Source: Rod Turner from Forbes
Two companies used Regulation A+ to conduct their IPOs recently, one listed on the NYSE: (MYO) and one listed on the NASDAQ: (ADOM). As a result, I am getting asked more often by company CEOs how they can best prepare ahead of time for their own Reg A+ to maximize their success. I wrote this post to help you do exactly that.
The primary risk and expense in a Regulation A+ offering is the marketing outreach to bring investors to your offering, so this article focuses on ways that you can make the marketing of your offering less costly and more likely to succeed by using the time between now and when your offering goes live to proactively prepare.
Institutional and angel investors tend to be cautious about jumping into new investment vehicles until they are thoroughly proven. Because Regulation A+ is relatively new at this stage, Reg A+ is largely limited to companies that appeal deeply to consumers because consumers are early adopters and will invest if they believe in what your company does. This results in a relatively small funding window for Reg A+ companies for the time being.
When online peer to peer lending was new, consumers were the first investors to step in while accredited and institutional investors stayed on the sidelines until later – they now dominate the peer to peer lending business, which has grown to be a huge multi-billion dollar market.
There are some exceptions to the above consumer restriction, so if your company is not a B2C consumer appealing, obvious fit there may yet be a way to make Regulation A+ work for you.
Let’s take a look at some key success factors that you may be able to build ahead of time to make for easier Reg A+ success:
- If you have an enthusiastic following in your industry: B2B companies generally have a hard time appealing deeply to consumers, but there are exceptions. For companies that have a network of partners – they could be distributors, franchisees, professionals or the like – in many cases, your business partners will be successful business people in their own right and wealthy enough to invest in your company. If you have a large enough network, this group might fund your entire capital raise. Take steps to build a working contact list of them. And make sure to establish a regular habit of emailing them so that when you later send out an email suggesting that they consider investing in your Reg A+ offering, your email will be opened and read.
- Build a large and enthusiastic customer base. This is the single most powerful success factor. When you have earned the situation where your customers love your company and value what you do highly you can convert this into an inexpensive capital raise. VidAngel emailed their most active 30k customers and raised $10m in five days live to investors, setting the record for the fastest rate of online investor capital raise in Reg A+ to date.
- Establish a direct sales relationship with your customers. A strong Reg A+ success characteristic is the direct sales model where your company regularly sells its products to your customers and you already have accumulated your customer’s information. When your customers find it normal that you send them an email message, they are far more likely to respond favorably when you send them an email offering them the opportunity to become an investor and part owner of your company.
- Add a consumer appealing product or service; If it makes sense with your business model, that will enable your company to appeal strongly to consumer investors.
- Build a large social media fan base; A fan base of 100k people is a good start. If that seems like a daunting number, I understand. But if you set in motion the steps to build your social media presence your fan base can build up to be large faster than you might expect, and at a relatively low cost. In order of priority: Facebook, Instagram, LinkedIn and Twitter. This order can vary depending on the nature of your market.
- Combine product and investment marketing; Build a vision for how you can promote your company’s products and investment raise in one marketing campaign. This combination can save marketing expense and also emphasizes the brand building and product sales synergy that can be levered in a Reg A+ offering.
- Leverage your existing investors; They may hold the keys to how your marketing agency can most appeal to new investors, and they may also want to invest in your Reg A+. This will resonate with your broker-dealer if you have one. As an example, a sizable portion of the recent MYO NYSE IPO and the ADOM NASDAQ IPO investments were from existing investors and their friends. Bring them up to speed on your plans and get them involved.
- Prepare consumer investment rewards: In a Reg A+ offering, it is legitimate to offer investors rewards to encourage them to invest. For example, a luxury club can offer a charter membership with a lifetime discount on services for investors, and a Virtual Reality system maker can offer a free upgrade to their premium model for investments of, say, $2,000 or more. Line up your reward packages ahead of time to ensure that you have long lead time items ready and on hand in quantity when your Reg A+ goes live.
- Assemble the proof points that you will need; Gather and build the market size and total available market evidence you will need to make credible claims that your market is large enough to justify the attention of investors. Put together an assumption series that will fill out the picture. Articulate how your solution is superior to your competitors’ and how you can defend against them in the future. You will need this information to convince the funding platform and broker-dealer which you (optionally) approach that your company is likely to succeed long term. And your marketing agency will need this information too as a part of the campaign that they create for your offering.
With these tips in hand, I hope that you will experience great success in your Reg A+ IPO and/or capital raise.