Regulation A: Funding Opportunities for Start-Up and Early Stage Companies

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Raising capital is the hardest part of starting a new business. Historically, fundraising from friends and family (known as ‘Angels’) has been the most consistent way new businesses raise start-up capital. The Center for Venture Research estimates that U.S. angel investors invested $22.9 billion in about 67,000 small businesses in 2012. Many of the investments were in start-up or very early-stage companies.trailer film Fifty Shades Darker

sec-logo-securities-and-exchange-commission-300x300But a new way to raise capital is here, thanks to the Securities and Exchange Commission’s (SEC) recently adopted rule amendments to Regulation A. This new fundraising opportunity became effective on June 19, 2015 and is known informally as Regulation A+. It’s a great way for start up, early stage and mature companies to raise money from investors.

On June 23, 2015, the Staff of the Securities and Exchange Commission provided guidance on certain issues arising under the new Regulation A+ rules. In a new section of the SEC’s Compliance and Disclosure and Interpretations, the SEC Staff answered 11 questions relating to Regulation A+

Since there are many rules associated with raising money for a company, if you are considering Regulation A+ or any other method of raising capital, be sure to consult with a competent Securities Attorney.

So how much money can a Company raise with a fundraising offering through Regulation A+? The answer is that the fundraising opportunities are split into two tiers:

  • Tier 1 is available for offerings of up to $20 million in a 12- month period
  • Tier 2 is available for offerings of up to $50 million in a 12- month period

Although there are some restrictions, a very attractive feature of the new rules is that existing shareholders can also sell a limited amount of their own shares in the offering although in a 12- month period these are limited to $6 million for a Tier 1 offering and $15 million for a Tier 2 offering.

If you are thinking of taking your company public, Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings.


Regulation A+ offerings can only be conducted by Companies that have their principal place of business in the United States or Canada and there are rules governing the kind of investors who can participate in the offerings. Again, please consult with a Securities Attorney before embarking on any fundraising efforts because the SEC takes a dim view of companies who break the rules!

The Regulation A+ offering statement has three parts: Part I, which requires basic company information such as the details about the offering, the jurisdictions where the securities will be offered, and any recent sales of unregistered securities. Part II, requires the business, management, financial statement, and other important disclosures. Part III contains all of the exhibits and related documents.

Your Company’s financial statements do not have to be audited for a Tier 1 Regulation A+ offering, but for Tier 2 offerings you will have to provide audited annual financial statements provided by the Company’s independent auditor. The good news is that the auditor does not have to registered with the Public Company Accounting Oversight Board, which is usually required in other offerings that a Company may file with the SEC.

Regulation A+ also provides for the preemption of state securities law registration statement requirements and qualification requirements for securities offered or sold to “qualified purchasers” in Tier 2 offerings.  I always felt this was a problem under the old Regulation A rules. Even though the SEC may approve a Regulation A offering, sometimes the states would take a different view, causing delays and a lot of additional work on the part of the Company. Tier 1 offerings however, will be subject to federal and state registration and qualification requirements, and Company’s may take advantage of the coordinated review program of the North American Securities Administrators Association (NASAA).


Companies should remember that states retain authority to: require the filing of any documents filed with the SEC “for notice purposes and payment of fees”; enforce filing and fee requirements by suspending offerings within a given state; and investigate and bring enforcement actions with respect to fraudulent securities offerings.

In my opinion, there are many advantages of Regulation A+. Because the Regulation A+ offerings provide an opportunity to take your Company public, investors and shareholders have an exit strategy. This is always an attractive ‘selling point’ when pitching your deal to investors. And, when compared to a traditional IPO, becoming a public Company with Regulation A+ is not that difficult and a lot less money.

I expect the new Regulation A+ fundraising opportunity to be taken up by new and mature businesses alike. It’ll be a great opportunity for some of today’s most exciting companies to raise much-needed capital.

Notice: This blog, which I believe may be of interest to my supporters and friends, is for general information only. It is not a full analysis of the subject matter presented and should not be relied upon as legal advice. As always, please consult with a Securities Attorney or Accountant for professional advice.


The post Regulation A: Funding Opportunities for Start-Up and Early Stage Companies appeared first on Startup Business Lifestyle.

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