A serial entrepreneur and investor gives his insider information on picking the best funding option for startups
The rules of startup investing have changed. Gone are regulations shutting out the 99% of Americans who are classified as unaccredited investors (individuals who don’t make over $200,000 in income or have $1 million in assets) from investing in startups. Thanks to the implementation of Title IV of the JOBS Act last June, the newly revamped securities Regulation A+ funding is now an option for startups. That means companies can raise up to $50 million from both accredited and non-accredited investors.
I have personally raised venture capital in Silicon Valley from successful VC’s including John Doerr at Kleiner Perkins and David Strohm at Greylock, I’ve made some 40 angel investments (INFN, AMRS, Bloom Energy, ASK Jeeves). These days I’m immersed in Regulation A+ through my company Manhattan Street Capital. In all, I have perspective on both of these capital-raising approaches.
With the recent emergence of Regulation A+ (or Reg A+) as a funding mechanism for mature startups and mid-stage companies, entrepreneurs now have two viable options for large capital raises – the familiar and proven VC route, or Reg A+ – which is best?
[graphiq id=”iavQ9pUWG6V” title=”Most Active VC Investors (Previous 12 Months)” width=”600″ height=”467″ url=”https://w.graphiq.com/w/iavQ9pUWG6V” link=”http://listings.findthecompany.com” link_text=”Most Active VC Investors (Previous 12 Months) | FindTheCompany”]
An increasing number of viable candidates for VC are going with Reg A+ (it’s important to note that while Reg A+ is advancing quickly, there are few data points at this stage to comprehensively compare and analyze its effectiveness).
Let’s examine the pros and cons of Regulation A+:
Purely by the numbers, we have six to three in favor of Regulation A+, with three ties.
Reg A+ is filling in gaps in the funding landscape left by venture capital. Regulation A+ has the feeling of putting the CEO in control of their own destiny, and that can be correct for a company that appeals strongly to consumer investors and markets it’s offering very well.
The options for the entrepreneur have improved in a significant manner, and the trend is at an early stage. My calculations indicate that Regulation A+ will exceed $50 billion of growth capital raised per year in 2021, larger scale than either VC or angel investments.
The emergence of Regulation A+ is improving the efficiency of the growth capital markets, that alone is worth popping a bottle and celebrating. Where it goes from here, we shall see.
Photo by AlphaGammaHQ
Rod Turner is the founder and CEO of Manhattan Street Capital, helping successful mid-stage and high growth startups to raise the capital they need to scale faster under the newly-approved criteria of Regulation A+. Turner has played a key role in building six successful companies including Symantec/Norton, Ashton Tate, MicroPort, Knowledge Adventure, and ArtSlant, Inc. He is an accomplished investor who has built a Venture capital business (Irvine Ventures) and has made angel and mezzanine investments in companies such as Bloom, Amyris, Ask, and eASIC.