Understanding Reg D and Reg A
What are Reg D and Reg A?
Reg D and Reg A are two two regulatory exemptions under the Securities Act of 1933 utilized by companies raising capital investors privately without going through a traditional IPO. Both offer unique advantages—Reg D provides fast, efficient fundraising for companies and exclusive early-access opportunities for qualified investors, while Reg A creates a more accessible pathway that brings institutional type-quality deals to all investors with built-in protections.
These exemptions help start up companies raise the capital needed to grow while giving investors access to private market opportunities that were once limited to venture capitalists and private equity firms.
Why these regulations matter for investors
These regulations shape the private investment landscape. Reg D creates opportunities for accredited investors to access deals at early valuations. Reg A democratizes private investing, allowing anyone to participate in vetted offerings with regulatory oversight and ongoing transparency.
Both offer something public markets can't: the chance to invest in companies during their early phases before they're widely known. The key is understanding which opportunities align with individual investment goals and qualifications.
Regulation D: Early access and exclusivity
Who can invest?
Reg D offerings are primarily available to accredited investors—typically defined as individuals with $1 million in net worth (excluding primary residence) or annual income above $200,000 ($300,000 with a spouse). Institutions, trusts, and entities with $5 million+ in assets also qualify. There is also an accredited category for persons holding the FINRA series 7, 65 or 82 registrations
Some Reg D offerings (506(b)) permit up to 35 sophisticated non-accredited investors who have sufficient knowledge to evaluate the investment. While less common, these opportunities do exist for knowledgeable investors who don't meet wealth thresholds.
The advantages of Reg D investing
Reg D offers several compelling benefits. Investors often get access to companies at earlier stages and better valuations—before multiple funding rounds drive up prices.
The exclusive nature of these investments means less competition for allocation. While shares typically can't be sold for 6-12 months (and secondary markets are limited), this lockup period also means investors are aligned with long-term company growth rather than short-term market fluctuations.
Many successful companies—from tech unicorns to established real estate funds—have collectively raised billions through Reg D. It's the same mechanism used by top venture capital and private equity funds.
What to expect in a Reg D investment
Reg D investments often move quickly, sometimes closing within weeks. Investors typically receive a Private Placement Memorandum (PPM) with detailed terms, risks, and business information. While Reg D does not require companies to provide ongoing reports, many share regular updates with their investor base to maintain relationships.
The streamlined process means lower legal and compliance costs for companies, which can translate to better terms for investors. Companies save millions compared to public offerings, allowing more capital to go toward growth rather than fees.
Due diligence considerations
Smart Reg D investors do thorough research. Look for companies with experienced management teams, clear business models, and realistic growth projections. Many sophisticated investors view the limited regulatory oversight as an opportunity to leverage their own expertise and networks to evaluate deals.
Consider diversifying across multiple Reg D investments rather than concentrating in one. The illiquid nature means this capital should be part of a long-term portfolio strategy.
Regulation A: Accessibility meets transparency
Who can invest?
Reg A opens private investing to everyone. While non-accredited investors have investment limits (10% of annual income or net worth per offering), this could still represent significant opportunity. Accredited investors have no limits, making Reg A attractive for large and small investors alike.
This inclusivity means companies can build broader, more engaged investor communities. Many Reg A companies have thousands of investor-advocates who become customers and brand ambassadors.
The advantages of Reg A investing
Reg A combines private market opportunity with public market-style protections. The SEC qualification process means offerings undergo regulatory review before accepting investments. Investors receive an offering circular with audited financials and comprehensive business disclosures.
Tier 2 Reg A companies file semi-annual and annual reports with the SEC, providing ongoing visibility into performance. This transparency helps investors make informed decisions about holding, buying more, or selling shares.
Most Reg A securities are freely tradeable immediately after purchase (provided state bluesky requirements are met). While secondary markets are still developing, several platforms now facilitate trading of Reg A securities, providing potentially more options than traditional private investments.
What to expect in a Reg A investment
Reg A offerings often feel more like crowdfunding meets traditional investing. Companies can market publicly, run investor webinars, and build excitement around their raise. The "testing the waters" provision lets investors express interest before committing capital.
The typical Reg A process takes 3-6 months from filing to qualification, but this timeline creates opportunity for investors to research thoroughly. Companies often provide extensive materials, videos, and Q&A sessions to educate potential investors.
Many Reg A Issuers offer perks to investors—discounts on products, exclusive access, or special recognition. This creates a deeper connection between companies and their investor communities.
Strategic considerations
Reg A works well for investors who value transparency . The ability to invest smaller amounts across multiple offerings allows for diversification within private markets. The public nature of these offerings also means more information is available for research.
Comparing the opportunities
Reg D strengths
- Earlier stage access with potentially higher returns
- Exclusive deals with less competition for allocation
- Lower company costs can mean better investor terms
- Faster execution allows capturing timely opportunities
- Same structure used by professional investors
Reg A strengths
- Open to all verified investors regardless of wealth
- SEC review provides additional vetting
- Ongoing reporting requirements ensure transparency
- Builds invested communities that support company growth
Making informed decisions
Key questions for any private investment
Company evaluation:
- What's the business model and revenue strategy?
- How experienced is the management team?
- What's the competitive landscape?
- What are the growth projections based on?
Investment terms:
- What type of securities are being offered?
- What are the valuation and use of proceeds?
- Are there any special rights or protections?
- How might future funding rounds affect the investment?
Exit strategy:
- What's the company's timeline to exit ?
- Are there any buyback provisions?
- What comparable companies have had successful exits?
- How developed is the secondary market?
The opportunity in private markets
Both Reg D and Reg A represent the evolution of private capital markets. Reg D maintains its position as the preferred choice for sophisticated investors seeking exclusive opportunities and companies requiring efficient fundraising. Reg A expands the tent, potentially bringing retail investors into private markets while providing companies access to broader capital sources.
The private markets have historically outperformed public markets, and these regulations make that performance accessible to more investors. Whether through the exclusive early-access of Reg D or the transparent accessibility of Reg A, investors now have unprecedented opportunities to participate in private company growth.
Smart investors often participate in both types of offerings, using Reg D for concentrated positions in high-conviction investments and Reg A for diversified exposure to emerging companies. The key is understanding each structure's benefits and aligning investments with personal financial goals and risk tolerance.
Resources
Disclaimer - Investing in private markets is risky and there are no guarantees of a return. Many investments are not successful. Most investments on the Mars platform are illiquid and long-term investments.
