Even though we are on the cusp of 2016, businesses will still be able to benefit from the Securities and Exchange Commission’s new rules which went into effect over the summer of 2015, allowing smaller companies to sell up to $50 million of securities in a 12-month period and allowing everyday citizens to be the investors.
Raising capital to pay for expansion plans sometimes can be a major hurdle for smaller companies that aren’t publicly traded on the stock exchanges. But this new investor option is making the path less formidable for smaller businesses with big dreams.
Already some companies have positioned themselves to take advantage.
“We are excited about this because it gives us easier access to capital without having to be listed on the trading markets,” says Derek Diasti, chief executive officer of Sun Dental Labs, a Florida company that was one of the first in the nation to receive SEC qualification to move forward with a Tier 2 securities offering under the change.
“Anyone can invest in this company, so this democratizes investing. You don’t have to be a millionaire to get involved.”
The Securities and Exchange Commission’s new rules were a long time in coming. They were mandated as part of the Jumpstart Our Business Startups (JOBS) Act passed by Congress in 2012. But the SEC took nearly three years to craft the details as regulators tried to balance giving businesses an effective capital-raising strategy while still providing strong investor protections.
The rules update and expand what was known as Regulation A under the Securities Act of 1933. The Securities and Exchange Commission’s new rules allow for two tiers of securities offerings:
Tier 1
This lets companies offer and sell up to $20 million in securities over a 12-month period to accredited investors (high-net-worth individuals, banks, and large corporations) and non-accredited investors (those of more modest means). Similar to the original Regulation A, Tier 1 does not require audited financial statements, does not limit the amount that can be invested by a non-accredited investor, and does not require ongoing reporting. Issuers are required to register securities with each state in which they sell securities.
Tier 2
This increases to $50 million the amount of securities that companies can offer and sell. Tier 2 offerings preempt state registration requirements, but the companies must file audited financial statements with the SEC. Once an offering is complete, ongoing reporting requirements include annual reports, semiannual reports, and current event reports. Limitations are placed on how much non-accredited investors can invest.
Diasti saw the Securities and Exchange Commission’s new rules as the perfect opportunity for Sun Dental Labs.
Sun Dental’s initial goal is to raise $20 million, but the company decided to pursue a Tier 2 offering so it has the option to raise as much as $50 million.
“In the next 10 years, I believe very few patients will go to a dentist unless that dentist’s office is digital,” Diasti says. “The industry is changing and we plan to be a big part of that.”
Derek Diasti is chief executive officer of Sun Dental Labs. He also has played a role in other companies, including co-founding Coast Dental, which has more than 180 offices in five states. Diasti has a degree in veterinary medicine from Purdue University.
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