For decades, investing in private securities was only open to a small pool of qualified investors – until Regulation A+ changed the rules for good.The Reg A+ exemption was made available in 2015 and allows private companies to raise money from an unlimited number of non-accredited investors for the first time. While opportunities beyond public equities and fixed income once belonged to accredited investors alone, Reg A+ opens up a wider range of investment vehicles to retail investors and gives more companies access to needed capital.
Dubbed a “mini IPO” by some, Reg A+ offers a more streamlined alternative to going public that’s quickly growing in popularity. At the end of 2018, nearly 160 companies had raised $1.5 billion in capital through Reg A+ offerings, a figure that has continued to climb. As more companies consider taking their offerings digital, the democratization of private capital that began with Reg A+ is poised to grow even further.
The Rise of Reg A+
Reg A+ was created as an amendment to the JOBS Act, which was introduced in 2012 to spur small business growth. Companies can raise up to $50 million from the public through Reg A+ securities, with Tier 1 bracketed up to $20 million and Tier 2 up to $50 million.
For companies looking to connect with a broad base of investors, Reg A+ provides companies with a number of advantages over Regulation D and public offerings. By pursuing this type of offering, private companies can:
- Reach both accredited and non-accredited investors. Reg D offerings are only open to a very limited number of non-accredited investors in the U.S., locking out the vast majority of smaller retail investors from these investments. With Reg A+, investors can diversify their portfolio with promising opportunities and issuers can maximize their capital-raising abilities.
- Avoid shareholder limits or resale restrictions, which makes administration easier and less expensive for issuing companies. Eliminating lockup periods also makes transfers easier between investors, which can support overall liquidity and asset values.
- Streamline the application process, which is less expensive and time-consuming than going public. In addition to prohibitive IPO costs for many companies, the cumbersome reporting required for public companies can make Reg A+ a much more efficient route.
- Actively engage with their customers. For many companies, a Reg A+ offering is a new way to connect with the people who matter most to them: their customers. By allowing customers to own a real stake in the company, incentives are aligned and Reg A+ issuers can benefit form a tight feedback loop with respect to offerings and strategy.
For investors, Reg A+ represents a new opportunity to diversify their portfolios and unlock value in the market. With lower offering minimums than other types of securities, these offerings allow investors to spread capital across multiple investments or branch out into new investing areas. The SEC also requires Reg A+ companies to issue quarterly filings on their holdings, providing insight for investors that can help them make smarter buying and selling decisions.
Democratization Through Digitization
While Reg A+ securities opened up the private securities market to a new set of investors, digital securities are bringing a new level of efficiency, opportunity and liquidity to Reg A+ investing. By digitizing their Reg A+ offerings, companies can:
- Expand access to everyone. Platforms like Openfinance offer 24/7/365 trading access to accredited, non-accredited and global investors, making them a smart way for Reg A+ offerings to reach a wide pool of investors.
- Streamline administration further. Technology makes it more efficient for companies to serve larger numbers of investors, maximizing their capital-raising abilities.
- Promote greater market liquidity. By providing digital access to these investments and information through quarterly filings, companies can equip investors with the tools to trade these investments freely, which can help maximize values.
Against this backdrop, a growing number of Reg A+ securities are going digital. Companies exploring Reg A+ offerings include Props Project, which received approval from the Securities and Exchange Commission earlier this year.
Reg A+ is a crucial way for companies to capital-raise from all types of investors, regardless of their accreditation status. Digitization will help ensure these opportunities are accessible, efficient and secure. The combination of this new way to invest and new digital venues to facilitate these investments is democratizing the once-elusive private securities market for all investors.