Should I Host My Own Regulation A+?
Why it’s penny wise and pound foolish to DIY your $50M raise.
Since the launch of Regulation A+, companies can raise up to $50M directly from the general public without the need of a broker-dealer or any intermediary platform. Yes, that is right: They can go direct.
Over 80 companies have launched a Regulation A+ campaign since June 2015. Most of the companies chose to use a third party platform such as StartEngine (where I am the CEO and co-founder) or SeedInvest to host their campaigns. However, many have chosen to build their own websites — which must be connected to a bank or escrow account — and manage the entire process themselves.
This DIY (Do It Yourself) mentality is great because companies can customize the experience exactly as they wish. However, DIY comes with a long list of burdens:
- Spending money on client-server technology
- Programming the interfaces for banks and escrow services
- Fielding all investor questions
- Managing investor support issues 24/7 and reducing failed investments
- Building a website and maintaining it with frequent updates
- Integrating the analytics platforms to effectively study traffic
- Integrating the Facebook and Google ad platforms
- Integrating contest platforms
- Creating management and compliance reports
- Getting compliance alerts to stay on top of SEC rules
Most importantly, the DIY company does not have access to the large list of existing investor community who exist on the professional platforms. For example, StartEngine has over 80,000 investors and these investors have already setup their accounts and receive information on new companies who are listed.
Is it penny wise and pound foolish for companies to go DIY? Yes. You’re missing out on the three primary advantages of using a third party platform:
- Your company can focus all of its energy on marketing — not building.
- You get access to a large group of investors who otherwise would not know about the raise.
- You work with top marketing consultants to grow the reach of the campaign and grow the raise.
So why are companies doing it themselves? Well, I have heard it is mostly because of costs. True, some broker-dealer platforms charge 7% plus warrants, which can be expensive. For example, a company that raises $2M pays $140,000 plus warrants. On StartEngine the same raise from 2,000 investors would cost $110,000, which includes transaction fees. In the end, these costs are low if you compare them to the amount raised.
The DIY costs are also non-trivial if you add the costs of the programmer, designers, cloud hosting, support staff and upper management time to manage the entire process.
What we have found works best is the combination of four things: a company that is highly motivated to raise the capital, a great platform to manage the entire process, a large existing investor community, and a team of marketing consultants who know how best to manage a successful campaign.
In the early days of our industry, it makes sense to see companies DIY. But as the industry invests millions into technology platforms and soon grow their investor communities into the millions, it will be clear that the cost and lost opportunities make DIY no longer viable.
