SEC Passes Crowdfunding Rules: ‘Investing Will Be Forever Changed’

Regulation A+ of the JOBS Act made it possible for private companies in the US to raise funds from unaccredited investors back in June. Now, fundraising becomes even easier with the SEC approving Title III of the JOBS Act which provides directives specifically for crowdfunding platforms.

The establishment of the JOBS Act helped boost the equity crowdfunding sector in the US, with Regulation A+ opening up platforms to a greater array of investors. However, the previous law did have financial constraints that made it costly to use sales to unaccredited investors.

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With Title III passed and expected to come into effect in January 2016, private firms will be able to raise up to $1 million in capital from investors on crowdfunding platforms. This differs from Regulation A+ which put rules in place to raise up to $50 million from unaccredited investors, but wasn’t geared specifically towards crowdfunding. As a result, the rules were limited to firms willing to satisfy a large assortment of auditing and regulatory requirements and could be expected to incur between $50,000 to $100,000 in legal and accounting fees.

With regard to Title III, companies will also be required to submit company information, but on a smaller scale. Required information includes audited tax returns, description of the business, and information about large shareholders.

Crowdfunding platforms excited

In reaction to Title III being voted in by the SEC, crowdfunding platform operators in the US have been quick to predict an immediate uptake by startups to choose crowdfunding to raise capital. According to Ron Miller, CEO of StartEngine, he believes that over the next five years, we are likely to see 20,000 new small businesses raise capital under these new rules.

Miller explained: “Title III represents the greatest advancement for entrepreneurship in a generation. Historically, the single biggest barrier to bringing new innovations to market is the difficulty of accessing capital. Title III levels the playing field, and could result in the creation of tens of thousands of lucrative jobs right here in America.”

In a release by SeedEquity, the crowdfunding platform cited research from Mattermark that “97% of U.S. respondents noted they would invest in startups given the opportunity. However, 63% of respondents don’t qualify as Accredited Investors”. As such, Title III is expected to provide a huge benefit to investors, with SeedEquity CEO Todd Crosland stating: “The SEC passing Title III of the JOBS Act will be a watershed event for both startups and investors. Startups and the general investing public will be forever changed.”