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What's Market: Mini-IPOs under Regulation A+ (Tier 2)
Practical Law Article w-002-5443 (Approx. 16 pages)
What's Market: Mini-IPOs under Regulation A+ (Tier 2)
by Practical Law Corporate & Securities
| Law stated as of 18 Apr 2017 • USA (National/Federal) |
This Article reviews selected Form 1-A filings for "mini-public offerings" under Regulation A of the Securities Act. This resource provides links to and includes certain summary information about Form 1-A filings for Tier 2 offerings under Regulation A, including a brief overview of each issuer's business, target offering amounts, selected offering details, and estimated professional fees. This resource also provides market trend analysis and highlights on Tier 2 offerings that the SEC has qualified since amended Regulation A (informally referred to as Regulation A+) became effective on June 19, 2015.
The JOBS Act was enacted in 2012 to expand and ease methods of capital raising by, and relax the regulatory burden on, smaller companies. Title IV of the JOBS Act, Small Company Capital Formation, directed the SEC to amend Regulation A under the Securities Act or adopt a new, similar regulation that exempts from Securities Act registration certain offerings of up to $50 million. The SEC adopted final rules and forms implementing this directive by amending Regulation A. The final rules and forms became effective on June 19, 2015.
Practitioners informally refer to Amended Regulation A as "Regulation A+," since it is intended to be an improved and modernized version of the pre-JOBS Act Regulation A. Like former Regulation A, Regulation A+ provides for "mini-public offerings," meaning offerings exempt from SEC registration, but sharing some key characteristics with SEC-registered offerings. Offerings under Regulation A+ are public offerings that can be made using general solicitation and advertising. To offer securities under Regulation A+, an issuer must file an offering statement on Form 1-A with the SEC, including an offering circular (OC) for distribution to investors and all required exhibits. Form 1-A filings are subject to SEC review and comment. Before sales under Regulation A can be made, this filing and review process must culminate in the "qualification" of the Form 1-A.
Regulation A+ includes two tiers of offerings:
- Tier 1, an exemption for offerings of up to $20 million in a 12-month period, including up to $6 million of secondary sales by the issuer's affiliates. Tier 1 offerings are generally subject to state blue sky registration and qualification requirements. Tier 1 issuers are subject to minimal continuing reporting requirements.
- Tier 2, an exemption for offerings of up to $50 million in a 12-month period, including up to $15 million of secondary sales by the issuer's affiliates. Investors in Tier 2 offerings that are not accredited investors (AIs) are subject to limits on the amount they may invest in a Regulation A offering. Tier 2 offerings are exempt from state registration and qualification requirements. Tier 2 issuers are subject to ongoing periodic reporting requirements. Tier 2 issuers can benefit from a conditional exemption from Exchange Act registration or can take advantage of a simplified process for entering Exchange Act-reporting company status at the time they complete a Tier 2 offering.
This Article provides highlights and market trend analysis on selected Tier 2 offerings that the SEC has qualified under Regulation A+ since it became effective. It also includes a Form 1-A filing tracker providing certain information on selected Tier 2 offerings, including a link to the issuer's filings, a brief business overview, the target offering amount, selected offering details, and estimated professional fees (see Form 1-A Filing Tracker). This Article focuses on Tier 2 offerings because the majority of Regulation A+ issuers successfully navigating the SEC qualification process have opted to conduct offerings using Tier 2.
To learn more about offerings under Regulation A+, see Practice Note, Regulation "A+" Offerings under Amended Regulation A. For a chart that summarizes some of the key features and requirements of amended Regulation A and shows where the requirements of Tier 1 and Tier 2 are the same and where they differ, see Regulation A Summary Chart: Tier 1 and Tier 2. For market information and analysis on offerings under Section 4(a)(6) of the Securities Act and Regulation Crowdfunding, see Article, What's Market: Federal Crowdfunding Offerings.
Regulation A+ Market Trends and Highlights
In December 2016, the SEC's Division of Economic and Risk Analysis (DERA) published a white paper analyzing offering activity under Regulation A from June 19, 2015 (the effective date of Regulation A+) to October 31, 2016 (see Regulation A+: What Do We Know So Far?, DERA, December 7, 2016). According to DERA, the SEC had qualified 48 Tier 2 offerings under Regulation A as of October 31, 2016. The filing tracker in this Article covers 47 of those 48 offerings, having excluded a filing relating to shares offered in connection with a merger instead of a traditional financing (see Form 1-A Filing Tracker).
