The SEC issued a 388-page final rule release, entitled Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets. (The clunky wording seems like it was done to accommodate a catchy acronym, but “FCFAEIOBIATCIPM” doesn’t really flow.) The release details rule changes in a variety of areas relating to private offerings, but I will focus for this post on the expansion of the crowdfunding (Regulation CF) and Regulation A offering exemptions, and cover other topics in future posts. Here are the SEC’s press release and fact sheet about all the new rule changes.
A Regulation A offering, for those unfamiliar, can be thought of as a mini-IPO, for those companies seeking to access the public markets but who don’t need to raise hundreds of millions. The disclosure and ongoing reporting requirements are somewhat less onerous than the requirements for a traditional public offering. Under the rule changes, the maximum offering amount for Regulation A Tier 2 offerings (the larger tier) was raised from $50 million to $75 million, with the maximum for secondary sales – sales to the public of existing shares held by investors – rising from $15 million to $22.5 million.
Unlike the relatively marginal Regulation A changes, the offering limit for Regulation CF crowdfunded offerings has been sharply raised from $1.07 million to $5 million. In addition, the investment limits (per-investor) have been eliminated for accredited investors, and the cap has been loosened for non-accredited investors by basing the calculation on the greater of annual income or net worth, rather than the lesser of the two. Although I’ve noted previously that issuers under the old rules could raise more than $1.07 million by combining a Regulation CF offering with an offering just to accredited investors under Rule 506(c), the SEC’s actions here will simplify compliance and will perhaps raise the profile of crowdfunded offerings and speed adoption within the startup community.