Andreessen Horowitz wants an updated version of Regulation Crowdfunding, or Reg CF, to be used to fund Non-Fungible Token (NFT) offerings. The venture group defines NFTs as “crypto assets whose value, utility, or significance is primarily derived from being a record of ownership or rights with respect to a tangible or intangible good.”
Andreessen believes that existing securities crowdfunding exemptions, including Reg CF, Reg A+, and Reg D 506c, do not work well for “creative endeavors.”
As not all NFTs are said to be securities, they believe these should benefit from a safe harbor issued by the Commission. However, not all NFTs should be eligible for this safe harbor. A16z states that new crowdfunding regulations should be created for transactions of collectibles that are not eligible for the safe harbor.
This is not exactly a new opinion from a16z. Earlier this year, the VC group advocated that Reg CF be updated to support crypto offerings. To accomplish this task, they recommended funding cap should be increased to $75 million from its current $5 million limit. Many insiders in the securities crowdfunding sector would like to see Reg CF rise to at least $20 million.
As Reg CF is a notice filing that does not need to be qualified by the SEC, this approach makes sense as it simpiflies the filing process while allowing retail investors to access these digital asset offerings.
Andreessen outlines their NFT proposal in a letter to the SEC Crypto Task Force, led by SEC Commissioner Hester Peirce.
The firm believes the SEC should establish a new “tailored crowdfunding regime for creators.”
The letter states:
A crowdfunding pathway tailored for collectible tokens could leverage the criteria of the safe harbor described above, and, as such, would more effectively foster capital formation from the public. In particular, the crowdfunding regulations applicable to collectible tokens should require that: (1) the asset to be delivered to the investor in exchange for the investment must be a collectible token; (2) the transaction must not involve the creation of any post-sale interests in the creator or any third party, other than a right to the delivery of the collectible token and associated object(s); and (3) the transaction is not marketed or promoted as an investment opportunity that suggests purchasers should expect financial returns based upon the efforts of the creator or any third party beyond the delivery of the collectible token and the creator’s efforts to build a reputation and following.
The referenced safe harbor requires:
- the transaction is of a collectible
- the transaction does not involve the creation of any post-sale interests in the creator or any third party
- the transaction is not marketed or promoted by the creator or its designees as an investment opportunity that suggests purchasers should expect financial returns based on the ongoing efforts of the creator or any third party.
Andreessen is of the opinion that a crowdfunding pathway could enable creators while driving economic value to holders of these digital assets while preserving investor protection goals.