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506(b) offerings are not typically considered to be a form of crowdfunding. Crowdfunding generally refers to a method of raising funds from a large number of people, often through online platforms, in exchange for equity or other forms of compensation.
506(b) offerings, on the other hand, are private placements that are typically offered to a limited number of accredited investors. While crowdfunding can also be used to raise funds from accredited investors, it often involves a much larger number of investors who may not meet the SEC's accreditation requirements.
However, it's worth noting that some online platforms have emerged that allow companies to conduct 506(b) offerings through crowdfunding-like platforms. These platforms typically provide tools and services to help companies comply with the SEC's regulations regarding private placements and may allow companies to market their offerings to a broader range of accredited investors. These types of platforms are sometimes referred to as "accredited crowdfunding" or "equity crowdfunding for accredited investors."
Overall, while there are some similarities between 506(b) offerings and crowdfunding, they are typically considered to be distinct methods of raising capital, with different regulatory requirements and target audiences.
What is the attitude toward private market access by the author of the following statement?
FROM: https://www.sec.gov/news/public-statement/crenshaw-harmonization-2020-11-02#_ftn2
Statement on Harmonization of Securities Offering Exemptions by Commissioner Caroline A. Crenshaw
Today’s rule significantly expands private market access to investors without first putting in place appropriate investor protections.[1] As a result, issuers will be able to conduct larger and more frequent private offerings with fewer restrictions. These offerings will be made to a pool of investors with varying levels of risk tolerance, information access, investment experience and bargaining power. There are tradeoffs in that decision. Unfortunately, today’s release fails to engage in any substantive way with the crucial threshold question of whether those tradeoffs are – or even can be – balanced in a way that adequately protects retail investors. Not only that, the rule fails to address the fact that in the private markets, the rich and well-connected typically have better access to the most promising companies, while retail investors get the leftovers – too often, unfortunately, the losers.[2] Instead of providing retail investors access to that elusive high return rate, the majority’s steady march of expanding the private markets will only further entrench the country’s increasing and concerning economic divide.[3] I commend the staff for considering the utility of harmonizing the exempt offering framework. Entrepreneurs, particularly very small and traditionally underserved businesses, should have efficient access to capital. We should consider whether there is a fair way to broaden access for small, diverse companies while still fulfilling our duty to protect investors. Right now, high growth companies are increasingly deciding to remain private, benefitting groups of experienced and well-funded professional investors.[4] It seems that “you have to start rich to get rich” in the private markets.[5] Today, we do not fix that problem. Expanding access to the private markets as the Commission has done repeatedly recently[6] not only fails to serve the majority’s stated goal of advancing the interests of small businesses and retail investors, it opens these markets to a class of investors who do not have the capital to survive one or two failed ventures. This approach will serve only to further widen the wealth and access gaps between investors who start rich and those who don’t. *** Presently, many companies in the private markets have a ready pool of investors, including accelerators, venture capital firms, angel investors, private equity funds, and many others, which I will collectively call venture capitalists.[7] What these investors share are structural advantages that have led to their success. Venture capitalists employ trained professionals skilled at evaluating early stage companies. They have the market power to demand detailed information, which investors must negotiate because these issuers are not legally required to supply robust disclosures.[8] This is because private offerings have historically been targeted, at least generally, at investors who can bear the risk of a total loss.[9] Typical venture capital investors have diverse portfolios structured specifically to absorb the inevitable losses associated with early stage investing.[10] They also understand how risk and reward profiles change as start-ups progress from seed funding through later funding rounds, and can adjust their risk exposure accordingly. Just as importantly, venture capitalists have professional advisors and lawyers to protect their interests by preserving voting rights, ensuring good governance, and protecting against dilution. The system is set up for their success. Not for anyone else’s. Estimates indicate that there is more than $1 trillion in private capital ready and waiting to be invested in existing private offerings.[11] For this portion of the private markets, it does not appear that more money or further relaxed restrictions are necessary to build those companies. The exemptions are more than fulfilling their promise, as these companies and these investors are awash in money and opportunities.[12] To be sure, not all viable companies readily attract this funding, even despite the surplus of capital clamoring to be invested.