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SEC passes new rules giving more leeway to startups

SEC Chair Mary Jo White posited the new rules provide entrepreneurs with a more "workable path" in raising money and attracting investors.
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Written by Rachel King on

Tech startups have some extra wiggle room for fundraising thanks to a new set of guidelines approved by the U.S. Securities and Exchange Commission this week.

The most prominent among them is opening the gateway for startups to raise up to $50 million in investments from sources other than established financial services and venture capital firms.

The previous cap was a mere $5 million.

SEC Chair Mary Jo White posited in the announcement that the new rules provide entrepreneurs with a more "workable path" in raising money and attracting investors.

"It is important for the Commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies," White continued.

The rules are fall under Title IV of the Jumpstart Our Business Startups (JOBS) Act, which was passed in 2012.

Tech industry followers might be most familiar with the JOBS Act in reference to a slew of initial public offerings that have been launched under the protection of the law. Private businesses valued less than $1 billion are allowed to file initial paperwork confidentially.

Some of the more familiar brands that have taken advantage of this clause include Twitter, Box and Hortonworks, among others.

The final rules, also known together as Regulation A+, actually consist of two tiers for offerings.

The first permits securities of up to $20 million in a 12-month period with no more than $6 million in offers by affiliated parties. The second tier concerns the aforementioned $50 million ceiling, stipulating no more than $15 million in offers by affiliated parties.

These rules will be effective 60 days after publication in the Federal Register.

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