The SEC announced that it would increase the cap on regulation crowdfunding to $5M, up from just $1.07M. This is a game changer for startups who do not feel comfortable relying on venture capitalists to get their businesses off the ground.
The increased cap may also attract later stage investors to the crowdfunding space. Roger Royse, partner at Haynesboone says, “The previous limit was too small to justify the costs of the offering.”
Shaun Savage, CEO of GoShare says of the cap increase, “I think that crowdfunding is now a great option for early stage startups that don’t want to waste a lot of time pitching VCs. For GoShare we already offer our employees stock options but crowdfunding will allow our thousands of contractors who drive for GoShare to become more of an equal partner in the business.”
Another cap increase regards Regulation D funding, up to $10M from $5M, but this is an option exclusively for accredited investors to participate in equity crowdfunding. Accredited investors must have a high net worth and high yearly income. With the rise of apps like Robinhood and Acorns, Millennials and Gen Zs are getting into the investing game, and sometimes upending the strategies of traditional investors. The SEC cap increase offers these newer investors yet another option.
Jon Ebner, CEO of HOON, which provides software to coaches and consultants, says of the funding cap raise, “I think the increased cap will be very exciting for non-accredited investors! This will allow for more skin in the game and will make for a more even playing field. Now a non-accredited investor can have a meaningful stake in a company if they choose. I think all industries will be affected, but especially feature films and others only planning to raise one time. For our company, HOON, which provides software to coaches and consultants, we only plan to raise once. We can spend our initial investment on technology and begin to earn as soon as an MVP is built. This will allow our non-accredited investors to earn ASAP. With an increased cap, our investors may choose to invest more now. Very excited about this!”
Crowdfunding has become increasingly popular, especially for those looking for funding outside of traditional spaces. Since the U.S. has begun its racial reckoning, there have been more conversations around investing in underrepresented founders, but traditional venture capitalists and accredited investors may be reluctant to stray from traditional investment spaces, and like much of what is traditional, those spaces are often white and male dominated.
The higher cap for crowdfunding may be especially beneficial to underrepresented founders, as it democratizes the investment space. There is a lot more a company can do with $5M than $1.07M. There are certain sectors that may also pivot in their capital acquisition strategy. Diedre Woolart, editor for Millionacres.com, which covers real-estate investment, says, “We believe the increase to $5 million will unlock more opportunities in the real estate sector and encourage more developers to open up crowdfunding to non-accredited investors.”
Had the cap increase been minimal, there would not be such buzz about its implications, but investors have perked up at the possibilities that the SEC’s increased funding cap on regulation crowdfunding could have on a number of industries. The Robinhood Reddit debacle started a lot of conversations about the need to democratize the investment space.
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