- Oculus Rift
The Securities and Exchange Commission just signed off on a proposal that will make it easier for small startups to raise funds.
The regulation allows companies to raise up to $1 million by selling stock to small investors.
“There’s been a lot of pent-up demand for this,” said Ryan Feit, CEO of crowfunding platform SeedInvest.
These so-called unaccredited investors will be able to buy $2,000 of a startup’s shares through crowdfunding platforms.
Previously, the SEC restricted those kinds of investments only to high-net worth investors. Instead, startups had to rely on crowdfunding that involved selling a product or service before the company got off the ground.
The new SEC rules allow startups raising less than $2 million are not required to submit formal audit paperwork, which would be excessively costly to small companies, Feit said.
For example, virtual reality headset maker Oculus got its start on Kickstarter by offering backers everything from t-shirts and posters, to the chance to spend a day at the company. The JOBS act, which stands for Jump start our Business Startups, is meant to foster the growth of smaller companies, by making it easier for them to raise funds. Its best-known provision allows companies with less than $1 billion in revenue to secretly file for initial public offerings with the SEC, in order to have their filings reviewed outside of the public eye.
There will be limitations on the crowdfunding: Startups would have to be based in the US and provide disclosures to investors and the SEC alike.
But the new regulations will substantially alter how startups are raising money in early stages.