SEC Permits SEC Reporting Companies to Use Reg A for Offerings

The SEC has just issued final rules to permit current SEC reporting companies to use Reg A to conduct offerings (link –

This “fixes” a perceived gap in the rules created when the Reg A rules were revised a few years ago.

Permitting SEC reporting companies to use Reg A has benefits:

1. This change enables those companies to take advantage of the streamlined Reg A offering statement and SEC review.

2. Using Reg A offering rules enables issuers to “test the waters” of investor interest and broaden the marketing effort by reaching out directly to potentially interested investors.

Some benefits may not be as valuable, for example, a company using a Reg A offering may avail itself of the lighter SEC reporting requirements. While this would seem to be a boon to companies to save costs, Boustead has found that investors generally prefer companies which are trading on NASDAQ or one of the exchanges, which require conventional (more frequent) SEC reporting anyway.

Also, not all reporting companies may choose to use Reg A for offerings. For example, companies which are able to use SEC’s S-3 registration, which permits incorporation by reference to other SEC filings, may choose to continue to benefit from that feature and decline the opportunity to use Reg A.

We believe this change is a positive step in reducing unintended “gaps” and is likely to benefit a number of companies.

To discuss your capital market goals, please contact me (

Opinions expressed in these posts and pages are mine and do not represent the opinion of Boustead USA LLC.

Reg A+ IPO – Learning Curve – Podcast

Dennis McCarthy – – (213) 222-8260

[Mara 1:]  Welcome, I’m Mara Schmid, CEO of reAgency Marketing.  Today, we’re going to be discussing the Reg A+ IPO, a new way for private companies to go public.

Our guest today is Dennis McCarthy, a Managing Director with Boustead Securities, which has successfully completed Reg A+ IPOs.  Welcome, Dennis.

[Dennis 1:] Thank you, Mara.

[Mara 2:] We’re here to talk about Reg A+ IPO because it’s a new way for private companies to go public but it’s still relatively unknown.  Give us a little history on Reg A+ IPOs and Boustead’s experience.

[Dennis 2:] Yes, Reg A+ is new.  The very first Reg A+ offering was completed in March 2016.  It wasn’t a Boustead deal but it raised approximately $17 million for a vehicle development company.

Since then, Boustead has been watching and learning from the experience of early deals, what’s worked well or not, in our opinion.

In June 2017, Boustead led a syndicate in raising approximately $14 million for Adomani, an electric vehicle company which was the first Reg A+ IPO to be listed on NASDAQ.

Then in January 2018, Boustead led a syndicate in raising approximately C$10 million for True Leaf, which sells pet food supplements.  True Leaf was the first Canadian-listed company to complete a Reg A+ offering in the US.

Boustead also has a couple other Reg A+ offerings in progress.  Several of these offerings are for real estate businesses which are aimed to give investors a consistent cash dividend.

[Mara 3:] When we were talking before we went on the air, you mentioned that Boustead, and for that matter, much of Wall Street, are on a steep learning curve on Reg A+ offerings.  Would you elaborate?

[Dennis 3:] Yes, certainly.

[Mara 4:] You mentioned a couple topics, like offering marketing.

  1. Offering Marketing

[Dennis 4:] Yes, unlike a traditional S-1 offering, a Reg A+ offering can use a wide range of marketing techniques, email, social media ads, broadcast, influencers, etc.

Boustead and its media partners work with our clients to actively spread the word of the offering.

We try to use client’s resources whenever possible but we’ve also developed resources specifically for these Reg A+ offerings and we get a good response.

[Mara 5:]  Next, you said companies need support from current shareholders.

  1. Support from Friends of the Company

[Dennis 5:] It’s no surprise that new investors want to see that current investors and other friends of the company put the first money into an offering.  With support from friends of the company, new investors seem more comfortable participating in the offering.

[Mara 6:] What about listing on NASDAQ or the NYSE?

