Author Archives: Dennis McCarthy

Reg A+ IPO

Dennis McCarthy – – (213) 222-8260

Companies should consider using a Reg A+ for their IPO because Reg A+ can be more cost effective and more marketing friendly than traditional offerings which use the Securities Exchange Commission’s (SEC’s) S-1 registration.

The rules permitting the use of Regulation A, now dubbed Reg A+, were revised by the SEC after passage of the JOBS Act which was signed into law a few years ago.  So, Reg A+ is still relatively new.

I’d like to share some highlights about how Boustead uses Reg A+ to enable companies to “go public”.

Reg A+ Shares are Freely Tradable

The first key feature which makes a Reg A+ offering work as an IPO is that shares purchased by investors via a Reg A+ offering statement, once it’s qualified by the SEC, are freely tradeable with no further SEC registration required.

Reg A+ Offering Statement Advantage

The Reg A+ offering statement, called a 1-A, is similar to, but simpler than, the S-1 registration statement which is traditionally used for IPOs.

By simpler, I mean, the 1-A requires only two years of audited financial statements, and the general level of disclosure is more streamlined.

As a result, the 1-A offering statement’s preparation time, attorney’s and accountant’s costs and SEC review time are likely less than for a S-1 registration statement.

For many private companies, saving time and money is critical.

Reg A+ Open to a Wide Range of Investors

Another key feature, the Reg A+ rules permit private companies* to raise capital from a wide range of investors without regard to whether the investor is accredited.

As you may know, in a traditional private placement, private companies are limited to raising capital from accredited investors, who have met threshold income or asset tests.

Even when a private company uses an S-1 registration to go public, it faces practical limits on reaching out to investors.

When using an S-1 registration, a private company typically reaches out only to clients of its offering syndicate and not beyond.  Click here to read more.

Now, in order to efficiently inform this broad range of investors and to help process investors’ offering paperwork, Boustead relies on its affiliated platform, FlashFunders, a SEC registered clearing broker-dealer and transfer agent.

Reg A+ Marketing Permits Use of Various Media

A related benefit of using Reg A+ for an IPO is that a company can reach out to that broad universe of potential investors using many media techniques including email, internet ads, broadcast media, influencers, etc.

Also, a type of pre-marketing of Reg A+ offerings can commence earlier in the SEC registration review timeline which is another advantage of Reg A+ over a traditional S-1 registration.

Boustead believes it has honed its use of media techniques and timing to approach a large universe of potential investors cost effectively.

Key Supporters and Affinity Groups

I should point out that Boustead has found that companies with strong support from current shareholders and large and active affinity groups are more successful with their Reg A+ offerings.

It’s just natural that new investors watch to see whether current investors and customers support the company before jumping in with an investment.

Boustead Teams with Experienced Professionals

Also, in order to have a successful Reg A+ IPO, Boustead works with experienced attorneys, accountants, broker-dealers and consultants. It’s a team effort.

Post IPO Trading on NASDAQ or NYSE

Last but not least, while completing an IPO is an important Company milestone, Boustead considers achieving investor trading liquidity after the IPO to be another key measure of success.

Boustead recommends that a company obtain a conditional listing on NASDAQ or the NYSE to enhance investors’ trading liquidity after the IPO.


So, in conclusion, Boustead’s experience with Reg A+ offerings helps us to advise clients considering using Reg A+ as an alternative to a S-1 registration.

Please contact us to discuss your capital market goals.

* Reg A+ is available to US and Canadian private companies, non-reporting pink sheet companies, and OTC voluntary filers, as well as Canadian listed companies.

Reg A+ IPO Marketing Advantage

Boustead Securities has successfully completed several Reg A+ IPOs recently.  This has prompted a great deal of interest in Reg A+ offerings from prospective client companies and their legal, audit and financial advisors.

One of the key differences between our Reg A+ IPOs and a traditional IPO is the marketing process.Reg A+ IPO targets all potential investors while traditional IPO targets only customers of participating broker dealers.

Limited Marketing Reach of Traditional IPO

In a traditional IPO, a company engages an underwriter, investment bank, broker dealer or a syndicate of broker dealers.  Through the lead underwriter, the company markets the IPO to those firms’ brokers who contact their clients to buy the IPO stock.

In this process, the customers contacted for the IPO likely represent only a small portion of the investors who might be interested in the IPO.

Most of the potential investors interested in the company’s IPO are never contacted.

It’s been a common practice that the IPO syndicate firms may sell IPO shares to some customers even if the customers aren’t expected to be long term investors.  After the IPO closes, these shares may well end up being quickly sold off into the market.

Inclusive Reg A+ IPO Marketing

In a Reg A+ IPO, because the Securities and Exchange Commission permits general solicitation, the underwriter, broker dealer or syndicate may use all forms of media (social media, email, influencers, targeted media, etc.) to contact potential investors who may be interested in the company or industry sector.

The goal is to find interested investors whether they have brokerage accounts with the syndicate firms or not.

We’ve found that including these interested investors in our Reg A+ IPOs results not just in incremental investors who are exposed to the IPO and subscribe to it, but in better natural investors who are less inclined to quickly sell after the IPO.


Please contact us to discuss your capital market goals and the Reg A+ IPO.


Does Your Company Qualify For Growth Capital?

My recent article on growth capital triggered a great deal of interest.

Companies responded to the message that they can rapidly raise capital on attractive terms to expand sales, marketing and production capacity, in other words, to “step on the gas”.

We decided that the topic of growth capital merits a couple more articles which go into more background on two elements.

This article describes where growth capital fits in the capital markets to help you determine whether your company qualifies.

Growth capital fills the funding gap between venture capital and conventional private equity.

Growth Vs Venture Stage Company

So, what distinguishes a growth company from a venture company

A growth company’s products or services are developed, not beta versions.

A growth company has revenues but may not yet have profits.

Customer demand is clearly evident and the prospect for further sales growth is visible.

From the investor’s perspective, investment in a growth company is much less risky than in a venture company because these critical milestones have been achieved.

Growth Capital Vs. Conventional Private Equity

How are growth investors different from conventional private equity investors?

Growth investors are willing to invest before a company reaches its full potential.

The growth investor takes the risk that the growth company, with capital and capable management, will achieve its potential.

Growth companies typically project rapid sales growth and, if the company is still unprofitable, a turn to profitability.

Valuation of a growth investment gives credit for this potential.

In contrast, conventional private equity investors value companies based on historical performance, often referred to as “looking through the rear-view mirror”.

While this is a generalization, its captures the major difference between growth capital and conventional private equity.

We believe that growth capital is an attractive source of capital.

Please contact us to discuss growth capital or any capital market projects.

Types of Growth Capital

My recent article on growth capital triggered a great deal of interest.

Companies responded to the message that they can rapidly raise capital on attractive terms to expand sales, marketing and production capacity, in other words, to “step on the gas”.

We decided that the topic of growth capital merits a couple more articles.

In this article, I’ll describe two types of growth capital, growth equity and growth debt.

Growth Equity

Growth equity investors buy equity, maybe a preferred stock.

These growth equity investors take risk side by side with growth company entrepreneurs.

The growth equity investor’s return depends on future value appreciation to generate a healthy return.

Given that growth companies often experience some variability in performance, deviating from their projections, having a growth equity investor riding in the co-pilot seat through performance turbulence can be helpful.

As a side note, I’ve worked with many growth companies and can’t recall an instance when there wasn’t deviation from the projections.

Growth companies are simply in a dynamic period of change.

Growth equity investors know this and expect it.

Also, on the issue of investor control, in the growth capital sector, investor control varies with circumstances and is not a given, especially in cases of growth debt.

Click here to go to an article on the control issue on

Growth Debt

There’s a second type of growth capital, growth debt, which is sometimes called venture debt.

This is not the type of debt that banks offer (based on assets).  This is more like equity but on a company’s balance sheet as debt.

Growth debt investors get their return in two forms, (i) a periodic cash interest payment and (ii) equity which has some future value.

A growth company may be permitted to defer interest payments initially until it becomes cash flow positive and, in any case, the interest rate is typically low.

For its equity return, a growth debt investor often gets warrants to buy equity in the growth company in the future. With this form of equity, a growth debt investor isn’t a shareholder until the warrants are exercised, likely at the time the debt is repaid.

Which reminds me to tell you that growth debt eventually must be repaid, perhaps three to five years in the future.

With strong projected growth, a growth company will likely have ample opportunity to repay or refinance its growth debt well before its maturity.

Recently, my colleagues and I arranged a growth debt deal for a client.  This client had some customer traction but was not yet profitable.

