07 May Awaiting Rules on Regulation A+ for Simplified IPO

A somewhat underreported section of the Jumpstart Our Business Startups (JOBS) Act relates to what many are now calling Regulation A+ (I acknowledge coining the name at an SEC small business conference). The idea is to enhance the attractiveness of SEC Regulation A.

Currently, Regulation A allows you to do a simplified offering circular, much like a question and answer format, as your offering document for an IPO. The SEC reviews it but it is not as overwhelming a document as a typical IPO prospectus. You can also “test the waters” with potential investors. But virtually no one used it since there was a $5 million limit on how much you can raise, and because the state reviews of these documents were extremely time-consuming and overwhelming.

The JOBS Act directs the SEC to write rules to expand the limit to $50 million and also to preempt state merit review of these offerings. While there is no time limit for the SEC to write the rules, we are told they are in progress. Financial statements will have to be audited, not previously required. And at the end of the offering the company is public but not required to do SEC reporting unless they file to do so afterward.

I think Reg A+ could be a real sleeper, an exciting alternative to a traditional IPO if the rules are done right and if the SEC keeps its reviews of the offering circulars manageable. We’ll keep an eye on it for you!