M. CRUZ (773 DIGITAL)
Regulation Crowdfunding is another step forward to allow non-accredited investors to participate in online investment opportunities. Born from Title III of President Obama's 2012 Jumpstart Our Business Startups Act, Regulation CF provides access to alternative investments through online equity crowdfunding.
Regulation CF platforms differ from reward or donation-based sites such as Kickstarter or Indiegogo by offering stakes in small and startup businesses. Platforms approved for Regulation CF provide conduits for emerging businesses to showcase their offerings to potential investors. Regulation CF is the first time non-accredited investors can crowdfund capital in early-stage companies, including those striving to make lasting impacts on society.
Pittsburgh-based Small Change last month became the first real estate Regulation CF portal approved by the Financial Industry Regulatory Authority. This allows Small Change to enable a broader range of investors to take part in offerings that strive to strengthen communities through real estate development.
President and founder Eve Picker explained that "every building has a purpose and can make a neighborhood better, and that is what we are setting out to do." Since the company's establishment in 2015, Small Change has already successfully funded several Regulation D offerings, which are available only to accredited investors. While the site will continue to offer under Regulation D, Picker believes that Regulation CF will be the catalyst for the company's expansion.
"The first four Regulation CF projects that we have lined up are not in Pittsburgh," she explained. "We want to let people invest locally where they live. There are so many people who love their communities and want to contribute to making them better, and now they will be able to do that."
Three percent of America's population qualify as accredited investors. Thus, when the Securities and Exchange Commission unveiled Regulation CF in September 2015, it opened a door of opportunity that had been closed to the majority of the population since the SEC was established in 1934. Ordinary people are no longer shut out of investment opportunities because their income or net worth does not meet the lofty accredited standards. For the first time in nearly a century, the playing field is level: anyone who believes in the potential of an investment can get in.
Picker isn't alone in believing that small investors crave the opportunity to support game-changers. Allan Au, the head of Mr. Crowd, a Regulation CF platform providing financing to entrepreneurs, recently told Crowdfund Insider that if the vehicle had been available back in 2004, Facebook founder Mark Zuckerberg "would be very likely to raise funds from CF for Facebook." What an opportunity that would have for small investors to support the growth of a visionary product, and to participate in some of the vast wealth it created.
While Regulation CF may expand a platform's reach, it comes with strict stipulations. FINRA requires diligent separation of deals offered to both accredited and non-accredited investors from those offered exclusively to accredited investors. Unlike crowdfunding offerings to accredited investors, Regulation CF offerings may not display a prediction of returns and a company may not raise more than $1 million in a twelve-month time frame using Title III. All of these are designed to keep front and center the protection of non-accredited investors.
Coupled with Regulation A+, Regulation CF expands the online opportunities available to non-accredited investors. Regulation CF may enable Small Change to realize its founding mission of inclusive participation in high-impact real estate investment. "I was just thrilled," Picker said of receiving the FINRA approval. "I felt lighter, like a great burden had been lifted." Regulation CF is making online investment accessible to millions of Americans and companies such as Small Change are pioneers leading the way towards societal transformation.