The 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.
Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Equity Crowdfunding, Alternative Funding
Expansion of crowdfunding in Canada — the doors open wider
Lexology by Gowling Lafleur Henderson LLP | November 6, 2015
After a long wait and much anticipation, securities regulators in five Canadian provinces have announced a new crowdfunding regime. It includes two components, a crowdfunding prospectus exemption and a registration framework for funding portals. This new capital raising regime will be available in Ontario, Quebec, Manitoba, New Brunswick and Nova Scotia.
Unlike the earlier start-up crowdfunding exemption that is only available to non-reporting issuers in select provinces, this new crowdfunding is comprehensive and is available to both reporting issuers and non-reporting issuers. While not restricted to larger issuers, the new crowdfunding regime is aimed primarily at small and medium-sized businesses looking to raise capital online from a large number of investors.
Related: ASC and Nunavut Securities Office Publish Proposed Start-up Business Exemption for Comment
Crowdfunding Prospectus Exemption
There are many requirements an issuer will need to meet to take advantage of the crowdfunding prospectus exemption in raising capital. Key elements include the following:
- Simple securities only: an issuer may only distribute eligible securities which consist of common shares, preference shares, securities convertible into common shares or preference shares, non-convertible debt securities linked to a fixed or floating interest rate, limited partnership units and flow-through shares.
- Limits on capital raised: an issuer may raise no more than $1.5 million in any 12 month period in reliance upon the crowdfunding prospectus exemption. However, this restriction will not limit an issuer from raising capital in reliance upon other prospectus exemptions during the same period.
- Issuer restrictions: to take advantage of the exemption an issuer must be incorporated or organized in Canada and have its head office in Canada, a majority of its directors must be resident in Canada and its principal operating subsidiary, if any, must be incorporated or organized in Canada or the United States. The exemption is not available to investment funds.
- Investor limits: for a non-accredited investor there is a limit of no more than $2,500 per investment and for accredited investors the limit is $25,000 per investment. An investor in Ontario is subject to an additional restriction on the aggregate amount that may be invested in any calendar year, being $10,000 for a non-accredited investor and $50,000 for an accredited investor, with no investment limit applicable to a permitted client (an accredited investor with net financial assets in excess of $5 million).
- Funding portal: an issuer must distribute securities through a registered funding portal and may not use more than one funding portal.
- Offering document: all material information about an issuer’s offering must be contained in a prescribed form of crowdfunding offering document, that is made available solely through the registered funding portal.
- Additional marketing materials: in addition to the prescribed form of crowdfunding offering document, an issuer may make available a term sheet, a video and other materials summarizing the offering document provided these materials are only made available through the registered funding portal. An issuer may not advertise or solicit investors directly or indirectly other than to inform them of the proposed distribution of securities and refer them to the registered funding portal.
- Liability for misrepresentations or untrue statements of a material fact: a reporting issuer will be subject to statutory or contractual rights for rescission and damages if its offering document or additional marketing materials contain a misrepresentation. A non-reporting issuer will be subject to similar obligations if its offering document or additional marketing materials contain an untrue statement of a material fact.
- Right of withdrawal: an issuer must provide each investor with a right to withdraw a subscription to purchase securities within 48 hours by notification to the funding portal.
- Risk acknowledgement form: all investors must complete a risk acknowledgement form confirming they have read and understand the risk warnings and information in the offering document.
- Hold period: securities issued in reliance upon the exemption will be subject to a four-month hold period if the issuer is a reporting issuer and to an indefinite hold period for a non-reporting issuer.
In addition, non-reporting issuers that take advantage of this new crowdfunding prospectus exemption must meet certain ongoing disclosure requirements which include providing annual financial statements and notices disclosing use of proceeds, and in New Brunswick, Nova Scotia and Ontario, notices of specified events such as a discontinuation of the issuer’s business and a change of control of the issuer.
