Equity Capital Formation Task Force Comments on New Regulations to Expand Access to Capital for Smaller Companies

The Equity Capital Formation (ECF) Task Force, a group comprised of individuals from across the country’s startup and small-capitalization company ecosystems, today commented on the U.S. Securities and Exchange Commission (“SEC”) recent adoption of rules to facilitate smaller companies’ access to capital.

Jeffrey M. Solomon, Co-Chair of the ECF Task Force and President of Cowen Group commented, “We applaud the SEC for its ongoing efforts to enable small company capital formation. The new rules, which include modifications to Regulation A, are an important step towards making Regulation A+ a viable alternative for small companies seeking access to public capital.”

Scott Kupor, Co-Chair of the ECF Task Force and Managing Partner of Andreessen Horowitz added, “Regulation A+ establishes a more useful and practical means for growth companies to raise capital, achieving the intended goals of Congress. Improved access to capital, while balancing investor protection concerns, will provide these companies the opportunity to grow and create jobs in the private sector.”

On March 25, 2015, The SEC disclosed that it adopted new rules that update and expand Regulation A, an existing exemption from registration for smaller issuers of securities. The rules are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act. The final rules, often referred to as Regulation A+, provide for two tiers of offerings: Tier 1, for offerings of securities of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer; and Tier 2, for offerings of securities of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer. Both Tiers are subject to certain basic requirements while Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements. The final rules also provide for the preemption of state securities law registration and qualification requirements for securities offered or sold to “qualified purchasers” in Tier 2 offerings. Tier 1 offerings will be subject to federal and state registration and qualification requirements, and issuers may take advantage of the coordinated review program developed by the North American Securities Administrators Association (NASAA). The rules will be effective 60 days after publication in the Federal Register.

In November 2013, the ECF Task Force issued a report titled “From the On-Ramp to the Freeway: Refueling Job Creation and Growth by Reconnecting Investors with Small-Cap Companies.” This report highlights the challenges faced by small companies when trying to raise capital and includes recommendations for improved access to capital, including completion of the JOBS Act’s mandates regarding Regulation A and suggestions to enhance its usage. The complete report is available at: http://www.equitycapitalformationtaskforce.com.

About the ECF Task Force

Comprising professionals from across America’s startup and small-capitalization company ecosystems, the Equity Capital Formation (ECF) Task Force formed in June 2013 to 1) examine the challenges that America’s startups and small-cap companies face in raising equity in the current public market environment, and 2) develop recommendations for policy-makers that will help such companies gain greater access to the capital they need to grow their businesses and generate private sector job growth. The task force’s efforts have been informed by discussions flowing from The Securities and Exchange Commission’s Decimalization Roundtable (February 2013), which examined the impacts of decimalized pricing of securities on IPOs, trading, and liquidity for small and middle capitalization companies; and from the Capital Access Innovation Summit convened by the Treasury Department and the Small Business Administration in June 2013, which focused on the impact of the JOBS Act of 2012 on capital formation for emerging growth companies and what additional measures might benefit this process.