April 21st, 2017
SEC Finally Moves On Equity Crowdfunding, Phase 1
As the CEO of Crowdfunder and a participant in JOBS Act legislation, I’ve had unique access to people and parties involved the regulatory process, and I wanted to share some insights with you.
Those in favor of equity crowdfunding had reason to celebrate recently. On July 10th, just three months after taking office, Mary Jo White, Chairman of the SEC, called a portion of the JOBS Act to vote which passed 4-1.
The SEC vote finalized rulings around Title II of the JOBS Act, which lifts the longtime ban on public solicitation and creates a new type of offering called 506(c), that essentially allows companies, for the first time in over 80 years, to freely advertise that they are fundraising to the general public.
Here’s the simple SEC Fact Sheet about the vote and new ruling.
When White took office she stated that she saw crowdfunding laws as a priority. With this first movement by the SEC, we see that Chairman White has the desire and will to implement the JOBS Act and crowdfunding-related laws that were passed with overwhelming bipartisan support, but the SEC nearly killed JOBS Act Rulings for equity crowdfunding under the two previous Chairs.
What This First SEC Ruling Around Equity Crowdfunding Means
Pulling out the top level details, this ruling paves the way for companies looking to raise investment via equity crowdfunding to use a platform like Crowdfunder to advertise/promote their offering to Accredited Investors within a “walled garden”, like the Crowdfunder’s verified Accredited Investor Network. This was also made possible from a legal and regulatory perspective under a recent No Action Letter from the SEC.
The more significant implication of the Title II Ruling is that companies on equity crowdfunding platforms can soon, but not today, begin promoting their investment offering OUTSIDE of a verified Accredited Investor community online, on places like social networks (Facebook, Twitter, LinkedIn), as long as that promotion leads back to a platform that verifies Accredited Investors before giving them access to the investment offering.
Companies making offerings must also do a new and more comprehensive filing with the SEC prior to doing any solicitation.
One of the most interesting areas this will have an impact is how it might shape the opportunities and behavior of existing Angel Groups. These already coordinated groups of investors have an opportunity, and it’s likely that angel groups can leverage the power of equity crowdfunding for their own benefit, if they know how to jump on the opportunity.
Industry leaders in crowdfunding are generally in agreement about the positive outlook for all of crowdfunding, given the recent ruling. Jason Best of Crowdfund Capital Advisors, an Advisor to Crowdfunder, and a key leader in JOBS Act legislative efforts, explained the recent vote and the implications…
This first crowdfunding related SEC Ruling was historic and after working for two years to bring better access to capital to entrepreneurs and small businesses, it feels great to watch the SEC take this important step forward. Lifting this ban will create new opportunities for businesses to seek funding and give potential accredited investors more choice in investments to consider. I’m also happy to see the approval of the bad actor provision which strengthens investor protection.
It usually takes 30-60 days for rules to become ‘official’ by being published in the Federal Register. Until the rules are published in the federal register, Companies may NOT generally solicit. This is obviously important.
With the adoption of these rules, it is great news for equity crowdfunding platforms.
But some don’t agree that this one Ruling does enough, considering the need for access to funding options. A few call it a step forward, but not yet transformative because it won’t touch the entirely new potential capital market of non-Accredited investors and help “formalize” and grow the friends and family funding market.
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