SEC To Decide On Title III

We don’t usually send out special notices to our readers. Then again, this is not business as usual.

A groundbreaking event will take place this Friday. And you should listen in, if you can spare the time.

On October 30, the Securities and Exchange Commission will hold an Open Meeting at 10:00 a.m. EST. It will decide whether to adopt crowdfunding rules, as mandated by Title III of the Jumpstart Our Business Startups Act – better known as the JOBS Act.

More than 1,000 days past the Congress-mandated deadline, we expect the rules will finally be approved, allowing investors regardless of income or worth to fund startups.

The devil will be in the details. The big fear: Too many requirements attached to raising under Title III will make the rules too costly for startups.

These are the most important questions that should be answered on Friday…

• How much will investors be allowed to invest each year and in specific deals? Look for designated percentages of income. The lower the income, the lower the percentage, but the specific numbers will matter.

• How much will startups be allowed to raise? Will the SEC lower or raise the bar from the max $1 million per year expected?

• What will the financial reporting obligations be for the startups? The bigger the raise, the higher the burden. If the fundraising process is too expensive, it won’t get used much.

• The role of the startup funding portals. What requirements of the SEC and FINRA (Financial Industry Regulatory Authority) will they have to meet? Further, will these requirements be readily spelled out or will there be another waiting period for portals to be able to legally perform their “middleman” investing role as the registered intermediary?

• Will the portals have the ability to give investment advice and/or have discretion over which startups can list on their sites?

Don’t confuse this with Title IV (Reg A+). They’re very different. While the recently approved Title IV also does away with income and net-worth restrictions, equity offerings done under Title IV are much bigger and occur later in a startup’s development.

Title III will be for very early-stage investors. The funds raised with Title III will be a million dollars or less (Title IV – $50 million or less). And the minimums are expected to be in the $100 range (Title IV – $500 range).

If approved on Friday, the rules will be published in the Federal Register for 60 days before going into effect.

So, actual investing under Title III won’t happen until the end of the year, at best.

We’ve been waiting a long time for the SEC to move on Title III. In one day, we’ll finally get some answers… and a good indication of whether the SEC will weigh down Title III or allow it to take flight.

We hope the latter. So these rules can create jobs and wealth – two things we desperately need more of.