Resources/ Updates

May11

How Much Money Can a Crowdfund Investor Fund? Or a Crowdfund Raise?

The SEC’s Office of Investor Education and Advocacy issued an Investor Bulletin to advise investors about the inflation-adjusted increase in the investment limits for securities-based crowdfunding.  Crowdfunding solicits small investments or contributions from a crowd of people, most typically via the Internet.

As mandated by the JOBS Act of 2012, the SEC adopted rules to facilitate securities-based crowdfunding.  2015 crowdfunding rules enabled the general public to participate in capital raising activities of start-ups. But there are risks.  Will the venture succeed?  Is my investment liquid?   Explore the risks to securities-based crowdfunding in the Investor Bulletin: Crowdfunding for Investors

New Investment Limits in Crowdfunding

Per the JOBS Act, the annual dollar amounts an investor can invest in crowdfunding must be adjusted for inflation every five years.  Here are the inflation adjusted limits for investments during any 12-month period.

  • If either your annual income or your net worth is less than $107,000, you can invest up to the greater of either $2,200 or 5% of the lesser of your annual income or net worth.
  • If both your annual income and your net worth are equal to or more than $107,000, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $107,000.

Joint Calculation

Include your spouse’s income or assets when calculating your annual income or net worth.  But when you do calculate jointly, each of your crowdfunding investments combined may not exceed the limit for an individual an that annual income or net worth level.

Net Worth

Add up all your assets and subtract all your liabilities.  The sum is your net worth.  But note, the value of your primary residence is not included.  The mortgage is another story.

  • A mortgage or loan on your home does not count as a liability up to the fair market value of your home.
  • Any loan amount beyond the fair market value counts as a liability under the net worth test.
  • If within 60 days prior to your investment, your home loan increases, whether up to or beyond the fair market value of your home, it will count as a liability.

Crowdfunding Raise Adjustments

The maximum amount a company can raise under securities-based crowdfunding is now $1.07 million in any 12-month period.  The offering amounts that trigger the financial statement disclosure requirement are also adjusted for inflation.

Here are the inflation-adjusted threshold amounts and the financial disclosures required:

  • $107,000 or less:
    • financial statements and specific line items from income tax returns, both certified by the principal executive officer of the company.
  • $107,000.01 to $535,000:
    • financial statements reviewed by an independent public accountant and the accountant’s review report.
  • $535,000.01 to $1.07 million:
    • for first time crowdfunders only, the financial statements must be reviewed by an independent public accountant and the accountant’s review report.
    • For others, the financial statements must be audited by an independent public accountant and the accountant’s audit report.

Related Resources

Investor Bulletin: Crowdfunding Investment Limits Increase ~ May 5, 2017

Investor Bulletin: Crowdfunding for Investors ~ May 10, 2017

Funding portals registered with FINRA to act as crowdfunding intermediaries

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