The rules, called Regulation A+, authorize an existing
provision of the 2012 Jumpstart Our Business Startups Act, or JOBS Act, which
set out to ease securities laws on equity crowdfunding and other fundraising
tools for new ventures. Until now, that law has limited to accredited
investors—those who earn over $200,000 a year or have a net worth of at least
$1 million—the ability to buy shares through crowdfunding campaigns.
Taking stakes in early stage companies allows investors to
pursue outsize gains in the event they find startups that enjoy rapid growth or
later go public. These equity-based crowdfunding platforms are different from
other “social” crowdfunding websites like Kickstarter and Indiegogo, which
offer backers other forms of rewards.
Beginning in September 2013, more than 1,700 companies have
raised over $700 million through equity crowdfunding, according to Crowdnetic,
a firm that tracks about 18 of the industry’s most popular crowdfunding sites.
In the three months ended March 31, accredited investors committed $161 million
to startups through those sites, more than three times the amount from the same
quarter a year ago. There are roughly 80 crowdfunding sites but many are
largely inactive, according to Crowdnetic.
Though popular, crowdfunding sites have also attracted
complaints for failing to protect backers from project creators who renege on
promises or disappear entirely. In part to protect investors, the SEC’s new
rules require companies to disclose financial results, produce audit reports
and meet additional state or federal requirements, depending on how much they
want to raise. Some argue the cost of compliance, which could reach $100,000 to
initially register, will discourage young companies from raising money this
way.
Crowdfunding lawyers and advisers said registering under
Regulation A+ rules would only make sense for more established companies
seeking at least several million dollars in capital. They say smaller ventures
are better served fundraising through other offerings. AngelList is one of many
platforms and issuers waiting for the SEC to finalize another JOBS Act
provision, targeted at startups who want to raise less than $1 million. They
expect the pending regulations to carry fewer restrictions on equity
crowdfunding. The SEC declined to comment.
On Friday, crowdfunding site SeedInvest will unveil a
handful of companies it hopes will appeal to a mass audience of nonaccredited
investors. Roughly two-thirds of SeedInvest’s 28,000 investors are
nonaccredited, including nearly 3,000 who have signed up since the SEC
announced its new rules in March, according to Mr. Lingam. In a recent
SeedInvest survey, over half of them said they are likely to invest over
$10,000 a year after the rule change.
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