State of Play: USA Market

America is not shy to innovation, as its Silicon Valley haven and communities of tech giants look to capitalise on all the latest Fintech trends. Surprising, then, that the implementation of crowdfunding regulation has been relatively slow to advance in the USA.  Following Obama’s signing of the JOBS Act (Jumpstart Our Business Startups) in 2012, many assumed that the way in which it eased securities regulations would immediately usher in a new regime for crowdfunding companies, and others from the alternative finance market. Not so. Today, Equitise looks at the gradual progressions of crowdfunding the USA market, and where equity crowdfunding platforms see themselves in 2016 America.

The crux of the Act, for the crowdfunding community, are Titles II and III, which impact crowdfunding and startups more directly.  Title III was finally passed into law at the end of last year, becoming active in May 2016, a few years after the SEC had dictated it wished the law to become live. Nonetheless, it has been welcomed by both politicians and members of the financial community for incorporating their respective concerns. The question of balancing investor protection against competitive legislation and the need to create a sound American marketplace for crowdfunding have been carefully considered. In a move that reduces the cost significantly for many startups looking to raise via a crowdfunding platform, they have eschewed the need for audited financial statements. Moreover, the SEC had pleas for an alternative disclosure form – hence a simpler Question and Answer disclosure format was preferred.

Initially, however, the SEC had insisted that no crowdfunding intermediary would be able to accept equity compensation. This position has changed.  As this ruling would have fundamentally impacted the ability of platforms to turn profits, and goes against the liberal format being favoured by international sectors. Nonetheless, an essential piece of Title III still hinders platforms – by prohibiting them from advertising.  Obviously, traction is essential to any campaign, and whether by word of mouth or other campaign, it is key to generating the necessary funding.  The ‘general solicitation’ disallowed by Title III, is an egregious amendment to the overall legislation.

“The bottom line? Most equity crowdfunding raises cannot effectively use the Internet or social media to promote their equity crowdfunding raise.” – Samuel Guzik, Senior Contributor to Crowdfund Insider.

The JOBS Act does propose alternatives, however, for different kinds of startups. Title IV, or Regulation A+, allows solicitation – but it requires a detailed disclosure document with audited financial statements, which is a deterrent for many smaller scale startups who cannot afford such costs. Coming soon, however, is the Fix Crowdfunding Act – which will hopefully amend Title III to make it more workable (if it is enacted). By raising the funding cap from $1 million to $5 million, assessing funding platform liability, and removing future public registration, huge changes may be afoot.

The gradual changes witnessed under the JOBS Act by the American crowdfunding scene make one thankful for New Zealand’s liberal crowdfunding legislation. The proposed amendments are hopeful, but it’s clear countries still seek to emulate a more liberal model like our own.

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