Jonathan Ortmans writing for the Ewing Marion Kauffman Foundation believes Title III investment crowdfunding may start with a bit of a thud. With all the years of pent-up anticipation you may wonder why retail crowdfunding is not expected to jump out of the gate. But there are a number of reasons Ortmans may be correct. First of all new securities exemptions tend to move slowly – at least that has been the example of Title II accredited crowdfunding. It takes time for platforms, lawyers, accountants etc. to get up to speed. Raising equity online is a serious, highly regulated, process. The SEC will be watching issuers closely.
Ortmans is also of the opinion that some of the investment crowdfunding platforms will not be quick to move into Title III offers;
“…not all existing fundraising platforms will jump at the opportunity to offer Reg CF services just yet. Many platforms seem to still be unsure whether it will be economically viable to do so. The new rules require intermediary funding portals to provide educational materials about the offerings, take steps to reduce fraud, and make company disclosures public at least 21 days before the sale of securities. In addition, the Securities Exchange Commission (SEC) will require all intermediaries in crowdfunding transactions to register with a national securities association, and the process for approval of membership in such association is still unclear.”
There are additional challenges with the announced Title III rules. The funding cap has been set at an arbitrarily low amount ($1 million) plus SPVs have not been allowed. Depending on whom you are speaking these limitations are no big deal or Reg CF is dead on arrival.
Time will tell. The new law becomes actionable this coming May. While there were many questions regarding Title IV, Regulation A+ prior to issuers being allowed to raise capital under the new crowdfunding rules, I would qualify this exemption as a relative success (so far). Now if we can only address the problems associated with the definition of an accredited investor.