Crowdfunding sites get a nod from the SEC
In a 4-1 vote today by the U.S. Securities and Exchange Commission (SEC), an amendment has passed to lift the 80 year ban on the general solicitation and advertising of Regulation D (“Reg D”) offerings which will go into effect in 60 days. While most analysts have focused on hedge funds, the ruling reduces many of the limitations that equity crowdfunding sites have been restricted by – a huge win for companies seeking alternative financing.
EarlyShares CEO Joanna Schwartz explains, “Historically, entrepreneurs and small business owners have been prohibited from advertising their need for capital beyond their personal networks. This presented a huge challenge. How can you raise money if you can’t tell anyone that you need money? With this ruling, advertising will be permitted, eliminating a major barrier to raising capital from accredited investors.”
John A. Kallassy, President and Founding Partner of I-Bankers Direct said, “This ruling will dramatically alter the capital-raising process for private companies, especially for early-stage businesses, which can now cast a much wider net. The welcome transparency that the SEC ruling brings to the process will allow a significantly larger number of investors, many of whom are unaware of their accredited status, to participate in opportunities that, until now, fell almost exclusively in the domain of the investing elite.”
Michael Nugent and Rasmus Goksor, Co-Founders of Bison stated that lifting the solicitation ban brings new Form D filing requirements and enables information to be more freely shared with the public. “There remains, however, a fundamental data problem in the industry stemming from the disparate sources and unstructured format of data. There is a strong need for actors that can augment all industry data and create a true information platform for private equity. This is what we continue to work on at Bison.co.”
The ruling was not unanimous
The approved amendment and others still under consideration are part of the Jumpstart Our Business Startups Act (JOBS Act) and supporters of this specific rule have criticized the SEC for delaying enforcement of the bi-partisan supported Act.
The SEC ruling was not unanimous, and the sole vote against it was Democratic Commissioner Luis Aguilar who said in a statement, “I am disappointed and saddened by the reckless adoption [of the rule].”
SEC Chair Mary Jo White said, “In my view, given the explicit language of the JOBS act as well as the statutory deadline … the commission should act without any further delay.”
In a show of support for investor protection, the SEC unanimously adopted rules that block felons from pitching specific types of private investment deals and in a 3-2 vote adopted a rule that requires firms offering private placements to make additional disclosures to regulators prior to being able to advertise it.
Although strong bipartisan support has been voiced for the JOBS Act amendments, Aguilar’s negative sentiment echoes that of Senator Carl Levin (D-MI) who said, “It’s as if the SEC is jumping out of an airplane today, and then proposing to check the safety of its parachute on the way down.”
Changing the face of crowdfunding
Regardless of criticism, the new rules will soon be in place, and equity crowdfunding will no longer have to persistently disclaim, “once the Securities and Exchange Commission rules are finalized and effective,” as organizations like EarlyShares have been doing since their inception.
Jason Burmer, VC and Angel Relations at EarlyShares said in a statement, “The face of raising capital is changing… in a good way. The convergence of technology and new laws has enabled us to streamline the once cumbersome capital raising process to a more pragmatic approach that enables investing in startups and small businesses over the internet.”