  1. Listing on NASDAQ or NYSE

[Dennis 6:] We’ve found that investors prefer offerings where the company has obtained a conditional listing from NASDAQ or the NYSE.

With the conditional listing, investors know that a company has to meet the listing requirements including the threshold share price and market value.

Also, brokerage firms are more likely to take the company’s stock into a brokerage account if the shares are on NASDAQ or the NYSE which generally makes that process easier and faster for an investor.

[Mara 7:] Then there’s your FlashFunders platform?

  1. FlashFunders Platform

[Dennis 7:] Boustead realized the value of a partner which would enable Boustead to offer a seamless marketing and offering paperwork process.  Boustead merged with FlashFunders under one umbrella organization.

A Reg A+ offering has a number of elements so having most of them under one organization increases coordination.

[Mara 8:] Thank you for these insights.  Tell us if someone has questions or wants to discuss a Reg A+ offering further, how can they learn more?

[Dennis 8:]  We’re happy to answer questions. I’ll post several contact emails of the Boustead team that can help.

Dan McClory –

Keith Moore –

Robert Maley –

Dennis McCarthy –

Leveling the IPO Playing Field

Leveling the IPO Playing Field

The Securities and Exchange Commission (SEC) is considering permitting private companies of all sizes to confidentially “test the waters” with potential investors before embarking on the initial public offering (IPO) process, according to The Wall Street Journal (link).

This is not a surprise given the other signs that the SEC appears to be trying to level the procedural playing field among companies using different forms of registration.

For example, the SEC announced last June that it permits companies of all sizes to use confidential filing, not just those companies which are subject to the new JOBS Act rules (Click to read article).

Boustead has found, in conversations with the SEC about specific offerings, that the SEC is attuned to the advantages afforded companies using the new forms of registration.

“While the rules are still the rules, we’ve seen an effort by the SEC to work with our clients to reduce some of the differences between forms of SEC registration, where possible.” said Keith Moore, CEO and Founder of Boustead Securities, LLC. a broker-dealer working with clients using Reg A+ and traditional forms of SEC registration.

Given this trend, the rules currently available to companies using the new JOBS Act rules, such as Regulation A, dubbed Reg A+, may eventually be afforded to companies using other forms of SEC registration.

Until then, a private company contemplating an IPO should at least consider using Reg A+ among its options.

For more on Boustead’s experience using Reg A+ for IPOs, click here.

Dangerous Delay

Dennis McCarthy – – (213) 222-8260

My colleagues and I at Boustead noticed what may be a dangerous trend among microcap public companies.

When we suggest that microcap public company management should take advantage of the favorable stock market environment to raise some capital, many microcap CEOs and CFO’ tell us they want to wait before raising capital.

Wait for what?

  1. Wait for a Higher Stock Price?

In general, microcap valuations are relatively high now according to an index maintained by LD Micro, the well-respected independent resource.

To quote LD Micro’s September 17, 2017 email  – “After several attempts and a few close calls, the LD Micro Index finally hit an all-time high on Friday.”

Microcap stock prices might rise to yet newer highs, but there’s no certainty.

  1. Wait for Projected Performance Improvement?

We know that company management is often optimistic about a company’s future performance.

Plus, wouldn’t having more capital actually help management to achieve the performance improvement?

  1. Wait Until the Capital Need is Urgent?

Capital is not always available for microcap companies.

We’ve experienced periods, sometimes long periods, when microcap companies can’t access capital at any reasonable price.

Also, raising capital can take longer than expected, even when it is available.

Take Capital When Available

Our Advice is Take Capital When It’s Available

For those who are optimists, waiting for a higher stock price, think of it as averaging up.

For those who’ve lived through periods when capital wasn’t available to microcap companies, recall the anxiety and avoid it this time.

As the Saying Goes “Get Your Umbrella Before the Rain Starts”

It’s ironic but capital is most available when not needed.

Companies raising capital now may have more alternatives, so they can choose an attractive structure.

