Earlier this week the Securities and Exchange Commission (SEC) Office of Small Business Policy held a Twitter chat on Tuesday entitled
#SECcrowdfundchat. The lightly attended discussion was scheduled to help inform small businesses as to how they may legally raise growth capital.
In the US today, there are multiple crowdfunding exemptions with the most popular ones being: Reg D 506c, Reg A+ and Reg CF.
The first exemption, Reg D 506c, is accredited crowdfunding and only available to individuals that meet certain outdated wealth requirements. It is also the most popular exemption utilized by small, scalable firms and companies may raise an unlimited amount of funds.
Reg A+ is a scaled down IPO type of offering that requires the submission and SEC approval of an offering document – a costly and time consuming process. An issuer may raise up to $50 million.
Reg CF is the exemption most associated with the term crowdfunding due to the fact Congress labeled it Regulation Crowdfunding. It is the least utilized exemption because there is an arbitrary cap ($1.07M) on how much an issuer may raise and there is a need to follow a highly prescriptive compliance path.
There are also a host of states that have enacted intrastate rules that can be effective depending on the exact terms of what is allowable in the jurisdiction.
The most helpful portion of the SEC Twitter Chat was the fact that an infographic was shared outlining the various options that are currently legally available. You may see the document below.
What was missing, of course, was a candid discussion on the rather popular method of online capital formation called initial coin offerings (ICOs). The advent of digital assets as a new class of securities has fostered a boom in small business funding and investing. This global boom has taken place in a lightly regulated environment (until recently) and has been peppered with high profile cases of fraud alongside legitimate, and risky, issuers.
Perhaps by the next time the the SEC’s Office of Small Business Policy holds a similar chat we will have clarity on tokenized securities. At least one can hope.
— SEC Investor Ed (@SEC_Investor_Ed) May 1, 2018