On November 2, 2020, the Securities and Exchange Commission adopted amendments intended to ease the rules for certain exempt offerings. These changes include increasing the annual cap on equity crowdfunding from $1.07 million to $5 million, raising the annual cap on Reg A+ offerings from $50% million to $75 million, raising the maximum offering amount for Rule 504 of Regulation D from $5 million to $10 million, and expanding the "test-the-waters" accommodation to Regulation Crowdfunding issuers.
These changes follow other recent changes, including the expansion of the definition of accredited investor, which determines the pool of individuals eligible to invest in private securities on the basis of income or wealth, to take into account a person's sophistication, and the recently proposed "finders" exemption. The changes, which are designed to allow for further growth of private capital markets, are aimed at eliminating costs and providing access to capital for smaller and medium-sized businesses and expanding the eligible investor base that may participate in these offerings.
In announcing these Rules, Chairman Jay Clayton acknowledged that "For [smaller and medium-sized companies] and their investors, there is no public market-private market choice,” and that “[t]he exempt capital markets — the private markets — are their only option. However, these companies generally do not have the resources, expertise and experience to effectively navigate our complex private offering rule sets."
According to data provided by the SEC, approximately $2.7 trillion, or 69%, was raised privately in 2019, compared with about $1.2 trillion of new capital raised in publicly registered offerings.
For a complete discussion of the these changes and the likely impact that the amendments will have on exempt offerings and capital formation as a whole, click here.
Originally Published by Sheppard Mullin, November 2020
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