Is your Digital Security Offering Suited for Regulation A+?
Just because you can, doesn’t necessarily mean you should. Before you start the filing process, here are the characteristics of companies best suited for a successful Reg A+offering.
By Vanessa Malone
- Regulation A was signed into effect by President Obama in 2012 with the Jumpstart Our Business Startups (JOBS) Act, with final rules coming into effect June of 2015.
- This new vehicle for capital raising gives companies the ability to utilize modern forms of communication and marketing (e.g. social media) to attract investors.
- It also gives everyday individuals access to investment opportunities once limited to high-net-worth individuals.
Reg A+ has been making headlines in the blockchain sphere recently, and as we touched upon in a previous blog, companies are racing to become the first digital security offering (DSO), or security token offering (STO), to become qualified. Although many have filed, none have succeeded in getting qualified by the SEC to start accepting investments from accredited and non-accredited investors.
This mimics a very similar “race to be first” that ensued after the Reg A+ rules initially came into effect nearly four years ago. Not surprisingly, certain capital raising methods favor certain types of companies, Reg A+ is no different. What’s great is that the blockchain community can look back at the wins and losses over the past four years to determine if their DSO is a good fit for Reg A+.
The following are all characteristics conducive to a successful Reg A+ offering:
1. A large and passionate fanbase
Reg A+ presents issuers with the ability to market their investment opportunity to the general public. This offers companies with a large following the advantage of tapping into a highly-targeted list of individuals already motivated to invest. Specifically, companies with robust newsletter lists and a strong social media presence (hundreds of thousands to millions) fair better when it comes to Reg A+. A recent example of this is High Times, a cannabis media company who claims to have surpassed 20,000 shareholders through its marketing efforts to their community.
If your company isn’t there yet, a workaround is to have a notable name, celebrity, or public figure attached to the company. For example, Virginia Black Whiskey, which announced plans to conduct a Regulation A+ filing last year is partly owned by Drake, which guarantees a level of exposure and earned media.
2. An emotionally compelling story
It’s not surprising that non-traditional investors are making an emotional decision as well as a financial decision when it comes to investing in a Reg A+ offering. Companies that do best here tell a powerful story, speaking to a higher purpose, a “beating the odds” entrepreneurial journey, or a revolutionary solution to a problem that affects a large affinity group.
For example, Myomo, Inc., a medical device company which became the first Reg A+ IPO to list on a national exchange, told the story of giving the power of movement and mobility back to patients who suffered a neuromuscular injury. The story was told in a powerful campaign video that touched many.
A plus for DSOs is that the blockchain community in itself is a strong affinity group motivated to see blockchain technology succeed. Further, Reg A+ aligns closely with blockchain community values as it pertains to being accessible by the masses, more so than rule 506(C) of Regulation D, which only allows participation from accredited investors.
3. A full-scale marketing & PR plan
Contrary to popular belief, no matter how great your company is, or how many followers you have, people are not lining up to give you their hard-earned money. Just as it typically takes 6 to 8 touch points to close a sale, an investment opportunity isn’t so different. In fact, it can be an even more cumbersome task. Issuers are typically advised to spend around 10% of their target raise on marketing.
This makes sense. When you purchase a shirt, you know exactly what you’re getting in return and when. In the case of buying shares, you’re selling the potential for growth. You’re also making up for a significant knowledge gap. The opportunity to purchase equity in a company online is still new and unknown by the majority. Add in the blockchain and an additional can of worms is opened.
These three points are great to consider as you begin to navigate through the best fundraising solutions for your company and your company’s goals.
If the whole time you were reading this you were thinking that your company checks off all the boxes, then congratulations, you have many of the characteristics that make for a successful Reg A+ digital security offering.
And if you’re also thinking how to find a one-stop shop to compliantly conduct your offering from issuance to secondary trading, then congratulations, you have stumbled on the right company with the tools to make this happen. To learn more, please visit https://horizon-globex.com/.
About Horizon Globex:
Horizon offers a suite of integrated blockchain software applications for compliant issuance and secondary trading of digital securities. Truly a compliance-first business, our solutions combine Wall Street and Silicon Valley to power the next generation of exchanges and securities offerings in the US and around the world.
Current SaaS products include digital securities issuance and transfers through Tokenetics (tokenetics.com); white-label investor onboarding and KYC identity verification through KYCware (kycware.com); watchlist management sanctions and PEP screening through AMLcop (amlcop.com); and transfer agent custody tools through Custodyware (custodyware.com). All software applications can be utilized independently or integrate with one another. Learn more at https://horizon-globex.com/.