The following market trends and highlights for qualified Tier 2 offerings are based on DERA's white paper as well as the data presented in the filing tracker in this Article:
- Tier 2 offerings accounted for about 60% of qualified offerings under Regulation A+.
- Issuers sought to raise up to $1.24 billion, with an average offer amount of $26 million and a median offer amount of $20 million.
- Only 15% of the offerings included a secondary component to give existing stockholders liquidity.
- 94% of issuers chose to offer equity securities.
- Only one-third of issuers chose to test the waters (for more information on testing the waters, see Practice Note, Regulation "A+" Offerings under Amended Regulation A: Solicitation of Interest (Testing the Waters) Communications).
- 96% of the offerings were marketed on a best-efforts basis (and only 17% involved underwriters).
- From the time of filing Form 1-A with the SEC, the average issuer's offering was qualified 121 days later, and the median issuer's offering was qualified 104 days later.
- Average reported legal fees for a qualified Tier 2 offering were $127,000, and the median legal fees were $60,000.
- Average reported audit fees for a qualified Tier 2 offering were $29,000, and the median audit fees were $15,000.
- Average reported intermediary fees (such as for underwriters or funding platforms) for a qualified Tier 2 offering were $1,067,000 and the median intermediary fees were $165,000.
- More than one-quarter of the issuers came from the real estate industry.
- Nearly 60% of issuers were pre-revenue and only 13% of issuers had positive net income.
- More than two-thirds of the issuers were organized in Delaware, and more than 60% were organized in 2015 or 2016.
- A majority of issuers had less than three employees.
Form 1-A Filing Tracker
The following chart lists Form 1-A filings for Tier 2 offerings conducted in connection with a financing that the SEC has qualified under Regulation A over the 16-month period following the effective date of Regulation A+.
Company Name (Link to EDGAR) | Business Overview (State / Year of Formation) | Target Offering Size | Selected Offering Details | Estimated Professional Fees | Annual Revenue (Number of Employees) |
Entertainment filtering company giving families the choice to remove objectionable content from movies they watch in their homes. (DE 2014) | $5,000,000 – $11,250,000 | Class B non-voting common stock at $3.00 per share; minimum investment of 50 shares ($100). | $135,000 (Legal Fees) $36,000 (Accounting Fees) | $2,405,430 (20 full-time; 24 part-time) | |
Commercial REIT.(DE 2016) | Up to $50,000,000 | Common stock at $10 per share; minimum investment of 100 shares ($1,000). | $250,000 (Legal Fees) $10,000 (Accounting Fees) | No revenue (No employees) | |
Provider of ancillary services to Natural Relief Clinic, a medical marijuana dispensary, in Phoenix, Arizona. (DE 2015) | Up to $16,400,000 | Class A common stock at $3.28 per share; minimum investment of 610 shares ($2,000.80); Class B stockholders entitled to elect majority of board of directors. | $15,000 (Legal Fees) $33,000 (Accounting Fees) | $3,622,005 (58 full-time; 1 part-time) | |
Proprietary medical device company in the liposuction and obesity markets. (DE 2001) | Up to $5,000,000 | Common stock at $3.50 per share; minimum investment of 200 shares ($700). | $7,500 (Legal Fees) $15,000 (Accounting Fees) | $968 (1 full-time; 4 part-time) | |
REIT investing in East Coast multifamily rental properties. (DE 2015) | $1,000,000 –$50,000,000 | Common shares at $10 per share; minimum investment of 100 shares ($1,000). | $312,500 (Legal Fees) $15,000 (Accounting Fees) | No revenue (No employees) | |
REIT investing in multifamily rental properties in Middle America. (DE 2015) | $1,000,000 –$50,000,000 | Common shares at $10 per share; minimum investment of 100 shares ($1,000). | $312,500 (Legal Fees) $15,000 (Accounting Fees) | No revenue (No employees) | |
