Private Placements and Offerings
Parker MacIntyre has assisted numerous start-up and existing companies in capital raising activities through private placements and a variety of other securities offerings. We have a number of attorneys who are exceptionally well-versed in growth company capital formation, including with respect to the new avenues of raising capital provided for in the recent federal JOBS Act. All of these financing options are essentially available through exemptions to the default rule that securities offerings must be registered with both the SEC and the states prior to any sale to investors. While we are able to help clients with a fully-registered securities offering if desired, our efforts are generally focused on providing companies with access to capital outside of a full-fledged registration.
Traditional Private Placements under Regulation D Rule 506
Since the 1980s, private placements conducted under SEC Regulation D Rule 506 have traditionally been the most widely-utilized path for growth company capital raising, comprising the lion’s share of money raised by far. The most prominent feature of Reg D Rule 506 is the requirement that shares (or interests) of companies sold pursuant to its provisions generally must be sold to “accredited investors”—primarily, individuals with either $1 million in net worth (not including a primary residence though) or an annual income in excess of $200,000 for the last two years. Reg D Rule 506 also restricts issuers of securities from using any form of “general solicitation” or advertising to market the securities. The issuer must also meet certain information delivery requirements—i.e., financial statements and other material information. Our attorneys will work with your growing company to craft an offering fully compliant with Reg D Rule 506. Our primary deliverable will usually be a Private Placement Memorandum or “PPM”, which serves as the master disclosure document for your investors, setting forth all of the company’s material terms and risk factors. We will also be your trusted source for guidance throughout the process, ensuring that the conduct of your company’s offering is in sync with applicable law.
Capital Raising Options after the JOBS Act
As noted above, the JOBS Act has significantly buffeted capital raising options for entrepreneurial growth companies. Specifically, the JOBS Act incorporates into law three new federal exemptions for mass-marketed or “crowdfunded” offerings: (i) an augmented Reg D Rule 506, which permits general solicitation in certain cases; (ii) an expanded SEC Regulation A, colloquially known as “Reg A+”; and (iii) a new Regulation Crowdfunding (“Reg CF”). While the specific details and requirements of each of these options differ, all three allow issuers to essentially “list” their offerings via online crowdfunding portals designed to promote and process investor subscriptions. Crowdfunding generally refers to web-based capital-raising campaigns designed to democratize capital formation by raising relatively small amounts of money from a large number of people via the Internet.
Given the past success of Reg D Rule 506, it is no surprise that the revised Rule 506 has been the most successful of the three new JOBS Act additions. Essentially this option provides a crowdfunding alternative to the traditional private offering by creating a new Rule 506(c), which permits “general solicitation” but requires that the issuer take reasonable steps to verify that all purchasers in the offering are in fact accredited investors. This is a subtle but major departure from the traditional private offering exemption (now known as Rule 506(b)) which, while strictly prohibiting general solicitation, allowed sales to up to 35 non-accredited investors, and allowed all investors to self-certify as to their accredited status. Under the new Rule 506(c), issuers will need to scrupulously document qualification of each investor’s accredited investor status, meaning that they will need to collect detailed net worth and/or income documentation.
The other two new options—Reg A+ and Reg CF—are now also gaining traction in the corporate finance world. Reg A+ is an upgrade to Regulation A, a longstanding SEC provision, which has permitted unregistered public offerings under certain conditions. While unregistered, these offerings merely require “qualification” by the SEC—a process decidedly less onerous than a full SEC registration, that has been described by many as a form of “registration lite.” Reg A+ is essentially a congressional attempt to turbocharge the historically underused Reg A, by correcting two of its glaring deficiencies: (i) raising its $5 million investment ceiling to $50 million; and (ii) fully preempting state Blue Sky regulation of all offerings over $20 million.
Reg CF, on the other hand, is an entirely new addition to federal securities law, creating an exemption for crowdfunded public offerings. Reg CF allows public offerings of up to $1 million during a 12-month period to accredited and non-accredited investors alike, so long as they are offered through a FINRA-registered “funding portal” or broker-dealer.
As with traditional private placements, we will work with you to craft an offering memorandum that outlines your company’s investment opportunity and its commensurate risks. Moreover, we will help you to explore the various options and settle on the right approach.
Another alternative for some of our clients is a fully-registered securities offering. Recall that the default rule of capital formation in securities regulation is that, absent an applicable exemption, every security must be registered at both the federal and state governmental levels. Registering a security essentially means that the issuer has filed a detailed registration statement and other required documents with the relevant regulator and has met strict filing requirements. This can be a complex and time-consuming process, especially so at the federal level. However, where no exemption is readily available—due either to the types of investors being solicited, how they are being marketed to, the offering amount and jurisdictions involved—then registration becomes a necessity. Parker MacIntyre will walk you through the various options available and, to the extent that a registered offering is needed, will be able to craft the requisite offering materials, interact with regulators and guide you through the process to completion. We have extensive experience with registration filings, especially with respect to those more arcane state level “Blue Sky” law registrations.
Parker MacIntyre—Your Trusted Partner in Designing an Effective Capital Raise
Whether it be a traditional private placement under the time-tested Reg D Rule 506, a form of crowdfunding under the JOBS Act, or a fully-registered offering, our Parker MacIntyre attorneys will be able to sort through the regulatory clutter and help you to construct the most effective and appropriate securities offering for your company. Our expertise derives from many years spent counseling firms on capital raise transactions, reviewing and approving securities offerings from the inside of a regulatory agency, as well as participating in the regulatory rulemaking process itself. For example, several of our attorneys played pivotal roles in the design and implementation of Georgia’s own intra-state crowdfunding exemption—the “Invest Georgia Exemption.” Our experience assures your offering will be in capable hands when you choose Parker MacIntyre.