Historically, investing in startups and real estate has only been available to accredited investors. Accredited investors are those that, due to income, net worth, assets, or professional experience, have special privileges when it comes to financial regulations. Recent legislation, however, has aimed to make investing more accessible to all potential investors.
The 2012 Jumpstart Our Business Startups Act, the JOBS Act, aimed to make it easier for startups and small businesses to raise capital while also providing opportunities for both investors and entrepreneurs. Included in this legislation were Regulation Crowdfunding (Reg CF) and Regulation A (Reg A+), both of which finally made it possible for non-accredited investors to participate in investment activity. While only $1.07 million can be raised by entrepreneurs under Reg CF, Reg A permits these entrepreneurs to raise up to $50 million in a year from accredited and non-accredited investors alike. Obviously, this changes the landscape for both investors and entrepreneurs.
What is Reg A+?
Signed into life on May of 2015, Reg A+ allows both accredited and non-accredited investors to invest in businesses or real estate. Under this legislation, up to $50 million dollars of equity can be raised per year. Each Reg A+ offering must be qualified by the SEC, but this process is substantially less complicated than that of an initial public offering (IPO). As a result, some refer to it as a “mini-IPO.”
There are two tiers of Reg A+: Tier I, which permits raising up to $20 million in capital in a year, and Tier 2, which permits raising up to $50 million in capital in a year. While Tier 2 limits the amount that can be contributed by non-accredited investors, it is generally preferred to Tier 1. In large part this is due to the fact that it preempts blue sky laws, meaning that the offering doesn’t have to qualify and be registered in every state. As you can imagine, having to comply with blue sky laws can be time consuming, complicated, expensive and very frustrating.
What are the benefits of Reg A+?
While Reg A+ clearly has some benefits for investors, especially those that don’t meet the wealth criteria to qualify as an accredited investor, it also has benefits for entrepreneurs, startups, and small businesses. First, it provides an efficient and effective way to raise money. It is often much faster to raise capital through Reg A+ than to deal with venture capitalists or angel investors. Additionally, it’s much simpler and less expensive than an IPO. Second, it gives businesses an immediate base of customers, advocates, clients, and supporters that have a vested interest in the success of the business. Third, because ownership shares are spread across so many people, it enables entrepreneurs to maintain control.
Reg A+ has proven to open up opportunities for small businesses, entrepreneurs, real estate developers and investors alike. It gives investors of all levels an opportunity to participate in a wide range of projects while still having plenty of protections. For many smaller investors, it’s changed the landscape of investing and enables unprecedented opportunities. Similarly, it’s given entrepreneurs new ways to structure, fund, and complete projects.
One company that has used Reg A+ very successfully to raise funds for real estate is American Homeowner Preservation (AHP), an innovative and impactful business. To learn more, listen to Jorge Newbery talk about the fascinating, lucrative and socially conscious work he is spearheading across the country.
Image from pxfuel, royalty free