Inflation has been increasing in 2022, with the U.S. reporting an annual inflation rate of 7.1% for the 12 months ended November 2022[1]. In response to rising inflation, many banks have increased the interest rate of savings accounts, and the Securities and Exchange Commission (SEC) decided to change the investment limits for regulation crowdfunding.
Regulation Crowdfunding (Reg CF) Background
Regulation Crowdfunding is known by a few different names. The names equity crowdfunding or crowdfunding are also used to refer to the securities regulation that allows companies to raise small amounts of capital from a larger group of individuals, or a crowd. Contradictory to other private market investments which are larger amounts of capital from fewer individuals, Reg CF allows almost anyone to invest in private companies, unlike other private investments where investors must verify their accreditation status. These non-accredited investors can invest small amounts of capital in startups, with some investment opportunities as low as $100. However, because of the risks involved with investing, non-accredited investors have some limits on the maximum amount they are allowed to invest during a 12-month period. Accredited investors are not subject to these limitations.
What Changed?
With inflation increasing over the last year, the SEC felt it was appropriate to provide inflation-adjusted numbers for the maximum amount non-accredited investors are able to invest during a 12-month period, dependent on an investor’s income and net worth. The SEC states that such dollar amounts will be adjusted no less than every five years to account for inflation. The amounts that individuals are permitted to invest are provided in the chart below:
Inflation-Adjusted Amounts in Rule 100 of Regulation Crowdfunding (Offering Maximum and Investment Limits)[2]
While the SEC felt it was appropriate to adjust the maximum investment limits for non-accredited investors, they did not feel the need to further increase the maximum amount a company can raise under regulation crowdfunding in a 12-month period. The SEC stated:
“Effective March 2021, the Commission increased Regulation Crowdfunding’s offering limit from $1,070,000 to $5,000,000, an increase of $3,930,000. As this increase was far in excess of the inflation-based increase that would otherwise have occurred this year, the Commission did not increase Regulation Crowdfunding’s offering limit, which remains at $5,000,000.[3]”
What Does This Mean For Me?
If you are an accredited investor, these maximum investment limits are not applicable. There is no limit as to the amount of capital you can invest in regulation crowdfunding offerings.
If you are a non-accredited investor, this means that during a 12-month period, you could be allowed to invest slightly more or less capital in regulation crowdfunding offerings. This is dependent on your annual income and your net worth.
For more information on these recent changes to the regulation crowdfunding maximum investment limits for non-accredited investors, please visit the SEC’s website to view the investor bulletin outlining the changes. If you have any questions about the recent changes and what this means for you and your investments, please don’t hesitate to reach out to our investor support team at help@microventures.com.
Want to invest in startups? Sign up for a MicroVentures account to start investing!
Want to learn more about investing in startups? Check out the following MicroVentures blogs to learn more:
- History of Alternative Investments
- Funding Rounds for Startups: What You Need to Know
- The Portfolio Magic Number
- The Rise of AI
[1] https://www.bls.gov/news.release/cpi.nr0.htm
[2] https://www.sec.gov/files/33-11098-fact-sheet.pdf
[3] https://www.sec.gov/files/33-11098-fact-sheet.pdf
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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.
