About a year ago I wrote about Title IV, the latest piece in the jigsaw of crowd finance regulatory reform in the USA. The final missing piece was Title III, the long awaited rules that allowed anyone to invest in an equity raise, not just the accredited. 16 May saw Title III come into force. If you want 600+ pages of bed time reading, the full document directly from the SEC.
The basics are that Title III allows companies to raise equity using crowd finance platforms from the general public. They can raise up to $1M in any 12 months. Investors can subscribe to shares with an amount of between 5% and 10% their net worth/income in any year, depending on their net worth and income and up to fixed maximums.
Opening up crowd finance to the crowd should be a good thing, in theory. However I, for one, am nervous at the extent of the rules (however well intentioned). Far from the force awakening, it feels like old barriers have simply been replaced by new ones.
The platform, the investors and the company are all bound by quite detailed rules, so every layer of the market is going to be concerned with its own compliance. Instead of liberating the person on the street to back his/her own economy, it feels like a complex and detailed system that will potentially put off would-be contributors. I’d like to be proven wrong on this, but I’m a pragmatic type. Aside from the platform looking after its own compliance matters, for the company raising, $1M for a year isn’t all that much. It’s not a tiny amount but it’s not that generous either. Particularly for those companies that have a long R&D phase, or need specialist equipment, it'll get used up very quickly. Couple that limitation with the red tape of SEC compliance and form filling, it’s already looking like a lot of work for the young company before they even start on creating the business itself.
Having said that, this regulatory reform is largely a good thing for the equity crowd finance market and the companies they are aiming to support, in that it actually makes it legal. But it does rather feel like it’s going to be hard to start with until slick SEC-compliant processes are really established and platforms have built up trust with their users. For a while we’ve been watching the US market and waiting for explosive growth. It still doesn’t feel like we’re there yet. With around 200 equity platforms live, and another 40 or so preparing, it feels like much more is yet to come. But it’ll be perhaps slower progress than we’d all like.