In an effort to improve capital formation, the Association of Online Investment Platforms (AOIP) has urged the Financial Industry Regulatory Authority (FINRA) to update Regulation A+ (Reg A+) in investment crowdfunding. AOIP submitted a comment letter to FINRA, requesting an increase in the funding cap from the current $75 million to $150 million, as well as a streamlining of the Rule 5110 review burden. AOIP emphasizes the need for updated rules and processes to support the growth of online capital formation, reduce costs for issuers, and encourage innovation. The association highlights the potential negative impact of the current fee model and lengthy approval process on attracting high-quality issuers and providing timely access to funds for early or growth stage companies. AOIP’s comment letter outlines crucial updates needed to facilitate more efficient online capital formation and calls for support from FINRA and other industry participants to drive innovation and integrity in digital investing.
Background
The Association of Online Investment Platforms (AOIP) has recently provided feedback to the Financial Industry Regulatory Authority (FINRA) regarding improving capital formation. In May, FINRA requested comments on how its rules may impact capital raising, with the goal of increasing efficiency and reducing unnecessary burdens. The deadline for comments was August 7, 2023. AOIP recognizes the importance of an efficient capital raising process for business expansion, job creation, and economic growth.
AOIP’s Recommendations
Increase Funding Cap Under Reg A+
AOIP recommends increasing the funding cap under Regulation A (Reg A+) from its current limit of $75 million to $150 million. By raising the funding cap, AOIP believes that high-quality issuers will be attracted to the platform, leading to more successful capital raising campaigns.
Complexity and Cost of Reg A+
AOIP highlights that Reg A+ is based on a 30-year-old fee model that does not accurately reflect the current state of online capital formation. This outdated fee model raises costs for issuers, discourages innovation, and pushes activity to non-regulated parties. AOIP suggests that updating the fee model to align with online capital formation will benefit issuers and ensure compliance.
Streamline Rule 5110 Review Burden
AOIP recognizes the challenges faced in getting a Reg A+ offering approved, which can take months. This lengthy process makes it difficult for investors to find investment opportunities and places an undue burden on issuers. AOIP recommends streamlining Rule 5110 review burden to reduce delays and make the capital raising process more efficient for all parties involved.
Increase Funding Cap Under Reg A+
Reg A+ currently has a funding cap of $75 million. AOIP suggests increasing this cap to $150 million to attract high-quality issuers. By raising the funding cap, more issuers will be encouraged to use the Reg A+ platform for their capital raising efforts. This will ultimately lead to a more efficient and robust capital formation process.
Complexity and Cost of Reg A+
Regulation A is based on a fee model that was developed 30 years ago, which does not take into account the unique characteristics of online capital formation. AOIP emphasizes that the current fee model discourages technology development, raises the cost of capital for issuers, and hinders innovation. Additionally, the fee caps can make it difficult for licensed broker-dealers to offer blended services, pushing activity to non-regulated parties. AOIP believes that updating the fee model to align with the online capital formation industry will benefit issuers, investors, and the overall market.
Streamline Rule 5110 Review Burden
AOIP acknowledges the challenges faced by issuers in getting a Reg A+ offering approved. The current process can take many months, causing delays in accessing funds for issuers and making it difficult for investors to find investment opportunities. AOIP suggests streamlining Rule 5110 review burden to reduce the time and effort required for approval. This will make the capital raising process more efficient and enable issuers to access funds in a timelier manner.
AOIP Member Comments
Several AOIP members have shared their thoughts on improving capital formation. Bill Clark, founder and CEO of MicroVentures, a Broker-Dealer enabling online capital formation, stresses the importance of online capital formation and how it has become a significant part of the industry. He hopes that FINRA and other industry participants will support AOIP’s recommendations to facilitate the industry’s growth.
Ken Nguyen, founder and CEO of Republic, emphasizes the commitment of AOIP members to contribute regulatory perspectives for improvements in the industry. He believes that updating fee models, allowable offering size, and review processes will drive innovation, enhance investor safeguards, and create a vibrant future for digital investing.
Mat Goldstein, Managing Principal of DealMaker Securities, acknowledges the complexity and challenges faced by issuers in the online capital formation space. He expresses optimism that FINRA’s input, along with the efforts of industry leaders, will bring innovation and advanced technology to the capital raising process.
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AOIP’s Advocacy Efforts
AOIP has actively engaged with policymakers in Washington, DC, to advocate for the industry. The association believes that businesses of all sizes should have efficient access to capital for economic growth. AOIP has also submitted a separate letter to Congress, urging support for pending legislation that aims to boost entrepreneurship and improve access to capital. These advocacy efforts aim to foster a vibrant and innovative capital formation environment.
Conclusion
AOIP hopes that FINRA will support its recommendations to improve capital formation. The association highlights the complexities of online capital formation and the need to update regulations to reflect the evolving industry. Continued innovation in the online capital formation space will further contribute to economic growth and job creation. AOIP remains committed to advocating for a robust and efficient capital raising process.
Press Releases
Reg A+ Experts: Sally Outlaw of Worthy and Etan Butler of Dalmore Group to Discuss Raising Money Online
Regulation A+ experts Sally Outlaw of Worthy and Etan Butler of Dalmore Group will be discussing online capital raising and its impact on the industry. This webinar aims to shed light on the opportunities and challenges in raising money online.
Paiterland Sisters Launches WeFunder Campaign
Women and farmer-owned organic yogurt brand, Paiterland Sisters, has launched a crowdfunding campaign on WeFunder. This campaign provides an opportunity for investors to support a promising female-led business and be a part of its growth.
Global Investor Exchange Forum 2023: ‘Bridging Thai Streets to Global Wall Street…Transitioning to the Future.’
Sinwattana Crowdfunding Corporation organizes the Global Investor Exchange Forum 2023. This forum aims to bridge the gap between Thai streets and global Wall Street, fostering collaboration and innovation in the investment industry.
Max Crowdfund Appoints Jeroen van Eikenhorst as CFO & CRCO
Max Crowdfund, a leading real estate crowdfunding platform, has appointed Jeroen van Eikenhorst as its new CFO & CRCO. This strategic leadership appointment reflects Max Crowdfund’s position in the market and its expansion plans.
In conclusion, AOIP’s recommendations to increase the funding cap under Reg A+, address the complexity and cost of Reg A+, and streamline the Rule 5110 review burden aim to improve capital formation and make the process more efficient for issuers and investors. AOIP’s advocacy efforts and engagement with policymakers demonstrate its dedication to fostering innovation and growth in the online capital formation industry. As the industry continues to evolve, it is essential to update regulations and embrace continued innovation to support economic growth and job creation.
