While venture capital is highly concentrated, crowdfunding and other online tools have the potential to drive innovative funding sources to entrepreneurs throughout the American heartland. To spur more online financing activity, policymakers should:
- Create tax incentives for investors purchasing securities offered by new businesses through qualifying crowdfunding channels.
- Improve regulatory flexibility and reduce compliance burdens in crowdfunding.
- Collect demographic information on the U.S. Securities and Exchange Commission’s Form C about the entrepreneurs whose businesses are seeking to raise capital via Regulation Crowdfunding and report data disaggregated by race and gender.
- Early evidence from the U.S. securities crowdfunding market indicates that crowdfunding is a promising new way for high-quality, early-stage companies to find funding.
- Between May 2016 and December 2018, the median Regulation Crowdfunding offering amount was $107,367.
The U.S. Securities and Exchange Commission (SEC) expanded the nation’s investor base in 2020 when it changed the “accredited investor” definition. Accredited investors, previously defined as only individuals with an income of at least $200,000 or a net worth over $1 million, are now also qualified based on measures of financial sophistication, such as professional certifications and credentials. Additionally in 2020, the SEC raised the Regulation Crowdfunding offering limit from $1.07 million to $5 million, giving businesses that require larger amounts of capital another fundraising option.