Through December 31, 2018, Reg A+ companies raised $1.5 billion of growth capital*. $1.27 billion was raised via Tier 2 offerings by 115 companies and $230 million was raised by 42 Tier 1 companies. This article discusses Reg A+ metrics through Dec 2018. How we prepare this information**
Capital raised via Reg A+ year by year follows:
2015 (6 months) - ~$100 mill raised
2016 -~$255 mill raised
2017 -~$500 mill raised
2018 -$660 mill raised
*This understates the actual total because we are only able to include Tier 1 (what is Tier 1) companies that have completed their raise before December 2018. Tier 1 offerings that were less than 12 months into their raise are in most cases not included. There is also some under-reporting from Tier 2 offerings that are in process but not completed.
Note my conflict of interest
I have an inherent bias in favor of Regulation A+ because I am the founder and CEO of Manhattan Street Capital, which is a funding platform that helps companies raise capital using Reg A+. My company benefits from Reg A+ doing well.
Largest segments of companies succeeding with Reg A+
Tier 2; Real Estate, Biotech,
Tier 1; Banks
Real estate is by far the largest segment of successful capital raises at 62% of the total or $915 million cumulative.
Rate of SEC Qualification
70% of companies that file their Reg A+ with the SEC become Qualified. Through the end of 2018, 366 companies filed for a Reg A+ offering with the SEC, and 262 companies’ offerings have been Qualified.
40% of companies whose Reg A+ was Qualified by the SEC have raised more than $1 million. Out of the 262 companies whose offering have been qualified,107 companies raised more than $1 million. The two primary reasons for failed offerings are;
1) Companies that do not appeal sufficiently to main street investors tried Reg A+ anyway. Which types of companies are best able to succeed with Reg A+.
2) Insufficient or ineffective marketing. How to succeed in promoting your Reg A+.
In 2018 Reg A+ companies raised $660 million (averages $55 million per month). Tier 2; $560 million, Tier 1; $100 million.
When we only assess companies that raised more than $1 million, then 47 Tier 2 companies raised an average of $11.8 million, and 9 Tier 1 companies raised an average of $11.2 million.
The growth rate of total capital raised from 2017 to 2018 was 30%. We estimate that the capital raise rate as of May 2019 is $70 million per month.
Real estate offerings
Real estate has emerged as the largest segment for Reg A+ capital raises — approximately 62% of all the capital raised via Reg A+ plus to date has been raised in real estate offerings. How to succeed with Real Estate Reg A+ offerings.
Fundrise is the standout Reg A+ real estate company having raised more than $505 million through December 2018 and having Qualified fourteen separate offerings through the SEC, with five of their funds having completed Qualification for three raises each. Fundrise represents 33% of the total capital raised via Reg A+ to date.
Real estate offerings lend themselves to Reg A+ because;
- There is often an attractive dividend payment
- Because of the security that the real estate itself offers and
- Because it’s an understandable asset class and many consumer investors and accredited investors would like more exposure to real estate if they had sufficient capital and time.
Growth in use of Reg A+ for Larger deals
We are seeing an increasing tendency to utilize Reg A+ to raise larger amounts of capital on an ongoing basis. In some cases, the cost of capital can be significantly lower via ongoing continuous Reg A+ offerings year-on-year versus VC, Private Equity or IPO.
Uplisting now approved for Reg A+
In December 2018 SEC extended the reach of Reg A+ to include secondary offerings for already public companies that are current with their SEC reporting. This expansion has the potential to significantly increase the use of Reg A+ as already-public companies come to realize they can use a less expensive and simpler Reg A+ process to raise their secondaries more efficiently than in the past.
Reg A+ IPOs
We have seen 14 Reg A+ IPOs beginning in June of 2017, the most recent being Soliton (SOLY), which listed on the NASDAQ in February 2019. See our list of these IPOs.
The largest Reg A+ IPO to date is that of Chicken Soup for the Soul Entertainment (NASDAQ:CSSE) which raised $30 million in July 2017. While many of the Reg A+ IPO stocks have suffered poor post-listing share price performance, Soliton has performed well to date (note that I have a long position in (NASDAQ:SOLY) and Chicken Soup for the Soul entertainment has recovered much of the ground it lost post listing, presumably because the company has made a series of positive announcements (I own a long position in CSSE).
