The landscape of capital raising has experienced a significant shift, with the annual limit for Regulation A+ (Reg A+) offerings increased to $75 million as of March 15, 2021. This change brings new opportunities for companies looking to raise capital through Tier 2 Reg A+ offerings, commonly referred to as mini-IPOs. By boosting the capital limit, issuers can not only enhance their financial resources but also increase brand and product visibility in the market.

The Benefits of Higher Offering Limits

With the new $75 million cap, issuers can better manage fixed offering costs, as these expenses will constitute a smaller percentage of the total capital raised. This adjustment makes Reg A+ offerings more attractive to larger players, adding credibility and institutional support to the market. A successful Reg A+ offering hinges on a solid business plan, a dedicated management team, and an effective marketing strategy that appeals to both institutional and retail investors.

Why Now is the Perfect Time for Mid-Market and Smaller Issuers

Before the Jumpstart Our Business Startups Act of 2012 (JOBS Act), Regulation A had limited appeal due to low offering limits and the cumbersome process of complying with blue sky laws in all 50 states. The JOBS Act introduced reforms that increased offering limits and removed the need for state-by-state compliance, provided the SEC approves the offering materials. The recent amendments, effective March 2021, further increased the annual cap to $75 million and allowed for continuous offerings.

These changes come at a time when the COVID-19 pandemic and the surge in SPAC offerings and direct listings by tech companies have heightened interest in public markets. This situation has created a pool of ready capital looking for innovative companies to invest in, particularly as many investors have been excluded from new SPAC offerings.

Key Advantages of Reg A+ Offerings

A Reg A+ offering can be a cost-effective and efficient method for companies to raise capital. Key benefits include:

• Lower costs and reduced management attention compared to traditional IPOs.
• The ability to list shares on a national securities exchange.
• Accessibility for non-accredited retail investors.
• Enhanced media and marketing exposure.
• Long-term access to capital for growing companies.

Preparing for a Reg A+ Offering

Issuers should be prepared with sufficient capital and management resources to invest in the offering. While proceeds from the capital raise can cover offering costs, having a robust initial budget is crucial to kick-start marketing and professional services. Typically, issuers should have several hundred thousand dollars available to get the process underway.

Factors to Consider for a Tier 2 Offering

1. Timeline: The entire process from start to finish typically takes 4-6 months. Key stages include material preparation, road shows, filing the offering statement, SEC coordination, and listing on exchanges.
2. Marketing: There is no “quiet period” for Reg A+ offerings, allowing issuers to market aggressively from the outset. A well-executed marketing plan is essential to attract and retain investor interest.
3. Testing the Waters: Reg A+ permits issuers to gauge investor interest before making significant investments, providing a clear indication of potential success.
4. Exchange or Platform Trading: Successful Tier 2 offerings can lead to listing on major exchanges, though this comes with additional costs and disclosure requirements.
5. Offering Circular: Issuers must file Form 1-A with the SEC, containing detailed financial and business information. This can be done confidentially before public release.
6. Continuous Offerings: Reg A+ allows for ongoing offerings, provided annual and semiannual reporting is maintained.
7. Zero Dollar Minimums: Issuers can set a zero capital raise minimum, allowing them to close on subscriptions even if they don’t meet exchange listing requirements.

Cost Considerations

Issuers should budget between $275,000 to $450,000 for professional fees, excluding sales commissions. Costs include investment banker fees, legal fees, securities compliance, audit fees, printer costs, and exchange listing fees.

Conclusion

The increased offering limit for Reg A+ provides an excellent opportunity for mid-market and smaller issuers to raise capital efficiently while gaining significant market exposure. With the right preparation and a strong marketing plan, companies can leverage Reg A+ to fuel growth and innovation. For more information or assistance with Reg A+ offerings, feel free to reach out to our team at CrowdEngine.

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For any questions or further details, please contact our experts. We continuously monitor these developments and will provide updates as they arise.