Hotel Crowdfunding Through Title IV Regulation A+

5 min read

Title IV Regulation A+

For as long as we can remember, equity investing was something exclusively reserved for wealthy individuals. Investing in high growth companies and startups used to be only possible for accredited investors, or individuals with a substantial amount of wealth. To qualify as an accredited investor, individuals must earn $200,000+ for two consecutive years or establish a personal net worth of $1 million or more (excluding their primary residence). Unfortunately, anyone who pays off their home or possesses the majority of their equity paid into their home don’t benefit from these qualifications. However, the JOBS Act can change all that.

In 2012, the Jumpstart Our Business Startups Act (JOBS Act) was passed to democratize the investment marketplace. The JOBS Act contains multiple components, but we consider Title IV (and its subset Regulation A+) the most dynamic because it lifts the restriction of allowing only accredited investors to invest in deals. In other words, anyone can invest in a company which is planning to conduct a “mini-IPO”, regardless of their income or assets. Investors no longer need be accredited to invest.

What is Regulation A+?

Regulation A+ (Reg A for short) works similarly 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.  Individuals no longer need to be particularly wealthy to invest.  Brand loyal hotel guests can become investors of their preferred brands, and hotel guests everywhere can take financial roles as investors to develop hotel projects.

Reg A also enables localized and community-based investments because nearly everyone can participate in the deal. Localized investments drive positive community economic development.

How Does Reg A Work?

Title IV Regulation A+ is made up of two tiers; tier 1 and tier 2. Companies interested in raising capital in this manner need to apply for a Regulation A+ exemption.

Title IV Regulation A+: Tier 1

  • Under Tier 1, companies can raise up to $20 million. 
  • In this tier, anyone from anywhere across the globe can invest in a startup or business. Both accredited or non-accredited investors are permitted to invest in companies that gain Regulation A+ Tier 1 Exemption.
  • However, if a company wants to raise capital under the Tier 1 Exemption, it must create a disclosure document and receive the SEC’s approval. The company finances are reviewed, and must pass the Blue Sky laws in every state before earning the exemption.
  • These companies can also advertise their investable presence publicly.

Title IV Regulation A+: Tier 2

  • Under Tier 2, companies can raise as much as $50 million.
  • Similar to tier 1, everybody is allowed to invest from anywhere in the world as long as the startup or growth company gains the Title IV Regulation A+ Tier 2 Exemption.
  • Companies can acquire Tier 2 after receiving SEC’s approval. To do so, these companies must undergo financial audits, and must provide disclosure documentation in the form of current, annual, and semi-annual reports. Unlike Tier 1, Tier 2 structures allow issuers to bypass each State’s Blue Sky laws.
  • Companies under Tier 2 also have the freedom to advertise publicly.
  • There is a significant difference. Unlike Tier 1, Tier 2 sets non-accredited investors limits. Non-accredited investors can only invest an amount equal to 10% of their annual income or net worth, whichever is greater, per offer.
  • In addition, non-accredited investors are capped at $100,000 per investment, regardless of their annual income or net worth.
  • 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.

Create your free accout today

Benefits

There are 3 major benefits with Title IV Regulation A+.

  • Anyone Can Invest: Title IV enables anyone to invest in a startup as long as it has been qualified by the SEC. Accredited or not.
  • Testing the Waters: Growth companies and startups can determine the interest of potential investors by providing them an initial offering. Then, they can decide whether or not to proceed with a Title IV offer.
  • Eliminating Blue Sky Law Filings: In Tier 2, Regulation A+ enables issuers to bypass state laws on selling 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 filing costs are now reduced.

Crowdfunding Hotel Investments 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.
  • Periodically, 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

“What is Title IV Regulation A+.” Crowdfunder.

“Summarize Title IV Regulation A+ For Me.” Manhattan Street Capital.

“Fact Sheet on Jobs Act Title IV – Regulation A+.” CrowdFundBeat News Wire.

Share this Blog:

The New Industry: Hotel Crowdfunding

The New Industry: Hotel Crowdfunding

Crowdfunding has revolutionized the way people raise money to start new businesses, and the model has caught on in a number of other industries. Hotel crowdfunding is at the front of this new fundraising model. It gives investors the opportunity to cut out the middleman and invest directly in properties they believe in. Simply put, hotel crowdfunding gives everyone, from the seasoned investor to the newcomer, a way to invest in qualified hotel real estate properties.

How Hotel Crowdfunding Works

Potential hotel investors sign on with a hotel crowdfunding company, create their user profile and browse for deals they might be interested in. Once they find a property that fits their investment goals and budget, they can transfer funds and start their investment. Online dashboards provide feedback and information about each of their investments.

Who Can Invest in Hotel Crowdfunding

Recent changes in regulation for the industry have made it possible for virtually anyone to own a piece of a hotel property. Investors fall under the categories of “accredited” and “unaccredited.” Accredited investors are those who have a special status under financial regulations, which typically means they have a net worth of at least $1 million or meet other income thresholds. Those who are unaccredited can still invest, but may be limited to certain offering types that become burdensome or take away general solicitation privileges from the sponsor.  And heck let’s face it, how are you going to find an investment opportunity if the deal can’t be generally solicited? That’s all about to change when crowdfunding companies like Equityroots.com take advantage of the newest securities laws such as Regulation A+, which carves a path for non-accredited investor participation.

Why is Hotel Crowdfunding becoming so Popular?

Besides hotels being an exciting and rewarding asset class, hotel crowdfunding offers a unique and innovative way for people to manage their money. They can invest in the hospitality industry without having to raise the capital to buy a franchise on their own, and they get the benefit of being able to invest alongside industry experts who know how to operate the property.  Many times, the investors are thinking about who they are investing with just as much as what they are investing in.  As of 2015, there were more than 300 securities-based crowdfunding real estate development offerings, and that number is only expected to get bigger as time goes on.

 

Create your free accout today

Hotel crowdfunding is disrupting the traditional way of real estate investing, and it is also becoming a disruptor as a finance mechanism for large-scale projects. Investors can influence the outcome by choosing what they want to fund, and companies building hotels can raise the equity capital they need from the local community, or an online crowd of like-minded investors, rather than relying on some form of institutional Wall Street capital.  Money is money after all, no matter where it comes from.  Letting the masses have a shot at the risk and rewards is undoubtedly progression of our capital markets and financial Democracy.

Link: http://www.cnbc.com/2015/10/02/hotels-join-the-crowdfunding-craze.html

[mc4wp_form id=”81″]

 

Share this Blog: