The Securities and Exchange Commission (“SEC”), plans to use its broad authority to increase fundraising limits for small companies and startups to $5 million and make it cheaper and easier to raise capital online.
According to the Wall Street Journal, crowdfunding has not been widely used by investors in recent years, in large part due to a low cap on fundraising. Additionally, rules regarding the provision of audited financial statements to investors have caused increases of the cost of selling stock or debt. Under this new, light-touch approach to fundraising rules, companies are afforded a little less restriction.
Major points within this proposal include:
Raising the crowdfunding cap from $1 million to $5 million.
Under this new plan made public on Wednesday, small companies and startups would able to crowdfund as much as $5 million, a significant increase from the $1 million cap imposed in 2012. This proposal also seeks to make it cheaper and easier to raise capital online, which would benefit small companies without access to venture capital.
Increasing Individual Investment Maximum.
Currently, the maximum amount an individual investor may contribute to crowdfunded deals is either 10% of their net worth or annual income, whichever is lower. With this new plan, the SEC plans to switch this to the higher of the two.
Raising Mini-Public Offering cap from $50 Million to $75 Million.
Regulation A+ is a fundraising exemption that comes with even stricter rules for disclosure than crowdfunding. This exception is used by startups seeking more capital while foregoing an initial public offering of shares. SEC Chairman Jay Clayton has expressed that the intent of these proposed changes is “to create a more rational framework that better allows entrepreneurs to access capital while preserving and enhancing important investor protections.” These changes may also make Regulation A+ more attractive to small companies by helping them attract more seasoned investors.
The plan passed 3-1 on a vote by regulators and is now open for public comment for 60 days.
To read the full article, please see link: https://www.wsj.com/articles/sec-plan-would-allow-startups-to-raise-more-money-under-light-touch-rules-11583368699?mod=business_major_pos6
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