Regulation A or Reg A+ will be the topic of discussion for the SEC’s next Small Business Capital Formation Advisory Committee (SBCFAC) meeting which will take place on May 6th.
The announcement of the topic shares that the Committee will review how firms are using the securities exemtion and then discuss the limitations and advantages of using the vehicle for online capital formation. Ultimately, a discussion will review what can be improved with the exetmption including secondary market liquidity.
Reg A received an update under the JOBS Act of 2012. Prior to the change in law, just about no one utilized the exemption to raise capital due to its burdensome structure.
Today, an issuer may raise up to $75 million in an offering which must be qualified by the SEC before funding occurs. Sometimes described as a mini-IPO type vehicle, the disclosure requirments are less intrusive than a full blown registration statement but issuers may choose to immediately trade securities following the closure of the deal. Critisism includes the slowness of the SEC qualification process as delays can mean an early stage venture may run out of money before the SEC signs off. Reg D as a notice filing does not suffer from this process. The cost to complete the process, is another characteristics that should be discussed.
Other items up for debate include state blue sky exemption from secondary trading hurdles and the funding amount.
As it is open to both Accredited and non-Accredited investors, some view the exemption as catering to unsophisticated investors who do not understand the private securities ecosystem and may get sucked into an offering that has a silly valuation or terms that are punitive for smaller investors.
The SBCFAC meeting will take place on May 6, 2025, commencing at 10AM ET. It will be live-streamed on the SECs website. The agenda is shared below.
10:00 Call to Order; Introductory Remarks by Commissioners
10:20 Introduction to Regulation A
Staff from the SEC’s Division of Corporation Finance, Office of Small Business Policy, and the Office of the Advocate for Small Business Capital Formation will provide an overview of Regulation A, including data from the Small Business Advocacy Office’s FY2024 Annual Report, which includes information on where and how capital is being raised in reliance on Regulation A.
10:50 Exploring Regulation A – Practical Considerations and Regulatory Challenges
Continuing the exploration of ways to expand access to early-stage and growth capital raising, the Committee will explore how companies have used Regulation A for capital raising and why this pathway is less frequently used. Members will discuss the advantages and limits of Regulation A offerings along with practical market considerations. The Committee will also consider exit opportunities for investors in Regulation A deals and secondary market liquidity challenges. The Committee will explore whether there are changes that could help facilitate capital formation pursuant to Regulation A and improve secondary liquidity for investors in Reg A offerings.
To facilitate discussion, members will hear from an attorney who advises companies on Regulation A offerings about the advantages and challenges of raising capital pursuant to this pathway.
Speakers:
Daniel Forman, Lowenstein Sandler LLP, Partner
11:45 Break
12:00 Exploring Regulation A – Practical Considerations and Regulatory Challenges (cont’d)
The Committee will continue discussion regarding advantages and challenges of Regulation A with a view towards potential regulatory improvements.
12:55 Wrap-up and Adjournment
1:00 Administrative Executive Session