Testing the Waters – What Reg CF Investors Should Know
With the new crowdfunding regulations that went into effect on March 15, 2021, the U.S. SEC introduced something called “testing the waters” (TTW) for Regulation Crowdfunding (Reg CF).
While testing the waters previously existed under Regulation A+ (Rule 255), the updated regulations now permit issuers to test the waters under Reg CF (Rule 206). We’re going to cover what testing the waters is, why investors should care whether an issuer is testing the waters, and how to tell the difference between a testing-the-waters vs. live offering.
What is Testing the Waters (TTW)?
Testing the waters (TTW) is a set of rules that allows issuers (i.e. startups who are raising money) to gauge potential investor interest prior to filing their Form C for Reg CF. This allows the company to assess the amount of potential investor interest before incurring the major expenses associated with an exempt Reg CF offering (e.g. legal fees, audit fees, etc.).
Testing the waters can be done orally or in writing and may be done on a crowdfunding intermediary platform. Because of this, investors may see TTW offerings being made through email, on social media, and on other non-regulated platforms, in addition to being made on regulated funding portals and broker-dealers.