Report Slams Reg A+ Issuers that Have Raised Funds, Delivered Little for Investors

An article in has taken aim at Regulation A, or the Reg A+ securities exemption used by firms to raise money online.

Reg A+ is one of the securities crowdfunding exemptions available for businesses to pursue an online funding round. Reg A is joined by Reg CF and Reg D 506c—each of these exemptions has become a path for private firms to raise money via FINRA-regulated Funding Portals or Broker Dealers that specialize in capital raising. These three exemptions were created or improved upon under the JOBS Act of 2012, a bill signed into law by President Obama.

In the article, the author focuses on Reg A enabling “risky startups” to raise money from “rookie investors.” While Reg A is also used for real estate offerings and other novel investments, such as art, the article focuses on startups choosing the exemption for their risk capital. A firm raising money using Reg A+ may raise up to $75 million, while an issuer may raise an unlimited amount under Reg D and only $5 million using Reg CF.

The missive targets two issuers: Boxabl, a prefab housing startup that has raised millions from smaller investors in multiple funding rounds, and Aptera Motors, a solar-enhanced electric vehicle.

Aptera just closed a funding round on Republic, raising $1.73 million from 1500+ investors using Reg CF. It appears the offering has been extended with a self-hosted offering using another provider. A Reg D offering is also available to channel Accredited Investors into the business. The report claims that Aptera has raised over $120 million from smaller investors since 2021.


Boxabl is preparing for a possible Reg A+ offering on StartEngine, a platform it has used successfully in the past. As of today, the offering page indicates that $6.7 million has been “reserved” in a TTW or testing-the-waters campaign. The offering page states that Boxabl has raised over $140 million from 40,000 individuals.

The article claims that Aptera has seen board members exit for unknown reasons. At the same time, the company is expected to shift to more traditional venture capital to raise the funds it needs to execute on its vision. No vehicles have shipped as of yet.

As for Boxabl, WSJ alleges that the SEC is investigating the firm  regarding “disclosures to investors.” At the same time, few “Casitas” have actually been built while shares are being sold to the public at a hefty valuation for a company with little revenue.

There are two sides to this story. Investing in early-stage ventures is highly risky and not for the impatient. Most startups fail. That’s a fact and how capitalism works. Investors are cautioned before they commit money to these online funding rounds that it is a high-risk bet. So, buyer, beware and be willing to lose your money if things go bad. That’s how VCs and Angels handle it.

Reg A+ issuers are required by law to file a pretty extensive disclosure document that must be “qualified” by the SEC before the company takes any funds. These documents typically include extensive disclosures about the company as well as all of the many reasons it may fail. The question is how many investors actually read these filings where you can see how the money is being spent (and if insiders are selling shares – something you would want to know).

As for the second side of the equation, for the crowdfunding industry to be sustainable, each constituent participant must be successful. An early-stage issuer must be able to raise the money needed to execute on their business plan, platforms must be able to generate sufficient revenue to become profitable, AND investors MUST see a return on their investment on a portfolio basis. Similar to VCs, you should expect most investments to go bust and maybe a couple to do fine. Hopefully, one will be a home run. As the industry is fairly young, there is little aggregate data on what type of returns are being generated by vintage for investors. This is something needed to level-set investor/industry expectations.

On another note, one beef that was recently addressed by Reg A+ and crowdfunding expert Sara Hanks, who founded Crowdcheck, was the issue of valuation. Hanks told CI that “sane valuations would help the industry overall.” Retail investors need to understand how a steep valuation today may lead to a down round (or no round) tomorrow.

“You aren’t going to get sophisticated investors to invest large amounts unless there’s a reasonable possibility of a profitable exit.”

She added that the industry needs to “police itself,” explaining:  “If you go out with crazy valuations, that makes it less likely that your offering will succeed and also makes the entire industry look seedy.”

This makes a ton of sense and is something industry participants should take to heart.

While some industry insiders say platforms cannot tell an issuer how to value their business, they can choose to let an issuer raise money elsewhere if the valuation seems to be insane. Forego revenue today for a more successful tomorrow should be the plan.

The WSJ article is available here (paywall).






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