SEC proposes changes to exempt offerings including crowdfunding

March 12, 2020

The U.S. Securities and Exchange Commission (SEC) recently proposed rule changes that aim to make fundraising easier for new companies, including by expanding crowdfunding’s applicability and allowing for “demo day” communications. The changes target three particular methods of exemptions: Regulation A, Rule 504 of Regulation D, and Regulation Crowdfunding.

The SEC’s proposed changes to Regulation Crowdfunding are multifold. Currently, a company is permitted to raise a maximum aggregate amount of $1.07 million through crowdfunding offerings. Under the proposed changes, that would be lifted to $5 million. Investment limits would not be applied to accredited investors in the Regulation Crowdfunding program, and the criteria for non-accredited investors would allow these investors “to rely on the greater of their annual income or net worth when calculating the limit on how much they can invest.” Another, relevant rule proposed by the SEC in January would greatly expand who can qualify as accredited.

New rules would also provide greater flexibility to startups in determining which type of solicitation would be most beneficial. The SEC’s adjustments would not categorize demo days as general advertising or solicitation, allowing companies to discuss potential offerings with potential investors during these events. Further, a “test-the-waters” rule would allow companies to explore interest in a potential offering before filing for an exemption.

Under the SEC’s proposal, the maximum offering amount under Tier 2 of Regulation A would increase from $50 million to $75 million, and the maximum offering amount for Rule 504 of Regulation D would raise from $5 million to $10 million.

The window for public comment regarding the SEC’s proposed changes will be open for 60 days once published within the Federal Register.

crowdfunding, investing, equity, federal agency