Capital Raising

Our experienced team is dedicated to helping businesses navigate the intricacies of various fundraising mechanisms to achieve their financial goals. We assist clients in understanding and utilizing the capital raising strategies, including Regulation D (Reg D), Regulation Crowdfunding (Reg CF), and Regulation A+.

Regulation D

Regulation D offers exemptions that allow companies to raise capital without having to register with the Securities and Exchange Commission (SEC). There are two primary exemptions under Regulation D: Rule 506(b) and Rule 506(c).

Rule 506(b)

• General Solicitation: Prohibited; companies cannot advertise the offering to the general public.
• Investors: Allows up to 35 non-accredited investors and an unlimited number of accredited investors.
• Disclosure Requirements: If any non-accredited investors participate, the company must provide them with disclosure documents, similar to those used in registered offerings.

Rule 506(c)

• General Solicitation: Unlike traditional private placements under Rule 506(b), companies can broadly solicit and advertise their offerings.
• Investors: Limited to accredited investors only.
• Verification: When advertising and general solicitation are used, companies must verify that each investor is accredited. This verification can involve obtaining written confirmation from the investor’s lawyer, accountant, advisor, or broker, confirming the necessary due diligence was performed. Alternatively, companies can conduct their own due diligence by collecting the investor’s W-2, K-1, or tax return to verify income, or financial statements to verify net worth.

Regulation Crowdfunding (Reg CF)

Regulation Crowdfunding allows small businesses to raise capital from a large number of investors, including non-accredited investors. The offering process under Reg CF is fairly straightforward and cost-effective. It involves filing a Form C offering statement with the SEC, which is then posted on a funding portal that is both a FINRA member and registered with the SEC.

• Investment Limits: Limits the amount individual investors can invest based on their income and net worth.
• Annual Limit: Companies can raise up to $5 million in a 12-month period.
• Disclosure Requirements: Companies must file certain information with the SEC, provide it to investors, and post it on the funding portal. The company’s offering page, hosted on the funding portal, includes the Form C information, investment documents, company video, and company summary. The company is permitted to advertise and solicit investors generally to drive traffic to its offering page.

Regulation Crowdfunding democratizes the fundraising process by enabling small investors to participate in startup and small business financing, thereby fostering innovation and economic growth. The entire process can be launched in less than a month, and offerings typically remain open for about 60 days after launch.

Regulation A

Regulation A (also known as Regulation A+ or Reg A+), often considered as a “mini-IPO,” allows companies to sell securities to either accredited or non-accredited investors. Before doing so, the company must submit an offering statement on Form 1-A to the SEC. This statement undergoes a review by the SEC staff, and the company must address any comments they provide. This review process typically takes about 90 days.

One advantage of Regulation A compared to a typical initial public offering (IPO) is the absence of a “quiet period.” Instead, companies can “test the waters” under Regulation A, meaning they can inform the public of their plans to undertake a Regulation A offering and gather non-binding expressions of interest from potential investors even before filing the offering statement with the SEC. This helps determine the potential success of the proposed offering.

There are two tiers under Regulation A+:

Tier 1

• Annual Limit: Allows companies to raise up to $20 million in a 12-month period.
• State Securities Law Compliance: Subject to state securities law registration and qualification.
• Disclosure Requirements: Requires the filing of an offering circular with the SEC, which must be reviewed and qualified.

Tier 2

• Annual Limit: Allows companies to raise up to $75 million in a 12-month period.
• State Securities Law Preemption: Tier 2 Regulation A offerings benefit from the preemption of state securities laws, which means there is no need for state-level review. However, simple notice filings with state securities law administrators may still be required.
• Disclosure Requirements: Requires ongoing reporting obligations, including annual, semi-annual, and current event reports to the SEC.

Regulation A+ offers a streamlined process that bridges the gap between private offerings and full public offerings, providing companies with the ability to access capital while still ensuring investor protection through regulatory oversight. After completing a Regulation A offering, the securities become free-trading. The company can choose to have its securities quoted on over-the-counter markets or, if it meets the exchange requirements, on a national securities exchange like NASDAQ or NYSE. Companies that sell securities under Regulation A must adhere to ongoing reporting requirements, which are less onerous than those for a traditional IPO.

As an entrepreneur, one of the major hurdles you will encounter is securing the funding needed to establish or grow your business. Regardless of whether you manage a small business or a large public corporation, you probably have questions about financing.

Our clients frequently need capital to develop their growing businesses. We are dedicated to understanding the latest capital-raising techniques, from equity crowdfunding to the EB-5 Immigrant Investor Program, ensuring that our clients have a competitive advantage when seeking funds.

We regularly advise clients on Regulation Crowdfunding (CF) offerings, Regulation A offerings, offerings under Regulation D, Rule 506(b) and 506(c), international offerings under Regulation S, early-stage financings with convertible notes, SAFE (Simple Agreement for Future Equity), KISS (Keep It Simple Securities), series seed preferred, and the EB-5 Immigrant Investor Program.

Navigating the landscape of capital raising in the United States requires a deep understanding of the regulatory framework and strategic insight into the best options for each unique situation. At Origin Law, we provide expert guidance on the various options and their potential impacts on the future of your business.