SEC Reg A+ Raises the Roof for Start-Ups and Ordinary Investors

Ross Campbell*

Venture Capitalists and Angel Investors are a kind of “kingmaker” for many start-ups—without a bullet-proof pitch that manages to both impress and satisfy their appetite for risk, many business fail to get early capital and ideas wither on the vine.

Whatever we make of this system—gatekeeping, tastemaking or farce—it should seem plain that in a time where an Ohio man can crowdfund his first potato salad to the tune of $55k, legitimate and non-satirical businesses should have similar tools to make their ideas soar or crash against the rocks.

In this spirit, the SEC recently finalized rules pursuant to Section 401 of the “Jumpstart Our Business Startups” Act of 2012, amending Regulation A (17 CFR § 230.251 et seq.) to make it easier for start-ups to engage with a wider range of investors before “going public.”

The amendments, or “Regulation A+” as colloquially known, allow a company to issue up to $50 million in securities to the public without the more onerous registration requirements of an IPO. Previously, companies that moved under Regulation A were limited to $5 million in securities, making the route of Regulation D (17 CFR § 230.501 et seq.), which offers unlimited investment from accredited investors, i.e., individuals earning more than $200k a year or with net assets of $1 million, the more feasible option.  In this sense, Reg A+ makes “equity crowdfunding” more attractive, and a useful alternative to the blue-bloodsport of Regulation D.

Though Regulation A+ does not offer the simplicity of a Kickstarter campaign, and has its fair share of hurdles, it greatly frees up the market in new business ideas. Specifically, it allows an innovative start-up to tap into public capital and spread risk where it may be unpalatable for the select few. Though this may be a topic for another day, Reg A+ also leaves the question: if the more lax regulation of Regulation D is presupposed on the “sophistication” of richer investors—does the assumption that the general public is “unsophisticated” really still hold up in the Information Age?  If not, then perhaps the SEC may finally be given a run for its money. 

*Ross Campbell is a Senior Articles Editor for the NYU Journal of law & Liberty.