The United States Securities and Exchange Commission recently announced some substantial changes to “harmonize and improve” what they called a “patchwork” of rules pertaining to how companies can raise funding from the public — both accredited and un-accredited investors.
This action did not get much play in the press, but I spotted it and read it carefully. There is a lot of good news, but for the entrepreneur set there is a real gem.
Here is a link to their press release (an extremely difficult document to read and understand):
The bottom line is this: a company can now raise up to $5,000,000 (versus the prior $1,070,000) via a web based fundraising campaign with a registered firm without having to file the usual substantial SEC required registration filings. [You have to make prudent disclosures as you would in any offering, but this is a simpler, easier, bigger deal.]
There is a huge amount of additional detail and there is other good news as it relates to who can actually invest, but the bottom line is this:
1. Crowdfunding a $1,070,000 raise (minus fees) was small potatoes. Yawn.
2. Crowdfunding $5,000,000 is a big deal and the fees are going to be fairly fixed meaning the fees will not suck the cream off the top.
3. The crowdfunder can cast a broader net with more investors with the attendant changes in the accredited investor rules.
In the busy pandemic world, this change seems to have been generally overlooked.
Hey, you, look at this. This could be a great idea for a company with a little bit of traction.
Wow, Big Red Car, the SEC did a great job, right?
Not so fast, Batman.
For those keeping score at home, this whole crowdfunding thing is the outgrowth of the Jumpstart Our Business Startups — the infamous 2012 JOBS Act — specifically Title III which is known as the CROWDFUND Act.
It took the SEC until October 2015 to adopt final rules for the 2012 bill — who says government can’t move fast? The rules were effective in May 2016. It took four years to make this happen. This is why everyone hates government.
JOBS Act — 5 April 2012
30 October 2015 — SEC issues final rules
16 May 2016 — effective date of final rules
November 2020 — SEC raises crowdfunding from $1,070,000 to $5,000,000
Yeah, so while I applaud the change I hope you have not been holding your breath.
There, I’m done. Be well. On Monday, we start pricking people with the vaccine and this long, crazy, dangerous ride is going to smooth out. Hang in there, America.
But, hey, what the Hell do I really know anyway? I’m just a Big Red Car.