Regulation A is an exemption from the securities registration requirement, which allows qualifying companies to raise public capital without paying high fees and dealing with legal ramifications necessary for traditional IPO needs. However, a Reg A capital raise does have pros and cons associated with it, and you should consider them carefully before deciding.
Who Should Use These Raises?
Primarily, companies that want to go public and be listed on an exchange should consider Reg A raises. The Reg A rule allows you to list on any national public exchange, such as the OTC, NYSE, or NASDAQ. While conducting the raise is less expensive than an IPO, it does cost money to list on an exchange and comes with a variety of strict reporting requirements. The strategy of using Reg A to list on these exchanges should only be done by companies that can support the ongoing administrative and financial burdens of annual reporting in public.
Companies that find themselves too small for an IPO but are equipped to handle reporting and operations may want to consider a publicly traded Reg A raise. This gives them more access to investors who are looking for liquid securities rather than non-traded securities.
Working through Reg A is in high demand for brokers who issue new public issuances. New public offerings have declined, and the market has narrowed, which leaves more competition for investment banks and brokerages. Therefore, many brokerage firms are dealing with Reg A raises more often.
A Regulation A capital raise can also work well for retail companies with passionate fans. Most US citizens aren’t given the opportunity to buy equity, but many retail brands have formed strong brand recognition and can offer stock to people who aren’t accredited investors. Reg A allows these fans to invest with the brands they desire. For more information visit EquityTrack.