On December 31, 2016, the SEC released its report on Regulation A activity.  The report contained some interesting metrics.  Thanks to Scott Purcell, CEO of FundAmerica, for some of these eye-opening bullets.  In approx 16 months since the Reg A became effective, as of October 31, 2016:

  • Issuers have publicly filed offering statements for 147 offerings seeking up to approx $2.6B in financing (of which 81 were qualified seeking up to approx $1.5B)
    • Offerings must be qualified by the SEC before issuers may sell securities
  • Approx $190M has been reported raised during this period by 20 issuers
    • Although this likely understates the true amount raised due to reporting timeframes
    • Additional 11 issuers reported 0 proceeds as of the report date
  • Of the 81 that were qualified, 49 were Tier 2 Offerings, 32 were Tier 1
  • Average issuer was seeking to raise approx $18M
  • 121 days on average elapsed from filing to qualification for Tier 2 Offerings (93 days for Tier 1)
  • 17% of the Tier 2 Offerings used broker-dealers (0% for Tier 1)
  • 15% of Tier 2 Offerings included sales by existing securityholders (3% for Tier 1)
  • 13% of Tier 2 Offerings included sales by affiliate securityholders (3% for Tier 1)
  • Majority (around 80%) of the offerings did not involve “testing-the-waters”
  • Tier 2 Offerings on average solicited in 43 states (13 for Tier 1)
  • Most of the offerings were equity (87% equity vs 13% debt or other offerings)
  • Median legal costs were approx $40,000 ($50,000 for qualified Tier 2 Offerings) ($25k for Tier 1)
  • Median audit costs were approx $15,000 for all offerings ($5k for Tier 1)
  • Median intermediary fee (where reported) was approx $150,000 among all offerings (approx $100,000 for qualified

    • Intermediary fees are the sum of underwriter fees, sales commissions, and finder and promoter
      compensation, if any. Many offering statements did not report intermediary fees, consistent with the
      majority of offerings not utilizing intermediaries.
  • 50%+ of all issuers were incorporated in either DE or NV and located in CA, TX, FL or DC-area
  • Typical issuer in a qualified offering had minimal assets (approx $200k), no revenues and no net income (in other words, they were startups)
  • Finance, insurance and real estate sector accounted for the largest number of offerings and total amount offered across issuers (approx 37% of filings based on number and approx 50% of the aggregate offer size were from these sectors)

If you have any questions regarding Regulation A, please feel free to contact us.

Foley Shechter LLP