There are big changes coming—for a very small portion of the population. On Monday, the SEC will begin to allow general solicitation for Regulation D 506(c) offerings. What this means is if you are raising money for a company or property, you can advertise. You can tell everyone.
Before September 23, only public offerings (e.g., IPOs) were allowed to generally solicit. Previously, if you were raising money you had to keep it a secret from anyone you didn’t know very well. In a few days, all of that changes.
Starting Monday, you will see television ads, radio announcements, blog posts, Facebook newsfeeds, and bus stop billboards advertising investments in private companies — and not just for startups, but also hedge funds, private equity, restaurants, small businesses, and real estate.
If you are old enough, you might remember when pharmaceutical companies were not permitted to advertise. Now, every third commercial is for pills. Well, we will probably see billions of dollars dumped into advertising investment offerings, which sounds like good news for the media industry.
But…The Bad News
You probably won’t be allowed to invest. Why? Because this new rule only applies to high net worth individuals or entities—a.k.a. accredited investors. It’s crowdfunding without the crowd. Under Regulation D 506(c), the investor must be accredited, which is defined as having a liquid net worth greater than $1M or $200,000 in annual income. So that means more than 97% of the country is excluded.
This change comes straight from the JOBS Act. While the JOBS Act is well known for the “crowdfunding exemption,” under a different section Congress also modified the rules to allow for general solicitation to high net worth players. The SEC chose to implement this change first because it is a lot more straightforward in terms of “rules adoption” and lets them test a new fundraising regime with the high net worth crowd before letting everyone else in too. That makes sense, but in the meantime it may leave many people frustrated.
So when do I get to invest?
For more than a year we at Fundrise have been qualifying our offerings with the SEC so that everyone has the power to invest in real estate. We have not been waiting for the SEC to implement the crowdfunding exemption. Instead, we file under a different rule (Regulation A), which takes months to get cleared, but ultimately allows everyone locally to participate and invest. We are committed to democratizing investment in your city. If you agree, then email your local government about us!
Note: There are a lot of technical aspects to this new rule. If you are interested, here is the full release: http://www.sec.gov/rules/final/2013/33-9415.pdf.
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