What is Testing the Waters (TTW)?

Introduction to Testing the Waters (TTW)

If you’ve ever browsed startup investment platforms like Wefunder, StartEngine, Republic or others, you might have come across terms like “Testing the Waters” (TTW) and “Reservations”. But what exactly do those terms mean, and how does it impact investors and founders?

At its core, TTW is a way for startups to gauge investor interest before formally launching a funding campaign. It allows companies to market their potential offering and see if there’s enough demand before spending the time and money required to file official paperwork with the SEC.

In this article, we’ll break down how TTW works under Regulation Crowdfunding (Reg CF) and Regulation A (Reg A), the key differences, and what investors need to know when coming across a TTW campaign.

For our analysis of all the TTW raises since 2020, check out our article here.

What is Testing the Waters (TTW)?

Startups raising capital online (e.g. through equity crowdfunding) must follow strict SEC regulations. Before filing their offering documents, companies often want to test whether there’s enough investor interest to make a full-fledged campaign worthwhile.

Testing the Waters (TTW) allows startups to:

• Solicit non-binding indications of interest from potential investors.
• Promote their fundraising plans before officially launching.
• Avoid committing to legal and financial filing costs if investor demand isn’t strong enough.

What TTW does NOT allow:

• Companies cannot accept actual investments—only expressions of interest.
• Investors are not legally committing funds at this stage.
• Terms of the deal can change before the official offering goes live.

If and when a company decides to file the necessary SEC paperwork and officially launch their raise, investors must “reconfirm” their investments.  Because of this reconfirmation, there is often a temporary (and steep) dropoff in investments as investors need to reconfirm. Ultimately, a number of investors will either not reconfirm or may reduce their investment amount after the TTW campaign goes live.

Testing the Waters Rule Differences – Reg CF vs. Reg A

Depending on the type of exemption a startup plans to use for its offering, different TTW rules apply.

Securities Act Rule 206 (Reg CF TTW)

• Introduced in March 2021.
• Allows startups to conduct TTW before filing Form C.
• Once Form C is filed, all TTW communications must cease, and prior TTW materials must be filed with the SEC.

Securities Act Rule 241 (Generic TTW)

• Also introduced in March 2021.
• Allows startups to gauge interest before deciding which regulation to use (Reg CF, Reg A, or Reg D).
• State blue sky laws are not preempted, meaning companies may need to comply with state-level regulations.

Securities Act Rule 255 (Reg A TTW)

• Has existed for years as part of Reg A+.
• Allows startups to conduct TTW before and after filing Form 1-A.
• May require additional compliance with state securities laws.

Key Differences Between Reg CF and Reg A TTW

How to Identify if a Startup is “Testing the Waters”

The SEC requires specific disclaimers on TTW campaigns, including:

• No money or consideration is being solicited or accepted.
• No purchases can be made until an offering statement is filed.
• Investor interest is non-binding.

Because companies can’t collect funds during TTW, investors who express interest will later receive an email asking them to confirm their investment when the offering officially launches.

Important note: Not all startups that test the waters will go on to file a Form C or Form 1-A. If interest is weak, they may abandon the raise altogether.

Recognizing TTW Offerings on Top Platforms

Each equity crowdfunding portal presents TTW campaigns slightly differently. Here’s how to spot them:

Wefunder:

• TTW campaigns look almost identical to live offerings.
• TTW deals typically won’t have a “Details” tab (which usually contains financials).
• The footer of the page includes a TTW disclaimer.
• The “Invest” button may say “Reserve” instead.
• Clicking “Invest” prompts a message saying the investment is reserved, not finalized.

Republic:

• TTW campaigns are labeled “Accepting Reservations” instead of “Invest Now.”
• All language refers to reserving interest rather than investing.
• TTW disclaimers are displayed at the bottom of the campaign page.

StartEngine:

• Historically used for Reg A+ TTW campaigns, labeled as “Reservation” offerings.
• You can search the page (CTRL+F / CMD+F) for “waters,” “testing the waters,” or “reserve” to confirm its status.

How to Find TTW Raises on Kingscrowd

If you’re looking for Testing the Waters (TTW) raises on Kingscrowd, we make it easy to find promising campaigns that are gathering early investor interest.

• TTW raises are labeled on company pages when applicable.
• On the Advanced Company Search page, you can use filters to find startups currently Testing the Waters.
• Kingscrowd does not track every TTW campaign—since many fail to generate significant interest. Instead, we focus on TTW raises that show traction, typically $50K+ in reservations.

When a raise converts from TTW to a live raise — meaning the SEC paperwork has been filed — there is typically a temporary drop-off in funding. This is because investors must reconfirm their investment when a raise goes live, and there is inevitably a number of investors who will forget, decide not to reconfirm, or reduce the original amount they reserved.

Sample raise page showing testing the waters on Kingscrowd.com:

If a raise on Kingscrowd is currently testing the waters, it will be clearly marked at the top of the funding page:

Furthermore, Kingscrowd users can search for current deals that are Testing the Waters by using the Advanced Company Search filter for “Reg Type = TTW”:

What TTW Means for Founders and Investors

For Founders:

• TTW is a low-risk way to test demand before committing to legal and financial expenses.
• It can help refine messaging and marketing strategies based on early investor feedback.
• However, once launching the actual campaign, there can be a temporary drop-off in actual investments vs. reservations as investors need to reconfirm.

For Investors:

• TTW is not a commitment—terms may change before the offering officially launches.
• Indicating interest does not guarantee allocation when the campaign goes live.
• Investors should always review the final Form C or Form 1-A before making an actual investment decision and reconfirming their investment.

Conclusion

Testing the Waters is a valuable tool for both startups and investors, but it’s important to understand its limitations.

For founders, it’s a great way to measure demand before committing to a full-fledged campaign. For investors, it’s an opportunity to get an early look at potential deals—but remember, TTW does not mean an investment is finalized.

Next time you see “Accepting Reservations” or “Testing the Waters” on a funding portal, you’ll know exactly what it means—and how to approach it as an informed investor!