Hello I'm Julie Zelman Davis from the
SEC's Office of the Advocate for Small
Business Capital Formation. On
June 18th, 2019 the SEC issued a release requesting
public comment on ways to simplify,
harmonize, and improve the exempt
offering framework for businesses and
their investors. The release provides
background about the capital raising
exemptions that many entrepreneurs
across the country are using to fund,
grow, and scale their businesses. The
exemptions provide an alternative to
full registration with the SEC as a
reporting or public company. The release
discusses a wi de range of ways that
companies can raise capital using
exemptions, a framework that our Chairman
Jay Clayton has described as "complex" and
an "elaborate patchwork". We want to break
this down for you by briefly
highlighting the topics covered. The
release seeks input on whether changes
should be made to improve our offering
exemptions. I'm going to try to avoid
using much regulatory jargon as I
describe a few of the exemptions that
the release discusses. Let's start with
private offerings. The most frequently
used offering exemption is the private
placement exemption specifically Rule
506 B of Regulation D. In a nutshell
this exemption allows entrepreneurs to
raise money from wealthier investors
with whom they have a relationship but
without advertising or generally
soliciting investors. Most friends and
family, angel investor, venture capital,
and private equity investments use this
exemption. The release asks many
questions about how well the Rule 506 B
exemption works. While private placement
offerings cannot solicit investors over
the Internet other types of exemptions
do allow offerings over the Internet.
I'll highlight three different types of
offerings from smallest to largest
amounts raised. First, emerging businesses
can use equity crowdfunding under
Regulation Crowdfunding to offer
securities over the Internet through
registered funding portals. Any investor
can participate with limits on their
investment amounts and companies can
raise up to about $1 million per year.
Second, Regulation A allows offers and
sales of up to $50 million of
securities using a model similar to
registration with the SEC but with scaled
and more flexible rules. Some people
refer to this as a "Mini-IPO". These
offerings are often done over the
Internet. Any investor can participate
but there may be limits on the amount
they can invest. Third, Rule 506 C allows
companies to raise unlimited amounts of
money from wealthier investors using
general solicitation and advertising so
these offerings can also happen over the
Internet. Companies must verify that any
investor that buys their securities meets
certain wealth or income standards. Let
me pause to discuss the accredited
investor definition. For individuals to
be able to invest in certain exempt
offerings, they must qualify based on
their wealth or net income. Several
market participants have suggested the
Commission create additional methods of
qualifying other than financial criteria.
The release asks questions about whether
there are additional factors we should
consider such as professional
credentials. Some commenters have pointed
out there may be gaps in the exemption
framework or that there are certain
types of offerings that should be exempt
but don't quite fit into any of the
current exemptions. For example, should
the Commission add a micro-offering
exemption for smaller amounts of capital
raised such as under $250,000 or $500,000.
Others have questioned whether we ought
to change the rules for funds and pooled
investment vehicles to facilitate retail
investor participation in exempt
offerings so that ordinary investors do
not miss out on private companies growth
pre-IPO. I encourage you to look at the
sections of the release that interest
you. This video was produced by the SEC's
Office of the Advocate for Small
Business Capital Formation and is meant
to provide only a very high-level
summary of the Harmonization Concept
Release. The release itself provides more
detail and an opportunity for you to
comment on these and
many more topics. The release can be
found on www.SEC.gov by clicking on the
drop down "Regulation" tab at the top of
the page and selecting "Rulemaking Index".
We encourage you to share your feedback
with the Commission. Check out our
office's video on how to comment. You can
send us a comment on any or all of the
exemptions or other issues discussed in
the release. Your comment does not have to
be formal, lengthy, or prepared by legal
experts. We want to hear from you and
hope you will engage with the SEC by
submitting a comment.
Help shape the future of capital-raising.
