The new Securities and Exchange Commission rules for equity crowdfunding kicked in on Friday and startup investment platform Onevest is taking full advantage by raising its own Series A funding round of between $2 million and $4 million under the new system.
Onevest, which formed last year in a merger of D.C.-based CoFoundersLab and Rock the Post, plans to use the new rules to expand what it can offer its clients and figured it may as well be the poster child for its own service.
"Given that 65% of the net new jobs are created by small businesses, this is a huge success for our economy and for innovation," said Onevest co-founder Alejandro Cremades. Without a doubt, we are experiencing a unique moment in time as now companies can raise different rounds of financing online from anyone in America.”
The SEC voted to pass the rules in March, making it possible for startups to sell up to $50 million worth of stock online to anyone who wants to buy it. It's what equity crowdfunding companies have been waiting for and opens up a whole new realm of possibility for startups looking for cash. Now, there are new investment opportunities for anyone willing to put up to 10 percent of their net worth into a startup. That's a much larger pool than the previous standard for accredited investors, who needed $200,000 a year in income or to be worth more than $1 million.
This may be a watershed moment.
Onevest is hardly alone in seeing new opportunities in the expanded pool of potential investors. Although it definitely has a head start in the equity crowdfunding arena, larger crowdfunding platforms are going to try to catch up.
"Our mission at Indiegogo is to democratize access to capital, and we're encouraged by the SEC's new equity crowdfunding regulations," said Indiegogo CEO Slava Rubin in an emailed comment. "They enable startups and small businesses to secure additional funding, while providing strong investor protection. We will continue to explore how equity crowdfunding may play a role in our business model."
Meanwhile, Onevest closed more than 15 funding rounds in 2014, and thinks that could double with the new rules in place. The funding rounds it supported last year ranged between $750,000 and $4.5 million the company already has 15,000 investors registered on its platform, along with 80,000 founders. If, as the World Bank suggests, equity crowdfunding will be worth $93 billion in ten years, then this may be a watershed moment.
The new rules won't make startup investing any less risky though, even if the risk gets spread out more. It's going to be tough to find a balance between opening up the chance for investment and making sure that it's not used as a way to fleece $50 million out of small-time investors. Still, if it works out the way the SEC hopes, there could be a real flowering of startups, succeeding thanks to the capital that would have been locked away before the rule change.
