SEC Raises Crowdfunding Limit for Crypto Startups from $1.07M to $5M

The U.S. Security and Exchange Commission (SEC) has made conscious efforts to help crypto startups raise funds and rely less on venture capitals through its latest decision to raise the crowdfunding limit.

According to the latest release, crypto startups can now raise a crowdfund as high as $5 million from its previous limit of $1.07 million. Based on the voted amendment, non-accredited investors have options for calculating their investment limit with either their net worth or annual income. This means the amount they intend to invest can be increased within 12 months. Also, accredited investors will not be bounded by any limit.

Also, the existing temporal relief will be extended for 18 months with an exemption for some regulation crowdfunding financial statement review requirements for issuers that offer $250,000 or less of securities.

Crowdfunding has been the way through which crypto startups obtain smaller investments from non-accredited investors as they obtain security offerings without having to register with the SEC. However, they were limited to some listed amount depending on their net worth and annual income.

In response to the recent publication, Paul Veradittakit, a partner at Pantera Capital, said that it is always prudent for startups to diversify their investor base. SEC stated that this decision will protect and expand capital formation and investment opportunities. Also, important investment protection will be improved or preserved.

Impact of the SEC Crowdfunding Amendment

A partner at BSV Law, Gabriel Shapiro has said that the decision will make crypto startups less dependent on venture capitals. However, it will have a limited impact on how tokens are issued. In his statement, he said some blockchain companies may completely change their funding source to the public as a lot of asymmetries between ordinary token holders and VCs-as-token holders are created by the Venture Capital terms. He stated that token issuers may still go ahead to obtain money from VCs in the early-stage due to liquidity issues. They will then set token terms to non-security to make it immediately liquid.

The process started in March 2020 when authorities proposed an amendment in a bid to simplify, harmonize, and to improve the exempt offering framework. They then solicited comments from the public. Based on the received comments, recommendations, and feedbacks, they decided to accelerate the process to make it more efficient and effective to raise money in a bid to meet the changing needs of the market.

Crowdfunding is a method through which startups solicit funds from small individual investments or a large number of people. The general public is offered the chance to be involved in funding activities organized by startups and early-stage companies. The recent decision of the SEC will increase the funding base of startups as mentioned and make things easier for them than before.