SEC Commissioners Tout Crowdfunding

In separate remarks to the Small Business Capital Formation Advisory Committee, SEC Chair Gary Gensler and Commissioners Hester M. Peirce and Mark T. Uyeda highlighted the growth in crowdfunding and angel investing and praised these alternative methods of capital raising.

SEC Chair Gary Gensler said that angel investing and crowdfunding have "helped develop our vibrant private markets alongside our robust public markets." He reported that since the implementation of Regulation Crowdfunding ("Reg. CF") in 2016, the SEC has seen growth, from 22 new offerings per month to 135 by 2022, with the funding cap also increasing to $5 million annually.

SEC Commissioner Hester M. Peirce asserted that crowd funding and angel investing are invaluable to capital formation at early-stage companies. She advocated for empowering FinHub to provide regulatory guidance to foster innovation for small businesses. She asked the Advisory Committee to consider the following questions:

• "During the COVID-19 pandemic, the Commission temporarily raised the threshold governing reviewed financials from $107,000 to $250,000. That relief lapsed in 2022, and the current threshold is $124,000. Should the Commission raise that threshold to somewhere between $250,000 and $500,000?
• Would the crowdfunding market improve if state blue sky laws were preempted for secondary market transactions in crowdfunded securities?
• Should the Commission make it easier for crowdfunding portals to provide impersonal investment advice, so that portals could provide some basic curation?"

Ms. Peirce also focused on the crucial role angel investing plays in supporting early-stage companies. She highlighted significant regulatory challenges, particularly the restrictive accredited investor definition that disproportionately affects potential investors in less affluent areas. She highlighted the Advisory Committee's recommendations that "could mitigate the arbitrariness of the definition" including (i) that the Commission "not adjust the financial thresholds, even prospectively for inflation," - "not raising them will keep angel groups intact and allow them to invite more members of the community to participate over time;" and (ii) to allow individuals who successfully complete an educational program to "invest up to 5% in total of the greater of their income or net worth over a 12-month rolling period."

SEC Commissioner Mark T. Uyeda highlighted that, according to the latest annual report from the Office of the Advocate for Small Business Capital Formation, Reg. CF "has been particularly attractive to small businesses located outside of traditional capital hubs." He emphasized the gap in available capital for small companies that have outgrown what can be raised from friends and family, but are below the investment size of a venture capital fund and too risky for bank financing.