SEC Finally Releases Rules For Equity Crowdfunding

Kendall Almerico


Chief Executive Officer at BankRoll Ventures

The SEC has released rules for Title III of the JOBS Act giving us guidance as to how equity crowdfunding will be legalized. Nearly 3 years and 7 months after the game-changing law was signed by the President, the use of equity crowdfunding will be available to startups and small companies in 180 days.  And yes, the SEC did make the law workable for most startups and small businesses, despite critics believing it could not be done.

With equity crowdfunding,  a company can raise up to $1,000,000 online on new equity crowdfunding portals from anyone in the general public. If a company wants to raise more, there is always equity crowdfunding’s sister, a Regulation A+ Mini-IPO to consider.

Under the final rules just passed, members of the “crowd” are limited in what they can invest, as part of the SEC’s attempts to protect investors. The law limits investors to (a) the greater of  $2,000 or 5 percent of the lesser of their annual income or net worth, if either the annual income or the net worth of the investor is less than $100,000 and (b) 10 percent of the lesser of their annual income or net worth, if both the annual income and net worth of the investor is equal to or more than $100,000. In both cases, Investors may not invest more than an aggregate amount of $100,000 in one year

The most important development from the new SEC rules is that the proposed requirement of a full financial audit has been dropped by the SEC for companies using the equity crowdfunding law for the first time. Requiring a startup to spend tens of thousands of dollars on an audit was absurd, and made the law unworkable. The SEC removed that requirement, so now a company using the law for the first time only must have reviewed financials to raise more than $100,000, and even lesser financial disclosures when raising less than $100,000.

Before companies get too excited about the prospect of going online and finding crowd investors, you must keep in mind that equity crowdfunding involves the sale of securities, and not just pre-selling a cool new device like on Indiegogo. Federal and state laws govern the sale of securities, and if a company does something wrong, the business and its officers and directors can be sued, and in some cases, could face criminal penalties.  Having experienced counsel assist with equity crowdfunding is a necessity.

Some will clearly disagree (I can’t help it is I have always been a glass-half-full type of guy), but I believe there is a workable model with these equity crowdfunding rules and that startups will be able to use this law to raise capital. Those of us who do this for a living will work within the laws and rules to find ways to help companies raise funds online in a way they never could before. This is truly the democratization of the investment process.

Tags: , , , , , , ,


Mountain XpressFaces in the crowd: WNC crowdfunding initativesMountain XpressON THE SPOT: The scenes in Luke & Jo will be shot chronologically, which will allow for more improvisation in the dialogue, according to the feature film's crowdfunding page. Andie Morgenlander and E [...]

AZCentral.comTiny companies lure investors under Arizona crowdfunding lawAZCentral.comInvestors who make bets under the state's one-year-old crowdfunding law certainly have the potential to get in on the ground floor, but they must be patient and might not receive any returns. Th [...]

BloombergCouples Desperate For Children Turn to Crowdfunding FertilityBloombergCrowdfunding has become a popular mechanism for many couples who can't afford the high costs of IVF, or adoption and surrogacy. “It's not an easy thing to share publicly,” says Crystal Barrett, 33 [...]

MarketWatchWhy a crowdfunding site is giving out $10000 scholarshipsMarketWatchCrowdfunding site GoFundMe announced Thursday that it will award $10,000 to 10 students with pages on their site that fundraise for education. The award is part of a contest the site held throughout Septemb [...]

Huffington PostReal Estate Crowdfunding's Pathway of ChangeHuffington Post“Crowdfunding is just the Internet,” stated Attorney Mark Roderick as he opened last month's RealCap Chicago. RealCap is an annual conference that joins crowdfunding leaders and innovators to propel th [...]

BBC NewsNHS trust 'relies' on crowdfunding to equip wardBBC NewsAn NHS trust has launched a crowdfunding appeal to buy equipment for a new hospital unit because "it cannot get started without donations". The Royal National Orthopaedic Hospital (RNOH) in Stanmore, n [...]

MottoIVF: More Couples Crowdfunding to Pay for Procedure - MottoMottoMore and more couples are turning to crowdfunding to fund costly in vitro fertilization (IVF) treatments, Bloomberg reports.More Couples Who Can't Afford IVF Are Turning To Crowdfunding For HelpRomperCouples des [...]

EntrepreneurIs Crowdfunding Right for You? Answer These 7 Questions to Find Out.EntrepreneurCrowdfunding is a popular and increasingly accessible way to put your prospective product or business in front of millions of people. And, thanks to the visibility of massive success stories, t [...]

Boing BoingCrowdfunding a bike-lock that squirts vomit-inducing antipersonnel gas when cutBoing BoingThe Skunklock is a $109 crowdfunded gadget that contains pressurized vomit-inducing gas the creators call "Formula D_1," and which is intended to induce immediate vomiting wh [...]

WestwordProgressive-Rock Band Marillion Pioneered CrowdfundingWestwordThat was the beginning of crowdfunding for us — and for every band, really.” When it came time for the recording and release of the followup to the 1999 record, Kelly and the band realized that one of [...]

CFB Finance

Press Release

CrowdFund Beat News

Thanks @inmocrowd @crowdfundingusa @DuaneDDrew for being top engaged community members this week :) >> Want this 🆓?…

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |