Three years after Regulation Crowdfunding went into effect, advocates continue to call for improvements to the law, which made it easier for small companies to raise money from ordinary investors.
The latest call for action came in June in the form of policy recommendations outlined by the Association of Online Investment Platforms (AOIP), a group representing investment crowdfunding platforms. The group issued a policy paper detailing five major areas of improvement for Reg CF, the centerpiece of the 2012 JOBS Act. They include:
– raising the maximum offering size to $10 million from the current $1.07 million
– increasing the limits on how much investors may invest, and updating the accredited investor definition to reflect investor sophistication
– allowing more flexibility for funding portals, including in how they are compensated and giving them the ability to group investors into “special purpose vehicles”
– easing reporting and disclosure requirements for smaller issuers
– and creating an “innovation tax exemption” for small investors using Reg CF.
The recommendations come as the heels of an Securities & Exchange Commission (SEC) 3-year “look back” review that called the growth of investment crowdfunding “modest.” Many advocates believe that overly strict regulations, as well as a lack of awareness among the general public, are holding back its adoption.
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The Association of Online Investment Platforms (AOIP), led by several prominent investment crowdfunding sites, was formed in 2018 with the mission of building “a sustainable online investment industry that democratizes finance for everyone.” Its members include SeedInvest, Republic, Microventures, and NextSeed.
In laying out its policy recommendations, the group stated: “The AOIP hopes that policymakers could strive to make the very best deals accessible to smaller investors and not just the wealthy who have easier routes to investing in private companies. This goal is a bi-partisan mission that seeks to create wealth and success for all while addressing the needs of underserved constituencies.”
A number of bills aimed at fixing some of the flaws in the JOBS Act have been floated in Congress, but none have yet taken hold. despite the drawbacks, Regulation Crowdfunding and the other JOBS Act provisions seem to be helping get capital to a more diverse range of businesses and entrepreneurs. In the SEC’s look-back review released earlier this year, the agency reported that “a diverse range of early-stage issuers” made use of Reg CF.
The agency reports there were 1,351 offerings over the first 3 years (excluding 38 withdrawn filings), including 105 issuers that conducted more than one campaign. The SEC numbers show steady growth: 292 Reg CF offerings were conducted the first year, 557 the second year, and 502 in the first half of the third year alone (May 16 2018 – Dec. 31 2018). Companies reported they raised a total of $108 million during that period.
Still, those numbers pale next to Reg CF’s potential, especially when compared to countries like the UK, where investment crowdfunding has become a more mainstream investment method. In the UK, companies raised £333 million (roughly $450 million) in 2016 alone, according to the SEC report. Crowdinvestors in the UK also receive tax benefits.
The SEC also indicated there has been little, if any, fraud to date—which could help regulators and lawmakers get more comfortable in adopting some of the recommendations.