Double Take: Bloomberg Law: Tech Sector Pushes for Fewer Crowdfunding Restrictions
As anticipated, the fundraising landscape continues to evolve on the legislative and regulatory fronts. With the magnitude of the changes initiated by the JOBS Act in April 2012, some of which were 180º changes of practices that had been in place for 80 years, we are in uncharted territory.
The JOBS Act addressed four primary areas of early stage (or small) business access to capital:
- Rewards-based Crowdfunding as in Kickstarter and Indiegogo
- Equity-based Crowdfunding as in AngelList and similar sites that enable accredited investors to access somewhat curated deals
- Revisions to rules related to public offerings that make such offerings more viable for early stage companies
- Non-accredited investor access to early stage company investment opportunities
Each area required regulatory rules to be established. The final rule set for the last category was finally issued in May 2016.
The ink had barely dried on the legislation before a new Act was submitted to Congress — “Fix Crowdfunding Act” (H.R. 4855). This Act has been passed by the House of Representatives and has been submitted to the Senate for its approval.
The “fixes” being addressed included:
- Increasing the dollar limits for certain investment categories
The original Act included an increase to the unaccredited investor investment limit from $1M to $5M, but it was removed and not included in the approved legislation.
- Increasing the number of investors who can participate in certain investment categories
- Decreasing the regulatory burden on certain investment categories
Already certain constituencies are saying the “Fix Crowdfunding Act” doesn’t go far enough. The positive tension between giving early stage companies greater access to capital and protecting prospective investors adequately will be a perpetual struggle.
For companies seeking capital, they must play by the rules that exist at that moment in time. While there will always be a risk that those rules will change between the time the company initiates efforts and when it closes its deal, the good news is that for the immediate future any such changes will ease that fundraising burden, not make it more difficult.
For active investors, it will require revisiting the rules whenever an investment is being considered to make sure they haven’t changed in any material way.