Under its growth debt arrangement, our client drew capital as needed based on contracts signed.

After a deferral period, our client was required to make periodic cash interest payments.  The interest rate was low.

Our client’s equity give-up on this deal was very small.

The value of the equity, presuming the company’s future success, plus the periodic cash return from the interest payments will give the growth debt investor a healthy return.

We believe that growth capital, whether debt or equity, is an attractive source of capital.

Please contact us to discuss growth capital or any capital market projects.

Growth in Growth Capital

Encore – This article was originally posted on the former Monarch Bay Securities website:

With every phone call or email exchange, I’m more convinced that one of the most rapidly growing segments of the capital market is, appropriately labelled, growth capital.

This is a relatively newer segment of the private capital market that sits between the two well-established segments, venture capital and private equity.


By many indications, venture capital is also growing.  But, from my experience, the statistics may be skewed.  I sense that the “unicorns”, the companies with a valuation over $1 billion valuation, are getting investment dollars and in big amounts.   Companies outside the fabled unicorn segment, aren’t finding investment nearly as obtainable.  The large amounts of capital gathered by the “unicorns” are distorting the figures.

CB Insights, the investor database company, and Credit Suisse, the investment bank, provide a chart tracking the unicorn trend.








Party’s Over?

I doubt that anyone considers the traditional private equity sector to be growing.  To be sure, over the last couple decades, private equity funds have had a great run.  The private equity firms’ portfolio companies have enjoyed the tailwind of a growing global economy and a declining interest rate environment which has made substantial financial leverage helpful.

Now, the scarcity of the perfect private equity deal is intense and competition among firms has driven up the multiples that private equity firms need to pay to win. (Click for article on recent stats). The tailwinds previously enjoyed by private equity may have become headwinds.

No Revenue, No Thanks

That takes us back to the growth capital segment.  While there’s no universal definition, in general, growth capital investors look for private companies that have some revenues, say $3 million or more.  While the revenue threshold varies, what seems to be universal is the requirement that the commercial markets have signaled acceptance of the company’s product or service.

Some growth capital providers require at least a breakeven profit level.  In my experience, most accept losses at least initially.

Growth capital firms look for companies into which the firms can provide capital and, perhaps, guidance. The capital and guidance are expected to enable the companies to accelerate growth, “to step on the gas” so to speak.

More Funds and More Money

Brand new growth capital fund announcements are highly visible.  I get them in my emailbox regularly.

What’s less visible but clearly discernable from the daily phone conversations is the shift of capital allocated to growth capital from venture capital or private equity.  Sometimes, a fund manager simply  shifts emphasis in an already established VC or private equity fund and sometimes, the shift coincides with a new fund.

The combination of more funds and more money looking for growth capital situations makes the sector a “red hot” source of capital.

If your company fits the growth capital sector, this may be the time to raise capital.  We’re very active in the sector and welcome the opportunity to discuss your capital needs.

Early Stage Growth Investors Wanted

Dennis McCarthy – (213) 222-8260 –

My colleagues and I see an opportunity for investors to earn a great return and avoid the crowd by investing in early stage growth companies.

If your fund will consider investing in early stage growth companies, please let us know.

We at Boustead represent attractive companies which need capital.

We’d like to get to know your fund to show you current and future opportunities.

Growth Stage Companies

Growth stage companies, in our definition, reside on the continuum between venture capital stage companies and mature, seasoned companies.

We define growth stage companies as having products or services which have commercial traction.

Growth stage companies are past the product development stage.  They’re products are not beta samples.

Customers can and do buy these growth stage company’s products or services. Many of our clients, for example, have great, “name-brand” customers.

Growth Stage Investors

In prior articles, we’ve reported that there is a growing universe of funds looking to invest in growth stage companies.

These growth stage investors may be specialized funds, family offices or wealthy individuals.

Growth stage investors want to add capital to expand production or sales which will further accelerate a company’s growth.

The Gap At The Early Stage

One nagging question, however, is just how much commercial traction must the growth stage company show to attract the growth stage investors.

In today’s market environment, the simple answer to this key question is that growth stage investors want “more”.

More revenues already booked, with products shipped or services delivered.

For example, if a growth stage investor used to require a company to have $5 million of historical revenue, now it likely requires $10 million.

We deal with growth stage companies regularly so while this is not a statistical sampling, it reflects substantial daily interaction.

