The Securities and Exchange Commission recently approved new rules for mini public stock offerings, a move supporters hope will make it easier for small and mid-sized companies to raise capital by cutting red tape. The rules apply to what are known as Regulation A offerings, creating what a Forbes commentator called “a new kind of ‘IPO lite’ that could be hugely beneficial for companies and investors alike.”
The recently adopted rule by the SEC is nothing short of a game-changer. Regulation A currently limits deals to $5 million and requires issuers to register the offering and pay fees in every state in which they are selling under the so-called blue sky laws. That, critics say, has resulted in very few Reg A deals, with companies deciding it’s not worth going through all the bureaucratic hoops.
The new rules raise the funding cap to $50 million and preempt state oversight of deals between $20 million and $50 million, while subjecting them to stricter federal disclosure requirements. For issuers of deals between $5 million and $20 million, the rules will be the same as under the current Reg A. The final rules, often referred to as Regulation A+, would implement Title IV of the JOBS Act and provide for two tiers of offerings:
- Tier 1, consisting of securities offerings of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer.
- Tier 2, consisting of securities offerings of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.
These new rules provide an effective, workable path to raising capital that also provides strong investor protections. Reg A+ is about creating jobs and new opportunities. And it’s about giving regular folks access to investments that only a handful of VC and private equity bigwig investors have enjoyed up until now.
With the new Regulation A+, the SEC is creating an intermediate capital formation step on the road to going public. It’s a new kind of ‘IPO-Lite’ that could be hugely beneficial for companies and investors alike.
At its core, the mandate of Regulation A+ is to help increase the access of smaller companies to capital. This is obviously a very important objective. The goal is to make Regulation A+ an effective, workable path to raising capital that very importantly also builds in the necessary investor protections.”
With Regulation A+, Congress, by allowing general solicitation and advertising in the capital formation process, opens broad possibilities for entrepreneurs and new and seamless investment opportunities for the public.