On March 4th the Securities and Exchange Commission (SEC) published a proposal to amend multiple securities exemptions. If enacted, the proposed amendments would be the largest changes to securities law since the passage of the JOBS Act, and will strengthen the small business and startup investing platform ecosystem across the entire United States, meeting a critical need. The amendments would substantially alter the private markets by harmonizing and simplifying capital formation for founders, while preserving and enhancing important investor protections.
The Association of Online Investment Platforms (AOIP), an advocacy group formed in 2018, seeks to improve the regulatory environment for small businesses in need of growth capital. The AOIP published an official position paper in June 2018, followed by a comment letter the subsequent month.
SeedInvest also spearheaded a Change.org petition that received more than 2,500 signatures requesting that the funding cap for Regulation CF be increased. In 2019, founding members of the AOIP visited Washington, DC numerous times to speak to officials, coordinating with Karen Kerrigan, President & CEO of the SBE Council, an organization dedicated to protecting small business and promoting entrepreneurship, in many of these meetings. The AOIPs perspective likely contributed in influencing the SEC’s proposal, as its letter (as well as individual members’ letters) was cited multiple times in the rule change submitted to the Federal Register.
Here is what the founding members of the AOIP had to say regarding the recent development:
“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.”
Ryan Feit, co-founder & CEO of SeedInvest
“Over the past decade, there have been so many people and companies in the investment crowdfunding industry that have worked so hard to improve access to the private capital markets for everyone. The process of improving laws and regulations is rarely easy, but these latest proposals from the SEC are an enormous step in the right direction that we believe will ultimately strengthen our capital markets and our economy. The AOIP and all of our members will continue to advocate for positive changes to, and responsible participation in, our private capital markets.
Youngro Lee, co-founder & CEO of NextSeed, Chair of the AOIP
“Republic is encouraged by the Commission’s proposals to streamline, expand and better integrate the various registration exemptions that make up the “private” capital markets. As those private capital markets have moved closer into the public sphere, expanding access, through common-sense reform, for retail investors who want to support America’s next great companies, is more important now than it has ever been.”
Ken Nguyen, founder of Republic
“MicroVentures has been proud to support the very important message of the AOIP. We have participated in most of the Washington, DC meetings and we have been encouraged to hear the positive comments from every office we visited – regardless of party affiliation. As a broker-dealer, we have long interacted with sophisticated investors but we understand the importance of providing a viable, sustainable path for smaller companies to raise growth capital. That is why we entered the crowdfunding sector, to help these smaller companies and underserved markets. The SEC’s proposal will be a big win for everyone involved and we thank the Commission for their hard work. MicroVentures looks forward to working with the AOIP and the SEC Staff to get the final rules right.”
Bill Clark, founder & CEO of MicroVentures
“The SEC’s new JOBS Act proposals, which seek to expand such private market offering exemptions and provide them with more capital markets competitiveness and flexibility, are an acknowledgment by regulators that the online market participants have been operating in a credible and compliant manner and markedly different than such agencies had originally feared.”
Douglas Ellenoff, Partner at Ellenoff Grossman Schole LLP
“The Securities and Exchange Commission and its staff, as well as the new Office of the Advocate for Small Business Capital Formation, should be commended for these proposals. Reg CF was straining under cumbersome rules beyond the arbitrary cap. Raising Reg A+ to $75 million should increase interest in the exemption. Improving Reg D 506c by not requiring ongoing accredited verification should improve this exemption too. While there is a good amount of nuance in the rules that we are still reviewing, the proposed amendments will be beneficial for the three separate constituents in the capital formation process. Good for investors, good for issuers and good for platforms. This is what you need to create a sustainable sector of capital formation.”
Andrew R. Dix, Founder & CEO of Crowded Media Group
The AOIP would like to once again thank the SEC for listening to the industry and proactively improving capital formation for entrepreneurs and investors everywhere. While the AOIP’s reception of the proposed changes is overarchingly positive, there are specific areas of feedback that we plan to follow-up with the SEC on in an upcoming comment letter.
The AOIP looks forward to continuing to advocate for further changes to benefit and improve the utility of private markets for startups, small businesses, and everyday investors.