Page 38 - Initial Public Offering - An Introduction to IPO on Wall Street

There was only one eligible offer made in 2011, down from just 57 in 1998, as per a recent
9
GAO Survey .

There are many factors behind the lack of popularity of Regulation A.

Firstly, the maximum cash that could be generated in an offering under Regulation A was $5
million. Additionally, the qualification process was incredibly slow and expensive. To add to
the woes, the related federal review process was quite lengthy. However, the challenges did
not end there. Another issue was that the offerings were subjected to the securities registration
and review provisions of the state, commonly referred to as the “blue sky” rules.
A substantial amount of money and time was spent going through both the different laws of
the blue sky and the federal qualification process. In other words, Regulation A was not cost-
effective. This is what led to the creation of Regulation A+.

Regulation A+ includes several amendments intended to resolve these issues. The purpose of
the new guidelines is to turn Regulation A into a feasible resource for small private businesses
to generate capital.

The Securities and Exchange Commission (SEC), as specified by the US Jumpstart Our
Business Startups Act (JOBS Act), raised the sum that an issuer could generate from $5 million
to $50 million under the allowance and established the following two categories of offerings:

 Tier 1: For offerings that do not exceed $20 million
 Tier 2: For offerings that do not exceed $50 million

Investor safeguards for Tier 2 offerings have been introduced, such as including audited
financial reports in offering items, continuing reporting standards and an investment limit on
unaccredited buyers.

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