When seeking my advice, my entrepreneurial clients usually get right to the point. When trying to raise money for their business, they want to know (1) How long will it take? and (2) How much will it cost me? Since Regulation A financings are now coming into vogue, I thought it might be useful to share my thoughts regarding a timeline and “all in” cost estimate for a Tier 2 Regulation A Financing by a U.S. or Canadian based private company.
Following is a timeline that outlines the different steps and estimated time for completing a Tier 2 Regulation A Financing where the issuer can raise up to $50 million.
ESTIMATED TIME TO COMPLETE STEP
Prepare solicitation materials to “test the waters.”
2 days to 2 weeks or longer depending on how extensive the solicitation materials are and what type of disclosure the issuer has prepared in the past.
Issuer begins soliciting non-binding indications of interest (i.e., “testing the waters”) from both accredited and non-accredited investors. Issuer may utilize general solicitation and general advertising and may solicit interest either prior to or after the filing of an offering statement on form 1-A.
The length of the “testing the waters” solicitation period is up to the issuer. We expect issuers will take 2 to 4 weeks to determine whether there is sufficient interest in an offering to make it worth the time and cost of preparing and filing an offering statement on Form 1-A.
Prepare offering statement on Form 1-A and file offering statement once draft is finalized. Note that the initial filing of the Form 1-A may be done on a confidential basis.
The preparation of the offering statement will likely take between 4 and 8 weeks to complete or longer depending on the efforts of the working group and whether audited financial statements are already prepared and the timing of their preparation if not prepared.
Some issuers will begin preparing the offering statement immediately even before determining through testing the waters whether there is sufficient interest in the offering. Other issuers will wait to see if there is sufficient interest in the offering before incurring the cost of preparing an offering statement, including audited financial statements.
Receive comments of the Staff of the SEC and respond to same until the Staff clears the offering statement and indicates that the issuer may request a notice of qualification.
10 to 20 weeks
Complete sales under qualified offering statement. Note that sales may be done on a continuous basis over a period of time, e.g., six months or one year, if desired by the issuer. This timeline, however, assumes that the issuer desires to close the offering as soon as it can sell the requisite number of securities.
Ideally, during the pre-qualification period, the issuer and its broker-dealer intermediary will have lined up interest from potential investors so that the offering can conclude immediately upon qualification. However, in some cases, especially where no intermediary is used, this post qualification process may be dragged out for several weeks.
Market maker files Form 211 Application and same is cleared. Company receives stock symbol and security becomes eligible for quotation on the Pink OTC marketplace.
30 to 60 days
Issuers that desire to trade on the OTCQX marketplace or OTCQX premier must apply for manual listing exemption on Standard & Poors or Mergent.
7 to 14 days
If the issuing company desires to begin trading on the OTCQX marketplace, it must identify a Designated Advisor for Disclosure (DAD) (U.S. company) or Principal American Liaison (PAL) (Canadian company) and prepare an OTCQX listing application. Once prepared, the DAD or PAL will submit the application along with its letter of introduction. The issuer will commence trading on the OTCQX marketplace upon the conclusion of this process.
30 to 40 days
|TYPE OF SERVICE||ESTIMATED COST|
|Investment Banking Fees|
|The investment bank solicits investors on a best-efforts basis, conducts a thorough due diligence review of the issuer and assists the issuer with the preparation of the solicitation materials, including the offering statement.||Commission of between 6% and 10% of total amount raised and warrants to purchase 6% to 10% of total securities offered in the offering. Payable at closing.|
Expense reimbursement of between $10,000 and $40,000.
|Legal fees associated with the drafting of the offering statement on Form 1-A, responding to SEC Staff comments, preparing response letters and amendments to Form 1-A, etc. until SEC issues a notice of qualification.||$45,000 – $150,000|
Cost depends upon law firm used and nature of issuer’s operations (e.g., international operations and multiple subsidiaries would increase costs). Larger law firms may charge more than $150,000.
|Assistance with Form 211 Application and responding to FINRA comments.|
|$5,000 – $20,000|
|Assistance with OTCQX listing application if the issuer desires to “uplist” from OTC Pink to OTCQX.||$2,000 – $10,000|
|Two years audited financial statements||$25,000 – $150,000|
Cost depends upon audit firm used and nature of issuer’s operations (e.g., international operations and multiple subsidiaries would increase costs). Larger audit firms may charge more than $150,000.
The auditor must maintain independence and if the company’s CFO requires CFO support services a separate firm or consultant would be obtained to provide these services at an added cost.
|EDGAR Printer Fee||$2,500|
|DTC Eligibility Fee|
|Note that this expense may be deferred. This expense is incurred after trading has commenced on OTC Pink or OTCQX.||$13,000|
|Transfer Agent Fee||$5,000|
|Standard & Poors or Mergent Manual Exemption Fee|
|These costs are incurred only if the issuer desires to “uplist” to the OTCQX.||Mergent Fees|
Initial regular listing processing fee (Published within 10 business days) $3,700
Initial expedited listing processing fee (Published within 3 business days) $5,500
Annual renewal listing fee ($995 for U.S. Company and $1,290 for Non-U.S. Company).
*Prices effective through December 31, 2015.
Estimated fees below:
Initial first year fee – $4,800
On going annual fee – $1,465
|DAD and PAL Fee|
|A DAD or PAL is either a qualified investment bank or qualified securities attorney. OTCQX maintains a list of qualified DADs and PALs on its website.|
The role of the DAD/PAL is to provide professional guidance to the issuer on creating investor demand, assist companies in discerning the information that is material to the market and should be disclosed to investors, and provide a professional review of the company’s disclosure.
|Investment Bank DAD or PAL|
Price range depends on extent of services to be provided by the investment bank in addition to the DAD or PAL service.
$25,000 to $100,000 annually
Securities Law Firm DAD or PAL
$4,000 to $10,000 annually
|OTCQX Listing Fee|
|$5,000 application fee|
$15,000 annual fee.