This morning in our nation’s capital, the SEC voted to approve the final rules for Title III of the JOBS Act, commonly referred to as “crowdfunding.” And we were there to see it.
Title III was approved with a vote of 3 to 1. Now, anyone can raise up to $1M in a 12-month period. Overall, the Commission believes the final rules for crowdfunding will be beneficial for capital formation. Other notable items discussed include Reg D 504 is increasing from $1M to $5M. Title III is expected to go into effect 4 months from today, approximately February 2016.
What does this mean? For the first time, 91% of the American population will be able to invest in startups and other private businesses. These rules enable the democratization of access to capital for entrepreneurs and allows non-accredited investors, not just millionaires, to participate in wealth creation by accessing the private equity investment asset class.
Once the rules go into effect in the coming months, non-accredited investors will be able to invest in private companies and more American businesses will be able to raise capital for growth. Within the rules, the SEC has laid out guidelines for investor protections to ensure a suitable market.
Today’s announcement comes after a long wait (3 years in the making) as the final ruling for Title III has yet to be finalized since the JOBS Act was passed on April 5th of 2012. Formal rule promulgation has taken a while due to the SEC’s consideration of investor protections and for properly safeguarding susceptible investors from undue risk. All along, WealthForge has been a proponent of Title II of the Act allowing general solicitation, and investor protections. Since 2010 WealthForge has been working within FINRA regulations to help create standards of compliance for the industry.
WealthForge is a leader in providing technology and compliance solutions to facilitate online private capital raises and nearly $1.5B in private securities transactions have been reviewed via its platform. We've seen many companies, typically raising more than $1M in private capital, succeed via Rule 506(b) and (c). Whether true crowdfunding will see the same success and adoption remains to be seen. We believe Title III should be beneficial for our country’s entrepreneurs raising up to $1M, but the rules are complicated and the use of a broker-dealer or other intermediary will be required.
Disclaimer: WealthForge provides this information to our clients and other friends for educational purposes only. It should not be construed or relied upon as legal advice.