The Securities and Exchange Commission (SEC), Division of Economic and Risk Analysis (DERA), has published a report on Regulation A (Reg A) alongside a document reviewing Reg CF. The report states that since Reg A was updated under the JOBS Act of 2012, over 800 issuers have raised $9.4 billion in proceeds. Qualified offerings sought $28 billion for 1400 offerings.
Reg A has been around for quite some time, but before the JOBS Act update, virtually no one utilized the securities exemption (except for Fundrise). Under the JOBS Act, the exemption gained Blue Sky preemption, a key aspect that helped reanimate the funding option, despite the states’ opposition. There are two tiers under Reg A (1 and 2), with most issuers using Tier 2 which enables a company to raise up to $75 million from both accredited and non-accredited investors. Interestingly, issuers may choose to trade shares following the completion of the offering. Few issuers take advantage of this option.
One of the challenging aspects of the exemption is the time it takes for the SEC to review offering documents, with some complaints worrying they will run out of money before an offering is qualified.
Another aspect of the exemption is that issuers may “test the waters” or gauge investor interest prior to going live with a sale. The report indicates that around a third of issuers take advantage of this feature.
The report states that utilization of the exemption has grown over time, but similar to venture markets in general, as well as Reg CF, the past couple of years have experienced a decline from its peak in 2022.
Financial sector issuers have accounted for approximately 46% of financing sought and 64% of the proceeds.
About one-third of Reg A issuers have used Reg D, and about 6% have utilized Reg CF. Reg D is the most efficient path as it requires only a notice filing to raise an unlimited amount, but only allows Accredited Investors.
The report says that issuers tend to be smaller and younger, and the funds raised compare modestly to Reg D.
There is pending legislation that would raise the funding cap to $150 million. This, along with other adjustments, could boost the Reg A market while providing support for the public offering ecosystem, which has diminished in recent years due to excessive regulation and disclosure requirements.
The report is available here or below.