SEC Eases Crowdfunding Rules amid Coronavirus
Source: Pixabay
  • Coronavirus disruption closed many doors for business leaders aiming to secure funding. 
  • SEC introduced temporary measures to existing crowdfunding requirements to support small businesses. 
  • Blockchain companies which use crowdfunding sites for funding might benefit.

It is no secret that funding is the most essential but hardest part of launching a startup. More so when the world is battling a pandemic which requires people to stay indoors. Given the circumstances, the U.S. Securities and Exchange Commission (SEC) said it would support smaller firms seeking capital and investors online by easing crowdfunding restrictions.

The SEC’s measure will temporarily modify existing crowdfunding requirements. However, to ensure a firm can benefit from this relief is if it meets “the enhanced eligibility requirements” by providing “clear, prominent disclosure to investors about its reliance on the relief,” the agency said in a statement.

“In the current environment, many established small businesses are facing challenges accessing urgently needed capital in a timely and cost-effective manner,” SEC Chairman Jay Clayton said in the statement.

“Today’s action responds to feedback we have received from our Small Business Capital Formation Advisory Committee and others about the difficulties these companies may face in conducting an offering within a time frame that meets pressing capital needs, while continuing to provide appropriate protections for investors.”

Requirements for issuers to take advantage of the new rules

As per the changes, while issuers may only start crowdfunding after filing offering statements, the firms’ financial statements may be initially omitted, the agency said.

“The temporary rules also provide an exemption from certain financial statement review requirements for issuers offering more than $107,000 but not more than $250,000 in securities in reliance on Regulation Crowdfunding within a 12-month period,” the statement detailed. 

Sales will be permitted “as soon as the issuer receives binding investment commitments covering the target offering amount”, as opposed to the previous requirement of minimum 21 days after the offering statement is available.

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Furthermore, detailing the eligibility requirements, the SEC said that for the agency’s conditional relief the issuer “cannot have been organized and cannot have been operating less than six months prior to the commencement of the offering.” Businesses must also have issued securities under the agency’s current Regulation Crowdfunding offering rules in the past, the agency added. 

Additionally, non-US-based issuers, investment companies and blank check companies are barred from these rules.

These temporary rules are a part of series of initiatives the agency has taken to aid the economy combat the Coronavirus and will be in effect until August 31. 

Benefitting blockchain businesses

The new temporary relief will indeed make it easier for crypto and blockchain firms looking to launch on platforms like Indiegogo for funding.

An increasing amount of blockchain firms have been collaborating with crowdfunding sites to increase awareness. For instance, in April this year Hardware Wallet company HASHWallet launched a campaign with Indiegogo which offered investors free service which will protect their crypto-assets in the shape of a smartcard. It has already raised circa €19,948 EUR of €50,000 EUR goal currently.

HASHWallet is not the only one. Digital asset security firm Ngrave announced sales for its offline hardware wallet Ngrave Zero. The product will be available for purchase on Indiegogo after May 26 with shipping planned for October.

Crypto startups such as Rainbowcoin, SpartaCard and OraSaifu too in the past have used Indiegogo for funding and succeeded. This is indeed proof that the new amends by the SEC might prove advantageous.