• SeedInvest’s due diligence process is no guarantee of success or future results. All investors should carefully review each investment opportunity and cancel their subscription within the allotted time-frame if they do not feel comfortable making any specific investment based on their own DD. Learn more about due diligence on the SeedInvest Blog (https://www.seedinvest.com/blog/angel-investing/how-to-assess-an-investment) and our vetting process in our FAQs (https://intercom.help/seedinvest/en/).

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  • Diversification is only across multiple early-stage investment opportunities within the asset class. There is no guarantee that this program will lead to a well-balanced portfolio of companies across industry types or stages across the asset class. In addition, enrolling in this program will not lead to diversification across your entire investment portfolio. In order to achieve diversification, we do not recommend you allocate more than 10% of your entire investment portfolio to alternative assets.

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Reg A+: Friend or Foe to Venture Capital?

Equity Crowdfunding

The dust is settling from the stunning announcement on new Regulation A+, which legalizes $50,000,000 mini-IPOs to unaccredited investors. Interested parties are now digesting the 453 page rules and trying to figure out what it all means.

How will Reg A+ will fit into the Venture Capital and startup ecosystem? I can see it playing out in a couple of ways:

Reg A+ as a Friend to VC – Early Exit Opportunity

Reg A+ could give venture capitalists another avenue for an early liquidity event. Selling shareholders are allowed to sell up to 1/3 of the shares in a Reg A+ offering (i.e. $15M of a $50M offering). These shares could be offered to the public and allow a VC to have an earlier exit rather than wait for a full blown registered IPO.

Reg A+ as a Foe to VC – More Competition

Companies raising Series B+ rounds may use Reg A+ as negotiating leverage against VCs. Currently, many companies moving toward an IPO also dual track an M&A process. A similar dynamic could play out here where companies seeking venture capital also dual track a Reg A+ process.

This additional funding option would, at a minimum provide negotiating leverage against the VC, or could ultimately turn out to be a better option. Venture capital often comes with many strings such board control and protective provisions (where the VCs can block certain actions).

Issuers in Reg A+ offerings are unlikely to give up as much control and may end up with better terms. These companies will also be well positioned for a true IPO down the line (under a short form 8-A filing).

Of course – Reg A+ comes with significant legal/accounting/time costs, but perhaps these are relatively small costs for companies seeking large Series B / Series C+ funding rounds with founders who want to maintain control.

How do you think it will play out for VC? Do you think “dual tracking” is a threat to VC? Let us know in the comments.


This post was written by James Han on March 27, 2015

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