Understanding Capital Structures

For Early-Stage Companies

Crowdfunding

Crowdfunding platforms allow companies to raise capital from a large number of individual investors, typically through an online campaign. Under Regulation Crowdfunding (Reg CF), companies can raise up to $5 million per year from the general public without a full public offering.

It can be an effective way to raise early-stage capital and build a community of supporters around your brand. However, it is important to understand what crowdfunding does not do: it does not make your company publicly traded, and it does not provide investors with a liquid market to sell their shares. There is no built-in exit for investors, which can make it harder to attract experienced capital partners as you grow.

Best suited for: early-stage consumer-facing companies with a compelling story and an existing audience.

Going Public

Reverse Mergers vs. Traditional IPOs

For a private company looking to become publicly traded, there are two primary paths: a traditional IPO or a reverse merger into an existing public shell company.

A traditional IPO is the process most people are familiar with — a company files a registration statement with the SEC, works with underwriters to price and sell shares, and lists on an exchange. It can be an excellent outcome, but it is a long and expensive process. A full IPO typically takes twelve months or more to complete and can cost anywhere from $300,000 to $3 million or more in legal, accounting, and underwriting fees — with no guarantee of success.

A reverse merger takes a different approach. Instead of creating a new public company through an IPO, the private company merges with an existing dormant public shell company, inheriting its public status. The result is a publicly traded company in a fraction of the time, often at a significantly lower cost.

Reverse mergers do involve costs of their own, but a meaningful portion of those costs can often be financed using shares of the target shell company itself — reducing the upfront cash requirement. For companies that need to access the public markets without the time or capital to pursue a traditional IPO, a reverse merger is frequently the most practical path forward.

Best suited for: private companies with a clear business plan that want public company status without the timeline and expense of a traditional IPO.

For Senior Enterprises

SPAC Mergers (Special Purpose Acquisition Companies)

A SPAC — sometimes called a "blank check company" — is a publicly traded shell created specifically to raise capital for the purpose of acquiring or merging with a private company. Once the SPAC completes its merger with a target, that target becomes publicly traded.

SPAC mergers received considerable attention in the early 2020s as a faster alternative to traditional IPOs for larger companies. However, they are generally not suited for early-stage or small-cap companies. SPAC investors expect to be merging with substantial enterprises — companies with meaningful revenue, earnings, or infrastructure that justifies the SPAC's capitalization and valuation.

For the right company at the right stage, a SPAC merger can be a compelling path to the public markets with institutional backing built in. For most early and mid-stage companies, other mechanisms are more appropriate.

Best suited for: established companies with significant revenue, earnings, or institutional credibility.

For Private & Public Companies

Private Placements & Regulation A Offerings

Both private placements and Regulation A offerings are available to private and public companies alike, and both provide a way to raise capital without the full burden of a traditional registered public offering.

A private placement allows a company to sell shares — or securities convertible into shares — directly to a select group of accredited investors, without the time and expense of a registered offering. Private placements are governed by Regulation D under the Securities Act and offer considerable flexibility in terms of deal structure, pricing, and timing. They are one of the most commonly used tools for companies seeking to raise capital efficiently, and a core part of what we do at BMN Capital Group through our Cayman Investment Partners network.

Regulation A (sometimes called "Reg A+") takes a broader approach, allowing companies to raise up to $75 million per year from both accredited and non-accredited investors through a streamlined SEC qualification process — a middle ground between a full IPO and a private placement. Reg A offerings can be marketed broadly to the general public, making them a useful tool for companies that want to build a large retail shareholder base alongside raising capital. The process involves more regulatory preparation than a private placement, but far less than a full registered offering.

Best suited for: private and public companies at various stages looking to raise capital from accredited investors (Reg D) or a broader public audience (Reg A).

For Existing Public Companies Trading OTCQB, NASDAQ or NYSE

Convertible Debt, Equity Lines of Credit & At-the-Market Transactions

For companies that are already publicly traded, there are several additional capital raising tools available that leverage the company's existing public status and trading market.

Convertible Debt is a loan made to the company by an investor that carries an interest rate and includes pre-negotiated options to convert the outstanding principal — and sometimes accrued interest — into shares of the company's stock at a predetermined price or discount. For investors, it offers a degree of downside protection that straight equity does not: they earn interest while their capital is at work, and retain the option to convert into equity if the stock performs well. For the company, it is a way to raise capital without immediately diluting existing shareholders, with any dilution deferred to the point of conversion.

An Equity Line of Credit (ELOC) is an arrangement between a public company and an investor — typically an institutional or high-net-worth party — under which the company has the right to sell shares to that investor at regular intervals, up to an agreed maximum amount over a defined period. Think of it as a revolving capital facility: instead of executing a new offering every time funds are needed, the company draws down capital by issuing shares as needed. ELOCs work best when the stock has adequate trading volume and liquidity to absorb the issuances.

At-the-Market (ATM) Transactions allow a public company to sell newly issued shares directly into the open market at prevailing market prices, through a registered broker-dealer acting as agent. Unlike a traditional offering with a fixed price and a single closing, an ATM program lets the company raise capital on an ongoing, opportunistic basis — gradually and at market prices, avoiding the discount typical of a block offering and minimizing market impact.

Best suited for: companies actively trading on the OTCQB, NASDAQ, or NYSE that need flexible, ongoing access to capital.