Raising Money: Title IV Regulation A+

Title IV Regulation A+

For as long as I can remember, equity investing was something exclusively reserved for wealthy individuals. That’s because investing in high growth companies and startups used to be only possible for accredited investors, or someone that is wealthy. An accredited investor is defined as someone earning $200,000+ for two consecutive years or whose personal net worth is $1 million (excluding their primary residence). This doesn’t help anyone that has their home paid off or has a majority of their equity paid into their home.  However, in 2012, the Jumpstart Our Business Startups Act (JOBS Act) was passed to slowly democratize the investment marketplace.

This motion had 10 provisions, but Title IV or Regulation A+ is probably the most dynamic because it finally lifted the restriction of allowing only accredited investors to invest in deals. In other words, now anyone can invest in a company which is planning to conduct a “mini-ipo”, despite their income or assets.

What is Regulation A+?

Regulation A+ is closely analogized to a mini-IPO allowing companies and startups to utilize crowdfunding platforms to raise up to $50 million USD through accredited and/or non-accredited investors.  You don’t have to be super rich in order to invest anymore.  This means local customers potentially turning into investors, and brand loyal hotel guest turning into brand loyal investors.  Reg A also enables localized and community based investments because almost everyone can participate in the deal. Not only are localized investments positive drivers for community economic development, but there’s definitely a strong sense of progress with securities laws allowing everyone to invest in Main Street as opposed to Wall Street.

How does it Work?

Title IV is made up of two tiers; tier 1 and tier 2. Under tier 1, companies can raise up to $20 million, whereas in tier 2, companies can raise as much as $50 million. Companies interested in raising capital in this manner need to apply for a Regulation A+ exemption; here’s how it works:

Tier 1: In this tier, anyone from anywhere across the globe can invest in a startup or business. For investors in this tier, there is no restriction on the amount which might be invested. Whether they are accredited or non-accredited investors, all of them are permitted to invest in a business which has been granted the Regulation A+ tier 1 exemption. These companies can also advertise their investable presence freely.  However, if a company wants to raise capital under the tier 1 structure, they have to furnish a disclosure document and receive SEC’s qualification. Then they need to get their financials reviewed and pass the Blue Sky laws in every state.

Tier 2: Similar to tier 1, everybody is allowed to invest from anywhere in the world as long as the startup or growth company has been approved for Title IV Regulation A+ tier 2 offerings. Companies have the freedom to advertise publicly. However, unlike tier 1, non-accredited investors can only invest an amount equal to 10% of their annual income or net worth[1], whichever is greater, capped at $100,000, per offering.

For example, if a non-accredited investor is making $100,000 annually, they can invest a sum of $10,000. If a person has a net worth of $400,000, they are able to invest $40,000.  Companies can acquire tier 2 after receiving SEC’s approval, getting their financials audited, and providing disclosure documentation in the form of current, annual, and semi-annual reports.  Something worth noting in the tier 2 structure, is that issuers bypass each State’s Blue Sky laws.

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Benefits

There are 3 major benefits with Regulation A+. They are:

  • Everyone Can Invest: Title IV enables everyone to invest in a startup as long as it has been qualified by the SEC. Whether you are an accredited investor or a non-accredited one, you are more than welcome to make an investment.
  • Testing the Waters: Growth companies and startups have the provision of determining the interest of potential investors by providing them an initial offering. Hence, they can then come to decision of whether or not they want to proceed with a Title IV offering.
  • No More Blue Sky Law Filings: Regulation A+ (Tier 2) enables issuers to bypass the state laws pertaining to the sale of securities to potential investors. Although issuers under tier 1 have to still comply with the Blue Sky Laws, the filing time has been decreased and the costs have been reduced.

Hotel Investments / Crowdfunding with Regulation A+

  • EquityRoots.com is a hotel crowdfunding company considering the launch of a Regulation A+ hotel fund.
  • The hotel investment firm plans to create a $50 million fund to be leveraged with debt and deployed into new development assets licensed with IHG, Hilton, and Marriott.
  • Time to time, funds may also be used to opportunistically acquire existing assets.
  • Equityroots.com is a website owned and operated by Equityroots, Inc. a Delaware Corporation. For more information, please visit www.EquityRoots.com

 

 

 

 

Sources

https://blog.crowdfunder.com/crowdfunding-faqs/what-is-title-iv-regulation-a/

http://www.manhattanstreetcapital.com/faq/general/summarize-title-iv-regulation-for-me

http://crowdfundbeat.com/2015/03/23/facts-on-jobs-act-title-iv-regulation-a/

http://mjinews.com/3-critical-benefits-of-regulation-a-for-potential-issuers/

 

 

 

[1] The maximum investment threshold is reduced to 5% for individuals w/ less than $100,000 income or net worth.

 

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