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On August 18th, Chicken Soup For The Soul Entertainment (NASDAQ:CSSE) completed their Reg A+ IPO to the NASDAQ Global market. There are now four completed Reg A+ IPOs (the prior three are MYO, ADOM, and PIXY) since June 12th. Here we explore and discuss how this IPO worked;
Please note that I bought stock in CSSE during the Reg A+ offering, so I have a conflict of interest.
“We found it was a great advantage of Reg A+ that we were able to market our offering and talk to the press about it, unlike the traditional IPO “Quiet Period,” said Bill Rouhana , CSSE’s seasoned CEO with a strong track record of public company leadership. “This was key to our being featured in more than 700 articles in one month, while we were raising capital”. Summary of Regulation A+.
The company promoted the offering through an 18 member broker-dealer network and through their 2.8 mill social media following. NASDAQ also promoted it to their social media following of 2 mill people.
“The raising process took a total of four weeks from launch, culminating in being oversubscribed. We then took one week to allocate shares, process payments and close the offering. The strong revenue growth rate and profitability of CSSE made it easier for investors and analysts to evaluate the company using conventional methods” Said Rob Gibson, Managing Director of HCFP (HCFP, Benchmark and Weild&Co were the lead broker-dealers and bookrunners).List of service providers.
“The marriage of Wall Street with Main Street that Reg A+ allows, opened up access for our customers and fans to be a part of our IPO, which adds so much that is simply not available in traditional IPOs” CEO Bill Rouhana said.
“CSSE is probably the first Reg A+ IPO in which Institutional investors took a serious look and have invested significantly,” said John Borer, Senior Managing Director of The Benchmark Company.
David Weild, CEO of Weild&Co is widely credited as the Father of the JOBS Act, for his advocacy and research. David said, “The $30 million (2.5 million shares at $12) raised by CSSE is the largest of the Reg A+ IPOs to date, CSSE is also the first Reg A+ IPO to qualify for the NASDAQ Global Market, which is a more demanding listing standard”.
“There have been few traditional IPOs in the $10 mill to $30 mill range in the last 5 years” added John Borer. “In my view, it is significant that with Regulation A+ being used, there have been four Reg A+ IPOs listed on the NASDAQ and NYSE in the last twelve weeks”.
“Our IPO shows how Reg A+ is leveling the playing field. CSSE is a small company and our offering shows that IPOs are no longer restricted to the Unicorn club” added CEO Bill Rouhana.
“The CSSE IPO is notably the first Reg A+ IPO where the brand awareness is very strong, broad and established. This, coupled with the company’s profitable business model and CEO Bill Rouhana’s public company track record of success made the offering very appealing to investors” continued Rob Gibson.
The list of firsts for the CSSE offering is impressive;
At $30 mill, CSSE is the largest Reg A+ IPO raise to date (there have been $50 mill raises for real estate Reg A+ offerings that chose not to make an IPO), it’s also the first to be oversubscribed, and the first to qualify and list on the NASDAQ Global Market. These achievements by the CSSE offering team show further evidence that Regulation A+ is indeed a viable and attractive IPO method for small businesses.
Revenues of CSSE have grown from $1.5 mill in 2015 to $8.1 million in 2016. Net income was $0.8 mill with adjusted EBITDA of $3.8 mill in 2016. By my calculation, the post investment valuation is approximately $150 mill at the issue price.
CSSE is the first of the four Reg A+ IPOs that have large scale and very strong consumer appeal. This plays to a strength of Reg A+, because companies with a strong consumer following and customer base can market their offering more easily while promoting and selling their products at the same time, a synergy that reduces costs. How to succeed with a Reg A+ offering.
More lessons were learned in this IPO, at the online retail level, the broker-dealer and at the Institutional level. The logistics involved in the payment for shares and the transfer of shares to investors in the last few days of a Reg A+ IPO are subtly different than for a traditional IPO, and the broker dealers and institutional investors are getting practice which will pay off for future Reg A+ transactions. Reg A+IPO Flowchart./
In talking with the lead broker-dealers and with CSSE CEO Bill Rouhana, it is clear that getting the Offering Circular Qualified by the SEC before the capital raising process begins is a refreshing change compared with a traditional S-1 IPO. The clarity and simplicity of SEC Qualification up front leads to a simpler road show and marketing process with fewer uncertainties, along with the ability to actively promote the offering and the brand of the company.
It’s worth noting that the legal and audit fees involved in a Reg A+ are far lower than for a traditional IPO, making for another advantage of Reg A+ for small businesses.
There are a number of interesting Reg A+ IPOs in the pipeline ahead for the next six months, and my expectation is that we will see the number of Reg A+ IPOs continue to gradually gain momentum, stock market permitting. I am seeing a trend up in the number of companies that have self-qualifiedthemselves for Reg A+, with the result that a larger portion of them are going to succeed. And companies that are further along their development curve are engaging with and actively evaluating Regulation A+. Good indications for the coming year.
Rod is a Forbes Contributor. Read the read the full version of this column on Forbes.com.
Rod Turner is expert in entrepreneurship and raising capital. As CEO of Manhattan Street Capital he helps Real Estate, Mid-Stage companies, Startups & Rollups raise capital via Regulation A+. Check the Manhattan Street Capital our Blog for more in depth guidance. I hope you find this guidance informative and helpful!
In summary, take your time and evaluate how well Regulation A+ fits your company carefully before you get started. If you do move forward, make the time to do it right. Apply these guidelines to maximize the likelihood of your Reg A+ becoming a great success. Keep me posted on your progress so I can include your success in my Reg A+ Updates.