REGULATION A

A GAIN IN POPULARITY – STILL REQUIRES SEC MERIT AND STATE MERIT REVIEW – FOR EARLY STAGE VENTURES – THESE EMAILS HELP DEFINE THE ISSUE A BIT MORE CLEARLY….

Berny, Jackie, and Tom:

Greetings from the desert.

I’d be interested to read about the new Reg. A changes going into effect. I remember when I was back at the SEC in San Francisco 34 years ago. We had a separate “Reg. A Branch” run by a then-young attorney like we all were back then. We had no idea what he did, other than sit there and grind out paperwork. Reg. A was then a big thing.

Jump 25 years later—around 2004. I’m meeting with a fellow in Encinitas and we’re talking about doing a Reg A offering. He makes a call, chats for a while, and hands me the phone. We’re talking about Reg A. He’s saying, basically, forget it: “Out of the 21 who’ve tried it recently, 19 gave up, 1 made it, and 1 is still trying. I’d say just drop it.”

In my own inimitable style, I ask: “And just who are you?”

He replies “I’m the Commissioner of Corporations for [Utah? Nevada? Whatever], the state that heads up the Coordinated Equity Review Program.” I guess that qualifies for “straight from the horse’s mouth”!

The point: it was still a merit review program and impossible to satisfy the regulators.

So, whatever could be done to expand the number of investors we could get in an early stage company, as long as they are qualified, seems like a great idea to me.

STEVE MEYERS, Esq.
440 S. El Cielo Rd., Ste. 3-800
Palm Springs, CA 92262
M: 858-922-2006 Fax: 888-501-3763
Steve@smeyers.com

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From: Berny Dohrmann [mailto:bj4ibi@spamarrest.com]
Sent: Thursday, September 02, 2010 5:31 PM
To: Jackie Warner
Cc: Steve Meyers; Thomas Jurgensen
Subject: New Law – Old Law

Jackie,

This is from a new faculty member joining 910 who is a grad – who represented us in the Congress during the recent legislation battles. DO you see anything that would preclude this item going to our faculty and clubs? Team comments also appreciated and now this ( I felt he nailed it pretty well ): his subject is Regulation A and some automation technology ( passed by SEC Chairwoman and team ) he is bringing to law firms and the market for Reg A states – in that new law makes Reg A another option for the entrepreneur likely to become more popular as they progress the law. Thoughts?

The Implications of a New Definition for “Accredited Investors”

Before introduction of the recent financial reform legislation, an “Accredited Investor” was basically someone with a net worth of $1 million, or an annual income of $200,000 (or $300,000 joint income for spouses) over two consecutive years. The idea behind this definition was the somewhat dubious assumption (in my view) that if you had sufficient money, this made you a savvy investor who would understand the risks of investing in private placement type investments. Would that that were true! However, the law is the law, and that’s what prevails So what was the big change? Before the law came into effect, the “Accredited Investor” was able to include his or her own residence in the calculation of their net worth. This is no longer the case. The obvious implication of this change is that fewer people will qualify as “Accredited Investors.” Because of the cascading collapse of property values across the nation anyway, a lot of people have become dis-qualified simply by virtue of property market conditions. This revised definition will simply further reduce the number of accredited investors out there at the very time we are encouraged to believe that the government is committed to helping to make life easier for small business people. I will leave you to judge.

As anyone who is looking to raise early-stage equity capital will know, it is tough enough to find investors already. This new development will make it even harder now. However, it is possible to raise money from non-accredited investors. In most states, one is restricted to 35 non-accredited investors for each offering. This is not necessarily a problem unless you raise money in increments of $1,000 at a time! These investors, though, will need to be “sophisticated.”

For those of you who are presently restricting your offers to accredited investors only, I would suggest you speak to your SEC attorney to explore the value of opening it up to a wider audience of “sophisticated” non-accreditetd investors. The paperwork for your offering will still protect you and them, and you may well find it slightly easier to attract the capital you need.

Mark Jones – CEO SPACE Faculty