Since 2012, entrepreneurs and everyday investors have been eagerly waiting for the Securities and Exchange Commission to finalize rules that will to put Title III of the JOBS Act into effect, allowing all Americans—regardless of their income—to invest in startups. Earlier this week, Politico reported on SEC sources saying final rules will be announced in late October.
Title III is most highly anticipated and most controversial provision of the JOBS Act still awaiting SEC rulemaking. While investment crowdfunding under Title III has the potential to radically expand capital access for startups, the statute contains some burdensome requirements for companies, such as requiring audited financial statements for small companies to raise funds from unaccredited investors (people that make less than $200,000 per year or have less than $1 million in assets).
Many experts in the business community believe these requirements could make crowdfunding unworkable for most businesses. Further, the proposed rules announced by the SEC in October 2013 put forth additional requirements for companies seeking to raise money through crowdfunding, prompting concerns from entrepreneurs, crowdfunding platforms, and investors about the debilitating and largely unnecessary costs these rules create for small issuers.
Meanwhile, the delay in SEC rulemaking has allowed us to watch as other crowdfunding markets have evolved. The UK, for instance, has a robust investment crowdfunding market open to all investors, and it's seen tremendous growth in the last few years under a remarkably sparse regulatory regime. Here in the US, rewards-based crowdfunding and accredited investor crowdfunding also continue to grow as more companies seek alternative, innovative forms of financing. These markets offer valuable lessons for lawmakers and regulators alike as they continue to refine the rules governing investment crowdfunding under Title III—lessons we’ll explore in detail in our forthcoming whitepaper, "Financing the New Innovation Economy: Making Investment Crowdfunding Work Better for Startups and Investors." Look out for its release in the coming weeks.
Though the startup community will be excited to see any action from the SEC in light of what has already been an extended delay, we need to make sure that whatever regulatory regime the SEC adopts is well-calibrated and favors the small, emerging companies that could most benefit from accessing new sources of capital. And regardless of the rules the SEC adopts, we look forward to working in the coming years to improve the US crowdfunding rules to help the startup economy continue to grow.