MAKING THE GRADE WITH REG A+ OFFERINGS - The explosion of Regulation A+ offerings is generating opportunities for creative IR professionals - NIRI
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
PRIVATE EQUITY INVESTING
MAKING THE GRADE
WITH REG A+ OFFERINGS
The explosion of
Regulation A+ offerings
is generating
opportunities for
creative IR professionals.
BY E VAN PON DEL
8 M AY/J U N E 2 0 1 8 u I R U P DAT E n i r i . o rg / i r u p d a te
W
hat does reality television star Scott Disick investors. The challenge is that while the JOBS Act
have to do with investor relations? Nothing, eliminates certain hurdles to help small companies
unless you consider his call to action on raise money faster, management teams and their
Twitter to get people to invest in a recent stock investor constituents don’t always understand
offering from ManiaTV a form of investor relations. the rules of engagement from an IR perspective.
“No risk, no reward,” said the star from “Keep- Anna Pinedo, a partner at law firm Morrison
ing Up with Kardashians” in a video he tweeted. Foerster who focuses on securities and derivatives,
The federal Jumpstart Our Business Startups said in an email that it would be prudent for com-
(JOBS) Act passed in 2012 allows such solicita- panies undertaking Reg A+ offerings to consider
tions, giving companies the right to raise money implementing communications policies that are
without going through traditional Securities and consistent with Regulation Fair Disclosure (Reg FD).
Exchange Commission (SEC) requirements when
selling securities to the public. Significant Learning Curve
The net result: Hundreds of private compa- That means all investors should be informed at
nies are utilizing the JOBS Act to raise millions of
dollars with securities offerings that are exempt
The same the same time when there is news or other mate-
rial information issued by the company. Reg A+
from certain filings and don’t yet trade on the
open market. Even so, the issuing companies still
securities companies primarily use digital media channels
to reach investor audiences, including Twitter,
need investor relations programs to keep people
informed about what they are investing in.
liability of a Facebook and YouTube. It’s important that IR
executives managing these channels set protocols
Perhaps the most popular exemption under
the JOBS Act is the Regulation A+ offering, which
public company and expectations with management teams when
communicating with investors. Combine this with
took effect in 2015. Nearly 18 months later, 147
Reg A+ offerings were filed by companies seeking
applies to the fact that many Reg A+ management teams
have never led publicly traded companies, and
a total of approximately $2.6 billion in financing,
according to the SEC.
the offering a significant learning curve begins to take shape.
“Often, there is no financial intermediary (un-
There are two different options for Reg A+ of-
ferings. A Tier 1 Reg A+ offering allows companies
materials used derwriter or placement agent) in a Regulation A+
offering,” Pinedo explains. “Accordingly, entities
to raise up to $20 million in a 12-month period,
and Tier 2 offering allows companies to raise up to
in a Reg A+ that are not regulated may be assisting the Reg A+
issuer with marketing and IR, so there may not be
$50 million in the same period. Companies may
target accredited and non-accredited investors,
offering. an organization serving the traditional ‘gatekeeper’
function. It will be essential for management
which are defined as follows: teams to remain focused on the need to review
oo Accredited investors must have a net worth all communications and approve any marketing
of at least $1 million, excluding the value of or IR materials used.”
a primary residence, or have annual income The same securities liability of a public com-
of at least $200,000 for the last two years (or pany applies to the offering materials used in a
$300,000 combined income if married) and Reg A+ offering. That’s why Richard Perl, chief
expect to earn the same amount during the administrative officer for recycling company Ter-
year the investor invests. raCycle, did significant homework on disclosures
oo A non-accredited individual investor is one and enhancing transparency for investors before
who has a net worth of less than $1 million his company launched its Reg A+ campaign.
(including spouse) and who earned less than TerraCycle has a “frequently asked questions”
$200,000 annually ($300,000 with spouse) in section on its website that provides information
the last two years. on how Reg A+ offerings work. The company has
IR for Reg A+ offerings requires targeting retail a direct link to its “circular,” which is the Reg A+
n i r i . o rg / i r u p d a te I R U P DAT E u M AY/J U N E 2 0 1 8 9NIRI ORANGE COUNTY ANALYZES MICROCAP FUNDING TRENDS
N
ew regulations passed under the JOBS Act While companies do not have the conventional
have ushered in a new age of fundraising op- underwriting process bringing in institutional in-
tions for microcap companies. vestors, they do have the opportunity to reach out
At the NIRI Orange County chapter meeting in to individual investors and offer them a stake at
Newport Beach, CA in February 2018, a panel of the “IPO” stage. Individual investors get a chance
experts in the area of Reg A+ and crowdfunding to directly invest in small, leading edge firms --
gathered to share insights into these investment many already generating revenue at the initial of-
opportunities and the rapidly growing ecosystem fering stage, something they would not be able to
of law firms, banks, accounting firms, and market do in most standard IPOs or in late-stage venture
makers poised to get money into the hands of capital funding rounds.
