Three years after President Obama signed the Jumpstart Our Business Startups (JOBS) Act, tens of millions of average investors are still waiting for an opportunity to invest in private securities via equity crowdfunding.
Regulation D equity offering platforms, the first of which launched around 2011, are open only to the 8 million or so accredited investors in the USA. Title III of the JOBS Act promised to create a new securities exemption that will blast the gates wide open to equity crowdfunding for non-accredited investors, but the SEC has yet to issue final rules under Title III.
Title IV of the JOBS Act created a new exemption, known as Regulation A+ (also called the mini-IPO), which does allow non-accredited investors to participate in private securities offerings. Reg A+ became effective when the SEC issued final rules in June 2015, but so far not a single Reg A+ offering has begun to trade anywhere. There are around two dozen Reg A+ filings being considered by the SEC as of today, and a few are in the “testing the waters” phase.
Now the SEC is indicating that it will finalize the rules under Title III very soon, possibly this month. If so, what is being called “Regulation CF” will become effective by the end of 2015, and Title III equity crowdfunding portals will launch by early 2016. It is likely that many entrepreneurs have been waiting for this chance to raise up to $1 million, and investor interest will follow.
One indication that Title III will get its rules this month is that FINRA (the Financial Industry Regulatory Authority) announced that it is ready to submit to the SEC its set of rules for the operation of Title III crowdfunding portals.
Whereas Reg A+ is structured primarily for growth and later-stage companies, Reg CF is more attractive to seed-stage and startup companies. The launch of Title III offerings will represent the first time since 1933 that masses of average investors will be able to invest in startups, in amounts as low as $1,000 and possibly much less.
Accredited Investor Markets will keep you informed about Title III developments.
— David M. Freedman has worked as a financial and legal journalist since 1978. He is a coauthor of Equity Crowdfunding for Investors: A Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms (Wiley & Sons, June 2015). See details: www.ec4i.com.