Although equity crowdfunding for the masses is not technically legal yet, there is another type of equity crowdfunding that is already legal, and beginning to pickup steam. As the title of this post suggests, this type of equity crowdfunding involves crowdfunding with accredited investors.
There are two rules that permit accredited investor crowdfunding. The first, which may be familiar to many, are the Regulation D exemptions to securities registration, in particular Rule 506. As you are likely aware, Rule 506 and its brethren permit sales of securities to accredited investors, persons with net worths over $1 million or annual salaries greater than $200,000, who by virtue of their wealth are determined to be sophisticated investors not in need of the protections of securities registration.
The second rule comes about in last year’s JOBS Act. Title II of the Act exempted online platforms from the rule requiring registration as a broker-dealer (although the platform or mechanism doesn’t necessarily need to be online).
Although the section of Title II of the JOBS Act authorizing online accredited investor crowdfunding platforms makes reference to general solicitation, it is important to remember that the relaxing the rules on general solicitation for Rule 506 offerings is actually a separate piece of the JOBS, and furthermore that piece requires the SEC to issue regulations pursuant to lifting the restriction on general solicitation. Attorney William Carleton, who recently wrote on this issue, points out that if an accredited investor crowdfunding platform keeps information about securities offering behind a login screen, and invites or otherwise vets members of the platform, then the platform or the issuers on the platform may be considered to not be engaged in general solicitation.
Already there are a few accredited investor crowdfunding platforms that are beginning to gain a bit of traction — perhaps most prominent of these is AngelList, while others include CircleUp, RockThePost. However, like with regular for-the-masses equity crowdfunding, we wait to see if this new form of equity fundraising catches on with accredited investors, who may be more used to a slower, more personal approach to investing.