Regulation A+ is a type of offering that allows companies to raise up to $50 Million per year from the public - both from accredited and non-accredited investors.
Regulation A+ dramatically improves the funding prospects for companies that are too small to make a regular IPO on the NASDAQ, or which do not have access to a Private Placement or to Venture Capital or simply want to retain control of the company. It has completely changed the prospect of raising capital, giving start-up, mid-stage, and late-stage companies the opportunity to raise capital from many smaller, individual investors, who become owners of shares in the company. While of course, Angel investors and professional investors are encouraged to invest too. Regulation A+ is an ideal choice for companies that have strong consumer appeal and a large and happy customer base, these are very indicative of a successful Reg A+ offering.
Reg A+ is also called a Public Offering because, after the offering, the Regulation A+ shares are considered liquid by the SEC, there is no lockup period unless you impose a lockup for your company. It is not a requirement, but Reg A+ can be used to take a company public and list on the NYSE or NASDAQ, a Reg A+ IPO is much more cost-effective than a traditional S-1 IPO.
On March 25, 2015, the Securities and Exchange Commission adopted the final rules and defined Regulation A with two tiers. Tier 1 allows raises up to $20M while Tier 2 allows raises from zero to up to $50M. These are the main characteristics of Tier 1 and Tier 2:
Tier 1 - Raise up to $20M
- Anyone can invest worldwide
- The company can publicly advertise
- Financials required
- Must satisfy Blue Sky laws in each US state that investors live in
- No limit on investment amount by main street investors
Tier 2 - Raise 0 to $50M
- Anyone can invest, worldwide
- The company can publicly advertise
- No state registration required
- Requires Audited Financials
- Non-accredited investors are limited to 10% of income/net worth per year
When conducting a Regulation A+ offering, companies often use the Manhattan Street Capital funding platform to assist their fundraise and help them satisfy the legal requirements. Manhattan Street Capital assists companies through the whole capital raising process to achieve a successful offering. Our website technology integrates the necessary services that are required to conduct a successful Reg A+ offering. The Platform handles the whole online investment process, collects KYC data, runs an AML check on every investor, handles the accreditation verification (when needed), and the company gets access to our investor base.
We work with mid-stage companies and mature startups that we consider a good fit for Reg A+. In our opinion, a company’s consumer appeal is the most important factor (once we have established the strength of the management team, a strong strategy, large and growing market, rapid growth rate and barriers to competition).
Testing-The-Waters(TM) enables companies to test market themselves (before making any filing and before spending any money creating an offering) to see if there is enough investor interest to make a Regulation A+ capital raise successfully.
The SEC created this program so companies can make this test before having to spend the time and money it takes to make an SEC filing and get an audit done. The SEC allows companies to market themselves in TestTheWaters(TM) with few restrictions. So companies can cost-effectively conduct a test using social media, email, online advertising and more. During this process, we provide the ability for potential investors to make non-binding reservations in a company they like.
In December 2018, The Securities and Exchange Commission (SEC) made a significant announcement, opening the path for public companies that are living up to their SEC reporting obligations to make secondary offerings via RegA+. This increased scope for Regulation A+ will lead to more established, already-public companies making secondary offerings via Reg A+, which will help strengthen the ranks of US Small Cap businesses on the NYSE, the NASDAQ and on the OTC Markets. We expect the resulting increased awareness of Reg A+ from this expansion will further accelerate its use and bring new legitimacy to Reg A+ fundraising.
This marks a significant advancement for the Reg A+ funding sector, which many people believe can accelerate the growth of midsize companies better than any other mechanism, given the fact that it allows cost-effective access to capital via online offerings to investors of all wealth levels, and provides a viable route to growth capital for entrepreneurs whose businesses do not fit Venture Capital or Private Equity, and those who want to stay at the helm of their business. SEC Chairman Jay Clayton offered this statement: “Regulation A provides an exemption from registration under the Securities Act for offerings of securities up to $50 million in a 12-month period. The amended rules will provide reporting companies additional flexibility when raising capital.
Timeline for a Regulation A+ offering
Step 1 Manhattan Street Capital (MSC) helps you to decide, which funding method would be the best fit for your company, it depends on several different factors. Get legal advice on the details. We can recommend you to a securities lawyer. Select a marketing agency that will manage your 360° marketing campaign. We will introduce you to experienced marketing agencies. If the company's consumer appeal is not clear, we may recommend doing a RegA+Audition(TM) prior to the offering.
Step 2a The company decides if to use an underwriter/broker-dealer. MSC will make introductions to appropriate broker-dealers and underwriters, and advise the company on viable terms. If yes, contract with them.
Step 2b MSC introduces the company to Auditor with experience in Reg A+. The company selects, contracts, with the auditor and gets the audit underway. This item is critical path because the initial SEC filing cannot be started until the two-year audit is complete. Audit duration will depend on the structure and how new the company is. ~15 to 90 days likely.
Step 2c Audit underway, sign up marketing agency and legal service provider, they start preparation. Legal service gathers documents from you and begins preparing Form 1-A.
Step 3a Form 1-A Filing with SEC, in parallel with the Marketing agency building the offering pitch on Manhattan Street Capital. SEC filing can take 90 days when conducted well with rapid responses to SEC questions. Work starts while the audit is ongoing. (The SEC qualification depends on several factors, it can take longer than the estimated time.)
Step 3b Marketing agency builds offering pitch on Manhattan Street Capital, video, PR, graphics, social media accounts, advertising.
Step 4 SEC Qualify filing and the company go live to investors through underwriter on MSC. Start the acceptance of capital. ~Audit+ 90 days
Step 5 First Closing when $ raise is sufficient, judged by the company if it exceeds SEC Qualified minimum. The initial escrow fund deposits are transferred to the company's accounts. The SEC will Qualify offerings with zero minimum in many cases.
Step 6 Marketing continues till you decide you have raised enough capital, but no more than the maximum $ the SEC qualified. Say a further 3 months to get to maximum allowed. Maximum time allowed under one SEC filing is 12 months. The company may pause their offering and reopen during this time. ~Audit+ 160-180 days
Costs for a Regulation A+ offering
Total cash costs: A good guide is to expect cash costs of approximately 12%* of the capital raised (this only holds true on raises that are above about $8 mill, because fixed costs for things like the securities attorney and audits become a larger factor for smaller raises).
Costs incurred prior to going live to investors: The primary expenses before going live are for Marketing, Form 1-A legal filing, Audit, Broker-Dealer up-front fee (when a broker is involved), plus payments to Manhattan Street Capital. See below for more detail. We generally recommend that you have at least $150k available before you begin your Reg A+ so that you can pay all the costs involved (the largest is the marketing content creation and the advertising media spend) before the capital raising process becomes efficient enough to easily cover the ongoing costs of the capital-raising process.
The SEC permits capital proceeds to be used to pay the expenses of the offering in most well-prepared Reg A+ offerings. It's certainly possible to start your Reg A+ with less money on hand, and this can work. But having extra money available is a smart move to give you extra runway if the early stages of the offering are tougher than expected. Start with enough cash and be very careful how you spend it (we help with this) so you can adjust as needed and succeed.
To see the list of all the costs in detail, visit our FAQ on this topic.
*NOT charged as a percentage - we use % here as a guide only.
I am happy to schedule a call with you or to send you more information - just contact me using the button below and send us some specifics on your company and capital raising plans. And in the meantime, I wish you great success!
CEO Manhattan Street Capital