How Startups and Early Stage Companies Can Best Leverage the SEC´s New Relaxed Crowdfunding Rules


On November 2, 2020, the Securities & Exchange Commission (SEC) published its final rule entitled “Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets.”  The final rule is a 388-page indication of the current trend of the SEC to ease access to capital formation and the private capital markets for startups and early-stage companies interested in obtaining U.S.-based investors. 

The final rule is just another example, as you will see in this article, of the SEC´s work to “adop[t] targeted improvements to a regulatory scheme that unnecessarily hinders capital formation [for a wide range of small- and medium-sized businesses] and unduly restricts investors’ opportunities to participate in economic growth.” 

Of particular interest in the SEC’s final rule are the changes that the SEC has made to its now almost ten-year old crowdfunding rules. This article will detail these crowdfunding changes against a historical backdrop of the crowdfunding rules, and we will provide some preparedness suggestions for companies who are considering how they can leverage these important crowdfunding changes to raise additional capital for their businesses.

Crowdfunding – A Brief History

Regulation CF, or Regulation Crowdfunding, was adopted by the SEC using its authority under the U.S. JOBS Act of 2012 to provide a financing method for early stage companies and startups in which money is raised through soliciting relatively small individual investments or contributions from a large number of people most typically through an online portal.  As originally adopted, the crowdfunding rules allowed companies to offer and sell up to $1.07 million of their securities without having to register the offering with the SEC as is typically required when companies look to raise capital from U.S.-based investors.

Crowdfunding Challenges

Almost as quickly as it was adopted, companies looking to rely on the crowdfunding rules to raise capital confronted its limitations. Most challenging, were the limitations placed on the amounts that companies could raise from individual investors.  Prior to the adoption of the final rule in November, in the case of those investors considered “accredited investors” (typically high income/high net worth individuals) there was a limit of $107,000 per person in any 12-month period. Additionally, and prior to the adoption of the final rule, the investment limitations on the amount persons not qualifying as accredited investors could invest were even more burdensome and complex, using a “lesser of” formulation that left many industry professionals without clear guidance. These limitations stemmed from the SEC´s outdated and arbitrary (even in the SEC´s own admission) tendency to judge investor financial intelligence on the basis of the investor´s income or net worth irrespective of education, profession, experience or other relevant criteria.  

On top of all this, was a general limitation restricting companies to raising no more than $1.07 million from any contingency of investors in any 12-month period, a figure substantially below the capital needs of many startups and early-stage companies with heavy capital expenditure and growth needs.      

Crowdfunding – What has changed?

Contained in the final rules, are changes to these limitations that positively impact the ability of startups and early-stage companies to tap into the U.S. private capital markets.  These changes include:

  • Companies are now able to raise $5.0 million annually rather than the $1.07 million.
  • There is no limitation (other than the $5.0 million cap) that companies can raise from any one investor who is an accredited investor.
  • Substantial clarity has been given to companies and counsel on the ability to raise money from non-accredited investors, with the investment test changing to a “greater of” analysis.

Crowdfunding Commentary

The final rule, in our opinion, is still not perfect. Companies looking to take advantage of crowdfunding as a means for tapping into the U.S. private markets will still need to be mindful of, among other things, the filing, disclosure and financial statement requirements of the crowdfunding rules. Companies that view crowdfunding as a potential funding option for their businesses should begin now to work with knowledgeable advisors to ensure that they can satisfactorily meet these disclosure and financial statement requirements.  For most companies interested in crowdfunding their next capital raise, should they be looking to raise more than $535,000, a one to two-year period of preparation and readiness will be required.

