Let's talk crowdfunding at #NewRulesSA

Nathan Roach Speaking on Crowdfunding
11 Nov 2013, Nathan Roach and Joy Schoffler discuss crowdfunding rules.

What's new in Crowdfunding

Less than a month ago, on Oct. 23, 2013, the Securities and Exchange Commission voted unanimously for proposed rules under the JOBS Act to permit companies to offer and sell stock through "Title III" crowdfunding.

Laura Lorek held a great panel today to discuss the future of small company growth, including aspects of the new crowdfunding law.

Under the proposed rules:

  • A company would be able to raise a maximum amount of $1 million through crowdfunding offerings in a 12-month period.
  • Investors, over the course of a 12-month period, would be permitted to invest up to:
    $2,000 or 5 percent of their annual income or net worth, whichever is greater, if both their annual income and net worth are less than $100,000.
    10 percent of their annual income or net worth, whichever is greater, if either their annual income or net worth is equal to or more than $100,000.
  • During the 12-month period, these investors would not be able to purchase more than $100,000 of securities through crowdfunding.

Some key details are that securities purchased by crowdfunding cannot be resold for a period of one year. This can hurt liquidity, but realistically speaking, angel investors today seldom realize liquid gains in less than one year, so the difference is perhaps academic.

Crowdfunded shares must be distributed by a SEC-registered intermediary, either a broker-dealer or a funding portal.