortly after the law was officially announced back in late March. But it appears the SEC is sticking to its guns. I’m particularly excited about the opportunities that Regulation A+ brings to lower middle-market businesses.
First, it provides a means outside of traditional venture capital lending. While venture capital is a needed component of any economy, there are some negative aspects to the way VCs operate that aren’t always in 100% favor for the entrepreneur and founders. Crowdfunding helps to democratize the capital, putting the control, vision and direction of the securities issuer back in the hands of the company.
Second, it’s cheaper and less onerous (at least somewhat) than going public on the OTC. It’s also more sexy–mostly because it’s the latest “new” thing. We work with a number of high profile attorneys and accountants that assist with both the IPO/DPO/APO process as well as the filing of the Form 1-A, etc. While the pricing for Reg A+ services is across the map, the market will help to equalize the rates in time.
Third, it should help revive the OTC. Search “Regulation A+” and “OTC” simultaneously in Google and you’ll notice the OTCMarkets is gearing up for the large demand for alternative public offerings, direct public offerings and reverse mergers that are likely to occur as a result of Regulation A+. While Reg A+ has it’s benefits, it also carries with it most of the downsides of a public company, without many of the benefits, including liquidity. So, while many have spurned the sleazy world of microcap stocks, especially since their rapid decline after electronic trading came of age, I expect the microcap stock world will likely have a revival as many Reg A+ funded companies seek liquidity in the public markets.
Finally, the options for sourcing capital have been harangued for years, thanks to a number of macro issues out of the control of most companies. I’ve seen companies with highly-profitable income statements ($500K to $1M EBITDA), but with no real “assets” as defined by a bank that could be pledged as collateral, denied for loans.
The traditional model is broken. We’re starting to see the scratching of the surface and it’s looking good, real good.