SEC Amends Regulation Crowdfunding, Increasing Capital Raise to $5M



Last year, the Securities and Exchange Commission (SEC) announced that they would be amending the amount of capital that emerging companies can raise through Regulation Crowdfunding, part of a broader effort to “improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections”.

The changes have now come into effect, and starting today, approved companies may now raise up to USD$5,000,000 in a 12-month period under the SEC Regulation Crowdfunding.  Formerly, businesses were able to raise USD$1,070,000 in a 12-month period.

In addition to the increase in the amount of money companies can raise through Regulation Crowdfunding, some additional notable amendments that have come into effect are:

Removing investment limits for accredited investors.  This change is very promising for accredited investors as they may now invest as much as they like in Regulation Crowdfunding.  To qualify as an accredited investor, you must have an income of more than $200,000 or have a net worth greater than $1,000,000, excluding the primary residence.

Non-accredited investors can invest based on net worth or annual income, whichever is greater.  For non-accredited investors, they can use either their annual income or net worth, whichever is greater, when calculating their annual investment limits.  Investors with a net worth or annual income of less than $107,000 can invest 5% of their annual income or $2,200, whichever is greater.  Investors with an income or net worth of more than $107,000 may invest a maximum of 10% of their annual income or net worth up to a maximum of $107,000.

Regulation Crowdfunding has proven to be an important vehicle for emerging businesses to legally raise capital by selling securities through crowdfunding without having to go through the onerous and expensive requirements of a traditional securities offering at the outset.  For many small and medium-sized businesses, Regulation Crowdfunding is the only vehicle available to them to raise capital – the amendments adopted today enable access to more capital formation for these businesses.

The amendments to Regulation Crowdfunding were done alongside amendments to Regulation A, Regulation D, Regulation S-K, Exchange Act, Investment Company Act, and the Securities Act, to further enable and improve access to capital for emerging companies and provide additional investment opportunities for investors.  The SEC described the various amendments as “adopting amendments to facilitate capital formation and increase opportunities for investors by expanding access to capital for small and medium-sized businesses and entrepreneurs across the United States. Specifically, the amendments simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections. The amendments also seek to close gaps and reduce complexities in the exempt offering framework that may impede access to investment opportunities for investors and access to capital for businesses and entrepreneurs.”

The complete Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets can be found here.

You can take a look at our picks for Top 5 Equity Crowdfunding sites here.  If you are unsure whether a crowdfunding platform is duly registered with the SEC, you should double-check the SEC approved funding portals and broker-dealers to ensure the platform you would like to use is properly registered.

 



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