If you’re a veteran of the private placement world, you’ve seen the terms “Reg A” and “Reg D” thrown around on occasion.
Those are short for “Regulation A” and “Regulation D”.
These types of offerings are special SEC exemptions for private companies trying to raise money from investors.
Here’s what sets Reg A and Reg D offerings apart from regular private placements. Both regulations allow companies to forego having to register their stock with the SEC. This means less paperwork, less time, and less cost for the company.
Companies love this because they don’t have to go through all sorts of legal rigmarole when compared to an IPO.
This can help the company scope out investor interest without spending too much on legal and professional fees before actually going public.
Companies looking to do Reg A and Reg D offerings still need to register the financing itself with the SEC and get approval.
Thus they’re not inherently more risky than any other private placement.
- There are good reasons for a private company to go with a Reg A placement to raise capital instead of a more “traditional” method.
For example, Reg A is more favorable in a seed round with private investors.
In other words, Reg A and Reg D offerings are just private placements under a different name.
So, What’s the Difference Between Reg A and Reg D?
There are a lot of fine details that differentiate the two. But from the investor’s perspective, here’s what matters:
Reg A Deal:
- Are capped at $50 million.
- Under $20 million, investors don’t have to be accredited to participate.
- Between $20-50 million, non-accredited investors can still participate, (but their maximum allocation is capped based on the higher of 10% of their net income or 10% of their net worth)
- Accredited investors are not capped.
In other words, even if you’re not an accredited investor, Reg A offerings can still be a great way for you to get access to the benefits associated with a private placement.
Provided, as usual, that you would be willing to buy into the company without a private placement involved.
Reg D Offerings:
Are generally only open to accredited investors.
Technically, up to 35 non-accredited investors may participate. But the amount of extra headache and cost involved generally makes it not worthwhile for companies to include non-accredited investors in their Reg D offerings.
That’s why it’s best to think of Reg D offerings as only being available to accredited investors… Unless specifically mentioned otherwise.
Reg A+ Offerings:
Now if you’ve been around the private placement block, you may also have seen the term “Reg A+” thrown around.
This came about as the result of a change that the SEC made to the Reg A guidelines in 2015.
It expanded Reg A into its current split between the $0-20 million tier and $20-50 million tier of capital raises.
This new expansion to the original Reg A rules is what’s known as Reg A+.
- Reg A+ is the “new” Reg A.
So regardless of whether a company announces a new placement as a Reg A or Reg A+ offering… it’s still the same thing.
Keep watching the KR Private Placement Monitor for news on companies with deals under the Reg A and Reg D banners.
-Katusa Research
