Since the JOBS Act was passed in 2012, it has been easier for company founders to raise money with exemptions like Reg CF and Reg A+, changing the landscape of private capital investments.
The JOBS Act provides exemptions from registration for private companies raising money with key benefits, like:
- Ability to keep the company private
- Not having to disclose everything publicly
- Less regulatory burden when raising money
- Access to accredited and non-accredited investors
Reg A+ & Reg CF
Regulation CF is an exemption outlined in the JOBS Act that lets companies raise a maximum of $5 million in any 12-month period by selling securities to accredited and non-accredited investors. Regulation A+ allows issuers to offer and raise up to $75 million in funding without having to comply with all the strict requirements of a traditional IPO. This has allowed company founders to bypass some of the red tape and paperwork associated with more traditional fundraising methods and raise millions of dollars for their organizations.
With RegA+ and RegCF, private companies have increased opportunities to raise capital. Before the JOBS Act, private companies were only invested in by wealthy individuals and firms like venture capital or private equity, but now investment opportunities have been opened to the non-accredited investor as well. This increases the pool of available investors for any given deal since the number of non-accredited investors is immense, which is powerful for companies seeking capital with these methods.
Impacting How Capital is Raised
WIth the doors the JOBS Act has opened up, entrepreneurs who have a great idea but no funding to realize their vision have the opportunities to raise the capital needed to grow their businesses. Companies in the private sector can connect with their investors in ways not typically seen in the public market; investors may be loyal customers or passionate about the cause or mission the company believes in. This is a unique opportunity for companies to build and maintain relationships with their shareholders that may be interested in investing in future offerings as well.
Company founders can also retain more control over their company raising money through the JOBS Act exemptions, another significant benefit. There is a little more flexibility for founders to set the valuation they’re looking for and construct a deal more favorable. In other traditional funding scenarios, venture capital or private equity investors may seek more equity than the founder is hoping to give up or disagree with the valuation.
The JOBS Act has created opportunities for companies to secure the funding they need to grow and sustain their businesses. Compared to traditional funding routes, RegA+ and RegCF are often more cost-effective and enable them to raise significant amounts of capital.