View: 2015 Canadian Crowdfunding Directory
Registered Funding Portals
The new crowdfunding regime establishes a registration framework for funding portals (an online platform that allows potential investors access to crowdfunding offering materials). Funding portals must be registered with applicable Canadian securities regulatory authorities under the category of investment dealer, exempt market dealer or restricted dealer. Investment dealers and exempt market dealers that register as funding portals must meet applicable existing registration obligations under securities legislation, including know-your-client, know-your-product and suitability obligations. A funding portal registered under the category of restricted dealer will be subject to additional limitations.
Related: Selling Equity and Accessing the “Crowd”: Opportunities for Canadian Issuers to Access Capital in The United States
Regardless of its category of registration, a funding portal must:
- fulfill certain gatekeeper responsibilities prior to allowing an issuer access to its online platform, including review of disclosure in the issuer’s crowdfunding offering document and other materials; and
- review information and obtain background checks on an issuer and its directors, officers and promoters, and deny an issuer access to the funding portal in certain circumstances.
Comparison with the Start-up Crowdfunding Exemption
The start-up crowdfunding exemption adopted by six provinces on May 14, 2015 remains in place (see our earlier article here). There are a few notable differences between the new crowdfunding regime and the existing start-up crowdfunding exemption:
View: Start-up Crowdfunding Guide for Investors, Businesses and Funding Portals
- There are limitations on where the exemptions are available:
- Both the start-up crowdfunding exemption and the new crowdfunding regime will be available in Quebec, Manitoba, New Brunswick and Nova Scotia.
- In Ontario, only the new crowdfunding regime will be available.
- In British Columbia and Saskatchewan, only the start-up crowdfunding exemption will be available (provided in Saskatchewan the new crowdfunding regime has been republished for an additional 60 day comment period)
- The new crowdfunding regime will be available to both reporting issuers and non-reporting issuers, unlike the start-up crowdfunding exemption which is available only to non-reporting issuers.
- The new crowdfunding regime provides a higher offering limit, up to $1.5 million in any 12 month period as compared to a limit of $500,000 under the start-up crowdfunding exemption.
- Under the start-up crowdfunding exemption there is a limited dealer registration exemption for funding portals, whereas under the new crowdfunding regime all investments must be made through a registered crowdfunding portal.
- There are no ongoing disclosure obligations under the start-up crowdfunding exemption.
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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 1300+ 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 ncfacanada.org.
How Indiegogo and Title III Are Eliminating Gatekeepers
Indiegogo | Slava Rubin LinkedIn blog post | Nov 5, 2015
Before we started Indiegogo in early 2008, a select group of elite gatekeepers were responsible for determining which ideas were “good” and thus deserved funding. In our personal and professional lives, my co-founders and I saw again and again that only people who had connections to venture capitalists, or easy access to lines of credit could bring their ideas to life. Countless ideas were left unfunded for all the wrong reasons.
We believed that all ideas deserve a shot at success, so we created an open platform where the crowd gets to decide which ideas get funding.
Through our rewards-based model, backers receive perks when they contribute to a campaign. Perks offer tangible proof to backers that their contributions were essential to a campaign’s success, which reinforces the spirit of partnership that makes Indiegogo special.
Our mission to even the playing field has had a tremendous impact over the past 8 years. For example, less than 10% of VC funds are invested in female-led companies, while at Indiegogo almost 50% of contributions go to teams led by women. And it’s certainly not just female-led companies that benefit from Indiegogo. Misfit was able to validate the market for their discreet wearable fitness tracker which is now available through major retail outlets, and Canary was able to disprove the VCs who initially doubted them by raising almost $2M on Indiegogo instead.
See:
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Indiegogo Founder Speaks on Why Crowdfunding is an Equal Opportunity Platform
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Breaking News (Nov 5, 2015): Securities regulators including OSC publish/adopt final equity crowdfunding rules
Misfit and Canary are just two of many that have collectively gone on to raise over $500M in institutional investments after the success of their Indiegogo campaign. Most recently Yota Devices (the makers of YotaPhone) raised a whopping $100M from Chinese investors. Indiegogo is increasingly proving itself as an incubation platform, and the demand for the ideas funded on our platform is clear. We want to continue to support our campaigns beyond crowdfunding, as they continue to grow and scale, and one of the options we are considering is an equity-based model.
