How Warm is the Water?

At its core, raising capital is about building relationships.  Companies seek investors who clearly understand their stories, want to help them achieve their objectives and believe in their investment potential.  Thus, companies may want to view Testing the Waters (“TTW”) in a broader context than just “how much can I raise?” TTW can be a part of a company’s overall investor relations strategy.  It’s the courtship before marriage.  

The ability to test the waters prior to and during an offering is a valuable feature of Reg. A+.  Raising capital is often a daunting and costly endeavor, requiring preparation of robust financial statements and involving significant legal expense and other associated costs.  Companies may choose to test the waters when evaluating whether or not to undertake the offering, prior to sustaining any of the costs or liabilities related to the filing process.  Below are some potential factors for companies to consider before testing the waters:

Gauging Interest Level & Potential Valuation Factors

In structuring an offering, a company may want to learn how much it can raise, as opposed to how much it needs to raise.  This also allows a company to receive feedback on the appropriate valuation of a share offering from key investors.  Testing the waters may provide a financial target for which to aim and give a better idea of how to price and structure the offering.


When raising capital via private placements and registered offerings, companies are limited in what they can say during the offering process and to whom they can say it. Often, significant resources are allocated to craft proper disclosure around the business, the use of proceeds, and management history, yet because of private placement investor restrictions and confidentially requirements, companies get little to no marketing benefit from this investment.

Testing the waters during the Reg. A+ offering process is an opportunity for companies to publicly connect with investors, customers and other key stakeholders. By testing the waters, companies can gain added press and exposure for business itself, which could potentially generate new sales, clients and future investors.

Keeping Diligent Records 

Securities law requires issuers to keep a record of all written and oral communications, from marketing materials to tweets to interviews. Companies foreign to securities regulation or without adequate legal guidance should pay particularly close attention to this. Providing misleading information or omitting material information (e.g. management/auditor changes) from testing the waters materials may land a company in hot water with the SEC.

Timing and “Jumping the Gun” 

When testing the waters, companies may find themselves in a “boy who cried wolf” dilemma.

The ability to generate interest and excitement around the company is great, so long as the deal gets done in a reasonable time frame.

Market conditions, regulatory approvals, and other unexpected delays can and likely will extend the timeline for completing the offering. Companies should act quickly, keeping in mind that investor appetite and momentum gained while testing the waters may have already waned by the time the SEC qualifies a Form 1-A.

Are you currently testing the waters and have questions about next steps?

Please share your questions and thoughts with us.


Jason Paltrowitz is Executive Vice President, Corporate Services at OTC Markets Group, where he is responsible for managing the firm’s international and domestic Corporate Services business. Drawing upon his expertise in cross-border trading and as a recognized proponent of Reg A+ and small company capital raising, Jason is an advocate for small cap issuers, start-ups, and entrepreneurial innovators working to alleviate the cost, time and complexity associated with being a public company. Prior to joining OTC Markets in October 2013, Jason was Managing Director and Segment Head at JP Morgan Chase responsible for the custody, clearing and collateral management business in the Corporate and Investment Bank division. Jason also held multiple senior management positions at BNY Mellon, most notably, as Head of M&A for the Financial Markets and Treasury Services Sector and 11 years as the Head of the Global Capital Markets Group in the Depositary Receipt Division. Jason currently serves on the Board of Directors of the Crowdfunding Professional Association (CfPA) and also served as a member of the Board of Directors at OTC Markets Group from 2008 – 2011. Jason holds a Bachelor's degree in International Relations from Boston University and received his MBA from the NYU Stern School of Business.

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