If You’re Going to Test the Waters, Be Prepared to Go Swimming
As a result of the long awaited implementation of Regulation A, startup companies can now fundraise from unaccredited investors. This is a huge shift that tremendously impacts the startup investing landscape but more so, the relationship between customers and their favorite companies. This monumental change opens up the opportunity for companies to turn their users into investors.
The first step to this new process is called “testing the waters.” Testing the waters (TTW) allows companies to collect non-binding “indications of interest” from the public before officially starting the filing process. Testing the waters is already proving to be a game-changing chance to reach out to users and make them aware of this new opportunity.
To better understand the testing the waters process, SeedInvest sat down with Jamie Rosen, CEO of WayBetter. WayBetter, which produces the social dieting app DietBet, recently tested the waters on SeedInvest, garnering over $9MM of investment interest from over 3000 people in their first 48 hours.
What led WayBetter to test the waters?
We’ve been working with SeedInvest for a long time and were one of the first companies to raise money on the platform back in 2013. We had been in touch with Ryan, CEO of SeedInvest. He was the one who first brought Reg A to our attention. Ryan thought that WayBetter would be a good fit because of our large user base (over 270,000).
We thought it was a great opportunity. People liked our platform and liked our service, so we thought perhaps they’d be interested in investing. After running the idea by our investors and board, we decided to give it a shot. It was a no-brainer to be honest, since there was no real cost involved in testing the waters.
How did you prepare for your testing the waters campaign?
We first decided if this was something that made sense for us to do. We didn’t want to test the waters unless we were prepared to continue. So we did some research into what the Reg A fundraising process would look like, how much money would it cost, how long it would take, and assessed the pros and cons. After we did our research, it was actually pretty straightforward.
What marketing did you do to promote your campaign to users?
We put together an email to send to 10% of our users as a test. SeedInvest put up a page where our customers could indicate their interest in investing. We blasted out the email on a Monday and got such a favorable response that we went ahead and sent the same email to the other 90% of our email list the next day.
How did your customers react to your TTW campaign?
We were amazed at the results. In the first few days, we registered over $9MM in “indications of interest”, a non-binding indication that showed how much our users would be inclined to invest if we were to proceed with this.
Were there any unexpected challenges or surprising finds that you encountered during your campaign?
We were surprised at how many people were interested in the possibility of investing. We have a business that helps people lose weight and it was an open question as to whether they would be interested in buying shares in the company. I like lots of products and brands, but I don’t necessarily feel the urge to own stock in these companies. We were surprised to see such an enthusiastic response. And it wasn’t like we got $9MM of interest from just 9 people who each wanted to invest a million dollars. It was a groundswell of thousands of people indicating an interest in investing as little as $1,000.
What advice would you give to other companies thinking about testing the waters?
I think you need to understand what you’re getting into. You don’t want to proceed with testing the waters unless you’re prepared to go swimming. Do your homework about what Reg A entails and make sure you’re comfortable with the process. Ask yourself if you have a passionate enough user base that you think they might be interested in becoming owners of your company? If you don’t have that built in, you have to work that much harder figure out how you’re going to market your campaign.
In our case, it was straightforward: we had hundreds of thousands of paying customers, many of whom have had very positive – indeed, life-changing – experiences on our platform. Today our customers already do most of our marketing for us, telling their friends about us. We have a great relationship with our users, so not invite them to become owners?
To make an investment in any deal currently testing the waters on the SeedInvest platform available to the general public, WayBetter must first qualify the offering with Federal regulators. Prior to doing so, WayBetter is “testing the waters” to gauge market demand from potential investors for an Offering under Tier II of Regulation A. No money or other consideration is being solicited, and if sent in response, it will not be accepted. No sales of securities will be made or commitment to purchase accepted until qualification of the offering statement by the Securities and Exchange Commission and approval of any other required government or regulatory agency. An indication of interest made by a prospective investor is non-binding and involves no obligation or commitment of any kind. No offer of securities will be made without a registration statement.
This post was written by Nico Leeper on September 27, 2015
Interview with Jamie Rosen of WayBetter about Testing The Waters