Microcap Funds Have Capital

At Microcap Funds, Money Is Burning a Hole in Their Pocket

As I noted above, recently, microcap funds have had good performance and fundraising has been productive.

Microcap funds have capital to invest and pressure to put it to work.

Microcap funds typically aren’t very large.  Fund managers want to deploy their capital and then raise another fund.

Investor Preferences

I would note a good development for both managers and microcap companies, many of the new funds permit their fund managers greater flexibility regarding investment structure.

In another article, I’ll discuss those features which seem to be most appealing to microcap public investors.

Consider these when preparing for a financing.

Please contact me to discuss your capital market goals. 

Financing Season

Dennis McCarthy – – (213) 222-8260

During this financing season, my colleagues and I are active assisting our clients with a number of financing projects.

We’re raising private capital, arranging debt and organizing public offerings.

This is a great time of year for a company to be in the capital markets.

Investors and lenders are ready to focus and make decisions before year end.

Here are some ideas where investment capital is available now.

Cash Flow Investments

Many investors prefer businesses or projects which give them a current return, like a dividend, often with some equity upside.

We know lots of investors ready to invest to get a current return.

Click the link below to view a video on that capital source.

Growth Capital

Growth capital is available for companies which are past the venture capital stage but not yet mature enough for classic private equity.

Growth capital, in either debt or equity, can help your company to accelerate its growth.

Click the links below to view  videos explaining more about growth capital.

Public Offerings

The public offering market is available too.

One of my current projects involves a traditional registered public offering.

Others at Boustead have raised capital using the newly revised “Reg A+” public offering.

Click the link below to view an interview of my colleague, Dan McClory, about one of our recent Reg A+ offerings.

Whichever form of public offering, we’re finding investor demand for attractive companies.


So, the bottom line is, this is a good season to consider raising capital in a variety of forms.

Please contact me to discuss your goals.

Expansion of Private Financing Sources

We, at Boustead, see a trend of big investors and company buyers, including pension funds, family offices and wealthy individuals, choosing to make direct investments in companies and projects rather than invest through intermediaries like hedge funds and private equity groups.

Boustead’s professionals talk with investors and acquirers daily which gives us a good sense of this trend.

In fact, we posted an article in early 2016 describing that in response to this trend and in order to get the best deal for our clients, we regularly reach out to a broader universe of potential investors and buyers including those pension funds, family offices and wealthy individuals.

It caught my attention, therefore, when Axial, the huge online deal source database, reported that it too has seen the direct investment trend and described several driving forces which are likely to continue the trend (click here).

Axial’s three driving forces are:

  1. Greater private company information availability which diminishes the value of deal intermediaries’ famed proprietary deal networks.
  2. Greater capital source information availability due to online resources such as Axial.
  3. Reported “fee fatique” which may simply be a reaction to lower returns generated by hedge funds and private equity funds. I wonder, if returns were strong, would there be fee fatigue?

Neither Boustead nor Axial is forecasting the end of hedge funds and private equity groups.  Rather, the trend signals that there are more funding and sale options available. For companies looking for capital or for a buyer, and for their investment bankers, that’s good news.

Please contact me to discuss any capital market project whether raising capital, equity or debt, or M&A.  Thank you.

Cash Flow Deal Funding Gap

Dennis McCarthy – – 213-222-8260

In prior articles, I’ve highlighted investor’s strong demand for current cash flow deals.

Many investors want to get a good portion of their return along the way and don’t want their whole return at risk for the future.

In today’s financial market, that makes sense.  Who knows what economic environment we’ll face in the next 5 years, not to mention further into the future.

So, capital is flowing into funds providing current returns, like infrastructure, energy, alternative energy, real assets, mezzanine and similar funds.

This capital inflow is generally good for bankers like me with projects seeking capital.

The problem, however, is that with so much capital flowing into funds, funds have grown to be enormous. These enormous funds look to invest in projects requiring large amounts of capital.

