Equity raises for startups looking to increase capital now come in many different forms, with some types better suited for a business than others, especially when comparing a growing company with an early-stage startup still trying to find its footing. No matter where a business is in its life cycle, however, there are fairly new and unique ways to raise capital.
Two of these more novel methods are Regulation A—or, rather, a new version of Regulation A—and Regulation Crowdfunding. Each has benefits and challenges, with the main differences consisting of how much companies can raise under each, the amount of regulatory oversight, the offering’s cost, who is eligible to invest and who can be solicited to invest.
It’s up to a business’ leaders and, in particular, its legal and financial advisers to wade through these differences and murky regulatory waters in order to determine which is the best fit for the company’s current and future needs. With a business’ success or failure often riding on the right type of equity raise, especially during its early stages, a well-rounded understanding of Regulation A and Regulation Crowdfunding and their nuances can make a big difference.
Regulation A
It is not necessarily accurate to say Regulation A is new, having been established with the Securities Act in 1933 as a means to exempt from registration requirements certain public offerings of securities—essentially, allowing the public to invest in private companies. However, Regulation A was amended in 2015 as part of the Jumpstart Our Business Startups Act (JOBS Act), modernizing its rules and expanding it into two tiers, creating “Regulation A+.”
