Do Improved Reg A+ Offerings Get an A+?

Access to capital for small businesses and entrepreneurs remains challenging. Businesses cannot survive, let alone grow, without capital to develop and promote their ideas in a technology driven market that quickly makes obsolete products and technologies from just a few years ago. Recognizing this issue, government has struggled with how to assist capital raising for small businesses, which historically has been the most dynamic segment of our US economy creating the highest job growth. As this is a presidential election year, all eyes are on the economy as the data reflects a stagnant economy with very slow job growth.

As a prelude to this concern, on June 19, 2015, the US Securities and Exchange Commission adopted an amendment to existing Regulation A, allowing companies to raise up to $50 million in capital in a 12-month period from both accredited and (in some circumstances) non-accredited investors in an exempt offering. Many have designated this private placement exemption, (nicknamed Regulation A+) as a mini-IPO, given the required SEC review process. Entrepreneurs have been hopeful the exemption will provide a “miracle solution” for quickly raising significant capital from the public and without the expense, complexity and detailed disclosure requirements of a traditional IPO. The idea is to resuscitate a little-used offering exemption, previously limited by state law roadblocks. A review of SEC filings shows Regulation A+ started off slowly but seems to have picked up some momentum.

Under Regulation A+ the SEC has established two tiers of fundraising with varying requirements for qualification and disclosure to the public, but the issuer must have a real business plan to be eligible to utilize this regulation. Each tier permits general solicitation and the use of websites and social media for potential investor communications appealing to a younger audience and an economically diverse range of offerees in the new age of investing through “crowdfunding.”

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