Beginning Monday, startups can raise up to $5 million every year from ordinary people who can get a proportionate slice of the company in return.
Why it matters: The changes take effect amid a retail investing mad dash, kicked into high gear by the pandemic and the extra money in (some) people’s pockets.
- It gives regular investors the opportunity to participate in a private company’s upside (or the opposite, if a company goes under).
Catch up quick: Previously companies had been limited to raising a little more than $1 million in “regulation crowdfunding” per year.
- This higher threshold could draw a new crop of later-stage companies into the crowdfunding equity trend that may have felt the $1 million wasn’t worth the effort.
- “There’s kind of a snowball effect: When more companies do this, they’re bringing their audience and customers, which brings in a whole bunch of new investors in the market,” says Brian Belley, founder of Crowdwise, an equity crowdfunding research site.
Other changes taking effect today: Retail investors are now allowed to invest higher amounts this way each year, and companies can essentially pool crowdfund investors into a single line on the cap table.