It’s worth noting that as with most sub-$50 million S-1 IPOs, Reg A+ IPOs to date have been best efforts underwritings, while the full commit type underwriting is used in larger S-1s. The SEC only allows the use of the greenshoe in the case of full commit underwritten IPOs. It is likely that some of the Reg A+ IPOs would have performed better in the aftermarket had they been able to stabilize their share price via the greenshoe.
**How we find and compile the data that comprises this report
We analyze the SEC Edgar filings for companies that have completed and those that are in-process their Reg A+ offerings. We do this by reading and extracting data from their 1-K and 1-SA filings. We analyze the reported numbers in order to assess the capital raised in each offering. Tier 1 Reg A+ companies are quite simple to instrument because they are required to make a filing (the 1-Z) with the SEC when they complete their offering. Tier 2 companies are not required to file on completion so they are far more time-consuming to assess. The most recent round of filings had an SEC deadline of April 30th and they reported on the period ending Dec 31, 2018. Note that assumptions, predictions, and analysis are required to produce the numbers and results I present here.
Originally published at www.manhattanstreetcapital.com.
INVESTOR RISKS AND EDUCATION GUIDE
Investor Risks and Education Guide
Each investor is advised to consult legal, tax, investment or other professional before investing, and carefully review all the disclosures and documents provided as part of any offering materials. If in doubt, do not invest.
The purpose of this guide is to provide information to potential investors about the risks involved in buying securities in startup and mid-stage private and public companies. Please review the important information below before you begin to register on Manhattan Street Capital and before you make any investment commitment to companies on the MSC website.
About Manhattan Street Capital
FundAthena, Inc., a Delaware corporation doing business as Manhattan Street Capital, brings together prospective investors and companies seeking growth capital. On this website platform companies seeking growth equity can post information about their business, fundraising plans and value proposition and solicit feedback and test interest from prospective investors and industry advisers that they can use to refine and improve their fundraising pitches and presentations before filing their offering documentation with the federal Securities and Exchange Commission (“SEC”) under Regulation A+ (“Reg A+”), which allows investors of all financial backgrounds and investment experience to participate in capital market investments. MSC also helps companies make their Reg D 506C offerings which are restricted to accredited investors and Reg S offerings which are restricted to non-US investors.
Manhattan Street Capital provides the platform that enables businesses seeking growth advice and capital, individuals, and firms seeking investment opportunities and advisors seeking to support growing companies to gather in one place to foster business and financial opportunity. Companies seeking feedback can post information about their business and fundraising goals on the Platform for others to view and assess and such posting does not mean that a specific company has offered or agreed to complete an offering.
Manhattan Street Capital is not a broker-dealer or placement agent. At no time does Manhattan Street Capital offer, broker, advise, purchase, sell or otherwise transact in securities regulated by the SEC or federal or state law. Manhattan Street Capital does not accept, hold or transfer cash or securities. Manhattan Street Capital does not guarantee that a Company seeking investment will achieve any level of fundraising or that any proposed offering will qualify under applicable federal and state securities laws.
Manhattan Street Capital is not a personal financial advisor. Manhattan Street Capital, whether through the Platform or otherwise, does not provide personal financial advice, loans or credit, banking, consumer credit ratings, credit decisions, financial products, brokerage accounts, insurance, tax advice, legal advice, or financial or legal services of any kind. Even if featured on the Platform, unless expressly stated otherwise, Manhattan Street Capital does not provide endorsement to or for any advisor/company seeking capital or investment opportunity.
Manhattan Street Capital does not guarantee any result to anyone. All users of the Platform are responsible for making their own decisions to use the Platform and for any actions taken on the Platform, including without limitation registering, posting information about their Company and any proposed financing, reserving an investment, making an investment or otherwise.
Investment Considerations and Risks
Each investor is advised to consult legal, tax, investment or other professional before investing, and carefully review all the disclosures and documents provided as part of any offering materials.
Prior to registering on Manhattan Street Capital and before making an investment, you are advised to consider the risks of investing in crowdfunded securities offerings and determine whether such an investment is appropriate for you. You could lose your whole investment.
Manhattan Street Capital and its employees are prohibited from offering advice about any offering posted on Manhattan Street Capital and from recommending any investment. This means the decision to invest must be based solely on your own individual consideration and analysis of the risks involved in a particular investment opportunity posted on Manhattan Street Capital.
