Regulation A+ and other alternatives to a traditional IPO : financing your growth business following the Jobs Act

170 Pages·2018·1.66 MB·English

by  Feldman

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REGULATION A+
AND OTHER
ALTERNATIVES TO
A TRADITIONAL
IPO
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REGULATION A+
AND OTHER
ALTERNATIVES TO
A TRADITIONAL
IPO
Financing Your Growth Business Following the JOBS Act
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David N. Feldman
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LibraryofCongressCataloging-in-PublicationData:
Names:Feldman,DavidN.,1960-author.
Title:RegulationA+andotheralternativestoatraditionalIPO:financing
yourgrowthbusinessfollowingtheJobsAct/ByDavidN.Feldman.
Description:Hoboken,NewJersey:JohnWiley&Sons,2018.|Includesindex.
|Identifiers:LCCN2017049244(print)|LCCN2017051461(ebook)|ISBN
9781119416197(pdf)|ISBN9781119416128(epub)|ISBN9781119416159
(cloth)
Subjects:LCSH:UnitedStates.JumpstartOurBusinessStartupsAct.|Small
business—Finance—Lawandlegislation—UnitedStates.|Newbusiness
enterprises—Finance—Lawandlegislation—UnitedStates.|Goingpublic
(Securities)—Lawandlegislation—UnitedStates.
Classification:LCCKF1659(ebook)|LCCKF1659.F7432018(print)|DDC
346.73/0652—dc23
LCrecordavailableathttps://lccn.loc.gov/2017049244
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PrintedintheUnitedStatesofAmerica.
10987654321
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Tomyamazingfamily—actual,immediate,andextended.Yoursupportmeansmore than
youcaneverknowandIloveyouall.Andrew,youareeverything.CarolandMom,Ican
neverthankyouenough.Victoria,loveyouandthanksforbeingmyBFF.
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Contents
Preface xi
Acknowledgments xv
CHAPTER1
WhyGoPublic? 1
AdvantagesofBeingPublic 1
DisadvantagesofBeingPublic 4
WeighingtheProsandCons 8
Andso... 8
CHAPTER2
Pre-2012:TheHistoryofRegulationAandtheDeath
ofSmall-CompanyIPOs 10
(cid:2) RegulationA—NotTooPopularBefore2012 10 (cid:2)
RegAThroughtheYears 12
WhySmallCompaniesStruggledtoGoPublicBeforetheJOBSAct 14
RegAversusPrivateOfferingUnderRegulationD 18
Andso... 21
CHAPTER3
TheJOBSActandItsGenesis 22
“Old”RegulationA 22
FeldmanFirstProposes“RegA+”atSECConference 24
DevelopmentandEnactmentoftheJOBSAct 26
OtherKeyElementsoftheJOBSAct 28
RegA+TitleIVLanguage 31
Andso... 33
CHAPTER4
TheSEC’sRulesUnderTitleIVRegulationA+;CourtChallenge 35
SEC’sRegA+RuleProposal 36
CommentProcess 43
FinalRegA+Rules 43
States’FailedLawsuitAgainsttheSEC 46
Andso... 47
CHAPTER5
OfferingStatementandLightReportingPreparation;TestingtheWaters 49
OfferingStatementPreparation 51
LightReportingPreparation 54
vii
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viii Contents
TestingtheWaters 57
Andso... 58
CHAPTER6
EarlyExperiencewithRegulationA+;WallStreetPartnerswithMainStreet 59
WhoIsUtilizingRegA+? 59
AttractiveIndustries 65
Andso... 66
CHAPTER7
PotentialChangestoRegulationA 67
OTCMarketsPetition 67
BlueSkyIssues 69
Testing-the-WatersIssues 70
OtherIssues 72
Andso... 75
CHAPTER8
BasicsofReverseMergers 77
OverviewofReverseMergers 78
IPOsversusReverseMergers 79
ALittleHistory,Rule419,andSubsequentRulemakings 82
TheImportanceofDueDiligenceinReverseMergers 86
Andso... 87
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TroubledIndustry:China,SeasoningRules,BogusShells 89
TheChinaBubblePops 90
TheSECRespondswithDraconianSeasoningRules 94
BogusShellsandProsecutions 96
Andso... 99
CHAPTER10
TheFutureofReverseMergers 100
ReverseMerger,ThenOTCTrading 101
BypassSeasoningwith$40MMPublicOffering 102
MergerwithanOperatingPublicCompany 102
TheRealRisksofUsingBogusShells 104