growing businesses. Panelists David Gosselin of accounting firm
The event drew NIRI members and a large audi- dbbmckennon and Joe Oltmanns from OTC Mar-
ence of local entrepreneurs, incubator staff, bank- kets Group rounded out the panel of providers and
ers, advisors, and others interested in the potential added their views of this important new market.
of Reg A+. Gosselin said, “In the end, we may need a hybrid
Moderated by Mark Collinson of Compass In- approach (core investors and crowdfunding) to
vestor Relations, the panel discussed whether Reg make it work long-term.”
A+ could be the “better, cheaper, faster” version of Oltmanns, whose exchange has seen the trad-
the IPO that smaller companies desperately need. ing of several Reg A companies, added, “it is
Amit Singh, an attorney at Stradling Yocca Carl- important to have investor relations professionals
son & Rauth who specializes in securities law for in place telling the story, as that’s part of being a
fast-growing companies, explained what Reg A+ public company.”
makes possible. Mota Group, Inc. is one of several California busi-
Dan McClory of Boustead Securities, one nesses currently going through the Reg A+ IPO pro-
of the pioneers in Reg A+ offerings expanded cess. The company makes specialized consumer and
on Amit’s framework. He pointed out Reg A+ professional drones. CEO Michael Faro said, “The
“allows a company to get primed and ready to JOBS Act, has tried to open the door to let the com-
eventually do an IPO.” pany manage the fundraising process themselves.
Boustead’s focus on the micro-middle market, Before, there was no real way for a small company
vetting and migrating companies through the to go public. Now, you can raise money, then when
fundraising process, has put McClory at the fore- ready, apply to an exchange to start trading.”
front of Reg A+ as an option for his clients. He He cautioned, though, that “It’s good to have a
loves the fact that, by using an “S-1 lite” form 1-A, year of cash on the side so you don’t gamble the
Reg A+ allows for a faster SEC approval process. company on an IPO.” Even with Reg A+, he noted
He also applauds the fact that Reg A+ allows that going public is still the “most difficult project
companies to “test the waters” for investor inter- you’ll do in a lifetime” and not to expect this new
est both via conventional investor meetings and market – while it may be a new frontier in funding
by advertising their fundraising efforts directly to for companies like his – to be better, faster, and
individuals through social media. cheaper at every stage.
10 M AY/J U N E 2 0 1 8 u I R U P DAT E n i r i . o rg / i r u p d a teequivalent of an S-1 document for initial public
offerings. TerraCycle also has a section on its
website that breaks down investment details.
“Part of the appeal of this type of offering is to
provide access to people who previously didn’t have
access to early stage investing in companies,” says
Perl, also noting that TerraCycle offers a dividend
to investors that is a minimum of 50 percent of
the company’s after-tax profits, provided it meets
state law conditions for paying dividends.
Reg A+ offerings are unique from traditional new retail investors.
IPOs in that marketing these offerings is incum- Marble said there are three primary media
bent on the issuer, since there is not usually an channels to engage when reaching Reg A+ inves-
investment banker involved. In some ways, Reg tors: paid, earned, and owned media. Paid media
A+ has cultivated a niche for IROs who are more includes buying advertising on digital media plat-
creatively inclined, forcing them to think more forms, such as Facebook or sponsored videos and Unlike a
like marketers. posts on LinkedIn. Earned media are stories that
“You don’t want your offering to have ‘orphan run in a publication like The Wall Street Journal, traditional
stock syndrome,’” says Mark Elenowitz, founder Bloomberg News, or a trade publication. Owned
and CEO of TriPoint Global Equities, a pioneer media are channels that speak directly to custom- IPO, you are
in the methodology and structure of Reg A+ ers via email lists and company blogs.
offerings. “You need to enhance the visibility It is common for Reg A+ campaigns to spend marketing
of these offerings, and that means there is a $100,000 on paid media in a 12-month period, and
significant retail component from a marketing it can take six to eight touches before a prospective to individual
standpoint.” investor actually converts to a shareholder. Most
An increasing number of Reg A+ offerings of the offerings are conducted via platforms such investors who
are also serving as a prelude to a traditional as StartEngine, SeedInvest, and Crowdfunder.
