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So you want to raise capital with Reg A+?


So you want to raise capital with Reg A+?

By: Steve Sadler, CEO, Allegiancy

March 23, 2015

Some things to know before you jump — from a serial entrepreneur who has done this before

Raising capital is a big deal – something to think seriously about before you dive in. Oh, and it can be quite expensive on the front-end, so care is warranted. Most important is to make sure your company is ready to put the money raised to work, and that your leadership team is prepared to demonstrate that readiness repeatedly to prospective investors.

With a background in capital markets and finance, along with a Chartered Financial Analyst (CFA) designation and an entrepreneurial bent, I have been down this trail before. I was CEO of a financial services technology company that raised more than $10 million in capital from venture capital funds, angel investors, and strategic partners. I was also a partner in a real estate company that raised more than $200 million through Reg D private placements.

So when Allegiancy was ready to make the leap (using Regulation A to raise capital), I had a pretty good idea what would be required of our company.

Not every president or CEO has this background, has developed a business plan for external sharing, along with an elevator pitch and formal presentation for potential investors, and then presented the offering to a live audience. If this is your first time to move beyond the “friends and family” realm in capital fundraising, here are some tips to help you avoid the landmines:

Force yourself to write a serious business plan. Don’t farm it out; don’t hire someone else to write it for you. The business plan needs to have your passion and voice, although you can get help with editing and formatting. Your potential investors need to understand the basics of your business, and most critically, they must have reasons to believe that you have mastered the complexities and nuances needed to successfully deploy their money and generate profits for them.

A capital raise through a Reg A+ offering is more likely to succeed if your company is already operating and generating profits. Assuming you have one to two years of operating history, engage a reputable accounting firm (no need to pay more for a ‘Big Five’ firm at this point) to help you clean up your books and get them in generally accepted accounting practices (GAAP) form. Providing presentable, credible financials is essential. In some cases, you may even need to get an audit (painful!).

Find an attorney who happens to be entrepreneurial to help with your offering documents. Admittedly, this is rare, but try to find one by asking other entrepreneurs for referrals.   Having an attorney with experience working with the Securities & Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), who also happens to have the entrepreneurial disease, will pay off in spades down the road.

You will probably need an investment banker, and you can certainly benefit from this expert guide as you begin to build interest in your company. Eventually, when you get through this maze, you will want to actually sell your offered securities to real people in exchange for the cash you need to grow your company. A good investment banker will bring you relationships and credibility and make important introductions for you. Pay attention to related press releases, and you will see which firms are active in the space. You can also ask your entrepreneurial attorney to help in your selection process.

Think about how your company presents itself to the public today. Every item on the list below is part of your “advertising, marketing and promotion” effort, and a little money spent in the right places can have enormous impact.

Website – take a fresh look at your internet portal; is it up-to-date? Does it look homespun or world-class? Is it maximizing search engine optimization (SEO) opportunities? Have you incorporated video, blogs, and external links?

Business stationery – how does your logo look? Will it look good in color and black and white, and on different backgrounds? What about your business cards and letterhead? Do these items cast your firm in the best light?

Social media – I know it’s a weird place full of buzzwords that can seem like a waste. But make the effort to create a presence on Facebook, Linked-In, and wherever else you are drawn. These are relatively inexpensive ways to build your brand and get your message out. With the help of friends, family, and employees, you will get lots of help building momentum.

Company brochure – Look at any materials you have and re-think how they will look to various audiences. Do you need new collateral to tell your story to investors, or can your current materials be used for both new business development and investors? Make sure all your materials render well in PDF format, and that they are ready to be sent electronically. (Electronic is cheaper and faster — two of my favorite things.)

Practice your speaking and presentation skills. Pull out your iPhone or video camera, and record yourself giving your pitch. Once you get comfortable with how your presentation flows, find an audience (one or two people is plenty) who knows little to nothing about your industry, and bribe them to listen to your pitch. Did they understand your business? Can they grasp the opportunity? What questions did they have, and which areas were less than clear? Make changes accordingly. Then do it all again to make sure you nail it.

Be prepared to get frustrated. The lawyers, even the best ones, will drive you nuts with seemingly inconsequential details as you put the filing paperwork together. Then when you file your offering documents with the SEC, there will be numerous rounds of questions. The process will involve attorneys, accountants, and investment bankers and will drag on far longer than a reasonable business person could imagine. But one day, the SEC will sign off on your offering, and it will become “Effective,” and you are off to the races!

Once your offering is effective, you can begin to accept subscriptions from investors. All the preparations you have gone through will pay off. A good ground game and solid foundation of preparation will help you raise the money you need to grow your company. As you grow, you will be able to serve more customers; hire, train, and reward more employees; pay your investors a nice profit; and strengthen our country’s economy.

Now get out there, and make great things happen. The future of the United States (our economy, anyway) is in your hands and the hands of entrepreneurs like you. Your courage and success will inspire others to take the risk and make the leap. Good luck, and Godspeed!

Steve Sadler’s company, Allegiancy, manages commercial properties that have outperformed their peers by 45 percent since 2006. The company has approximately $300 million in assets under management and delivers clients attractive returns and profitable, hassle-free investments in commercial real estate.  

Last year, Allegiancy was one of the few companies to raise capital under Regulation A. Now Allegiancy is poised to file an offering under Reg A+, and the company has released two essential resources for businesses and investors about Reg A+:

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