Testing the waters: how to build the audience before you can take a dollar

Testing the waters is the window in which a company may gauge investor interest in an offering before it is allowed to accept money for it. Under Reg CF that window runs until the Form C is filed; under Reg A+ it runs until the offering is qualified, which is usually months. Most companies treat it as dead time while counsel works. It is the opposite: the only stretch of the entire raise with no closing date pressing and no daily total to defend, and the list built in it decides how the first week goes. This post is the playbook for that window. The rules and legends are on the glossary page; this is what to do with them.

Why the window is worth more than the launch

A raise that opens to a reservation list spends its first week converting people who already said yes. A raise that opens to nothing spends its first month finding them, under a deadline, with a live total on the page that tells every visitor how it is going. The first week sets the pace for everything after it, because momentum is the most persuasive thing a live offering has, and momentum has to come from somewhere.

The window is also the cheapest media you will ever buy in this raise. There is no checkout to protect, no compliance surface on a live offering page, and no clock. Creative can be tested, audiences can be tried and discarded, and the only cost of a bad week is the week. Once the offering is live, every one of those experiments is running against a deadline and a public number.

What the rules let you do

Both public exemptions permit it, with legends. Under Reg CF, a company may solicit interest orally or in writing at any time before the Form C is filed, as long as the material states that no money is being solicited or will be accepted, that no offer can be accepted and no payment received until the offering statement is filed and only through an intermediary, and that an indication of interest is not a commitment. The company may ask for a name, address, phone number, and email, and the materials are filed with the Form C. Once the Form C is filed, communications fall under the ordinary Reg CF advertising rule instead, covered in advertising-rules-by-exemption.

Under Reg A+, a company may solicit interest at any time before qualification, including before the offering statement is filed, with the equivalent legends, and once the statement is publicly filed the material must also say where to get the preliminary offering circular. The materials are filed as an exhibit to the Form 1-A.

There is a third path for a company that has not yet chosen its exemption. Rule 241 permits a generic solicitation of interest with its own set of statements, including that the company is considering an exempt offering but has not decided which. It is treated as an offer for antifraud purposes, and if a Form C follows within thirty days the materials are filed with it. Because it is public solicitation, it can affect the company's ability to run a Rule 506(b) offering afterward. That is a counsel question to ask before the page goes up, not after.

What all three have in common: no money, no commitment, and the legends on every piece. The legends are the price of the window. They are not negotiable and they are not a reason to skip it.

The page

The reservation page is the campaign's landing page for the whole window, and it should be built to do one job: collect a name, an email, and an indicated amount. Not a payment, not a "reserved share," not anything that looks like a commitment.

• The legends, visible, on the page and in every email and ad that points to it.
• The story in three lines: what the company does, why now, what the money builds.
• A single field for the amount the person might invest, with ranges rather than a blank box, because the average indicated amount is the earliest honest read on whether the story is landing.
• Consent to be contacted about the offering, so the list is usable when the raise opens.
• Nothing that states a price, a valuation, or a closing date unless counsel has cleared it and the company is certain it will not change. Every term stated now and changed later is a reason for someone not to convert.

Under Reg CF, remember that the page and every promotion of it will be filed with the Form C. Write it as if the regulator and your future investors will read it, because they will.

Promotion, in order

Owned channels first. Customers, subscribers, followers, past investors, partners. These are the people most likely to raise a hand and the cheapest to reach, and their response is the first data point: the share of the customer list that reserves is a number most companies badly overestimate until they measure it.

Then paid, to test rather than to scale. The point of paid media in the window is to learn which audiences and which creative produce reservations at what cost, so that launch opens with creative that has already won and audiences that have already converted. Run variations. Kill the losers. The winning creative of the window is the opening creative of the raise.

Keep the channel list honest. Anything that can carry the legends and point to the page is fair. Anything that cannot, or that implies money can be sent, is not. For where the money goes once the offering is live, see advertising-channels-for-raising-money.

What to measure

The list is a measurement instrument before it is an audience, and four numbers come out of it.

• Reservation volume over time, which tells you whether the story has reach.
• Cost per reservation by channel and by creative, which tells you what a launch budget will buy.
• Average indicated amount, which tells you how the audience sizes the check.
• Share of the customer list that reserved, which tells you what your existing base is really worth to the raise.

Multiply the list by a realistic conversion rate, never by the indicated amounts at face value. Reservation to investment is always a fraction, often a small one, because a reservation costs nothing and an investment costs money. Plan the raise around the fraction. A company that plans around the face value of its list is planning around a number it has not earned. For how these numbers feed the decision between exemptions, see reg-cf-before-reg-a-plus and, on the Reg A+ timeline, what-is-reg-a-plus.

Keeping the list warm

The gap between reservation and launch can be months, especially under Reg A+, and a list that hears nothing goes cold. Every week of silence lowers the conversion rate at launch. The window should have a cadence: progress on the business, the story told in pieces, the team introduced, milestones marked. None of it needs to mention terms, which keeps it clean under every rule, and all of it keeps the person who raised a hand in June ready to act in October.

Then, at launch, the list gets the first email. Before the ads, before the press, before anyone else. The people who reserved earned the first look, and their first-week conversions are what the rest of the campaign is built on.

The mistakes

• Legends missing or buried. The page is not a testing-the-waters page without them, and under Reg CF it will be filed.
• Taking money, or anything that looks like it. "Reserve your shares" with a card on file is not testing the waters. It is an unregistered sale.
• Stating terms that later change. Price, valuation, closing date. Each change is a reason for a reserved investor to walk.
• Letting the list go cold. A list built in spring and ignored until autumn is a list of strangers again.
• Treating the window as a soft launch. An under-promoted window produces bad data, not cheap data, and then the raise is sized on a number that measured effort rather than audience.

Every raise gets this window whether or not the company uses it. The ones that use it open to a list, learn what their story is worth before they pay to find out, and launch with creative that has already been tested. The ones that do not open to an empty room and spend the raise's most expensive weeks doing the work the window would have done for free.

This is general information about securities rules and campaign practice, not legal advice. The legends, the timing, what a particular company may say, and whether a generic solicitation affects a later offering are questions for your own securities counsel and your intermediary.

FAQ

What is testing the waters?

Gauging investor interest in an offering before the company may accept money for it. Indications of interest are non-binding on both sides, no funds change hands, and the material must carry the legends the rule requires. Reg CF allows it until the Form C is filed and Reg A+ allows it any time before qualification.

Can you test the waters before a Reg CF offering?

Yes, since 2021. A company may solicit interest orally or in writing before filing its Form C, as long as the material states that no money is being solicited or accepted, that no offer can be accepted until the Form C is filed and only through an intermediary, and that an indication of interest is not a commitment. The materials are filed with the Form C.

Can you take money while testing the waters?

No. No money or other consideration may be solicited or accepted, and no commitment may be taken, under Reg CF, Reg A+, or the generic Rule 241 path. A page that collects a payment or a binding reservation is not testing the waters.

What must a testing-the-waters page say?

That no money is being solicited and none will be accepted, that no offer to buy can be accepted and no payment received until the offering statement is filed (Reg CF) or qualified (Reg A+), and that an indication of interest involves no obligation or commitment. Under Reg A+, once the offering statement is publicly filed, the material must also say where to get the preliminary offering circular. Your counsel sets the exact wording.

How long should you test the waters?

As long as the rules give you, which is until the Form C is filed under Reg CF and until qualification under Reg A+, often several months. The window is the cheapest audience-building time in the raise, so the question is less how long to run it than how to keep the list warm across it and launch into it the day the offering opens.