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SEC Regulation A+ Opens Doors to ‘IPO Lite’ Option for Businesses

March 26, 2015
Small Business
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On Wednesday, small businesses got a new way to raise millions of dollars in investments without going public.

The U.S. Securities and Exchange Commission approved changes to a little-used regulation that will now let companies sell up to $50 million in securities to outside investors every year.

“These new rules provide an effective, workable path to raising capital that also provides strong investor protections,” SEC Chair Mary Jo White said.  “It is important for the commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies.”

The change creates a sort of “IPO Lite” — a way to raise a significant amount of capital for businesses that may be well established, but not ready, or willing, to be traded on the stock market.

Until now, what’s called SEC Regulation A allowed private companies to raise only $5 million annually. Of that, only $1.5 million could come from current stockholders and the company would have to pay fees in every state in which it intended to sell shares.

Congress cleared the way for Wednesday’s vote when it passed President Obama’s 2012 JOBS (Jumpstart Our Business Startups) Act. The act required the SEC to work on new regulations that help small businesses get access to financing.

Steve Sadler, CEO of Allegiancy, a Richmond, Virginia-based commercial real estate company, has been an outspoken proponent of what’s being called Regulation A+. His company raised money under the old Regulation A provisions, and he says it intends to seek an additional $20 million in funding under the new regulations — which go into effect in 60 days.

“Reg A+ is all about opening doors for small businesses who previously couldn’t access the capital they needed to grow,” Sadler said in a press release. “For too long, the equity markets have been broken and have kept smaller, promising companies on the sidelines. Reg A+ is about creating jobs and new opportunities. And it’s about giving regular folks access to investments that only a handful of venture capital and private equity bigwig investors have enjoyed up until now.”

Doug Gross is a staff writer covering personal finance for NerdWallet. Follow him on Twitter@doug_gross and on Google+.


Image via iStock.