ICO's and SEC regulations in the USA

Summary :

I wrote this post for anyone thinking of starting an ICO for their company, this is some of the important information that I found.

Traditionally, investing in startups and other growth-stage companies has been the privilege of the wealthiest Americans. Accredited investors (people making $200,000 or more for two most recent years, or with a net worth of $1 million) were the only ones allowed by the Securities Exchange Commission to invest in startups. Investing is starting to see greater democratization, however.

In 2012, President Obama signed the American JOBS Act into law, which had 10 provisions to improve the working outlook and overall financial opportunities for Americans. Title IV of the JOBS Act, also referred to as Regulation A+, allows companies that want to raise between $3 million and $50 million* to do so from anyone – regardless of assets and income levels.

This particular portion of the JOBS Act was enacted in June of 2015 and it is still gaining momentum. When the intricacies of the act are boiled down, it is a pretty simple concept. Investing in companies in the TestTheWaters(TM) phase is no longer just for the rich and already-affluent. Any person in the world can invest their money in a company they believe in, and see the potential financial rewards of that investment.

What is Title IV of the JOBS Act?

Title IV allows startups and later stage pre IPO companies to use equity crowdfunding platforms to raise as much as $50M* from both accredited and non-accredited investors.

Title IV is broken up into two tiers, Tier 1 and Tier 2. Tier 1 allows you to raise up to $20M while Tier 2 allows you to raise up to $50M*. Check out the key differences between the two tiers below.

Tier 1 - Raise up to $20M

Anyone can invest worldwide
Company can publicly advertise
Financials required
Must satisfy Blue Sky laws in each US state that investors live in
No limit on investment amount by main street investors

Tier 2 - Raise up to $50M*

Anyone can invest, worldwide
Company can publicly advertise
No state registration required
Requires Audited Financials
Non-accredited investors are limited to 10% of income/net worth per year

How to figure out if an ICO token is a security - the Howey Test

The Supreme Court case of SEC v Howey established the test for whether an arrangement
involves an investment contract. An investment contract implies that the transaction is a type of security.

In the context of blockchain tokens, the Howey test can be expressed as three independent
elements.

1. An investment of money
2. in a common enterprise
3. with an expectation of profits predominantly from the efforts of others.

All three elements must be met in order for a token to be a security. The third element encompasses both the third and fourth prongs of the traditional Howey test, although some say this test is not a true determination if a token is a security or not.

This list is intended to summarize the costs for guidance and information purposes. It is not precise, and it is not a binding proposal. Most fees below are paid directly to the relevant service provider. When needed we will refer you to service providers that are experienced in Reg A+.
Total cash costs are generally approx. 6% of the raised capital without a Broker-Dealer, and approx. 10% with a Broker-Dealer, Plus warrants (which are similar to stock options).