Companies couldn’t test the waters to gauge investor interest with Reg CF offerings like with other regulations, such as Regulation D (only for accredited investors).This was sometimes a deal breaker for startups in competitive markets because they didn’t want their competitors to see how they ran their businesses. Companies that raise money with equity crowdfunding are subject to annual reporting requirements, which include sharing financial statements.It’s why mature companies like Airbnb, who wanted to let their hosts invest in the company before they went public, didn’t want to raise using equity crowdfunding. Becoming a public company costs a lot of money and takes a lot of work due to the legal, accounting, and reporting hurdles. Section 12(g) of the JOBS Act stated that if a company has $10 million in assets or 500 unaccredited investors (regular people) holding securities in your company, then the company was required, by law, to register with the Commission and go public.This took equity crowdfunding off the table for any credible tech startup with aspirations of raising money from venture capitalists and angel investors in the future. As a result, each crowdfunding investor, who may only contribute $100, was one line entry on a founder’s cap table. Platforms were not allowed to roll up crowdfunding investors into one entity on a company’s cap table using an SPV like you could with accredited investors.I pitched thousands of founders on using equity crowdfunding, and the primary legal blockers preventing founders from saying yes were: In fact, equity crowdfunding was not attractive to promising startups and small businesses because of shortcomings with the SEC’s initial rules. People thought equity crowdfunding would change how private businesses would raise capital, but it didn’t, at least not initially. Regular people could now invest in private startups and small businesses through equity crowdfunding platforms like Wefunder, Republic, and Start Engine. It took the SEC four years to actually write the rules and on May 16th, 2016, equity crowdfunding finally went live. Source: President Obama signing the JOBS Act in the rose garden at the White House. This was notable because, before the JOBS Act, only rich people (i.e., people with a net worth of over $1 million or making $200K per year) in the United States could invest in private startups. Title III of the JOBS Act, also known as the CROWDFUND Act, drew the most attention from the media because it created a way for startups and small businesses to crowdfund securities from the general public. The law relaxed many of the country’s strict security regulations. One of the proposed initiatives, The Jumpstart Our Business Startups Act, or JOBS Act, was approved and signed into law by President Obama on April 5th, 2012. But before I begin, here’s a quick backstory on how we got here.įollowing a decline in small business activity in the aftermath of the 2008 financial crisis, Congress considered various initiatives and law changes to help spur economic growth. At the time of writing this, it’s been almost seven years since equity crowdfunding went live, and I thought it would be cool to do a detailed blog post on the bull case vs. I worked in the US equity crowdfunding, or regulation crowdfunding (Reg CF), industry for 2.5 years between 2018-2020.
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