Weather New York, NY +22°F

Regions

New crowdfunding norms to push US start-ups

November 2
9:13 PM 2015

The newly-approved crowdfunding norms will enable start-ups to mobilize funds from mom-and-pop investors over the internet. The US Securities and Exchange Commission (SEC) has okayed the new rules on crowdfunding with a majority voting of three to one. The Business Startups (JOBS) act has been enacted with bipartisan support to facilitate new startups with more flexibility in the mobilization of funds. SEC also changed the audit provisions of the crowdfunding rules. 

SEC has framed final rules on Title-III crowdfunding. Startups, funding brokerage firms, and investors consider the latest rules on Title-III will bring in positive results for crowdfunding. Business Startups (JOBS), the 2012 law previously allowed only accredited investors with net worth of minimum $1million excluding the value of their houses or an annual income of over $200,000. 

Crowdfunding rules revision was delayed due to the leadership change at SEC and some time-consuming brainstorming over framing the rules and norms. The US government in October 2013 proposed crowdfunding norms and SEC has imposed restrictions on investment cap in the start-up companies.

Many startups and funds managing companies are excited over the SEC's decision. Seed Equity Ventures LLC is a registered broker with US SEC and said the landmark decision will change the dynamics for the funding startups. The latest norms will enable non-accredited investors in invest in startups under SEC guidelines.

So far the investment option for startups was confined to venture capitalists (VCs) and other accredited individuals only, but the latest rules allowed individuals to invest in startups. 

The US SEC had put in a lot of efforts in the complicated task of framing rules for crowdfunding in startups. SEC focused on protection of individual investors from losing their valuable savings in unrealistic startup dreams or fraudulent scams involved in investment process in startups. SEC has framed final rules on Title-III crowdfunding.

Ron Miller, the CEO of StartEngine Crowdfunding, an online platform for investing in a startup, said: "This vote by the SEC to approve the final rules for Title III crowdfunding will prove to be the greatest advancement for entrepreneurship in a generation. The Title-III is the game changer and it reduces hurdles for startups."

The changes in audit provisions have allowed some companies to raise money via crowdfunding route and can provide reviewed rather than audited financial statements for the first time. Investors having $100,000 worth net worth or annual income were allowed to invest $2,000 or five percent of the net worth. Higher net worth people can invest up to 10 percent of their annual income with a cap of $100,000 to be invested over 12 months. 

However, the Commissioner Michael Piwowar has voted against the changes in audit provisions. Piwowar has argued that the new regulations would be too onerous for many small businesses.

Piwowar further stated: "I fear that many traps for the unwary are hidden in the regulations, creating potential nightmares for small business owners that fail to place regulatory compliance at the top of their business plans. Such burdens will spook many small businesses from pursuing crowdfunding as a viable path to raising capital."

© 2017 VCPOST, All rights reserved. Do not reproduce without permission.
Tags
Share

Comments

Join the Conversation

Subscribe to VCpost newsletter

Sign up for our Deals of the Day newsletter.
We will not spam you!

Real Time Analytics