Although we currently use a perks-based model, when we initially began thinking of ways to bypass the gatekeepers to capital we wanted to give funders the opportunity to invest in startups by purchasing equity stakes. Much like the traditional VC model, it would allow backers to share in the profits of the young companies they were most excited about, but our model had a unique twist. It would enable the crowd to decide which ideas were worth funding, and partake in both the risks and rewards. Unfortunately, because of the Securities Act of 1933 “regular” people, or unaccredited investors, could not play a direct role in investing in and building companies. Instead, we came up with a solution that has since become the industry standard.
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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 1300+ 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 ncfacanada.org.
[Breaking News (Nov 5, 2015)]: Regulators including OSC Publish Crowdfunding Exemption and Registration Framework for Funding Portals
OSC | November 5, 2015
Crowdfunding Exemption 45-108 finally arrives!
Toronto – The securities regulatory authorities in Manitoba, Ontario, Québec, New Brunswick and Nova Scotia (collectively, the participating jurisdictions) today published in final form Multilateral Instrument 45-108 Crowdfunding, which introduces a crowdfunding prospectus exemption for issuers as well as a registration framework for funding portals.
The MI 45-108 crowdfunding regime will enable businesses to benefit from greater access to capital from a large number of investors online, through a funding portal operated by a registered dealer. “This new crowdfunding regime is another way to facilitate capital raising for start-ups and small and medium-sized enterprises while protecting the interests of investors,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers.
Among the measures adopted to protect investors, issuers will be required to distribute their securities through a registered funding portal. These funding portals will fulfill certain gatekeeper functions that include reviewing the issuer’s disclosure and obtaining background checks on the issuer and its directors, executive officers and promoters.
Related: NCFA Canada response to the proposed multilateral instrument 45-108 Crowdfunding
In addition, investment limits based on the investor’s income and financial resources have been adopted as a means of reducing their exposure to a risky investment. When using the crowdfunding prospectus exemption, issuers will only be able to offer non-complex securities, will be prohibited from advertising and will be subject to a standard of liability on the information they present to investors.
The MI 45-108 crowdfunding regime will coexist and is viewed to be complementary with the start-up crowdfunding exemptions by those jurisdictions that adopted them on May 14, 2015 in Manitoba, Saskatchewan, Québec, New Brunswick and Nova Scotia.
Provided all necessary Ministerial approvals are obtained, MI 45-108 will come into force in the participating jurisdictions on January 25, 2016.
The Financial and Consumer Affairs Authority of Saskatchewan (FCAA) will be republishing MI 45-108 for a 60 day comment period.
The CSA, the council of the securities regulators of Canada’s provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets.
For more information:
| Kristen Rose Ontario Securities Commission 416-593-2336 |
Sylvain Théberge Autorité des marchés financiers 514-940-2176 |
| Ainsley Cunningham Manitoba Securities Commission 204-945-4733 |
Andrew Nicholson Financial and Consumer Services Commission, New Brunswick 506-658-3021 |
| Tanya Wiltshire Nova Scotia Securities Commission 902-424-8586 |
Noel Busse Financial and Consumer Affairs Authority of Saskatchewan 306-798-4160 |
Source:
CSA News Release: Regulators publish crowdfunding exemption and registration framework for funding portals
Set of Rules: 45-108 Crowdfunding
NCFA Canada's Advocacy Efforts:
Oct 28, 2015: Crowdfunding: Enabling global entrepreneurship, the future of Canada's innovation economy
Oct 20, 2015: What is to be done?
