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November 5, 2015 -

SEC Adopts Final Crowdfunding Rules: Is it the Win Everyone Hoped For?

Excerpt taken with permission from Chris McDemus’ blog, VC Deal Lawyer

Depending on who you are, upon hearing that the SEC has adopted final crowdfunding rules, you may either shriek with joy or shrug your shoulders and return to whatever was previously occupying your time.  Whichever camp you fall into, October 30, 2015 was the day to shriek or shrug as the SEC adopted, subject to public comment and publication, long-awaited final rules permitting companies to crowdfund (Regulation Crowdfunding, as it is known, or “RC”).  Personally, I shrugged.  Now, this shouldn’t be taken as an indictment on my part of what the SEC did or didn’t do.  There is most definitely a contingent of companies that will benefit from RC.  My lack of enthusiasm has more to do with the needs of the types of companies I’ve historically represented rather than any moral objection I have to seeing Joe or Jane invest part of their paycheck in the next Facebook or Twitter.

“With these rules, the Commission has completed all of the major rule-making mandated under the JOBS Act.” – SEC Chair Mary Jo White

I know that many people have held out hope that these new rules would help fill the ever-widening funding gap that exists between formation and scale, a gap that has grown over the years as a result of Series A money trending to later than early stage.  Personally, I never really saw that as the goal of RC, nor do I believe it is designed for it.  I do not think the new crowdfunding rules as adopted by the SEC will significantly change or alter how money is raised for the majority of technology, life science and biotech companies on track for angel, venture capital or private equity funding (i.e., the companies feeling the pain of the ever-widening funding gap).  More likely, these new rules will provide an alternative for companies that would never have otherwise qualified for angel, venture capital or private equity funding.  It is these types of companies that stand to benefit the most from RC.  Maybe it’s a restaurant that needs $150,000 to launch and believes it has a clear path to positive cash flow to fund the business beyond the crowdfunding stage.  Or maybe it’s a single SKU consumer products company that picked up early concept money through Kickstarter and now desires to raise $200,000 to pay for an initial product run, or to pay for a production mold.  In the end, the outcome remains to be seen.

Read the entire article HERE