Early Stage Growth Investors Needed

With many growth stage investors requiring “more” revenue, we’re looking for growth stage investors wanting to avoid the crowd and invest in early stage growth companies.

If you’re an early stage growth investor, please contact us.


AvynoLawLogoIn March 2015 the Securities and Exchange Commission (“SEC”) adopted final rules amending Regulation A, as required by the Jumpstart Our Business Startups Act.

The previous version of Regulation A provided an exemption from registration under the Securities Act of 1933 (the “Securities Act”) for securities offerings of up to $5 million by private companies.  Issuers needing to raise capital seldom chose to proceed under the old Regulation A for a variety of reasons, mainly because of the time and money involved in getting through the SEC review process, given that only a maximum of $5 million could be raised, as well as the cost (and frequent frustration) involved in complying with state blue sky laws in each state in which the securities were offered and sold.  The statistics dramatically underscore the general lack of interest in old Regulation A, and from 2012 to 2014 only 26 Regulation A offerings were qualified by the SEC.

The amendments to Regulation A adopted by the SEC, now colloquially referred to as “Regulation A+,” were specifically designed to address these former shortcomings and to “jump start” Regulation A as a capital raising tool for startups, most notably by raising the maximum amount that could be raised in any 12-month period from $5 million to $50 million and removing many of the impediments of the old regime.

The final rules adopted by the SEC create two tiers of offerings, Tier 1 and Tier 2.  Tier 1 is for offerings up to $20 million in any 12-month period.  Tier 2 is for offerings up to $50 million in any 12-month period.  Issuers conducting offerings of up to $20 million have the option to proceed either under Tier 1 or Tier 2.

The new regulations impose restrictions on the amount (in dollars) of secondary sales by selling security holders that are affiliates of the issuer.  Selling security holders also are limited to no more than 30% of an initial offering (or subsequent Regulation A+ offerings for the first 12 months after the initial offering) for both tiers.  After the first 12 months, this limit goes away for non-affiliates only.

Tier 1 offerings are subject to state securities law requirements.  There is federal preemption of these requirements for Tier 2 offerings if certain conditions are met, meaning that Tier 2 offerings are not subject to review in the states where the offerings are conducted.

Both types of offerings must comply with the same eligibility, disclosure and procedural requirements, but Tier 2 offerings are subject to additional requirements, including audited financial statements, ongoing reporting obligations and a limitation on the amount of investment that may be made by non-accredited investors.

Regulation A+ is available to US and Canadian companies that are not already SEC reporting companies and are not “blank check” companies.  It is not available:

  • for registered investment companies;
  • to an issuer of fractional undivided interests in oil or gas rights, or similar interests in other mineral rights;
  • to an issuer that are disqualified by reason of not having filed the ongoing reports required by Regulation A+ during the two years immediately preceding the filing of a new offering statement;
  • to an issuer that has been subject to an order by the SEC denying, suspending or revoking registration pursuant to Section 12(j) of the Securities Exchange Act of 1934 within the five years prior to the filing of the new offering statement; or
  • is subject to “bad actor” disqualification.

Regulation A+ offerings may be used to sell equity securities, including warrants; debt securities; and securities convertible into or exchangeable into equity.  Asset-backed securities may not be sold under the regulations.

A company conducting a Regulation A+ offering must prepare and file an offering statement electronically with the SEC.  The offering statement is subject to review and comment by the SEC and must be qualified by the SEC prior to any sales.

In the offering statement, an issuer must provide certain basic information about the company similar to Part I of Form S-1, except on a scaled–down level, as well as financial statements for the two most recently completed fiscal year ends.  As noted above, these financial statements must be audited for Tier 2 offerings.

The new rules permit an issuer to submit a draft offering statement to the SEC for non-public review if the issuer has not previously sold securities pursuant to a qualified offering statement.

The rules also permit an issuer to “test the water” with the general public before and after the filing of the offering statement that is not limited by investor type.

A Company conducting a Tier 2 offering must also provide ongoing disclosures following the completion of the offering, including an annual report on Form 1-K within 120 calendar days of the issuer’s fiscal year end, semiannual reports on Form 1-SA within 90 calendar days after the issuer’s second fiscal quarter, and current reports on Form 1-U (similar to Form 8-K) that must be filed within four business days of certain specified events.

Unlike private placements conducted under SEC Regulation D, Regulation A+ offerings are unregistered public offerings and issuers may engage in general solicitation, including solicitation of non-accredited investors.