REIT investing in West Coast multifamily rental properties. (DE 2015) | $1,000,000 –$50,000,000 | Common shares at $10 per share; minimum investment of 100 shares ($1,000). | $312,500 (Legal Fees) $15,000 (Accounting Fees) | No revenue (No employees) | |
Company sells Bluetooth devices that attach to personal belongings to make their location traceable using a mobile app. (DE 2016) | Up to $10,000,000 | Class A (low-vote) common stock at $1 per share; no minimum investment. | $75,000 (Legal Fees) $35,000 (Accounting Fees) | $314,722 (11 full-time; 8 part-time) | |
REIT investing in single-tenant properties leased by the US General Services Administration (GSA). (MD 2016) | $3,000,000 – $30,000,000 | Common stock at $10 per share; minimum investment of 150 shares ($1,500). | $150,000 (Legal Fees) $200,000 (Accounting Fees) | $76,559 (No employees) | |
Electronic device warranty direct sale business. (WY 2015) | Up to $15,250,000 | Common stock at $0.25 per share; no minimum investment. | Not disclosed. | No revenue (No employees) | |
A leading provider of employment law compliance solutions for employers and workers in the gig economy. (WY 2015) | $15,000,000 – $50,000,000 | Common stock at $8 per share; minimum investment of 100 shares ($800). | $12,000 + 100,000 shares of common stock issued at par value (Legal Fees) $13,400 (Accounting Fees) | $15,607,568 (2,966 full-time; 1,138 part-time) | |
Online retailer and wholesaler of electronic devices. (DE 2016) | Up to $85,000 | Common stock at $0.005 per share (primary and secondary); no minimum investment. | Not disclosed. | No revenue (0 full-time; 2 part-time) | |
Social media platform allowing businesses and people to create, discover, and share local events, such as concerts, nightlife, restaurant specials, festivals, date nights, and other social gatherings. (DE 2010) | Up to $30,000,000 | Series C non-voting LLC units at $12 per unit (primary and secondary); no minimum investment. | $40,000 (Legal Fees) $5,000 (Accounting Fees) | $1,544 (33 full-time; 0 part-time) | |
Consulting firm specializing in proposal development and market strategies for government contractors. (DE 2016) | $3,000,000 – $30,000,000 | Units, at $10 per unit, each consisting of one share of Series A cumulative convertible redeemable preferred stock and one warrant to purchase 0.25 shares of common stock at an exercise price of $2.00 per share; minimum investment of 500 units ($5,000). | $150,000 (Legal Fees) $50,000 (Accounting Fees) | $4,377,176 (29 full-time; 0 part-time) | |
Mobile gaming platform primarily targeting the eSports market. (DE 2014) | Up to $3,000,000 | Common stock at $5 per share; minimum investment of 100 shares ($500). | $58,000 (Legal Fees) $20,000 (Accounting Fees) | $17,127 (No employees) | |
Digital investment platform designed to support online investing under the JOBS Act. (DE 2015) | Up to $1,000,000 | Common stock at $1.00 per share; minimum investment of 100 shares ($100). | $50,000 (Legal Fees) $15,000 (Accounting Fees) | No revenue (1 full-time; 12 part-time) | |
Investment fund formed to purchase non-performing mortgage loans. (DE 2015) | Up to $50,000,000 | Non-voting Class A LLC interests entitling holder to initial profits up to the investor's principal investment plus a 12% annual return; minimum investment of $100. | $50,000 (Legal Fees) $2,000 (Accounting Fees) | No revenues (No employees) | |
Temporary staffing company targeting environmentally conscious companies; expanding into biopharmaceuticals and sustainable agricultural products. (DE 2015) | Up to $3,000,000 | Common stock at $1 per share; no minimum investment. | $200,000 (Legal Fees) $60,000 (Accounting Fees) | $11,313,083 (2 full-time; 0 part-time) | |
Crowd-curated internet radio platform with 5 million monthly users. (DE 2006) | Up to $11,000,000 | Series A convertible preferred stock at $3.20 per share; no minimum investment. | $50,000 (Legal Fees) $8,000 (Accounting Fees) | $3,095,269 (21 full-time; 0 part-time) | |
