A generation ago, a small company that wanted to sell shares to ordinary investors had two choices: a full public offering it could not afford, or private money from the already wealthy. Regulation Crowdfunding and Regulation A changed that. Together they form the middle rungs of a financing ladder — from friends and family, to the crowd, to a mini-public offering, to the listed markets — and each rung is a legal way to raise capital from the public without a traditional IPO.
The missing middle of capital formation
The JOBS Act of 2012 was built on a simple observation: securities law protected small investors mainly by excluding them. Offerings were either registered — expensive, slow, and designed for large issuers — or private, which in practice meant limited to accredited investors. Companies too big for a founder’s network and too small for an underwriting were stuck in between.
Two exemptions were created or rebuilt to fill that gap. Regulation Crowdfunding, which took effect in 2016, lets companies raise modest amounts from the general public online, through regulated intermediaries. Regulation A — modernized in 2015 and often called Reg A+ — lets companies make a larger public offering under a scaled, SEC-reviewed process sometimes described as a “mini-IPO.” Neither is a loophole. Both are exemptions with real conditions, filings, and investor protections proportioned to the size of the raise.
Rung one: Regulation Crowdfunding
Under Regulation Crowdfunding, a U.S. company may raise up to $5 million in any 12-month period from investors of any income level — the ceiling the SEC set when it expanded the regime, effective in 2021. Three features define it.
First, intermediation: every offering must run through an SEC-registered funding portal or broker-dealer. A company cannot simply post shares for sale on its own website and take credit cards. The portal performs checks, hosts the disclosure, and handles the mechanics. Second, disclosure: the issuer files a Form C with the SEC describing the business, the offering terms, the use of proceeds, and its financial condition, with the level of financial-statement review rising with the amount raised — and it owes investors an annual report afterwards. Third, investor limits: people who are not accredited investors face caps on how much they can put into crowdfunding offerings over a 12-month period, calculated from their income and net worth, while accredited investors are not subject to those individual caps. Shares bought in a Reg CF offering are also generally restricted from resale for one year.
For a founder, the honest summary is this: Reg CF is a marketing exercise wrapped in a compliance exercise. The companies that succeed treat disclosure seriously and bring a real audience — the portal does not supply one.
Rung two: Regulation A, in two tiers
Regulation A serves companies that have outgrown the crowd but are not ready for a full registration statement. Per the SEC’s own guide for small businesses, it comes in two tiers. Tier 1 is available for offerings of up to $20 million in a 12-month period; the offering statement is reviewed by the SEC, but the offering must also be qualified under state securities laws where the shares are sold, and ongoing reporting afterwards is light. Tier 2 is available for offerings of up to $75 million in a 12-month period; in exchange for audited financial statements and continuing annual, semi-annual and current reporting to the SEC, Tier 2 offerings are exempt from state registration — a significant practical advantage — and non-accredited investors in a Tier 2 offering are generally limited to investing no more than 10 percent of the greater of their annual income or net worth.
That trade — more money and one federal process, in exchange for audit and reporting discipline — is why Tier 2 is often described as the on-ramp to public-company life. A company that can survive Tier 2 reporting has built much of the machinery a listing will later demand.
Climbing the ladder in order
The practical value of these regimes is sequence. A young company raises a small first round properly — from accredited investors, or under Canada’s prospectus exemptions such as the family, friends and business associates exemption north of the border, where founders answer to provincial regulators including Quebec’s AMF. It graduates to Reg CF when it has a community of customers or supporters whose small investments are also a marketing asset. It steps up to Regulation A when the raise justifies an audit and a public disclosure document — and when it wants a broad, transferable shareholder base rather than a cap table of insiders. Only then does a full listing stop being a leap and become a step.
Two cautions belong on every rung. These are U.S. federal regimes with eligibility rules — not every company qualifies, and cross-border offerings raise Canadian as well as American questions that need advice on both sides. And because offering limits are set by regulation and have changed before, confirm the current figures with counsel and the SEC’s small-business resources before planning around them.
The ladder does not make raising money easy. It makes it legal — for companies, and for the ordinary investors the old system simply left out. That is progress worth climbing carefully.
Jean-Francois Amyot is Managing Director of Wellington Peel LLC and author of The Art of War Remastered.
