But what I saw in his blog made the hairs on my neck stand on end: “Because Reg A+ will employ online platforms that are based on similar models as Kickstarter and Indiegogo, many of the same promotional strategies used to raise awareness for campaigns and encourage investor participation will apply.”

This is simply not true. It is vital that entrepreneurs understand that accessing capital through Reg A+ is not crowdfunding. It is a transition by the into a publicly-traded domain. And as such, it requires strict compliance with SEC regulations and rules.

For perspective on this issue I tapped Victoria Silchenko, PhD., the founder of Metropole Capital Group and of Metropole Global Forum, which will be addressing this and other RegA+ issues in the Alternative Funding Forum on November 6 at the Century Plaza Hotel in Los Angeles.

Victoria Silchenko, of Metropole Capital Group, will address RegA+ and other alternative funding at the Global Alternative Funding Forum on Nov. 6 (image courtesy of Metropole Global)

Says Silchenko: “I like the idea of ‘testing the water,’ which allows companies to promote their potential offerings via public domains, including social media, and to collect unbinding pledges from potential investors to invest in the company before it files the offering to the SEC.”

However, she notes there are important points to remember during this process.

“First of all, all your communications are subject to anti-fraud law and you have to be very careful in any promises that might be considered by the SEC to be intentionally misleading,” she said. “So the tweet –‘Hello people–invest in my unicorn-to-be venture’ is probably not a good idea. Something like ‘We are testing the waters–are you potentially interested in investing in us?’ sounds less sexy, but is less potentially troublesome from a legal point of view.”

This means a new protocol for appropriate PR for Regulation A+ contenders. Another thing is to recognize during the “testing the waters” phase of RegA+, according to Silchenko, is that you’re not permitted to accept any money from the potential investors during this phase, and the commitments you obtain during this time are not binding. Furthermore, “as any experienced marketer will tell you,” she says, “In order to sell a product you will probably require at least 100 people who are generally interested (they clicked, they signed up, and they liked your page on Facebook FB -0.20%) to secure even 2 out of the 100 who will end up buying your product.”

As a result, the process of “testing the water” when the company asks for hypothetical pledges from potential shareholders might be producing extremely over-hyped numbers to compare with the amount of actual money that the company will be able to raise once it files its offering. The goal of the testing the waters process, of course, is to assess interest and pave the way to sell shares in your company to your customers, followers and fans, but  if you are choosing a Reg A+ offering as opposed to a crowdfunding program, you must work with a securities attorney. You should be prepared for preparation expense and get advice on fulfilling the disclosure and legal obligations you incur when building your company to a level that accredited and non-accredited investors can get in.

A recent article for MoFo Jumpstarter (a blog publication from the law practice Morrison Foester LLP, with specialization in capital markets) agrees with Silchenko’s assessment. In it, author Anna Pinedo declared, “Certainly, an issuer that is contemplating a Regulation A+ offering may use internet-based communications to test the waters… The Regulation A+ framework is complex, and requires the preparation of, and review by, the SEC of a disclosure document.   In addition, any ‘test the waters’ materials used after an offering is qualified will need to be updated and filed with the SEC. The issuer will be required to comply with the investor limitation for individuals. Issuers considering using a platform should take care to ensure that they will be able to comply fully with applicable regulations.”

How strict the SEC’s interpretation and enforcement of these points is yet to be seen. There are 24 companies registered in the RegA+ filing process, and none of these entrants have been approved to begin funding so far. But for companies anticipating RegA+ funding, the SEC directions are clear: while the rules on general solicitation are more relaxed than a traditional IPO filing, this is definitely not “crowdfunding.” This is not to say that a company can’t handle it’s own PR aggressively and with great success while achieving funding through Regulation A+. They’ll just need to be extremely careful of the new rules while promoting their offerings in RegA+, to ensure they honor all SEC solicitation and disclosure rules that apply.