Are You Jumping Into the Waters?


When you see the term- “TTW” what do you think it stands for?

  • Tell The World

  • Talk The Walk

  • Take The Wall


It actually stands for ‘Test The Waters’. Of course this can cover a multitude of areas in life- the term TTW makes me think of my college days, but that’s not what I’m talking about. I’m specifically talking about the new regulations set in place by the SEC (Security & Exchange Commission) that allow early stage startups the opportunity to “test the market”- aka-’waters’, to see what the appetite of investors might be when it comes to investing in their startup.


Here is what the SEC said about TTW:


Washington D.C., Sept. 26, 2019 —


"The Securities and Exchange Commission today announced that it has voted to adopt a new rule that extends a “test-the-waters” accommodation—currently a tool available to emerging growth companies or “EGCs”—to all issuers. Under the new rule, all issuers will be allowed to gauge market interest in a possible initial public offering or other registered securities offering through discussions with certain institutional investors prior to, or following, the filing of a registration statement."


I want to take a second and break down the pluses and minus as I see them with TTW.



First off- I 100% get why founders and startups would want to do this. They want to see what potential interest is and what a raise might look like. They can tap into any customer base they might have or even lean on their social media following if they have a larger reach. Also, there is very little paperwork that is needed to launch a TTW campaign, which for most founders- less paperwork + faster = less headaches & happy founder. But there is somewhat of a catch when it comes to TTW and Regulation Crowdfunding that most founders don’t fully understand when they jump into the TTW ‘waters’ (see what I did there?).


Most startups that are listed on Republic, WeFunder, StartEngine, etc,- already know they are going to launch an official campaign. If they are there it’s for one reason, it’s to file that Form C and get to raising money. The thing most founders don’t understand is that TTW could actually put them at a disadvantage. And not bring in as many investment dollars as they hope.


Let me try and explain. TTW isn’t really raising money- it’s an opportunity for investors to raise their hand and say- “Yeah, I like you and if I could invest I would put $100, $500 or pick any number. It’s so easy for someone to jump in, drop a number and move on with their life. Then a few months later, when the founder has filed all the appropriate paperwork- they and the portal they are listed on goes back to those few hundred or thousand people and says- “Hey, you ready to put that money in?” And most of the time, those investors have spent that money or allocated it towards a different deal. We don’t know the exact stats on what % of those early commitments convert into real actual investment dollars, but it’s not nearly as high as the portals will tell you. I’ve heard a number of founders tell me that they’ve been promised a 95-97% conversion and that just isn’t the case. I know this because I’ve known a number of founders who have Test The Waters and they didn’t see nearly the % of folks opting in as they had hoped for. Now- this doesn’t mean that no startup hasn’t reached those sorts of conversion numbers, but my guess is that it’s only been a handful.


The other tail on this is- when founders reach out to their followers, customers and network - they really only have one shot to get those eyeballs and attention. And if they jump out of the gate with their community in the TTW phase, where investors can only “commit or reserve” a spot for a certain dollar amount- those eyeballs and certainly those investment dollars may never return.


At the end of the day- when it comes to Reg CF companies, I really don’t think the return of TTW is nearly as beneficial as just launching their campaign to the public and their audience once they can take in real investment dollars.


The one time that I do think it makes sense is if a startup is raising an A+ round. These rounds usually see startups raising more in the $7-12M range. And there is a ton more paperwork and much higher fees to get a Reg A+ up off the ground. I wouldn’t blame a startup for doing some TTW to see if they have the support and backing before they sink all that capital and manpower into an endeavor like an Reg A+. Also, the fees are much higher than an Reg CF and the process to get approval from the SEC is harder and longer.


All in all, for founders to utilize TTW it doesn’t really make sense to me. But, to each his own.


There is a company that we got the chance to bring to the StartupWire audience that I think really understood the potential pitfalls of TTW’s and they filed their Form C and attacked their raise. I’m talking about Kate & Bryan Flynn of Sun and Swell. They raised just under $700k from 370 unique investors in 6 weeks. Those are founders who were serious about their raise and came ready to play. I love founders like this- that making their investors and campaign their top priority.


You can actually see the conversation we had with Kate & Bryan HERE.


Now let’s talk about how TTW can potentially affect the investor side of things- I would say I’m pretty much in the same boat. When looking at and evaluating a startup I might invest in, I want to go off real dollars invested from the crowd. Your neighbor may think your startup is great and say they are going to put $20k into your deal, but until they do it means nothing. And often that is what happens. With so many new retail investors entering the market- they don’t really understand what they are doing. They almost see it as a reason to show their support for a startup they believe in by writing something nice and committing a few thousand dollars. But that’s just a few strokes on the keyboard-there really isn’t an actual investment that is made. It can all be vanity metrics- “how much committed or reserved” is just a fancy way to say- maybe folks might put this much in, we aren’t sure, but the number sure looks cool. Because the actual number is $0 until they can take investments.


I’m also super interested when a startup is in TTW for a longer period of time as well. Now, there are a ton of reasons why a startup would take their time and live in TTW for a while, but honestly I want to see them out of it as fast as possible. I’ve come to notice that the ones that just put their campaign page out there, aren’t in a hurry to file their Form C are kind of like someone who just wants to date, but doesn’t want to get serious. They want to see what everyone will do and then they will file the appropriate paperwork. Now- a lot of founders have never raised through the REG CF vehicle, so they are learning as they go. But, pretty quickly a founder should be able to understand what is happening and get to work by filing the paperwork. Not only that, I like to see founders who really give a lot of time and energy to their campaign raises. The ones that see this as a big deal and treat it that way are usually the ones that don’t live in TTW for longer periods of time. Again- this isn’t always the case, but 9/10 times there is a reason someone is just sitting there in TTW for longer than a month - and usually it’s not a reason I love or makes me want to invest.


As I wrap a bow on this, I didn’t set out to trash TTW- like I said, it has its place. But I think for the most part, that is only in a few scenarios. So for me, when I see a startup in TTW I really don’t give them that much attention till they are ready to get serious and file the paperwork to actually raise capital. When that happens it tells me that they have spent some money and more than likely have their game face on and are taking this seriously.


What about you, do you have a preference either way- does it even matter? Do you like connecting with founders and startups in TTW? Perhaps you like to watch their journey and see how they handle themselves during the raise from TTW to Close.


I would love to hear your thoughts on the world of TTW. For you is the water nice and warm, or are you a hard pass on TTW?


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