In addition, securities sold under Regulation A+ are not “restricted securities” under Rule 144.

Moreover, since it is both simpler and cheaper to do a Regulation A+ offering than it is to do a registered public offering such as an IPO, Regulation A+ is widely expected to be highly advantageous to smaller companies, especially start-ups, providing them both easier access to the public market to raise capital and liquidity of their securities in secondary markets.  Not surprisingly, Regulation A+ offerings are currently being referred to as “IPO-lite” transactions by many.

In addition to helping issuers, Regulation A+ also offers an attractive alternative to broker-dealers, allowing them to offer more products to more investors, expand their clientele, foster secondary markets for Regulation A+ securities, help issuers maximize capital-raising potential and mitigate risk through regulatory oversight and liquidity.

There were 34 Regulation A+ offering circulars filed with the SEC in 2015, and 62 have been filed through the first two weeks of April.  Based on the number of offering circulars filed with the SEC since the Regulation A+ regulations became effective, it is already evident that the changes effected by the SEC have resulted in a greatly expanded use of Regulation A, which is only expected to continue.

The foregoing is intended as a high level overview.  If you have any questions or would like more detailed information about Regulation A+, please contact Paul S. Kosacz at Avyno Law, PC, at (818) 654-8847 or

Paul S. Kosacz

6345 Balboa Boulevard
Suite 208, Building­­­­ I
Encino, California  91316

t: 818.654.8847
f: 818.332.4205        

© 2016 Avyno Law, PC.  All Rights Reserved

* This article is intended to keep interested parties informed of current legal developments that may affect or otherwise be of interest to them.  It should not be construed as, and does not constitute, legal advice, nor does this message create an attorney-client relationship. These materials may be considered Attorney Advertising in some jurisdictions.

Good Advice for Young Companies

Investors and young companies increasingly recognize that the bubble days are over (Click here and here).

Many IPOs are trading below their initial prices. There’s discussion of down rounds even for unicorns.

In this sobering environment, Ajay Agarwal, a Bain Cap partner, penned a useful article in TechCrunch (Click here) about how the management of younger companies, specifically startups in the article, need to respond.

At MBS, I work more with growth capital companies than with startups but the advice in the article rang true for my clients as well.

  • Valuation – Valuations have come down, get over it to get a deal done.
  • Accelerate profitability – In essentially all situations, companies need to figure out how to become profitable more quickly.
  • Expect Existing Investors to Step Up – The financing market is volatile; external capital isn’t always available. There may be periods when existing investors simply have to carry the company.
  • Be Open to Investors – We’re seeing high net worth family offices and Asian investors with both interest and capital. Companies should be open to these less conventional sources.

Please contact us at Monarch Bay to discuss your capital market goals.

SEC Adopts Final Equity Crowdfunding Rules

SECLogoThe SEC has now adopted the final rules under which private companies can raise capital in the format described as “crowdfunding”.

The SEC has scheduled an extra long 180 days for implementation in order to permit new portals to comply with the rules.

A quick summary of the rules:

1. Permits a private company to raise up to $1 million in a 12-month period.
2. Offering must be conducted through a broker-dealer or registered funding portal.
3. Issuer must disclose its information on a new Form C.
4. Depending on the size of the offering, historical financial information may be required and may need to be reviewed or audited by independent accountants.
5. Investor’s investment amount will be limited based on the investor’s annual income or net worth.
6. There are issuer post-offering reporting obligations to the SEC.
7. The funding portals, themselves have procedural rules to follow.

For an easy to read summary of the new rules provided by The SEC Law Firm, click here.

To read the SEC press release, click here.

Top Corporate Investors

Corporations continue to be major investors in private companies as initially reported in “Corporations are Active Investors”.

Not surprisingly, Google Ventures and Intel Capital lead the list.

In an article by CB Insights, the online database for VC, growth capital and private equity investing, CB Insights tracks and lists the top 100+ corporate investors.

The list includes many international firms which seem more willing to own stakes in higher risk, younger companies.


The number of corporations strategically investing in private companies has enjoyed an upward trend in recent years, across industries including healthcare, media, finance, and energy.

In Q1’15, 106 different corporate venture capital arms (CVCs) completed a US investment — a multi-year high. That’s an 82% jump from the same quarter three years ago, according to CB Insights data.

To read the article including the full list of corporate VCs (Click here).