Big and small dogs.
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At an open meeting on March 25, 2015, the SEC adopted final rules to facilitate smaller companies’ access to capital via update and expansion of Regulation A, summarized in this press release.

A Two-Tier Approach

One core feature of the new rules is the establishment of a tiered system for these so-called “mini-IPO” style offerings, which will allow non-accredited investors to participate in two types of offerings:

  • Tier 1, for offerings that raise up to $20 million in proceeds in a 12-month period, including no more than $6 million of securities sold on behalf of selling securityholders; and
  • Tier 2, for offerings that raise up to $50 million in proceeds, including no more than $15 million of securities sold on behalf of selling securityholders.

Eligibility Requirements and Offering Restrictions

Although the new rules provide companies and investors with a powerful option for fundraises alongside Regulation D / Rule 506 offerings (see here for a helpful Reg. A / Reg. D comparison chart by Kiran Lingam of SeedInvest), there are various restrictions to the regime, including:

  • The final rule will include a limitation on the overall amount of securities that may be sold on behalf of selling securityholders.
  • The exemption will not be available to certain bad actors and to other entities, such as investment companies.
  • Tier 2 will require the issuer to provide audited financial statements, file regular and special event reports, and limit the amount of securities non-accredited investors can purchase in a Tier 2 offering.

Industry response has been generally positive, recognizing that the new rule will permit smaller and emerging companies to have an opportunity to raise substantial capital.

The new rules should be effective 60 days after publication in the Federal Register.