31 Oct The Reg A+ Shakedown Cruise: Trick or Treat?

Get the holiday theme? It hit me on the way to work. There seem to be two camps with views on how Regulation A+ is doing now that it has been over two years since the dismissal of two states’ attempt to stop the new Reg A+ rules. There is quite a bit of both positive and challenging news as this new approach to a streamlined, simplified, cost-effective IPO sails through its maiden voyage. Reminds me of a new boat we got when I was a kid – first time out lots of things went wrong that needed fixing – my Dad acknowledged it was the Cast Off’s “shakedown cruise.” (Wikipedia defines it as “a nautical term in which the performance of a ship is tested.”)

On the positive side, it appears there have been over 100 completed Reg A+ public offerings helping smaller companies raise money and create jobs. As of the last SEC report the average raise was about $8.8 million. Nine of these companies completed IPOs onto national exchanges. A bunch of community banks found they can go public and raise money for growth from their many depositors with Reg A+, with stocks all trading up. A bunch of real estate investment trusts (REITs) have successfully raised tens of millions to buy and renovate properties. Others have raised money from their fan or customer base or social media following, like Elio Motors which raised $18 million without the help of an underwriter. The ability to conduct an Internet-based marketing campaign along with radio and TV ads has begun to change the game.

But not all is smooth sailing (pun!) for this still new investment vehicle (double pun!). The stocks of those that went public on Nasdaq and the NYSE are trading down. There is an alleged fraud at one of those as well (the SEC claims officers sold large blocks of “restricted” shares that could not be publicly traded). In part as a result of this, the NYSE has taken a pause on listing new Reg A+ companies. Nasdaq has not gone that far but has acknowledged extra levels of review resulting in delays. This has slowed the interest in second tier underwriting firms who could commence “firm commitment” underwritings that might have a greater chance of trading more successfully.

The response of some who went to national exchanges: our price is down but we are still able to successfully raise money to support our business plan. REIT players: loving it. Same with community banks. Institutional investors? Top stock analysts? Still on the fence, along with larger investment banks. The thing is: we enjoyed many happy years aboard the Cast Off even after that tough shakedown cruise.