As more and more companies look to raise capital in the private capital market, it’s essential to understand the different exemptions available for this purpose. In this blog post, we’ll look at three common types of capital raises; Reg A+, Reg CF, and Reg D. We’ll discuss the critical differences between each one and how they are traded on the secondary market. By understanding the nuances of each type of raise, you’ll be better equipped to make informed investment decisions.
If you are raising capital, three main exemptions will be used in the private market. Before we discuss the differences, let’s cover what each regulation does:
- RegA+ is a securities exemption that allows companies to offer and sell securities to US investors and raise up to $75 million in a 12-month period through Reg A+.
- RegCF allows companies to offer and sell securities to US investors and raise up to $5 million through online marketplaces and crowdfunding sources in a 12-month period.
- RegD is a securities exemption that allows companies to raise capital from accredited investors without limit within a 12-month period.
There are a few key differences between the three types exemptions but today we’re focusing on those differences as they pertain to the secondary market. The important thing to consider is the time an investor is required to hold the security before selling it on a secondary trading platform. Reg A+ is the closest to an IPO, and assets can be sold the next day, and there is no lockout period. On the other hand, securities sold under RegCF cannot be sold for the first 12 months after buying it unless it’s sold to an accredited investor, back to the issuing company, or a family member. With Reg D, investors can not sell these assets for six months to a year unless they are registered with the SEC.
We’ve covered other differences between the three exemptions in a previous article, including the number of investors and the amount they can invest. However, once the raise ends, the secondary market is the next important difference to be aware of so that shareholders can be properly informed before, during, and after the raise is complete.