Lessons Learned: Getting your Reg A or 506(c) deal sold

We’ve seen hundreds of successful offerings go through our system, and some that weren’t. Why? What’s the difference between one deal getting funded and another refunded?

I’ll assume you’ve got good lawyers drafting doc’s & disclosures. And that you’re using a backoffice provider like FundAmerica to ensure your offering is kept in compliance and manageable. So let’s talk about what it takes to get your Reg A or 506(c) offering sold and funded.

Structure/Terms: Think carefully about what you’re offering investors…is it something that you would go for yourself? Almost all the early success in 506(c) has been real estate and there are two reasons for that; first is perceived lower risk of the asset class, and second is a clear exit strategy or at least defined targeted minimum-returns. Reg A+, on the other hand, has already seen success with consumer-oriented businesses that investors are passionate about. Work with someone who can guide you in offering something that works both for your business and for your target investors.

Success example:Elio Motors, a company with a consumer product, offered equity. Investors loved the company and wanted to be part of the journey.
Failure example: Another company (not naming here) that services businesses also offered equity to investors . They had (in my opinion) fantastic fundamentals and cash flow but as a B2B play they had little chance of building consumer enthusiasm or media coverage and I think they really should have offered debt with a convertible feature or warrants in order to make it interesting to investors.

Online Processing: Use the internet and NEVER disrupt the investment process. Do NOT require investors to pause so you can email or fax them documents, do NOT force them to open new brokerage accounts that they don’t want, do NOT make them jump through hoops and seek invitations just to see your offering. Make it easy. Let them click a button and, in one single frictionless event, invest. Providing transaction engine technology via api’s and “Invest Now” buttons is our primary business and we typically see a 97% transaction success rate when our process is used.

Sales & Marketing: Here’s where the rubber meets the road. How are you going to sell your deal to investors? Since you can “generally solicit” (advertise) your offering there are almost no limits to your marketing strategies. You can now combine the old with the new…

Old – pitch to angel groups, reach out to family & friends, hire a broker-dealer to solicit investors
Add to that…
New – put your offering on your company website, on various platforms, aggregators and websites around the internet, post to social media, pay people to post to their social media, buy advertisements on radio/tv/print, generate PR, email your customers, buy email lists, run workshops, hire celebrity endorsers, and whatever else you can think of.

Success:Elio Motors hired a marketing firm (CrowdfundX) to produce a terrific pitch video, shape their message to investors, and create a marketing plan that included articles in automotive consumer press and websites. They engaged a platform (StartEngine) to host and market their offering. They did a raise on Kickstarter to help build an enthusiastic crowd. And they initiated an aggressive PR campaign.
Failure: The other company I mentioned hired a small broker-dealer to solicit investors but did not have the offering syndicated to other BD’s, and they produced a terrible (unwatchable, in my opinion) pitch video and sub-par marketing materials. The small BD by itself couldn’t bring in enough investors to meet the offering minimum. I liked this company a lot, and it was tough to see them pull their offering as I think it’s one that should have been successful. But they didn’t go a good job with marketing this B2B company to investors or structuring the right type of investment (my opinion).

Budget: Nobody works for free. Just as with your business, people get what they pay for. So realize that marketing professionals, online platforms and broker-dealers need to get paid. It is what it is – a cost of doing business – so accept that and move on. And yes, broker-dealers are not cheap, typically anywhere from 8% – 11% commissions plus warrants, but they only get paid on what they sell and thus you don’t pay those fees on the investors you and your marketing team find via direct means (e.g. let’s say you can raise $5M directly, and thus avoid paying selling commissions on that amount, but you may, if you can interest them in your deal, be able to pay a broker 10% to solicit additional investors and perhaps raise another $8M).

Recap: To give your offering the best chance of success

  • Offer terms that are right for your company and your target investors
  • Ensure a frictionless, easy investor experience
  • Produce a terrific pitch video and marketing materials
  • Engage marketing professionals to help create and execute a plan
  • Sell directly to your customers and people around you
  • Hire online platforms to market to their bases
  • Find a broker-dealer who will create syndicates and help solicit investors
  • Realize & accept that this will cost money, budget for that

Need a referral? We know almost all of the marketers, broker-dealers, platforms and other professionals who are dedicated to helping people get their Reg A+ and 506(c) offerings sold and are happy to make some introductions.

Questions? Reach out to me or anyone on the FundAmerica team anytime.
Legal Disclaimer: These materials are my personal opinions and for informational purposes only and not for the purpose of providing legal or tax advice. The issues discussed include complicated areas of law and legal advice should only be obtained and relied upon from a securities attorney about your specific circumstances.