Today we have a new feature on Access IPOs, an interview with an expert and top influencer in the Reg A+ IPO space, Darren Marble. Darren is the Founder and CEO of CrowdfundX, the leading marketing firm designing Reg A+ IPO (aka mini-IPOs) campaigns. His company has worked on some familiar IPOs including the Myomo IPO, and Fat Brands IPO, in addition to the very first successful Reg A+ IPO, Elio Motors.
Tell me a little about your background and why you started CrowdfundX?
I spent ten years selling Oracle applications and technology to Fortune 500 companies and founded CrowdfundX in the middle of that career. I had excelled in enterprise software and was seeking a new challenge. The company pivoted two times over several years before finding a business model that worked – marketing Reg A+ IPOs and Investor Marketing campaigns for public companies.
How did you first get involved with marketing equity crowdfunding and Reg A+ IPO deals?
Prior to marketing Reg A+ IPOs, we had marketed more than 80 rewards-based crowdfunding campaigns on Kickstarter and Indiegogo. Many people tell me that we were lucky to get the Elio Motors deal, which became the first Reg A+ IPO ever, raising $17M from 6,300 investors. What they don’t realize is that we spent four years honing our craft, and were an ideal candidate to run their Reg A+ campaign. Believe me, we earned that referral.
What is involved in marketing a Reg A+ IPO to the masses?
The foundation of any great marketing campaign is a great story. So, we start by designing a compelling story that effectively sells the vision, mission, and values of the issuer. From there, we create comprehensive digital marketing and paid media plans and execute against them.
Ultimately, we need to communicate the investment opportunity to the right target audiences, multiple times, and through multiple marketing channels (email, SMS text message, and retargeting, for example). It’s a significant undertaking. Our average Reg A+ IPO campaign is five months, with three months of planning followed by two months of live offer marketing.
Why should investors consider an investment in Reg A + IPOs?
Self-directed retail investors have different motivations for investing in Reg A+ IPOs. Some invest because they are existing customers of the issuer, have received value from the issuer’s products or services, and believe in their mission. Other investors are looking to make a profit and are hoping to see the stock price increase post-listing to a national exchange.
Being able to invest at the IPO price is unique. Reg A+ levels the playing field for everyday Americans, and we are seeing an increasing number of retail investors participate in these offerings. At the same time, it is important for any investor to fully understand the risks associated with investing in any Reg A+ deal. Investors should read the Offering Circulars and seek feedback from their financial advisors if they are uncertain about any aspect of a particular deal.
Why are companies using Reg A+ IPOs to raise capital instead of traditional IPOs?
The top reasons include: (a) the ability to generally solicit, which empowers issuers to raise capital and build brand equity at the same time; (b) issuers have the ability to convert paying customers into investors, creating an army of brand ambassadors in the process; (c) more flexibility on terms, allowing issuers to retain control and ownership of their business; (d) Reg A+ can be faster and less expensive than a traditional S-1 IPO.
What kinds of companies are best suited to go down this route?
Ideal candidates for Reg A+ are consumer products or retail businesses with a built-in audience of paying customers. Conversely, companies with revenue and operating history that are open to a hybrid approach to Reg A+, involving an underwriter and parallel direct-to-investor digital marketing campaign have worked, too, as evidenced by Reg A+ IPOs like Myomo, FAT Brands, and Level Brands.
When should a company use the Reg A+ IPO instead of direct equity crowdfunding without the IPO?
One factor is how much capital the issuer desires to raise. The higher the target – $20M, vs. $5M, for example – the stronger the requirement to have an IPO, as investors at that level desire liquidity. Once public, it is often easier for issuers to raise capital, so the business plan and long-term capital requirements often dictate the path forward. Issuers should seek feedback from their attorneys and other capital markets experts as they evaluate an approach to Reg A+.
What is the biggest regulatory challenge that remains since the passing of the JOBS Act of 2012?
Regulators should increase the Reg A+ maximum threshold to $75M (from $50M), allow ’34 Act issuers (existing SEC reporting companies) to utilize Reg A+, and require all platforms and portals to be registered with the SEC and FINRA in a similar manner to Reg CF.
Who are the most exciting companies using the JOBS Act today to grow their businesses?
Ironically, it’s actually the larger, more established companies that I think represent the most exciting deals in the industry. As an example, we are working with an entertainment company with $180M in annual revenue and 1.2M customers. I think it’s an incredible opportunity for these customers (including myself) to become owners of a business they know and love.
Are there any major failed campaigns in the space that stand out? What was learned from them?
There have been many failed campaigns in the past thirty months. The general lessons learned are as follows: (a) pre-revenue, pre-product startups are 99 times out 100 not a fit for Reg A+; (b) the marketing effort required to raise millions of dollars online is substantial – a dedicated marketing budget (and team) is necessary; (c) certain industries like Life Sciences or Biotech are high risk as there is little precedent for successful offerings; (d) it’s hard to IPO to NASDAQ, NYSE or OTC Markets Group without true capital markets partners (and quarterback) like an investment bank.
Are there any Reg A+ IPO deals in the pipeline you can share with us that investors may want to keep on their radar?
I could share a few deals, but then I’d have to disclose our compensation. If I did that, I’d probably attract a lot of competition : )
Reg A+ IPOs, which became possible thanks to the JOBS Act of 2012, allow smaller companies to access capital at earlier stages to help facilitate growth. We like Reg A+ IPOs because they give small-time investors the opportunity to invest in innovative high-growth companies early on.
These IPOs are higher risk than traditional IPOs because of their size. Do not invest money in Reg A+ IPOs that you can’t afford to lose.
As the mini-IPO space matures, I expect many more of these deals in the coming years. We have yet to see the next Facebook or Amazon result from a Reg A+ IPO, but the foundation is set for that next big company to emerge via this route. Stay tuned.