What is Regulation A+?
For over 80 years, private companies could only raise capital (i.e. money) from accredited investors. Accredited investors historically have comprised a small percentage of Americans. This all changed, however, when President Obama signed a piece of legislation called the JOBS Act on April 5th, 2012. The JOBS Act allows entrepreneurs to go to the crowd and publicly solicit or advertise their capital raises. Three years after the JOBS Act was signed, Title IV (aka Regulation A+) of the JOBS Act went into effect, allowing private companies to raise money from all Americans. Startups can now use Regulation A+ (Reg A+ as well call it) to turn their customers into investors.
Reg A+ is an offering type that allows private companies to raise up to $20 million in a Tier 1 offering, or $50 million in a Tier 2 offering in a 12-month period from non-accredited and accredited investors online. Reg A+ Tier 2 offerings are a bit more stringent, with the SEC requiring Tier 2 offering companies to limit the amount of money non-accredited investors may invest, audited financials, and more. Issuers are also not required to register or qualify their offerings with state securities regulators.
Companies looking to raise capital via a Reg A+ offering will first need to file with the SEC and get qualification before launching their offering. The advantages of a Reg A+ offering is that the costs associated with it are much lower than a traditional IPO and the ongoing disclosure requirements for it are less burdensome. Reg A+ offerings are considered a mini-IPO because it is open for the public to invest in the company allowing the company to gauge public interest without the strenuous fees attached to a standard IPO and the reporting requirements of actually going public before the company is ready. Lastly, Reg A+ offerings can serve as a liquidity event for early investors. 30% of the securities sold during a raise can come from current security holders, effectively making it a secondary sales market.
The KingsCrowd Advantage
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About: Francis Vu
An investment professional with a background in private equity and venture capital having spent time conducting investments at VU Venture Partners and Pacific Oak LLC with a finance and management degree from Tulane University.