SEC proposes crowdfunding rules

In a unanimous vote, the U.S. Securities and Exchange Commission opted to propose a set of rules on crowdfunding that would allow smaller investors to buy equity stakes in startups, AllThingsD reported.

The proposal includes rules to implement Title III of the Jumpstart Our Business Startups (JOBS) Act, which would open up investments to nonaccredited investors. The rise in crowdfunding sites, like Fundrise, Realty Mogul and RealtyShares in the real estate space, has made it easier for companies to open up their investment portfolios to the wider public, but the SEC requires in most cases that investors be accredited, i.e., have a $1 million net worth or have made more than $200,000 a year for the last three years.

The SEC’s proposal includes a $1 million limit on the amount a startup may raise from such investors in a 12-month period and limits individual investments in a 12-month period to the greater of $2,000 or 5 percent of annual income or net worth if annual income or net worth of the investor is less than $100,000; and 10 percent of annual income or net worth (not to exceed an amount sold of $100,000) if annual income or net worth of the investor is $100,000 or more .

Further, all transactions take place through an intermediary that either is registered as a broker or is registered as a new type of entity called a “funding portal,” the proposal said.

Opening up investments to regular people with Title III “has the potential to be a game changer for crowdfunding and for private equity fundraising,” Nav Athwal, founder of RealtyShares, told Inman News last month. “For the first time since the Great Depression and the enactment of the Securities Act of 1933, nonaccredited investors will be able to participate.”

The public will have 90 days to comment on the proposal.

Source: AllThingsD