You are here

How to work with Broker Dealers on Your Reg A+, and how to handle the Problem States

What are the best ways to work with a Broker Dealer for your Reg A+?

Here we discuss the option of using a Broker Dealer on your Reg A+ and the different ways that you can work with Broker-Dealers. We also explain the so-called "Problem States": Texas, Florida, Washington, and New Jersey. As a group, they account for as much as 16% of the US investing market, with Florida (8%) and Texas (6%) in the number one and two positions. Of course, investors outside the USA can invest when you do not use a Broker-Dealer. As our customer, if you choose to work with a broker for the Problem States, we will introduce you to an experienced broker-dealer that will get you access to investors from these States for a fee of 1% - it took us years to find good broker-dealers that offer such a competitive rate.

It is possible to work with a securities attorney that we will introduce and file for your company to gain access to investors in the "problem states" - this process takes time and is the most cost-effective solution with zero broker-dealer fees. Starting this early in the Reg A+ process is necessary.

You can use a broker-dealer in your Reg A+ in three ways. (Using a Broker-Dealer in a Regulation A+ offering is optional).

1) To gain access to Texas and Florida investors, you can apply directly to these States to get permission for your company. This is the lowest-cost method. Alternatively, you can sign up with a Broker-Dealer to access these investors, which will trigger a fee to FINRA, and typically a fee of 1 to 3% to the broker-dealer on the whole capital raise. By including a broker-dealer in your Form 1_A filing with the SEC, it's likely that the SEC Qualification of your Reg A+ will be significantly delayed (often 3 to 6 months, sometimes more) while you wait for FINRA to approve the terms of your deal with the broker - because when the SEC is ready to Qualify your offering, they will wait for FINRA to give the OK before they will actually Qualify your Reg A+.
To avoid this delay, many companies file their Reg A+ without a Broker-Dealer, then get the Reg A+ SEC Qualified, and add a broker-dealer to the Offering Circular afterward. By taking this approach, they can start raising capital in all 46 "non-problem" states much faster and accept non-binding reservations in Texas and Florida, which they convert into investments after FINRA approves their broker-dealer deal.

2) To have a broker raise capital for your offering. In this case, the broker commission will usually be in the 5 to 8% range, plus cash fees upfront. Be careful here because, generally, broker sales team members will not risk their client-investor relationships on an offering that has yet to prove itself a success. They don't want to risk their relationship. This arrangement makes sense after you have been raising capital for some months and your capital raise is already a clear winner, and you want to bring in more capital by adding one or more broker-dealers.

3) To conduct an underwritten NASDAQ or NYSE IPO via Reg A+. In this case, you can raise capital online to demonstrate that your offering is already a success and then sign up one or more underwriters to raise more capital and list your company. This will incur cash fees upfront and typically an 8% commission on the capital raised by the Underwriters. FINRA approval is required before the underwriters can begin. We at Manhattan Street Capital can introduce you to underwriters willing and able to make your IPO happen. How to IPO to the NASDAQ or NYSE via Reg A+.

An important misperception about broker-dealers is that by signing them up, they will do all the heavy lifting and raise your capital for you. This rarely happens - see item #2 above.
It's unusual for a broker-dealer to do all the needed work to raise your capital - even when they have an 8% commission for doing so. It usually takes a concerted effort and a great deal of marketing and advertising spending to attract enough investors to raise the capital for your offering. Make sure you include this expense in your plan and budget.

Related content:

Which Broker-Dealer does Manhattan Street Capital work with?