Great question! This relates to CfPA's policy platform. Here is our position on the topic.

Exemptive Relief for Small Offerings

Reg CF should be an accessible and useful tool for diverse businesses from small mom-and-pop shops to high-growth tech companies. The current rules make it financially infeasible to conduct small raises because the fixed costs are high and experts are needed to ensure compliance. Therefore: We support the consideration of relief from some of the more onerous requirements for small offerings.

Background

As the investment crowdfunding industry has grown, it has come to primarily focus on the needs of companies raising larger amounts. This is because it is very challenging for intermediaries to earn sufficient revenue to cover their costs with small raises. Each raise, regardless of size, involves substantial fixed costs for both the issuer and the intermediary. Therefore intermediaries are focusing on larger raises.

Companies raising smaller amounts often find that the more established platforms are not interested in hosting their raises and even if they are willing to host them, the intermediary rarely invests in promoting the campaigns with smaller targets. The issuers often find that the expense of the raise will eat up a large portion of the amount being raised and therefore conclude that investment crowdfunding is not financially feasible.

It has gotten to the point that a two-tier system is needed to ensure that companies raising smaller amounts are not left out of being able to use this tool to raise funds.

Requested Change

We propose that the SEC create a new regulatory tier for small raises – perhaps raises of up to $350,000. This tier could include less onerous disclosure requirements such as

 01. An abbreviated Form C that has a user-friendly interface so that issuers could complete the form without the need to hire an attorney
02. Simplification of the annual report requirement by allowing abbreviated disclosures, also with a user-friendly interface
03. A reduced financial disclosure burden such as eliminating the requirement of GAAP financials and independent reviews and eliminating the requirement to provide financials for issuers with no operating history.

Statutory Authority

The first two bullet points could be done under current statutory authority. Elimination of the GAAP requirement could be done under current statutory authority. Changes to the requirements for reviews and audits would likely require a statutory amendment. 

@Jenny Kassan @Brian Christie