Reg A+ vs Going Public The Traditional Way


There is something very important to know when you’re raising capital for your business: Under the Securities Act of 1933, to sell securities you must register them with the SEC or meet an exemption.

Don’t worry. It sounds a lot scarier than it really is.

An exemption from securities registration doesn’t mean that you get off scot free – you still have to make sure that you file the proper paperwork with the SEC and your state (if applicable). However, operating under an exemption from registration does mean less paperwork, lower filing fees and less ongoing reporting requirements. In other words:

It’s a good idea to raise private money using an exemption from securities registration.

I know for some real estate investors, getting private money to buy real estate under an exemption isn’t feasible. The most common reasons for this: you want to… advertise using general solicitations to meet investors, you want to raise a ton of capital (multiple millions) or you want to cross multiple state lines for private investors or projects.

Going Public

If you can’t or don’t choose to raise capital for your business under an exemption, then you are looking at going public. Here’s what “going public” means:

  • * Highly Involved registration process ( I’ll cover this in a later article, but suffice to say there are multiple steps involved that encompass SEC and FINRA guidelines) To learn more about SEC and FINRA guidelines TrueCapital has a great article. Link
  • Having audited financial statements
  • Filing quarterly and annual reports, and other forms when material information develops, such as form 8-k filings
  • You can sell your securities via publicly traded stock markets (OTCBB and Pink Sheets)
  • You can use broker/dealers to underwrite your offering (giving you a potentially huge market)

Keep in mind that I’m condensing this for your benefit – there’s a lot more that I will go into in a later post. Going public is not for the faint of heart – but it could very well be the boon you need to raise big time private money and gobble up bargain distressed real estate deals, notes or other investments that you would not otherwise get.

One of the biggest reasons real estate investors want to go public is so they can advertise their securities offering. If you want to hit the broadcast waves with your business and your offering, you can do this when you go public without having to fear that you’ll get a cease and desist letter from the SEC. Of course, there are limitations as to what you can say/how you can say it, but you still have a pulpit to pitch private investors where you’ll be heard far and wide.

Staying Private – Which Exemption to Use?

But…if you don’t want to go public but still want to advertise your securities offering to private money investors, there is another route you can take: you can offer your securities under a Regulation A Exemption.

Here’s a breakdown of what you can do under a Regulation A exemption:

  • Raise up to $5 million within a 12-month period
  • You can advertise the sale of your security
  • You can “test the waters” – this means you can advertise before your offering statement is accepted by the SEC or states’ security boards and collect an interest list (but you can’t take any money until you file the paperwork)
  • The securities are not “restricted” and are freely tradeable
  • No audited financial statements
  • No on-going reporting requirement so long as there are less than 500 shareholders and the assets of the company do not exceed $10 million

Before you run out and start your Regulation A offering immediately, consider the following:

  • You must have a specific business plan for raising the capital (no vague capital raising for broad ‘investment’ purposes)
  • If you “test the waters,” you may not accept money until the SEC staff completes its review of the filed offering statement and you deliver prescribed offering materials to investors
  • Time: the SEC and state securities regulators don’t move as quickly as you’d like them to
  • More expensive than a private offering (such as Regulation D)

Compare and contrast your capital raising options in multiple scenarios (going public, Regulation A, Regulation D exemption, etc.). Consult with your securities attorney before you move ahead with any kind of securities offering. My job is to arm you with information, ideas and techniques and it’s your securities attorney’s job to make sure your particular situation (every single one is different – I know it sounds cliche, but it is true) is in compliance with the securities laws.

I’ve had most of my private money raising success using Regulation D and Intrastate offering exemptions. I work as hard as I can to keep things under Reg. D, so as to streamline my capital raising process and get private money in play faster. You must choose the securities offering type that best matches your business, your investors and the regulations of your state. Remember, don’t be intimidated by the securities laws for private money, you just have to take it one bite at a time and have good advisors in your corner.