Mark Rockefeller is CEO and cofounder of StreetShares
Why go the Reg A+ path?
StreetShares chose the Reg A+ path in order to attract a large group of non-accredited retail investors. We serve the military and veterans community, and we want investors from that community. As most veterans are not accredited investors, it was essential to reach nonaccredited investors (via Reg A+) in order to expand our community of investors in veterans community. We’ll expand beyond the veterans market in the future as well.
Early testing showed that we can mitigate loan risk using our “social-lending” technology. When connected by StreetShares technology, borrowers simply don’t want to let down their community… Lower-risk loans result in a lower cost to borrow for veteran-owned small businesses and lower risk for investors. With Reg A+ qualification, we can further de-risk lending by backing loans to veteran businesses with a layer of capital derived from the veteran and military community.
Ultimately, our goals are to 1) create an alternative to the popular online “payday”-type small business lenders that target my fellow veterans and 2) make loans more flexibly and conveniently than traditional banks.
What was the most surprising part of the process?
How long it took. We were able to secure SEC approval after 9 months of negotiations, and the SEC was very good to work with. But the process took longer than expected. StreetShares was honored to receive this historic approval, enabling everyday Americans (not just millionaires) to be able to invest in loans to small businesses. We handle the underwriting and credit decisions and then co-invest in each loan ourselves.
Advice for other companies thinking about embarking on a similar trajectory?
Reg A+ is not for the faint of heart. It requires capital to endure the process, audited financials, and patience. Reg A+ qualification only permits raising up to $50MM in a 12 month period. So to most benefit from Reg A+, a company needs to be large enough to have the resources to endure the approval process, but small enough such that $50MM moves the needle. There are a lot of companies in this size that could benefit from a Reg A+ raise.
Get good counsel. StreetShares has been very fortunate to have good lawyers in house and hire the best outside counsel with expertise in Reg A+. As the innovator in bringing Regulation A+ to small business lending, we have relied upon team members with leadership experience at no less than the U.S. Department of Justice, the Consumer Finance Protection Bureau (CFPB), and the SEC. Because of this investment made by StreetShares, everyday Americans will now benefit from the investing opportunity.
What does your marketing plan look like if you can really tackle the entire population?
StreetShares is undertaking an unprecedented membership drive to promote StreetShares to both the veteran-owned small business and investment communities (currently approaching 10,000 members strong with almost no advertising).
Thus far, we’ve had extremely low default rates, due to veteran-group loyalty.
Not surprisingly, we are issuing this new kind of investment security first to the military and veterans community. That is, of course, where it all started.