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.

EquityRoots - Hotel Real Estate Investments Platform

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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Hotel Crowdfunding vs. REIT Investments — Investing Tools for the 21st Century

Hotel Crowdfunding vs. REIT Investments — Investing Tools for the 21st Century

The ushering in of the 21st century has brought about quite a few new developments for the real estate industry. As with most industries, the real estate industry has seen numerous investment tools and methods . Two have jumped to the forefront within the real-estate industry: Crowdfunding and Real Estate Investment Trusts (REITs).  These two, especially crowdfunding as it relates to hotel crowdfunding, are a couple of the alternatives to the traditional methods of investing.  Hotel crowdfunding and REITs have created quite a buzz in the investment market place and have left many wondering how to best utilize these tools for their investment or capital raising needs.

What’s so special about Crowdfunding for Hotels?

With the passing of the Jumpstart Our Business Startups Act of 2012 (JOBS Act), online platforms, such as EquityRoots, Inc., can now generally solicit the sale of real estate backed securities to prospective investors by registering Form D with the SEC—the Security and Exchange Commission, or qualifying exemption. When using general solicitation, all purchasers of the public offering (in this case hotel assets) must have accredited investor status. The Jobs Act has also paved way for non-accredited investors to participate.  More recently, and under newer offering types like Regulation A+, unaccredited investors can participate under certain limitations.  This opens up the possibility for online platforms to extend investment opportunities to everyone, not just accredited investors anymore.

Under these circumstances, hotels are a great asset class to crowdfund because of its existing large and loyal customer bases associated with each of the top Hotel chains such as Marriot, IHG, Hyatt and Hilton.  In most cases, commercial real estate like hotels yield investors a greater rate of return than residential real estate investments.  Hotel transactions have a greater degree of moving variables and risks, hence the typical rate of return correlates.  Equity crowdfunding investments can easily break the status quo, often seeing a rate of return above 20% when factoring 5-year holding periods and including the disposition proceeds.  The cash flow performance of hotel assets can also impress investors, especially when the development is backed by a strong reservation system and strong Brand.  Crowdfunding is not limited to equity, you can also crowdfund a mortgage or a business loan.

 

EquityRoots - Hotel Real Estate Investments Platform

What’s the infatuation with REIT(s)?

Real Estate Investment Trusts (REIT) didn’t start to matriculate in the investment marketplace until the 1960s—when Congress introduced this investing tool into the U.S. economy. What is a REIT? By definition, it is a corporation that owns and operates income producing real estate. More specifically, it joins the capital of several investors and investors earn a share of the income produced, yielding a 8.8% rate of return averaged over the last 10 years.

A REIT offers investment flexibility at a reasonable entry price. REIT(s) can invest in multiple asset classes such as retail, residential, healthcare, offices. and for each of these asset classes, investors can earn a share of the income produced. Many people find REIT(s) an attractive investment because of it’s liquidity, meaning you can wake up and sell it if you need the cash.  Be weary, certain REIT’s often have restrictions on when and how much you can sell.

Conclusion & Comparison

After comparing the two investment tools, it’s clear that each has their pros and cons. A REIT’s ability to earn a reasonable rate of return and the liquid nature of the investment may be a good fit for some people. But for the savvier investor that can decipher between good/bad markets and good/bad flags, they have multiple options on what they can invest into.  It is not uncommon for online investors to yield a higher rate of return through a variety of equity and debt instruments via crowdfunding, and outperform their REIT counterparts.  Real estate and hotel crowdfunding may allow people to diversify their portfolio by personal preferences that are strategically better than a giant pool of assets accumulated over time.

The same cannot be said of REIT(s).  Essentially, a REIT is a pool of multiple properties that you are investing into.  Sometimes the REIT picks good apples and sometimes it picks bad apples, and sometimes the good ones go bad over time, you’re essentially investing into the average. REIT(s) do not allow the investor to pick and choose which investment type they would like to fund, whereas crowdfunding gives control back to the investor and allows them to choose investments that may be most suitable for them, sorting by debt, equity, brand, flag, geographic market, hold period, etc.

Remember, that all investments come with risk.  Investing is inherently taking on some form of risk for a potential reward.  And although people have 24/7 internet access to crowdfunding platforms, they should consult an attorney or financial advisor prior to investing.  Crowdfunding platforms like www.equityroots.com enables its online investors to easily share due-diligence documents and investment contracts with their attorney prior to investing.  Past performance is never a guarantee of the future.

 

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