Capital Raising in the U.S.: the Significance of Unregistered Offerings Using the Regulation D Exemption by Vladimir Ivanov & Scott Bauguess

Regulation D offerings make up a large portion of all offerings in the US. Regulation D is likely fulfilling its goal of targeting capital needs of small businesses, given the large number of small offerings subject to it. Trends in capital raising show a shift from public to private capital.

  • How helpful? Scale of 1 to 5

5.

  • Topic Tags

Regulation D, Regulation D goals, small business, small offering, capital raising, private capital, Rule 504, Rule 505, Rule 506

  • Relevant questions addressed

How has Regulation D impacted the world of private offerings? How is the private offerings horizon changing?

  • Summary bullet points
  • Private offerings through Form D were large and on a rise in the late 2000s and early ‘10s ($905 billion in 2010)
  • The average offering is modest compared to the aggregate amount ($30 million), with a highly skewed distribution (median of $1 million)
  • Regulation D managed to target facilitation of small companies’ private offerings
  • Most of the issuers are using Rule 506 of Regulation D
    • It provides exemptions on private offerings
    • It imposes no limits on the offering amount
    • It requires no registration
    • The investors can be an unlimited amount of accredited investors and up to 35 non-accredited investors
    • When the paper was written, no general solicitation was allowed under Rule 506
  • Rule 504 and 505 have similar regulation and impose limits on amounts raised
  • Regulation D capital is a more permanent source of capital than debt as it is equity. It has overtaken debt as a source of capital in 2010.
  • The shift towards private fundraising from public fundraising. It could be because of heavy regulatory burdens imposed when going public, or because of “cold issue” markets
  • In 2011 capital raised by foreign issuers increased more than capital raised by domestic issuers, signifying the US is competitive with foreign markets.
  • Even though Rules 505 and 506 allow some non-accredited investors to take part in private offerings, this was not common. Many investors tend to be involved in Regulation D offering.
  • Follow-up links

Initial public offerings in hot and cold markets - https://www.jstor.org/stable/30031871?seq=1#metadata_info_tab_contents

Rules 504, 505, 506 of Regulation D - http://www.sec.gov/answers/regd.htm