Historically, private companies could only raise capital from accredited
investors. Some of the requirements to be an accredited investor includes
having a net worth of at least $1,000,000 or having income of at least
$200,000 per year for the last two years. This excludes approximately 98%
of U.S. investors.
The JOBS Act signed in 2012 allows entrepreneurs to crowdfund, essentially
publicly advertising their capital raises. Three years after the JOBS Act
was signed Title IV (Regulation A+) of the JOBS Act went into effect,
allowing private early-stage companies to raise money from all Americans.
While there are different types of Reg A offerings, one of the most
attractive to early stage companies is Reg A Tier II, which allows for
raising up to $50 million from both accredited and unaccredited investors.
Reg A Tier I allows for raising up to $20 million from both accredited and
unaccredited investors. Under Tier I offerings, there is no requirement to
ascertain investor status.
In order to go forward with a Reg A offering, companies will first need to
file with the SEC and get the qualification. It is important to note that
the costs associated with a Reg A offering are substantially lower than a
traditional IPO, and the continuous reporting requirements are not as
For more information on Regulation A please visit the SEC’s resources
Regulation D 506(b) and 506(c) Offerings
Regulation D has been a core startup financing model for over 30 years and
was originally intended to make access to capital markets more accessible
for small companies. Angel and Venture Capital firms have traditionally
taken this approach. There are two main types of Regulation D 506 offerings
Reg D 506(b) and Reg D 506(c).
Reg 506 (b) allows companies to raise capital from an unlimited amount of
accredited investors, and up to 35 unaccredited investors. If any
unaccredited investors are included in the offering additional disclosures
of audited balance sheets and financial statements are required to be
provided to all investors. General solicitation or advertising with 506(b)
offerings are not permitted.
Reg 506 (c) allows for general solicitation and advertising but only
accredited investors may invest. While the investor base is limited to
accredited only, being allowed generally solicit huge opportunity to these
companies as they can leverage a variety of solicitation channels to
include the internet, social media, television and more. Companies must
verify “accredited investor” status using federally prescribed reasonable
steps to verify that investors that are actually accredited investors.
For more information on Rule 506 of Regulation D please visit the SEC’s
Regulation CF Section 4(a)(6) Crowdfunding Offerings
Regulation CF offerings were established in May of 2016, and enable US
companies that are not investment companies per the Investment Act of 1940
and are not an SEC-reporting company to be able to raise up to $1 million
from any investor, accredited or unaccredited. Reg CF has a number of
restrictions on how much any one person can invest. Contributions are
restricted to be 5% of an individual’s net worth for income below $100k and
10% of an individual’s net worth for income in excess of $100k. Based on
that criteria investors are eligible to contribute a minimum of $2k and a
maximum of $100k
For more information on Regulation Crowdfunding, please visit the SEC’s