As the first legitimate nationally available crowdfunding program for non-accredited investors, many have called Regulation A+ a “game changer” when it comes to raising money for businesses of all sizes. Also known as the JOBS Act which President Obama signed into law, “Reg. A+” basically allows companies to raise capital from the general public, a la crowdfunding.
However, creating Reg. A paper is not cheap. It is still governed by securities laws and businesses still need to take into account attorney’s fees, accountant’s fees, compliance costs, and other ancillary expenses. In other words, if you’re looking to raise millions of dollars (as per Tier 1 or Tier 2), your company needs to invest some substantial money to move the process along.
Tier 1 allows companies to raise between one million and twenty million dollars, with no limits to the amounts individual investors can invest. Tier 2 allows companies to raise between one million and fifty million, but with limits to non-accredited investors depending on their income or net worth. While there’s a different set of rule for each, both tiers will have significant costs, such as Tier 1 compliance costs regarding “blue sky laws” and accounting, audited financial statements, and SEC reporting costs for Tier 2.
Some of the bigger law firms will quote you about $100,000 to get this all done. That’s ridiculously expensive, so if you know a competent Regulation A+ Funding group specializing in this kind of work, you’re really looking at more like approximately $50,000 or even less for your Regulation A+ paperwork.
Tier 1 is good for companies raising money in a specific geographic area (because of “blue sky law” compliance). Other than that, most companies are opting for Tier 2. The biggest expense is for the 2 years of audited financials. The good thing is if your company is a startup without any significant financial history, the audit isn’t that expensive and the process will move forward more quickly and for a far less amount of money as well.
But initial costs aside, when you look at the potential of raising $50 million dollars from the general public, going Reg. A+ seems like a great opportunity, at least to look into. In addition, “Regulation A+” allows companies to “test the waters” before spending significant amounts of SEC filing fees as you gauge investor interest. And you get to keep control of your company at all times. That’s why we call the entire Reg. A+ process an “IPOtogo™”. Contact us and we’ll get you moving in the right direction!