Huge Win: AOIP Members Comment on SEC Proposal to Improve Capital Formation

This week the Securities and Exchange Commission released a proposal to amend multiple securities exemptions. The proposed amendments to the exemption ecosystem may dramatically impact online capital formation for the better. These changes could make it easier for firms to raise money online while helping offering platforms to achieve sustainability. Meanwhile, investors may gain access to higher quality deals as issuers reassess capital raising options, thus improving investor protection.

The proposal is part of a broader “harmonization” review, outlined in a “concept release,” that the SEC  commenced last year.

The Association of Online Investment Platforms (AOIP) is a relatively new advocacy group seeking to improve the regulatory environment for small businesses in need of growth capital. In 2019, founding members of the AOIP took multiple trips to Washington, DC to speak to both elected and appointed officials. Members of the AOIP coordinated with the SBE Council, a leading voice in support of entrepreneurship and small business, in many of these meetings.

As a sector of Fintech that deals with the challenges of raising capital every single day, the AOIPs perspective was vital in guiding the SEC’s proposal. The founding members of AOIP include NextSeed, SeedInvest, Microventures, and Republic. Upon release of the news, Youngro Lee, Chairman of the AOIP and CEO of Nextseed, said these proposals to improve the exempt offering framework will be extremely helpful to main street entrepreneurs and investors.

Crowdfund Insider reached out to the other founding platforms for their feedback on the SEC’s move to “simplify, harmonize, and improve certain aspects of the framework to promote capital formation while preserving or enhancing important investor protections.” These comments are shared below.

Tyler Gray, Chief Operating Officer at Microventures, had this to say:

“These proposed changes are something we’ve wanted to see for a while, and they are better aligned with the reality of the crowdfunding investment space. Not only will they make these securities exemptions more workable, but they won’t diminish any of the protection characteristics. Overall, these new rules offer a more sustainable path forward for platforms seeking to help smaller firms get the capital they need. Should they pass, we’re optimistic that the new rules will be a huge win for investors, issuers, and platforms,” said Gray.

These proposed changes are something we’ve wanted to see for a while, and they are better aligned with the reality of the crowdfunding investment space @Microventures Click to Tweet

Ryan Feit, CEO of SeedInvest, part of Circle, lauded the SEC’s proposal:

“We commend the SEC for listening to the industry and proactively updating the Reg CF cap from $1 million to $5 million.  This is the biggest change to U.S. securities laws since we helped get the JOBS Act passed in 2012 and will undoubtedly be a huge tailwind for entrepreneurs and investors across the country. In addition to increasing the Reg CF cap, we were especially happy to see the SEC recommend permitting Reg CF companies to test the waters [TTW].  This will enable private companies to avoid wasting time and money by ensuring there is sufficient investment interest prior to pursuing a Reg CF offering.  We suggested this concept in a comment letter to the SEC six years ago so were thrilled to see this suggestion incorporated.”

We commend the SEC for listening to the industry and proactively updating the rules ... this is the biggest change to U.S. securities laws since we helped get the JOBS Act passed in 2012 @SeedInvest Click to Tweet

Kendrick Nguyen, the founder of Republic – a mission-driven crowdfunding platform, complimented the SECs’ proposal as well:

“We support and appreciate the Commission’s leadership and interest towards making capital formation more accessible, and private investing more inclusive, with the proposed framework. Allowing private companies to raise up to $5M under Reg CF and $75M under Reg A per each 12-month period would serve both objectives and further strengthen the capital markets. We hope to see a timely adoption of the final rules largely in the form as proposed.”

We support and appreciate the Commission’s leadership and interest towards making capital formation more accessible, and private investing more inclusive @Joinrepublic Click to Tweet

Maxwell Rich, Chief Compliance Officer & Deputy General Counsel at Republic and Regulatory advisor to CoinList, called the proposal a giant leap forward:

“The proposed rules released by the Commission represent not just many small steps to reduce friction and promote capital formation, but many giant leaps for the private capital markets. Many of the proposed rules, if implemented as proposed, would directly satisfy the requests and pleas of the Commission’s core constituency, that being issuers, investors and the intermediaries that service them. The Concept Release on Harmonization was a singular moment in the Commissions’s evolving views and rules regarding these “private” transactions. The fruits borne from that exercise amount to a much needed stimulus of a nascent, but quickly growing industry. My initial reading of these proposals is that they will bring the United States into a leading position with respect to balancing early-stage companies’ needs to raise capital and rationale and reasonable steps to protect those persons who consider whether to provide that capital to build the next generation of great companies.”

The proposed rules released by the Commission represent not just many small steps to reduce friction and promote capital formation, but many giant leaps for the private capital market Click to Tweet

While the JOBS Act of 2012 was a ground-breaking piece of bipartisan legislation that legalized online capital formation, over time shortcomings have become apparent. The SEC’s proposal appears to address many of these challenges.

Scott Purcell, CEO and Chief Trust Officer of Prime Trust and someone that has been engaged in the crowdfunding sector before the JOBS Act was signed into law, forwarded a note to CI calling this the most exciting news for the industry in 8 years.

“In my opinion, this is a game-changer for the crowdfunding industry and for private capital formation. Crowdfunding portals can now flourish, which will in turn not only help businesses get funded but also protect the public by ensuring that offerings are done in compliance with securities regulations. The general public has better access to alternative investments, giving them nearly the same wealth-building opportunities that historically have been reserved (by securities regulations) only for the very rich. And it means the dream of disruption and innovation in our capital markets is now within reach.”

Clearly, the comments above indicate the SEC is on the cusp of accomplishing something monumental for SMEs as well as smaller investors.

this is a game-changer for the crowdfunding industry and for private capital formation. #Crowdfunding portals can now flourish Click to Tweet

Editors Note: Andrew Dix is a founding special advisor to the AOIP and is the founder of Crowded Media Group, LLC.
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