Regulation A is often described as a “mini-IPO”—a way for private companies to raise capital from the public without fully registering under the Securities Act. In theory, it offers a compelling middle ground: broader investor access than a private placement, with fewer burdens than a traditional IPO. In practice, Regulation A plays a very small role in U.S. capital formation, particularly when compared to Regulation D. Understanding why requires looking at both the structure of Regulation A and the actual data.
Regulation A vs. Regulation D: What the Numbers Show
According to the U.S. Securities and Exchange Commission Division of Economic and Risk Analysis, Regulation D overwhelmingly dominates the exempt offering market.
Capital Raised (2024)
- Regulation D: approximately $2.15 trillion
- Regulation A: approximately $896 million
That means Regulation A represented well under 0.1% of exempt capital raised in 2024.
Number of Offerings (2024)
- Regulation D: approximately 32,500 new offerings
- Regulation A: 102 qualified offerings
The pattern is consistent year after year. The capital raised through Regulation A remains a rounding error relative to private placements.
Why Regulation A Usage Remains Limited (Despite Real Advantages)
Regulation A’s promise is real—but so are its structural and compliance burdens. Those burdens differ meaningfully between Tier 1 and Tier 2.
Tier 1: No Federal Preemption, Limited Practical Use
Tier 1 Regulation A offerings (up to $20 million in a 12-month period) do not preempt state securities laws.
As a result, issuers must:
- Register or qualify the offering in each state where securities are sold
- Navigate multiple Blue Sky regulators, timelines, and filing fees
- Potentially undergo state-level merit review
For a multi-state offering, Tier 1 often recreates the very friction Regulation A was intended to reduce. In practice, we rarely, if ever recommend a Tier 1 filing.
Tier 2: Federal Preemption—But at a High Cost
Tier 2 Regulation A offerings (up to $75 million in a 12-month period) do preempt state securities laws, which is a meaningful advantage. Tier 2 also offers two benefits that Regulation D generally does not:
- Access to a large number of non-accredited investors (subject to investment limits)
- Non-restricted securities, meaning shares are freely tradable upon issuance
These features can be attractive for consumer-facing businesses and issuers seeking broader investor participation. However, the compliance burden is substantial. Tier 2 issuers must prepare and file an offering statement on Form 1-A, and—critically—the offering cannot proceed until the SEC reviews and qualifies that filing. According to the SEC’s own Paperwork Reduction Act estimates, the average time burden to complete Form 1-A is approximately 717 hours.
That estimate reflects only the reporting burden—not the real-world costs of:
- Legal drafting and negotiation
- Auditor coordination and consents
- Responding to SEC comment letters
- Management time diverted from operating the business
In addition, Tier 2 issuers must provide audited financial statements and comply with ongoing reporting obligations, including:
- Annual reports on Form 1-K
- Semi-annual reports on Form 1-SA
- Current event reports on Form 1-U
Taken together, these requirements frequently translate into six-figure legal and accounting costs, extended and unpredictable SEC review timelines, and continuing compliance obligations that resemble those of a public company—without the liquidity or scale of an exchange listing.
When weighed against the $75 million offering cap, many issuers conclude that Regulation D offers a far better cost-to-capital ratio, particularly where accredited investors are available.
The Tradeoff, Plainly Stated
Regulation A does deliver real advantages:
- Broader investor eligibility
- Freely tradable securities
- A potential on-ramp to public-company-style disclosure
But the tradeoffs are meaningful:
- Tier 1 offers little regulatory relief due to state law requirements
- Tier 2 requires substantial time and expense.
- Tier 2 requires ongoing SEC reporting.
As a result, Regulation A often ends up too expensive and time-intensive for smaller raises and too constrained for larger ones.
BOTTOM LINE
The SEC’s own statistics confirm that it plays a minor role in capital formation, especially when compared to Regulation D. For most companies, private placements are a faster and cheaper alternative. For a narrower subset of companies—particularly those who want to (i) raise capital from large numbers of non-accredited investors, or (ii) list a class of securities on a securities exchange, such as NASDAQ, in the near term, Regulation A is a good option.
How We Can Help
At Faison Law Group, we advise founders, funds, and growth-stage companies on choosing the right capital-raising structure before unnecessary time and money are spent. That includes:
- Candid Reg A vs. Reg D feasibility assessments
- Cost-benefit analysis before launching a Form 1-A
- Structuring Regulation D offerings as an alternative or complement
- Advising on future-proofing for eventual Reg A or public offerings
If you’re considering Regulation A—or want a second opinion before committing hundreds of hours and significant professional fees—we’re happy to have that conversation early, when it matters most.
Contact Faison Law Group for a FREE consultation to discuss your capital-raising strategy before the paperwork starts.