latest news from
Regulation D Resources

On March 26th the Securities and Exchange Commission (“SEC”) released updated rules for Regulation A offerings and, through lack of action, signaled that Title III crowd funding is probably dead in the water regarding implementation. Our thoughts on Regulation A+ follow our historical perspective on the program: it is a solid option for companies that have the time and working capital to execute the complexities of preparation but is probably not the premier choice for most small to medium size companies that are seeking to access the capital markets quickly, efficiently, and with minimal cost.

Tier 2 Reg A+ requires audits, reporting, and approval of the offering and prospectus through the SEC.  This is a costly and time consuming process with the audits easily costing $15,000 to $25,000 and engaging the services of a preparatory specialist to get the prospectus and offering through SEC approval quite possibly another $30,000 to $50,000 in fees.  Timeframes for dealing with the SEC comments and approvals are usually 6-7 months from start of offering preparation to approval and an executable offering.  The Tier 1 program eliminates the audit need and requires only “reviewed” financials (still not an insignificant accounting expense) but still requires approval for the offering and State registration.

For the vast majority of our clients – they are seeking to access the capital markets in a much shorter timeframe than 6-7 months and are seeking to keep costs for the preparation and execution contained. This is where Regulation D 506(c) is such an effective tool for clients seeking to capitalize efficiently and with minimal cost – but still preserve the capability to engage in a “public offering”.  Most of our clients have historically desired only “accredited investor only” offerings and most individual investors that are willing and able to invest into a private company with illiquid securities are typically accredited level investors.

In conclusion – we view Reg A+ as a step forward and a viable option for certain companies that have 6-7 months to prepare and are willing to spend $50,000+ for the offering preparation.  It is, however, a steep price to pay, and a long time to wait – for the sole advantage of being able to capitalize from small non-accredited investors who historically are not active investors in private companies and also tend to invest very small amounts compared to accredited investors.

In our opinion – 506(c) is still the best option for companies seeking to access the capital markets quickly, efficiently, with a minimal amount of SEC interaction and with the added benefit of “notification only” at the State level for sales.

Interested in a 506(c) offering?  Call us today to discuss your capitalization needs: (303) 984-4883.

The JOBS Act, passed in April 2012, made significant mandated changes to the Regulation D Program. One key change that our firm lobbied for was the Rule 506 solicitation change. The JOBS Act has mandated that the general solicitation and advertising restriction on the 506 program be abolished. The offering must be an accredited only 506 offering to qualify for the new 506-C “general advertising” exemption. This rule change, when finalized, will allow issuers to engage in general solicitation and advertising to investors using a number of anticipated tactics and mediums; advertising, direct mail, website promotion, etc. We have developed a number of specific tactics that our clients may employ to take advantage of the new rule change and promote to investors with maximum effectiveness.