What is Regulation A+ (Reg A+)?
For over 80 years, private companies could only raise capital (i.e. money) from accredited investors. Accredited investors historically have comprised a small percentage of Americans. This all changed, however, when President Obama signed a piece of legislation called the JOBS Act on April 5th, 2012. The JOBS Act allows entrepreneurs to go to the crowd and publicly solicit or advertise their capital raises. Three years after the JOBS Act was signed, Title IV (aka Regulation A+) of the JOBS Act went into effect, allowing private companies to raise money from all Americans. Startups can now use Regulation A+ (Reg A+ as well call it) to turn their customers into investors.
Reg A+ is an offering type that allows private companies to raise up to $20 million in a Tier 1 offering, or $75 million in a Tier 2 offering, in a 12-month period from non-accredited and accredited investors online. Reg A+ Tier 2 offerings are a bit more stringent, with the SEC requiring Tier 2 offering companies to limit the amount of money non-accredited investors may invest, audited financials, and more. Issuers are also not required to register or qualify their offerings with state securities regulators.
Companies looking to raise capital via a Reg A+ offering will first need to file with the SEC and get qualification before launching their offering. The advantages of a Reg A+ offering is that the costs associated with it are much lower than a traditional IPO and the ongoing disclosure requirements for it are less burdensome. Reg A+ offerings are considered a mini-IPO because it is open for the public to invest in the company allowing the company to gauge public interest without the strenuous fees attached to a standard IPO and the reporting requirements of actually going public before the company is ready. Lastly, Reg A+ offerings can serve as a liquidity event for early investors. 30% of the securities sold during a raise can come from current security holders, effectively making it a secondary sales market.
What are the Investor Limits Under Reg A+?
Similar to Reg CF, the SEC imposed limits on how much non-accredited investors can invest in Reg A deals over any 12 month period.
The SEC limits non-accredited investors to only 10% of their total income or net worth, whichever is higher, per Reg A investment.
This is a more generous limit than Reg CF, which limits the total amount of annual Reg CF investments to a similar level. Instead, investors can invest up to 10% per deal under Reg A.
This is to limit the amount of risk that these investors are able to take on any one deal, so that they don’t end up investing a significant portion of their worth into a single deal and then realizing that it’s illiquid, or even worse, goes to zero (as many early-stage businesses do).
What is the difference between “Reg A” and “Reg A+”?
While Reg CF was brand new in 2016, Regulation A (Reg A) actually existed prior to the JOBS Act of 2012. Regulation A was first adopted by the Commission under Section 3(b) of the Securities Act of 1936.
Title IV of the JOBS Act of 2012, pertaining to improvements in Reg A, then effectively became known as “Reg A+” by industry insiders. You may see these two terms used interchangeably, but they effectively refer to the same exemption today, which is Regulation A. Technically, there is no mention of “Reg A+” in the regulations themselves, so that is colloquially used by the industry to refer to the “updated Reg A” provisions since the JOBS Act went into effect.
