Question
What is Regulation A?
Answer
Regulation A is a federal securities exemption that allows private companies to raise capital from both accredited and non-accredited investors through a public offering process that is simpler and less expensive than a traditional IPO.
Executive Summary
Regulation A, often called “Reg A” or a “mini-IPO,” is one of the most powerful capital raising tools available to private companies in the United States.
Unlike Regulation D offerings, which are generally limited to accredited investors, Regulation A allows companies to raise money from the general public. Investors do not have to be accredited, making Reg A an attractive option for companies with customers, fans, supporters, or a broad investor audience.
Regulation A offerings are divided into two categories: Tier 1 and Tier 2.
Tier 1 offerings allow companies to raise up to a smaller amount and generally require state securities law compliance in each state where securities are sold.
Tier 2 offerings permit significantly larger raises and preempt most state securities registration requirements. Tier 2 issuers also have ongoing reporting obligations with the Securities and Exchange Commission.
To conduct a Regulation A offering, a company files Form 1-A with the SEC. The filing includes information regarding the company’s business, management team, financial condition, offering terms, use of proceeds, and risk factors.
One of Regulation A’s most important features is the ability to “test the waters” before the offering is qualified. Companies may publicly discuss the offering and gauge investor interest before investing significant resources in the raise.
Because Regulation A offerings are publicly marketed, successful issuers generally combine securities compliance with sophisticated marketing, investor relations, and communications strategies.
For many companies, Regulation A occupies the middle ground between Regulation Crowdfunding and a traditional IPO.
Key Takeaways
Regulation A:
• Allows companies to raise capital from accredited and non-accredited investors.
• Is often called a mini-IPO.
• Uses Form 1-A as the primary SEC filing.
• Includes both Tier 1 and Tier 2 offerings.
• Permits issuers to test the waters before qualification.
• Combines securities law, marketing, investor relations, and public communications.
• Can provide access to millions of potential investors.
Embedded YouTube Video
[Insert YouTube video here]
Transcript
Regulation A is a federal securities exemption that allows private companies to raise capital from both accredited and non-accredited investors through a public offering process.
You may hear Regulation A referred to as Reg A or as a mini-IPO. That’s because Regulation A offerings share some similarities with public offerings while remaining substantially less expensive and less burdensome than a traditional initial public offering.
One of the biggest differences between Regulation A and Regulation D is who can invest.
Under Regulation D, offerings are often limited to accredited investors.
Under Regulation A, the general public may invest, subject to certain limitations.
That means companies can raise capital not only from institutional investors and wealthy individuals, but also from customers, followers, and supporters.
Regulation A has two different tiers.
Tier 1 offerings generally require compliance with state securities laws and permit smaller raises.
Tier 2 offerings permit significantly larger raises and preempt most state securities registration requirements, although ongoing SEC reporting requirements apply.
The primary SEC filing in a Regulation A offering is Form 1-A.
Form 1-A contains detailed information about the company, management team, business operations, financial statements, risk factors, offering terms, and intended use of proceeds.
Another important feature of Regulation A is the ability to test the waters.
Companies can publicly discuss the offering and gauge investor interest before the SEC qualifies the offering statement.
This ability to market before qualification makes Regulation A particularly attractive for consumer brands, technology companies, breweries, restaurants, and companies with a strong public following.
Regulation A is not simply a legal exemption.
Successful offerings combine legal compliance, marketing, investor relations, communications, and execution.
The key takeaway is simple:
Regulation A allows private companies to raise capital publicly from the general public through a process that is more flexible and less expensive than a traditional IPO.
Frequently Asked Questions
What is Form 1-A?
Form 1-A is the offering statement filed with the SEC for Regulation A offerings. It contains disclosures about the company, management, financial condition, offering terms, risk factors, and use of proceeds.
What is the difference between Tier 1 and Tier 2?
Tier 1 offerings generally require state securities law compliance.
Tier 2 offerings preempt most state securities registration requirements but require ongoing SEC reporting.
Can non-accredited investors invest?
Yes.
One of Regulation A’s primary advantages is that it allows both accredited and non-accredited investors to participate.
Can I advertise a Regulation A offering?
Yes.
Regulation A allows issuers to test the waters and publicly discuss the offering before SEC qualification, subject to applicable rules.
Is Regulation A better than Regulation Crowdfunding?
It depends.
Regulation A generally permits larger raises and broader marketing opportunities, while Regulation Crowdfunding is often less expensive and may be more appropriate for earlier stage companies.
Related Articles
• What Is Regulation Crowdfunding?
• What Is Regulation D?
• What Is Form 1-A?
• Tier 1 vs Tier 2
• Testing The Waters
• Accredited Investors
• Reg A vs Reg CF
• Reg A vs Reg D
• Investor Relations After Regulation A
Contact Kendall
Have questions about Regulation Crowdfunding, Regulation A, Regulation D, startup fundraising, private funds, SPVs, investor relations, or securities law?
Contact Kendall Almerico at almericolaw@gmail.com.
Kendall is a securities attorney who has represented startups, private funds, funding portals, broker-dealers, corporations, LLCs, and issuers in Regulation Crowdfunding, Regulation A, and Regulation D offerings for more than three decades.