For start-ups looking to raise capital through Regulation Crowdfunding (Reg CF), life has just gotten a little bit easier. The Securities and Exchange Commission (SEC), has just announced the approval of various restriction easements when raising capital through such means.
While news of this easement is welcomed, it is not a surprise, as the initial framework for these changes was originally put forth as a proposal by the SEC in March of 2020.
Reg CF Changes
In the now approved framework, there are various changes being made – primarily, an increase in offering limits. Companies raising capital through Reg CF can now raise up to $5 million USD. This is an increase from the previous limit of $1.07 million USD.
In addition to allowing companies to raise a greater amount of capital, the SEC has decided to extend relief measures, first implemented due to COVID-19, by a period of 18 months. These relief measures provide a reprieve for issuers raising less than $250,000 USD in the financial statement requirements.
Why the Change?
So companies can now raise $5 million via Reg CF, rather than $1.07 million – but why?
These three points are those listed by the SEC as its reasoning for the changes. The SEC notes that the current framework is comprised of years-worth of updates and changes. The result is a framework ‘patched’ together over time, rather than one designed as a whole. These actions are part of the SEC’s attempt at remedying this.
Jay Clayton, SEC Chairman, elaborated on the thought process behind the SEC’s decision to make these changes permanent.
“For many small and medium-sized business, our exempt offering framework is the only viable channel for raising capital. These businesses and their prospective investors must navigate a system of multiple exemptions and safe harbors, each with different requirements…While each component in this patchwork system makes some sense in isolation, collectively, there is substantial room for improvement. The staff has identified various costly and unnecessary frictions and uncertainties and crafted amendments that address those inefficiencies in the context of a more rational framework that will facilitate capital formation for small and medium-sized businesses and benefit investors for years to come.”
Hopefully, capital markets will become more democratized as the growth of small start-ups will not be hindered by cumbersome, patchwork regulation.
2020 has brought forth challenges for just about every industry out there. Despite juggling new challenges, the SEC has continued to complete promising work over the course of the year, attempting to create more enticing capital markets. The SEC has,
- amended the definition of an ‘accredited investor’
- eased restrictions on Reg CF/D/A
- implemented relief measures due to market conditions
In addition to these moves, Commissioner Hester Peirce of the SEC, has also drafted and proposed a new framework for digital assets.
While things may appear to move slowly at times, each of these steps is widely viewed as heading in the right direction.
Securities and Exchange Commission
The SEC is a United States regulatory body, which was formed in 1934. Above all, the SEC is tasked with ensuring fair and transparent capital markets, through the creation and enforcement of securities based regulations.
Chairman, Jay Clayton, oversees operations at the SEC.