Reg A’s Ask: should I “test the waters”?

I get this question fairly often. The new securities regulations allow a company to “test the waters” (“TTW”) before they conduct a Reg A offering, meaning that you can advertise that you are considering raising money via Reg A and want to know if people are interested. And if people are interested they can click a button to give you a non-binding indication of interest (repeat: “non-binding”, this is a key rule).

There are reasons to say “yes”, including:

  • It gives some indication that there might be enough interest from investors to justify the time and expense of doing an offering;
  • It can create some excitement among your customers and fans about the upcoming offering and the opportunity for them to own a piece of your company;
  • It could potentially generate more product sales as word of the upcoming offering spreads through social media and new people find you and become customers.

And there are reasons to say “no”, including:

  • You don’t get a second chance to make a first impression, and a TTW campaign may spoil things by generating excitement and then making people wait…and wait…and wait…and wait…as the company works through preparing the offering materials and going through SEC and FINRA reviews & comments, so by the time you finally launch the offering you’ve lost that initial momentum and can’t get it back;
  • This is public, so your competitors will see what everyone else sees, you may want to limit that and not give them a heads up about your plan to raise money via Reg A;
  • TTW campaigns are imperfect at best, with ultimate follow-through rates between 5% – 30%, and may lead to making some erroneous marketing decisions/assumptions.

Should you test the waters? That’s entirely your call. Get the advice of the professionals who will be helping you conduct your raise. There are times when it’s appropriate, and times when you simply shouldn’t do it and, instead, just roll out your offering once it’s ready to rock.

Good luck!

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.