This is not a traditional IPO. While you are allowed to use a Reg A+ offering to take your company public and list it on the NASDAQ or the NYSE, that is not a requirement, and it is not the path most companies will take because the reporting costs from being public on the big boards are very high. An advantage of using Regulation A+ to take your company public to the NASDAQ or NYSE is that you can set a zero minimum for the Reg A+ itself and then if you do not meet the minimum listing capital raise for the NASDAQ or NYSE you can still complete the raise and get the capital. Then the option to uplist exists for a later date.
A more cost effective route is to list your company on the OTCQB, or the OTCQX; see below for more on this. Some companies are taking this route with a plan to uplist when they are more established.
Securities and Exchange Commission (SEC) rules allow for the sale and purchase of your company’s shares after the Regulation A+ offering has completed in any case; see below. As the offering company, you do not have to list your stock on any market. And you are allowed to restrict liquidity on the Reg A+ shares post offering. Doing this will usually reduce the appeal of your offering to investors.
Reg A+ shares are a new class of stock that can be bought and sold in the after-market by the general public through stock brokers. Since November 2015, any company that completes a Tier 2 (but not a Tier 1) Regulation A+ offering will be qualified for a public listing on the OTC Markets QB and can easily qualify for the QX marketplace. Listing fee is currently $2,500 for OTCQB, with a $10,000 annual renewal fee payable to OTC Markets. The OTCQB and OTCQX markets are operated by OTC Markets Group, not by NASDAQ. The Broker-Dealer must sponsor your company by filing a Form 211 with FINRA, a step that takes 4 to 8 weeks, which will normally be a simple request that will likely be accepted.
Listing on the more prestigious OTCQX market is also available, although there are more reporting requirements (to satisfy OTC Markets) – quarterly financials and an initial background check on the executives of the management team. The fees are higher for an OTCQX listing – $5,000 listing fee plus $20,000 per year. For OTCQX, the accounting firm used must be PCAOB registered. Audits are required once per year. These liquidity options make a Reg A+ offering a very attractive alternative to a Reverse Merger – buying a public shell on the OTC Pink Sheet market, and an IPO.
A company that has completed a Tier 2 Regulation A+ offering has the option to take itself public by taking the listing steps outlined above. It is not a requirement. Clearly investors will prefer the improved liquidity when you put your company on the OTCQB or OTCQX. We call Reg A+ offerings Simple Public Offerings(TM) and SPO(TM) for short. Because Reg A+ offerings are for less than $50 million of capital – simple offerings to the public. And they are far more cost effective than an IPO, or a reverse merger. The rules are simpler than for an IPO. The process of getting qualified with the SEC is far simpler than for an IPO.
After a company has completed a Regulation A+ offering, the reporting requirements are far simpler than after an IPO. And Reg A+ SPO(TM) offerings (up to $50 Million per company per year) are much smaller than conventional IPOs are. The average US IPO raises approx $300 million.
Estimated costs for the SEC registration process start at $50k for a company with a simple and clean history, more if you hire expensive or inexperienced attorneys or if your company has a complex past. Marketing costs will range from a minimum of $50k up, as a rule of thumb, expect marketing to cost about 2 to 4 % of the capital you raise although marketing agencies do not charge on a % basis. Compare this with a reverse merger which will typically cost $500k to $1mill (for a shell without a bankruptcy in its past) plus marketing costs, and an IPO, which will usually cost $1 to $2 mill out of pocket plus at least $1mill per year in reporting infrastructure costs. Audit costs depend on who you use and how complex your business is.
Please note that Manhattan Street Capital will charge the Issuer a Listing fee of $25 per investor plus $25 warrants. Offering companies will also be responsible to pay the cost of due diligence provided by external service providers, which is expected to be less than $5,000 in total per company, although there may be exceptions. Broker Dealer, transfer Agent and Escrow fees will cost 1.5% up to 8% of capital they raise.
Reposted with permission
Rod Turner is the CEO and Founder, Manhattan Street Capital