Stocks

Information on owning Regulation A Stock

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Regulation A+ (Reg. A or Reg. A+) is a SEC (Securities and Exchange Commission) reviewed and authorized public stock under Title IV of the JOBS Act initiated by George Bush, signed into law by President Obama, and formally implemented by the SEC in the spring of 2015.  Unlike the older Reg. D stock that you see traded on the NASDAQ and the New York Stock Exchange (NYSE), Reg. A+ stock is intended to be available to the average man rather than accredited investors bought through Broker and Exchanges with their associated commissions and fees.  As with Reg. D stock, Reg. A+ requires regular SEC reporting and review.

Historically, a Qualified Investor has been defined by the SEC under the term “Accredited Investor”, Reg. A+ has changed this.

For Reg. D Stock a Qualified or Accredited Investor must have a net worth of over $1,000,000 excluding one’s primary residence, or have at least $200,000 a year for the last 2 years (if married a $300,000 combined income a year for each of the last 2 years) and have the expectation of  making the same or more this year.

For Reg. A+ Stock the only limit on the investor is that the investment amount represents less than 10% of the income or net worth for that year.  Reg. A+ is also open to Accredited Investors without limits.

An IPO is an Initial Public Offering of its stock by a company that is sanctioned and reviewed by the SEC. When a company first starts up, it raises money through loans (banks or friends & family), or investments from friends and family, Angel Networks, and /or Venture Capital investors to prove that the product and processes are viable and hopefully one day will make profits.

To grow the Company, more money is needed and the typical path is ‘going public.’ That involves selling stock on the open market. Traditionally, this meant selling a Company’s stock to an Underwriter at a discount and then the Underwriter would in turn sell that stock through Brokers and agents to the public. This first public stock is sold at the lowest price it comes at and the middlemen, that is the Underwriters and sales people, make a considerable profit. Frequently, the Underwriters will hold some of the stock in reserve and sell it as the value goes up. This is how Wall Street works. IPO stock is considered candy; it is the high sweet stuff of profits ‘The Street’ likes.

In the case of offering a Regulation A, Tier 2 offering, a company does not have to use an underwriter nor brokers (who charge a sales commission on both the sale and purchase of a stock), and instead can go directly to the public to sell its stock. While still technically an IPO, the new Reg A+ offering is frequently referred to as a ‘mini-IPO.’

This is not “Founder’s Stock.” Founder’s Stock refers to the equity interest that is issued to Founders and others at or near the time the company is formed and begins operations.  No stock in a company is free – all stock in a company is purchased. It is often issued for a nominal cash payment for time invested (aka “sweat equity”) and/or for compensation due to assignment of intellectual property.  This stock is considered unrestricted common stock.

Regulation A+ stock is unrestricted. This means that once it is purchased the owner can do with it as he or she wants. Typically Regulation D stock has provisions included that limit or control what the purchaser can do with the stock, that is sell or transfer it once they own it.

A integral part of every strategy to make a profit is the risks involved. ManeGain Offering Circular describes the dominant risks and has mitigated the risks associate with the business in three ways:

  1. We have tested the sales, profitability, and fulfillment process by placing HairGrowersTM in 13 salons developing a cadre of high-end stylist in the process. Doing this we found through trial and error the successful way to sell and deliver the service while creating over 50 very satisfied customers in the process.
  2. The efficacy and veracity of the business has been independently audited by independent SEC approved CPAs and both scrutinized and reviewed by the SEC examiners.
  3. ManeGain is now a public company subject to quarterly reporting to the SEC with annual Audited Reviews by Independent CPAs reporting to the SEC and Investors.

Experience, review/auditing, transparency, good common–sense, and the ability of the management team to execute its plan are the best protection against failure in this dynamic world we live in. Common sense it the result of testing and experimenting. We have done that. Our Intellectual Proprieties and first market mover position give us an effective monopoly on the this market channel and segment, that is what we want to sell to the someone bigger than us, a turn-key channel to market with customers to be taken to the next level is the reward.

In economics, disintermediation is the removal of intermediaries from a supply chain, or “cutting out the middleman” in connection with a transaction.  Instead of going through traditional distribution channels, which had some type of intermediary (such as an underwriter, distributor, wholesaler, broker, or agent), companies may now deal with customers directly, for example via the Internet. Reg. A stock was designed to bring disintermediation to the public stock market.

The New-New in Investing is the emergence of Regulation A+ stock permitting the average person to buy in on IPOs and company’s stock offerings.  It has been called ‘crowdsourcing’ because it is for everyone and stock can be sold in small qualities rather than big blocks.  In addition, this “new-new” in crowdsourcing uses the “long-tail” of having many “non-qualified” investors as opposed to relying a a few well heeled qualified investors, investment banks, or venture capitalists to capitalize the company.

Crowdsourcing in the financial sense refers to obtaining funding by individuals or institutions for an idea, project, or support through the enlistment of money, help, and interest via a public pitch or appeal.  Today this is typically done by using the internet as the connection media though traditionally it has been domain of ‘telethons’ on TV for charities and ‘membership drives’ for public radio and TV.  Much of the motivation of the ‘gifting’ of funds for such an endeavor is its ‘righteousness,’ that is its quality of being deserving due to usefulness, correctness, good feelings, or ‘coolness.’  Crowdsourcing is usually very incremental, that is the contributions are small, and frequently some token gift such as promotional or artistic (unique tee-shirt or coffee/tea mug) are offered as rewards. Kickstarter and Indiegogo are two well know crowdsourcing platforms that leverage what is know as the “long tail” of funding.  Essentially, getting a little from a very large pool of people.

Prior to the JOBS Act of 2012, crowdsourcing could not be rewarded with equity or ownership as this is considered a sale of stock and thus subject to SEC rules. Now, with this act and the revised Regulation A+ rules, Companies are allow to use crowdsourcing, both on a crowdfunding portal or directly through their own websites, to solicit the sale of stock legally.

Traditionally, the “long tail” was meant to be the declining part of the product life cycle.  It is usually called “end of life” or declining phase had been used to describe the portion of product distribution that represents a period in time when sales for less common products return a profit due to reduced marketing and distribution costs. That would make a “tail” a period of time when sales are made for goods not commonly sold in volume. The period could be short or long.

This term was hijacked by Chris Anderson in 2004 when he coined the term “long tail” to describe a phenomena where products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, but only if the store or distribution channel is large enough. Today, that is what Long Tail is most often referred to.

According to a 2008 BusinessWeek study, there are 5 million accredited investors in the US. On average they invest $10,000 to $50,000 in a startup.  In the US about 55% of the people own stock in the US, but the estimate is that 70% would invest in a startup if they could. So that is 255 million people might put $500 into a startup (that is $125B larger that VCs and Angels COMBINED). Are you getting my drift yet about the power of the long tail. Now, with Reg A, a company can sell stock all day to the average Joe and Jane by not only cutting out the middleman (disintermediation), but by also exploiting the “long tail” of economic delivery. In doing the calculus, the area of this long tail comprised of non-accredited investors is 33 times a large in total available dollars as that of (short tail) accredited investors.