How to Raise Needed Funds in Just 6-9 Months & Up to $75 Million Every 12 Months With Reg A+ Funding

The ravages of Covid-19 will affect consumer and capital markets for years, especially small and mid-market companies who are likely to need funding to transition to the new economy. While interest rates are historically low, banks and financial institutions have tightened lending standards and closed their doors to all but the largest organizations.

Many company leaders are beginning to recognize the funding opportunities created by the passage of the Jumpstart Our Business Startup (JOBS) Act in 2012. The Act expanded the terms of Regulation A to make private company investments much easier and flexible than before, becoming known as Regulation A+, aka Reg A+. Prior to the new law, only the largest organizations could attract underwriters for a public equity offering, forcing others needing capital into the arms of voracious venture capital firms or wealthy individuals. Raising capital often requires founders to cede the equity to outsiders whose only interest is to control the deal at the economic and governance levels.

Reg A+ Funding

The new law established a faster, less expensive way to raise capital—equity, warrants, debt, and convertible—from the public The Act created tiers of approved offerings:

• Tier 1. A company can raise up to $20 million over a twelve-month offering period if the offering is qualified by the state where the securities are offered, i.e., compliance with “blue sky” laws.
• Tier 2. A company can raise up to $75 million over a twelve-month offering period if the offering is qualified by the state where the securities are offered. Tier 2 offerings are exempt from state securities laws but must be qualified by the Securities Exchange Commission (SEC) before coming effective.

Issuers raising $20 million or less can opt for either tier depending on their circumstances and other requirements of the regulation. Since 2012, Regulation A+ offerings have raised more than $2.2 billion for issuers in the two tiers.

SOURCE: U.S. Securities and Exchange Staff Report, March 4, 2020

Traditional initial public offering (IPOs) are typically expensive and time-consuming. Depending on the amount of funds sought, legal, accounting, printing of documents, and registration fees can cost hundreds of thousands of dollars before a single dollar is raised, making raising funds from the general public inaccessible for small and mid-market companies.

Pursuing a significant private offering before Reg A+ imposed severe restrictions on the number and characteristics of investors available to participate as well as compliance with federal and state laws regarding such offerings. For the first time, Reg A+ opened the market for those who had been frozen out of the market.

Advantages of Reg A+ Offering for Companies

The new Reg A+ funding vehicles have unique advantages over other methods including:

• Promotion of new customers. The ability to solicit members of the public for investment is an opportunity to reinforce connections with existing customers and introduce the issuing company and its products to potential customers. The link between shareholders and customers is synergistic. Shareholders who buy the company’s products and services add revenues and profits to the company, the source of rising share prices and dividends.
• Access to public market. Short-term and long-term startups and mid-market private companies can access capital from the public on a scale more appropriate for their needs. For example, privately-owned BioTech, MedTech, Pharma, or Life Sciences company with net operating income of $1 million might easily have a valuation of 20 times that using the Reg A+ program, rather than depending on debt, VC, PE, HNWI, family offices, angel investors, or even friends & family.
• Safer, faster access to capital for currently public companies. Existing public companies can also conduct Reg A+ offerings, which protects them from predators in the debt conversion markets. This is available for OTC Markets and above.
• Access to unaccredited investors. Private funding efforts are generally limited by law to a limited class of accredited investors. While issuers must remain cognizant of the appropriateness of an investment for a specific investor, Reg A+ greatly expands the universe of potential investors.
• Liquidity. Securities issued under Reg A+ are freely tradeable without restrictions, unlike securities issued under Regulation D private offerings, previously the only safe harbor for private offerings to avoid SEC registration requirements. Transfers of stock are restricted to Rule 144 requirements.
• Continuous offering. Reg A+ offerings can be extended based on market conditions and issuer financing needs without initiating and completing a new qualification process (§230.251). Issuers can file offering circular supplements in lieu of amendments for certain changes, which results in potentially greater flexibility of the offering process.
• Ability to uplist. Eligibility for a listing on a national exchange can be accomplished (1) initially by expanding disclosures in the Reg A+ offering statement consistent with a full registration statement, or (2) later by providing the necessary information and filing a Form 8-A.
• Access to fund-raising expertise. Few company executives are knowledgeable of the private fund-raising process or the laws that affect the process. Large investment banks focus on large companies with hundreds of millions of dollars in profits who can support an initial or secondary public offering. Fortunately, there are firms and individuals who have experience in Reg A+ offerings who can guide organizations efficiently through the process.

Monetizing Proprietary Data

Reg A+ offerings provide a unique opportunity for BioTech, MedTech, Pharma, and Life Sciences companies to realize tangible value from their existing databases of CMOS, CROS, clinicians, physicians, orthopedic surgeons and other medical specialties through A+ outreach. Several large healthcare organizations such as the American Medical Association and the Blue Cross Blue Shield Association have programs for the use of their data.

While any data offered to third-parties must be identity-free (CMS has already ruled that data linked to a specific patient is owned by that patient, not the healthcare organization.), de-identified datasets can be rented for extra revenue to a healthcare enterprise.

Most healthcare businesses and medical practices overlook the value of their data in accounting for the net worth of the organization. The commercial value of the data would be considered in a valuation of the business for a Reg A+ offering to establish the pro rata shares of ownership held by the existing and new shareholder groups.

Final Thoughts

Capital sources are likely to be more restrictive and discriminating in the post Covid-19 era. At the same time, companies will be required to transform their products and services, cultures, and operating models to be successful in an economy of limited travel, greater online activity, and new consumer requirements. Few small and mid-market companies have sufficient capital on hand to pay for necessary investments.

Reg A+ offerings are a tool that should be included in the toolbox of every owner, CFO, and Treasurer in the United States. Their use provides great upside potential with little downside risk. Have you considered a Reg A+ offering for your company yet?

If you’d like to learn more about Reg A+ funding and other capital planning solutions, reach out to me on LinkedIn, and I’ll be happy to connect and answer any questions you may have.