SEC
Legal

Secondary Market Key to Success of New Reg A+ Offerings

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The development of a reasonably liquid secondary market for trading securities issued under the newly reformed Regulation A exemption proposed by the Securities and Exchange Commission is critical to the future growth and success of the offering structure for raising emerging growth capital, say both its proponents and critics. Without one, many cap markets pros say the new Tier II “A+” offerings will offer few advantages over the standard S-1 registered offerings while incurring most of the costs, and continue to be the neglected stepchild of the public offerings market. But with a secondary market to facilitate investor exits, Reg A+ boosters see a Goldilocks-like equity offering structure that could become the go-to channel to bridge young private emerging growth companies, some of them financed via publicly marketed private offerings, into the public markets. The SEC published a draft of the reformed Reg A rules in late December as an amendment to the Securities Act labeled Section 3(b)(2).  The proposal splits Reg A offerings into Tier I and Tier II types.

Markets

Lesser-Known and Established Funds Differ on Ads

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Private funds received the same marketing freedoms as operating companies and startups when the Securities and Exchange Commission lifted the ban on general solicitation in September. But while small business proponents heralded the ban’s end as a transformative capital raising event, private funds have remained a bit more circumspect. A review of Form D submissions over the last several weeks indicates that while it’s not uncommon to see two or three fund filings each day declaring that sponsors have elected to use general solicitation by checking the Rule 506(c) box, most pooled investment funds continue to conduct offerings without the broad marketing option. Observers largely agree that emerging or lesser-known midlevel managers are most likely to market their offerings initially. At some point, however, large funds will begin to advertise in an effort to enhance their brand, they maintain.

Legal
crowdfunding

Crowdfunders Receive Blueprint

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The Securities and Exchange Commission’s 585 pages of proposed rules for crowdfunding released last month amped up the chatter from online platforms, angel investors and third party service providers catering to entrepreneurs, startups and small growth companies. Crowdfunding supporters had waited more than 18 months for a hint of what the rules would entail after the JOBS Act legalized the funding-by-the-masses concept and directed the SEC to craft the regulatory oversight. The proposal, known as Regulation CF, is broadly focused on raise and investment limits related to the incomes of non-accredited investors. Reaction has been typical: The SEC did a good job crafting some rules, and poor job on others. Among the policies put forth, the commission revealed that it would allow companies to conduct separate offerings at the same time.

Markets
crowdfunding

Advertising Poised to Shake Up Emerging Growth Capital Markets

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The end to the ban on general solicitation in private securities offerings has ushered in an extraordinary capital markets transformation that could lead to more capital for small companies and startups, more investment opportunities for accredited investors, and more fraud. Observers compare the change to when securities trading eventually moved from the realm of broker-dealers to online trading platforms like E-Trade and Charles Schwab amid the ramp up of the Internet and other technological innovations. “We’re really on the verge of a paradigm shift as to how transactions are marketed, and it is because of this regulatory change,” said chief JOBS Act promoter and pioneer David Weild IV. “It will take a little bit of time, but the good news is that general solicitation has everybody talking about equity and small companies, and small companies are where jobs are created.”

Preparing for Change

The JOBS Act directed the Securities and Exchange Commission to end the ban on general solicitation under Title II, and market participants have wasted no time positioning themselves to take advantage of the newfound freedom. Companies and investment funds have already filed dozens of Form Ds indicating that they’re going to market their private offerings to the public.