SEC Approves Title III of JOBS Act, Equity Crowdfunding with Non-Accredited

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Forbes | Chance Barnett | Oct 30, 2015

SEC issues fineThe SEC just voted on and passed rules to implement Title III of the JOBS Act, bringing non-accredited investors into the fold for equity crowdfunding.

This sets the stage for equity crowdfunding to continue its exponential growth over the next 3-5 years, on top of the existing market for accredited investors.

Crowdfunding was already expected to surpass VC in 2016 at $34B a year in total crowdfunding online, across all types of crowdfunding. By bringing in a new class of investors with Title III, we can expect further growth of the equity market as venture capital continues to move online.

The public has been waiting on Title III equity crowdfunding for three and a half years now, as the SEC continuously stalled in finalizing rules to allow non-accredited investors to come into the market and invest in startups under Title III.

But with today’s vote, Title III equity crowdfunding will kick off and go live in 90 days, once a commenting period takes place and the new final rulings are published in the federal register.

See:  SEC Adopts Rules to Permit Crowdfunding

As equity crowdfunding with non-accredited investors under Title III comes into effect, it will have massive implications for startups and investors alike, allowing everyday citizens to invest in startups. This will open up a tremendous amount of capital available to early stage companies.

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. It’s great for everyday people who have been shut out from investing to date.”

Title III Quick Summary

    • Equity crowdfunding expands to include non-accredited investor participation
    • The new rules will go into place after a 90 day commenting period and publishing
    • Startups and small businesses can raise up to $1M in a period of a year
    • Investors making <$100,000 per year can invest the greater of $2,000 or 5% of annual income
    • Investors making >$100,000 per year can invest up to 10% of their annual income
    • Offerings must be made via Broker-Dealer or Portal Intermediary
    • Significant disclosures are required for companies to help provide transparency

Implications for Equity Crowdfunding and Venture Capital

This marks the first time in over eighty years that everyday citizens will have access to investing in early stage companies. The barriers everyday citizens have experienced in participating in early stage private investing are slowly but surely going away.

In the 1980’s, you had to call your stockbroker if you wanted to purchase shares on the public markets, and pay them big fees just for taking your order. But then we saw innovative and disruptive firms like eTrade come along and disrupt the status quo — allowing retail investors direct access to data, information, and trading on their own.

Related:  Why Venture Capitalists Are Turning to Crowdfunding

We’re seeing the same shift for investing in startups today that we saw in the 1980’s for transactions in the public markets. Wealthy institutions, VCs, and Angels have had exclusive access to investing in high-growth startups, but with Title III we see the beginning of a more level playing field for information and access for everyday investors to early stage private investments.

I anticipate that the next evolution in VC and angel investing will be realized in the form of equity crowdfunding platforms serving as Venture Capital firms and funds of their own, as investing in startups moves online and is opened up to the general public.

This isn’t to say that VC and angel investing as we know it will die. Rather, a hybrid model will emerge where VC’s and Angels will lead and set the terms at which they want to invest, and then leverage equity crowdfunding platforms for distribution to a much larger set of investors.

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Epoch Times | November 1, 2015

“An inter-divisional staff working group will begin immediately to keep a watchful eye on how this market develops and will evaluate the types of issuers using the new crowdfunding exemption, how issuers and intermediaries are complying with the rule, and whether the exemption is promoting capital formation and effectively protecting investors,” SEC Chairman Mary Jo White said in a statement.

 

The National Crowdfunding Association of Canada is the leading and only nationally organized non-profit working with over 1300 social and investment stakeholders across the country, and the national voice of an industry that is fast becoming an integral part of the start-up financing ecosystem. Learn more About Us or visit www.ncfacanada.org.

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