Category: Regulation A

Our Experience With Regulation A – by Ben Miller, Co-Founder of FundRise

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, Crowdfunding Real Estate, Guest Blog, JOBS Act, Regulation ALeave a comment

To improve the user experience, I am inviting guest bloggers. The first is Ben Miller, a Co-Founder of Fundrise, who explains how he and his brother Dan invented Crowdfunding through Regulation A.

Please let me know if you would like to post. I’m looking for content like Ben’s – interesting, informative, educational.

-MARK RODERICK

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By: Ben Miller, Co-Founder of Fundrise.

My brother Dan and I were in the real estate business for a long time, developing commercial and residential projects in the Washington, D.C. area, before we thought about crowdfunding. We got some of our capital from the same place many real estate developers get their capital: from investment funds in New York or even outside of the country.

Most of them had little connection to the places we were building and often had never even heard of the neighborhood. On the other hand, our friends and neighbors, people with real connection to the projects, couldn’t invest with us.

fundriseWe started to imagine a world where everyone could invest in high-quality real estate deals, which were then limited to professional investors. We thought about ordinary people investing in their own communities, creating a win-win for the community and business owners. Like every other developer, we’ve had our share of battles with local zoning agencies. We imagined how that process might change if actual investors from the community showed up at council meetings to support the project.

This was before crowdfunding or the JOBS Act were on the table, and every lawyer we spoke to (and we spoke to plenty) told us that our idea was impossible.

Finally we discovered SEC Regulation A. Although Regulation A had been around since 1936, before we came along it had been used very rarely, which probably explains why the lawyers hadn’t heard about it. In all of 2012 fewer than a dozen companies had used Regulation A to raise capital across the whole country, as compared to more than 7,000 Regulation D offerings.

We soon found out why. Although Regulation A allows you to raise money from anybody, including from non-accredited investors, first you have to file a disclosure document with the SEC and with the state securities regulators in any state where you offer the security, and get the regulators to approve your offering. Regulation A is nothing like the new Crowdfunding under SEC Rule 506(c), which is simple and streamlined by comparison.

Once we figured out how to file the disclosure document, which is really like a mini registration statement, we learned that neither the SEC nor the state regulators had ever seen a real estate development project offered under Regulation A. We spent hundreds of hours and way too much in legal fees working through all of the issues. We were literally doing something that had never been done in the history of the U.S. capital markets, and at the same time paving the way for everyone else.

After lots of work, lots of frustration, and lots of conversations with regulators, we succeeded. Our Regulation A filing was approved and we raised $325,000 for the project. I won’t even tell you how much it cost to raise that $325,000, but we were okay with it because we saw the experience then, and still do, as an investment in our future.

We have completed three Regulation A offerings since then. Each time we’ve gotten better and faster, not to mention that the regulators have learned along with us.

Here’s what it took to complete our most recent Regulation A offering:

reg a breakdown

Our most recent filing:

fedex

Fundrise has branched out since those early days. As the leading real estate portal in the world we offer not only Regulation A projects but Rule 506(c) investments under the JOBS Act. And we’re very excited about the new Regulation A+. Regulation A+ improves on Regulation A by allowing us to raise up to $50 million of equity from non-accredited investors (subject to a limitation on how much each person can invest) and further streamline the process by filing only with the SEC, and not with state securities regulators. Fundrise has always been a pioneer, and we expect to pioneer the possibilities of Regulation A+ as well as soon as it becomes available.

Whatever the future holds for Fundrise, and we believe our future is unlimited, we’ll always remember that Regulation A allowed us to open the door into the world of crowdfunding and give unaccredited investors the chance to invest in real estate for the first time in history.

Follow @BenMillerise and @Fundrise on Twitter.

