In our original article on this subject, “SEC Finally Adopts Federal Crowdfunding Rules: All That Glitters May Not Be Gold,” we discussed some of the highlights of the final federal crowdfunding rule (the “Regulation”) adopted by the Securities Exchange Commission (“SEC”) on October 30, 2015. It is anticipated that the Regulation will become effective in May 2016. A close analysis of the Regulation and the accompanying SEC Release makes it abundantly clear that federal crowdfunding pursuant to the Regulation (“Regulation Crowdfunding”) will present a daunting challenge. Any interested startup or early-stage company may have a difficult time affording the high costs associated with Regulation Crowdfunding. This is ironic, to say the least, because startup and early-stage companies are the very businesses Congress sought to benefit through these “relaxed” rules governing the offering of securities. Moreover, there seems to be a healthy skepticism as to whether there will even be a market for federal crowdfunding offerings. Further compounding this challenge is that businesses conducting such offerings enter the world of federal securities law and expose themselves to the legal and regulatory risks associated with this status. Not surprisingly, some have gone so far as to suggest that Regulation Crowdfunding is, essentially, a “dead letter.”
Federal crowdfunding is not for every small business, given the costs and risks associated with a successful offering. Business will need to be practical in their approach to Regulation Crowdfunding and should conduct an early assessment as to whether the offering is feasible before incurring significant time and expenses. In our second article, Federal Crowdfunding: Practical Considerations For Interested Parties, we offer some practical suggestions on how businesses can assess whether they are properly suited for Regulation Crowdfunding. In short, we recommend a practical, common sense structure that businesses, their counsel and other professionals involved in the offerings can use to guide them through the offering process, or at a minimum, through an assessment of whether an offering is feasible from a cost-benefit perspective.
The Regulation is somewhat dense and subject to the development of certain important details in the disclosure area and the offering itself, including how the intermediary process will work. However, between the Regulation and the SEC Release which accompanied it, there is enough information for businesses interested in pursuing Regulation Crowdfunding to begin considering whether it is a viable option.