Time Line of Development

With a thorough business plan that evaluates your market and where your product fits into it, as well as how much funding you will need in the near future.

Ideally, you’ll be able to demonstrate how you’ll build your product for wider distribution and highlight early feedback from customers to demonstrate that your business is solving a problem.

Due Diligence in 10 Steps

OWVI will analyze the corporate structure, ownership, management team, licensing, permits, intellectual property (IP), evaluate the product or service, review all contracts, market analysis/demand and develop a summary report. This provides the scope of work to be completed throughout the next steps.

Types of Investments

The SEC’s Regulatory Changes: March 15th, 2021

On March 15th, 2021, new regulatory changes from the SEC increased the maximum companies can raise in a calendar year from $50M to $75M.

Similarly, the maximum amount companies can raise via Regulation Crowdfunding was increased from $1.07M to $5M.

These Regulatory changes are important to note because moving forward companies that historically raised a few million dollars via Regulation A+ would now opt to raise that funding via Regulation Crowdfunding.

Private Placement Memorandum

PPM Requirements

In practice, the PPM is not generally used in angel or venture capital deals, since most sophisticated investors perform thorough due diligence on their own and do not rely on the summary information provided by a typical PPM.

Frequently Asked Questions

Do anti-fraud provisions apply?

All securities transactions, even exempt transactions, are subject to the antifraud provisions of the federal securities laws. This means that you and your company will be responsible for false or misleading statements that you or others on your behalf make regarding your company, the securities offered, or the offering. You and your company are responsible for any such statements, whether made by your company or on behalf of the company, and regardless of whether they are made orally or in writing.

The government enforces the federal securities laws through criminal, civil and administrative proceedings. Private parties also can bring actions under certain securities laws. Also, if all conditions of the exemptions are not met, purchasers may be able to return their securities and obtain a refund of their purchase price.

What is an accredited investor?

Certain securities offerings that are exempt from registration may only be offered to, or purchased by, persons who are “accredited investors.” An “accredited investor” is:

  • a bank, savings and loan association, insurance company, registered investment company, business development company, or small business investment company or rural business investment company
  • an SEC-registered broker-dealer, SEC- or state-registered investment adviser, or exempt reporting adviser
  • a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5 million
  • an employee benefit plan (within the meaning of the Employee Retirement Income Security Act) if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million
  • a tax exempt charitable organization, corporation, limited liability corporation, or partnership with assets in excess of $5 million
  • a director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of a general partner of that company
  • an enterprise in which all the equity owners are accredited investors
  • an individual with a net worth or joint net worth with a spouse or spousal equivalent of at least $1 million, not including the value of his or her primary residence
  • an individual with income exceeding $200,000 in each of the two most recent calendar years or joint income with a spouse or spousal equivalent exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year or
  • a trust with assets exceeding $5 million, not formed only to acquire the securities offered, and whose purchases are directed by a person who meets the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment
  • an entity of a type not otherwise qualifying as accredited that own investments in excess of $5 million
  • an individual holding in good standing any of the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)
  • a knowledgeable employee, as defined in rule 3c-5(a)(4) under the Investment Company Act, of the issuer of securities where that issuer is a 3(c)(1) or 3(c)(7) private fund or
  • a family office and its family clients if the family office has assets under management in excess of $5 million and whose prospective investments are directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment.
Do state law requirements apply?

While the SEC regulates and enforces the federal securities laws, each state has its own securities regulator who enforces what are known as “blue sky” laws. If a company is selling securities, it must comply with both federal regulations and state securities laws and regulations in the states where securities are offered and sold (typically, the states where offerees and investors are based).

Under the Securities Act, if a company’s offering qualifies for certain exemptions from registration, that offering is not required to be registered or qualified by state securities regulators. Even if the offering is made under one of those exemptions, the states still have authority to investigate and bring enforcement actions for fraud, impose state notice filing requirements, and collect state fees. The failure to file, or pay filing fees regarding, any such materials may cause state securities regulators to suspend the offer or sale of securities within their jurisdiction. Companies should contact state securities regulators in the states in which they intend to offer or sell securities for further guidance on compliance with state law requirements. The following table illustrates which offerings are potentially subject to state registration or qualification under the Securities Act.

What are restricted securities?

