More Freedom for the Crowdfunding Community

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Regulation A+ Changes JOBS Act to Stimulate Growth

Alissa Adler, Principal

The concept of Crowdfunding was created by the JOBS Act of 2012 under Regulation A, permitting accredited investors to pool funds for companies or projects. Crowdfunding has grown immensely since 2012 and now raises billions of dollars annually for corporations and nonprofits. Under Regulation A, companies such as those in the real estate industry were limited in funding efforts due to restrictions placed on non-accredited investors. But new rules have been approved by the SEC that will keep Crowdfunding on an upward trend.

In March of 2015 the SEC passed Regulation A+ to take effect in June, allowing unaccredited investors to participate in Crowdfunding. Under Regulation A+ companies can raise up to $50 million per year from non-accredited investors. This rule was passed in response to pressure for greater participation from the general public. Under regulation A, Crowdfunding was typically used to generate money for higher valued companies and properties, but under Regulation A+, smaller valued companies and properties may benefit just as much.

A new rule under Regulation A+ excuses Tier II offerings – offerings in the $20 million to $50 million range – from Blue Sky regulations. Tier I offerings – $20 million or less – are still subject to State regulation, but will not have the formal audit and annual reporting requirements of the Tier II offerings.

Regulation A+ is a boon for the Crowdfunding community and is anticipated to motivate a greater number of people in a wider variety of fields to participate in such projects. Although there is some speculation that the expansion of Crowdfunding will steer individuals towards donating to small non-profit organizations while neglecting larger, more stable organizations, that concern does not exist for the real estate industry. Regulation A+ is expected to foster a range of investments and improve a variety of markets within the industry.

KEY POINTS:
  • Crowdfunding is expanding: U.S. incorporated companies can raise up to $50 million from accredited and non-accredited investors.
  • Crowdfunding works fast: In February a Crowdfunding campaign for the Pebble Watch raised over $14 million in a single week. Regulation A+ is predicted to speed Crowdfunding even more.
  • Crowdfunding generates big bucks worldwide: In 2014 $16.2 billion was raised from Crowdfunding. Annual funds raised for 2015 are predicted to be $34.4 billion.