Modern lifestyle brand selling premium denim products and accessories direct-to-consumer. (DE 2013) | Up to $6,000,000 | Series A convertible preferred stock at $0.48 per share; no minimum investment. | $40,000 (Legal Fees) $12,138 (Accounting Fees) | $1,720,432 (8 full-time; 0 part-time) | |
Developer and operator of network of vertical entertainment centers (including Polercoaster and Skyspire). (DE 2015) | $5,000,000 – $50,000,000 | Class B (low-vote) common stock at $10 per share; minimum investment of 20 shares ($200). | $40,000 (Legal Fees) $10,000 (Accounting Fees) | No revenue (0 full-time; 3 part-time) | |
European brewer and distributor of craft beer and operator of brewpubs expanding into US market. (DE 2015) | Up to $50,000,000 | Common stock at $47.50 per share; minimum investment of 2 shares ($95). | $50,000 (Legal Fees) $25,000 (Accounting Fees) | No revenue (1 full-time; 0 part-time) | |
REIT investing in multifamily rental properties. (MD 2015) | $2,000,000 – $50,000,000 | Common stock at $10 per share; minimum investment of 1,000 shares ($10,000). | $250,000 (Legal Fees) $75,000 (Accounting Fees) | No revenue (No employees) | |
Company intends to sell "ZoZo," a new temperature control system that automatically adjusts temperature settings. (NV 2015) | Up to $225,000 | Common stock at $0.15 per share; minimum investment of 7,000 shares ($1,050). | $32,000 (Legal Fees) $5,000 (Accounting Fees) | No revenue (0 full-time; 1 part-time) | |
Patented 5G wireless data delivery service. (DE 2004) | $10,000,000 – $47,500,000 | Common stock at $5 per share; minimum investment of 100 shares ($500). | $30,000 (Legal Fees) $16,000 (Accounting Fees) | $219,334 (7 full-time; 3 part-time) | |
Online retailer selling luxury beauty, hair, fragrance, and skin care products. (DE 2014) | $5,000,000 – $10,000,000 | Common stock at $6.25 per share; minimum investment of 100 shares ($625). | $50,000 (Legal Fees) $27,000 (Accounting Fees) | $517,713 (4 full-time; 13 part-time) | |
Producer of consumer goods from industrial hemp and other non-psychoactive ingredients of the cannabis plant. (DE 2015) | Up to $306,000 | Common stock (primary and secondary) at $0.03 per share; no minimum investment. | Not disclosed. | No revenue (0 full-time; 2 part-time) | |
Real estate investment firm that purchases and rents commercial and residential properties. (DE 2015) | $100,000 – $25,000,000 | Common stock at $1 per share; minimum investment of 5,000 shares ($5,000). | $35,000 (Legal Fees) $2,500 (Accounting Fees) | No revenue (1 full-time; 0 part-time) | |
Developer and manufacturer of POMM (Privacy On My Mind) device providing biometry-based, user-enhanced authentication. (NV 2015) | Up to $10,001,750.50 | Common stock at $12.47 per share; minimum investment of 40 shares ($498.80); free POMM device with each $5,000 invested. | $60,000 (Legal Fees) $40,000 (Accounting Fees) | No revenue (No employees) | |
Promoting healthy lifestyles via gamification, social support, and financial incentives. (DE 2010) | Up to $20,000,000 | Series B non-voting convertible preferred stock at $1 per share; minimum investment of 100 shares ($1,000). | $70,000 (Legal Fees) $6,000 (Accounting Fees) | $1,560,979 (8 full-time; 1 part-time) | |
Creator of the Omni, a full immersion virtual reality platform for first-person navigation in-game (Active VR). (DE 2013) | Up to $15,000,000 | Series A convertible preferred stock at $2.332 per share; no minimum investment. | $35,000 (Legal Fees) $6,000 (Accounting Fees) | No revenue (31 full-time; 0 part-time) | |
Real estate investment firm that purchases existing income producing commercial rental properties. (DE 2015) | Up to $50,000,000 | 7% unsecured bonds due 2022 at $1,000 per bond; minimum investment of 5 bonds ($5,000). | $200,000 (Legal Fees) $75,000 (Accounting Fees) | $563,037 (No employees) | |
REIT. (MD 2015) | $2,000,000 – $50,000,000 | Common stock at $10 per share; minimum investment of 100 shares ($1,000). | Undisclosed; affiliate of issuer's sponsor intends to pay all offering expenses. | No revenue (No employees) | |
