A new advocacy group is calling out to Congress to improve equity crowdfunding rules because they present too many challenges for small businesses and investors.
The Association of Online Investment Platforms (AOIP), a group of online investment platforms that aims to democratize finance for everyone, has published a policy paper on the challenges that small businesses and investors face when participating in equity crowdfunding offerings under Regulation Crowdfunding. Regulation Crowdfunding is an exemption that allows small businesses to raise a maximum of $1.07 million from accredited and non-accredited investors. The AOIP believes that improving the rules will help with transforming the US economy by increasing the amount of seed capital funding given to small businesses.
For small businesses, the AOIP recommended that Congress increase the amount that they can raise during a 12-month period. They added that the current amount of $1.07 million discourages businesses from wanting to raise seed capital funding through Regulation Crowdfunding, since they require a lot more. According to PitchBook, a financial data and software company, the average amount invested in early-stage businesses last year was $7 million.
For accredited investors, who are individuals that earn an annual income of $200,000 or have a net worth over $1 million, the AOIP recommended that Congress remove the investment limit of $107,000 over a 12-month period in one or more Regulation Crowdfunding offering. They added that the definition of accredited investor should be updated and based on both wealth levels and financial acumen.
For non-accredited investors, who are individuals that do not meet the requirements of an accredited investor, the AOIP recommended that they should be allowed to invest a minimum of 10% of their income or net worth over a 12-month period in one or more Regulation Crowdfunding offering. Currently, they can invest a maximum of 5% of their income or net worth — whichever is less.
The AOIP also recommended that Congress develop an “Innovation Tax Exemption” in the form of tax credits or deductions. They highlighted that an exemption would mitigate risks, particularly for investors who make small investments.
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