Regulation Crowdfunding: Effective May 16

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In September 2012, I was a panelist in a presentation held at the Stamford Innovation Center in 2012 on Crowdfunding, which was to have been enacted by January 1, 2013.  There were many questions about the new law, enacted to enable startups and small businesses to solicit capital from the public.  Now, more than three years later, we are within two months of the comprehensive regulatory regime SEC rules on “Regulation Crowdfunding” becoming effective. Many deterrents to crowdfunding that were included in the original Title II of the Federal JOBS Act (2012) are in the SEC Rules:

  • the $1 million aggregate offering limit within a 12 month period; (Comment: however, issuers can also proceed with a Rule 506(b) offering);

  • the individual investment limits (Comment: based on income);

  • the need in some cases for audited financial statements and the cost of filing the new Form C with the SEC, which requires companies to disclose comprehensive information and their business, and the securities being offered;

  • the advertising restrictions on crowdfunding transactions;

  • the illiquidity of the investments (Comment: restrictions on resale);

  • Crowdfunding transactions must be conducted exclusively online through platforms known as “funding portals,” or by a broker-dealer.  Issuers can use only one platform at a time;

  • An issuer may, at the same time as it is making a crowdfunding offering, conduct a contemporaneous exempt offering under Regulation D’s Rule 506 (b) (restrictions on advertising and solicitations). Comment: issuers are not precluded from relying on Rule 506(b) when making a crowdfunding offering;

  • Crowdfunding offerings are not subject to state registration or “blue sky” requirements; and

  • Financial Statement Requirements:

    Offerings of $100,000 or less: certified financial statements by the issuer’s principal executive officer to be true and complete in all material respects and be accompanied by certain information from the issuer’s federal income tax return for the most recently completed year and certified by the issuer’s principal executive officer as reflecting accurately the amounts reported on the tax return (no copy of tax return needs to be filed).

    Offerings of more than $100,000 but less than $500,000:  financial statements reviewed by an independent public accountant and include a signed review report. If audited financial statements are otherwise available, those must be provided, along with a signed audit report, instead of reviewed financial statements

    Offerings of more than $500,000 but less than $1 million:  financial statements must be audited by an independent public accountant and include a signed audit report.  However, first-time crowdfunding issuers are permitted to provide reviewed rather than audited financial statements (along with a signed review report), unless audited financial statements are otherwise available.

    I will post further regarding Regulation Crowdfunding, including the disclosure requirements of new SEC Form C.

  • Meanwhile, the entire 650 page plus SEC Release is here:


Early Stage Investing Forum at Stamford iCenter

The next Funding Post/ The SoHo Loft “Angel and Venture” event will be held at the Stamford Innovation Center on September 6, beginning at 2 p.m.  A panel of investors will focus on early stage venture investing: how to meet investors, pitch them, and what it really takes to get them to write a check.  Steve Ganis will be among the roundtable discussing the latest news on the Crowdfunding law (awaiting final rules by the SEC and FINRA) and Regulation D amendment to permit general solicitation of accredited investors (awaiting a SEC public comment period to expire).

Additionally, there will be an Optional Pitching Workshop Lunch from 11 a.m.- 1 p.m.  This workshop will critique the investor’s elevator pitch and help her build it from the ground up.  The cost to participate in the workshop will be $350.  The fee for entrepreneurs to the Angel and Venture event is $75, and the fee for investors is $85.

The Stamford Innovation Center is located at 175 Atlantic Street in downtown Stamford.  For more information, see

SEC Reminder: Red Light on Crowdfunding

Private Startup and Growth Companies Must Wait for JOBS Act Rules

Stop And Wait for SEC Green Light

Last week, the Securities and Exchange Commission (SEC) issued a notice reminding everyone that crowdfunding is still unlawful until the SEC adopts new rules.  Under the CROWDFUND ACT, there is a potential way to raise capital for start-up businesses from the public, using the internet.  Here is what the SEC notice says:

“On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.”

Also, the SEC has not repealed the ban on general solicitation, that is part of Reg D Rule 506 offerings.  The SEC has 90 days to amend its existing rules to remove the prohibition on general solicitation and advertising in offers made under Rule 506, provided that securities are sold only to accredited investors.  It is widely anticipated that the SEC will require that companies will be required to get more engaged in verifying that prospective investors are accredited, and not simply rely on a checked box in a subscription agreement or a questionnaire completed by the potential investor.







“JOBS” Bill Draft: Opponents Weigh In as Congress Deliberates

Crowdsourcing Bill Being Decided Inside

There is so much opposition to the proposed “JOBS” bill that is currently being voted on by the U.S. Senate, after a House version passed recently, and the White House is signaling support.  Although the bill provides for revising disclosure for IPOs, it’s the provisions for entrepreneurs regarding changing the rules of the road for raising capital, to permit raising money from unaccredited investors in general solicitations, that is sparking robust debate —a fundraising technique known as “crowdfunding“.

You can say that “crowdfunding” would enable anyone to access the Web with a business concept, and raise money for it. Although some revisions in the bill are likely, under one iteration, if an issuer raise only $1 million that way, the issuer 1) didn’t have to provide financial statements, and 2) is under no obligation whatever to keep investors informed. Further, if an issuer is willing to produce a financial statement when the funds are sought,  up to $2 million of funds can be raised. We note that a majority of the CFA Institute, a global association of investment professionals, is against the bill: In fact, according to MarketWatch, only 29% of the CFA want to see the current bill passed.

MIT Professor and former chief economist of the International Monetary Fund, Simon Johnson has called it a colossal mistake of historic proportions.  As Professor Johnson notes: “Perhaps the worst parts of the bill are those provisions that would allow “crowd-financing” exempt from the usual Securities and Exchange Commission disclosure requirements.  A new venture could raise up to $1-2 million through internet solicitations, as long as no investor puts in more than $10,000 (section 301 of HR3606).  The level of disclosure would be minimal and there would be no real penalties for outright lying.  There would also be no effective oversight of such stock promotion – returning us precisely to the situation that prevailed in the 1920s.”

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