Effective March 15, 2021, exempt issuers may raise up to $5 million under Reg CF. Further: a) issuers can now “test the water” to gauge investor interest before an offering; b) accredited investors are not subject to the same investment cap as non-accredited investors meaning they can invest as much as they want); c) defined “Demo Days” are allowed without violating the “General Solicitation” prohibition; and d) a newly created special purpose vehicle (a “crowdfunding vehicle”) is now an option.
- Reg CF’s funding cap goes from $1.07 million to $5 million. Some issuers are expected to elect this exemption in lieu of Reg D.
- Reg A+’s funding cap goes from $50 million to $75 million. Real estate issuers will increasingly use this exemption despite burdensome paperwork and process. Standard Reg A offerings remain capped at $20 million.
- Reg D, Rule 504’s funding cap goes from $5 million to $10 million
The Reg CF exemption democratizes the playing field. Unlike Reg D offerings, there are no investment limits for accredited investors. Also, non-accredited investors can use either annual income or net worth to qualify. Permitted “non-revenue opportunities” include “demo days” for accelerators and angel investors to present and appraise portfolio companies.
“An issuer will not be deemed to have engaged in general solicitation if the communications are made in connection with a seminar or meeting sponsored by a college, university, or other institution of higher education, a State or local government or instrumentality of a State or local government, a nonprofit organization, or an angel investor group, incubator, or accelerator.”
More than one issuer must participate in the demo day. No investment negotiations are permitted. An issuer may not receive any compensation but may communicate that it is offering or planning to offer securities as well as the type and amount of securities being offered and the intended use of the proceeds of the offering.
As for “virtual” or “on-line” demo days, participation is limited to: (a) individuals who are members of, or otherwise associated with the sponsor organization (for example, members of an angel investor group or students, faculty, or alumni of a college or university); (b) individuals the issuer reasonably believes are accredited investors; and (c) individuals who have been invited to the event “based on industry or investment-related experience disclosed in public communications.”
Many issuers will continue to prefer to use Reg D and Reg S for reasons discussed elsewhere in this blog.
Private Placement Advisors LLC. JOBS Act Funding Consultants
- SEC Director of CorpFin Bill Hinman Provides Crowdfunding Update at Small Business Capital Formation Advisory Committee Meeting
- What’s next for the ICO? Reflections on Securities Law and the Future of Initial Coin Offerings
- Don’t Panic! US Securities Exemptions for Initial Coin Offerings
- Offering Support for Crowdfunding and Broker-Dealers Subject to Transfer-Agent Requirements
- Cato’s Director of Financial Regulation Studies Comments on SEC’s Exempt Ecosystem Update: A Welcome Step to Streamline the Exceedingly Complex Capital Raising Rules
- The SEC Updates Reg CF, Reg A+ and More. Boosts Reg CF to $5 Million, Reg A+ Increased to $75 Million
- SEC Schedules Open Meeting on Expanding Access to Capital for Small and Medium-sized Businesses
- SEC Small Business Committee Tells Commission to Raise Reg CF Cap, Reg A+ Too
- Caution: Online Funding Platforms Will Encounter More Regulatory Scrutiny in 2019
- SEC Provides Temporary Relief for Issuers Using Reg CF & Reg A+ Impacted by Hurricane Michael
- President Trump: It’s High Time for a few More Tweets to SEC Chairman Jay Clayton
- Fixing the JOBS Act Beyond JOBS Act 3.0: Follow the Money
- Is FINRA Broken? Does FINRA Need to be Fixed?
- SEC Publishes Report on Access to Capital & Market Liquidity
This entry was posted in Politics, Legal & Regulation and tagged exempt offering ecosystem, regulation a, regulation cf, regulation d, sec, securities and exchange commission. Bookmark the permalink.
Crowdfund Insider is the leading news and information web site covering the emerging global industry of disruptive finance including investment crowdfunding, Blockchain peer-to-peer / marketplace lending and other forms of Fintech.
Periodically, Crowdfund Insider reviews the fleet of regulated funding portals, a type of entity created under the JOBS Act of 2012 – sort of like a broker-dealer lite. Since Reg CF became actionable (in 2016) the number of funding portals has continued to inch higher. The last time we reviewed the number of funding portals was in December of 2020. At that time there were 62 funding portals, today that number stands at 67 as five more names were added to the roster. Of note, is the fact that two funding portals have long been suspended by FINRA and should really not be included on the list (FINRA – perhaps you can remove them?). So in actuality, there are 65 platforms.
The number of former platforms that exited the sector, either by choice or by being encouraged by regulators, stands at 14. It must be pointed out that registered Broker-Dealers may issue securities under Reg CF as well and do not need to be approved as a funding portal.
So who is new?
- Bananafina LLC, operating under the domain of equityportal.com is based in the hot startup market of Miami. Still no offerings as of yet but the site is live and accepting emails.
- Crowdsparks Entertainment, Inc. is in California. The domain exists but the site is not really live.
- Fanvestor is up and running but no offerings yet. Operating in San Francisco, Fanvestor is a digital crowdfunding platform where fans can support their favorite media celebrities or influencers.
- Fundify seeks to allow retail investors to participate in offerings alongside experts. Based in Austin, Texas, Fundify has yet to list a securities offering.
- Halal Franchise, LLC is operating under the domain of fursa.capital. This site seeks to enable ethical investments using Halal finance contracts. Today, Fursa has yet to list any securities offerings but it appears to target a range of sectors including real estate and early stage ventures.
The Reg CF sector continues to be dominated by a handful of platforms with StartEngine and Wefunder leading with Republic and SeedInvest in the mix. Of course, past success is no guarantee of future performance and the industry is still very much in its formative years. Most platforms offer securities under other exemptions, most importantly Reg A+ and Reg D. Reg A+ also received some attention from the SEC as the funding cap on this “mini-IPO” type exemption was bumped up from $50 million to $75 million (Tier 2).
Recently, during a crowdfunding discussion on Clubhouse, one prominent industry insider predicted that, over time, the number of funding portals will diminish with a few large platforms emerging as well as a squadron of niche-focused finding a sustainable place. Right now, it is hard to tell how large the market is for early-stage private company investments being pitched to retail investors.
#investing #investors #investments #crowdfunding