For established enterprises, similar finance-centric headaches can come into play quite quickly. Many may hit the proverbial glass ceiling within a couple of years, and without further funds to easily expand their enterprises overall potential is drastically limited.
Under such circumstances, investment can be the holy grail. Indeed, for those small- and medium-sized enterprises (SMEs) looking to take the next vital step, Regulation A+ (Reg A+) stands as an extremely attractive option.
The “Mini IPO”
In simple terms, Reg A+ is a type of offering that enables a company to raise capital from both accredited and non-accredited investors.
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Dubbed the “Mini IPO,” it is a set of rules designed to ease the regulatory burden associated with funding on SMEs by allowing them to conduct an offering in which they may offer up and sell securities to the public without having to follow a time consuming and costly SEC registration process.
In this sense, Reg A+ has transformed the funding prospects of countless companies that don’t have access to venture capital funding and wouldn’t have otherwise considered pursuing a traditional IPO in their current state. Through Reg A+, such companies have gained the opportunity to raise capital from smaller investors.
While the maximum amount a company may raise through Reg A+ per year is $75 million, it comes in two tiers. In tier one you can raise up to $20 million. This tier allows for public advertisement, the ability to secure investments globally, it’s subject to financials and Blue Sky Laws and there’s no limit on individual investments. In tier two you can raise up to $75 million. This tier allows for public advertisement, the ability to secure investments globally, audited financials, no state registration is necessary, and non-accredited investors are limited to 10 percent of annual income.
Why should a company do a Reg A+?
Indeed, the most obvious reason why an organization might pursue Reg A+ is that it can provide much-needed capital. Yet, beyond the financing side of things, such an offering can provide a plethora of other benefits.
For many companies, Reg A+ can be a sound marketing technique, attracting customers, fans, clients and followers as well as traditional investors in supporting a company on its mission for growth.
With Reg A+ open to non-accredited investors, it is a way in which a company can compound loyalty in these relationships and heightened support from an army of company ambassadors, who are more likely to become astute company advocates upon investing.
Equally, investment rounds are a sound means of attracting media and press coverage, creating something of a snowball effect while heightening a brand’s reputation.
Efficiency should also be noted. Other means of raising up to $75 million can be tedious and hard to come by, often entailing pitches to individual venture capitalists and other prospective investors. In Reg A+, however, the company in question can more easily invite prospective investors of all kinds, all while maintaining greater control over the number of shares they’re willing to part ways with.
Testing the waters
Indeed, for any company, a Reg A+ is a monumental landmark in its progress. Getting it right, therefore, is of paramount importance. Thankfully, the Securities and Exchange Commission (SEC) that dictates Reg A-centric rules has ensured this can be achieved with proper planning and preparation.
Any issuer considering a Reg A+ is invited to “test the waters” by soliciting potential investors and the public through advertisement.
In essence, testing the water allows an enterprise to get a feeling for the level of interest that investors might have in a business prior to committing any significant funds and resources to the process. The SEC explains, “All issuers will be allowed to gauge market interest in a possible initial public offering or other registered securities offering through discussions with certain institutional investors prior to, or following, the filing of a registration statement.”
Gauging sentiment in this way drastically reduces the risk involved in any offering. It is a way in which a firm may gain key insights and make informed conclusions about potential outcomes before proceeding.aside">