The U.S. Securities and Exchange Commission (SEC) this week unanimously voted to approve the proposed rules that will govern online crowdfunding. Under these provisions, companies will be allowed to offer and sell securities through crowdfunding.
Some of these companies have been waiting since early 2012, when Obama signed the JOBS Act, for the SEC to create the regulation, which is intended to protect private, non-accredited investors.
Investors who earn under $100,000 per year will be limited to $2,000 per year investment, or 5% of their income, and those who make over that amount will be limited to invest 10% of their income annually. However, in order to reduce burdens on the companies raising the funds, and the funding portals, the new regulation does not explicitly require them to verify the income of the individual investors.
According to the SEC’s press release, its proposed rules would require SEC-registered intermediaries (broker-dealers, funding portals) to:
- Educate investors
- Manage the risk of fraud
- Provide information about the issuer and the offering
- Furnish communication channels
- Facilitate the offer and sale of crowdfunded investments
The proposed rules would prohibit them from:
- Offering investment advice or making recommendations
- Soliciting purchases, sales or offers to buy securities
- Restricting compensation for solicitations
- Holding, possessing, or handling investor funds or securities
Before the rules are passed, they must go through a 90-day comment period, after which, they may be altered to reflect the comments. Once the final rules have been decided, the nine Finovate alums below will be able to solicit to non-accredited investors, subject to the SEC’s final ruling.
FinovateSpring 2012 demo
From an operational standpoint, life for these startups will be a bit easier after the SEC passes the provisions, since it will increase the number of investors on their platforms. They will, however, be faced with increased regulation, which Forbes estimates will cost more than $100,000 annually. This estimate includes procuring and offering disclosure documents, enlisting a funding portal, running background checks, and filing an annual report with the SEC.
The first provision of the JOBS Act, which allows companies to advertise to accredited investors, went into effect September 23.
For the second quarter of 2013, fifteen Finovate alumni raised more than $200 million. The quarterly total exceeded both that of the previous quarter as well as the same quarter last year.*
- Q2 2013: 15 companies raised more than $200 million
- Q1 2013: 15 companies raised more than $155 million — blog post
- Q2 2012: 14 companies raised more than $120 million — blog post
Here’s the Q2 summary for 2013:
April — $32 million raised by two companies
May — $91.5 million raised by seven companies
June — $81.7 million raised by six companies
*While the funding over last year has increased, so has the number of Finovate alums. We’re tracking more than 100 additional companies this year compared to last year.
Note: Funding that companies received before they demonstrated at Finovate was not counted. Questions? Comments? Email us at firstname.lastname@example.org or email@example.com.
Crowdfunding platform SeedInvest announced that it has raised $1 million in new funding. The round was led by the Jumpstart New Jersey Angel Network, and included the participation of unnamed “prominent individual investors.”
The company plans to use the additional capital to help grow the equity-based platform, and to add new features. SeedInvest helps connect accredited investors with entrepreneurs seeking capital, providing both parties with web-based tools such as a due diligence dashboard, virtual boardroom, and streamlined funds transfer.
The Jumpstart New Jersey Angel Network
is a private, angel group focusing on early-stage technology startups in the mid-Atlantic region. Started in 2002 and making its first investment in 2004, Jumpstart typically provides funds ranging from $200,000 to $1 million. To date, the Network has provided more than $33 million in funding for more than 50 companies.
SeedInvest was founded in January 2012 by Ryan Feit and James Han, and launched its crowdfunding platform a little over a year later in February 2013. The company is headquartered in New York City.
SeedInvest demoed its technology at FinovateSpring 2013 in San Francisco in May. Watch the company’s presentation here
This post is part of our live coverage of FinovateSpring 2013.
Want a piece of the action as high-quality start-ups and small businesses seek funding? SeedInvest
is up next with a demonstration of their new crowdfunding platform.
“SeedInvest is demonstrating its state-of-the-art, equity-based, crowdfunding platform and a number of groundbreaking features including:
Due Diligence Dashboard
- Virtual Diligence Session
- Permission-based Dataroom
- Diligence Board
- Instant Identity Check
- Legal Docs Execution
- Streamlined Funds Transfer
- Virtual Board Meetings
- Easy Reporting
- Quick Signatures”
Product Launched: February 2013
HQ Location: New York, New York
Company Founded: January 2012
Presenting Ryan Feit (CEO & Co-Founder) and James Han (Co-Founder)