What is a Mini IPO?

What is a Mini IPO?

Have you ever watched someone ring the bell at the stock market exchange to kick off the trading day? Sometimes these events revolve around an important, and much publicized public offering for a burgeoning startup company.

But imagine ringing the bell for you own startup IPO investment opportunity.  With changes to the world of alternative investments opening up to regular, everyday investors, it’s now possible.

As you research these little know and understood investment opportunities, you might run into language referencing a “Mini IPO.”

But what is a Mini IPO?

Read on to learn more about how this funding and investment vehicle allows companies to raise capital and allows investors to do a little bell ringing of their own.

What is a Mini IPO?

This special financial regulation allows start up companies to raise capital and is regulated and monitored by the US Securities and Exchange Commission (SEC).  Mini IPOs are relatively new, but their growth rate over the last few years has been tremendous.  Other words that are used to describe a Mini IPO include Reg A+ and Crowdfunding.

Crowdfunding

Crowdfunding is where individual investors pool their monies. This allows them to buy stock in a company, an investment fund, or product idea. This pool of money is then used by the company to launch that product or grow a business, for example.

The power of crowdfunding is that it allows all types of investors to take part in what historically has been limited to institutional investors.  It is a powerful tool that offers a means to raise capital while providing alternative investment opportunities for retail investors.

The Accredited vs Non-Accredited Investor

For investors, one of the great things about these funding/investment vehicles is that you do not need to be accredited. Typically, those who can take advantage of traditional IPOs are institutional or accredited investors. Up until 2015, it’s been a very limited type of investor that could take advantage of a new IPO.

Just for context, an accredited investor needs to meet certain financial requirements. To be accredited, an investor needs an annual income that exceeds $200K per year for the last two years with the expectation or earning the same or more for the current year.*

Without those accreditation requirements, companies now have a tremendous opportunity to access a large pool of  investors.

These provisions allow companies to raise funds from accredited and non-accredited investors alike. So equally, the accredited investor with $1M in the bank and Joe Public with $1000 can invest in different businesses and alternative investments.

*Source: Investopedia

History of the Mini IPO

Origins

The Mini IPO’s parent regulation was Regulation A. This original regulation was intended to make it easier for emerging growth companies (EGCs) to access financial markets in raising capital. Unfortunately, this regulation was little used as companies faced hurdles from state regulators. Additionally, the original regulation only provided limited offerings of $5M or less. This low financial ceiling was not enough incentive for companies to make use of Regulation A.

Evolution of Reg A

The Jumpstart Our Business Startups (JOBS) Act passed in 2012 revised and updated the original Reg A, opening the field for smaller, startup companies to raise funding on public markets.  However, Reg A wasn’t officially updated until the SEC made amendments to the original regulation in 2015. It was here that the new and enhanced, Reg A+ was born.

Features of the Mini IPO

The SEC rule defined two tiers for companies looking to raise money on public markets.

Tier 1

  • Companies can raise up to $20M in a 12-month period
  • Minimal reporting requirements
  • Open to authorized and non-authorized investors
  • Extra state requirements may apply

Tier 2

  • Companies can raise up to $50M in a 12-month period
  • Must file annual and semiannual reports
  • Open to authorized and non-authorized investors
  • Exempt from extra state requirements
  • Investment limit for non-accredited investors
  • Requires regular audits

What to Look for in a Mini IPO

When evaluating investment opportunities with a company using Regulation A+, consider the following:

  • Financial transparency of the company making the offering.
  • History of successfully raising capital.
  • Experienced executive staff and managers.
  • Clearly stated organization, purpose, and company vision.
  • U.S. based company.
  • Utilizes outside auditors. Secured Investment Corp for example is a Verivest Partner and receives regular audits and monitoring.

 


Fund Manager Heather Dreves shares her story about managing Reg A+ funds with Verivest

 

Future Growth for the Mini IPO

The future for Mini IPOs looks bright. Since the advent of the SEC’s rule updates, the use of Mini IPOs has skyrocketed. The future projection is continued growth as more companies look to raise capital and engage their investors in the process.

mini ipo growth trend graph

 

Source

Invest in Your Own Mini IPO

Learn about investing in a Reg A+ fund managed by Secured Investment Corp (SIC).  SIC offers real estate investment opportunities for both accredited and non-accredited investors.

Our Reg A+ instrument, the Circle of Wealth Fund III, allows individuals to invest in real estate at a very low cost. This fund is fully audited by Verivest and only requires an initial investment of $1000.

 


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