Private Placements and Offerings

Private Offerings

Parker MacIntyre has assisted numerous start-up and existing companies in capital raising activities through private placements and a variety of other securities offerings. We have attorneys who are exceptionally well-versed in startup and growth company capital formation, including with respect to the new avenues of raising capital created by the federal JOBS Act and other federal and state law changes. All of these financing options are essentially available through exemptions to the general rule that securities offerings must be registered with both the SEC and the states prior to any sales to investors. While we are also able to help clients with a fully-registered securities offering if desired, our efforts are generally focused on providing companies with access to capital outside of a full-fledged registration.

If your business is seeking to raise capital, the first step is to determine what type of offering you need.

Traditional Private Placements Under Regulation D Rule 506

Since the early 1980s, private placements conducted under SEC Regulation D (“Reg D”) have traditionally been the most widely-utilized path for growth company capital raising, comprising the lion’s share of money raised by far. The most prominent aspect of Reg D offerings is the requirement that shares (or interests) of companies sold under its provisions generally must be placed, with limited exceptions, with “accredited investors”—primarily, individuals with either $1 million in net worth (not including a primary residence) or an annual income in excess of $200,000 for the last three years.  Until 2013, Reg D offering rules also restricted issuers of securities from using any form of “general solicitation” or advertising to market the securities. That significant barrier was removed by the SEC, though, at the direction of the JOBS Act, passed by Congress in 2012, when it changed Reg D to add Rule 506(c), to supplement the longstanding Rule 506, which was renamed 506(b). 

Rule 506(b) offerings under Reg D still prohibit general solicitation, but still allow a limited number of sales to nonaccredited investors, and still allow accredited investors to “self-certify” their accredited status. However, the new Rule 506(c) allows issuers to choose to use general solicitation – advertising, for example – to locate investors. The “catch” is that the accredited status of all investors in those offerings must be verified either by the issuer or a third party through an examination of financial documents.

In offerings under both Rule 506(b) or 506(c) – that is, all Reg D offerings – the issuer must provide certain information to investors—i.e., financial statements and other material information. 

If a Reg D offering of either type is most appropriate for you, our attorneys will work with your growing company to craft an offering fully compliant with Reg D. Our primary deliverable will usually be a Private Placement Memorandum, or “PPM,” which serves as the master disclosure document for your investors, setting forth all of the company’s material terms and risk factors. We will also be your trusted source for guidance throughout the offering process, ensuring that the conduct of your company’s offering is in sync with applicable law.

More Capital Raising Options After the JOBS Act

The JOBS Act has significantly increased capital raising options for entrepreneurial growth companies in other ways. Specifically, the JOBS Act has created law two other new federal exemptions for mass-marketed or “crowdfunded” offerings: (i) an expanded SEC Regulation A, colloquially known as “Reg A+”; and (ii) a new SEC Regulation Crowdfunding (“Reg CF”). While the specific details and requirements of each of these options differ, they allow issuers to essentially “list” their offerings via online crowdfunding portals designed to promote and process investor subscriptions. Crowdfunding generally refers to web-based capital-raising campaigns designed to democratize capital formation by raising relatively small amounts of money from a large number of people via the Internet.

These other two new options—Reg A+ and Reg CF—are now also gaining traction in the corporate finance world. Reg A+ is an upgrade to Regulation A, a longstanding but little-used SEC provision, which has permitted unregistered public offerings under certain conditions. While technically unregistered, these offerings still require “qualification” by the SEC—a process somewhat less onerous than a full SEC registration, and that has been described by many as a form of “registration lite.” Reg A+ is essentially a congressional attempt to turbocharge the historically underused Reg A by correcting two of its glaring deficiencies: (i) raising its $5 million investment ceiling to $50 million; and (ii) fully preempting state regulation of all offerings over $20 million.

Reg CF, on the other hand, is an entirely new addition to federal securities law, creating an exemption for crowdfunded public offerings. Reg CF allows public offerings of up to $5 million during a 12-month period to accredited and non-accredited investors alike, so long as they are offered through a FINRA-registered “funding portal” or broker-dealer. Approximately 80 of these portals have been created, and some of them have built robust online markets for offerings. Portals have different processes for reviewing and marketing their listed offerings, and some focus on particular business types or investment vehicles, including some creative approaches such as revenue notes and “SAFEs”. If you are interested in exploring a crowdfunding offering for your business, we can help sort through the options and settle on the best approach. Most of the exemption provisions described above, if properly followed, provide (either automatically or with a fairly minor filing requirement) exemptions from state registration laws as well. However, if you believe you will not need investors outside of the state where your business operates, many states have created “state crowdfunding” rules that allow intrastate offerings to be conducted, often with advertising or other general solicitation and few other onerous requirements. These laws exist in about 35 states, and vary significantly, but using one may provide a significant opportunity for a business raising, typically, less than $5,000,000.

As with Reg D private placements, we will work with you to write an offering memorandum that meets the requirements of Reg A+, Reg CF, or state offering exemptions, outlines your company’s investment opportunity and describes its risks. 

And, before undertaking an offering, a crucial step is to help you explore the various options and settle on the right approach.

Registered Offerings

Another alternative for some of our clients is a fully-registered securities offering. Recall that the default rule of capital formation in securities regulation is that, absent an applicable exemption, every security must be registered at both the federal and state governmental levels. Registering a security essentially means that the issuer has filed a detailed registration statement and other required documents with the relevant regulator and has met strict filing requirements. This can be a complex and time-consuming process, especially so at the federal level. However, where no exemption is readily available—due either to the types of investors being solicited, how they are being marketed to, the offering amount and jurisdictions involved—then registration becomes a necessity. Parker MacIntyre will walk you through the various options available and, if a registered offering is needed, will be able to craft the requisite offering materials, interact with regulators and guide you through the process to completion. We have extensive experience with registration filings, especially with respect to those more arcane state level “Blue Sky” law registrations.

Parker MacIntyre — Your Trusted Advisor in Designing an Effective Capital Raise

Whether it be a traditional private placement under the time-tested Reg D Rule 506, a form of crowdfunding under the JOBS Act or a fully-registered offering, Parker MacIntyre attorneys will be able to sort through the regulatory clutter and help you to construct the most effective and appropriate securities offering for your company. Our expertise derives from many years spent counseling clients involved in capital formation transactions, reviewing and approving securities offerings from the inside of a regulatory agency, as well as participating in the regulatory rulemaking process itself. For example, several of our attorneys played pivotal roles in the design and implementation of Georgia’s own intra-state crowdfunding exemption—the “Invest Georgia Exemption.” Our experience assures your offering will be in capable hands when you choose Parker MacIntyre.