In major news on March 4, the SEC has announced significant changes across “traditional” and “new” offerings which allow entrepreneurs to raise capital. Once active, these changes would greatly improve the ability for founders to raise the capital they need and provide access to a broader group of everyday Americans to participate in any returns from one of the highest returning asset classes on average in the country.
We are excited to share with you today’s press release by the Securities and Exchange Commission with long awaited improvements to Regulation Crowdfunding as well as other exempt offerings. These changes should significantly increase the utilization of online finance in the United States over time.
In particular, we are thrilled that the years we have spent in Washington, DC advocating for changes and represented in letters and reports from the Treasury Department have resonated with the Commission. The changes outlined below will make the industry more appealing to issuers, allow the industry to scale and make online fundraising more efficient. Many thanks goes to the hard working people at the Commission.
Over the last 4 years, the data that CCA has collected on the industry has clearly shown that these offerings are conducted in a secure, efficient and nearly fraud-free market. This demonstrates the importance of a common data standard for the industry to enable transparency in the markets for regulators and investors. Other governments around the world should take note of these newly expanded rules as they contemplate their own opening of the private capital markets.
According to the press release, here are the highlights:
Offering and Investment Limits. The Commission proposed revisions to the current offering and investment limits for certain exemptions.
For Regulation Crowdfunding:
- raise the offering limit in Regulation Crowdfunding from $1.07 million to $5 million;
- amend the investment limits for investors in Regulation Crowdfunding offerings by:
- not applying any investment limits to accredited investors; and
- revising the calculation method for investment limits for non-accredited investors to allow them to rely on the greater of their annual income or net worth when calculating the limit on how much they can invest.
For Regulation A:
- raise the maximum offering amount under Tier 2 of Regulation A from $50 million to $75 million; and
- raise the maximum offering amount for secondary sales under Tier 2 of Regulation A from $15 million to $22.5 million.
For Rule 504 of Regulation D:
- raise the maximum offering amount from $5 million to $10 million.
“Test-the-Waters” and “Demo Day” Communications. The Commission proposed several amendments relating to offering communications, including:
- a proposed new rule that would permit an issuer to use generic solicitation of interest materials to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use for the sale of the securities;
- a proposed rule amendment that would permit Regulation Crowdfunding issuers to “test-the-waters” prior to filing an offering document with the Commission in a manner similar to current Regulation A; and
- a proposed new rule that would provide that certain “demo day” communications would not be deemed general solicitation or general advertising.
Regulation A and Regulation Crowdfunding Eligibility. The proposal includes amendments to the eligibility restrictions in Regulation Crowdfunding and Regulation A. These proposed rules would permit the use of certain special purpose vehicles to facilitate investing in Regulation Crowdfunding issuers, and would limit the types of securities that may be offered and sold in reliance on Regulation Crowdfunding.