 

Crowdfunding Cheat Sheet

On By crowdfundattnyIn Crowdfunding, Entrepreneurs, Form D, Investing, Investor, JOBS Act, Regulation A, Regulation D offerings, Rule 506, SEC, Securities Exchange Commission, Title II Crowdfunding, Title III Crowdfunding, Title IV of the JOBS Act, UncategorizedLeave a comment

Crowdfunding now comes in multiple flavors:

  • Title II Crowdfunding – Rule 506(c)
  • Title III Crowdfunding
  • Title IV Crowdfunding – Regulation A+
  • Existing Regulation A
  • Rule 504 of Regulation

All have one thing in common:  the entrepreneur can use “general solicitation and advertising” to raise money.

But that’s all they have in common. They differ on such critical features as: 

  • Who is allowed to invest
  • How much money can be raised
  • Whether Internet portals can be used
  • How much each investor can investCFCS
  • The degree of SEC oversight
  • Whether foreign companies can participate

I’ve created a chart to keep it all straight – a Crowdfunding Cheat Sheet. The chart won’t
format properly here in the blog, so you’ll need to click here to view it. You might want to print it for future reference.

CLICK HERE TO VIEW THE CROWDFUNDING CHEAT SHEET 

This is my takeaway from the chart:

Of the five flavors of Crowdfunding that will soon be available, only Title II Crowdfunding and Regulation A+ Crowdfunding are likely to play a major role. Title III Crowdfunding – ironically, the only thing the media talked about when the JOBS Act was passed in 2012 – seems doomed to a non-speaking part, at least as long as the $1 million limit remains in place. Those satisfied with raising money from only accredited investors will probably look to the simplicity of Title II while those needing to cast a wider net will likely take the plunge into Regulation A+. As for Rule 504 and the old version of Regulation A – they’re history.

But it’s a brand new world in the capital markets, and impossible to predict.

 Questions? Contact Mark Roderick.

What IS REGULATION A, AND WHAT’S IT GOT TO DO WITH CROWDFUNDING?

On By crowdfundattnyIn Crowdfunding, Investing, Investor, JOBS Act, Regulation A, Title II Crowdfunding, Title IV of the JOBS ActLeave a comment

As if companies and investors didn’t have enough letters and numbers to remember, in December the SEC issued proposed new rules under Regulation A. We already have Title II Crowdfunding under the JOBS Act and Title III Crowdfunding under the JOBS Act – these new rules can be thought of as Title IV Crowdfunding under the JOBS Act.

Putting the new rules in context, Regulation A has always allowed companies to use general solicitation to find investors. But the drawbacks of Regulation A were very significant: a company could raise no more than $5 million; issuers were required to file a mini-registration statement with the SEC; and offerings under Regulation A were subject to the labyrinth of state securities laws, i.e., “blue sky” laws in every state where the securities were offered. As a result, Regulation A has been used very rarely.

But Title IV of the JOBS Act directed the SEC to liberalize Regulation A. The rules proposed by the SEC on December 18, 2013 would do just that:

  • They would create a new kind of Regulation A offering – already referred to as Regulation A+.
  • In a Regulation A+ offering, an issuer could raise up to $50 million during any 12 months.
  • The issuer could use general solicitation and advertising to find investors, e.g., the Internet.
  • The issuer could sell to non-accredited investors, subject to a maximum investment of 10% of the investor’s income or net worth in Regulation A+ offerings.
  • Regulation A+ offerings would be exempt from registration or qualification under state blue sky laws.

That will be music to the ears of many issuers: finding investors through the Internet free of state regulation, selling to non-accredited investors, raising up to $50 million rather than the paltry $1 million allowed in Title III Crowdfunding.

The main drawbacks under the proposed rules:

  • Regulation A+ offerings require a mini-registration statement filed with the SEC before any sales are made, including audited financial statements.
  • Regulation A+ offerings require significant ongoing reporting to the SEC.

Neither Title II Crowdfunding nor Title III Crowdfunding requires a registration statement, mini or otherwise, and Title II Crowdfunding in particular is free of most reporting requirements.

Nevertheless, the benefits of Regulation A+ – the $50 million limit and the ability to sell to non-accredited investors – will make it attractive for many issuers, certainly an option to be considered.

The proposed rules are subject to a 60 day comment period.

Questions? Contact Mark Roderick at Flaster/Greenberg PC.