Regulation A+ is Bringing New Life to Public Micro-Caps
Regulation A+ also lifted the accredited investor requirement formerly associated with buying equity shares in a public offering.
New York, NY, Feb. 24, 2021 (GLOBE NEWSWIRE) -- via NewMediaWire -- PCG Advisory -- Robinhood and Reddit didn’t start the fire. It’s been burning for a while. In 2012, the Obama administration passed the JOBS Act, which brought us Title IV, aka Regulation A. This bipartisan piece of legislation was an invitation to the dance for self-directed investors.
Popularly referred to as the “crowdfunding clause,” Regulation A, which was amended in 2015 to become Regulation A+, offers an exemption from registration requirements, and the fees associated with them, for public offerings of securities up to $50 million per year.
Regulation A+ also lifted the “accredited investor” requirement formerly associated with buying equity shares in a public offering. That action opened the door for crowdfunding platforms and self-directed investors. Anyone can now participate in the process.
Democratization Provides Access to All Investors
Complain about market manipulation if you like, but the actions of Reddit’s #WallStreetBets and the reactions by Robinhood and Charles Schwab clearly exhibited the power of opening up trading to all. Big banks and venture funds no longer control the market.
According to Jeff Ramson, founder and CEO of PCG Advisory in New York, “We are no longer a society that will tolerate participation from only the wealthiest and well connected. I believe in regulated markets and investor protection, but we need to provide access to all.”
A strong proponent for democratization of capital markets, Ramson has spent the past thirteen years advocating for the use of social media to communicate to the financial community. That includes crowdfunding public offerings, which Regulation A+ laid the framework for.
“The original mission was to create a platform for authentic and transparent communications in the midst of a financial meltdown caused at least in part by the opaqueness of public companies,” Jeff shared. “I don’t mind saying that most people thought I was crazy.”
Regulation A+ as an Option for Public Micro-Caps
Public offerings using Regulation A+ are more cost effective for smaller companies and open up additional access to potential investors. Unlike Regulation D, which is an offering for accredited investors only, shares can be sold to anyone.
“Reg A offerings for public companies are the culmination of the past 13 years, allowing small public companies to access capital in a democratized way,” Jeff Ramson told us. “It removes the inefficiencies and friction, not to mention the enormous cost, of microcap funding.”
From a corporate perspective, crowdfunding allows for a wider distribution of equity and voting privileges. Existing shareholders can maintain more control over the company without giving up large blocks of preferred stock in exchange for venture funding.
Most importantly, Regulation A+ is a vehicle for public companies to raise funds without taking on additional debt or selling existing shares of the company. Reg A allows up to $50 million in new equity offerings per year, a significant amount for smaller companies.
“Raising capital online is no longer just a vehicle for private companies, it’s the future of capital markets,” Jeff said. “The vision I embraced was that of growing communities of stakeholders connecting around topics and companies they choose to support or critique.”
The 2020 Pandemic Accelerated Mass-Adoption
The short squeeze of GameStop was a demonstration of how democratized capital markets have changed the way business is conducted on Wall Street. The value of crowds, as proven by Facebook, Twitter, Wikipedia and of course now Reddit, cannot be overstated.
Anyone who has been paying attention in recent years saw this coming, but the pandemic accelerated the process. Technology advances to meet the needs of an increasingly online population have made capital investing a virtual experience.
“We were already headed in a digital direction,” Ramson told us. “The days of face-to-face meetings being essential are over. Traditional mechanisms for reaching qualified investors are now antiquated. As with everything else, capital raising has entered the digital era.”
The numbers are there for this to happen. Robinhood, the most popular online trading platform for entry-level investors, has thirteen million users. Reddit has 430 million users and they’re not even in the top ten for social media platforms. Facebook has 2.5 billion users a month.
Crowdfunding Begins with Social Media Marketing
The key to successful crowdfunding is having a product or service that the crowd will buy into. Before filing for Regulation A+, it’s best to mount a social media campaign to increase brand awareness. Build an audience on Facebook, Twitter, Instagram, etc.
One common mistake here is the assumption that crowdfunding sites like SeedInvest or CloudRaise will do the marketing for you. They don’t. Most of them are simply listing services that provide an audience, but don’t necessarily promote your offering.
For those doing this for the first time, seek professional advice. Building a social media audience to promote brand and product awareness is only the first step. Once you have their attention, how will you convince them to invest? Ask for help from someone who’s done it before.
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