“Restricted securities” are previously-issued securities held by security holders that are not freely tradable. Securities Act Rule 144(a)(3) identifies what offerings produce restricted securities. After such a transaction, the security holders can only resell the securities into the market by using an effective registration statement under the Securities Act or a valid exemption from registration for the resale, such as Rule 144.

Rule 144 is a “safe harbor” under Section 4(a)(1) providing objective standards that a security holder can rely on to meet the requirements of that exemption. Rule 144 permits the resale of restricted securities if a number of conditions are met, including holding the securities for six months or one year, depending on whether the issuer has been filing reports under the Exchange Act. Rule 144 may limit the amount of securities that can be sold at one time and may restrict the manner of sale, depending on whether the security holder is an affiliate. An affiliate of a company is a person that, directly, or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the company.

Tier 1 and Tier 2 Explained

With Regulation A+, companies have two paths to explore. Tier 1 Regulation A offerings, in which companies can raise up to $20M. Tier 2, with which companies can raise up to $75M. In general, we advise companies to use Tier 2.

Frequently Asked Questions

What is Regulation A?

With Regulation A+, companies can raise money from the entire public: both accredited and non-accredited investors can participate. It is no longer fundraising from the wealthy, but from the crowd: friends, family, users, community members, and more can all participate in a raise.

Who can conduct a Regulation A+ offering?

In order to conduct an offering, companies must be U.S. or Canadian (whereas only U.S. companies can utilize Regulation Crowdfunding). Companies must also pass “bad actor” checks, preventing scams from raising capital from the public for example, or individuals who have been charged with securities fraud.

Regulation A+ also has a significant cost and requires substantial work to prepare the offering document (more on those below), so Regulation A+ isn’t a good fit for companies that are not willing to invest time and resources into preparing their offering.

Why do a Reg A?

The first answer to this question, and the most important, is that it grows community. Businesses that raise capital via Regulation A are attracting fans, customers, clients, and followers, and encouraging them to buy into their mission and not just come along for the ride, but be rewarded for their support and loyalty with a piece of the financial pie. This in turn breeds greater loyalty and turns these new investors into ambassadors, who are more likely to refer new business and be vocal participants in the community.

The second part comes down to the fact that Regulation A can be an efficient means of raising capital. If companies want to raise $5M or less, they should consider Regulation Crowdfunding, but for those looking to raise more, a Regulation A+ offering can be a faster process than going through the motions of pitching venture capitalists and drumming up interest on the ground.

Plus, the founding team can maintain control of the company. Shareholders own smaller pieces of the pie and won’t be controlling voting rights, nor are there now new members on the board that the founding team didn’t explicitly go out looking for. Businesses are able to use the raise as a means of generating press coverage in the same way you would a product launch.

How much does it cost?

The cost varies, but the short answer is it costs a good deal more than Regulation Crowdfunding. Companies can expect to pay anywhere between $50,000-$100,000 before their offering is qualified and they can begin raising capital. Then they can expect to dedicate more funding to a marketing budget to attract more investors to their campaign.

Regulation CF Rules

Frequently Asked Questions

Do anti-fraud provisions apply?

All securities transactions, even exempt transactions, are subject to the antifraud provisions of the federal securities laws. This means that you and your company will be responsible for false or misleading statements that you or others on your behalf make regarding your company, the securities offered, or the offering. You and your company are responsible for any such statements, whether made by your company or on behalf of the company, and regardless of whether they are made orally or in writing.

The government enforces the federal securities laws through criminal, civil and administrative proceedings. Private parties also can bring actions under certain securities laws. Also, if all conditions of the exemptions are not met, purchasers may be able to return their securities and obtain a refund of their purchase price.

What is an accredited investor?

Certain securities offerings that are exempt from registration may only be offered to, or purchased by, persons who are “accredited investors.” An “accredited investor” is:

  • a bank, savings and loan association, insurance company, registered investment company, business development company, or small business investment company or rural business investment company
  • an SEC-registered broker-dealer, SEC- or state-registered investment adviser, or exempt reporting adviser
  • a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5 million
  • an employee benefit plan (within the meaning of the Employee Retirement Income Security Act) if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million
  • a tax exempt charitable organization, corporation, limited liability corporation, or partnership with assets in excess of $5 million
  • a director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of a general partner of that company
  • an enterprise in which all the equity owners are accredited investors
  • an individual with a net worth or joint net worth with a spouse or spousal equivalent of at least $1 million, not including the value of his or her primary residence
  • an individual with income exceeding $200,000 in each of the two most recent calendar years or joint income with a spouse or spousal equivalent exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year or
  • a trust with assets exceeding $5 million, not formed only to acquire the securities offered, and whose purchases are directed by a person who meets the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment
  • an entity of a type not otherwise qualifying as accredited that own investments in excess of $5 million
  • an individual holding in good standing any of the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)
  • a knowledgeable employee, as defined in rule 3c-5(a)(4) under the Investment Company Act, of the issuer of securities where that issuer is a 3(c)(1) or 3(c)(7) private fund or
  • a family office and its family clients if the family office has assets under management in excess of $5 million and whose prospective investments are directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment.
Do state law requirements apply?

While the SEC regulates and enforces the federal securities laws, each state has its own securities regulator who enforces what are known as “blue sky” laws. If a company is selling securities, it must comply with both federal regulations and state securities laws and regulations in the states where securities are offered and sold (typically, the states where offerees and investors are based).

Under the Securities Act, if a company’s offering qualifies for certain exemptions from registration, that offering is not required to be registered or qualified by state securities regulators. Even if the offering is made under one of those exemptions, the states still have authority to investigate and bring enforcement actions for fraud, impose state notice filing requirements, and collect state fees. The failure to file, or pay filing fees regarding, any such materials may cause state securities regulators to suspend the offer or sale of securities within their jurisdiction. Companies should contact state securities regulators in the states in which they intend to offer or sell securities for further guidance on compliance with state law requirements. The following table illustrates which offerings are potentially subject to state registration or qualification under the Securities Act.

What are restricted securities?

“Restricted securities” are previously-issued securities held by security holders that are not freely tradable. Securities Act Rule 144(a)(3) identifies what offerings produce restricted securities. After such a transaction, the security holders can only resell the securities into the market by using an effective registration statement under the Securities Act or a valid exemption from registration for the resale, such as Rule 144.

Rule 144 is a “safe harbor” under Section 4(a)(1) providing objective standards that a security holder can rely on to meet the requirements of that exemption. Rule 144 permits the resale of restricted securities if a number of conditions are met, including holding the securities for six months or one year, depending on whether the issuer has been filing reports under the Exchange Act. Rule 144 may limit the amount of securities that can be sold at one time and may restrict the manner of sale, depending on whether the security holder is an affiliate. An affiliate of a company is a person that, directly, or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the company.

IPO Compliance Protocal

Frequently Asked Questions

How do I invest in an IPO?

First, if you are a client of an underwriter involved in the IPO, you may be offered the opportunity to directly participate in the IPO. In this instance, you will be able to purchase the shares at the offering price.

The other way, which is more common in the case of individual investors, is to purchase the shares when they are resold in the public market in the days following the IPO.  An investor could place an order with his or her broker to purchase shares in this manner.

How do I learn about the company?

After a company’s IPO registration statement has been declared effective, the company will typically file a final prospectus—usually identified as a 424B3 or 424B4 filing in the EDGAR database.  The final prospectus generally includes information related to the final offering price that is not available at the time the preliminary prospectus is distributed.

What are advantages of going public?

The most obvious reason to go public is to raise
capital. Unlike a private offering, there are no
restrictions imposed on a company with respect
to offerees or how many securities it may sell. The
funds received from the securities sold in an IPO
may be used for common company purposes, such
as working capital, research and development,
retiring existing indebtedness and acquiring other
companies or businesses.

What are disadvantages of going public?

There is much more public scrutiny of a
company after an IPO. Once a company is public,
certain information must be disclosed, such as
compensation, financial information and material
agreements

How does the JOBS Act change the IPO process?

The financial crisis of 2008, national attention shifted to job creation and the backlash against over-regulation brought about by Dodd-Frank. In April 2012, the Jumpstart Our Business Startups Act (the “JOBS Act”) was enacted, which reflects many of the legislative initiatives that had been discussed for several years.

When should a company go public?

It depends on a company’s need for cash or liquidity to pursue its strategic plans. There is a market consensus that there is a “window” when companies, often particular types of companies, can effect IPOs. Whether the window is open or closed depends on overall economic conditions and investor appetite for risk.