Ironically, with all that capital flowing into funds looking for a current return, there’s a funding gap for smaller projects and companies.

For example, we’re in the market with a renewable energy project with a total capital budget north of $350 million.  That amounts gets attention.

The project, however, has attracted strong interest from lenders so the actual equity check required is only 10-15% of the capital budget.

Sounds good, doesn’t it.  The problem is that many funds find a project requiring less than $50 million of equity to be too small. For many funds, under $100 million is too small.

Fortunately for our client, and us, some funds will consider smaller equity investments, preferring to avoid the intense competition for large deals.

I believe that when we look back in 5 to 10 years, smaller equity check deals, under $100 million, will have provided a better return than that of the huge deals.  Time will tell.

If your fund will consider a project where the equity check is smaller, please contact us.  We have attractive projects and would like to get to know just what type of project fits your fund.

Also, if you have a cash flow project, please contact us to discuss your capital market plans.

New S-1 Registration Provisions

A provision of the recently enacted legislation, known as the FAST Act, makes it easier for smaller public companies to conduct registered offerings.

The reason why this is significant is that smaller public companies face a very unreceptive market when raising capital via private placements, known as PIPE offerings.

Burden to Qualify to Invest in Private Placement

In general, the requirements to qualify as an investor in a private placement leave only a small universe available to consider a private placement offering.

A private placement investor must undergo the paperwork burden to prove the investor qualifies as an accredited investor, with

  • the capability to evaluate the risks of the offering;
  • the willingness to forego immediate liquidity of the securities purchased in the offering; and
  • the ability to sustain the total loss of the investment.

Given the limited universe of investors for private placement offerings, in today’s capital markets, smaller public companies, especially OTC listed companies, typically find only toxic financing available from PIPE investors.  That is, the issuing public company may be able to raise capital but the form of the securities demanded by investors has features which are extremely expensive to the issuer and may, in certain circumstances, result in severe negative impact on the issuer’s stock price, perhaps due to substantial dilution of shares.

In contrast with the limitations of a private placement, an investor in a registered offering:

  • has no paperwork burden to prove eligibility to purchase the securities; and
  • has immediately tradable securities, subject only to the liquidity of the company’s stock.

Given these features of a registered offering, issuers can tap a much broader universe of potential investors for a registered offering which should enable an issuer to obtain better terms than for a private placement.

Why then don’t smaller companies issue shares through registered offerings?

The reasons typically given include:

  • raising capital via a registered offering involves upfront and ongoing costs for legal and accounting work to file an S-1 registration statement without certainty of success in actually raising capital,
  • offering size may be small in relation to the fixed upfront costs noted above; and
  • filing a registered offering is public and would enable a stock short seller to short the issuer’s stock depressing its price then cover the short at a profit with stock purchased on the offering.

The new rules enabled by the FAST Act don’t eliminate all these impediments but eliminate one of the costs and risks, which is the requirement to file additional S-1 supplements once the S-1 is declared effective.

Final rules issued by the SEC on January 13th, implementing the FAST Act, enables companies using the S-1 form of registration statement to incorporate by reference required SEC filings after the S-1 is declared effective.

Up until now, S-1 registration statements could only incorporate by reference prior SEC filings. Larger companies, able to use S-3 registrations could incorporate future SEC filings.

Now a smaller company using an S-1 registration statement, which makes the election to incorporate future SEC filings by reference, need not file an update to its S-1 registration when a new SEC filing is required, such as an 8-K or 10-Q, and risk SEC review and comments.

This is a substantial cost and time saving benefit of this provision of the FAST Act.

Interestingly, this is not the feature which got the attention when the FAST Act was passed or the final rules issued.

Please contact us to discuss your capital market plans.

