Regulation A+ is an updated securities regulation that allows companies to raise up to $50 million from accredited and non-accredited investors worldwide. As of Dec 31st, 2018, 157 companies have raised $1.4 Billion. These offerings ranged from $1 mill up to $50 mill and averaged in the low teens.
Reg A+ can be a far better fit than Venture Capital
I have raised funds from blue-chip Silicon Valley VCs, and I was a senior exec for two successful NASDAQ IPOs (TATE and SYMC), and I also built a VC firm. I've made some 40 angel and mezzanine investments in private companies (including INFN, AMRS, Bloom Energy and Ask Jeeves).
I have been immersed in Regulation A+ for four years through Manhattan Street Capital, the Regulation A+ funding platform. Through these experiences, I am reasonably well positioned to observe how Reg A+ compares and contrasts with Venture Capital. Many of the companies I meet with that are viable candidates for VC are opting for Reg A+ instead. I see Regulation A+ emerging as the superior choice in the following circumstances:
1) More direct control over your company's destiny. One appealing facet of Regulation A+ relative to VC is that the CEO has control over so many aspects of their offering destiny. For example; company valuation, size of the raise, the type of security you offer, and how long you choose to spend in live offering mode (3 months to a whole year?). You get to select where you will list your stock post offering or if you will list it at all. Of course, all this freedom does come with a price; there are no guarantees your offering will succeed. With VC, the entrepreneur has much less control over their financing and how their business gets managed afterward.
2) Early, low-cost IPO. While Reg A+ can be a direct method of taking a company public to
the NASDAQ, venture capital cannot do so directly. The Reg A+ characteristic of being able to market your company freely instead of the traditional S-1 IPO Quiet Period is very appealing. In Reg A+ you can raise capital for an IPO to the NASDAQ while retaining the flexibility that if you don't reach the NASDAQ minimum capital raise requirement for listing, you can still complete your Reg A+ raise. This is a distinct advantage over an S-1 IPO.
3) Location. Venture capital is local. If your company is far away from a Venture Capital hub, VC is pretty much unavailable. Reg A+ is genuinely agnostic about company location (as long as the company is located in the U.S. or Canada). This democratic access to capital is a huge plus for many excellent businesses and talented entrepreneurs.
4) Customer traction and the credibility it brings. In the case of companies that appeal strongly to consumers, the Reg A+ process of marketing to thousands of investors has additive effects on the company and its brand. Throngs of happy shareholders make for happy customers and vice versa. (We can ask public companies about that phenomenon.) VC is not usually a factor here.
5) Adjustable (and higher) valuation. Typical Reg A+ offerings are far less dilutive for the founders than VC rounds. The ability to raise the share price and valuation of your company during the Reg A+ offering (which can last up to 12 months per SEC Qualification) adds the flexibility to handle a larger capital raise than you had expected while still managing dilution in a balanced way. Ask your local VC friends how they will take to that!
6) Mid-stage companies. For successful mid-stage companies, VC money is rarely an option unless they were already VC funded in an earlier round. There is also the case of mid-stage companies whose VCs have no more capacity to invest but have a great deal of interest in getting liquidity. In these cases, Regulation A+ is a uniquely good option that offers a fresh and less costly approach than reverse mergers or waiting four years for a conventional IPO. Getting access to growth capital for a $50 million business growing 40% per year, at a favorable valuation and with investor liquidity is a true symphony.
7) Investor power. Along with the efficiency of dealing with VC, partners comes the mixed bag of concentrated investor power. VCs are practiced at replacing errant CEOs. This could be a good thing for a struggling company. On the other hand, some founders would rather not put their strategy and role at risk. With Reg A+, founders reduce the likelihood that they will lose control of their companies.
8) Liquidity for investors. In Reg A+ investor's shares can be traded immediately after purchase in most cases through brokers when a company does not list, or on stock markets when it does list. If investors or employees need liquidity, Reg A+ can deliver it much earlier. In fact, Reg A+ is a viable solution for VC firms that have accumulated numerous portfolio companies that are waiting for liquidity. Summary
It is important to note that while Reg A+ is advancing, it is still in its early years – to miss- quote Winston Churchill, "We Are At The End Of The Beginning." Large scale changes to the capital markets, such as those Regulation A+ brings, take time to settle in and for awareness to build. I see a steadily growing number of companies engaging with Reg A+ and a significant shift to more established companies joining the early adopters. 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. Regulation A+ does not fit all companies, though. Take a look here to see the types of companies most likely to succeed.
Venture capital will adapt and evolve. Some of the change I expect to see will come from Reg A+ filling gaps in the capital formation landscape that VC was not addressing effectively, as you can see above. Reg A+ is improving the efficiency of the capital markets.
Scores of companies that couldn't raise capital in the old context will now prosper, boosting
U.S. economic activity and employment.
The result: Venture capital is getting a little squeezed around the edges. And this is a good
development. | 
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