U.S. crowdfunding offers new capital source, SEC finds

WASHINGTON (Reuters) - U.S. equity crowdfunding platforms are providing entrepreneurs with a new way of raising capital, though the number of companies taking advantage of it and the amount of money being raised are still relatively small, a new U.S. government study has found.

The findings in the study, unveiled by the U.S. Securities and Exchange Commission at a crowdfunding conference on Tuesday, found that from May 2016 through December, a total of 156 companies did 163 deals. Since the SEC’s new crowdfunding rule went into effect last spring through mid-January, a total of $10 million has been raised.

“The initial evidence is consistent with crowdfunding providing a new source of capital for entrepreneurial and small businesses that may not otherwise have had access to capital through alternative capital raising channels,” the study concludes.

The 2012 Jumpstart Our Business Startups (JOBS) Act empowered the SEC to write new rules to create a regulatory regime for crowdfunding, which lets small businesses tap new retail investors by raising up to $1 million through Internet platforms.

However, Republicans in Congress, as well as many small business and venture capital entrepreneurs, have criticized the rule because it imposes strict regulations on crowdfunding that they say make it too costly and create barriers that may deter companies from using it.

The rule, for instance, requires crowdfunding portals to register with the SEC, and companies that use crowdfunding to raise funds are subject to various financial reporting disclosure requirements.

Securities lawyers say the JOBS Act restricts the SEC from loosening the rules without new legislation from Congress to facilitate greater use of crowdfunding.

Findings in the new study could help spur lawmakers into action.

In the meantime, Acting SEC Chairman Mike Piwowar indicated Tuesday he would be interested in exploring whether the regulator might be able to use its broad exemptive powers to liberalize the crowdfunding requirements until Congress can act to make more permanent changes.

“I have concerns as to whether the final rules are too restrictive or too burdensome,” he said.

“The commission should consider whether any further steps should be taken to improve our crowdfunding regulations, including the use of exemptive authority,” he added.