The Jumpstart Our Small Business Startups (JOBS) Act, signed into law by then-President Barack Obama in 2012, has several sections designed to give both accredited and nonaccredited investors a chance to buy early equity in startups. One of those sections, known as Title IV Reg A+, allows startups to raise a maximum of $75 million dollars in a 12-month period by offering equity to accredited and nonaccredited investors.
These investment offerings represent an important opportunity for everyday investors to gain equity in startups before their initial public offerings (IPOs) with tremendous upside. Although startup investing has been around for a long time, most of the wealth it generated went to people who were already wealthy. This is because for most of its history, investor accreditation requirements limited startup opportunities to a tightly connected network of venture capitalists, Venture Capital Funds and accredited investors.
Why Are Reg A+ Raises So Unique?
As successful as securities investing has shown itself to be in the long term, in the short term it can be volatile, and the investor accreditation requirement keeps many investors from losing everything overnight. The obvious problem with this is that because less than 2% of investors are accredited, everyday investors were frozen out of the startup party.
As a consequence, they don’t get to invest in companies like Alphabet Inc.’s Google or Meta Platforms Inc. until they’ve already gone public. Yes, money can still be made buying stocks at initial public offerings, but the real exponential gains come from early equity, which is the appeal of venture capital and startup investing.
Startups were also negatively impacted by having such limited access to investor capital. Reg A+ raises allow them to reach a larger group of investors and raise valuable capital without having to resort to financing. This is especially beneficial in today’s financial climate, where interest rates are at near 20-year highs. The Reg A+ raise is unique because it strikes the ideal balance between opportunity, risk and utility for both startups and investors.
Tier 1 And Tier 2 Reg A + Offerings
Reg A+ offerings are regulated by the Securities Exchange Commission (SEC), which finalized the rules governing the offerings in 2015. The final regulations created two different types of Reg A+ offerings:
Tier 1 offerings are allowed to raise a maximum of $20 million per offering.
- Tier 1 offerings can advertise publicly.
- They are open to accredited and nonaccredited investors anywhere in the world.
- They require financials but do not require financials to be audited.
- There is no limit on how much capital individual investors can commit.
Tier 2 offerings are allowed to raise a maximum of $75 million per offering.
- Tier 2 offerings can advertise publicly.
- They’re open to accredited and nonaccredited investors anywhere in the world.
- They require financials to be audited.
- Nonaccredited investors cannot commit more than 10% of their net worth or annual income to any Tier 2 offering.
Another key difference between Tier 1 and Tier 2 offerings is that Tier 1 offerings are required to register with the applicable state regulatory authorities where they make the offering available. Tier 2 offerings do not have a state registration requirement.
How Do Reg A+ Raises Work?
Reg A+ offerings are still considered publicly traded securities and as such, their issuance is regulated by the SEC. Companies that wish to make a Reg A+ offering must submit their financials and other required paperwork to the SEC for approval. Once approval is granted, the company may issue the offering, but it can’t sell shares directly.
Startups and companies making Reg A+ offerings can only sell shares through an intermediary, such as a licensed broker or an equity crowdfunding platform. Both the registration requirement and the clause mandating that shares can only be sold through licensed securities dealers or platforms increase transparency and cut down on the potential for fraudulent snake-oil salesmen offering pie-in-the-sky stocks for companies that aren’t viable.
Where Can Investors Find Reg A+ Offerings?
Investors can access Reg A+ offerings from a variety of sources. Their preferred licensed securities broker will have them, and there also is a wide variety of Reg A+ offerings on equity crowdfunding platforms. Some of the most popular platforms include:
These platforms offer investors a near-limitless range of investment opportunities with prices starting at pennies per share and going up to thousands of dollars per share. Each investment has a minimum share purchase and other restrictions, such as a hold period during which shares can’t be liquidated. All the relevant information regarding restrictions, share price and profit projections will be in the documents section of the investment offering.
Investors can access offerings in some of the world’s most dynamic business sectors, including:
- Biotech
- Artificial intelligence (AI)
- Automotive
- Green industries
- Computer technology
- Social media
What Is The Risk Involved?
Startup investing is risky so every offering, no matter how well-researched it is or how good the business model may be, carries the risk of loss for investors. But the upside of startup investing couldn’t exist without the risk.
The best way for investors to get involved may be to diversify their investments across several different offerings. The entry-level share prices on many Reg A+ offerings are low enough that investors can easily build a diversified portfolio.
Are Reg A+ Offerings Right For You?
Your needs as an investor and your investment goals are different from everyone else’s. Whether Reg A+ offerings are right for you or which ones are right for you is something you should discuss with your financial planner.
With that said, Reg A+ offerings give you an opportunity to get in early on outstanding investment opportunities in startups. Proceed with caution and understand the risks, but if you find an opportunity that suits your needs, it may be worth a shot.
About Eric McConnell
Eric McConnell is an alternative investment writer interested in rare collectibles, fine wines, art and sports memorabilia. He developed his love for sports during his childhood, where in addition to being an aspiring professional baseball player, he was an avid baseball card collector and reader of the Robb Report.
As is the case for many aspiring young sluggers, Eric’s baseball career came to an end the first time he encountered a pitcher capable of throwing 90 mph and a wicked curveball. However, his delight in the finer things of life never waned, and after a career in real estate, Eric branched out into writing, where he joined Benzinga as an alternative investment writer in 2021.
Although he covers breaking news in all areas of alternative investments, Eric’s favorite subjects harken back to his childhood days of reading the Robb Report and collecting baseball cards. He has a passion for writing about fine art sales, whiskey auctions and sports memorabilia.