For many small business owners and startup founders, Regulation A+ crowdfunding has tremendous appeal. It can be a chance to raise the money needed to expand, while simultaneously providing opportunities for greater exposure. What isn’t always known is how Regulation A+ funding works, how it differs from a traditional IPO, and what its pros and cons are.
If these are the questions you’ve been thinking through, the next few sections will help. Together, we’re going to walk through everything you need to know about Regulation A+. By the time we’re done, you’ll be better prepared to grow your business in a way that makes the most sense to you. Let’s dive in!
What is Regulation A+?
Regulation A+ is a funding offer that allows private companies to raise up to $75 million. It was signed into law on April 5, 2012. While a variety of other investment opportunities are only available to accredited investors, Regulation A+ is open to the general public as well.
Regulation A+ shares some similarities with IPOs (i.e. a business’s initial public offering), but includes a few helpful distinctions. For example, the fees inherent to Regulation A+ are significantly lower than a traditional IPO. Additionally, Reg A+ has ongoing disclosure requirements that are less burdensome than an IPO. For these two reasons, Regulation A+ is often referred to as a mini-IPO.
Regulation A+: A Two-Tiered System
As with all things related to investments, Regulation A + is governed by the Securities and Exchange Commission (SEC). Per SEC rules, Regulation A+ is divided into two tiers of offerings.
Under Tier 1, a company may raise up to $20 million in a 12-month period. The offering must be filed with the SEC (where it will be subject to review and qualification by both general staff and regulators overseeing states where the offer is being conducted). Financial statements must be disclosed in a Tier 1 offering, however, they are not required to be audited.
Under Tier 2, a company may raise up to $75 million in a 12-month period. Again, filing is required, and that filing is subject to review and qualification by SEC staff — but not the state-specific regulators who oversee Tier 1 offerings. Financial statements disclosed in a Tier 2 audit will require an audit by an independent accounting firm
Who Can Use Regulation A+?
Regulation A+ may not be right for every founder or business owner, but certain companies will certainly benefit from it. If your business falls into any of the following categories, Reg A+ may be worth pursuing.
Businesses That Would Like to Raise Between $3 – $75 Million
Like all fundraises, there are costs associated with Regulation A+. For companies looking to raise less than $3 million, those costs will most likely be prohibitive. If you’re a smaller business owner who needs fresh ideas for connecting with investors, this how-to guide will help.
Companies That Are Customer-Facing and Value-Driven
Reg A+ investors frequently look for businesses that offer products or services they already buy or believe in. Because of that, consumer-facing companies with clear value propositions are excellent candidates for Regulation A+.
Businesses With Large, Highly Engaged, Audiences
The success of your Regulation A+ fundraise depends, at least in part, on the size and enthusiasm of your audience. Customers who are engaged and excited about your company are natural investors who can drive the momentum you want.
Companies That Want to Grab Attention
Regulation A+ is fundamentally about raising capital, but the process has fringe benefits as well — including building brand awareness, customer engagement, and large-scale publicity. As you begin to structure your Reg A+ offering, think about it like a product launch. This is your chance to make a big splash!
Why Would I Do a Regulation A+ Offering?
If your company meets the criteria above, there are several reasons why you should consider doing a Reg A+ offering. Here are the top four:
To Incentivize Early Adopters
If your company is entering a growth phase, you didn’t get there alone. Some of that success is due to your early adopters — the people who believed in your business before anyone else. Regulation A+ fundraising is a way to offer a financial stake in your business and a chance to share in your continued success.
1. To Galvanize Your User Base
The only thing better than a customer or client is a brand evangelist. These are the people who love your business enough to tell their friends and family about it, or post about your company on social media. A Reg A+ round of funding is an opportunity to strengthen that relationship even more.
2. To Keep Control of Your Company
One distinct advantage of Regulation A+ is that it allows your company to raise large amounts of money from a large number of investors. On average, most people will have only invested a small amount of money, but that allows ownership to be spread broadly. In most Reg A+ offerings, companies will not give up board seats or other incentives that result in the loss of control.
3. To Process Capital Efficiently
A Regulation A+ offering empowers businesses to connect with engaged investors and compel them to act. By making the offer available and telling the right story to the right audience, companies like yours have the potential to raise a significant amount of money quickly and efficiently.
Concerns to Consider: What Are the Downsides of Reg A+?
Like any investment offering, Regulation A+ has drawbacks that have to be acknowledged and prepared for.
If you decide to go the Reg A+ funding route, have a plan in place to deal with the following:
— Regulatory approval may take as long as 90 days prior to closing investments
— A larger investor pool, will advantageous in many ways, can be difficult to manage
— The Tier 2 requirements for ongoing public disclosures may be cumbersome over time
Frequently Ask Questions:
When do I have to commit to holding a Reg A+ offering?
Not until you’ve done your homework. Make sure you meet the criteria, take time to hone your company story and vision, and nail down the ways in which your offer can operate as a buzzworthy launch as well.
How is Regulation A+ funding similar to going public?
Reg A+ actually has more in common with traditional fundraising (e.g. Regulation D) than an IPO. The most obvious similarities are the ability of the company to raise capital from all types of investors and the inherent regulatory overview.
My startup isn’t quite at this level yet. How can we craft a more compelling story that reaches a wider audience?
If you’re not at the point where raising at least $3 million seems feasible, don’t worry. That day may very well be around the corner. Until then, we can help.
At The Main Stage, we work with startup founders just like you to build highly engaging, multimedia pitch presentations — the kind that get investors’ attention and compel them to act.
After that, you’ll be able to share this highly-polished pitch with your connections safely and easily. You’ll even be able to see who’s viewed your offer, follow-up, and cultivate these growing relationships all within our CRM system.
Finally, our Data Vault is your secure document storage portal — keeping your correspondence compliant, safe, and worry-free.
We call this “the future of fundraising,” and we think you will too. Click here for a free 14-day trial. It’s the all-in-one platform your startup needs to succeed, and it’s only at The Main Stage.
Jessica Smith is Principal Partner of The Main Stage where she oversees business development and operations for their digital StoryVault™ investor platform. Prior to joining The Main Stage, Jessica served as COO for Westlake Realty Group and its affiliate companies. She also held various leadership positions in Boston, Seattle and the Bay Area with the RMR Group, (Nasdaq: RMR), an alternative asset management company, and Westcore Properties based out of San Diego. She is also an advisor to Music and Medicine, an initiative that connects innovative healthcare startups to musicians to help tell their story and facilitate impact. You can connect with Jessica on LinkedIn.