16 May Statutory Crowdfunding Begins

It took four years since the passage of the Jumpstart our Business Startups (JOBS) Act, but it is finally here. Regulation Crowdfunding, approved by the SEC back in October, is now officially in effect. Companies can work with a broker-dealer or registered online portal to raise up to $1 million per year from an unlimited number of accredited or unaccredited investors, so long as they have not raised any other money in the 12 months before. Those raising over $500,000 need a formal offering document and audited financial statements.

I call this “statutory crowdfunding” because it’s the one thing in the JOBS Act actually called crowdfunding. But in truth there are other crowdfunding techniques which came out of JOBS, including Regulation D 506(c) where a private offering of unlimited size can now be advertised or marketed online to accredited investors, and Regulation A+, allowing a streamlined, simplified, faster, cheaper IPO process often completed through online crowdfunding portals to any investor regardless of accredited status.

A mini-cottage industry (dubbed “the cool kids” at a recent SEC small business conference) has emerged to try to do these crowdfunding deals in volume. Presumably most will be very early stage companies or even startups. Or maybe companies a bit further along that want to build a shareholder base in anticipation of going public. I’m looking forward to observing the players in this space, the smart ones are there now but really anticipating a future where the law is improved to allow greater amounts to be raised and to remove some of the burdensome regulatory aspects. Good luck statutory crowdfunding people!