[13] The solutions this rule presents are to allow private companies to raise capital by selling more risky offerings, in greater dollar amounts, with less information, and fewer rights, to unprepared and unprotected investors.[14] Nowhere does the release examine whether this is a good idea.[15] It could be that venture capital investors avoid these offerings because the potential payouts are too small to justify their time, or that they deem the investments too speculative.[16] The release does not say. But as with most things, understanding the problem is key to crafting effective solutions. Without that analysis, I fear today’s response will make matters worse for those small businesses and those investors currently left out of these growth opportunities. Here’s why. At the core of this rule is the assumption that retail investors will successfully buy offerings that professional investors reject. We apparently believe that retail investors can better assess the risk adjusted returns and find value that venture capital overlooks. This is unlikely to be true. First, it is not supported by any data. Second, smaller investors do not have the same bargaining power to compel private issuers to provide robust information disclosures, and the offering exemptions do not require issuers to do so. Third, smaller investors often lack the money or the assets necessary to create the diverse portfolios of private companies needed to successfully withstand the inevitable losses.[17] Retail investors face plenty more disadvantages, but you get the idea.[18] Some might argue that although retail investors have been excluded from investing in the most promising private companies,[19] they can make up the difference by investing in other exempt offerings.[20] Unfortunately, because private markets are so opaque, we do not have the data to analyze this. This highlights a persistent problem with our approach to the private markets, in that issuers do not report the data needed to allow us to study them and their results, and thereby develop appropriate regulatory strategies.[21] That won’t change under this rule, and without that information, I simply cannot conclude that these changes balance our mission imperatives of facilitating capital formation while also protecting investors. Based on the evidence we do have, these changes appear likely to offer only at best marginal benefits to the companies who need the most assistance, while increasing risks but not rewards for investors. I believe in the vital contributions offered by our country’s small businesses. In particular, I am committed to helping facilitate capital formation for minority, women, and veteran-owned businesses. That’s not just good policy; it’s good economics. There are real problems today with access and representation that leave promising companies and the entrepreneurs behind them on the outside looking in.[22] Unfortunately, this proposal is not tailored toward solving those problems. Instead, it proposes a variety of changes to exemptions rarely used by these underserved businesses.[23] In the end, we are expanding offerings we have not studied, to make it easier to sell to the investors who have the most to lose if a new venture fails. I’d like to believe that some of the small businesses that raise money because of this rulemaking will succeed. But others will fail entirely – or fail to pay retail investors the same high rate of return that venture capitalists demand to justify the risks of early venture investing.[24] *** As always, my dissent today does not detract from my respect and appreciation for the efforts of staff. I am grateful for their hard work and dedication to advancing our agency’s mission. In particular, I recognize the fine work done by the members of the Division of Corporation Finance, the Office of the Advocate for Small Business Capital Formation, the Office of General Counsel, the Division of Investment Management, and the Division of Economic Risk Analysis. I look forward to working together to solve the problems faced by small businesses and investors, but today I respectfully dissent. "
The author of this statement has a critical attitude towards private market access. They argue that retail investors lack the bargaining power and resources to access the same investments as venture capitalists, and they caution against expanding market access without better protections for investors. They ultimately advocate for increased access to capital, but argue that it must be done in a way that reduces risk for investors.
VCs, or venture capitalists, are considered gatekeepers because they play a significant role in determining which startups and entrepreneurs receive funding and support. VCs typically have significant financial resources and expertise in evaluating the potential success of new businesses.
Startups often rely on funding from VCs to get their businesses off the ground and to scale their operations. VCs are known for providing more than just financial support, often offering advice, guidance, and mentorship to the entrepreneurs they fund.
Because of their significant role in the startup ecosystem, VCs have the power to act as gatekeepers, controlling access to funding and resources that can be crucial to the success of a startup. This means that entrepreneurs may need to meet certain criteria, such as having a certain level of experience or connections, in order to gain access to VC funding.
Additionally, VCs often prioritize investments in certain industries or types of startups, which can further limit access to funding for entrepreneurs in other sectors or with different business models. This has led to criticism that VCs may not always invest in the most innovative or diverse startups, and may instead favor those that fit within their existing investment strategies and portfolios.