Conclusion on New Crowdfunding Rules

The SEC´s changes to the crowdfunding rules and its most recent proposed rules, including with respect to permitting commission-based payments for those who help companies raise capital and its changes to the “accredited investor” definition, show a clear trend towards a relaxation of the historically burdensome requirements for small companies to solicit investor capital in the U.S. public markets.  We expect this trend to continue, with more companies and a wider pool of investors participating in the already-existing annual $1.7 trillion U.S. private markets.  We rely on the SEC´s own words to draw our conclusion that we are only beginning to see the SEC open U.S. private markets to more companies and investors:  

“[We] view today’s work on harmonizing, simplifying, and improving the exemptive framework [to the SEC´s existing rules] to be a positive step, but we have more work to do to ensure that small- and medium-sized businesses . . . can raise capital in a way that works for them, supports economic growth, and is consistent with investor protection.”

About Legacy Group

Legacy Group is distinguished by a singular tradition of service to our portfolio partners; the mutual commitment to, and the seamless collaboration of, a true partnership; formidable financial and legal talent across multiple disciplines and jurisdictions; and shared professional values that focus on client needs.

We provide experience and investment to a wide range of private companies spanning many industries, including real estate, hospitality, tourism, agriculture and technology. Contact us to learn more and to discuss current investment opportunities available to you in our portfolio companies.

*This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of our clients.

Investment News & Opportunities
Stay up-to-date on investment news and opportunities in our portfolio companies.

Accredited investors are generally defined as individuals with annual income in excess of $200,000 ($300,000 with spouse) or over $1,000,000 (alone or with spouse) in net worth.

Jesus Reyes

Vice President, Capital Raising

Economist by trade, spent 15 years working for HSBC in a multitude of capacities in its Private Wealth, Credit Risk Management and Investment Banking divisions. Furthermore, Jesus worked for the bank in multiple countries. Prior to leaving HSBC, Jesus was the Global Account Owner of the bank’s relationship with the world’s largest accounting and consulting firms.

Upon leaving Wall Street, Jesus joined a boutique Medical Group in Beverly Hills, as CEO, with the primary goal of leading the team through a process of corporate transformation from a small enterprise to a corporation able to navigate the terrain of bringing in Private Investors and expand into new markets: New York, Orange County, Chicago and San Diego.

In addition to extensive professional experience, Jesus holds degrees in Economics (BA – St Mary’s University, and MA – Fordham University) and Finance (MS – University of Rochester).


Vice President, Business Development

After multiple combat tours with the U.S. Marine Corps Reserves and obtaining a Bachelor’s Degree in Finance and Real Estate from the University of Florida, Dustin took a position in corporate finance with Lockheed Martin, followed shortly by obtaining his Series 7 and 66 certifications as a Financial Advisor at Edward Jones. Looking for an opportunity to implement his leadership earned in the Marine Corps and entrepreneurial desire, Dustin decided to leave the corporate environment and joined a family-owned private prisoner transportation start-up, while also investing in real estate. Over the next several years, Dustin became a partner in the company, moved into the role of Executive Director and helped grow the company through strategic relationships, winning large government contracts, and helping foster several mergers, ultimately getting the business to a successful sale. After obtaining his MBA in Real Estate from Florida State University in 2020, Dustin continued to invest in real estate, taking a specific interest in land acquisition and development to create equity and cash flow opportunities. Additionally, he was involved with several start-ups and became one of the largest investors in The Green Coffee Company, a Legacy Group portfolio company. After getting boots-on-the-ground with his Green Coffee Company investment in Colombia, Dustin saw an opportunity to become more than just a passive shareholder and joined Legacy Group as the VP of Business Development in June 2022.


Dustin has earned a reputation for his genuine leadership style, adaptive problem-solving skills, ability to forge authentic relationships, and being a fast-moving action-taker across multiple industries. His fluidity and adaptive results-oriented mindset makes Dustin an excellent addition to Legacy Group as our VP of Business Development.


Dustin lives in St. Petersburg, Florida with his wife Jenny and their German Shepherd, Kimber. Going on 18-years in the USMC, Dustin will retire after 20 years and continue to focus on adding value to Legacy Group Stakeholders.