Many seem a little confused by the flurry of regulatory activity in Congress and the SEC the last few years when it comes to small business and capital formation. Regulation D? Regulation A? Kickstarter? Crowdfunding? Which is which? Here’s a few sentences so you can keep a scorecard:
Kickstarter, etc.: The only real “crowdfunding” that is possible now does not involve the sale of any ownership in a company. On Kickstarter, Indiegogo and the like, people with projects or even businesses can raise money, so long as they don’t give equity as part of the deal. So a producer of a Broadway show takes money in exchange for tickets for opening night, special t-shirts and niknaks, fun “investor meetings,” etc. Or a new product inventor raises money, and you get a “free” copy of the product. Or a singer raises money to produce her latest music video.
Regulation D 506(c): This “crowdfunding” is a non-public offering limited to those proved by a third party to be accredited investors ($200,000 income or $1MM net worth not counting primary residence) but now allows advertising and general solicitation, so a company raising money for equity in their business can run an ad, send out blast emails or have a splashy website promoting their offering. Previously this was not permitted for private offerings of securities.
Regulation A+: As mentioned many times here, if passed as proposed the “crowdfunding” contemplated by the Jumpstart Our Business Startups (JOBS) Act under Regulation A would encourage a simplified IPO process with reduced but still robust disclosure and post-offering reporting obligations. Here you will be able to raise up to $50 million with no state “blue sky” review of your offering documents.
Statutory Crowdfunding: This is what the JOBS Act calls crowdfunding. It is limited to raising $1 million per year, must be through a broker-dealer or investment portal, you cannot have raised money in the 12 months prior to the crowdfunding round, and a full disclosure document and audited financials are required in most instances. It is exempt from blue sky law and lets you raise money from a theoretically unlimited number of accredited and non-accredited investors.
Can you keep track? Keep tuned, we are still awaiting final rules on Regulation A+ and statutory crowdfunding.
Read additional articles at the David Feldman Blog.
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