I am often asked what types of companies Regulation A+ will work best for. Here I describe the ideal types of companies for which Reg A+ is well suited, to help you determine if Regulation A+ is a good fit for your company.
Reg A+ is an increasingly popular method of raising up to $50 million per year and more of equity growth capital. It provides liquidity to insiders and long-standing investors. It’s also a versatile system that can optionally be used to conduct IPOs to the NASDAQ or NYSE, or to the OTC markets.
At this stage, consumers are critically important: Institutional and angel investors are generally cautious about getting into new investment types until thoroughly proven. So in most cases, we do not see much activity from them in Reg A+. At this stage, Reg A+ offerings must appeal deeply to consumers to be viable, because consumers are early adopters and will invest if they love what your company does. They don’t second guess the relativity new Reg A+ SEC rule system. As awareness of Reg A+ grows and its track record builds out, we will see the funding window broaden to include far more companies than at this stage.
Now let’s explore the types of companies where Regulation A+ is likely to be a good fit as a capital raising method:
Lifestyle Companies That Fit the Way People Aspire to Live
Fashion, clothing, footwear, healthy
BrewDog launched their Reg A+ offering in August 2016 and just eight months later in April 2017 private equity firm TSG Consumer Partners,committed to invest
The trendy casual shoe maker XeroShoes, launched their Reg A+ four weeks ago, and have already taken commitments of $432k by marketing to their customers only, so far. They are doing well against their $3 mill goal.
Businesses That Are Essential to Their Customers
Service providers to large groups of partners that view them as essential for their well-being are often, of course, attractive investments for those same members. A good example here is Social BlueBook, which is a rapidly growing marketplace for online creative people to market their services to buyers on far more favorable terms than in the old world. Their Tier 2 Reg A+ launched in April and they have raised over $1 mill in six weeks by low-cost marketing to their customers. Another example is VidAngel, not really essential to their customers, but highly valued by them. VidAngel raised $10 mill in 5 dayslive to investors, by promoting their offering to their most active customers. They set the record for the fastest Reg A+ raise to date.
So far real estate is the first segment in Reg A+ that is engaging wealthy investors in a meaningful way. The combination of three factors helps; investors understand real estate and many would love to buy a building but don’t have the time or the capital; the inherent security of having a tangible asset underpinning the investment is clear cut, and the third factor; interest payments for many deals makes them highly desirable.
Fundrise has raised $140 mill in three simultaneous Reg A+ eREITofferings covering three different regions of the US. Real Estate as a whole is running at a 40% share of Reg A+ capital raised to date.
Medical and biotech companies. Many of these companies are B2B of necessity – they supply doctors, hospitals, and clinics. But their products can be very appealing to consumers anyway. Pain treatments, early cancer detection and treatment, along with heart disease prevention, stem cell treatments and editable DNA – all of these can be highly appealing to consumers. We all know someone that is suffering and needs help “yesterday.”
IoT for Consumers
Many Internet of Things devices and services are inherently appealing to consumers. Home automation, security, and energy saving are examples that can appeal strongly. I want one of those automatic AC vents myself!
VR and AR for the Consumer
Augmented Reality and Virtual Reality products that consumers are excited by, such as immersive gaming, travel, new car test drives, enriching tourist experiences and in general “doing what you can’t” by virtual means can be hugely appealing to consumers. The yells of delight from my wife when she did a VR mountain climb, (and the crowd that formed in Best Buy to watch!) tell the story. This is one exciting field.
Online Games and eSports
Addictive appeal to very large bases of customers and fans, along with direct relationships with customers make this a very rich category for Regulation A+. Every interaction with a customer is an opportunity to pitch the Reg A+ investment, making for very cost effective marketing.
Private Equity and Venture Capital Funds
Because PE and VC funds lend themselves to making their portfolio investments in a multi-region approach, they can raise far more that the single $50 mill per year. They can raise multiple Reg A+ $50 mill offerings in parallel, one per region. And of course, main-street investors may find the opportunity to get in at the early stages of a new PE or VC fund an attractive, even an exciting, prospect.
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!