There are risks that you must consider when making an investment in the company on Manhattan Street Capital. Investing in private/early stage companies is very risky, speculative, and investments should not be made by anyone who cannot afford to lose their entire investment. Carefully consider the risks associated with the type of investment, security, and business before making any investment decision. Potential investors agree and acknowledge that they are responsible for conducting their own legal, accounting, and other due diligence reviews of the investment opportunities posted on Manhattan Street Capital.
Principal risk: Investing in private companies and startups will put the entire amount of your investment at risk. There are many situations in which the company may fail completely or you may not be able to sell the stock that you own in the company. In these situations, you may lose the entire amount of your investment. You should not invest any funds unless you are able to bear the entire loss of the investment.
Returns risk: The amount of return on investment, if any, is highly variable and is not guaranteed. Some private companies and startups may be successful and generate significant returns, but many will not be successful and will only generate small returns, if any at all. Any returns that you may receive will be variable in amount, frequency, and timing. You should not invest any funds in which you require a regular, predictable and/or stable return.
Returns delay: Any returns may take several or many years to materialize. Most companies take five to seven years to generate any investment return if any at all. It may also take many years before you will know if an investment will generate any return. You should not invest any funds in which you require a return within a certain timeframe.
Liquidity risk: It may be difficult to sell your securities. Startup investments are privately held companies and are not traded on a public stock exchange. Also, there is currently no readily available secondary market for private buyers to purchase your securities. Furthermore, there may be restrictions on the resale of the securities you purchase and your ability to transfer. You should not invest any funds in which you require the ability to withdraw, cash-out, or liquidate within a certain period of time.
Instrument risk: You may be investing in preferred equity, common equity, or convertible notes. These securities instruments all have different inherent risks caused by their structure. You should take the time to understand the nature of the securities instrument that you are investing in.
Dilution: Startups and early-stage companies may need to raise additional capital in the future. When these new investors make their investment into the company they may receive newly issued securities. These new securities will dilute the percentage ownership that you have in the business.
Minority stake: As a smaller shareholder in the business you may have less voting rights or ability to influence the direction of the company than larger investors. In some cases, this may mean that your securities are treated less preferentially than larger security holders.
Valuation risk: Unlike publicly traded companies that are valued publicly through market-driven stock prices, the valuation of private companies, especially startups, is difficult to assess. The issuer will set the share price for your investment and you may risk overpaying for your investment. The price you pay for your investment may have a material impact on your eventual return if any at all.
Failure risk: Investments in startups and private companies are speculative and these companies often fail. Unlike an investment in a mature business where there is a track record of revenue and income, the success of early-stage companies often relies on the development of a new product or service that may or may not find a market. You should be able to afford and be prepared to lose your entire investment.
Revenue risk: Many startup, private and public companies are at an early phase, and may be just beginning to implement their business plan. There can be no assurance that it will ever operate profitably. The likelihood of achieving profitability should be considered in light of the problems, expenses, difficulties, complications, and delays usually encountered by companies in their early stages of development. A company may not be successful in attaining the objectives necessary for it to overcome these risks and uncertainties.
Funding risk: A company may require funds in excess of its existing cash resources to fund operating expenses, develop new products, expand its marketing capabilities, and finance general and administrative activities. Due to market conditions at the time the company needs additional funding, it is possible that the company will be unable to obtain additional funding when it needs it, or the terms of any available funding may be unfavorable. If the company is unable to obtain additional funding, it may not be able to repay debts when they are due or the new funding may excessively dilute existing investors. If the company is unable to obtain additional funding as and when needed, it could be forced to delay its development, marketing and expansion efforts and, if it continues to experience losses, potentially cease operations.
Disclosure risks: Companies that at an early stage and may only be able to provide limited information about their business plan and operations because they do not have fully developed operations or long trading history. Startups and private companies only obligated to provide limited information regarding its business and financial affairs to investors.
Personnel risks: An investment in a private company is also an investment in the management of the company. Being able to execute on the business plan is often an important factor in whether the business is viable and successful. You should be aware that a portion of your investment may fund the compensation of the company’s employees, including its management. You should carefully review any disclosure regarding the issuer company’s use of proceeds. You should also carefully consider the experience and expertise of the management team.
