A little over 10 years ago, the SEC adopted major changes in Regulation A in an effort to increase the viability of that exemption.  A recent DLA Piper blog took a look at an SEC report issued earlier this year on the past decade’s experience with the revamped Regulation A. The blog says that the results are underwhelming, to say the least:

The SEC’s report on Regulation A covers offerings from June 19, 2015 (the date when the 2015 Reg A amendments went into effect) through December 31, 2024. During that time 1,618 total offerings were filed, which requires a publicly available disclosure, but only 1,426 were qualified by the SEC. This means nearly 15% of the filings did not complete the SEC review process, with most unqualified offerings subsequently abandoned despite being publicly announced. Of the offerings that were qualified, only 817 offerings reported raising money, meaning slightly over 50% of all attempted Regulation A offerings raised nothing, despite the cost of preparing and filing a detailed disclosure document with the SEC.

The blog says that even those companies that did raise money successfully under Reg A didn’t get close to the amount of funding they sought. According to the SEC’s report, the average qualified offering sought just under $20 million but raised only $11.5 million, while the median qualified offering aimed for $10 million and raised just $2.3 million. In light of those results, it’s not surprising that, as the blog points out, most issuers prefer Reg D:

Standing back, in the aggregate companies raised $9.4 billion through Reg A offerings over nearly a decade, for an average of less than $1 billion per year. To put that number into context, in just the year 2019, companies raised $1.5 trillion through just Rule 506(b) (not Section 4(a)(2), Rule 504, Rule 506(c) or other private structures).

The SEC’s Small Business Advisory Committee has been spending a lot of time on Reg A in recent months, and the results of the past decade suggest that a lot more time and attention will need to be devoted to Reg A if the SEC really wants to make it a viable alternative.

– John Jenkins