On Monday, November 2, 2020 the SEC approved updates to Regulation Crowdfunding significantly increasing the limits of offering under this regulation. These changes will go into effect at the beginning of the coming year, January 2, 2021. This move will introduce new business opportunities to companies looking to raise capital. In their Monday press release, the SEC stated that “today’s amendments are the next step in the Commission’s efforts to improve the exempt offering framework for the benefit of investors, emerging companies, and more seasoned issuers.”
At the introduction of RegCF in Spring 2016, companies could raise a maximum of $1.07 million within 12 months. Sherwood Ness, the principal of Crowdfund Capital Advisors, said: “When we began lobbying for Reg CF, we artificially set a low maximum target of $1 million so that we could test the model and make sure there was no fraud. Under those limits, more than 2,800 companies in 430 industries, across 50 states have raised over 500 million dollars in just 4 years, with no fraud. The model is working incredibly well.” Now, this limit has increased to $5 million, which will allow more business access to the capital they need to grow, create jobs, and launch innovative products and services.
In RegCF’s initial form, the total amount of securities sold to an individual investor could not exceed $107,000 within 12 months. For accredited investors, this limit has been removed. For investors with either a net worth or annual income less than $107,000, investments in RegCF offerings were limited to $2,200 or 5% of the lesser of their annual income or net worth. With the November amendments to the regulation, for non-accredited investors, the limit was changed to the greater of their annual income or net worth.
In addition, companies raising capital through RegCF offerings are now permitted to “test-the-waters” before filing their offering with the SEC. “Demo day” communications are also now permitted and are not deemed to be a general solicitation or general advertising. Lastly, through this update to the regulation, Special Purpose Vehicles are permitted to facilitate investments in RegCF issuers.
This update comes at a critical time in the US economy. For companies around the country, turning to their customers to invest the funds necessary to keep their doors open, the increase to RegCF will enable them to raise larger sums of capital in the new year.