SEC Proposed Major Changes to Regulation Crowdfunding (Reg CF)

The SEC has proposed some major changes to Regulation Crowdfunding (Reg CF) that would impact both investors and issuers.  These changes could make it much easier to raise capital from the community for Smart Cities start-ups as well as projects delivered through Public-Private Partnerships(P3).

At a high level, the SEC’s proposed changes to Reg CF would:

1. Increase the offering limit from $1.07 million to $5 million. While just under 30 issuers raised the maximum of $1.07M as of December 2019, intermediaries commented that many issuers chose not to use Reg CF because the limit was too low for the required effort. Now that the limit has been raised, the hope is that this will increase deal flow for investors by attracting more issuers, and issuers will be able to reap the benefits of raising more capital without much more effort.
2. Amend investment limits for Reg CF investors:
   • Remove the investment limit on accredited investors
   • Revise the investment limit calculation for non-accredited investors by allowing them to rely on the greater of either net worth or income
3. Allow the use of certain special purpose vehicles (SPVs), called “crowdfunding vehicles”. The proposed updates would allow the use of certain Special Purpose Vehicles (SPVs), called “crowdfunding vehicles” under the proposed rule, that would allow a single point of communication and streamlined management of the cap table compared to how Reg CF companies operate today.
4. Limit the types of securities that may be offered and sold (most notably no longer allowing SAFEs, SAFTs, or certain revenue share agreements, among other types. This could make the comparison of offerings easier for investors, potentially attracting more investors into the market, and thus bolstering the available capital under Reg CF.