By ROB MARVIN
The United States Securities and Exchange Commission (SEC) took another big step toward letting individuals invest in private companies through equity crowdfunding. The SEC has opened up a new form allowing crowdfunding platforms to register as official “funding portals” for entrepreneurs to raise up to $1 million per year.
Approved last October, Title III of the Jumpstart Our Business Start-Ups (JOBS) Act and Regulation A+ (RegA+) go into effect on May 16, allowing small to midsize businesses (SMBs) to put forth equity crowdfunding offerings through these accredited funding portals. The regulations are designed to kick off a business crowdfunding revolution, giving middle-class investors sanctioned marketplaces to seek out potential ventures, and businesses too small for an IPO but priced out of the start-up and venture capital scene access to much-needed funding streams.
RegA+ allows non-accredited investors—individuals with less than $1 million in net worth or $200,000 per year in income—to invest in companies through equity crowdfunding platforms. RegA+ also expands upon Title III with two funding tiers, giving midsize companies in need of significant capital for their business plan the opportunity to raise a maximum of either $20 million or $50 million in an annual offering.
By the time the regulations go into effect in May, there will likely be several approved RegA+ funding platforms for investors to choose from, including Digital Offering, Manhattan Street Capital, and SeedInvest. Traditional reward-based crowdfunding platforms have thus far remained silent on the regulations.
Popular crowdfunding sites such as Kickstarter and Indiegogo facilitate donation-based crowdfunding with “perks” rather than backers investing capital and buying shares in a campaign. Wading into the Title III and RegA+ market would require a major change in policies. While Kickstarter is beginning to add additional advisement and supply chain services for entrepreneurs, particularly aroundhardware campaigns, it’s a far cry from implementing a full-on, investor-based crowdfunding model. Title III and RegA+ are opening entirely new business funding avenues and wider investment opportunities, but in the process they’re making the concept of crowdfunding a lot more complicated.
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