In these early days of Regulation A + (Reg A+, raises up to $50 Million) and Title III Regulation Crowdfunding (Reg CF, raises up to $1 Million), one of the hardest things to do as a potential issuer utilizing equity crowdfunding is to vet the service providers you want to work with.
Choosing the people your company works with, the people that give you advice, the people you trust is one of the most important things to do as a business. Bad advice can set you back years, while good advice can accelerate you forward.
Often we get the questions:
How do we (the issuer) choose a CPA firm for equity crowdfunding?
…and
Why should I choose you over another firm?
Both great questions! Let’s cover both types of equity crowdfunding as they will dictate different responses.
Regulation Crowdfunding (Raises up to $1M) have less regulation. The financial statement reviews required can be performed by almost any CPA firm so long as they are registered to sign attestation reports in the state where you as the business owner are located. Many firms only provide tax services and are specifically precluded from doing this work. However, for Reg CF, firms don’t have to be PCAOB registered, but they still must be registered with state(s). One of the common issues that has come up, is CPA firms are issuing reports for issuers that are not in their home state. If the CPA firm is not registered in the issuers’ home state or have practice privilege there, (every state is different) then the opinion can be deemed invalid and your campaign could flop before it starts.
For Reg A+, you should use a PCAOB registered firm (although not required in certain circumstances) in the chance you want to, or someday may want to be listed on a public stock exchange. All the same rules apply as Reg CF, make sure you use a CPA firm that can work in your home state.
So what sets CPA firms apart? You can see from the initial 100 filings for Reg CF companies and from review of many of the Reg A+ filings, some financial statements are better than others. Whereas financial statements are ultimately the responsibility of issuer management, CPA firms should be making sure they go out nice, neat and clean with all required information (a requirement of the opinion they issue). It is apparent (very obviously to people who know) that some firms are swimming in waters that are too deep for them. They just don’t know the requirements and maybe shouldn’t be doing the work in the first place. That is a significant issuer for an issuer as the issuer is ultimately responsible for everything.
However, the real difference maker is if the CPA firm makes Reg A+ and Reg CF an emphasis in their practice. CPA’s should be well connected to marketing firms, portals, SEC attorneys’, all of whom are in the equity crowdfunding space. If they aren’t connected, THAT is the difference.