Regulated investment crowdfunding, also known as equity crowdfunding, is the process of raising money from a large number of investors, often through online platforms, in exchange for equity in a company. While it can be an attractive way for startups and small businesses to access capital, there are several reasons why it can be difficult to navigate the regulatory environment surrounding investment crowdfunding.
1. Regulatory compliance: Investment crowdfunding is regulated by securities laws, which can be complex and vary by jurisdiction. Platforms that facilitate investment crowdfunding must comply with these laws, which can be difficult to navigate without legal expertise.
2. Investor protection: Securities laws are designed to protect investors from fraudulent or misleading investments. As a result, investment crowdfunding platforms must take measures to ensure that investors are adequately informed about the risks associated with the investment, and that they meet certain criteria for investing, such as income or net worth thresholds.
3. Capital raising limitations: Investment crowdfunding is subject to limitations on the amount of capital that can be raised from individual investors, as well as the total amount that can be raised through crowdfunding in a given period. These limitations can make it difficult for companies to raise the capital they need through investment crowdfunding alone.
4. Competition with other fundraising methods: Investment crowdfunding is not the only way for companies to raise capital. Other methods, such as traditional bank loans, venture capital, or angel investing, may be more attractive to some companies depending on their stage of growth, industry, or funding needs.
Overall, regulated investment crowdfunding can be a complex and challenging process due to regulatory compliance, investor protection requirements, capital raising limitations, and competition with other fundraising methods. However, it can also provide an opportunity for companies to access capital from a large pool of investors and reach a wider audience than traditional fundraising methods.
What is the North American Securities Administrators Association (NASAA) likely position on Regulated Investment Crowdfunding?
Based on the report by the North American Securities Administrators Association (NASAA), it seems likely that they would have a cautious stance toward Regulation Crowdfunding. The report emphasizes the importance of defending public capital markets and raising concerns about efforts that expand the incentives for staying private. This suggests that NASAA may view Regulation Crowdfunding as a potential threat to public markets and the traditional principles of securities regulation.
The report expresses concerns that legislative proposals, such as those in the JOBS Act 4.0, could erode public markets and adversely affect businesses and investors that rely on those markets to raise investment capital. NASAA also highlights opposition to proposals that would limit the role of state regulators in overseeing capital raising in the private market. This stance suggests that NASAA is likely to be cautious about expanding exemptions for private offerings and other regulatory changes that could make it easier for companies to raise capital without going through public markets.
However, NASAA does support certain proposals that could enhance investor protection and improve coordination among state and federal regulators. For example, they advocate for a comprehensive enforcement database that covers everyone convicted or held liable in criminal, civil, and regulatory actions involving financial services. They also call for stronger coordination between state and federal regulators and improved regulatory data collection, particularly on activity in the private markets.
Overall, while NASAA is likely to be cautious about Regulation Crowdfunding, they are also interested in finding ways to improve investor protection and strengthen regulatory oversight in both public and private markets.
It can depend on the specific circumstances of the equity crowdfunding round and the company's performance since then. In general, investors may view a company that has successfully completed an equity crowdfunding round as a good thing because it can indicate that the company has a strong base of supporters and has been able to raise capital in the past. Additionally, a company that has completed an equity crowdfunding round will have a track record of financial performance and investor relations, which can be viewed positively by potential investors.
On the other hand, if a company has struggled to meet its financial projections or has had difficulty maintaining good relations with its investors, this could be viewed negatively by potential investors. Additionally, a company that has completed multiple rounds of equity crowdfunding without showing significant progress or growth could also be viewed as a red flag.
It's important to note that each company is unique, and the success or failure of one company's equity crowdfunding campaign should not be used as a definitive indicator of future performance. Potential investors should always conduct their own due diligence on any company before investing.
Regulation A+ (Reg A+) is a set of rules and regulations put in place by the Securities and Exchange Commission (SEC) that allows small and medium-sized companies to raise funds from a large number of investors through a mini-IPO process. Reg A+ is an update to the existing Regulation A, which was adopted under the JOBS Act.
