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This week marks the four year anniversary of legalized startup investing in America. On May 16th of 2016, “Regulation Crowdfunding” (Reg CF) went live, and suddenly everyone could invest in startups.
Prior to Reg CF, you needed to be a wealthy “accredited investor” or company insider to invest in private startups in the U.S. A small group of venture capitalists and accredited angel investors were essentially the only Americans allowed to invest in promising private startups. And because these investors tend to be concentrated in certain cities, such as San Francisco, New York, and Boston, traditional private funding left many companies, and the vast majority of investors, out in the cold.
In 2016, all that finally changed
Four years into startup investing for all, the ecosystem is thriving. In 2019, more than $100 million was invested in startup deals conducted under Reg CF.
Since May of 2016 when Reg CF went live, more than $300 million has now been invested into private startups. Well over 1,000 companies, from all over the U.S., have used Reg CF to raise funds. And tens of thousands of individual investors have participated in these offerings.
Online startup investing allows millions of individuals to finally participate in private markets. With hot tech companies staying private longer than ever before, we believe it’s vitally important that everyone have the opportunity to invest in private companies. Now we all do.
Reg CF has become a powerful way for businesses to raise money in America. It deepens the connection between companies and their customers, who can now also be investors. The benefits of having your best customers also have a stake in your business are hard to overstate.
With the COVID-19 crisis, access to alternative sources of funding is more important than ever for small businesses and startup companies. Not everyone will be able to access government rescue programs or secure traditional funding. We hope to help some of these companies bridge the gap.
Currently, each startup can raise up to $1,070,000 per 12 month period under Reg CF. But in March of this year, the SEC proposed increasing the cap to $5 million per company per 12 month period.
This would be a huge win for both startups and investors.
Today, when companies reach their maximum of $1.07 million, they have to stop taking on new investors. If the SEC proposal goes into effect, startups will be able to raise 4.6 times the current cap, and gain approximately 4.6 times as many new backers.
We’re excited to see the SEC making such an important proposal, and will keep you updated on its progress.
With or without this potential change in the annual investment limit, online startup investing is steadily growing into a force in the world of early-stage capital formation. It is leveling the playing field for investors and companies alike.