Why an early stage hospitality business is running a 2-part Reg CF + Reg D raise.
This post was originally written for investors of the ArkHAUS crowdfunding campaign. You can learn more on the campaign page here.
ArkHAUS is slated to launch towards the end of 2022 and is already taking membership applications & deposits. It is possible we could fully sell the memberships (not just deposits) and use that revenue towards purchasing the four vessels. The membership revenues alone are far greater than the deposits and financing costs of the boats. However, this would result in a timing mismatch — by the time we collect the membership revenue on all the memberships, we would be too late in funding the required production deposits on the boats. So while we’d have enough money, it would just be too slow.
As such, we are offering this investment opportunity so we can purchase the boats and undertake all required pre-launch operational activities (legal, location, permitting, marketing, etc). This is being accomplished via a 2-part concurrent raise:
- Reg CF | $1.07mm | Republic crowdfunding with retail investors
- Reg D | $500k | Accredited investors only
While the two raises employ different document types (Crowdfunding uses SAFE and Reg D uses priced equity), the SAFE has been modified to match the priced round in just about every way possible, especially including economics. Both deals are at $15mm pre-money valuation (with a discounted $12.5mm valuation for the first $250k investors). On the SAFE, we just use a valuation and not a valuation cap…and there is also no discount. That’s how we matched the economics. And finally, we included an “automatic conversion at 24 months” feature, so that the SAFE investors are never left holding no securities. In short, the two rounds are effectively the same.
So why did we do this? Reg CF only allows us to raise $1.07mm until we get audited financials, and since we’re a brand new company, there’s nothing to audit. But more importantly, we wanted to be able to raise larger chunks via outside strategic investors, and do it at the same time to expedite the raise. That way, we can place our production deposits and bring this amazing project to Miami and more cities globally.