Reg A+ allows companies to raise up to $75 million in a 12-month period from both accredited and non-accredited investors, and it allows the securities to be sold to the public, which differs from Regulation Crowdfunding (Reg CF) which has a cap of $5 million in a 12-month period.
The process of Reg A+ is similar to a traditional IPO, but it is less costly and less burdensome for companies, with fewer disclosure requirements and ongoing reporting obligations, but it still requires the companies to file an offering statement with the SEC, and the SEC will review the statement to ensure compliance with the rules and regulations.
Reg A+ is seen as a way for smaller companies to access the public markets, by providing an alternative to traditional IPOs and Reg D, which are typically only available to larger, more established companies. Reg A+ also allows companies to test the waters and gauge investor interest before committing to a full-scale IPO.
In summary, Reg A+ is a new regulation that allows smaller companies to raise capital from a large number of investors through a mini-IPO process, by complying with certain rules and regulations set by the SEC. It allows companies to raise more capital than Reg CF and it has fewer disclosure requirements and ongoing reporting obligations than a traditional IPO.
Regulation Crowdfunding (Reg CF) and Reg CF are the same thing, Reg CF refers to Title III of the JOBS Act, which is also known as Regulation Crowdfunding. It is a set of rules and regulations put in place by the Securities and Exchange Commission (SEC) that allows small businesses and startups to raise funds from a large number of investors through crowdfunding platforms.
Regulation Crowdfunding allows companies to raise up to $5 million in a 12-month period from both accredited and non-accredited investors, via crowdfunding platforms that are SEC-registered intermediaries. The process of Reg CF is different from traditional fundraising methods, such as IPOs, venture capital, and angel investing, as it allows companies to raise money from a large number of small investors through online platforms.
Reg CF is a relatively new regulation and it has provided small businesses and startups with a new way to raise funds, by allowing them to tap into a large pool of potential investors. This has also opened up investment opportunities for smaller investors who may not have been able to participate in traditional fundraising methods.
In summary, Reg CF and Regulation Crowdfunding are the same thing, it's the legal framework that allow companies to raise funds from a large number of investors through crowdfunding platforms, by complying with certain rules and regulations set by the SEC.
As someone who believed in the power of community and collective action to bring about change, I would likely see the benefits of crowdfunding and impact investing. These forms of financing allow individuals to pool their resources together to support causes and businesses that align with their values and beliefs.
Crowdfunding, in particular, has the potential to provide small businesses and startups, particularly those owned by minorities and disadvantaged communities, with access to much-needed capital. This can help to create jobs and stimulate economic growth in these communities, which is vital to achieving true equality and justice.
Impact investing, on the other hand, allows individuals to invest in businesses and projects that not only provide financial returns but also have a positive social and environmental impact. It is a way for people to use their financial resources to promote sustainable development and address pressing global issues such as poverty, climate change, and inequality.
I would also see the potential of crowdfunding and impact investing to provide a way for marginalized communities to take an active role in shaping the economy and society. It empowers people to use their financial resources to promote causes and businesses that align with their values and beliefs, instead of being passive recipients of charity.
In summary, I would see the benefits of crowdfunding and impact investing as a way for individuals to use their financial resources to promote economic justice, sustainable development and empower marginalized communities to shape their own future.
In the United States, companies looking to raise funds through crowdfunding must comply with the rules and regulations set forth by the Securities and Exchange Commission (SEC) in Regulation Crowdfunding. Some of the requirements for companies include:
- The company must be organized in and have its principal place of business in the United States.
- The company must provide certain disclosures to the SEC and to potential investors, including financial statements and information about the management team and the business.
- The company may only raise a certain amount of money in a 12-month period, currently $5 million
- The company must use an SEC-registered intermediary, such as a broker-dealer or a funding portal, to conduct the crowdfunding offering.
- The company must also provide certain investor protection measures, such as allowing investors to cancel their investment commitments within a certain period of time.
- The company must also make sure that their campaign adheres to anti-fraud regulations and that their investors are accredited or not.
It is important to note that these requirements and rules are subject to change and depending on the legislation of different countries the requirements may vary.
