Feb 02, 2024

A New Era in Public Offerings: Charting the Course for Small and Micro-Cap Companies

Financing By Patrick Costello, Paul Levites
Two business men of a small company sitting in an open office looking at a computer screen

In recent years, the financial landscape for small and micro-cap companies has shifted dramatically. The traditional Initial Public Offering (“IPO”) route has presented increasingly challenging hurdles, prompting a need for innovative solutions.

One such innovator, Digital Offering LLC (“Digital Offering”), an SEC-registered broker-dealer and a leader in crowd-financed[1] public offerings, is pioneering a strategy involving best efforts initial public offerings under Tier 2 of Regulation A that will trade on a national securities exchange after closing. This approach is designed to replace today’s norm of investor-driven structured financings.

Challenges of the Traditional Initial Public Offering

Traditionally, IPOs were the go-to method for companies seeking public capital. However, the small- and micro-cap market has grappled with significant challenges in this domain. The shift from financing based on company fundamentals to investor-driven terms has made it very difficult for small- and micro-cap companies to go public in the traditional way. The new norm, which has led to a significant decrease in small-cap IPOs, is characterized by the following features:

  • Investor-driven transactions with lower valuations/smaller size
  • Unit offerings with common stock and warrants
  • Prefunded warrants
  • Toxic convertibles
  • Rights of first refusal with resets on warrants
  • Primarily, one or two institutions set terms with a small shareholder base (300-400)
  • Syndicate players sell immediately
  • Common stock is sold, and warrants are held

Such features distort a company’s true value and create a cycle of dilutive financing, leaving issuers with few viable funding options and often forcing them to accept predatory terms.

When asked about the current state of the structured financing market, Mark Elenowitz, Managing Director of Digital Offering, stated:

“We believe that the financing market must evolve to provide alternative financing methods designed to provide capital for growth and expansion, allowing company executives to focus on providing shareholder value rather than being victims of and distracted by structured financings that benefit no one but the professional investor. Our best efforts Regulation A initial offerings that trade on a national exchange upon closing are designed to solve this problem.”

The Rise of Regulation A Best-Efforts Offerings Combined with Exchange Listings

In response to the state of the market, domestic[2] small- and micro-cap companies are increasingly turning to best-efforts Regulation A offerings with exchange listings upon closing as a viable alternative to the traditional IPO. This approach features the following key characteristics and offers the following key advantages:

  • Simplified Offering Structure: Straight common stock offerings.
  • Fixed Price Offering: No price discovery.
  • Flexibility and Control: Tailoring the size and timing of offerings to meet specific needs.
  • Simplified SEC Qualification Process: Allows companies to raise capital faster and less expensively than through traditional methods.
  • Enhanced Marketing: Enables the use of public channels such as email and social media to market the offerings.
    • Reduced Regulatory Burdens: Regulation A offers simplified reporting and disclosure requirements.
    • Market Accessibility: These alternatives provide an accessible route to public markets.
    • Investor Diversification: With the ability to sell to potentially thousands of investors, both accredited and non-accredited – both in the US and globally – access is provided to a broader investor base, promoting liquidity and diversity in shareholdings. Additionally, customers can become shareholders and shareholders, customers!

Success Stories

The effectiveness of these alternative routes is evidenced by several recent success stories involving clients of Digital Offering:

  • Knightscope, Inc.: Utilized Regulation A to raise $22.36 million, leading to a Nasdaq listing in January 2022.
  • Monogram Orthopaedics, Inc.: Achieved a $17.2 million placement through Regulation A, followed by a Nasdaq listing in May 2023.
  • MDB Capital Holdings, LLC: Employed crowd-financed marketing methodology with an S-1 registration to raise $19.99 million, culminating in a Nasdaq listing in September 2023.

These examples demonstrate the potential of Regulation A best efforts offerings (or in the case of MDB Capital Holdings, a crowd-financed structure for an S-1 registered offering) in providing a more tailored, efficient, and less dilutive path to public markets.

Strategic Pivot

By utilizing the strategy discussed above, small- and micro-cap companies can now pursue public listing without being constrained by the traditional IPO model. The challenges of the current IPO market, characterized by investor-driven terms and detrimental financing structures, call for a strategic pivot to more innovative and flexible options. A best-efforts Regulation A offering with an exchange listing on closing emerges as a practical, cost-effective alternative that aligns with the unique needs of these entities.

In advising small- and micro-cap companies, it is crucial to emphasize the benefits of this alternative path. Understanding the nuances of Regulation A and best efforts offerings enables companies to navigate the complex landscape of public securities offerings effectively. This method democratizes access to capital markets and can equip companies with the necessary tools for growth and success in a competitive market environment.

If you want to learn more about best efforts Regulation A offerings or other capital financing methods, please reach out to Paul C. Levities at or (202) 869-0888 (ext. 103); or Patrick G. Costello at or (202) 869-0888 (ext. 130). You can also contact us through our general information email at

[1] “Crowd-financed Offering” means an equity financing effort under Regulation A of the Securities Act in which securities are sold to the “crowd,” or retail investors, rather than to institutions. Crowd-financed Offerings should not be confused with what is commonly referred to as a “Crowdfunding Offering,” which is a securities offering conducted on a FINRA and SEC-registered funding portal under Regulation Crowdfunding of the Securities Act.

[2] Foreign private issuers can achieve similar crowd-financed results with an F-1 registration filing.