Jun 20, 2014: NCFA Canada response to the proposed multilateral instrument 45-108 Crowdfunding and Start-up Prospectus Exemption
Jun 8, 2015: Rebuttal piece, Crowdfunding has its place but it's a crazy way to invest
Mar 24, 2014: Canada's National Crowdfunding Association applauds regulators for setting the stage for Crowdfunding success
Mar 9, 2013: NCFA Canada equity crowdfunding principles and Response to OSC Staff Consultation Paper 45-710
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 1300+ 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 ncfacanada.org.
New crowdfunding platforms coming to the US
CNBC by Luke Graham | November 4, 2015
A European crowdfunding company will launch in the U.S. after the Securities and Exchange Commission (SEC) adopted new rules last week which will allow start-ups to sell equity to anyone.
Seedrs, the largest crowdfunding platform in Europe, announced this week it will start a beta test of its platform in the next couple of weeks. The test will allow investors to back a small selection of campaigns, and Seedrs will officially launch in early 2016.
Seedrs allows all types of investor to purchase shares in small, growing companies. The company claims to have funded over 270 companies since launching and raised £3.5 million ($5.38 million) on average per month.
View: Equity Crowdfunding Platform Seedrs Raises $15.6M To Launch In US
The SEC agreed to implement new rules from the 2012 JOBS act after a three year consideration. These rules remove the provision that new businesses can only sell equity to accredited investors – individuals worth $1 million or earning more than $200,000 a year.
This change will create a new source of finance for businesses and create more opportunities for people to save and invest.
"We believe this heralds the emergence of equity crowdfunding as a vibrant form of finance in the United States -- just as it has become in the U.K. and Europe -- and Seedrs is perfectly positioned to take advantage of the sector's growth," said Jeff Lynn, CEO of Seedrs, in a press release.
"The beta testing we are announcing will be our first foray into the market, and we look forward to growing our presence there significantly in 2016."
See also: The SEC’s new 685-page crowdfunding rules: What you need to know
In Europe, equity crowdfunding has been permitted for some time. Luke Lang, co-founder of U.K.-based platform Crowdcube, said it was "pleasing" that SEC had made progress on the JOBS Act.
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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 ncfacanada.org.
The SEC’s new 685-page crowdfunding rules: What you need to know
Venture Beat | Sherwood Neiss, Crowdfund Capital Advisors | Nov 2, 2015
In what can be considered a historic day for startups, small businesses and entrepreneurs all across the United States, the Securities and Exchange Committee (SEC) voted 3 to 1 to approve the final rules for debt and equity crowdfunding (aka Regulation Crowdfunding) on Friday. In about 180 days, tech startups and Main Street businesses will be able to raise up to $1 million from their friends, followers, and community via SEC registered websites. There is a lot you need to know about the new rules, so let’s jump right in:
1. This is NOT Kickstarter
If you are interested in selling equity in your startup or borrowing money from the customers of your small business, you must realize you are selling securities in your business and that this is a highly regulated activity (hence the 685 pages of rules). Take extra time to understand what you CANNOT do so that you do not get in trouble with the law.
2. What has changed?
Limitations under old regulations qualified you to issue securities without doing a full IPO as long as you limited the number of investors, used only accredited investors (those with income over $200,000/year or with a net worth over $1 million), and did not use any public means of solicitation (which included the Internet, email, newspapers, radio, television, etc). Those limits have all changed. Now, anyone can invest at least $2,000, but beyond that amount, an investor is still restricted based on income or net worth. (I’ve put together a calculator you can download to check your limits as an investor under the new rules.) Issuers (aka startups and Main Street businesses) can use email, Facebook, Twitter, etc., to offer an investment (debt or equity) in their firm as long as they hit 100 percent of their funding target, not exceed $1 million and do so on a SEC-registered funding portal (cheaper) or via a broker/dealer (more expensive).
3. Compliance is KEY
If you fail to comply with the rules (like submitting your annual report with the SEC within 120 days after the end of your fiscal year and posting a link on your website), you could lose your exemption, which means that you will face hefty fines and legal fees to defend yourself. Be sure to follow all the rules/filings before, during, and after you raise your funds. For instance, you cannot list your offering on more than one platform. Also if you want to host a launch party to promote your offering, do NOT do so with the funding portal (unless it is a broker-dealer) because that is considered offering investment advice (by the funding portal), which is not allowed.
