SEC Makes Substantial Changes, Greatly Expanding World of Investment Crowdfunding

Today, the SEC passed amendments to Regulation Crowdfunding that “promote capital formation and expand investment opportunities while preserving or improving important investor protections.” (SEC Press Release)

The existing framework for capital raising has contained gaps and complexities that have created barriers for startups and small businesses. Issuers have been restricted in their access to capital under different regulatory paths, and investors have different rules that govern their access these private investment opportunities. The updated framework announcement today is a giant leap forward in the direction of democratizing access and is expected to fuel further growth of the investment crowdfunding space that has had a record-breaking year in 2020.

The amendments affect multiple exemptions, including Regulation Crowdfunding, Reg A, and Reg D:

  • Increase Regulation CF’s rolling 12-month limit to $5M. This is 5x the previous limit of $1M.
  • Allow testing the waters under Reg CF. This lets issuers gauge interest in their capital raise before going through the various regulatory steps.
  • Increase investment limits under Reg CF by eliminating limits for accredited investors and making it based on the greater of net-worth and income or net-revenues and assets for all others.
  • Extending the existing temporary relief of financial statement requirements for Reg CF for another 18 months.
  • Increase Regulation A+’s rolling 12-month limit to $75M.
  • Allow “demo day” communications that would not be deemed general solicitation or general advertising.
  • Provide greater flexibility for companies trying to privately raise shortly after conducting a public raise such as a Reg CF or a Reg A.

*These amendments are not effective until 60 days after they are published in the Federal Register, though the Reg CF temporary relief issued earlier this year is immediately effective.

You can review the SEC’s full Press Release here .

NextSeed Note:

Many of these changes were the result of the advocacy of the Association of Online Investment Platforms, of which NextSeed CEO Youngro Lee serves as Chairman and President. The SEC has been gathering feedback and insights from the public as well as the Small Business Capital Formation Committee for ways to improve the Regulation Crowdfunding (Reg CF) framework and provide more benefits to investors, entrepreneurs, and established small and midsized businesses.

NextSeed actively used our voice, joining many organizations in our industry, to promote and push for the SEC to make these amendments and we are elated to see that they have passed. We look forward to deploying them once effective, passing along greater opportunities for issuers to raise capital and investors to find private investments.