Regulation A: Beyond Starting Up

Leveraging generational changes to US securities laws that SeedInvest’s founders themselves helped come to pass, we help founders do more than simply raise money:

• Grow, retain, reward and engage existing customer bases

• Efficiently manage investors on an ongoing basis

• Maintain strategic and creative control to stay true to their vision

• Provide partial liquidity to existing shareholders, if necessary

As one of the few platforms facilitating securities offerings through a regulated broker-dealer, SeedInvest enables founders to take advantage of the full range of offering exemptions currently available under US securities laws, and was the first to open the early-stage asset class to retail investors through Regulation A+. We have a deep knowledge of early-stage fundraising, online capital formation, and how to best utilize Regulation A+, from pricing to compliance to marketing.

What is Regulation A+?

Regulation A+ allows US and Canadian companies to raise up to $50M over a 12-month period from anyone in the world. Since it came into law in 2015, we have facilitated 14 Regulation A+ offerings and helped successfully raise over $64M, including the largest crowdfunded Regulation A+ raise to date, $20M for Knightscope in 2017, as well as NowRx, which has raised a combined $13M+ across two Regulation A+ offerings as of the date of publication. [1]

What are the potential benefits of a Regulation A+ fundraise?

Rewarding, growing and engaging customers Most entrepreneurs will agree that customer acquisition and retention is fundamental to success. Contrary to perk-based crowdfunding sites, a Regulation A+ fundraise gives new and existing customers the opportunity to purchase a company’s stock, with the intention of drawing capital from investors and brand evangelists. These stockholders may be more aligned with the business, more invested in its success, incentivized to support it, and to encourage others to do the same. Companies can benefit from Regulation A+ by issuing equity to the public without the hassle and cost of listing on a public exchange.

Providing liquidity to early investors From an investor’s perspective, some view the lack of liquidity as a less appealing aspect of early-stage investing. While investment returns can be highly attractive, there is also a degree of risk, and it often takes a number of years to see a potential return on investment.

Companies fundraising under Regulation A+ may provide early investors partial liquidity by allowing existing shareholders to resell their securities. In most early-stage offerings, only new equity is created and new investors added, while previous investors remain locked up.

This can be a great thing for a company – bringing in investors and brand ambassadors who want to be involved in the company’s future, while simultaneously rewarding those that have been there since the beginning.

Maintaining control For founders seeking outside capital, a common concern is maintaining control over their company. The addition of venture capital investors allows founders to receive vital funding and often the expertise they need to scale at the cost of diluting their voting rights and economic stake in the company. At worst, founders may find that a major investor’s interests are not aligned with their own, which can derail a business from its core vision and potentially push founders out of the company they built.

Fundraising from a more diverse investor base can help mitigate this risk. Unlike traditional VCs, retail investors, while afforded standard investor rights, don’t sit on the board of the company. Instead, they add value in other ways, such as brand evangelism and engagement. This model also benefits the company’s existing institutional investors, who also want more capital to advance the business’ growth, but don’t necessarily want to contend with more board members.