One of the biggest friction points in private equity and early-stage investing has always been liquidity—or rather, the lack of it. Traditionally, when you invest in a private company, your money is locked up for years until a major exit event, like a traditional IPO or an acquisition.
But Regulation A+ (Reg A+) has fundamentally changed that equation.
In my recent webinar, I broke down exactly how Reg A+ provides liquidity not just for new investors, but for founders, insiders, and early backers who have been with the company since the beginning. It is one of the most powerful, yet misunderstood, aspects of this capital-raising vehicle.
Here is a look at how Reg A+ creates liquidity and why it is a game-changer for mature startups and mid-sized companies.
Immediate Liquidity for Investors
There is a common misconception that buying shares in a Reg A+ offering means you are stuck with them indefinitely. That is simply not true.
The SEC allows Reg A+ shares to be liquid immediately upon purchase, unless the issuing company specifically places a restriction on them (which is rare in these offerings).
When an investor—whether they are an accredited investor or a "Main Street" everyday investor—buys stock in your Reg A+ offering, the shares are issued to them, typically via a transfer agent. Legally, those shares are tradeable the moment they land in the investor's account.
Now, this is an important distinction: Liquidity is not the same as being listed. Just because the shares are legally tradeable doesn't mean they are instantly floating on the NASDAQ or NYSE. However, if an investor has a buyer—perhaps a friend or a private party—they can sell those shares immediately. They aren't locked in by the traditional Rule 144 holding periods that restrict private placement investors.
The 30% Rule: A Win for Founders and Insiders
For founders and early investors, Reg A+ offers a unique "sweet spot" that Venture Capital often cannot match.
In a Reg A+ offering, you are allowed to use up to 30% of the capital raised to sell securities from selling insiders. This includes the founders, early angel investors, or long-term employees holding stock.
For example, if you are raising $10 million in a Reg A+ round, $3 million of that can go directly to buying out shares from early stakeholders.
- For Founders: This allows you to take some chips off the table without giving up control or waiting for a distant exit.
- For Early Investors: It rewards the people who backed you first, giving them an exit strategy years earlier than a traditional IPO would allow.
This feature makes Reg A+ an incredibly attractive vehicle for companies with early backers who are looking for liquidity but don't want to force the company into a premature sale.
Listing vs. Trading: You Don't Need the NASDAQ
Many people equate "going public" with ringing the bell on Wall Street. While you can use Reg A+ to IPO to the NASDAQ or NYSE (and we have guided companies through that process), you don't have to list on a major exchange to offer liquidity.
This flexibility allows you to build a secondary market for your stock at a pace that makes sense for your company’s growth stage.
Simplified Reporting Post-Offering
Another liquidity benefit comes in the form of compliance. If you were to conduct a traditional S-1 IPO, the reporting requirements are onerous and expensive.
With a Tier 2 Reg A+ offering, the post-offering reporting obligations are much lighter. You are generally required to file:
- Annual audited financial statements.
- Semi-annual unaudited financial reports.
- Reports on significant company events (similar to an 8-K).
This "light reporting" structure keeps your shares tradeable and your company compliant without the crushing weight of quarterly 10-Qs required of fully reporting public companies.
Takeaways for Founders
If you are the CEO of a growth-stage company, Reg A+ liquidity offers you strategic leverage:
- Attract Investors: You can market your offering with the honest point that shares are not legally locked up for years.
- Reward Loyalty You can use the 30% insider rule to provide an exit for early supporters, cleaning up your cap table and building goodwill.
- Control Your Destiny: You can provide liquidity without being forced into a merger or an IPO before you are ready.
Reg A+ is more than just a fundraising tool; it is a liquidity engine. If you are too mature for traditional VC but too small for a massive private equity buyout, this is your path to growth capital and liquidity combined.
Why Manhattan Street Capital?
For companies interested in pursuing an IPO or Direct Listing on NASDAQ or NYSE, we provide comprehensive support, from initial planning to post-listing compliance. Our goal is to help you achieve a successful public offering while minimizing costs and maximizing investor engagement. Our proprietary payment processing platform is extremely easy for investors to invest with, we provide top notch marketing and CRM integration and the lowest payment processing fees in the business.
To get started or learn more about how we can assist you with your capital raising needs, please email [email protected].
(1).jpg)
Rod Turner
Rod Turner is the founder and CEO of Manhattan Street Capital, the #1 Growth Capital service for mature startups and mid-sized companies to raise capital using Regulation A+. Turner has played a key role in building successful companies including Symantec/Norton (SYMC), Ashton Tate, MicroPort, Knowledge Adventure, and more. He is an experienced investor who has built a Venture Capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris (AMRS), Ask Jeeves, and eASIC.
www.ManhattanStreetCapital.com
Manhattan Street Capital, 5694 Mission Center Rd, Suite 602-468, San Diego, CA 92108.
