Chris Seveney is CEO of 7e Investments.
As interest rates rise and credit markets tighten, small businesses and accredited investors are looking for alternatives to traditional bank loans. Two regulatory frameworks—Regulation A+ and Regulation D—have emerged as game changers for the 99.9% of American companies classified as small businesses. As inflation rises and traditional financing becomes more expensive, these relatively new funding paths are becoming more appealing to entrepreneurs while opening new doors for investors at the same time.
The New Face Of Small Business Fundraising
Think of Regulation A+ as a “mini IPO.” Introduced in 2015 under the JOBS Act, Reg A+ lets companies raise up to $75 million from both everyday and wealthy investors without the complexity of a traditional IPO—thus the nickname “crowdfunding for the middle class.” Using Reg A+, companies can enjoy advantages that were once reserved for larger corporations, including testing market interest before they commit significant resources, advertising their offerings publicly and providing immediately tradable shares.
Its cousin, Regulation D, offers a faster track for private fundraising, with a streamlined process and minimal SEC paperwork that make it an attractive option for companies seeking quick capital injection. Reg D is typically restricted to accredited investors—those earning $200,000+ annually or having a net worth of more than $1 million. These simplified requirements allow businesses to finish their fundraising rounds rapidly, even though they don’t offer access to the broader investor base available through Reg A+.
Navigating The New Normal
Recent economic conditions, especially rising inflation and fluctuating interest rates, have reshaped how these offerings perform. Take real estate, traditionally considered a reliable, if not (at least until recently) guaranteed, investment. Rising property costs, taxes and insurance have squeezed returns, which has forced investors and issuers to adapt. Companies are now focusing on structured, risk-adjusted returns instead of pure growth plays. They’re also emphasizing transparency and strong fundamentals to address concerns about economic volatility.
Of course, technology is playing a role in this evolution. Platforms like AppFolio, Juniper Square and Vyzer have transformed how investors interact with opportunities like Reg A+ and Reg D. They provide streamlined access to deal documentation, distribution management and portfolio tracking, tools that were once available only to institutional investors. By democratizing access to private markets, these platforms are helping investors make better-informed decisions through improved transparency and educational resources.
Risks And Rewards
Like every investment opportunity, Reg A+ and Reg D come with risks that demand careful consideration. That’s why spending a few hundred dollars to have an attorney review investments worth tens of thousands is a small price to pay for peace of mind.
For example, financial transparency varies significantly between offerings. Unlike public companies such as Microsoft, where financial data is readily available, Reg D offerings might provide limited financial information. This means investors have to place more trust in the sponsor’s track record and reputation—one more reason for solid due diligence. Reg A+ offerings provide better transparency since there is required reporting to the SEC, but it’s still critical to understand the underlying investment.
Many passive investors, attracted by promises of high returns, don’t perform adequate due diligence or understand the specific liquidity constraints. These investments often come with three- to five-year lockups and early exit penalties—like a cell phone plan or a car lease, just with much higher stakes.
Reg A+ and Reg D offerings also have different exit strategies. Reg A+ offerings may offer some liquidity through secondary trading platforms, while Reg D investments typically require longer commitments. Compare this to real estate investments, which rely on property sales, or technology or manufacturing companies that aim to either go public or be acquired by larger corporations.
As always, smart investors should protect themselves by diversifying their holdings across different offerings. They should also thoroughly vet sponsors’ track records and make sure they understand the exit strategies for each investment.
The future of small business funding is shifting away from the traditional IPO or bank loan toward more accessible, technology-enabled investment vehicles that bridge the gap between Main Street businesses and everyday investors. For investors and companies looking for alternative funding sources, Reg A+ and Reg D offer a chance to diversify into previously inaccessible markets—provided they approach with caution.
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