US SEC Simplifies Fundraising for Crypto Startups

The US Securities and Exchange Commission (SEC) recently raised the limit of crowdfunding from $1.07 million to $5 million. This will help crypto startups in relying less on venture capital funding and make fundraising much simpler.

New rules relax existing restrictions

The SEC today raised the limits on Regulation Crowdfunding offerings which have gone up from $1.07 million to $5 million. The relaxation is a part of a package of amendments to the exemption offering framework. The move will provide cryptocurrency startups with legal pathways to fund apart from existing venture capital options.

Regulation Crowdfunding is an option for companies to get a securities offering without having to register with the SEC first. They can directly ask non-accredited investors for smaller investments and get their business started. The SEC says, “anyone can invest in a securities-based crowdfunding offering,” but the amount invested depends on the net worth and annual income of the user.

Accredited investors do not any limits with the new rules. Non-accredited investors can either their net worth or their annual income to calculate investment limits. This will increase the amount they can invest during a 12-month period.

Good news for crypto startups

Since the SEC has relaxed rules, crypto startups can now legally raise almost 5x more funds. Several crypto companies have seen the SEC going after them for big token sales, which was detrimental to the industry at large.

BSV Law partner Gabriel Shapiro said that the new amendments mean that crypto firms don’t necessarily need to register with the SEC for crowdfunding. They also don’t need to wait for venture capitalists to fund their business. However, he pointed out that tokens sold using the Regulated Crowdfunding exemption will not be as liquid because they will still be counted as restricted securities.

He said that this illiquidity may continue to drive people towards VCs instead of holding opting for crowdfunding. The upside is that startups now have more options when it comes to raising money for their ideas.