For background reading on this and other capital market provisions in the FAST Act, please click on the following:

Goodwin Procter article


The amendment to Form S-1 requires smaller reporting companies that make this election to state in the prospectus contained in the registration statement that all documents subsequently filed by the smaller reporting company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act before the termination of the offering shall be deemed to be incorporated by reference into the prospectus.

This amendment will permit smaller reporting companies to eliminate the additional costs and delays of manual updates to “shelf” registration statements on Form S-1 for resale transactions and continuous offerings that commence promptly after effectiveness and continue for a period in excess of 30 days after effectiveness. This amendment does not change the current requirement that companies must conduct delayed offerings under Rule 415(a)(1)(x) under the Securities Act of 1933 using Form S-3 or Form F-3.

In addition, this amendment does not change the eligibility requirements for companies that wish to incorporate documents filed after the effective date of the registration statement under General Instruction VII to Form S-1. The principal eligibility requirements include the following: (1) the company is required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act, (2) the company has filed all reports and other materials required by Sections 13(a), 14 or 15(d) of the Exchange Act during the preceding 12 months or such shorter period as the company was required to file such reports and materials, (3) the company has filed an annual report required under Section 13(a) or Section 15(d) of the Exchange Act for its most recently completed fiscal year, (4) the company is not a blank check company, a shell company or a registrant for a penny stock offering and (5) the company is not registering an offering that effectuates a business combination transaction).

Corporate Vs Institutional Investors

Corporate investors provide a meaningful portion of the total capital deployed in early to late stage companies today. “In 2015, corporate venture groups participated in 17% of all North American deals, accounting for 24% of the total venture dollars deployed to VC-backed startups” according to data from CB Insights in an article by Rita Waite of Juniper Networks, one of the corporate investors (Click here).

Corporate and institutional investors often differ in motives and styles which Rita Waite summarizes.

In our experience, these differences may be dramatic and may be in conflict as these points illustrate.

Corporate Investors

The Good

Corporate investors may pay a higher value because the candidate may enhance the corporate investor’s business, therefore, return on the investment isn’t solely dependent on the candidate’s performance.

The corporate investor may bring to the investment knowledge, contacts, assets or other advantages while an institutional investor typically brings only capital and less specific synergy.

The Bad

The corporate investor may require some “hook” in the investment agreement to give it a special right to buy the candidate in the future, perhaps at a favorable price or to prevent the sale to a competitor.

The high corporate valuation may dissuade financial investors thereby making the candidate dependent on the corporate investor for capital.

Corporate investors may exert influence to keep the candidate focused on whatever is the business most valuable to the corporate investor, regardless of other opportunities which may present themselves.

The Good

Corporate investors typically want to avoid having the candidate consolidated for financial accounting and, therefore, structure the investment to be a minority interest with essentially no operating influence.

The Bad

Since institutional investors want the opposite, commonly wanting control in both value and major decisions, so teaming corporate with institutional investors can be complicated.

The Perfect Private Equity Deal

The perfect deal, that’s what many private equity firms are searching for.  That’s, a buyout of a company with years of stable to growing free cash flow, moderately high and defensible profit margins and a management team right out of central casting.

The competition for those perfect deals is intense and results in private equity groups paying relatively high prices to win.  My colleague, Randy Schwimmer, author of the online newletter, “The Lead Left” reports the latest statistics in this excerpt from his recent issue:


For one thing, total leverage seems again to be reaching radioactive levels. Thomson Reuters LPC reports total debt to EBITDA for middle market institutional buyouts “skyrocketed” to 6.5x for the third quarter. Admittedly, that’s on a relatively small sampling, but the statistic points to a broader trend.

Higher leverage is being driven by similarly gravity-defying purchase price multiples. Of the four middle market LBOs where information is available, all were over 12x, and three were over 15x. This speaks to the fierce competition for new properties being engaged in by both private equity and strategic corporate buyers.

How long this lasts is anyone’s guess.   But, while it lasts, if your company fits the criteria, you might consider a sale.

To read “The Lead Left”, a subscription newsletter, click here.