09 Apr Equity Crowdfunding Platforms Exempt from Broker-Dealer Registration

Websites run by AngelList and FundersClub were told recently by the SEC that they can help companies raise money without being registered as broker-dealers with the SEC. The sites limit access to deal information to “accredited investors” (at least $200,000 income or $1 million net worth not counting your primary residence). FundersClub sets up individual special purpose vehicles to invest in companies and takes a percentage of the ultimate return on investment much like a venture fund. So it’s essentially using a website to bring investors into their vehicles, and the SEC says this is ok if you limit it to accredited investors.

AngelList is in partnership with a broker-dealer, SecondMarket. They are similarly setting up entities and taking a back end percentage of the ultimate return. But they are also applying to be an investment adviser with the SEC and will require due diligence and careful review of deals before offering them to accredited investors through their site.

We are still waiting for the SEC’s rulemaking under the Jumpstart our Business Startups (JOBS) Act to implement broader crowdfunding to non-accredited and accredited investors. The JOBS Act required that rulemaking to have been completed last December. Hopefully if and when Mary Jo White is confirmed as the new SEC Chair, this and other JOBS Act rulemakings will make their way up the priority list.