Press Release


In major victory for American investors, SEC opens crowdfunding to all

San Francisco Business Times - by Mark Calvey

October 30, 2015 - In a major victory for entrepreneurs and average American investors, regulators on Friday cleared the way for everyone to participate in the risks and rewards of financing small companies and commercial real estate.

Federal rules dating back to the Great Depression have long made such investments largely available only to the nation's wealthy, letting small investors participate in fast-growing companies only when they went public.

"This decision is very significant. It expands participation from more investors and brings new sources of capital to entrepreneurs they know and trust," said Kim Kaselionis, who founded Sausalito-based Breakaway Funding to work with entrepreneurs and small business owners using crowdfunding to raise equity capital and debt.

She sees crowdfunding as a way to make small businesses more attractive borrowers for community banks and other financial institutions.

In clearing the way for all Americans to participate in equity crowdfunding of Main Street businesses, the Securities and Exchange Commission on Friday put in guard rails in the form of how much someone can invest, based on their income and net worth.

Investors with annual income or net worth of less than $100,000 will be allowed to invest up to $2,000, or 5 percent of the lesser of their earnings or net worth annually. Those with income or net worth of more than $100,000 will be permitted to invest 10 percent or less of their earnings or net worth annually, the New York Times reported.

Companies will be able to raise up to $1 million from average Americans through crowdfunding, starting next year.

The SEC's long-awaited ruling was widely cheered Friday in the Bay Area and beyond.

"Three years removed from passage of the JOBS Act, we are pleased to see the SEC finally move forward on rulemaking to allow for the adoption of equity crowdfunding platforms," said Bobby Franklin, president and CEO of the National Venture Capital Association. "Anything we can do to help facilitate the growth of innovative startup companies through additional avenues to raise capital is a net positive for the American worker and the U.S. economy."

The SEC took three years to interpret the JOBS Act as it relates to crowdfunding to find "the best ways to protect investors while ensuring that securities-based crowdfunding is a workable path for raising capital by smaller companies," said SEC Chairman Mary Jo White.

Still, some remain concerned that small investors might be defrauded or under-appreciate that private equity often involves high risk and an inability to turn cash in the investment quickly.

Breakaway Funding's Kaselionis has her own term for such critics: oppressors.

"A country based on a free economy should allow all Americans to participate in supporting economic growth," said Kaselionis, a former community bank CEO, who has seen firsthand the wealth-building opportunities that come with financing successful small businesses.

Breakaway helped finance Cadillac Bar & Grill opening in the building that houses Twitter's San Francisco headquarters. Cadillac's Michael Rodriguez raised up to $3 million from both crowdfunding and traditional bank financing, provided by San Francisco-based Trans Pacific National Bank.

Kaselionis said Breakaway has other clients close to completing successful fundraisings, including San Francisco-based FleetCare International, Inc., which provides on-site commercial and consumer vehicle maintenance and repairs; Sonoma-based Jackpot, a beverage company with a new promotional concept that combines spirits, casino gaming and redeemable resort credits; and San Diego-based PrimoWind, which provides rooftop wind-energy systems.

It's expected the SEC's expansion of crowdfunding will trigger a torrent of capital into the small business sector, often bypassed by traditional lenders as too risky.

No doubt the new crowdfunding rules will also bring headlines about average Americans winning big financing the right startups — and others telling tales of huge losses
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