Amid the coronavirus pandemic, The United States Securities and Exchange Commission (SEC) has temporarily altered the crowdfunding regulations to make it easier for the firms to raise funds.
The temporary change has been introduced by SEC to its Regulation Crowdfunding offering guidelines. This change will make it easier for the firms to launch using platforms like Indiegogo and raise money to fund themselves.
The SEC has temporarily ruled out the necessity to provide hard to get financial documents during the lockdown for firms, which are seeking to raise money via crowdfunding. This includes financial statements. Although, it doesn’t mean that firms can go willy-nilly do what they want they still have to provide all of the required documentation before securing the commitments from their investors. The recommendation was given out by the SEC’s Small Business Capital Formation Advisory Committee. The decision passed on the 4th of May and will be in effect until the end of August (31st to be precise).
As the chairman of SEC Jay Clayton stated –
“In the current environment, many established small businesses are facing challenges accessing urgently needed capital in a timely and cost-effective manner.”
Due to this rather than waiting for an offering statement to publicly be available for at the very least 21 working days, the firms can start sales as soon as they receive the funding from the investors.
The new rule also allows firms to gather anywhere between $107,000 – $250,000 over 12 months and proceed with using documents ratified by the CEO of the company rather than the accountant.
India was facing similar challenges and had imposed the same regulations as the country struggled with casinos since the companies supported services like online real money slots India and stayed outside of the legal framework of Indian states. The United States, unfortunately, faced problems with companies failing to embrace Regulation Crowdfunding since it was introduced back in 2015.
Does it work?
As it was already mentioned, the businesses and cryptocurrency trading communities have not been very active with using this incentive. Due to this, the SEC was prompted to increase the annual funding limit from $1 million to $5 million. Alongside this increase, the amount of money an investor can contribute has increased to 10% of their annual income or net worth.
Here are some of the companies that started using these incentives:
- On May 26th, Ngrave’s started selling its ‘Zero’ wallet on Indiegogo. Currently, as the company’s CEO has announced, they are benefiting from the website’s user base and traffic.
- On April 24th, Hashwallet launched its campaign on Indiegogo and has been quite successful in its endeavors.
It is easy to notice that this incentive can be easily abused by malicious beneficiaries. Due to this, the SEC has imposed a regulation, which obligates the receiving party to “provide clear, prominent disclosure to investors about its reliance on the relief.” Mostly due to this, the Regulation Crowdfunding guidelines do not apply to the freshly founded companies, which have been operating for less than 6 months. This also applies to the firms that have previously violated the Securities Act of 1933 and Regulation Crowdfunding. Companies that are not based in the United States of America and investment companies are also excluded from the incentive.
During the Coronavirus pandemic, these relief incentives have been like a breath of fresh air for a lot of companies as the economic lockdown has been hitting them harder and harder every day. It’s important to note that the health of these companies is very important to the general population as they are the main driving force of the capitalist world. Fortunately, governments have realized this and started giving benefits to lots of companies all over the world.
This regulation change has been put to good use. Both Ngrave’s and Hashwallet are good examples of this and a lot of other companies are following suit.