Legal
crowdfunding

Crowdfunders Receive Blueprint

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The Securities and Exchange Commission’s 585 pages of proposed rules for crowdfunding released last month amped up the chatter from online platforms, angel investors and third party service providers catering to entrepreneurs, startups and small growth companies. Crowdfunding supporters had waited more than 18 months for a hint of what the rules would entail after the JOBS Act legalized the funding-by-the-masses concept and directed the SEC to craft the regulatory oversight. The proposal, known as Regulation CF, is broadly focused on raise and investment limits related to the incomes of non-accredited investors. Reaction has been typical: The SEC did a good job crafting some rules, and poor job on others. Among the policies put forth, the commission revealed that it would allow companies to conduct separate offerings at the same time.

Markets
crowdfunding

Advertising Poised to Shake Up Emerging Growth Capital Markets

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The end to the ban on general solicitation in private securities offerings has ushered in an extraordinary capital markets transformation that could lead to more capital for small companies and startups, more investment opportunities for accredited investors, and more fraud. Observers compare the change to when securities trading eventually moved from the realm of broker-dealers to online trading platforms like E-Trade and Charles Schwab amid the ramp up of the Internet and other technological innovations. “We’re really on the verge of a paradigm shift as to how transactions are marketed, and it is because of this regulatory change,” said chief JOBS Act promoter and pioneer David Weild IV. “It will take a little bit of time, but the good news is that general solicitation has everybody talking about equity and small companies, and small companies are where jobs are created.”

Preparing for Change

The JOBS Act directed the Securities and Exchange Commission to end the ban on general solicitation under Title II, and market participants have wasted no time positioning themselves to take advantage of the newfound freedom. Companies and investment funds have already filed dozens of Form Ds indicating that they’re going to market their private offerings to the public.

Markets
Judd Hollas

Uncertainty Remains on Eve of Exempt Offering Advertising

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Beginning on Sept. 23, companies will for the first time in 80 years be able to advertise offerings of securities exempt from registration, as the ban on general solicitation officially expires. Crowdfunding portals, angel capital providers, venture capital funds and other proponents of startups and small growth companies have been looking forward to the day ever since April 2012. That’s when Title II of the JOBS Act required the Securities and Exchange Commission to end the ban on general solicitation in Rule 506 offerings under Regulation D as long as buyers of the securities were accredited investors. In July, the SEC approved the creation of Rule 506(c), which allows issuers to advertise exempt offerings, as well as other regulations related to Title II.

Views

SEC Clears a Path for a Viable Equity Capital Marketplace with Second No-Action Letter on Angel Crowdfunding

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When the SEC followed up its March 29 “No-Action” letter to an online angel investment platform with a second letter a day later addressing the same issue to a different online angel funding startup, it did something that no-action letters aren’t supposed to do: it made policy. And by successively offering to stand-down from enforcement of the onerous broker-dealer rules governing most equity offerings, it cleared a path, albeit rock-strewn and circuitous, toward a viable crowdsourced equity market – something that the agency has been unable or unwilling to do within the mandates of the JOBS Act. The message delivered by the agency in those letters to the FundersClub and AngelList online angel funding websites was that small but not insignificant amounts of investment capital may be aggregated together through online networks and restricted equity securities distributed in return, without registering as a broker-dealer or as a JOBS Act “crowdfunding portal,” FINRA’s soon-to-be Cinderella stepchild. William Carleton, an attorney that has watched the JOBS Act implementation closely and regularly writes about it at Crowdsourcing.org and his own blog, calls the publication of the two letters “momentus.” While cautioning that no-action letters only establish a “green zone” within which certain activities are allowed given specific conditions and contexts, he still nonetheless believes they were meant to sketch out a framework for exempted crowd fund-raising and investment. “[I]t is fair to say that no-action letters are rarely, if ever, as high profile as these two,” Carleton wrote.