What Is Regulation A?

What Is Regulation A

This is is part of my live-learning series! I will be updating this post as I continue through my journey. I apologize for any grammatical errors or incoherent thoughts. This is a practice to help me share things that are valuable without falling apart from the pressure of perfection. 

This is a research article. 

Regulation A Definition
SEC.gov | Regulation A
Regulation A – Wikipedia
Regulation A | Investor.gov
Regulation A | Practical Law
Raising Capital using a Regulation A+ Mini-IPO | SeedInvest
FAQs ABOUT REGULATION A+ SECURITIES OFFERINGS
What is Regulation A+? | Manhattan Street Capital
What the Heck is a Reg A+? — Knightscope
The Expansion of Regulation A

Notes

Definition

Regulation A is an exemption from registration for public offerings. Regulation A has two offering tiers: Tier 1, for offerings of up to $20 million in a 12-month period; and Tier 2, for offerings of up to $50 million in a 12-month period.

More-streamlined financial statements without audit obligations.

Regulation A allows the general public to invest in private companies.

Companies that have been successful with Regulation A

These 32 Companies Raised $396 Mill Using Regulation A+, Entrepreneurs: You Have A New Option

Tier 2 successes through February 2017: Twenty Tier 2 offerings have completed for a total of $316 mill raised, averaging $16 mill each with a success rate of 26% in raising all or nearly all the capital intended. This rate is actually higher than I expected, as I have seen many planned offerings that did not have a chance of engaging consumer investors (a necessity at this stage) in sufficient scale to succeed.

Overall, Tier 2 dominates at 80% of the capital raised to date. This is no surprise, because Tier 2 frees companies from the burden of filing for Blue Sky exemptions on a state-by-state basis, saving time and expense, and is suited to more mature companies with its $50 mill maximum.

These 107 Companies Raised $1.5 B via Regulation A+; New Metrics | by rod turner | Medium

Rate of SEC Qualification

70% of companies that file their Reg A+ with the SEC become Qualified.

Growth in use of Reg A+ for Larger deals

We are seeing an increasing tendency to utilize Reg A+ to raise larger amounts of capital on an ongoing basis. In some cases, the cost of capital can be significantly lower via ongoing continuous Reg A+ offerings year-on-year versus VC, Private Equity or IPO.

https://www.manhattanstreetcapital.com/faq/for-fundraisers/what-types-start-ups-suit-regulation-a

“We work with mid-stage companies and mature startups that we consider a good fit for Reg A+. In our opinion, a company’s consumer appeal is the most important factor (once we have established the strength of the management team, a strong strategy, large and growing market, rapid growth rate and barriers to competition). A large and happy customer base and tremendous consumer appeal are very indicative of success.

We especially like Real Estate, Food & Beverage, IoT Internet of Things, Cancer, Alzheimers, Autoimmune treatments and other Biotechs, Personal Security, Pain Treatment, Tech Gadgets, VR&AR (Virtual Reality, and Augmented Reality), 3D Printing, Drones, Alternative Energy, Electric Vehicles, SmartPhone gadgets, and Apps. In the blockchain, we like companies that can build large and dynamic token ecosystems and that enhance the blockchain. These businesses are more likely to appeal to consumers/investors and the likelihood of a successful offering is significantly higher.”

https://www.manhattanstreetcapital.com/blog/rodturner/raising-capital-or-ipo-regulation-a-works-best-for-these-14-company-types

https://www.forbes.com/sites/rodnturner/2017/01/24/use-these-12-steps-for-success-with-your-regulation-a-capital-raise/#74d6e01e4317

Only do a Reg A+ offering if consumers love your product:

Seasoned investors and angel investors are skeptical about new developments in the financing business and generally hyper-cautious about jumping into anything new until it is proven. So at this stage Reg A+ companies must appeal deeply to consumers to be viable because consumers are early adopters and will invest if they love what your company does.

If you can, make your investment terms appeal to main street investors

If you can pay a dividend to your investors you will significantly broaden the appeal of your offering

Set a low minimum capital goal

For offerings raising capital to grow your company “no-minimum” offerings are allowed by the SEC – this is one of the advantages of Reg A+. Some offerings have been launched with very high minimum funding goals, causing failed offerings because time ran out with the minimum not reached – leading to cancellation and refunds to investors.

Only move forward when you have sufficient cash on hand to do the offering right:

Seventy-five percent of Reg A+ companies need to raise Capital to fund their offering before they can get started. In some cases, companies move forward optimistically with their marketing process anyway with a low budget marketing approach – which is a recipe for disaster. Early slow traction causes the rest of the offering to become extremely difficult, or impossible. So start early in the process by estimating what you think you’ll need for all the necessary budget items—the biggest is marketing—and raise that capital ahead of time so you can execute the offering with maximum success. You have to spend money to raise money in Regulation A+.

Set a Low Minimum Amount Per Investor:

Part of what makes Reg A+ great is that people of any wealth level anywhere on the globe can invest. To engage with the broadest audience of investors, set a low minimum, of perhaps $200 to $300 or less. Remember, we need great consumer investor traction to get the Broker-Dealer to see the success that they need before they will put their client relationships on the line. Setting a low minimum requires some careful negotiation with service providers to keep costs in line. The payoff is much greater consumer investor participation, which is so key at this stage. And of course, the average investment amount will end up being far more than the minimum anyway – typically 4 to 8 times higher to date for successful deals.

Regulation A+: What Entrepreneurs Need to Know | StartEngine

Most Mini-IPOs Fail the Market Test – Barron’s

“For years economists and others have complained that the U.S. suffers from a lack of dynamic young businesses. In 2012, a solution called The JOBS Act promised to cure this malaise by easing the rules for small stock offerings. We were supposed to get new jobs and new industries. Instead, we’ve gotten GoFundMe-style websites hawking penny stocks and professional wrestlers shilling shares on TV.

“Many of us were concerned as RegA+ was being developed that it would be a disaster for investors,” says Tyler Gellasch, a former SEC staffer who now runs the Healthy Markets Association. “A few years into this experiment, and these results are about as bad for investors as anyone could have predicted.”

“A market—an entire market—losing half its value when the rest of the stock market was going through the roof is a massive problem,” Gellasch says.

To date, the only investment success among Reg A+ stocks is the international fintech company, Longfin. Since its December 2017 offering at $5, the stock (LFIN) is up 640% to $38, after initially soaring as high as $142 when investors thought it had something to do with Bitcoin.”

Why Equity Crowdfunding Is Not Living Up to the Hype | Inc.com

https://www.manhattanstreetcapital.com/faq/for-fundraisers/what-types-start-ups-suit-regulation-a

https://www.forbes.com/sites/rodnturner/2017/01/24/use-these-12-steps-for-success-with-your-regulation-a-capital-raise/#7f9e0c8b4317

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This is is part of my live-learning series! I will be updating this post as I continue through my journey. I apologize for any grammatical

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