A Prominent Attorney Sees Regulation A+ as Perfect to Raise Debt Capital

Debt vs Equity

Title IV of the JOBS Act fixed some of the issues swirling around old Regulation A.  Lightly utilized in its previous incarnation, Regulation A+ (as it is commonly called) created two different funding tiers which allow non-accredited investors access to a new securities exemption and investment opportunities.

Tier I allows issuers to raise up to $20 million but must adhere to state regulation and qualification. Tier-II allows issuers to raise up to $50 million but has removed the cumbersome process of state blue sky review. While only actionable for a few months now, there are already multiple issuers looking at Reg A+ as an effective path to raise equity capital from non-accredited investors.

Platforms like SeedInvest and StartEngine have quickly moved to allow issuers to “test the waters” and gauge investor interest for a possible equity crowdfunding round. Results to date have been promising with several potential issuers generating millions in indicated interest. But what of raising debt capital?

JOBS Act Title IV Regulation A+Recently Brian Korn, a well-known attorney in the disruptive finance space and a partner at Manett, Phelps & Phillips , delivered a presentation (embedded below) at the FinFair conference which took place last month in Manhatan, where he pitched the belief that Regulation A+ is perfect for raising capital via debt.

Crowdfund Insider recently asked Brian to explain his opinion on using Reg A+ as a vehicle to raise debt.


Brian KornCrowdfund Insider: Why do you see Regulation A+ as a good option to raise debt capital?

Brian Korn: Regulation A+ is the easiest path to accessing the retail investor that we have seen.  As an alternative to fully-registered platforms, it offers a much lighter touch in terms of audit, financials and disclosure burden.  It remains to be seen if the SEC will give Reg A+ issuers an easier review process.  My sense is that they won’t, but it’s early days.  If a platform’s affinity model or other business plans lend themselves to accessing the retail investor, Reg A+ is the only way to do so short of the long form registration.

Crowdfund Insider: What are the benefits versus using a Reg D exempt offer?

Brian Korn: Reg A is the only way currently to access non-accredited investors, which the SEC estimates comprise 92% of US households.  This is a group that has vast wealth and a desire to invest for retirement in alternative assets.  A platform that unlocks this group will stand alongside Lending Club and Prosper as the only retail investment options in crowdfunding and marketplace lending.

Brian Korn in Washington DCCrowdfund Insider:  What are the shortcomings to using Reg A+?

Brian Korn: Reg A has more in common with a registered process than a Reg D.  A disclosure document still needs to be reviewed by the SEC and commented on.  The issuer will need to file public reports.  Private placements under Reg. D do not have the advance review process that dramatically affects the calendar for getting deals off the ground.

Crowdfund Insider: Have you had interest from your clients to leverage Reg A+ to raise debt?

Brian Korn: Yes there is a lot of engagement right now with the SEC on agreeing to the proper format that balances investor protection of this more sensitive investor group with the desire to produce a borrower payment dependent product.  I have several clients testing the waters in this area.  I predict the SEC will look for platforms to build in more recourse and skin in the game prior to allowing pure pass-through payment dependent products.


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