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SEC Raises Fundraising Limits for Crypto Startups and Small Businesses

Key Takeaways

  • The SEC has raised fundraising limits for companies that run securities offerings such as ICOs.
  • The amendments also streamline the regulatory compliance requirements that companies must follow.
  • Commissioner Hester Peirce is largely responsible for the success of these regulatory improvements.

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The SEC has raised the maximum limit that small- and medium-sized businesses can raise via token sales and other securities offerings.

Streamlined Regulations with Higher Limits

Commissioner Hester M. Peirce discussed the new fundraising limits on Nov. 2 as part of an SEC open meeting.

She emphasized that the changes are intended to streamline the regulatory compliance process. By simplifying rules and reducing costs, those changes should create a “pipeline” of companies that plan to go public or raise funds.

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Higher fundraising limits will make it easier for companies to make use of exemptions. Regulation crowdfunding limits will be raised from $1.07 million to $5 million, while Tier 2 Regulation A limits will be raised from $50 million to $75 million. Rule 504 offering limits will be raised from $5 million to $10 million.

Peirce also advocates for a “micro-offering” tier of Regulation Crowdfunding, which would allow businesses to raise up to $250,000 with a simplified disclosure process.

In addition to raising limits, the changes also introduce simpler rules around communication with investors. It is now easier for companies to promote their project in “test-the-waters” and “demo day” activities. The amendments also streamline the way in which companies can verify accredited investors.

The SEC’s Pro-Crypto Efforts

The changes were previously part of a conceptual release in June 2019 and a proposal released in March 2020. Today’s news makes those proposals a reality. The amendments will take effect 60 days after publication in the Federal Register.

These policies apply to all companies that sell securities, but the rule will benefit crypto startups that are eligible for the relevant exemptions. Peirce told Crypto Briefing that “today’s rulemaking applies generally to securities offerings and does not specifically address crypto.”

The SEC is also opening up cryptocurrency fundraising in other ways. In August, it expanded the definition of accredited investors. A safe harbor proposal that will specifically benefit crypto startups is also under consideration. These improvements could make it easier for companies and investors alike to participate in ICOs.

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