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SEC Considers Letting Startups Raise More Money Before Registering

The United States Securities and Exchange Commission on Wednesday proposed to change the regulatory framework to let startups raise more capital without needing to register with the federal agency.

Benzinga · 03/05/2020 07:08

The United States Securities and Exchange Commission on Wednesday proposed to change the regulatory framework to let startups raise more capital without needing to register with the federal agency.

Increase Crowdfunding Limited

The SEC voted 3-1 to pass the proposal that would increase the limit for nascent businesses to raise money through crowdfunding from the existing $1.07 million to $5 million before they make a decision on an initial public offering.

The federal agency also said it wants to remove all limits on accredited investors from how much they can invest in crowdfunding and revise the requirements for non-accredited investors to choose whether they want to use their net worth or annual income to calculate the limit on their investments.

"The complexity of the current framework is confusing for many involved in the process, particularly for those smaller companies whose limited resources spent on navigating our overly complex rules are diverted from direct investments in the companies' growth," SEC Chairman Jay Clayton said in a statement.

"These proposals are intended to create a more rational framework that better allows entrepreneurs to access capital while preserving and enhancing important investor protections."

Cryptocurrency Startups Could Raise More

The proposal, which is subject to public comments over the next 60 days, also suggests increasing the maximum offering size under Rule 504 of Regulation D to $10 million from the existing $5 million.

Startups, who raise capital by offering a share of their native cryptocurrency through an initial coin offering, come under the scope of the rule and would be able to raise a larger amount under the revised regulations.

The firms intend to raise a higher capital under Tier 2 of Regulation A framework would also be able to raise $75 million under the proposal compared to the existing $50 million. Tier 2 involves more regulatory requirements than crowdfunding but offers relief from the stringent requirements of a full-fledged IPO.