Fraud risks: It is possible that certain people involved in the business may commit fraud or mislead investors. If fraud or misleading conduct occurs, then your total investment may be lost. You should carefully review any disclosures regarding the company’s management team and make your own assessment of the likelihood of any potential fraud.
Lack of professional guidance: Many successful companies partially attribute their early success to the guidance of professional investors (e.g., angel investors and venture capital firms). These investors often play an important role through their resources, contacts, and experience in assisting early-stage companies in executing their business plans. Private companies and startups primarily financed by smaller investors may not have the benefit of such professional investors. You should consider the existing professional investors in the business and whether or not they or any other professional investors are participating in the current round.
Growth risk: For an early stage company or startup to succeed, it will need to expand significantly. There can be no assurance that it will achieve this expansion. Expansion may place a significant strain on the company’s management, operational and financial resources. To manage growth, the company in their early stages of development will be required to implement operational and financial systems, procedures and controls. It also will be required to expand its finance, administrative and operations staff. There can be no assurance that the company’s current and planned personnel, systems, procedures, and controls will be adequate to support its future operations. The early stage company’s failure to manage growth effectively could have a material adverse effect on its business, results of operations, and financial condition.
Competition risk: The company in their early stages of development may face competition from other companies, some of which might have received more funding than the company you invested in has. One or more of the company’s competitors could offer services similar to those offered by the company at significantly lower prices, which would cause downward pressure on the prices the company would be able to charge for its services. If the company is not able to charge the prices it anticipates charging for its services, there may be a material adverse effect on the company’s results of operations and financial condition.
Market demand risk: While the private company or startup believes that there will be customer demand for its products, there is no assurance that there will be broad market acceptance of the company’s offerings. There also may not be broad market acceptance of the company’s offerings if its competitors offer products which are preferred by prospective customers. In such event, there may be a material adverse effect on the company’s results of operations and financial condition, and the business may not be able to achieve its goals.
Control risks: Because the private company or startup’s founders, directors, and executive officers may be among the company’s largest stockholders, they can exert significant control over the company’s business and affairs and have actual or potential interests that may depart from yours. The company’s founders, directors, and executive officers may own or control a significant percentage of the business. In addition to their board seats, such persons will have significant influence over corporate actions requiring stockholder approval, irrespective of how the company’s other stockholders, including you, may vote. Such persons’ ownership may also discourage a potential acquirer from making an offer to acquire the company, which in turn could reduce the company’s stock price or prevent you from realizing a premium on your investment.
The risks highlighted above are non-exhaustive. Investors must carefully review each issuer company’s offering materials for a more complete set of risk factors specific to the investment. You should only invest an amount of money you can afford to lose without impacting your lifestyle.
Types of offerings on Manhattan Street Capital
Direct Listings, Regulation A+, Regulation D, Regulation S, and STOs that utilize the same SEC Exemptions. These rule systems significantly differ from each other, so always make sure to read the offering documents before you make an investment.
Types of Securities Offered
The most common forms of securities an issuer can offer are equity or debt. The securities that the issuer companies offer on Manhattan Street Capital include the following:
Common Stock: Conveys a portion of the ownership interest in the company to the holder of the security. Stockholders are usually entitled to receive dividends when and if declared, vote on corporate matters, and receive information about the company, including financial statements. This is the riskiest type of equity security since common stock is last in line to be paid if a company fails. You should read our discussion of the risks of early-stage investing here, and pay special attention to the fact that your investment will only make money if the company’s business succeeds. Common Stock is a long-term investment.
Preferred Stock: Stock that has priority over common stock as to dividend payments and/or the distribution of the assets of the company. Preferred stock can have the characteristics of either common stock or debt securities. While preferred stock gets paid ahead of common stock, it will still only be repaid on liquidation if there is money left over after the company’s debts are paid. In certain circumstances (such as an initial public offering or a corporate takeover) the preferred stock might be convertible into common stock (the riskiest class of equity). You should review the terms of the preferred stock to know when that might happen.
Debt: Securities in which the seller must repay the investor’s original investment amount at maturity plus interest. Debt securities are essentially loans to the company and the major risk they bear is that the company does not repay them, in which case they are likely to become worthless.
