By Jeremy P. Feakins
Even though Washington seems disorganized and chaotic, the US House of Representatives recently approved the Improving Access to Capital Act (HR 2864), legislation that will expand the usage of Regulation A+, a securities exemption that has gained in popularity for smaller firms. The legislation was sponsored by Representative Kyrsten Sinema.
For decades, startup companies had two choices for finding growth capital: an initial public offering (IPO) or a private placement (PPM) to accredited investors only.
IPO’s are a major and expensive undertaking. Not many investment bank sponsors will support an IPO for an early stage business. Private placements are limited to accredited investors who meet certain income or net worth standards.
Recognizing this, the SEC in 2015 adopted rules to facilitate smaller companies’ access to Capital. Known as Reg A+, it was created by the JOBS Act of 2012.
The new rules allowed private companies to raise up to $50 million under Reg. A+. The ‘Improving Access to Capital’ House bill will allow for the utilization by public companies, thus expanding the number of companies allowed to raise money under the rules.
OTC Markets, a venture stock exchange for early stage companies, has been highly supportive of the legislation. Cromwell Coulson, Chief Executive Officer and President of OTC Markets Group, commented on the vote: “We are excited to see the House of Representatives pass HR 2864, Improving Access to Capital Act. We commend Representatives Sinema and Hollingsworth for sponsoring this bipartisan legislation that will give all SEC reporting companies the ability to raise capital online under Regulation A+. This effort is vital to lowering the cost of capital formation and fostering economic growth for US companies.”
What happens next is that the legislation moves to the US Senate, where it has already been referred to the Senate Banking Committee.
Raising capital is essential for startups. Reg. A+ offers a new option for fundraising from individual investors.
As with all fundraising, you should consult with an experienced Securities Attorney before starting the effort.