We highly recommend Sonfield & Sonfield’s weekly newsletter (available from their Twitter feed @SonfieldHouston) – a wealth of securities issues. Last week Mr. Sonfield explored the fact that “The SEC adopted final rules on December 19, 2018 authorizing reporting companies to use Regulation A and Regulation A+ to conduct public offerings.” Probably most important in this article is a reference to the SEC’s adopted rules, which was a treasure trove of information for those of us using crowdfunding, both as public companies and on the way to becoming a public company (excerpts from these adopted rules are throughout the rest of this post).
Facts
Most important item to remember:
Regulation A provides an exemption from the registration requirements of the Securities Act for offers and sales of securities up to $20 million, for Tier 1 offerings, or up to $50 million, for Tier 2 offerings.
Page 3
Many of us mistakenly treat Regulation A and Regulation A+ as offerings, but both of them are not registrations! Another item that we already knew about:
In a Tier 1 offering, the financial statements are not required to be audited.
Page 7
And then there’s the economic analysis, which had some incredible information:
Between June 19, 2015 (the effective date of the 2015 amendments) and September 30, 2018, there were approximately 260 qualified offerings seeking up to approximately $5.8 billion in the aggregate. In the same period, approximately $1.3 billion in aggregate proceeds was reported to have been raised by 123 issuers. Tier 2 accounted for most of the Regulation A capital raising activity (approximately 180 qualified offerings seeking up to approximately $5.1 billion with approximately $1.1 billion in aggregate proceeds reported raised by 98 issuers). In other words, Tier 2 accounted for approximately 88% of the amount sought to be raised and approximately 85% of the amount reported to have been raised during this period.
Page 12 – 13
What was not clear until these comments, and even then we required a legal opinion to confirm, was that:
In addition, Regulation A contains a safe harbor from integration of Regulation A offerings with any prior offers or sales of securities, as well as with any subsequent offers or sales of securities registered under the Securities Act.
Page 17 (also see footnote #43)
Preparation of a Regulation A Offering
And here is the really information item – a breakdown of the costs of a Regulation A offering. This is the first time that I’ve seen this breakdown, and it is very illuminating:
- The SEC expects that these amendments reduce the hours to produce a Regulation A offering to 731.28 burden hours per response.
- The issuer will carry 75 percent of these hours, or 548.46 hours.
- Outside professionals will carry the other 182.82 hours at a average cost of $400 per hour, $73,128.
Conclusion
The SEC has made the point for getting help with your crowdfunding project – if you haven’t done it, or even if you have, it’s going to take a great deal of time (approximately 548 hours). Bringing on a firm like DSV Consulting LLC will definitely help alleviate those hours, limit the hours required of securities counsels (much less than $73,128 – many of our clients spend less than $10,000). So call us today at DSV Consulting LLC and let us help you through the process.