When the Securities and Exchange Commission voted on Friday in favor of its final crowdfunding regulations under the Jumpstart Our Business Startups Act, it put the finishing touches on a dizzying new range of capital-raising choices for entrepreneurs and finance executives of small firms, experts observe.
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While the crowdfunding portals may be able to streamline the process, I would still recommend getting an attorney or other professional familiar with the rules to prepare all of this information.
A funding portal is a new type of SEC registrant. The new regulations implement that statutory mandate. Key factors are the quality of funding portals and the extent to which they can vet investors, she said. Emails to AngelList, whose investors collect carry for their investment, were not returned by press time. Not surprisingly, the issuer and the intermediary are not entitled to rely on an investor’s representation if the issuer or the intermediary, in fact, knows that the investor has exceeded the investor limits or would exceed the investor limits as a result of purchasing the issuer’s securities.
Not all companies are eligible to participate in crowdfunding offerings.
The transferability of crowdfunded securities is restricted.
No. Much like most shares sold through private placements, the shares of stock sold in equity crowdfunding can not be sold (in most circumstances) for at least one year.
At the same time, the law eased the SEC’s regulatory reach by giving the startups an exemption from filing rules.
Had the new rules been in place years ago, Oculus might have been able to sell equity – and those backers might have gotten a piece of the Facebook payout. It will be another 180 days from when the rules make it to the official Federal Register until the rules are fully effective. However, crowdfunding firms also have to exercise caution.
The SEC proposed the crowdfunding rules two years ago. Just be careful not to reference both offerings in your marketing materials or they could be considered “integrated”.
Essentially the new rules will allow companies like Kickstarter and Indiegogo to offer those who contribute funds to receive more than posters, T-shirts and the other swag they now get in return for a donation. That, in effect, was the message the U.S. Securities and Exchange Commission sent today, voting to give retail investors the right to buy shares in tiny private startups through so-called crowdfunding mechanisms. SEC also changed the audit provisions of the crowdfunding rules. Blue Sky state laws had left many loopholes that were manipulated, leaving the market open and vulnerable to the beating it took. “I suspect that most investors will respond to investment opportunities in local markets and in industries they can easily understand and relate to, such as consumer products, entertainment, real estate and restaurants”. However, what remains to be seen is what additional burdens will be added in order to access this capital.
That’s because they were not investing in Oculus. Investors with annual incomes or a net worth of less than $100,000 can contribute up to $2,000 or 5 percent of their net worth or income, whichever is greater. In making the net worth calculation, the value of an investor’s primary residence may not be included as an asset. The SEC actually tightened up the amounts that can be invested by each individual, which is not good news for entrepreneurs.
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Pepper Point: An issuer can include any higher thresholds that it wants to for its offering.
