[As published on June 24, 2015 on CrowdfundInsider.com]
On June 23, 2015, the Staff of the Securities and Exchange Commission provided some public guidance on certain issues arising under the new Regulation A+ Final Rules. In a new section of the SEC’s Compliance and Disclosure and Interpretations (C&DI’s), a Q and A on frequently asked questions or questions of general importance, the Staff answered 11 questions relating to Regulation A+ (Section 182. Rules 251 to 263).
Some takeaways from the questions posed, and answered.
Regulation A+ allows an issuer to initially file its Offering Statement confidentially, with the contents of the filing not surfacing until the issuer elects to do so, at least 21 days prior to the day the SEC “qualifies” (approves) the offering. Two questions address this subject. Judging by the small number of filings showing up publicly on the SEC’s website since the rule went into effect on June 19, this interest in confidential filings is not surprising.
I expect that most issuers will want to make their initial filings on a confidential basis for a variety of reasons, such as: avoiding the public embarrassment associated with a withdrawn offering; avoiding disclosing your business plan to competitors publicly before you know that you will be able to successfully raise funds; and avoiding thorny legal issues resulting from material changes in the Preliminary Offering Circular, which under the best circumstances will change over time, both in response to SEC comments and changes in a company’s business.
Startups are Circling
Judging by both industry buzz and a question regarding whether a company can provide a balance sheet as of its date of inception, it is clear that there is a great interest by newly formed companies seeking to utilize Regulation A+. Some will have nothing more than high hopes – and plans to build a business if they are successful in raising a boatload of money from the crowd. Others will be starting new ventures, but building upon a substantial track record and resources from earlier ventures.
Testing the Waters in a Tweet
This testing the waters feature allows companies considering a Regulation A+ offering to solicit non-binding investor interest from the public before it prepares and files offering materials. One important requirement of testing the waters is that certain legends be provided with the solicitation. One C&DI answers the dilemma many will face – how to cram these legends into a character constrained Tweet?
For those looking for more detail, here is a link to the new C&DI’s. And kudos to the SEC Staff for getting this information out to the public so quickly. Look for more of these to come from the Staff in the near future, as there will undoubtedly be many more questions of general interest regarding Regulation A+.