Why Founders Are Flocking to “Reg A” Raises, From the Leader in Reg A Fundraising

Founders, startups, and small businesses are increasingly using a fundraising structure known as Regulation A, or “Reg A,” to raise capital. It’s a legal exemption that allows businesses to raise money without having to register with the SEC as a security (like they would in an IPO). 

There are a number of common fundraising exemptions, such as Reg D, A, and one of the newer ones, CF, for crowdfunding. While Reg D has historically been popularly used to raise money from large investors, Reg A and CF are now democratizing many of those investment opportunities for small businesses and mainstream investors alike. 

Reg A, along with its smaller cousin, CF, is quickly becoming the fundraising structure of choice for companies that are raising smaller amounts of money, up to $75 million, in the private market. Advances in technology, along with friendly regulation that was passed under the Obama Administration to empower small businesses, have made raising capital this way more accessible than ever, especially to historically disadvantaged groups of business owners.

Among the popular benefits of Reg A and CF include the fact that anybody can invest in them, not just accredited investors, and that the infrastructure for a small business to raise capital this way has become significantly less expensive and also simple to set up online.

Dalmore Group, a broker-dealer that offers a tech-driven capital raising platform for the modern age, is the leader in facilitating Reg A and CF raises for companies. In fact, Dalmore has done 58% of all Reg A raises in the marketplace to date, comprising more than $1B raised across 1M+ investments. Its platform gives companies a streamlined process to set up a Reg A or CF fundraise along with strategy and expertise.

Dalmore’s Chairman, Etan Butler, shared a wealth of insight with us into understanding the opportunities of Reg A raises for companies and how they can be utilized.

As a founder in the broker-dealer space, what attracted you to Reg A+ and CF offerings when building Dalmore?

Etan Butler: I founded Dalmore in 2005. At the time, we obviously weren’t focused on Reg A and CF yet as this market didn’t exist. However, in 2012, when the Jobs Act was passed, we were early as a broker-dealer helping companies raise capital online, which was a totally new thing.

It began with Reg D 506(c) offerings and then as we built the infrastructure and processes, when Reg A and CF started to become more popular, we were early movers. We already had the infrastructure so it was very natural for us to focus on Reg A and CF because it was like Reg D on steroids. Now, everyone could participate in investing in these offerings, not just 6% or 8% of the population that is an accredited investor.

What attracted us to this was what it represents: it solves the problem empowering those who otherwise wouldn’t have a shot at getting their business off the ground. These fundraising exemptions give them the ability to bring their own community and control their own destiny.

How have technology and new regulatory developments helped revolutionize Reg A raises during the time you’ve been in the space?

Etan Butler: We are living in a time where technology meets regulation meets innovation, and we find ourselves at the center of this. It is a lot of fun.

The regulatory changes like the increase in the fundraising limit for a Regulation CF offering, which was increased from a little over $1 million to $5 million, was significant. Now, a small business or a startup doesn’t need to spend prohibitive amounts of money to do a Regulation A offering in order to raise significant funding. 

A CF offering allows you to start simple and quickly. Within six weeks, your offering can be up and running with an “Invest” button on your website that allows you to raise money from anyone. That’s crazy. And now you can do that for up to $5 million, which is drawing more serious issuers to CF. 

Technology has also helped tremendously because the Dalmore platform, which gives an issuer all of the infrastructure they need, allows them to reduce friction for investors to get involved in their project.

All of this translates to Investors and issuers having a more seamless, comprehensive experience and makes opportunity more accessible.

What are some of the most common challenges early-stage companies face when raising their first round of funding?

Etan Butler: They can’t get the attention of an investment bank. Unlike what you see portrayed on TV or in articles that cover the top 1% of startups, it’s very hard to raise money, especially if you’re early stage. 

It’s very unlikely that you’re going to get a VC interested in your offering. So what do you do if it is your first round? Now there is an answer. The new exemptions around Reg CF and A+ remove so many barriers to the market for small companies. You can literally put an “invest” button on your website now and send your visitors there.

Can you talk about the gap that exists in venture capital and early-stage funding for female and minority-led companies?

Etan Butler: This is where the challenges I mentioned earlier about getting attention from banks and VCs are compounded. The data clearly shows that female and minority-led companies are literally ignored. A recent report found that only 1.87% of venture capital has been allocated to female and minority-owned companies, and it’s not a new trend.

The accessibility Reg A and CF is fundamentally changing that and the data show it. Nearly 30% of Reg A capital has gone to female-led companies. It’s an enormous opportunity.

How has Dalmore helped empower those companies and help level the playing field of fundraising?

Etan Butler: Our messaging, our technology, and our line of services. We specialize specifically in these exemptions that level the playing field like CF and A. We are immersed in that and so we advise our clients on how to best access and use these exemptions, including the appropriate exemption for their raise, which technology to use and which marketing companies and strategies to consider.

We are the leader in the space. Having done over 58% of Reg A offerings according to KingsCrowd, we see what works and what doesn’t. That’s very empowering information to share with companies that get to benefit from not making the same mistakes as others and being prepared with the right cost-effective tools to help increase their chances of success. 

How does Dalmore set itself apart from other platforms in the CF space?

Etan Butler: It’s the frictionless accessibility we provide to raising capital. We are not making an issuer register on a platform and then taking their customers and marketing our own products or competing products to them, which also leaves an issuer without the right analytics needed to effectively raise money from. Dalmore provides a self-hosted process. You are the only game in town for your raise. You are the sole beneficiary of your own marketing and promotion.

No other platform provides that freedom while matching our experience, track record and costs. 

What are some of the milestones for the firm that you’re most proud of?

Etan Butler: Dalmore has facilitated more than 1 million Reg A investments. That comprises more than $1 billion raised across over 300 clients and additionally over 200,000 secondary trades. These are numbers that are historic. We have done 58% of Reg A offerings, including over 50% of the Reg A offerings just in 2022. We are very proud of that.

The launch of our suite of technology is one I am most proud of. It is exciting because we built something that everyone really wants and that didn’t exist. 

It is also incredibly meaningful to have played a role in expanding access to capital to female and minority-owned companies. We are really proud of the fact that female-owned companies represent 30% of crowdfunding and that we have played a role in many of those raises. One of our Reg A clients, Sally Outlaw, founder of Worthy Financial, has raised $200 million through Reg A offerings. She is likely the number one female-owned Reg A issuer in history. She is crushing it with 100,000 loyal investors.

We also fractionalized ownership in the 2023 Kentucky Derby winner, Mage. I am very proud of the 400 owners who were able to partake in that win. Astonishingly, we have fractionalized not just one but actually two Kentucky Derby winners. We had another client who won the Derby in 2020.

Lastly, for me personally, fractionalizing Mickey Mantle, Michael Jordan and Shaquille O’Neal rookie cards and other sports cards that I collected as a kid was very exciting. These were cards I never would have been able to purchase on my own, but could now own a share of.