Convertible Note: This form of investment is popular with technology startups because it allows investors to initially lend money to the company and later receive shares if new professional investors decide to invest. The sort of convertible note that is most often offered on Manhattan Street Capital may limit the circumstances in which any part of the loan is repaid, and the note may only convert when specified events (such as a preferred stock offering of a specific amount) happens in the future. You will not know how much your investment is “worth” until that time, which may never happen. You should treat this sort of convertible note as having the same risks as common stock.
Title IV (Regulation A+)
Regulation A+ is the primary SEC exemption that Manhattan Street Capital supports. Please make sure to understand this rule system before you make any investment commitment.
Regulation A+ allows startups and later stage companies to use equity crowdfunding platforms to raise as much as $50M* from both accredited and non-accredited investors. Regulation A+ broken up into two tiers, Tier 1 and Tier 2. Tier 1 allows companies to raise up to $20M while Tier 2 allows them to raise up to $50M.
Tier 1 — Raise up to $20M
- Anyone can invest worldwide
- The company can publicly advertise
- Financials required
- Must satisfy Blue Sky laws in each US state that investors live in
- No limit on investment amount by main street investors
Tier 2 — Raise up to $50M
- Anyone can invest, worldwide
- The company can publicly advertise
- No state registration required
- Requires Audited Financials
- Non-accredited investors are limited to 10% of income/net worth per year
Please note that the regulations of your country may restrict you from investing via Reg A+ offerings. As an investor, you must check the regulations that apply to you, in your country.
- For Tier 1, the investor has no restrictions on the amount they invest.
- For Tier 2, non-accredited investors have caps on how much they can invest. They can invest a maximum of 10% of their annual income/net worth per year, depending on which is greater.
Regulation D 506C:
Only accredited investors are allowed to participate in Reg D offerings. In the investing process, you have to prove your accredited investor status. Note that there might be restrictions on reselling your Reg D shares.
Definition of an Accredited Investor:
- Have had an annual income of $200,000 if filing individually or $300,000 if filing jointly for each of the two most recent years, and a reasonable expectation to maintain that income for the following year, or
- Have a net worth of $1,000,000, not including his or her primary residence.
- Is a Trust or Entity with assets of $5,000,000 or
- Is a Trust or Entity solely owned by accredited investors
Only non-US investors are allowed to invest.
Definition of a US-Person:
- Any natural person resident in the United States;
- Any partnership or corporation organized or incorporated under the laws of the United States;
- Any estate of which any executor or administrator is a U.S. person;
- Any trust of which any trustee is a U.S. person;
- Any agency or branch of a foreign entity located in the United States;
- Any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;
- Any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and
- Any partnership or corporation if:
- Organized or incorporated under the laws of any foreign jurisdiction; and
- Formed by a U.S. person principally for the purpose of investing in securities not registered under the Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in §230.501(a)) who are not natural persons, estates or trusts.
Calculating Net Worth
Calculating net worth involves adding up all your assets and subtracting all your liabilities. The resulting sum is your net worth. (The value of your primary residence is not included in your net worth calculation.)
If you make an investment in error, contact the company that you made your investment in immediately to request them to cancel your investment by email using the email and their information published on their offering page.
The securities offered on Manhattan Street Capital are only suitable for potential investors who are familiar with and willing to accept the risk of loss associated with high risk and illiquid private investments. It may be difficult or impossible to sell your securities.
Most of the issuer companies are privately held and their shares are not traded on a public stock exchange. Even if they are traded on a public stock exchange, there can be no guarantees of liquidity or favorable prices for the securities you might buy. Also, there may be no readily available secondary market for private buyers to purchase your securities. Furthermore, there may be restrictions on the resale of the securities you purchase and your ability to transfer them. You should not invest any funds in which you require the ability to withdraw, cash-out, or liquidate within a certain period of time.
Rod Turner is the founder and CEO of Manhattan Street Capital, the #1 Growth Capital marketplace for mature startups and mid-sized companies to raise capital using Regulation A+. Turner has played a key role in building successful companies including Symantec/Norton (SYMC), Ashton Tate, MicroPort, Knowledge Adventure and more. He is an experienced investor who has built a Venture Capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris (AMRS), Ask Jeeves and eASIC.
Manhattan Street Capital, 5694 Mission Center Rd, Suite 602–468, San Diego, CA 92108