The Securities and Exchange Commission has requested public comment on ways to simplify, harmonize, and improve the exempt offering framework to expand investment opportunities while maintaining appropriate investor protections and to promote capital formation.

“We are taking a critical look at our exemptions from registration to ensure that our multifaceted private offering framework works for investors and entrepreneurs alike”, said SEC Chairman Jay Clayton. “Input from startups, entrepreneurs and investors who have first-hand experience with our framework will be key to our efforts to analyze and improve the complex system we have today.”

The concept release seeks input on whether changes should be made to improve the consistency, accessibility, and effectiveness of the Commission’s exemptions for both companies and investors, including identifying potential overlap or gaps within the framework. It also considers, among other things, whether:

  • The limitations on who can invest in certain exempt offerings, or the amount they can invest, provide an appropriate level of investor protection or pose an undue obstacle to capital formation or investor access to investment opportunities
  • The Commission should take steps to facilitate a company’s ability to transition from one offering to another or to a registered offering
  • The Commission should expand companies’ ability to raise capital through pooled investment funds
  • Retail investors should be allowed greater exposure to growth-stage companies through pooled investment funds such as interval funds and other closed-end funds
  • The Commission should revise its exemptions governing the secondary trading of securities initially issued in exempt offerings

We view the SEC’s engagement as a timely and positive sign for private investments, given the industry’s accelerating capital inflow trajectory, and the importance of providing sensible access to a broader group of investors.

We believe the SEC should seek to revise the dated investor eligibility requirements to place more focus on qualitative, knowledge-based factors as a measure of actual investor sophistication, rather than just the existing income or wealth thresholds as a presumed measure of sophistication. To view our comments published on the SEC’s website, click here.

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