Cost of Reg A+

One of the knocks on raising money through Reg A+ is the cost of compliance.  However, the cost of Reg A+ is likely to be made out to more than it is.  With Reg A + there are costs that are not required by other methods. 

For instance, compliance for Reg A+ will require a lawyer to assist in SEC filings, an auditor to audit your historical records, a transfer agent to track share movement, an edgarizer to turn your financial information into a format acceptable for the SEC, and sometimes an accounting expert to assist the company internally.

The most costly of these is the attorney and the auditor.  In addition, if you use a platform or service to assist in the fund raise it is likely to cost a few percent of the total raise.   It’s true that if you raise a smaller amount of money, these costs can be a relatively higher percentage of the total raise; however, the larger the raise, the less significant these costs become.What you don’t hear very often though is the cost of the alternatives to Reg A+ and the associated costs.  For instance, while Title III equity crowdfunding is not legal, when it is, the most you can raise is $1M and most of the costs outlined above will be similar.  Thus as a percent of the total raise, it might actually be worse depending on the circumstances.How about a line of credit for an existing business?  Most lines of credit require a 1% origination fee before you even use it.  They also may require compilations from CPA’s, monthly interest, and worst of all, personal guarantees (yes, the bank can hold owners personally liable for the debt).Traditional early series raises (i.e. seed, Series A, etc…) have probably the least upfront costs in terms of compliance with only legal fees generally being incurred.  However, these raises sometimes have unforeseen cost.  Preferential conversion options, first right of add-on investments, warrants, stock kickers, etc.  While all these items don’t require outlay of additional cash, they can dilute the ownership significantly.  Many founders who go through multiple raises end up with very small ownership percentages.Before you dismiss Reg A+ due to the fear of costs, contact a qualified professional to review all your options.

BizCFO is an accounting and finance consulting firm with offices in Santa Monica, Orange County, and San Diego, providing quality professional services. For additional complimentary information regarding this topic or other questions you may have please call one of BizCFO’s offices located in Southern California or contact us here.[contact_form]