What is Regulation A+?
Hi, I'm Kieran. I worked at a platform, Wefunder, from 2017-2020 that conducts Regulation A+ offerings. I made this guide to help you understand whether Regulation A+ is the right funding option for your business.
Afterward, read my blog post to learn more about 20+ other options you have to raise money for your business.
What is Regulation A+?
Regulation A+ (Reg A+) is a way for startups and small businesses to raise money from the general public – both non-accredited (i.e., ordinary people) and accredited investors (i.e., very wealthy people). You can view a Reg A+ round as an alternative to a small registered IPO, as it requires similar legal, accounting, and financial disclosures.
Reg A vs. Reg A+
Before we begin, it's important to note that people use the terms Regulation A (Reg A) and Regulation A+ (Reg A+) interchangeably. Reg A was the original exemption created in 1936, but it became Reg A+ when President Obama signed the JOBS Act in 2012. The SEC updated the name to highlight the significance of the amendments to the rules.
Pros of using Regulation A+
- Let your customers or fans invest and share in the financial upside. It's the ultimate way to create alignment between all stakeholders.
- You can use it to gauge public interest in a real IPO down the road.
- You can raise more money via Reg A+ than if you were to do a Regulation Crowdfunding round, another way to raise money from the general public.
Cons of using Regulation A+
- High upfront costs include financial, legal, and accounting fees.
- The process usually takes upwards of a year to complete, from compiling all the necessary information to launch your round to marketing your campaign and receiving the money.
How much money can you raise with a Regulation A+ round?
Reg A+ has two offering tiers: Tier 1 for raises up to $20 million in a 12-month period and Tier 2 for raises up to $75 million in a 12-month period.
Regulation A+ Tier 1 vs. Tier 2
Besides the total amount of money you can raise, there are different requirements for each tier.
Tier 1:
- Company eligibility requirements.
- Bad actor disqualification provisions.
- Company disclosures.
- Exit report on Form 1-Z.
- State securities law: You must register or qualify your offering in any state in which you seek to offer or sell securities.
- Other matters.
Tier 2:
- Everything mentioned in Tier 1, besides state securities law; and
- Limitations on how much non-accredited investors may invest in a Tier 2 offering.
- Audited financial statements for the two previous fiscal year ends (or from inception) in GAAP format.
- Ongoing reporting requirements: annual report on Form 1-K, semi-annual report on From 1-SA, and a current report on Form 1-U.
How much does Regulation A+ cost?
It depends on the platform you choose, as most platforms charge you a fee alongside the legal and accounting costs you'll incur to raise money with Reg A+.
However, based on data from the SEC, the median offering costs are:
- Legal costs: ~$50,000
- Financial audit cost: $15,000 (only Tier 2 offerings require a financial audit)
- Intermediary fee (or the fee you pay to the platform): $150,000
How much money have companies raised via Regulation A+?
As of December 31st, 2019, 183 companies have reportedly raised $2.446 billion ($230 million in Tier 1 and $2.216 billion in Tier 2) in ongoing and closed offerings, with an average raise size of $13.4 million.
Regulation A+ platforms
Many SEC-registered intermediaries can help you raise via Regulation A+, including:
What types of securities can you offer to investors?
You can offer either equity or debt to investors when raising capital via Reg A+. According to data from the SEC, roughly 90% of companies have elected to offer equity, while less than 10% have selected to provide debt via Reg A+.
Here are some of the most popular securities offered:
Equity
- Priced Round – most popular.
Debt
- Simple Loan – best for small businesses.
- Revenue Share – best for small businesses with less predictable cash flows.
Regulation A+ examples
1. Skybound
On December 16th, 2022, Skybound, the global entertainment company behind hit TV shows The Walking Dead and Invincible, launched a Reg A+ Tier 2 offering on Republic. As of April 2023, the campaign is still open, and they have over $13 million in commitments from over 5,000 individual investors. The company did $64 million in revenue in 2021 and grew 50% year over year from 2020. In addition, the company has a community of 65 million fans, including 6.6 million across their social platforms, which they marketed to as part of their raise.
2. Future Cardia (formerly Oracle Health)
On January 15th, 2021, Future Cardia, the company building a remote heart monitor using AI and advanced sensors, launched a Reg A+ offering on Republic. The company closed the round on August 29th, 2021, with $3,289,558 from 3,630 investors. Although they didn't hit their maximum goal, $8 million, Future Cardia was able to raise a considerable amount of money, especially considering they were a team of 5 employees at the time of the raise with no existing audience of customers or fans to draw from to support the raise.
3. Boxabl
Boxabl, the accessory dwelling unit home, raised $24,823,930 million via a Reg A+ Tier 2 offering on Start Engine. The company had previously raised around $5 million over several crowdfunding rounds but decided to raise more capital given the momentum – 4,000 paid deposits totaling $100 million+ in revenue potential for their ADUs. Additionally, Elon Musk shared he thought Boxabl was a cool product on the Full Send podcast, which increased awareness for the raise and the total funding amount by a considerable amount. Even though the company raised a ton of money via Reg A+, this is one of the worst investment opportunities I've ever seen. The company raised at a $3 billion valuation on $0 in revenue in 2021 and only $400,000 in prepaid deposits from their waitling list. I almost threw up when I read the financials. Start Engine and Boxabl should be ashamed they took advantage of inexperienced investors.
4. Legion M
Legion M, the fan-owned entertainment company, raised over $11.5 million across multiple Regulation Crowdfunding (Reg CF) and Reg A+ rounds. The company was built with crowdfunding investors in mind, as they let their investors and fans vote on which movies they make, which actors star in roles, and more. So not only do investors have a say in the movies they create, but they also provide free marketing for the company since they buy tickets and tell their friends and family to watch when the movies come out. Legion M is raising more money on Start Engine and has already surpassed $2 million in commitments, pushing its total dollars raised in crowdfunding investments over $15 million for the company's lifespan.
5. Arcimoto
Arcimoto, the electric vehicle company, raised $19 million via Reg A+ on Manhattan Street Capital to list on the NASDAQ. At the time of their offering, the company had yet to deliver its flagship product, the SRK, a three-wheeled electric motorcycle. However, the company indicated that the raise would help them start production. As of April 2023, the company has a market cap of $9.33 million.
Tips for Regulation A+ rounds
- Wait until your company is mature enough to raise via Reg A+. This usually means you are coming off of notable milestones (revenue, FDA approval, etc.) and have an audience you can market to for your raise (customers, fans, people who care, etc.).
- Find a notable lead investor. The crowd tends to follow professional investors if they endorse the company and invest on the same terms. For example, getting Mark Cuban to invest in your company could drive $100K+ in follow-on investment from the crowd.
- Make sure to set expectations with investors. Naturally, when you raise via Reg A+, you'll end up with hundreds, often thousands, of small investors. Be sure to share company updates to keep them updated on how they can contribute to your company's success and prevent them from complaining.
Common mistakes with Regulation A+ rounds
- Raising at really high, unfair valuations. Even if you can attract investments at that price today, it may come back to bite you down the road in the form of a down round if you have plans to raise from professional investors.
- Underestimating the work required to successfully raise via Reg A+. The hard part is marketing your campaign well enough to attract enough individual investors to raise your desired amount.
