One aspect of Regulation A that does not seem to be getting the attention it should is the fact that it facilitates investment into things other than the future performance of early-stage companies. Real estate is an obvious alternative to early-stage equity. Even where the real estate project has not been built out yet, real estate investments (which may be REITs or other real estate funds) promise investments that have an earlier time horizon, in some cases more liquidity and in many cases generate cashflow in real time. There have been scored of successful real estate offerings under Regulation A.
A completely different category of offerings that is taking advantage of Regulation A is, for want of a better umbrella term, collectibles. There are Reg A offerings permitting people to invest in interests in classic cars, comic books, trading cards and racehorses. Special-issue sneakers, even.
These sorts of offerings aren’t possible as registered offerings. However much that first issue comic book might be worth, the legal and compliance costs to register an offering of interests in it are prohibitive. But the lower cost structure of Regulation A means that you can create companies (Delaware Series LLCs are popular), each of them owning a specific asset (or in some cases only part of that asset) and sell interests in those companies to collectors and fans.
While the interests in the issuers are clearly securities, the underlying assets generally aren’t. So assuming that there isn’t a correlation between the “real” securities market and the collectible or horse markets, these investments might provide an interesting hedge to an investor’s portfolio. Or just appeal to people who like cars, horses or sneakers.
We’ve seen a lot of speculation about using blockchain to invest in alternative assets. Sure, you can do that, and distributed ledger technology can certainly help with recording ownership either of the securities or the underlying asset (providing that the rules applicable to the recording of ownership of the specific asset, such as vehicle titling, are complied with), but blockchain isn’t a necessary part of this process.
We expect this market will expand. One type of offering already popular in the Regulation D market for accredited investors is the offering of interests in athletes’ future earnings through “Income Share Agreements” (ISAs). If we could all get comfortable that an ISA is not an “investment security” itself (if it is, the LLC offering the interests in the ISAs will be an investment company, which can’t offer under Regulation A) then we might see retail investors investing in two-legged athletes as well as the four-legged sort. With or without sneakers.