What Are the Benefits of Raising Capital Through Regulation A?

Regulation A provides entrepreneurs with an excellent alternative to seeking funding through venture capital sources. The exemption to SEC regulations provides companies in need of capital the ability to raise up to $50 million in any twelve-month period from either accredited investors or non-accredited investors as long as they meet a relatively low bar of qualification. Though the ability to market their offering directly to potential investors is one of Regulation A’s best-known advantages, there are several other very good reasons for choosing to go the Regulation A route.

Entrepreneurs who choose to seek venture capital funds generally have to find it where they are, and that makes it challenging for companies not located in major metropolitan areas. Choosing Regulation A — and especially Tier 2, which does not require qualification by state securities regulators — allows companies to seek funding via the internet and direct marketing, from sources anywhere.

One of the most anxiety-producing aspects of seeking capital from a venture capital company is the potential for loss of control to and concentration of power among the investors. Entrepreneurs using Regulation A to fund their companies are less likely to find their decisions put under a microscope or to find their financing threatened.

Because Regulation A offerings can be marketed publicly, it offers entrepreneurs the opportunity to gauge interest in going public while raising funds, all without the failed-offering risks involved in officially pursuing an IPO. Additionally, the fees and disclosure requirements for Regulation A are much lower than that of an IPO, and the process if generally much faster.

Companies sourcing their funding through venture capital are largely unknown, and have to rely on additional branding and marketing to become a known quantity to potential customers. In pursuing Regulation A funding, entrepreneurs can choose from any number of direct marketing methods to make potential investors aware of their offering, and in doing so often get the added benefit of turning customers and early adopters into investors, as well as brand ambassadors.

Every investor expects a return on their investment, and an eventual return of their investment. But shareholders in Regulation A offerings do not enter the financial arrangement with the same high expectations that venture capital investors do. These lower-dollar investors are often emotionally invested in the business, and are willing to accept a lower, slower level of return than is true of those whose business model revolves around quick-hit investing with sky-high returns. Additionally, in case Regulation A investors need to get their investment out faster, Regulation A allows for far greater liquidity.

Reg A+ presents entrepreneurs with a level playing field for access to capital, based on merit, through which they can raise up to $50 million per company per year–sizable growth capital–and it does so in a cost-efficient and flexible manner.