TheFutureSupplyandCostofShells 106
Andso... 107
CHAPTER11
SpecialPurposeAcquisitionCompanies(SPACs) 108
IntroductiontoSPACs:TheGKNExperience 109
TheFirstSPACResurgence—BubbleandBust 111
SPACs’RecentReturn 113
WhatIstheFutureofSPACs? 114
Andso... 116
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Contents ix
CHAPTER12
Self-Filings 118
HowDoSharesofStockBecomeTradable? 118
Self-FilingThroughFormS-1ResaleRegistration 121
MechanicsofFormS-1Self-Filing 122
Self-FilingThroughForm10Registration 126
Andso... 128
CHAPTER13
OtherIPOAlternatives 129
IntrastateExemption 130
Rule504 130
RegulationS 132
Andso... 133
CHAPTER14
TheExpertsSpeak—ALookAhead 135
CurrentPoliticalandEconomicEnvironment 136
CurrentDevelopments 137
Andso... 143
AbouttheAuthor 145
Index 147
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Preface
Itallstartedwithmyblurtingoutasuggestionin2010attheannualSecuritiesandExchange
Commission (SEC) small business conference where recommendations are developed. Small
companies were struggling to raise capital following the 2008 market crash. Reverse mergers
withshellcompanies,utilizedasaworkableifclunkywayforsmallercompaniestogopublic
duringthe2000s,weremovingoutoffavorthankstoanumberofhigh-profileallegedfrauds.
Inaddition,theSECwasimposingnewrestrictionsonpost–reversemergercompanies’ability
touplisttonationalexchanges.
Ihadalwayssaidwewouldnotneedreversemergersifinitialpublicofferings(IPOs)were
easier to do. SEC Regulation A, around since the 1930s but almost never used because of
certain significant disadvantages, could be improved, said I. Increase the amount that can be
raisedfrom$5millionandotherwisemakeitbetter,andmaybecallitRegulationA+.
Therest,astheysay,ishistory,alongwithmorehistoryyettobemade.Theformalrecom-
mendationsfromthatconferenceincludedthetermRegulationA+anditjuststuckfromthen
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onastheunofficialmonikerforwhathasdevelopedsince(thoughtheSECalsousestheterm).
Inearly2012,CongresspickeduptherecommendationandchosetoincludeRegAimprove-
mentsintheJumpstartOurBusinessStartups(JOBS)Actof2012.TheSECthentookthree
years to write the required rules to implement the exciting changes, and in June 2015, final
rulestookeffect.AlawsuitbytwostatesbroughtatthattimeslowedtheadoptionofnewReg
A+untilthecasewasdismissedinJuly2016.
Since then, there have been approximately 70 (through September 30, 2017) completed
public offerings raising over $600 million dollars for smaller companies and creating many,
many jobs. The groundswell of excitement over this very attractive new method to raise
moneyinacheaper,faster,morestreamlinedprocessisgrowingalmostdailyatthetimeofthis
writing.Thatexcitementreachedacrescendoinsummerandfallof2017whenthefirstseven
Reg A+ deals to list on national exchanges were completed, and the queue of future deals
appearshealthyindeed.
Some Wall Street players have resisted utilizing Reg A+ thus far, either because they do
notyetunderstandit,orbecausetheyfearexplainingittoinvestorsmaybetoocomplicated.
Asmoredealsarecompleted,thatissuecontinuestoabate.Thehopeisthatthisbookwillfur-
therspeedtheprocessofeducationfordealmakers,entrepreneurs,andotherswhoadvisethem.
SomereadersmaybeawarethatIpublishedthetextReverseMergersin2006toexplainthe
legitimateandtransparentwaytogopublicthroughashellmergeraswellasotheralternativesto
atraditionalIPO.Thisledtoasecondeditionofthatbookin2009.In2013,Ialsopublished
The Entrepreneur’s Growth Startup Handbook, focusing on the seven things most likely to go
wrongwhilebuildingabusinessandhowtotreatandpreventthemasyougo.Yes,Iwasalso
practicinglawfulltimethroughalltheseefforts!
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