By Howard B. Landers, CrowdFundBeat guest contributor, Director of Regulatory Affairs, National Crowdfunding Association and Managing Partner, eBarnRaiser, LLC
What a great milestone! Regulation A+ is now effective and makes raising capital (supposedly) simpler by removing certain filing burdens that have been in place at the SEC for decades. I have read many blogs and articles heralding the coming of the new and improved Reg A+ as the magic bullet that we have all been waiting for. My response is,
DON’T HOLD YOUR BREATH.
First, let me say that Reg A+ is not crowdfunding. Reg A+ is a type of capital raise that allows issuers to have a public solicitation, have a scaled down filing requirements with the SEC, solicit unaccredited investors and have no holding period on the securities issued. This is a modified public offering. There are many rules to follow and tiers of capital that you must adhere to in order to qualify for a Reg A+ exemption. A Reg A+ offering makes sense for firms that need to raise tens of millions of dollars and are in a more mature phase of business. The original Reg A has been around for decades but has never been very popular to use. From 2009 to 2013 the number of Reg A transactions closed in the US was 16. During the same time frame the number of Reg D, Rule 506 transactions that closed was 89,003. In 2013 the dollars raised using some form of Reg D exemption was over $1 trillion. While Reg A+ has yet to be tested in the real world, it is clear to see that the market prefers the use of Reg D 506. My suggestion to those that are raising early stage capital for their companies, stick with what works and make use of Rule 506 (c). While there is nothing wrong with the new Reg A+, it really is not for everyone.
2. David Collado, Investment Banker, 1st BridgeHouse Securties, LLC
3. Lauren Leibowitz Director, eBarnRaiser, LLC
The modifications made to Reg A are steps in the right direction for revitalizing old capital raising techniques. There are still hurdles, costs and disclosures associated with raising capital using Reg A. Issuers need to understand each capital raising technique available in order to choose which one fits their cost/time vs. benefit profile just as a prospect Investors will need to evaluate the risk vs. reward profile when reviewing investment opportunities.