Quick reads

While Title IV of the JOBS Act (also known as Regulation A+) has substantially opened up the private equity markets to non-accredited investors and significantly grown the pool of investment dollars available — there are potential risks and downsides to consider when raising seed capital through Regulation A+:

1.Cost Requirement — It may be that equity crowdfunding cannot compete effectively with more traditional funding methods, particularly for financing of early and mid-stage companies as a result of the cost and delay in preparing and qualifying offering circulars with the SEC, as well as the ongoing reporting obligations that may prove to be burdensome when compared to the less expensive and more familiar process of early stage financing.

2. Lack of Institutional Partners — Going through the capital raising process and not engaging with institutional partners may be a deterrent for some companies.

3. Fees — Legal and accounting fees can potentially be higher than under a traditional raise from accredited investors.

4. Time Requirement — If a company needs short term financing, they are not good candidates for the lengthier time till funding can be closed.

5. More Investors — A larger shareholder base may be negative for some issuers (although it can also be a benefit as long as it is managed properly).

6. Management — Regulation A+ can be a difficult process to manage requiring a significant commitment of management’s time and attention.

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