There has been a formal submission to the Securities and Exchange Commission (SEC) to increase the funding cap of Regulation Crowdfunding (Reg CF) from the current $5 million to $20 million.
A petition to the SEC is a request to issue, change, or repeal a rule, which the SEC staff then reviews and recommends action on, with the Commission making the final decision. The goal is to empower individuals and entities to influence securities regulations, ensuring fair consideration.
Originally, Reg CF set a funding cap of $1 million. The anemic amount was indicative of people making rules who simply did not understand private securities offerings. The small amount catered to few, very small issuers and effectively made operating a Funding Portal a failed experiment. In recognition of the shortcomings during the first Trump administration, the Republican-controlled SEC boosted the funding cap to a more servicable $5 million.
While the $5 million cap was a significant improvement that has improved activity in the sector, many insiders would like to see the cap increased to accommodate a broader spectrum of private firms, including more mature companies, and to make it easier for platforms to generate revenue from issuers. Sustainability and access to capital for smaller firms are key.
Under the rules, the SEC has the authority to increase the exemptions funding cap without Congressional approval.
In a letter addressed to SEC Chairman Paul Atkins, Crowdfund Capital Advisors (CCA) founder Sherwood Neiss, who is a securities crowdfunding OG, told the regulator that the current $5 million funding cap “has become a binding constraint on capital formation for a substantial share of Reg CF issuers.
“Empirical evidence demonstrates that the cap fragments otherwise efficient capital raises into multiple offerings without providing commensurate investor-protection benefits,” explained Neiss.
He shared that a modest increase to $10 million risks recreating some of the existing inefficiencies while noting that issuers raising $10 to $20 milloin tend to be post-revenue and more mature. A more established firm typically holds less risk than a pre-revenue startup. Going forward, the exemption would be adjusted for inflation.
“Such action would promote capital formation, enhance market efficiency, preserve investor protection, and expand issuer choice within the exempt offering framework.”
In an email, Neiss explained that Reg CF has been operating for almost a decade and the data clearly shows that the $5 million cap is no longer aligned with how real companies grow.
“One of the challenges in evaluating Reg CF is that the SEC’s public data significantly understates what issuers actually raise, largely due to inconsistent Form C-U compliance. CCLEAR [CCA data tracking] tracks transaction-level data across offerings, which gives a much more accurate picture of capital formation and follow-on behavior,” explained Neiss
He said that the current funding cap fragments capital formation rather than constraining risk, which is ostensibly the goal of some policymakers.
“Issuers routinely return for follow-on offerings or layer in parallel exemptions, even though they could operate more transparently and efficiently under a single Reg CF raise with standardized disclosures,” Neiss stated.
Neiss said that $20 million in funding could allow Reg CF to support legitimate Series A funding for companies that would like to raise funds from customers, not just venture firms. This does not compel anyone to use the exemption; it simply expands capital formation options, which is part of the SEC’s mission.
“What often gets lost is that Reg CF already has one of the most standardized disclosure regimes in the exempt market,” said Neiss. “Increasing the cap doesn’t weaken investor protection—it keeps capital formation in a framework where disclosures are comparable, auditable, and increasingly data-driven.”
Neiss said that where there is light, we should move towards it.
“Regulation Crowdfunding has brought more transparency to early-stage investing than almost any other exemption. Raising the cap builds on that success rather than pushing issuers into workarounds.”
