The New Empowering Main Street in America Act.

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.

The New Empowering Main Street in America Act.

The bill, entitled “Empowering Mainstreet in America Act (“EMSAA” or the “Empowering America Act”), is intended to foster economic growth by streamlining access to funding through the capital markets system. The legislation builds on some of the improvements instituted by the Jumpstart Our Business Startups Act (JOBS Act), which changed how small businesses can raise capital. Importantly, the JOBS Act introduced  Regulation Crowdfunding (Reg CF), which allows small companies to raise capital through crowdfunding. 

Under Reg CF, eligible issuers based in the U.S. can offer and sell securities through crowdfunding without providing the extensive disclosures normally required of public companies. This opens up capital-raising opportunities for small businesses while reducing their costs and reporting requirements. 

Raising capital through crowdfunding is very popular among small businesses and venture capitalists alike. Crowdfunding trends point to the exponential growth of crowdfunding platforms and the continued popularity and growth of crowdfunding across industries. Social media and technology have accelerated crowdfunding’s growth. Globally, the crowdfunding market size is projected to increase from $1.60 billion in 2024 to $4.50 billion by 2032.

Supporters of the EMSAA believe that, if passed, the bill will expand the capital-raising opportunities for minorities and women. They also believe it will do much to equalize capital-raising opportunities for entrepreneurs and startups that aren’t located in financial capital-raising hubs like Silicon Valley, New York, or Boston. In addition, the law is expected to encourage diversification and expand investment opportunities for women and entrepreneurs of color by making private investments more accessible. 

The bill addresses a number of issues that are important to small businesses and entrepreneurs. Below, we will highlight just a few. 

Accredited Investor Status

One issue the bill addresses is the restrictive definition of “accredited investor.” Although the SEC has expanded the definition somewhat over the years, the focus of who is an “accredited investor” still depends on an individual or entity’s wealth, licensing, or experience.

The EMSAA would change this to allow accredited investor status to be established by taking a test.

Micro-offering exemption

Another issue of concern for small businesses is the cost and burden of SEC filing requirements.

For companies raising capital for a registered offering of up to $500,000 during a 12-month period, the EMSAA would create a new filing requirement exemption. 

Public float 

The public float is also an issue of great importance to investors. This new bill would require the SEC to amend its regulations relating to the public float to provide that the threshold shall be a 12-month rolling average of $700 million or less.

Crowdfunding 

As briefly touched on above, crowdfunding is an increasingly popular way for small businesses and startups to raise capital. Under the EMSAA, the SEC would be required to, among other things, amend its crowdfunding regulations to no longer require issuers offering $500,000 or less in securities to submit a review report of an independent accountant and to allow the principal executive officer to certify certain financial information from Federal income tax returns.

Regulatory definition of venture capital fund

Another important change the law would make is that it would require the SEC to amend its definition of venture capital fund to allow venture capital funds (VCF) to invest in other VCFs without triggering the 20% non-qualifying investment limitation.

These are only a few of the changes the bill would make. While many of these changes have garnered support from small businesses, it is by no means certain that the bill will pass and become law. We simply will have to wait and see.

The new bill may not change the current need for investors to be accredited or have an accredited investor status certificate, but it does address many capital-raising concerns of small businesses and will open up investment opportunities for many. VerifyInvestor.com makes verifying accredited investors easy, cost-effective, secure, and reliable. Our accredited investor verification services, (which also include qualified purchaser and qualified client verification), are always code-compliant and confidential. We help companies fully and easily comply with their legal obligations to verify accredited investors.