WHAT IS REGULATION A+?

A Straightforward Guide for Aspiring Entrepreneurs

WRITTEN BY:

Trent Read, Partner at EP

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WHAT IS REGULATION A+ ?

Regulation A+ of the 2012 JOBS Act is a set of rules that determine how investors and issuers engage over the sale of equity in small- and medium-sized growth companies. This process is known as equity crowdfunding. Regulation A+ has four important aspects:

  1. Company can seek to raise up to $50MM
  2. Company can file necessary paperwork once with the SEC, rather than state-by-state
  3. Company can “test the waters,” free and without commitment, before filing with the SEC
  4. Company can seek funds from everyone, including non-accredited investors

Reg A+ democratizes access to a potentially high return investment, an opportunity once reserved only for the wealthy and well connected. It marks the first time that a non-accredited investor can invest in a company’s equity prior to the IPO stage. A non-accredited investor is defined as a person who makes less than $200k annually or who has a net worth below $1M.

HOW DOES REGULATION A+ AFFECT ENTREPRENEURS AND STARTUPS? 

Regulation A was created with great intentions, but it was always limited in scope. The offering limit of $5MM and high cost of compliance with each state’s Blue Sky Laws was progressive when it was drafted back in the 1930’s, but in the modern era it’s both onerous and impractical.

The increase to $50MM, along with the SEC Blue Sky exemption, allows small and midsize companies to raise a funding round that’s actually worth their time, effort and investment. Both of those make Regulation A+ a powerful tool for entrepreneurs and startups, but by removing the accredited investor exemption, the rules also clear a path to a brand new pool of capital: the 92% of the population of the United States that don’t meet the requirements to be an accredited investor.

This is fantastic news for entrepreneurs and startups seeking a functional alternative to the standard venture capital funding route. But, it is also great news for entrepreneurs without VC connections. Regulation A+ creates a significantly more favorable environment for entrepreneurs across the country by opening the investment to everyone. The old laws essentially meant that personal networks and affluent friends were the only way to get ahead. Reg A+ boosts everyone up to compete on a level playing field.

HOW DOES IT AFFECT INVESTORS AND THE GENERAL PUBLIC?

The ability to sell equity shares to everyone can be a boon to both entrepreneurs and investors. It gives entrepreneurs access to a new pool of capital, and also provides investors with a new path to investments and the possibility to back the progressive companies of tomorrow.

Both of these aspects make Reg A+ attractive to accredited and non-accredited investors. No matter a person’s net worth, they now have the chance to invest in a potentially revolutionary company where returns are very real. Also, by allowing more people to invest, the US government has empowered those outside of traditional financial centers like San Francisco and New York to pursue their dreams. This means that with targeted investing, backers can support minority and female entrepreneurs and the companies they’re building. It could even spur a culture shift, bringing more underrepresented groups into the world of business.

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There are a number of different equity crowdfunding platforms with Regulation A+ offerings, including those that specialize in community financing, environmental tech, real estate, commodities and manufacturing. It’s best to explore crowdfunding portals and find the one ideally suited for your business.

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Trent Read - PartnerAUTHORED BY TRENT READ

Trent has been a CFO of two venture/growth equity-backed companies that ranked on Inc. Magazine’s list of fastest growing companies in the country which he successfully led from their infancy to full liquidity events. He began his career as an Analyst in investment banking with Deutsche Bank. He was then a Senior Financial Analyst for a $200 million business unit of Honeywell. He then returned to investment banking as an Associate and then VP at Wachovia Securities and Sagent Advisors respectively. He worked with media, digital media, telecom, software/SaaS, and internet infrastructure companies on transactions that varied from multi-billion dollar LBOs to small growth equity capital raises. Trent is now a partner at EP and is the head of EP’s Utah valuation practice. 

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2018-11-02T20:24:33+00:00