See:
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SEC Approves Title III of JOBS Act, Equity Crowdfunding with unaccredited investors
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Selling equity and accessing the 'Crowd': Opportunities for Canadian Issuers in the US
4. Think of who is in your crowd when deciding on a path forward
If you have both accredited and unaccredited investors but wish (or need) to raise over $1 million, then consider doing what is called a parallel offering. Do a Regulation Crowdfunding offering for the unaccredited investors and at the same time a Title II offering, which allows for general solicitation of accredited investors and does not have the $1 million cap. Just be careful not to reference both offerings in your marketing materials or they could be considered “integrated.” They should be independent offerings.
5. You cannot crowdfund a fund to invest in crowdfunded opportunities
Each offering must include a business plan for which the underlying purpose must be a bonafide business and not an investment vehicle. Sorry, you creative types.
6. Your investors can change their mind up to 48 hours prior to closing
Keep in mind that if you hit your funding target, investors have the right to rescind. In this case, it might benefit you to aim to over exceed your target (which is allowed) so that you have enough cushion if an investor or two changes their mind. On the flip side, if you are exceedingly successful with your campaign before the 30-, 60-, or 90-day period ends, you may choose to close early with a five-day notice to potential investors (and the SEC) and start putting that money to work right away.
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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1100+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
Selling Equity and Accessing the “Crowd”: Opportunities for Canadian Issuers to Access Capital Using Rule 506(c), Regulation A+, and Online Platforms in The United States
Venture Law Corp | Alixe Cormick NCFA Advisor Visit Blog| Oct 2015
As of today’s date, Canadian issuers have raised over C$ 290 million on online equity funding platforms in The United States. Almost this entire amount has been on one platform in the last two years, an accredited investor platform called EquityNet.com. Issuers have raised US$ 300 million on EquityNet. Canadian issuers represent over US$ 185 million of this total amount or 62%. Over 700 Canadian companies have a capital raising profile on EquityNet. Canadian issuers have also raised capital on other accredited equity funding platforms in The United States such as CircleUp, AngelList, Crowdfunder, and Fundable.
There are over two hundred 200 active equity funding platforms in the United States versus six (6) in Canada. The majority of these The United States platforms are open to Canadian and other foreign issuers. If you are a Canadian issuer (public or private) looking for capital, an equity-funding platform in The United States may be a good fit for you.
The Emergence of Online Funding Platforms in the United States
The first online equity funding platforms in the United States emerged from online private due diligence deal rooms for accredited investors whether they be angels, venture capitalists, or institutional investors. Actual online equity funding platforms started emerging in the United States in 2005. The majority of these early platforms operated (and some still operate) in a grey area as they are not registered as broker dealers or investment advisors.
See: AngelList – The Patron Saint of Equity Crowdfunding
The Jumpstart Our Business Startups Act (Job’s Act) was enacted on April 5, 2012. It requires the SEC to amend or adopt rules to make it easier and more cost efficient for small issuers to raise capital in the United States and, if public, meet ongoing disclosure obligations. This includes the adoption of a new equity crowdfunding rule that pre-empts state regulation (Title III equity crowdfunding), the amendment of the accredited investor exemption to allow advertising (Rule 506(c)), and the amendment of Regulation A to increase the amount that can be raised under the exemption (Regulation A+).
Proposed Title III equity crowdfunding rules were issued for comment but have not been enacted into law. The Rule 506(c) rules became effective on September 23, 2013 and the Regulation A+ rules on June 25, 2015.
It is not a requirement under Rule 506(c) or Regulation A+ for issuers raising capital under these private placement exemptions to use a broker dealer or an online funding portal. The number of online equity funding portals relying on Rule 506(c), however, has exploded in The United States since the enactment of the rule. Regulation A+ online funding portals are also now emerging, however at a slower rate, than accredited investor focused platforms.
