The Jumpstart Our Business Startups (JOBS) Act was enacted on April 5, 2012. Title III of the JOBS Act created a new exemption from registration for Internet-based securities offerings of up to $1 million over a 12- month period.
Title III was intended to help small and startup businesses conduct low-dollar capital raises on the Internet. It can be thought of as an Internet-based method of raising seed financing from a broad, mostly retail investor base.
The JOBS Act included a number of investor protection provisions, including investment limitations, issuer disclosure requirements, and a requirement to use regulated intermediaries. As of December 31, 2016, 21 intermediaries have participated in Regulation Crowdfunding offerings, including 13 funding portals and 8 broker-dealers.
The Crowdfunding offering requirements are:
• A given issuer is able to raise up to $1 million across all crowdfunding offerings in a 12- month period. An issuer must raise at least the target amount to receive funds. Crowdfunding securities are generally subject to resale limitations for one year;
• The rules imposed limits on the amount that an investor can invest in all Title III crowdfunding offerings over a 12-month period. Investors with both an annual income and net worth of at least $100,000 can invest up to 10% of the lesser of annual income or net worth, but an investor’s total investment across all Title III offerings may not exceed $100,000 in a 12-month period. Other investors can invest the greater of $2,000 and 5% of the lesser of annual income or net worth;
• Crowdfunding issuers are subject to disclosure requirements at the time of the offering (on Form C), during the offering’s progress and on completion of the offering (on Form C-U) and annually in the form of annual reporting requirements (on Form C-AR). Issuers in larger offerings face additional financial statement requirements – in offerings of over $100,000 in a 12-month period, financial statements must be reviewed by an independent accountant, and in offerings of over $500,000 in a 12-month period (except the issuer’s first offering), financial statements must be audited.
• Crowdfunding securities must be offered through a registered broker-dealer or a registered funding portal, a new intermediary type established by the 2015 rules. These intermediaries are mandated to take measures to reduce the risk of fraud, make required disclosures about issuers available to the public, provide communication channels to permit discussion of offerings on the platform, disclose the compensation received by an intermediary, provide educational materials to investors, and comply with additional requirements related to investor commitments, notices to investors, and maintenance and transmission of funds. Registered funding portals that participate in crowdfunding offerings may engage in a narrower set of activities than broker-dealers.
The SEC has just issued a report on the crowd funding activity in the Title III crowdfunding market for offerings initiated during May 16, 2016-December 31, 2016, which you can read here: https://www.sec.gov/dera/staff-papers/white-papers/RegCF_WhitePaper.pdf.
Please feel free to contact me with questions you may have.