Raising Capital Using a Regulation A+ Offering

If you’re looking for alternatives to an initial public offering (IPO), a Regulation A+ offering may be an excellent option — especially if you’re a smaller business. Sometimes called a “mini IPO,” the regulation opens up exciting, streamlined fundraising options. Below, the securities attorneys at Mangum & Associates discuss Reg A+ and how it can help companies reach their fundraising goals.

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What Is Regulation A+?

Created by the Jumpstart Our Business (JOBS) Act in 2012, Reg A+ aims to encourage small business growth and development by streamlining the process of going public and easing limitations on the number of non-accredited shareholders an eligible company can have. The JOBS Act went into effect in 2015.

Under Reg A+, a company can:

  • Raise up $50 million in capital in a 12-month period
  • Publicly solicit investors and advertise, as long as you include certain disclaimers
  • Avoid the cost and complications of SEC and state securities registrations
  • Receive an expedited, streamlined review of its offering memorandum
  • Confidentially submit its offering memorandum to the SEC
  • Combine public funding with venture capital (VC) investments to optimize the company’s fundraising
  • Issue unrestricted securities to investors, potentially creating a secondary market

In other words, small businesses and startups have the option to sell securities using an easier and less expensive process. Unlike a private placement, you are not limited to selling your securities to sophisticated investors and people you already know. Instead, you may be able to tap into a broader pool of investors, increasing your fundraising potential.

Unfortunately, many startups are still unaware of the Regulation A+ offering option — and some less sophisticated law firms are still uncomfortable with this relatively new form of fundraising process. At Mangum & Associates, our experienced team of securities attorneys are well-versed in Reg A+ and encourage many small businesses to explore its potential.

Two Tiers to Reg A+

If you are considering a mini IPO under Reg A+, you can choose from two different tiers:

  • Tier 1: Is similar to pre-2015 Reg A, but includes higher fundraising limits. While you will have to file with state securities agencies, you can now raise up to $20 million under Tier 1. The company also does not have to provide the SEC with audited financial information or comply with ongoing federal reporting rules.
  • Tier 2: With Tier 2, you must file a registration statement with the SEC. But you can fundraise up to $50 million and do not have to comply with state blue sky laws. Most companies that utilize Reg A+ opt for a Tier 2 offering. For this reason, this page focuses on the rules surrounding a Tier 2 Regulation A+ offering.

Who Is Eligible for Reg A+?

To be eligible for Regulation A+, you must be a company that is organized and operating in either the United States or Canada. While your venture can have international operations, you must be based in either the U.S. or Canada. Additionally, certain types of organizations do not qualify for Reg A+. These include hedge funds, SPACs, and companies that offer fractional interests in oil, mineral, and gas rights. Finally, if you are already a publicly reporting company, you cannot make a Regulation A+ offering.

If you’re unsure whether your startup or organization qualifies for Reg A+, contact us for a complimentary, confidential consultation.

Is a Regulation A+ Offering Right for My Venture?

Just because your offering qualifies under Regulation A+ does not mean that it’s the right option. While nothing compares to a personalized and detailed assessment from a securities lawyer, we’ve delineated some common circumstances where you may benefit from Reg A+.

You Need Significant, But Not Unlimited Fundraising

Compared to some more traditional fundraising methods, a Regulation A+ offering can be costly. If you only need a small amount of investment, it may not be right for you.

You Already Have an Engaged and Vibrant Consumer Base

If your venture or business already has a strong brand identity and a passionate consumer base, these individuals may be more inclined to invest in a Regulation A+ offering. However, if you’re new to the scene and cannot articulate your value proposition, reconsider Reg A+. Investors may be unwilling to invest in a company with unfamiliar products and a hard-to-understand message.

You Want to Garner Attention

A Regulation A+ offering can attract a lot of attention. If you treat your Reg A+ offering like a mini-IPO and market it heavily, you may build brand awareness and attract interest from both investors and consumers.

You Want to Test the Waters

Unlike some fundraising methods, a Regulation A+ offering allows a company to “test the waters” or gauge investor interest before it launches. During this process, your venture will seek input from potential advisors and assess their potential interest in your offering. If you get enough positive feedback, you can launch your Reg A+ offering. And if the response is tepid, you can restructure your plan and recalibrate.

If you are having a hard time selecting the right fundraising methods, consult with an experienced securities and fundraising lawyer. While you may be an expert in your industry, it’s unlikely that you have the background and perspective necessary to build a comprehensive fundraising strategy that fully complies with both state and federal requirements.

Mangum & Associates can guide your venture through these difficult and vital decisions, providing practical advice and sophisticated insight at every step.

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How Do I File Under Reg A+?

To file under Tier 2 of Regulation A+, you must provide the SEC with an array of financial and regulatory information. While the process is easier than a full SEC registration, you will typically need to consult with accountants, auditors, underwriters, and other experts while preparing your mini IPO. At Mangum & Associates, we have strong relationships with financial and accounting professionals, and aim to connect our clients with the right experts.

A Reg A+ filing must include:

  • A registration statement on Form 1-A, containing information about your securities’ material risks, distribution plan, financial health, operations, and other key data
  • Two years of financial information that was audited by a licensed auditor
  • Other supporting evidence and exhibits, such as contracts, agreements, and corporate records
  • Information about how your company will use your fundraising proceeds

Once submitted, the SEC will review your filing and assess your company’s eligibility for Reg A+. You will also go through a traditional review and comment process with the regulatory agency.

Once approved, you can begin to sell your securities. (You may be able to market your securities beforehand, but should never sell or issue securities prior to qualification.) Your organization will also need to file annual and quarterly reports with the SEC after you’ve completed the Regulation A+ process.

What Differentiates a Regulation A+ Offering From One Under Regulation D?

While both Reg A+ and Reg D may let companies quickly raise funds without the intense scrutiny of an IPO, they are different. For example, a Reg D offering can only target accredited investors. A Reg A+ offering can involve both accredited and non-accredited investors. However, Regulation D can allow for higher levels of fundraising than a Regulation A+ offering. A securities lawyer can provide your team with a side-by-side comparison of these options.

Is Reg A+ a Form of Crowdfunding?

While a Reg A+ offering does allow you to sell to both accredited and non-accredited investors, we do not consider it a form of crowdfunding. When you truly crowdfund, your offering falls under Regulation CF, which has lower fundraising limits than Regulation A+, and imposes other strict requirements.

Limitations to the Marketing of a Regulation A+ Offering

Importantly, a Regulation A+ offering is still bound by the SEC’s anti-fraud rules. Everything you publish or produce about your securities should be honest and accurate. However, you can market to your potential investors on many channels, including social media. A securities lawyer can help you in crafting your disclosures and disclaimers.

Discuss Your Fundraising Options and Reg A+ With an Experienced Securities Lawyer

Mangum & Associates guides businesses of all sizes and complexities through securities and fundraising processes, including Reg A+. With offices located throughout the United States, we’ve built a reputation for our practical, forward-looking legal strategies and aim to build strong client relationships. To explore a Regulation A+ offering or mini IPO, request a consultation with a securities lawyer today.