The US Securities and Exchange Commission raised the limit on crowdfunding from $1.07 million to $5 million, making it easier for startups to raise money from non-accredited investors.
With a 3-2 vote on Monday, several exemptions were made to federal securities legal guidelines that require issuers to register with the SEC and publish monetary statements.
Many financial instruments are categorized as securities, and to offer security, one is either required to register, which is a time-consuming and expensive process, or fall under the exemption such as Reg A, Reg D, which now also involves Reg CF or Reg Crowdfunding.
With this rule change, companies are now provided with more flexibility.
“This means entrepreneurs can raise more money and do so more easily,” said Bruce Fenton, CEO of CEO Chainstone Labs. Adding,
“This is huge – $5 million is significant enough to attract much larger and more high quality issuers. The small business sector will be rebuilt — this is a step to accelerate that. Reg CF also sidesteps the accredited requirement- an antiquated thorn in the side of innovation.”
The SEC took some steps today to make it easier for small- and medium-sized businesses to navigate the complexities of capital-raising: https://t.co/aTbia5Q5WM
— Hester Peirce (@HesterPeirce) November 2, 2020
The change in the rules is the newest assistance to small and medium-size corporations following the expansion of accredited investors’ definition in August.
SEC Chairman Jay Clayton said the rule would “improve effectivity and facilitate capital formation,” and that it might cut back regulatory prices and burdens for corporations.
“Huge for companies from non-tech hub cities, underrepresented founders, and less sexy industries,” said Ryan Selkis of Messari.
Meanwhile, Shehan Chandrasekera, Head of Tax Strategy CoinTracker, says this brings a better alternative for crypto companies that usually goes the route of Initial Coin Offering (ICI), Initial Exchange Offering (IEO), and venture capital.
“REG Crowdfunding limit went up to 5M from 1M per SEC. A better alternative to an ICO or IEO,” he said.