5 min read
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.
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
“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.