The main difference between the tiers of Regulation A+ (Reg A+) essentially boils down to a trade-off: Tier 1 has lower federal requirements but harder state-level hurdles, while Tier 2 is more expensive upfront at the federal level but allows you to bypass individual state reviews.
Think of Tier 1 as a “Local/Regional” model and Tier 2 as a “National Mini-IPO” model.
Comparison: Tier 1 vs. Tier 2
| Feature | Tier 1 (Small Cap) | Tier 2 (Mini-IPO) |
|---|---|---|
| Max Raising Limit | $20 Million (per 12 months) | $75 Million (per 12 months) |
| CPA Audit | Not Required (unless you already have one) | Mandatory (2 years of audited financials) |
| State “Blue Sky” Laws | Full State Review (Must qualify in every state you sell in) | Federal Preemption (State review is bypassed) |
| Investor Limits | None (Anyone can invest any amount) | Capped at 10% of income/net worth for non-accredited |
| Ongoing Reporting | Minimal (Exit report only) | Significant (Annual, Semi-Annual, and Current reports) |
Detailed Breakdown of Differences
1. State Compliance (The “Blue Sky” Problem)
- Tier 1: You must register or “qualify” your offering in every single state where your investors live. This often results in a “merit review,” where a state regulator can reject your deal if they think it’s too risky for their citizens.
- Tier 2: The federal government “preempts” state laws. You still notify the states and pay a fee, but they cannot block your offering based on its “merit.” This is why 95% of the money raised in Reg A+ happens in Tier 2.
2. The CPA Audit Requirement
- Tier 1: You can save $15,000–$30,000 because you don’t strictly need a CPA to audit your books. You just need to provide standard financial statements.
- Tier 2: You must hire a PCAOB-registered CPA to perform a full audit for the last two years. This increases your startup costs but gives investors much more confidence.
3. Investment Limitations
- Tier 1: Any person, regardless of their wealth, can invest as much as they want (up to your $20M total).
- Tier 2: If an investor is not “accredited” (generally meaning they make less than $200k/year or have less than $1M net worth), they cannot invest more than 10% of their annual income or net worth—whichever is greater.
4. Post-Raise Paperwork
- Tier 1: Once the money is raised and you file a “Form 1-Z” exit report, your relationship with the SEC is essentially over.
- Tier 2: You become a “semi-public” company. You must file annual reports (Form 1-K), semi-annual reports (Form 1-SA), and report major events (Form 1-U) like firing a CEO or losing a major lawsuit.
Which one should you choose?
- Choose Tier 1 if: You only want to raise a few million dollars from a specific local community (like a restaurant in Detroit) and you don’t mind the state regulator looking over your shoulder.
- Choose Tier 2 if: You want to run Facebook ads and take money from people in all 50 states. Even if you only want $5M, Tier 2 is often cheaper in the long run because it avoids 50 sets of state legal fees.
Would you like me to help you estimate the total “legal and accounting” budget for a Tier 1 versus a Tier 2 raise?