Community powered publisher of video games developed by third-party video game developers. (DE 2015) | Up to $3,000,000 | Non-voting preferred stock at $500 per share; no minimum investment; holders only entitled to receive dividends from economic performance of a particular video game to be co-published by issuer. | $500,000 (Legal Fees) $75,000 (Accounting Fees) | No revenue (2 full-time; 0 part-time) | |
Commercial REIT. (DE 2015) | $1,000,000 – $50,000,000 | Common shares at $10 per share; minimum investment of 100 shares ($1,000). | $275,000 (Legal Fees) $15,000 (Accounting Fees) | No revenue (No employees) | |
Aircraft manufacturer developing vertical takeoff airplane. (DE 2012) | $3,000,000 – $20,000,000 | Common stock at $1 per share; minimum investment of 350 shares ($350). | $30,000 (Legal Fees) $7,500 (Accounting Fees) | No revenue (No employees) | |
Online lending platform providing commercial loans to small businesses. (DE 2013) | Up to $50,000,000 | Unsecured redeemable notes at $25 per note; 5% to 10% interest and a 3-year term; no minimum investment. | $200,000 (Legal Fees) $75,000 (Accounting Fees) | $94,574 (17 full-time; 0 part-time) | |
American production company producing low- to medium-budget films and television series. (DE 2014) | Up to $50,000,000 | Common stock at $1 per share; no minimum investment. | Not disclosed | $34,490 (1 full-time; 0 part-time) | |
Mineral exploration and development. (Alberta, Canada 1986) | Up to $450,000 | Units, at $0.075 per unit, each consisting of one common share and one common share purchase warrant at an exercise price of $0.15; no minimum investment. | Not disclosed | No revenue (1 full-time; 3 part-time) | |
Commercial and multi-family REIT. (MD 2015) | $8,000,000 – $50,000,000 | Common stock at $10 per share; minimum investment of 500 shares ($5,000). | $225,000 (Legal Fees) $65,000 (Accounting Fees) | No revenue (2 full-time; 0 part-time) | |
Independent entertainment asset acquisition, management, and distribution company with a focus on feature films, television programming, and web series. (WY 2015) | Up to $20,000,000 | Common stock at $0.10 per share; no minimum investment of 1,000 shares ($100). | $500 (Legal Fees) $1,000 (Accounting Fees) | No revenue (No employees) | |
Commercial REIT. (MD 2015) | Up to $20,000,000 | Common stock at $5 per share; no minimum investment. | $235,000 (Legal Fees) $4,000 (Accounting Fees) | No revenue (No employees) | |
Cannabis cultivator researching and developing commercial medicinal applications of extracted compounds. (NV 2014) | Up to $15,000,000 | Common stock at $0.60 per share; minimum investment of 1,000 shares ($600). | $35,000 (Legal Fees) $15,000 (Accounting Fees) | No revenue (0 full-time; 7 part-time) | |
Internet platform enabling users to create and maintain an e-commerce website for retail products. (UT 2015) | Up to $3,000,000 | Common stock at $1 per share; minimum investment of 500 shares ($500). | $1,000 (Legal Fees) $3,000 (Accountant Fees) | No revenue (3 full-time; 0 part-time) | |
Leading global dental technology and device manufacturing company. (FL 2005) | $5,000,000 – $20,000,000 | Class A non-voting common units at $3.50 per units; minimum investment of 2,857 units ($10,000). | $330,000 (Legal Fees) $380,000 (Accountant Fees) | $9,028,569 (336 full-time; 0 part-time) | |
Asset and property management service provider to owners of suburban commercial real estate in secondary and smaller markets. (DE 2013) | $15,050,000 – $30,100,000 | Common stock at $14 per share; minimum investment of 100 shares ($1,400). | $225,000 (Legal Fees) $65,000 (Accountant Fees) | $3,337,908 (24 full-time; 0 part-time) | |
Designer, developer, and manufacturer of highly efficient, low-cost automobiles. (AZ 2009) | $12,600,000 – $25,080,000 | Common stock at $12 per share; minimum investment of 50 shares ($600). | $100,000 (Legal Fees) $25,000 (Accountant Fees) | No revenue (15 full-time; 0 part-time) |