Reg A+: The Overlooked Mini-IPO Option

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Written By Chris Graebe

For many private companies looking to raise capital, an initial public offering (IPO) is the ultimate fundraising goal. 

However, the costs associated with an IPO and the regulatory requirements it comes with put it out of reach for many smaller companies. 

This is where Regulation A+ offerings, commonly known as Reg A+, come in. 

In this article, we’ll look into what Reg A+ is, its requirements and benefits, and how it compares to other fundraising methods for private companies looking to go public.

Key Takeaways

  • Regulation A+ allows private companies to raise up to $75M by selling securities to public investors without a full IPO.
  • It provides an exemption from lengthy SEC registration and ongoing reporting requirements of IPOs.
  • Reg A+ provides an appealing middle ground between private placements and IPOs for companies looking to access public capital.

What is Regulation A+?

Regulation A+ refers to a set of rules under the Securities Act of 1933 that exempts full SEC registration requirements for some public securities offerings up to $75 million in any 12-month timeframe. 

The JOBS Act in 2012 initially created Reg A+ offerings to help smaller companies access public capital more cheaply and efficiently than a full initial public offering.

There are two tiers of Reg A+ offerings:

  • Tier 1: Allows securities offerings of up to $20 million within a 12-month period
  • Tier 2: Allows securities offerings of up to $75 million within a 12-month period

Under both tiers, companies conducting a Reg A+ offering must submit an “offering circular” to the SEC for review and qualification before proceeding.

Quick side note:

The SEC never officially “approves” an offering. If something is out of place they will send it back, but if it’s good- they will tell the company there aren’t any revisions needed, but it’s not an “approval”. Maybe it’s their way of protecting themselves?

This is similar to a prospectus in an IPO but with fewer stringent requirements.

Companies conducting a Tier 2 offering also have additional ongoing reporting responsibilities. This includes filing annual, semiannual and current financial reports with the SEC even after the offering is completed.

Tier 2 issuers must also adhere to all SEC requirements for public companies related to auditor independence, governance policies, and the use of registered transfer agents.

Benefits of a Reg A+ Offering for Startups

  • Lower costs and time savings – The SEC registration process for a Reg A+ offering is streamlined compared to a full IPO, significantly reducing legal, accounting, and other fees. Companies can raise necessary capital faster and for less money.
  • Access to public capital markets – Reg A+ allows private companies to openly solicit and sell stock to public retail and institutional investors, helping expand their investor base.
  • Ability to “test the waters” – Companies can use advertising and other methods to gauge preliminary interest from potential investors before committing to the offering. This helps assess viability.
  • No resale restrictions – Unlike privately placed securities, the shares sold in a Reg A+ offering are not considered “restricted securities” and can be resold freely by investors.
  • Ongoing liquidity – For Tier 2 issuers, their shares continue to trade on public markets after the offering, providing ongoing liquidity and valuation.
  • Increased visibility – The public filing process, marketing and offering circular provide visibility and credibility that can help attract investors, partners, customers and talent.

Reg A+ Compared to Other Offering Methods

Regulation A+ offerings have distinct advantages and disadvantages compared to other common methods for private companies to raise capital or go public:

IPOs

  • Reg A+ is less expensive (still can range from $50k-100k), faster and requires less ongoing compliance than a full initial public offering process.
  • IPOs allow companies to raise larger amounts of capital – over $75 million.
  • IPOs undergo scrutiny from underwriters and investors, bringing prestige and higher compliance costs.
  • IPO shares typically get increased liquidity, analyst coverage and market visibility.

Private Placements

  • Reg A+ allows general solicitation of public investors compared to private placements limited to accredited investors only.
  • Securities from private placements have resale restrictions, while Reg A+ securities are freely tradeable.
  • Private placements have minimal compliance requirements compared to the SEC approval and filings required for Reg A+

Other Public Offerings

  • Regulation A+ is one of several SEC exemptions that allow types of small public securities offerings:
    • Regulation D 504 and 506 offerings up to $5 million
    • Regulation Crowdfunding up to $5 million
  • Each SEC exemption has different investor requirements, maximum raise limits and compliance rules.
  • Companies can choose the option that best suits their needs in terms of offer size, investor audience and costs

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