IPO. Last summer, the following three Reg A+ “Everything we do is oriented toward investor may not be
IPOs priced: ShiftPixy, which raised $12 million acquisition,” Marble says. “But one of the things
via sole bookrunner WR Hambrecht and listed that is glaringly missing from the equation is used to sifting
on the Nasdaq as the first ever underwritten proper investor relations support during and after
Reg A+ IPO. Reg A+ IPOs Adomani and Myomo a fundraising campaign.” through a
raised $13 million on the Nasdaq and $5 mil- When people invest in a Reg A+, they don’t
lion on NYSE-AMEX, respectively, according to always understand they are investing in a private prospectus
financial services firm Dealogic. company and the shares do not trade on the
open market. This is where more traditional IR and building
Blurred Lines programs fit into the Reg A+ ecosystem, including
The lines between investor relations and marketing facilitating investor inquiries about a company’s models.
are somewhat blurred when it comes to Reg A+ progress, or developing outbound messaging on
offerings. Whether it is the role of the marketing hitting financial milestones.
department or IR representative, companies that It is also important to consider finding an IR
choose to raise money through a Reg A+ engage professional to help handle the messaging when
in a comprehensive digital marketing and paid companies transition from a Reg A+ offering to an
media plan to court investors, according to Darren IPO. Shareholders need to understand that there
Marble, chief executive officer of CrowdfundX, a is now a public market for their holdings.
fintech marketing firm that helps issuers acquire “Instilling confidence and trust is critical for
n i r i . o rg / i r u p d a te I R U P DAT E u M AY/J U N E 2 0 1 8 11ensuring success when a Reg A+ company transi- expectations will help develop a loyal
tions to listing on an exchange,” Marble explains. investor base.
oo Pull the veil back. Putting a face to a Reg
Tips for A+ Offerings Even from A+ company is important when attempt
Here are additional tips for investor relations ing to instill confidence in shareholders.
professionals to consider when involved in a corporate Podcasts, webinars, and conference calls
managing a Reg A+ offering: are important communication tools for
oo Ensure that you are telling a story that governance CEOs leading a Reg A+ offering.
individual investors will understand. Reg oo Behave like a public company. Reg A+ offer
A+ offerings specifically target individual perspective, ings are similar to IPOs, and Reg FD rules
investors, so the more consumer-driven the also apply.
story the easier for investors to get engaged Reg A+ Elenowitz believes there will be a proliferation
about the investment. of Reg A+ campaigns in the future, as it enables
oo Align with experts in digital marketing offerings help companies to raise a smaller amount of money
and PR. Unlike a traditional IPO, you are before going for a full-fledged public offering.
marketing to individual investors who may executives This walk-before-run approach is preferable
not be used to sifting through a prospectus when getting management teams accustomed
and building financial models. Therefore, understand to life as a publicly traded company. It also costs
it is critical to work with people who can less money compared with going straight to an
create social media channels, videos, and how to handle IPO on a major exchange.
blog posts that tell a dynamic and consumer- Even from a corporate governance perspective,
friendly story. directors and Reg A+ offerings help executives understand how
oo Millennial themes generate interest. Many to handle directors and management teams, said
investors who are attracted to Reg A+ tend to management Patrick Tracey, a senior vice president at transfer
favor environmental and social justice issues agent service provider Computershare.
and skew younger. If these themes are part teams. “I also believe Reg A+ offerings are a good area for
of your story, be sure to consider tapping IROs to get experience before landing at a Fortune
into millennial media outlets. 500 company,” Tracey says. “You get to experience
oo Answer investor questions via FAQs, email, firsthand what it is like to work with investors, and
and phone. Similar to a traditional IR program, investor that is invaluable when starting a career in IR.”
relations professionals should be prepared to answer all Stepping into an IR role for a Reg A+ company also provides
investor-related questions in a frequently-asked-questions a ground floor opportunity to wear many hats, including CFO,
document, or via direct email or phone correspondence. human resources director, and even underwriter. “Reg A+ allows
oo Exercise patience. Many investors of Reg A+ offerings are you to solicit directly to investors, so whoever is interfacing
not as financially savvy as institutional shareholders. Ques- with this group must know how to get investors interested
tions can range from the mundane to entirely unrelated. and how to keep them happy,” notes Tracey’s colleague, Peter
Regardless, it is important that the investor relations rep- Duggan, who is a senior vice president and regional manager
resentative remain calm and collected, or your comments of investor services at Computershare.
may be used against you on social media. Appealing to investors’ interests is something Scott Disick
oo Ensure consistent communication. As with any publicly may be trying to tap into. In his tweet to get people interested
traded company, enhancing transparency through consis- in the ManiaTV IPO, he mentions “all access celeb passes.”
tent communication is key to keeping investors in the know While most companies may not have such high-profile appeal,
about a company’s progress. you get the idea. IR
oo Align with a competent transfer agent. Transfer agents
help keep track of shareholder information. EVAN PONDEL is president of PondelWilkinson Inc.;
oo Under promise and over deliver. Managing investors' epondel@pondel.com.
12 M AY/J U N E 2 0 1 8 u I R U P DAT E n i r i . o rg / i r u p d a teYou can also read
