Disclosures

  • SeedInvest’s due diligence process is no guarantee of success or future results. All investors should carefully review each investment opportunity and cancel their subscription within the allotted time-frame if they do not feel comfortable making any specific investment based on their own DD. Learn more about due diligence on the SeedInvest Blog (https://www.seedinvest.com/blog/angel-investing/how-to-assess-an-investment) and our vetting process in our FAQs (https://intercom.help/seedinvest/en/).

  • SeedInvest’s selection criteria does not suggest higher quality investment opportunities nor does it imply that investors will generate positive returns in investment opportunities on SeedInvest. Learn more about due diligence on the SeedInvest Blog (https://www.seedinvest.com/blog/angel-investing/how-to-assess-an-investment) and our vetting process in our FAQs (https://intercom.help/seedinvest/en/).

  • Diversification is only across multiple early-stage investment opportunities within the asset class. There is no guarantee that this program will lead to a well-balanced portfolio of companies across industry types or stages across the asset class. In addition, enrolling in this program will not lead to diversification across your entire investment portfolio. In order to achieve diversification, we do not recommend you allocate more than 10% of your entire investment portfolio to alternative assets.

  • Testimonials may not be representative of the experience of others and are no guarantee of future performance or success. No individuals were compensated in exchange for their testimonials.

The Hidden Benefit of Doing a Regulation A+ Offering Prior to a Full Blown IPO

 

 

When discussing the benefits of conducting an offering under the newly enacted rules for Regulation A+ under Title IV of the JOBS Act, most industry insiders mention benefits such as fewer disclosure requirements, reduced ongoing reporting requirements, increased shareholder limits, and increased allowable offering size. However, conducting a pre-IPO public offering may provide benefits not only in it of itself, but also lower fees associated with a subsequent IPO.

Pursuant to FINRA Rule 5110(C)(2)(A), no member may participate in a public offering for which they receive unfair or unreasonable compensation. What is considered unfair and/or unreasonable is currently unknown. It has long been the policy of FINRA’s Corporate Financing department (“the Department”) not to publish or disclose their internal guidelines as to what constitutes unfair and/or unreasonable compensation. In fact the last published guidance by the Department on this topic was back in 1992 via Notice 92-53. However, FINRA Rule 5110(c)(2)(D) does provide clarity on the factors involved when determining whether underwriting compensation is fair and reasonable. Specifically, the Department considers the size of the offering, the type of securities being offered, whether the offering is being conducted on a firm commitment or best efforts basis, and whether it is an initial or secondary offering. Of particular note is this last factor: whether the offering is an initial or secondary offering.

Under the notice, a secondary offering will have a lower amount of allowable underwriting compensation than an initial offering since in theory, the secondary offering possesses less risk to the underwriter and its syndicate members. In addition, since an offering conducted pursuant to Regulation A+ is considered a public offering under FINRA Rule 5110(b)(9)(G), any subsequent IPO would be classified as a secondary offering. As a result, issuers who have initially conducted a Reg A+ offering could face potentially lower underwriting costs when it comes time for a full blown IPO. Any issuer thinking of conducting a Reg A+ offering, should first consult with their counsel to understand its requirements and determine if it is a good fit for their capital raising needs.

 

This post is not a substitute for professional legal advice nor is it a solicitation to offer legal advice. No attorney-client privilege is created herein. Seek the advice of a licensed attorney in the appropriate jurisdiction before taking any action that may affect your rights.

 

This post was written by aryehfriedman on June 11, 2015

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