By Robert J. Finlay — Chief Executive Officer
We recently marked a historic moment in American business as new SEC rules adopted last March became effective.
The new rules under Title IV of the JOBS Act lower barriers to raising equity capital for entrepreneurs and small companies by creating a simplified registration process for securities offerings of up to $50 million.
However, in my view, the most compelling aspect of the new rules is the potential to dramatically expand the pool of eligible investors. Accredited investors (those making more than $200,000 per year with a net worth $1 million excluding their primary residence) could already make investments. Reg A+ adds the rest of the entire general public to the pool of eligible investors, but with one limitation. There is no limit on how much a non-accredited investor may invest in a Tier 1 offering (offerings up to $20 million), but non-accredited investors are subject to a limit of 10% of the greater of their annual income or net worth on the amount they may invest in Tier 2 offerings (offerings up to $50 million).
To give you an idea of the magnitude of this change, there are estimated to be 8.6 million accredited investors in the United States. According to United States Census Bureau statistics, there are approximately 204 million people 18 years and older who are not accredited investors. In other words, the pool of eligible investors just increased almost 24 fold!
The other exciting aspect of Reg A+ is that it creates the framework for a secondary market in securities issued under Reg A+. Lack of liquidity was previously a factor that kept many eligible potential investors out of the market. The removal of transfer restrictions (except with respect to affiliates of the issuer) should also stimulate investment.
We are laser-focused on how these developments will affect your business. Our team of professionals at QuietStream Financial, Investor Management Services, and FullCapitalStack will monitor offerings, interpretations and enforcement actions under these new rules and provide you with periodic updates.
In the meantime, please take a moment to review our crowdfunding regulations chart, which summarizes various regulations governing raising capital.