Investors and businesses that have utilized Regulation CF to raise capital have been vocal about the need for regulatory changes to address the current limitations of “Reg CF”. In response to the SEC’s request for public comment on ways to improve the exemption, the Association of Online Investment Platforms (AOIP) has released a policy paper outlining specific recommendations for the SEC to consider adopting as they seek to make the regulatory framework more accommodating to the investors and businesses that use it to drive small business growth.
A summary of the policy recommendations is below, and the full policy paper can be read here on the AOIP website.
Recommendations to help issuers utilizing Reg CF:
- Increase the funding cap of Reg CF to at least $10 million
- Allow Special Purpose Vehicles (SPVs) to simplify the structure for existing shareholders
- Allow for “Testing the Waters” in order to gauge investor interest
- Remove the requirement for audited or reviewed financials for issuers raising less than $1 million
- Ease 12g requirements so that companies are not compelled to become a reporting company until there is practical need to do so
- Adjust reporting requirements to reflect the type of company and underlying security
Recommendations to help investors utilizing Reg CF:
- Develop an Innovation Tax Exemption for Reg CF that benefits investors
- Establish investment limits for non-accredited investors per investment instead of a cumulative cap
- Calculate investment limits under Reg CF as a function of income OR net worth, instead of the lower of the two
- Adjust the definition of an accredited investor in order to recognize investor sophistication, instead of only investor wealth
- Remove all investment limits for accredited investors participating in any private offering exemptions, including Reg CF.
Recommendations to help online investment platforms facilitating Reg CF offerings:
- Allow for flexible compensation for platforms in order to facilitate small offerings profitably
- Remove the burden of regulated platforms being forced to bear issuer liability
AOIP was founded to facilitate investment opportunities in private companies to the general public and advocate for the responsible growth of private investment platforms. NextSeed co-founder and CEO Youngro Lee serves as Chairman and President of the board alongside leaders from Republic, MicroVentures, and SeedInvest.