Many prominent companies and Regulation CF platforms have expressed concern over the limited amount of capital that issuers can raise under Reg CF: $1 million. On July 19, 2018, they sent a detailed letter to the SEC requesting that they raise the Reg CF cap to $20 million. In general, the Reg CF industry feels that the current $1 million cap is costing issuers time and money meeting regulatory requirements─they add that some issuers have to conduct a second offering to raise sufficient startup capital.
This concern matches with SEC Chairman Jay Clayton’s remark concerning retail investors. Before the industry sent the letter, Clayton discussed capital raising with FINRA CEO Robert Cook. In this discussion, Clayton said that retail investors lack the opportunity to raise capital compared to other investors. He added that they are for the most part limited to acting within public markets and dealing with public capital. However, Clayton explains that private capital is growing; as it grows, retail investors will continue to lose opportunities. Ultimately, he desires to diversify the economy, ensuring that all parties have equal participation and an equal opportunity to grow.
In the letter to the SEC, successful, widespread capital raising as well as the generation of jobs from these funded companies through Reg CF were emphasized. In addition, the industry noted that no issuers under Reg CF have participated in fraud; all have had good intentions and have successfully built the trust and confidence of their investors.
The letter notes three main practical reasons, among others, justifying the Reg CF cap increase:
- First, many companies that desire to raise more than $1 million will turn to Regulation D or 506(c) offerings, which allow an unlimited number of investors to participate. However, the inability to advertise the offering under this regulation hinders issuers because they disclose less information to their investors. Raising the Reg CF cap would ultimately allow issuers to raise additional capital without the restriction on solicitation.
- Second, the industry notes that today, companies require $2 million on average during their startup financing stage. However, Reg CF only allows issuers to raise $1 million; thus issuers have to undergo multiple rounds of financing, costing them valuable time and money.
- Third, other countries have already adjusted their Reg CF cap to accommodate investors. Germany and the United Kingdom increased their cap to 8 million euros, or 9.4 million US dollars. The Reg CF industry implores that the US take the lead on this cap increase.
The above article summarizes some of the primary reasons why Reg CF platforms believe the SEC should raise the Regulation Crowdfunding cap from $1 million to $20 million. To view the official letter, click on this link.