GridZero 506 Regulation D
Proposed Securities Offering
We are asked repeatedly about whether or not we are selling any shares in GridZero Inc to private investors. The answer is not yet. We are developing a $5,000,000 506 Regulation C private placement offering with our securities firm, designed exclusively for Accredited and institutional Investors.
In September 2013, the world of private investing became much more transparent. Before that any company wanting to sell private securities was restricted to selling mainly to their own network of family and friends. This was due to the ban on ‘general solicitation’of a private security. One of the primary ways private companies raised funds was through Rule 506 of Regulation D.
Regulation D is an exemption from registering securities with the SEC. When Title II of the Jump Start our Business Startups (JOBS) Act took effect in 2013, Rule 506 of Regulation D was split into 2 main exemptions, 506(b) and 506(c). 506(b) preserved the old Rule 506, but 506(c) changed the world of private investing.
Under 506(c), the ban on general solicitation was lifted — and issuers could take their deals to investors looking to invest in start-ups like GridZero or small businesses. We are structuring a $5,000,000 - 506C offering a 20% non-voting equity stake in our company. Note, this offering is not yet avaialble and it may be subject to change. However, there are five main benefits of using Rule 506(c) vs Rule 506(b) as briefly outlined below:
1. General Solicitation
The biggest advantage of structuring our offering under the 506(c) exemption is our ability to generally solicit or market the offering. This means that as issuer, we can take our offering and present it in any way we wish, including online, in a magazine, on a billboard, or any other way deemed feasible. This not only allows investors to see our current offering online, subject to certain requirements, often resulting in a faster raise of funds. It also creates a larger investor base for future deals like our Solar Farm and related equiment leasing Limited Partnerships we will offer in the future. With 506(b), there is still a ban on general solicitation and deals are still restricted to those inside a company’s close network.
2. Accredited Investors
Another difference between the 2 offerings is the ability to accept non-accredited investors into the investment. With 506(b), issuers can allow up to 35 non-accredited investors to invest in the deal, but even non-accredited investors need to be ‘sophisticated’. This becomes a problem as it allows for subjectivity to be introduced. We will accept only Accredited Investors for our offering.
3. Broker-dealer Verified Accreditation
In a 506(c) offering, the issuer, us, or our broker-dealer has to verify the accreditation status of the investor. Accreditation is achieved by either proving the investor has a net worth of $1,000,000 not including primary residence; by proving that the investor has made $200,000 a year over the past 2 years, with a reasonable prediction to make that again this year; or by a letter of accreditation by a CPA, attorney, or other professional. The difference in a 506(c) offering is the requirement on the of the investor. In a 506(b) offering, investors are verified through self-verification, which offers risk to us .
4. No Document Disclosure Requirements
A fourth major difference between the two types of 506 offerings is the different types of documents required to be disclosed. This is where 506(c) becomes even easier for an issuer like us to manage. In a 506(b) offering, the document disclosure requirements are similar to the information required in a registered offering. On the flip side, for a 506(c) offering, there are no such document disclosure requirements because all investors must be accredited and theoretically should know the right questions to ask before they invest.
5. No 30-day Waiting Period
The last major difference is the waiting period before investing. In a 506(c) offering, there is no waiting period requirement. With a 506(b) offering, issuers have to be able prove a relationship of a minimum of 30 days with an investor before they are allowed to know about the deal. The purpose of the 30-day waiting or “cooling off” period is for the broker-dealer or issuing company to make sure the investor is suitable for the investment and is sophisticated enough to make the investment.
In short, we want to attract only investors that clearly understand that GridZero is the mother of all start-up companies, building a multi-billion zero enmissions infrastructure project. One that will most certainly generate strong cashflows once operational, but the true ROI will come througfh stock appreciation as we move forward and either go public ourselves, or get axquired by a SPAC. Stay tuned for more details coming soon.