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What the SEC's New Exempt Offering Framework Means for Private Businesses

Capital Planning
Financial Reporting
SEC Reporting
What the SEC's New Exempt Offering Framework Means For Private Businesses
4 min read
Josh Gertsch
Senior Industry Principal
Published: November 30, 2020
Last Updated: April 25, 2023

For many private companies, raising capital is a constant need. Companies looking to raise money quickly just found an ally in the Securities and Exchange Commission (SEC), which announced in November 2020 an amendment to its rules “in order to harmonize, simplify, and improve the multilayer and overly complex exempt offering framework.”

For those who aren’t fluent in bureaucrat, the ruling makes it easier to raise capital while providing investor protection, covering activity from raising seed capital for new businesses to growth capital for companies of all sizes, including those on the path to a registered initial public offering.

“For many small and medium-sized business [sic], our exempt offering framework is the only viable channel for raising capital. These businesses and their prospective investors must navigate a system of multiple exemptions and safe harbors, each with different requirements,” said Chairman Jay Clayton, in a press release issued on Nov. 2, 2020. “While each component in this patchwork system makes some sense in isolation, collectively, there is substantial room for improvement. The staff has identified various costly and unnecessary frictions and uncertainties and crafted amendments that address those inefficiencies in the context of a more rational framework that will facilitate capital formation for small and medium-sized businesses and benefit investors for years to come.”

Change the rules, improve the game

The amendments are intended to reduce potential friction points to make the capital raising process more effective and efficient to meet evolving market needs. In terms of what the amendments actually change, highlights include: 

  • Raising the maximum offering under Tier 2 of Regulation A from $50 million to $75 million with the maximum offering amount for secondary sales under Tier 2 of Regulation A going from $15 million to $22.5 million
  • Regulation Crowdfunding limits are raised from $1.07 million to $5 million and the maximum offering amount for Rule 504 of Regulation D is doubled from $5 million to $10 million
  • Regulation Crowdfunding investment limits for accredited investors have been removed
  • The existing temporary relief providing an exemption from certain Regulation Crowdfunding financial statement review has been extended for 18 months 

Collectively, the amendments are enough to make private businesses chant “S-E-C” like Ole Miss undergrads on a Saturday.  

But how to make the most of these changes? Being told you can now raise $75 million sounds nice but unless you can provide financial information to investors to persuade them to invest, the new maximum might as well be 75 cents. That’s where technology can help.

Workiva to the rescue

Putting together reliable financial statements, often for multiple years, is key to raising capital. These statements need to be accurate and oftentimes in accordance with a framework, such as generally accepted accounting principles (GAAP). Risk of mistakes is high if your process isn’t visible and transparent or relies too heavily on manual tasks. Workiva’s connected reporting platform allows for an efficient, repeatable reporting process that makes creating statements for potential investors easier.

The new SEC ruling allows for private businesses to raise more money fast—but only if you aren’t wasting time on the administrative activities of creating financial statements instead of creating a compelling picture through substantive analysis of reliable data. By connecting data to reporting with the Workiva platform, your team can collaborate remotely with complete visibility and control of the process. Grant access to only the people who need it, review a detailed record of what has been updated and by whom, and have total confidence in the numbers because an update made in one place is automatically made everywhere else. 

Confident reporting is paramount to attracting potential investors. The SEC is simplifying the exempt offering framework while Workiva has been simplifying the complex for a long time. 

Private companies have been ready for these SEC changes for a while. Are your financial reporting processes ready to take advantage? 

About the Author
Josh Gertsch headshot
Josh Gertsch

Senior Industry Principal

Josh is a Senior Industry Principal at Workiva. Previously, Josh served as a Director of Finance and Controller for, a private equity owned, online retailer of outdoor products, and as a Senior Manager for KPMG, a multinational professional services leader. His experience includes multiple initial and secondary offerings, business combinations and mergers, financial statement audits, SOX audits and implementation, management reporting, income and sales taxes, treasury, insurance, and systems integrations.

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