The future is looking bright for equitable and inclusive financing with the SEC’s favorable new crowdfunding regulations. Back in early September, we wrote a blog titled “Changing Rules in a Changing Climate,” highlighting our comment letter to the SEC on a proposal seeking to improve access to capital and “Harmonize and Improve the ‘Patchwork’ Exempt Offering Framework” of existing private securities offerings, while maintaining investor protection. In other words, we want to make it easier for anyone to raise capital and invest in impactful community-scale projects and local companies. To us at Raise Green, crowdinvesting represents an opportunity for the 95% of Americans who aren’t rich (the SEC calls them “non-accredited investors”) to have more of the same types of investment opportunities as the wealthy (“accredited investors”). It also means giving climate and clean energy entrepreneurs (we call them “Originators”), especially historically disadvantaged founders and local project developers, a way to raise money that never existed before.
In our prior blog about the rulemaking process, we highlighted three of our favorite proposed changes to Regulation Crowdfunding along with the benefits these changes would bring to investors, Originators, and the planet. Now, we are excited to share an update on the new Final Rule released by the SEC on November 2nd which includes our three ‘favorite’ proposed changes, as well as 35 mentions of Raise Green from our comment letter on the rulemaking. The final rule includes nearly all of our recommendations within it! This is an excellent outcome, as it increases the ease with which impact investors and Originators can interact and exchange capital on our marketplace towards our grand mission: fostering impactful and equitable climate projects and empowering communities across the US to create, own and benefit from climate solutions.
Below are four of the changes with short explanations of how they will bring about positive change to crowdfunding and the Raise Green community.
1. Increased maximum raise limit for companies from $1.07M to $5M per company per year
This means projects of bigger size and scale, including large community solar projects and even utility scale projects can raise inclusive financing from the crowd. This also enables more access for crowdinvestors who will have more and bigger opportunities to buy into larger projects, which often means increased profitability on bigger deals. In the case of solar projects, this allows projects to take advantage of lower cost estimates with economies of scale and therefore increase their economic efficiency and enhance value creation, all the while increasing the amount of kilowatts deployed per project!
2. Removal of accredited investor limits on crowdinvesting
Part of creating a Raise Green account, or an account on any registered crowdfunding portal, involves estimating your net-worth and determining the maximum amount that both accredited and non-accredited investors can then put towards offerings. With this rule change the limit on the amount that an accredited investor is allowed to invest in a project is removed entirely, meaning once the rule goes into effect, projects will be able to receive larger investments from a variety of institutions and organizations, which increases the feasibility of larger scale projects coming to fruition through inclusive financing. This change may significantly accelerate the use of exempt securities offerings for actually delivering on the popular trend toward ‘blended capital’ that can mix philanthropy, mission-related investment, donor-advised funds, program-related investment, and concessional private capital with traditional private equity and retail impact investors.
3: Allowance for crowdfunding Special Purpose Vehicles (SPVs) to be used going forward
The new rule will now allow for companies to establish an SPV, an entity whose sole purpose is directly acquiring, holding, and disposing of securities issued by a single crowdfunding issuer and raising capital in one or more offerings made in compliance with Regulation Crowdfunding. This means that now any privately held company can raise capital through crowdfunding without needing to add hundreds or even thousands of individual investors to their capitalization table, thus easing the administration and management challenge of conducting a crowdfunding raise and paying back investors in it. SPVs are subsidiaries created by parent companies to isolate financial risk. By allowing SPVs to act as conduits for investment in private companies, this change should make it more likely and potentially less risky for companies deciding to offer investment opportunities through crowdfunding.
4: Allowance for prospective issuers to ‘test-the-waters’ to solicit investment interest prior to conducting an offering
When the rule goes into effect, Originators will be able to communicate with prospective investors prior to listing a raise on Raise Green’s marketplace. Before this rule, there were strict prohibitions against advertising or communicating about a Regulation Crowdfunding offering until the offering actually went live, which meant that Originators were not able to get any feedback on the pricing or level of interest in their project in advance. This change increases the transparency of interactions between Originators and investors, allowing the Originator to open a line of communication and get a sense of how interested the crowd is in funding their project before going through the entire process of preparing an offering, thereby making creating and listing a project for funding more collaborative, transparent and easier than before.
It’s an exciting time to be involved in crowdfunding, and we can’t wait to see how these changes affect our community. If you’re looking to invest, be on the lookout for a wider variety of projects on the way. To be best prepared for upcoming investments, you can create an investor account for free here. In the meantime, check out our marketplace to see if any projects pique your interest!
As always, feel free to engage us in conversation and send any questions or comments you might have to info@raisegreen.com.
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November 2nd, the SEC released a new rule: “SEC Harmonizes and Improves “Patchwork” Exempt Offering Framework: Rule amendments harmonize registration exemptions, eliminating complexity and facilitating access to capital and investment while preserving or enhancing important investor protections.”
Notes:
Outside resources:
- https://techcrunch.com/2020/11/16/a-report-card-for-the-secs-new-equity-crowdfunding-rules/
- https://next.law/big-positive-changes-to-sec-crowdfunding-rules/
- https://www.woodshed.agency/blog/how-new-sec-rule-changes-will-affect-equity-crowdfunding
This Blog is for discussion purposes only, expresses the views of Raise Green, and is not investment research. This is not investment advice, and does not constitute a solicitation to sell or an offer to buy any securities. Certain information is from or links are to third party sources. Although they are believed to be reliable, we do not guarantee their accuracy, completeness or fairness. Raise Green is a licensed Funding Portal with the SEC and FINRA, and is not a Municipal Advisor. Prior to being approved to list a company on the Raise Green portal, a diligence review is completed. Prior to investing. investors must sign up for an account on the portal. Raise Green does not provide tax, accounting or legal advice. Investing in crowdfunded offerings involves risk and you should review the risks of a particular investment prior to investing. You are strongly encouraged to consult your professional advisors before investing. Go to www.raisegreen.com for additional information on services, the funding portal, regulation, and investment risks. Or, direct inquiries to info@raisegreen.com. Copyright © 2020
