On behalf of ARK Invest’s Venture Investment Team, I would like to summarize the differences between two ways that non-accredited investors can access private companies—Regulation Crowdfunding (Reg CF) and Regulation A+ (Reg A+). Importantly, those options offer alternatives to the way that the ARK Venture Fund (ARKVX) provides non-accredited investors access, which we believe is the most compelling risk/return profile in the market for private investments today.
Education is central to ARK’s commitment to democratizing access to investment opportunities. Public market access to private company investments is proliferating, broadening opportunities.1 In this piece, we summarize the differences among those opportunities, including their relative strengths and weaknesses from a long-term point of view.
Reg CF and Reg A+
Reg CF and Reg A+ are important frameworks established under U.S. Securities law to facilitate small business access to capital while providing investment opportunities to the public. Both regulations aim to facilitate the process by which startups or small companies raise funds from non-accredited investors. Their distinctive features, rules, and limitations are outlined in the table below:
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Source: ARK Investment Management LLC, 2024. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. Although the Fund will offer to repurchase shares on a quarterly basis, shares are not redeemable and there is no guarantee that shareholders will be able to sell all of their tendered shares during a quarterly repurchase offer.
Relative Risk Profiles
Returning to the broader landscape of opportunities for access to private companies, we note that the risk profiles of both Reg CF and Reg A+ underscore what we view as one of the most important advantages of The ARK Venture Fund: the diversification intrinsic to a single investment that offers exposure to many companies.
Indeed, both the Reg CF and the Reg A+ instruments are built to accommodate investments in a single company. In other words, the only way to diversify using either instrument is to make multiple individual investments. If an investor wished to make several investments across multiple companies via those instruments, realizing real diversification would be challenging, notwithstanding the administrative burden, as the investment limit could cap out before meaningful diversification had been realized. For example, the average Regulation CF investment in 2022 had a check size of $1,256. From that standpoint, these types of instruments might work best as one-off investments that an investor could complement with other types in order to accomplish diversification in the venture space.
In contrast, the minimum investment for The ARK Venture Fund is just $500, which, in-and-of-itself, will become an investment diversified across several potentially high-growth startups, as illustrated below. From that standpoint, reaping financial gain via the Reg CF and Reg A+ instruments requires that an investor’s high conviction in one or a few consolidated bets turns out to have been right on the money—a significant risk consideration.
Source: ARK Investment Management LLC, 2024. For illustrative purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security.
Conclusion
Reg CF and Reg A+ offer important pathways for smaller companies to access public capital markets, depending on the company's specific needs, financial condition, and goals. Reg A+ is well-suited for companies that seek more significant amounts of capital and have the ability to handle more stringent disclosure and ongoing reporting requirements. Reg CF offers a more straightforward entry point for smaller-scale funding but has tighter caps on fundraising and investor participation.
For investors, while both regulations facilitate non-accredited access to private companies, they do carry risk associated with concentration/diversification. Before investing, investors should research deeply the specific companies, diversifying, when possible, much as they do when seeking exposure to other asset classes.
The ARK Venture Fund is a one-stop, highly diversified, professionally managed, and thoroughly researched alternative that provides immediate access to a diverse portfolio of private companies. In cases where clear-eyed, non-accredited investors have high conviction in a particular private company not included in The ARK Venture Fund portfolio, Reg CF, and Reg A+ offerings could be used in conjunction with and as a complement to the ARK Venture Fund, ultimately curating well-diversified investment exposure to innovation in private companies.
Important Information
Investors should carefully consider the ARK Venture Fund's investment objectives and risks, as well as charges and expenses, before investing. This and other information are contained in the ARK Venture Fund’s prospectus, which may be obtained by visiting www.ark-funds.com.
The ARK VENTURE FUND is a continuously-offered, non-diversified, registered closed-end fund with limited liquidity. An investment in the Fund’s Shares is not suitable for investors that require liquidity, other than liquidity provided through the Fund’s repurchase policy.
All statements made regarding investment opportunities are strictly beliefs and points of view held by ARK and investors should determine for themselves whether a particular investment or service is suitable for their investment needs. Certain statements contained in this document may be statements of future expectations and other forward-looking statements that are based on ARK’s current views and assumptions, and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. The matters discussed in this document may also involve risks and uncertainties described from time to time in ARK’s filings with the U.S. Securities and Exchange Commission. ARK assumes no obligation to update any forward-looking information contained in this document.
To view the top 10 holdings in the ARK Venture Fund, click here. To view the most up-to-date portfolio, click here.
An investment in the ARK Venture Fund is subject to risks, and you can lose money on your investment. There can be no assurance that the ARK Venture Fund will achieve its investment objectives. The ARK Venture Fund’s portfolio is more volatile than broad market averages. The ARK Venture Fund also has specific risks, which are described below. More detailed information regarding these risks can be found in the ARK Venture Fund’s prospectus.
Diversification neither assures a profit nor guarantees against loss in a declining market.
Foreside Fund Services, LLC, distributor.
ARK Investment Management LLC (“ARK Invest”) is the investment adviser to the ARK Venture Fund.
Sources:
Regulation A+ Filings | FINRA.org
SEC.gov | Regulation A
SEC.gov | Regulation Crowdfunding
Crowdfunding Offerings: Broker-Dealer and Funding Portals | FINRA.org
Equity Crowdfunding Statistics in 2023 (crowdcrux.com)
Investors may find it useful to read this paper alongside a companion ARK paper, Why We Believe ARK Venture Fund (ARKVX) Provides Better Access To Private Companies Than An Exchange-Traded Closed-End Fund Like DXYZ.
ARK’s statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. ARK and its clients as well as its related persons may (but do not necessarily) have financial interests in securities or issuers that are discussed. Certain of the statements contained may be statements of future expectations and other forward-looking statements that are based on ARK’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements.
