Reg A+ Direct to Nasdaq: A New Path to the Public Markets

‍

This is an incredibly exciting next step for Monogram Orthopaedics and for other companies that are still earlier in their journeys, it’s an excellent demonstration of a unique new way to reach the public markets: by starting with a Reg A raise.

‍

Only a handful of companies have taken this route so far, but we may see that trend increase.

‍

Here’s why:

Equity crowdfunding builds community—and that means momentum

When you do an S-1, you have to go into a quiet period. It's very constrictive in terms of what you can do and how you communicate. That doesn't work in the modern world, where everyone uses Facebook and Instagram and communicates in real time.

Mark Elenowitz

Managing Director, Digital Offering LLC

Industry Expert Perspective

According to Mark Elenowitz, community-building—and the momentum it generates—is the main reason companies choose to use Reg A+ as a stepping stone to a public listing. It's an effective way to convert customers into shareholders and shareholders into customers.

Reg A allows the ability to market and use general solicitation with modern techniques. Companies still disclose all risk factors and provide investors with the information needed to make informed decisions, but deliver it in a new and modern way.

Those same leads and Reg A+ investors become an engaged community of followers and fans that are ready and excited to buy shares post-listing—driving significant early momentum when the company goes public.

It’s easier and cheaper than a traditional IPO

Reg A+ offers a scaled-down version of the regulatory requirements compared to a traditional IPO. It provides exemptions from certain reporting and disclosure obligations under the Securities Act of 1933, making it less burdensome in terms of compliance and ongoing regulatory obligations.

‍

Companies that raise capital via Reg A+ can more or less use the raise as a springboard to a public exchange; it’s a way for them to access capital and generate interest while they go through the lengthy process of filing for a public listing.

Venture deals are smaller and harder to come by

Founders using Reg A+ can set their own terms

VC deals aren’t just fewer and farther between than usual… they're also happening on heavily investor-favored terms. Deals offering participating preferred stock jumped to a whopping 15.6% in Q1 2023 (compare that to just 6.5% in Q1 2022).

‍

All these factors combined create a very tough funding climate for startups seeking capital. They also create an exciting opportunity for equity crowdfunding to bridge the gap.

‍

Founders that raise from their communities get to stay in the driver's seat... meaning they can set the terms of their offering without the pressure of the current market conditions. That means they can choose to issue non-voting shares and even have the final say on their valuation.

‍

So what does the future hold for this pathway to the public markets? Mark says that while adoption is currently increasing, we likely need a major household name company to take the lead before this model really takes off.

‍

Of course, for companies of that size, the real value of a Reg A+ raise is the brand-building aspect of it. These are massive, VC-backed unicorns we’re talking about; they don’t need to raise money from the crowd in order to keep growing. Still, it would be an incredibly powerful community-building play, breaking down barriers for their customers and fans to share in the success of the company.

‍

“The industry just needs to find a company that can do it right. If Instacart decided to use a Reg A—that would really accelerate adoption of the model,” he said. “If an Instacart, a Canva, a Stripe-sized company did a Reg A, we’d see a much higher acceptance level. The model works; we just need the right candidates to use it.”

‍

LEARN MORE » Watch a replay of our recent webinar, “Path To Going Public: Reg A To Nasdaq IPO”

‍

‍