Global Crowdfunding & Alternative Finance Researcher | Strategic Advisor | Author |
Or What the SEC’s pending passage of Title III rules means for Crowdfunding
It has been a very, very long wait. After three-and-a-half years, the SEC will finally vote on the final rules to implement Title III of the JOBS Act and open up equity crowdfunding to all Americans.
Title III is yet more evidence that equity crowdfunding will completely change the investment opportunities available to investors and entrepreneurs. That’s great news for the economy, but it’s important to note that the industry is very nascent, and there’s a lot of confusion surrounding it.
Right now what’s needed is education and reliable sourcing. There are some early players to watch for, including NextGenCrowdfunding and the revitalized Crowdfunding Professional Association, both of which have focused conferences providing education on Title III and other fund raising models under the JOBS Act
Given the consistent messaging from the SEC, staffers and commissioners, this vote is not a surprise, but still marks a significant landmark. Dozens of business models were created to take advantage of retail crowdfunding, only to pivot or collapse when the politics of NASAA/FINRA and others led to significant delays in the SEC acting upon the proposed rules.
We expect that the audit requirement will be dropped. The SEC has signaled that they understand this is too expensive and contrary to Congress’s intention in making the JOBS act affordable and accessible for early stage firms.
Language will be inserted clarifying that platforms are not liable for the misstatements of issuers.
We don’t know to what extent the SEC will adjust the tiers within Title III, but many expect the $500,000-$1,000,000 tier to be increased to something closer to $750,000 to $1,000,000.
The passage of these rules will unleash a massive amount of media attention and ignite dozens of dormant business models. Kickstarter won’t be joining the Title III stampede, but many rewards platforms will include Title III offerings. The landscape is about to change – finally.
The JOBS Act that we have is the result of a series of hastily crafted compromises. It is widely acknowledged that there are structural flaws – it is still excessively regulated and costly, and the caps on capital are too low.
Given the inability of Congress to so far find a bi-partisan and bi-cameral bill to fix the JOBS Act, we will have to live with these caps for the time being. However, there are four separate initiatives in Congress to craft a JOBS Act 2.0 bill – and once the dust settles in the House with Speaker Ryan in charge, I predict we will see some movement towards a compromise.
Future articles will outlines the requirements for an effective JOBS Act 2.0, and that chapter of the crowdfunding story begins immediately after the SEC votes on Friday. But, the industry owes a debt of gratitude to the small number of individuals who lobbied hard and laid the foundation for Title III – David Weild, Jason Best, Sherwood Neiss, Zak Cassady-Dorion, Ruth Hedges, Freeman White, Vince Molinari, and a handful of others.
- The Commission will consider whether to adopt rules and forms related to the offer and sale of securities through crowdfunding under Section 4(a)(6) of the Securities Act of 1933, as mandated by Title III of the Jumpstart Our Business Startups Act.