There’s an increasing amount of publicity out there from companies that are “testing the water” (TTW) before deciding to make a Regulation A offering. At CrowdCheck, we love the idea of TTW. It’s an efficient way of making sure that it’s going to be worth a company’s time to hire lawyers and accountants and go through the SEC review process.
But there are important basic SEC rules that haven’t changed at all, and you need to bear them in mind. First, know that anything that “conditions the market” or promotes interest in a capital-raise, is an “offer” of securities. That can include posting a TTW campaign on an online investment platform, an appearance on TV, an email campaign, or a statement from a character in a video game that the game company is considering a raise. Second, up to the time the SEC “qualifies” your Offering Statement, offers of securities under Regulation A can only be done in one of two ways:
- The TTW provisions of Regulation A mean that you can make statements about the offering in order to gauge investor interest right up to the time of qualification. You must include SEC-mandated language to the effect that you aren’t taking investor money yet.
- You can also use the Offering Circular (the official offering document) to make offers, even if it’s in preliminary form and doesn’t have a price range set.
Once the Offering Statement is “qualified” by the SEC Staff, you can make oral offers of securities but any written offers must be accompanied by or preceded by the Offering Circular. One particular quirk of securities law is that “written” offers include anything that isn’t face-to-face or voice-to-voice, so it includes video broadcasts or recordings of, say, pitch contests. You may need to modify your TTW materials or modify materials that appear on online platforms once the offering is qualified to as to make sure the investors get the Offering Circular.
Applying the two options for making offers to the way capital-raises work in the real world, we can see that activities such as TV interviews or social media campaigns can fit into the TTW provisions (there are no limitations to the form or format of communications in the TTW rule) provided you include the SEC language (also, don’t make any misleading statements).
However, you will need to file the TTW materials with the SEC. All of them. Video scripts, email texts, transcription of TV interviews, the thing that the character in the video game said and everything posted on online investment platforms. The SEC Staff will question any inconsistencies between TTW materials and the Offering Circular.
So go ahead and make full use of the TTW rules. But bear in mind that everything you say is going to be filed with, and likely examined by, the SEC Staff.