Tag: Reg A+

Reg A+ is here!!! But is it crowdfunding?

There has been a potentially game-changing development in the world of crowdfunding. The SEC, while unable for a host of reasons to approve rules governing Title III of the JOBS Act (which permits true crowdfunding), did approve the final rules for Title IV. When the SEC trotted out the proposed rules, all the interest groups – including state securities administrators – came out in full force. I am happy to report that the crowdfunding community won the day, in no small part to relentlessly educating the SEC staff that championed this change.

There is a seldom used exemption that allows for sales of securities called “Regulation A”. In recent years, less than 20 offerings a year were being conducted using this Regulation A. To try to jumpstart use of that exemption, Congress wrote legislation to legalize an enhanced Regulation A.

In the new rules, the SEC divides the new Regulation A into two tiers. Tier One is a basic rehash of the old unused exemption, which gives power to each individual state to approve or disapprove of an offering.

Tier Two is colloquially referred to as “Reg A+”. And it really provides a great opportunity for companies to begin raising money online. Reg A+ eliminates the various state securities agencies from reviewing the offering at all.

The highlights:

• A company can raise up to $50 million.
• The SEC has to approve the offering.
• The company, while raising money, has semi-annual reporting requirements.
• The company is required to have audited financial statements.
• Under certain circumstances, the company may exceed the 2,000 shareholder limitation without triggering public company reporting requirements.

• AND MOST IMPORTANTLY: these offerings are NOT limited to only accredited (rich) investors. Any non-accredited investor (basically 93% of the public) can invest, provided that they are not investing in excess of 10% of the greater of their net worth or annual income.

The last part is the game-changer. Already being referred to as the “Mini-IPO”, companies will now be able to connect with all their customers and have those customers become something special – owners.

Of course, the cost of compliance for a Reg A+ offering eliminates little start-ups and mom-and-pops. But for companies that were previously unable to raise money online (because of earlier limitations on general solicitation and the current prohibition on raising money for a private company from non-accredited investors online), this is going to open up major doors. Yes – the audit requirements and the fact that a lawyer will need to be involved makes the transaction cost prohibitive for a restaurant that wants to build a back patio, but for the restaurant that wants to expand by opening up five new locations? Reg A+ is perfect!

The dirty secret is that the SEC was also trying to eliminate the use of reverse-merger transactions to get a company public. In the recent past, the easiest way for a company to become publicly traded was to merge into a defunct public shell, avoiding the usual barriers to going public. The result is that a publicly traded Jiffy Lube chain that went out of business in North Carolina was all of a sudden a mining operation in Southern Arizona without much regulatory oversight. By bringing down compliance costs from a real IPO, the Reg A+ offering will give a company a path to becoming publicly traded without the need to resort to that common shenanigan.

These rules will become effective at the beginning of June. It will be interested to see if the SEC takes its responsibility to efficiently turn around these potential offerings seriously. If so, you can expect that this Fall will be full of excitement in the world of online investing. Smart consumer facing companies will take this opportunity to transform their customers into owners.

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Jonathan Frutkin is CEO of Cricca Funding, LLC. He’s the author of “Equity Crowdfunding: Transforming Customers into Loyal Owners” which is available in paperback, Kindle and audio book formats.

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Regulation A+ passes unanimously

Great news! The SEC commissioners have unanimously passed final rules for Regulation A+.

While we are reading the final rules, below is a great chart from CrowdCheck that explains the differences between Reg D and the new Reg A. In short, this is going to potentially be a game changer in the crowdfunding world. Although this won’t work for small offerings of a few hundred thousand dollars, it will change the face of financing for the companies that are looking to raise a few million.

Click to access Comparison%20of%20506,%20CF,%20Reg%20A.pdf

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Reg A+, The “Real” Crowdfunding?

Raising money is awfully confusing. It seems like there are a never-ending number of legal restrictions from federal and state regulators. The fact is that most companies that raise small amounts of money ignore the law entirely. The remaining private companies that raise money almost always use “Rule 506” – part of Regulation D. That federal exemption permits companies to raise money from individual investors (provided most are wealthy – also known as “accredited) and there is limited interaction with state regulators. All the rest of the rules are basically unused.

One “unused” rule is called Regulation A. As it stands now, there are really very few Reg A offerings. The reason is that each individual state where a Reg A offering is made needs to approve it. You can imagine that is a big ol’ pain in the rear end! However, as part of the JOBS Act, there is something new. It is commonly called “Regulation A+”.

The rules have been proposed by the SEC. And unlike the proposed crowdfunding rules, there has been near unanimous support for those rules.

In short, in a Reg A+ offering, a company can:

1. Advertise that they are raising money.
2. Raise money from anyone (not just accredited investors).
3. Raise up to $50 million.

Attached is a copy of the comment letter that I submitted to the SEC. Of course, the proof will be in the pudding. But there is real reason to be optimistic. Although the letter is in legalese, hopefully the message will get through to the SEC. We want companies to be able to raise money – and we want every investor to have a chance to become involved with their favorite local companies.

sec comments reg a+

 
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Jonathan FrutkinJonathan Frutkin is CEO of Cricca Funding, LLC. He’s the author of “Equity Crowdfunding: Transforming Customers into Loyal Owners” which is available in paperback, Kindle and audio book formats.
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