Crowdfund Capital Advisors (CCA), founded by individuals who helped to write the JOBS Act of 2012 – the legislation that legalized online capital formation or crowdfunding, has sent a letter to Representative French Hill, Chairman of the House Financial Services Committee, voicing their support for legislation that will improve the investment crowdfunding ecosystem.
Signed by Sherwood “Woodie” Neiss, co-founder and Partner at CCA, he highlights explicitly several bills, including the Improving Crowdfunding Opportunities Act, the ACCESS Act, Secondaries Trading, and the SEED Act. He also supports various legislation designed to modernize the definition of an accredited investor,
Regarding the Improving Crowdfunding Opportunities Act, the bill seeks to increase Reg CF to $10 million from its current $5 million funding cap. Neiss believes that a $20 million funding cap would better accommodate market needs, calling this a logical step forward.
The ACCESS Act raises the threshold for reviewed financials for issuers from $100,000 to $250,000. The goal should be clear: smaller issuers are penalized thousands or tens of thousands of dollars to complete the process, which is immediately deducted from a smaller funding round. This negatively impacts investors as money goes to accountants and attorneys instead of building a company. Typically, smaller offerings are only utilized by startups with little or no revenue anyway.
The SEED Act creates a new micro-exemption for issuers – perhaps a stepping stone to Reg CF.
The Restoring Secondaries Trading Market Act pre-empts state Blue Sky rules for trading of securities and thus impedes the sale of these assets, undermining the Reg CF and Reg A market.
Updating the definition of an Accredited Investor should be obvious to all and should garner bipartisan support. For too long, smaller investors have been disenfranchised from certain private securities markets, like Reg D, simply because of a wealth metric. Clearly, sophistication and knowledge is not predicated by a certain amount of wealth.
Neiss adds that a missing act of legislation is tax exemptions similar to what has been utilized in the UK. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), as well as other venture credits, have supported private firms in gaining access to capital. CCA advocates for a new policy labeled the Early-Stage Investment Tax Incentive for Crowdfunding (ESTI-CF). This potentially could include a 50% deduction of a Reg CF investment of up to $250,000 annually. Alongside this incentive, capital gains taxes are no longer charged if a security is held for several years, and 100% deductibility would be available for underserved areas like rural communities or opportunity zones. Perhaps a member of the House or Senate will run with this idea.