Equalizing the Playing Field

June 16, 2016

May 16th, 2016 marks a milestone for crowdfunding with the JOBS Act Title III finally beginning. The biggest impact that this rule has is the inclusion of the millions of non-accredited investors to the pool of funds powering this new wave of crowd investments. Now people earning under $100,000 can invest a safe portion of their income in retail online investments. The ruling also brought many changes to issuers wishing to take advantage of this finance method, but also with it new regulations and restrictions to keep in mind.

The funding limit of a company fundraising under Title 3 cannot exceed 1 million dollars in a 12-month period. To start the funding process, the first step is to file a Form C. This form requires extensive information but this is the SEC’s way of ensuring that investors have knowledge about the entirety of the business. A very useful document in here is the explanation of the business and the intended use of proceeds. The issuer must inform of officers, directors, and members owning in excess of 20% of the company. The issuer must also inform the price, amount of shares and deadline of the offering. Depending on the amount being raised the financial statements required will change.

If the issuer is looking for funding under $100,000 it will have to release some information on its federal income tax returns and an internal GAAP financial statement review signed off by the CEO. For funding between $100,000 and $500,000 GAAP financial statements must reviewed by a CPA and CEO. If the raise exceeds $500,000 then a 3rd party CPA must review the financial statements.

Once the issuer has submitted all relevant information and is ready to go on a platform it still has many rules to abide by. There are several limitations to the advertisement that the SEC considers acceptable. The issuer may not provide any information of the terms of the offering that include: amount, nature, price of securities and the deadline of the offering. When advertising an issuer should limit itself to a briefing about the business and information directing users to the platform.

After the funding has begun, the issuer must file a Form C-U at 50% and 100% of the funding target. Nonetheless it is important for issuers to be more consistent with their communication with investors. The only way to do this is through platform updates. In this way the SEC promotes all updates to be in one place for all shareholders to access. Issuers are not allowed to have email updates, interviews outside the platform, and even events as Demo Days may cause problems.

Even though Title 3 has opened the door to millions of people there are certain aspects that didn’t live up to the expectations for all stakeholders. The 1-million-dollar cap is arguably one of its main constraints with many issuers often needing an average of 2 million. Investors also face problems from investing limits. Platforms now have to deal with communication channels. These are only some of the changes each party will face but this is not bad news. The transition towards a better experience can’t come without the hardships of regulation. In a world of increasing economic inequality providing better options for those once renegaded becomes increasingly paramount. As legislators address this in their own ways it is important for companies to provide the infrastructure needed to make this disruptive force a reality.


Developer Jobs
View 181 jobs
Design + UX Jobs
View 24 jobs
Marketing Jobs
View 52 jobs
Product Jobs
View 31 jobs
Sales Jobs
View 119 jobs
Data Jobs
View 33 jobs