Rule 506(c) and Regulation A+ are discussed in more detail below.
Rule 506(c) – Advertising and the Accredited Investor Exemption
Canadian securities laws, unlike the securities laws in the United States, have allowed issuers to advertise they are raising capital and are looking for investors since 2003. In 2005, National Instrument 45-106 – Prospectus Exemptions (NI 45-106) harmonized the majority of the capital raising rules across Canada, including the ability to advertise when using certain exemptions such as the accredited investor exemption in NI 45-106.
The securities laws in The United States did not allow solicitation and advertising when raising capital under Rule 506 until Rule 506(c) was enacted on September 23, 2013. Despite this limitation 90% of all exempt offerings in the United States are made under Rule 506 to accredited investors.
Rule 506 is available to issuers (private and public) located anywhere in the world when raising capital in the United States. Rule 506 allows issuers to raise capital in an unlimited amount, to an unlimited number of accredited investors, and it pre-empts state securities law requirements. Rule 506(b), the original Rule 506 accredited investor exemption, allows issuers to sell securities to up to 35 non-accredited investors in an offering. Issuers selling securities to non-accredited investors must provide them with disclosure documents with information similar to what is contained in a registered offering prospectus. The securities issued under Rule 506 are restricted securities.
Rule 506(c) permits general solicitation and advertising, but excludes non-accredited investors from participation in the offering. Issuers must also take reasonable steps to verify whether investors in the offering are accredited investors. Rule 506(b) does not require issuers to take reasonable steps to verify whether an investor is an accredited investor. Rule 506(c) also prohibits issuers as well as underwriters, placement agents, directors, executive officers, and certain shareholders from participating in the sale of a Rule 506(c) offering, if they have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws (Bad Actor Provisions). Accredited investor offerings under Rule 506(b) are not subject to these Bad Actor Provisions.
Issuers may use Rule 506(b) or Rule 506(c) when raising capital but once a Rule 506(c) offering has been started, issuers cannot sell securities to non-accredited investors.
The definition of who is an accredited investor under Rule 506 is very similar to the definition of who is an accredited investor in Canada under NI 45-106. The main difference being all dollar amounts are The United States dollars versus Canadian dollars which makes the income and financial test qualification thresholds higher.
Issuers relying on Rule 506(c) are not required to file their adverting material with the SEC before or after undertaking an offering. An exempt distribution report on Form D – Notice of Sales is required to filed electronically with the SEC within 15 days of the first sale of securities under Rule 506(b) or Rule 506(c). There is no SEC filing fee. Issuers are also required to file this Form D with all applicable state securities regulators. State filing rules and filing fees vary. Some states require issuers to file in advance when conducting a Rule 506 offering.
Comparison of United States Rule 506 Accredited Investor Exemptions
| Rule 506(b) | Rule 506(c) | |
| 12 Month Maximum Offering Amount | No limit. | No limit. |
| 12 Month Maximum Investor Investment Limit | No limit. | No limit. |
| State Blue Sky Review | Pre-empts State blue sky laws. | Pre-empts State blue sky laws. |
| Solicitation and Advertising | Not permitted. Issuers may only approach potential investors if there is a substantive, pre-existing relationship. | Advertising in all forms permitted. |
| Eligible Investors | Accredited investors and up to 35 non-accredited investors who meet sophistication requirements. | Accredited investors only. |
| Accreditation Process | Issuer may rely on investors` self-certification via a questionnaire that they are certified. | Issuer must take reasonable steps to verify accredited investor status. Self-certification is not considered taking reasonable steps. SEC examples of reasonable steps to verify status similar to Canadian requirements. |
| Selling Agent | Issuers can sell directly, or through a registered broker-dealer or an exempt broker-dealer (ie. AngelList or FundersClub).State blue sky laws may require directors and officers selling securities to be registered prior to offering. | Issuers can sell directly, or through a registered broker-dealer or an exempt broker-dealer (ie. AngelList or FundersClub).State blue sky laws may require directors and officers selling securities to be registered prior to offering. |
| Offering Material | None required unless offering securities to non-accredited investors. If non-accredited investors included, must provide those investors with disclosure documents similar to those used in registered offerings. If issuer provides information to accredited investors, it must make that information available to non-accredited investors. Issuers must be available to answer questions from potential investors. Any information provided must not violate antifraud prohibitions. | None required. Any information provided must not violate antifraud prohibitions. |
| Filing Requirements | Issuers must file a Form D with SEC and all applicable State securities regulators. | Issuers must file a Form D with SEC and all applicable State securities regulators. |
Regulation A+ – Access to All Potential Investors
Regulation A+ allows issuers in The United States and Canada who are private start-ups to later stage companies not otherwise reporting issuers under the United States Securities and Exchange Act of 1934 to raise up to US$ 50M from both accredited and non-accredited investors. Issuers can advertise their offering in The United States when using Regulation A+. Securities issued in a Regulation A+ offering are free trading securities in the United States.
