SEC Reg A+ Will Now Let You Crowdfund Equity

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TechCrunch | | June 19, 2015

Crowdfunding Reg A+Crowdfunding just got a little bit more interesting. According to SEC Regulation A+, as of today companies can secure funding via crowdfunding provided they are compliant with a set of very specific laws and standards.

“These new rules provide an effective, workable path to raising capital that also provides strong investor protections,” said SEC Chair Mary Jo White in a release dated March 25, 2015. “It is important for the Commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies.”

According to the SEC there are two tiers to the new regulation: Tier 1 “for offerings of securities of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer” and Tier 2 “for offerings of securities of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.” Both require similar requirements but Tier 2 investment requires further disclosure.

Slava Rubin, CEO of Indiegogo, has been watching the regulation for while and is excited about the possibilities.

“We’re encouraged by the SEC’s new equity crowdfunding regulations,” he said. “They enable startups and small businesses to secure additional funding, while providing strong investor protection. We will continue to explore how equity crowdfunding may play a role in our business model.”

View:  

The Reg A+ Bombshell: $50M Unaccredited Equity Crowdfunding Title IV takes Center Stage

What do industry leaders think about the new investment crowdfunding exemption (Reg A+ in the US)

How does the system work? After doing due diligence with a securities attorney this new regulation allows you to “test” the equity sale by running a Kickstarter-like campaign. This allows potential investors to express interest but not purchase the securities – in short you’re gathering a mailing list of potential small investors. Once you’ve collected the list you can begin to sell the equity to those investors using a licensed broker dealer.

Because you’re not actually selling during your campaign this is a sort of Kickstarter-lite – it allows you to get the word out and drum up interest while keeping on the right side of the law. A clever marketer, however, can see the intrinsic value of this play.

Similar regulations are in the works in the UK and Europe and it will fascinating to watch how companies begin using this equity crowdfunding to bypass the world of standard investment. You can read the entire SEC release below.

FACT SHEET

Regulation A+

SEC Open Meeting

March 25, 2015

Highlights of the Final Rules

The final rules, often referred to as Regulation A+, would implement Title IV of the JOBS Act and provide for two tiers of offerings:

Tier 1, which would consist of securities offerings of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer.
Tier 2, which would consist of securities offerings of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.
In addition to the limits on secondary sales by affiliates, the rules also limit sales by all selling security-holders to no more than 30 percent of a particular offering in the issuer’s initial Regulation A offering and subsequent Regulation A offerings for the first 12 months following the initial offering.

For offerings of up to $20 million, the issuer could elect whether to proceed under Tier 1 or Tier 2. Both tiers would be subject to basic requirements as to issuer eligibility, disclosure, and other matters, drawn from the current provisions of Regulation A. Both tiers would also permit companies to submit draft offering statements for non‑public review by Commission staff before filing, permit the continued use of solicitation materials after filing the offering statement, require the electronic filing of offering materials and otherwise align Regulation A with current practice for registered offerings.

The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country.  NCFA Canada provides education, research, leadership, support and networking opportunities to over 1100+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  Learn more About Us or visit www.ncfacanada.org.

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