For any startup or new business, raising capital is essential. But that doesn’t mean it’s easy. It’s no secret that raising capital poses the biggest concern for small businesses and startups and is one of the most difficult aspects of getting any business off the ground. 

Federal and state securities laws can complicate capital raising significantly for companies raising money through the offer and sale of securities. For example, while securities law exemptions like Rule 506(c) allow an issuer to offer and sell securities without having to register with the Securities and Exchange Commission (SEC), as we will discuss more fully below, there are serious consequences for noncompliance.

In an October 2024 report developed for the SEC’s Office of the Advocate for Small Business Capital Formation (SEC OASB) and co-authored by Dean T. Powell, (referred to as “the report” or “the Howell report”), Dr. Sabrina Howell researched and examined the efficacy and use of Regulation D’s Rule 506(c) capital raising exemption for venture capital funds (“VC” s). 

In this post, we will briefly summarize the findings of the Howell report. 

But first…

In our recent blog post reporting on the Securities and Exchange Commission’s (SEC) 43rd Annual Small Business Forum, we discussed several challenges small businesses and startups face, including (not limited to) capital raising restrictions, compliance costs, equitable access to capital, and the definition of “accredited investor.” 

Legislation recently introduced by Senator Tim Scott addresses — and, if passed, may resolve — several of these issues.

Securities — any “fungible, negotiable financial instrument that holds some type of monetary value” — must be registered with the Securities and Exchange Commission (SEC). Exemptions exist, such as Rule 506(c) of Regulation D. Generally speaking, before a security can be promoted, sold, or traded, it must be registered or issued pursuat to an exemption from the registration requirement. Failing to register a security carries some pretty heavy consequences, as we will discuss more fully below. Among them, however, is this: selling or attempting to sell unregistered securities is a felony.

Led by the Office of the Advocate for Small Business Capital Formation, every year, the Securities and Exchange Commission (SEC) hosts a Small Business Forum where members of both the public and private sectors get together to discuss how the SEC might improve its policies affecting how small businesses raise capital for investors.

The U.S. Securities and Exchange Commission (SEC) recently instituted administrative proceedings and issued a cease-and-desist order with sanctions against an Idaho-based investment adviser firm. According to the SEC’s order, Inspire Investing, LLC (“Inspire” or “Inspire Investing”) materially misled investors as to its so-called “biblically responsible investing” strategy.

Federal Reserve Chair Jerome Powell (“Powell”) gave a much-anticipated speech recently at the Jackson Hole Economic Symposium — the invitation-only summit hosted each year by the Kansas City Federal Reserve.

In his keynote address, Powell examined the current economic situation for the nation and outlined the path ahead for monetary policy.

On March 8, 2024, an important new Bill was passed in the U.S. House of Representatives.  

According to Patrick McHenry (NC-10), Chairman of the House Financial Services Committee, the new Bill — H.R. 2799, known as the “Expanding Access to Capital Act” (the “Bill”) — builds on the success of the 2012 Jumpstart Our Business Startups Act (the “JOBS Act”). 

The new Bill is expected to provide several benefits for investors and the economy. 

In our rapidly evolving financial landscape, knowing your customer is a critical part of the onboarding process. As technology advances and investment fraud reaches new heights, financial institutions and businesses are under increasing pressure to comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. 

The fintech industry has rapidly emerged as a dynamic and transformative force in the financial sector, leveraging technology to enhance financial services' efficiency, accessibility, and customer experience. With innovations ranging from digital banking to blockchain, fintech startups are disrupting traditional financial models and unlocking new growth opportunities.