To be eligible to use Regulation A+ an issuer:
- must be organized and with their principal place of business, in the United States or Canada;
- must not be an investment company or blank check company;
- must not be issuing fractional undivided interests in oil and gas rights, or a similar interest in other mineral rights;
- must not be a reporting issuer under the 1934 Act;
- must not have its securities suspended or revoked under the 1934 Act;
- must not be disqualified under the Bad Actor Provisions disqualification rules; and
- must have filed all Regulation A+ exempt distribution reports during the past two years.
Regulation A+ is divided into two tiers each of which has different requirements. Tier 1 of Regulation A+ allows issuers to raise up to US$ 20M. Tier 2 of Regulation A+ allows issuers to raise up to $50M. Regulation A+ requires issuers prepare an offering circular similar to a Canadian offering memorandum which is vetted and qualified by the SEC before an issuer can raise capital under the exemption. Tier 1 offerings must also pass a state co-ordinated review. Tier 1 offerings do not require audited financial statement if they are not otherwise available. Offerings under Tier 2 required audited financial statements. Canadian issuers can provide these financial statements in US GAAP or IFRS GAAP.
See:
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The Reg A+ Bombshell: $50M Unaccredited Equity Crowdfunding Title IV takes Center Stage
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SEC Reg A+ Will Now Let You Crowdfund Equity
Tier 1 does not limit investment amounts in the offering. Non-accredited investors in a Tier 2 offering are limited to investing 10% of their income or net worth per year.
Issuers can file their offering documents with the SEC on a confidential basis. They can also test the water to check if there is any interest in the offering before undertaking the expense of a Regulation A+ offering.
Tier 2 offerings are subject to ongoing disclosure obligations. Specifically, issuers must file year end audited financial statements, six month unaudited financial statements and a current report any time there is a material change.
An exempt distribution report on Form 1-Z Exit Report must be filed electronically within 30 calendar days from termination or completion of offering. Canadian issuers must also file a Consent to Process on Form F-X. There is no SEC filing fee. Issuers are also required to file exempt distribution reports with all applicable state securities regulators. State filing rules and filing fees vary.
Issuers rarely used the previous Regulation A rule to raise capital. The number of Regulation A offerings over the last ten years had fallen to five to seven offerings raising less than US$30 million per year. Since enacting Regulation A+ three months ago, the SEC has received twenty-four (24) Regulation A+ offering circulars. The first Regulation A offering under the new rules was cleared of all SEC comments on September 1, 2015.
Author: Alixe Cormick is the founder of Venture Law Corporation in Vancouver, British Columbia and a member of the Advisory Board of the National Crowdfunding Association of Canada. You can reach Alixe by phone at 604-659-9188, by email at acormick@venturelawcorp.com, on twitter @AlixeCormick or on Google+.
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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 ncfacanada.org.
SEC Approves Title III of JOBS Act, Equity Crowdfunding with Non-Accredited
Forbes | Chance Barnett | Oct 30, 2015
The 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 | Jonathan Zhou | 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 ncfacanada.org.
