HookVerbWiki

Glossary

Testing the waters

What testing the waters means in a securities offering, the rules that permit it under Regulation A and Regulation Crowdfunding, and why it is how most raises build an audience before launch.

Testing the waters is the practice of gauging investor interest in an offering before the company is permitted to accept money for it. Indications of interest collected this way are non-binding on both sides: no funds change hands, and nobody is committed to anything.

Where it is permitted

  • Regulation A. Rule 255 allows a company to solicit indications of interest both before and after it files its Form 1-A, in writing or orally. The material must carry a legend stating that no money is being solicited or will be accepted, that no offer to buy can be accepted, and that any indication of interest creates no obligation. The material is filed with the SEC as an exhibit to the Form 1-A. See regulation-a-plus.
  • Regulation Crowdfunding. A rule added in 2021 (17 CFR 227.206) allows the same before a Form C is filed, again with a legend and no acceptance of funds. Once the Form C is filed, communications fall under the ordinary Reg CF advertising rule instead. See regulation-crowdfunding.
  • Registered offerings. Section 5(d) of the Securities Act allows an emerging growth company to test the waters with qualified institutional buyers and institutional accredited investors before or after filing a registration statement. A 2019 rule extended a version of this to all issuers.

Why it matters to marketing

Testing the waters is what makes a pre-launch audience legal to build. In practice it is a reservation or notify-me page, promoted to the company's customers, followers, and networks, that collects an email address and an indication of how much someone might invest. It is the difference between an offering that opens to a list and one that opens to an empty room, and the first week of a raise sets the pace for the rest of it.

The list has a second use: it tells the company what its story is worth before it spends money finding out. Reservation volume and average indicated amount are the earliest honest read on whether the message is landing.

This page is general information about securities rules, not legal advice. The legends, the timing, and what a particular company may say are questions for its own securities counsel and its portal or broker-dealer.

Topics:glossarycrowdfundingregulation

Related articles

  • Regulation A+ (Reg A)

    Definition of Regulation A+, the difference between Tier 1 and Tier 2, the reporting it requires, and how a qualified offering may be advertised.

  • Regulation Crowdfunding (Reg CF)

    Definition of Regulation Crowdfunding, the size and investor limits it carries, how an issuer may advertise a Reg CF offering, and what that means for the marketing around a raise.

  • HookVerb

    What HookVerb is, who founded it, the equity crowdfunding and marketing services it offers, and the companies it works with.

  • Equity crowdfunding

    Definition of equity crowdfunding, the Regulation CF and Regulation A+ offerings it runs on, and why marketing decides how much a raise brings in.

  • Investor acquisition

    Definition of investor acquisition as performance marketing for a public raise, the audiences it works through, and the metrics it is measured on.

Last updated .