StreetShares, who recently closed a Series A round today announced that they have received SEC approval to offer a product to non-accredited investors through what is known as Regulation A+. The company currently operates a marketplace for small business loans, but is looking to expand their offering. This is the same route other companies have gone, namely Fundrise and GROUNDFLOOR, but StreetShares is the first small business lender to do so. StreetShares launched in 2014 with a focus on veterans funding loans to fellow veterans. We spoke to Mark Rockefeller, CEO and Co-Founder and Mickey Konson, COO and Co-Founder to learn more about why they chose to go this route.
Regulation A+ is part of Title IV of the JOBS Act which officially took effect on June 19, 2015. It increased the maximum raise from $5 million to $50 million and also provided an exemption from state blue sky laws. Mark Rockefeller and his team were waiting for this to happen and just a few days later, on June 23, 2015 StreetShares filed to begin the process of creating their new product. Since then they have been working closely with the SEC through several iterations to get the deal approved. Regulation A+ allows companies to raise up to $50 million in a 12 month period and Mark noted that StreetShares was the perfect size for the deal to make sense.
Since StreetShares had already raised a seed round they were able to withstand the process of getting approved which is resource intensive and includes audited financials. They also weren’t so large that raising $50 million in 12 months wouldn’t move the needle. Mark and Mickey said that going the Regulation A+ route is perfect for startups with traction and the timing worked well for them. This Regulation A+ process is much less resource intensive than the approach that Lending Club and Prosper took where they filed a S-1 and are required to file every loan as an individual security.
The New StreetShares Regulation A+ Product
While some details remain to be seen we have an idea of how the product will function. Sign up is currently available at StreetShares.com, but the full technology launch will occur next month. Securities will be offered first to active duty military veterans and their families. Both Mark and Mickey are former military men and they believe strongly is serving this community. But they will offer this new investment product to all non-accredited investors in the near future.
While they wouldn’t share too many details about their new product they did say it was going to be a new approach that would make it simple for investors. Here is what they shared in their press release this morning.
The crowdlending product, created through Regulation A+ of the Jumpstart Our Business Startups (JOBS) Act, offers a fixed return to investors, a first for this type of investment. StreetShares uses the proceeds to generate loans to qualified small businesses. Unlike current “peer-to-peer” lending sites, repayment to investors is not tied to the performance of a particular underlying loan. StreetShares is the first company to apply this law to the $100 billion small business loan market. Until now, only wealthy “accredited investors” could invest in these popular securities.
The key point here is that investor returns are “not tied to the performance of a particular underlying loan”. StreetShares will provide a vehicle for investors to become diversified through some kind of fund. Details will be revealed when they launch in a few weeks.
An important piece to the StreetShares platform is the community and the affinity approach. They believe that opening up this product will help continue to drive more borrowers to them as investors spread the news of a StreetShares small business loan. With their focus on veterans they have learned that there is a benefit to receiving funding from people in the same social group. It touches on the ability to pay versus the willingness to pay where borrowers don’t want to let their investors down. Mark noted it is this positive peer pressure that de-risks the loans offered by StreetShares.
We were told by Mark and Mickey that they plan to officially announce the product at LendIt USA 2016 in San Francisco next month.
Conclusion
It seems as though Regulation A+ deals are becoming the new trend for marketplace lenders to access non-accredited investors. Retail investors are increasingly able to invest across verticals of the industry. It will interesting to see how these types of deals develop especially as companies like StreetShares continue to grow originations. Perhaps we will see Regulation A+ expanded to higher maximums if it continues to be successful.
