The rules for this new generation of online, equity crowdfunding got a “yes” vote from Chairman Mary Jo White, Commissioner Luis A. Aguilar and Commissioner Kara M. Stein. Today, the Securities and Exchange Commission voted on its final crowdfunding rules, known as Title III, mandated by the 2012 Jumpstart Our Business Startups, or JOBS, Act.
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Sam Guzik, securities attorney involved in legislative and regulatory efforts surrounding equity crowdfunding said, “The growth and lack of problems to date with Title II equity crowdfunding, as well as many state-based crowdfunding initiatives being voted in, appear to have given the SEC more comfort in moving ahead with Title III rules”.
The Securities and Exchange Commission is set to release new rules for crowdfunding that essentially override limitations, in place for more than 80 years, on who can invest in start-ups.
The Title III equity crowdfunding ruling that was approved Friday will allow non-accredited (mom and pop) investors to invest in crowdfunding offerings subject to certain limits and rules set by the SEC.
First-time issuers offering between $500,000 and $1 million may submit reviewed financial statements rather than audited financial statements. Investors with income and net worth greater than $100,000 could contribute as much as 10 percent of their annual income or net worth, up to a maximum of $100,000 in one year.
Non-accredited investors, which are people who make $200,000 or less, can now give up to 5-percent of their income to any company in the country.
With an eye to protecting investors, the crowdfunding securities offerings can be made only through brokerage firms or new Internet funding portals that must be registered with the SEC.
While the SEC noted the importance of monitoring the progress of the new rules that allow nonaccredited investors to invest in startups and other private businesses, financial services firms applauded the SEC’s adoption of the crowdfunding rules. If they wanted to sell securities to unaccredited investors, they were required to register under Section 5 of the Securities Act much like companies do for a new stock or bond – an onerous process.
The regulations will mark the completion of the bi-partisan bill that was signed into law over three years ago. “The real power and excitement of this is that it creates a new channel for businesses that are starved for capital”, Quinn says, adding the average small business raise is for $170,000.
Investors making more than that can give unlimited amounts.
According to a recent survey conducted by mattermark, 97% of USA respondents noted they would invest in startups given the opportunity.
The key differences between state and SEC rules revolve around money. That means that if the business does well, they will receive a return on their investment.
Companies will be able to raise up to $1 million in any 12-month period. Second, eligible investors must have a net worth over $1 million, either alone or together with a spouse (excluding the value of his or her primary residence).
Supporters of the JOBS Act say the change will level the playing field for investors, while also giving startups the ability to raise money from more people. “At that point we may be able to access more retail investors”.
“Today’s landmark decision by the SEC will change the landscape for the options Startups will have in financing their businesses”.
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A recent study by massolution® found that worldwide crowdfunding platforms raised $16.2 billion in 2014, a 167 per cent increase from 2013, and that number is sure to grow exponentially in the coming years.
