Date: Apr 15, 2017 Author: Andy Gordon, Founder, Early Investing Source: EarlyInvesting (
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Featured firm in this article: Myomo Inc
of Cambridge, MA
Myomo, the medtech company my partner Adam talked about last Friday, is doing a modest $15 million crowdfunding raise.
It's also about to make history.
But that's not the interesting part of the story.
The interesting part is how quietly it's doing so.
Myomo is changing how we treat and invest in IPOs forever.
But don't bother searching for news about this in the headlines of the mainstream press. You won't find a mention anywhere.
I conducted a thorough search. The only newspaper to throw a few words Myomo's way was The Boston Globe. And that's only because Myomo hails from Boston and the technology it's using comes from MIT.
What can I say that I haven't said before? It's just another in a long series of signs that the media, Wall Street and very likely the broker you use don't understand crowdfunding.
They should start paying attention.
Crowdfunding is invading one of their most cherished moneymaking businesses - providing underwriting and other services to companies that IPO.
(IPOs involve one or more investment banks known as "underwriters." The company offering its shares enters into a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches institutional investors with offers to sell those shares.)
Regulation A+ fundraises have been aptly dubbed "IPOs light" and "mini-IPOs"...
That much Wall Street has figured out.
These fundraises - where everybody can participate, not just the wealthy - are faster and cheaper than traditional IPOs.
My Co-Founder Adam and I have looked at dozens of Regulation A+ companies. Companies can raise up to $50 million, but we rarely see a Reg. A+ raise come close to this upper limit. They usually fall in the $5 million to $10 million range.
Elio Motors and the Reg. A+ beer company we recommended to members of our research service First Stage Investor - sorry, we can't name the beer company at this time - are the two big exceptions we've seen.
We've recommended five Reg. A+ companies through First Stage Investor.
The other eight holdings in our crowdfunded portfolio did raises under Title III regulation. These raises are much smaller - only up to $1 million is allowed.
Reg. A+ investments usually come with more track record and therefore less risk than Title III companies. But shares in Reg. A+ raises are still very inexpensive.
The drawback that both Title III and Reg. A+ share?
You buy them. And you keep them. For years. And hope they IPO or get bought out. That could take anywhere from two to eight years.
For people younger than me - say, 50 or younger - it's not such a bad thing. You're free from the temptation of selling at the wrong time. And your shares are immune to the ups and downs of the public stock markets.
But at the conferences where I've given talks about crowdfunding, I've noticed a reluctance among some retirees to invest in something that takes so long to cash out.
As a boomer, I completely understand. As for younger investors, many simply don't have the patience to wait that long.
It was with these people in mind that we also offered pre-IPO funds to our premium members. These funds are made up of more mature companies. Most are on the cusp of launching an IPO.
The timeline leading to a liquidity event is much shorter - one to two years as opposed to five to 10. But the shorter timeline is counterbalanced by a lower upside.
There you have it: Invest early, buy cheap and get a shot at unbelievable upside. But you have to wait for that upside to arrive.
Or invest in the later rounds, buy at higher prices, and get a shot at a lower level of upside. But you only have to wait a year or two for that upside to arrive (which is still nice compared to public stocks).
There's nothing preventing you from investing in early-stage AND late-stage companies.
What you can't do is get both high upside and a short wait time in a single startup investment opportunity...
Squaring the Circle: A New Kind of Startup Investment
That is, you couldn't do it until now.
Myomo recently announced it will be doing a Reg. A+ fundraise and, afterward, aims to list on the NYSE.
It's never been done before.
Companies have done Reg. A+ raises and have gone on to trade on the OTC market. A December 2016 SEC study reported that out of 84 SEC-approved Reg. A+ offerings, 13 were intending to list on the OTC markets following their Reg. A+ raises.
And another 17 mentioned that they were "planning to seek an OTC quotation in the future."
But the OTC market can be very volatile. And liquidity - that is, the amount of daily trading taking place - can vary widely from company to company.
The exchange Myomo has set its sights on provides true liquidity and instant credibility - it's a game changer, in other words.
As Adam explained last week, Myomo makes incredibly sophisticated robotic braces that help people regain the use of their weakened or paralyzed arms and hands.
Myomo is valued at $35 million. The company is trying to raise $15 million - or $13.1 million net after fees. It's offering as many as 2 million shares for $7.50 each.
Investors can buy Myomo shares on Banq.co, an online investing platform run by TriPoint Global Equities, the selling agent managing Myomo's securities offering.
It would be a mistake to view this as a one-time deal that an off-the-charts impressive tech company wrangled from a compliant public exchange.
That's simply not the case.
This is an idea whose time has come.
Everybody comes out ahead. The winners are...
The company/issuer. Myomo's founders and early employees can now cash out their shares in months, not years. (Though they must comply with the 180-day lockup period that goes into effect once Myomo lists on the NYSE.)
The JOBS Act of 2012 allows Myomo to list as an "emerging growth company." As such, it qualifies for certain reduced reporting requirements.
One example of this is Myomo has to provide only two years of audited financial statements and only two years of related "management discussion and analysis."
Investors. This is an IPO of a soon-to-be NYSE-listed company that is available to EVERYBODY. That kind of access to a company listing on the NYSE has never been granted before. Before Myomo, only the big institutional players were allowed to play this game.
The public exchanges. Did you know that the public stock markets are shrinking? Not a good situation for the multitrillion-dollar consumer financial services industry. It depends on a healthy and growing public stock market. It's in trouble and is willing to look in previously shunned directions.
The NYSE's senior director, Paul Dorfman, is actively recruiting Reg. A+ companies to list on his exchange. "Reg. A+ is a terrific way we can meet new companies," he says. Wall Street is finally putting out the welcoming mat.
It probably doesn't have much choice. Still, it's a very positive development.
The biggest loser?
How about the OTC? Up until now, it's been the sole destination of Reg. A+ companies seeking a public listing.
By the way, the OTC - meaning "over the counter" - refers to stocks that trade via a dealer network as opposed to a centralized exchange like the NYSE or Nasdaq.
If Reg. A+ becomes an established pathway to a NYSE or Nasdaq listing, the OTC loses out, right?
Nope, the OTC is bullish. Cromwell Coulson, OTC Markets CEO, said, "We believe that Reg. A+ has a really strong future. Reg. A+ will grow the pie for everyone."
The media may be ignoring this game-changing development. But insiders are acknowledging that something big and important is happening.
As a win-win-win development, this is just the beginning of a new and exciting phase of crowdfunding under Reg. A+.
Invest early and well,
P.S. I mentioned our research service First Stage Investor earlier in this article. If you've ever been intrigued by the idea of investing in private startups or have just wanted to learn more, see our presentation here.
At Early Investing, Andy Gordon prides himself on helping you make informed equity crowdfunding decisions. If you like what you've read here and want to hear more from him, subscribe to the Early Investing newsletter to receive comprehensive startup research, advice, commentary and more.