The Securities and Exchange Commission (SEC) has extended its support to small business owners and entrepreneurs by making it easier and more affordable for them to raise capital. They have done so by legalizing Series 79 sponsorship, which permits funding for small business owners more accessible and less complicated. For budding entrepreneurs, the prospect of raising capital can seem daunting. With so many hoops to jump through and legalities to consider, it’s no wonder that some aspiring business owners simply give up on the idea of securing a viable source of funding for their venture. However, with the recent legalization of Series 79 sponsorship, entrepreneurs now have a new, streamlined way to connect with potential investors. If you are a business owner, this article will give you a comprehensive overview of this development and its potential benefits for businesses.
Understanding Securities and Exchange Commission:
The Securities and Exchange Commission is responsible for regulating securities in the United States. It approves securities offerings, examines and enforces compliance with securities laws, and ensures that investors have access to correct information. Under the SEC’s updated regulations, managing investors’ equity transactions no longer falls under the investment bank’s custody alone. Now, anyone with suitable credentials can serve as a sponsor for businesses raising funds.
What Is Series 79 Sponsorship?
Series 79 sponsorship allows qualified holders to oversee a business’s equity issuance or sale. These holders are typically brokerage firms that have been authorized by the Financial Industry Regulatory Authority (FINRA) to perform as a sponsor. But, now even accounting companies or individual agents with the applicable experience and criteria can serve as sponsors under SEC regulations. This is an essential distinction since it reduces the costs associated with going public and broadens the range of businesses that can take advantage of the privilege.
What Many Business Owners Don’t Know:
Investment banks have restrictive prerequisites that businesses must meet to get public representation. They formed a semi-monopoly, with a limited number of large banks leading almost all IPOs and equity funding for emerging businesses. Smaller organizations and rising businesses lacked the financial credentials to crack into this specific market. This would no longer be the case since even non-traditional sponsors could now serve, resulting in a more stable and growing market for financiers and businesses.
Series 79 Sponsorship Benefits:
With the legalization of Series 79 sponsorship, small businesses now have more access to potential investors and are able to secure funds with less effort. This means entrepreneurs can focus on running their business instead of worrying about regulatory compliance. Additionally, sponsors have an easier time vetting prospective investors, as the SEC requires them to be a registered broker-dealer, meaning they are subject to extensive background and financial checks.
Series 79 sponsorship would benefit start-ups and growing businesses who wished to raise capital by permitting smaller accommodation fees and flexible sponsorship arrangements. In the past, investment banks, which are the most prevalent sponsors, required equity-raising companies to spend approximately $200,000-$500,000 in sponsor fees alone. Also, businesses cannot advertise their funding opportunities and must persuade sponsors to represent them. Similarly, two significant aspects clarified by deregulation are fewer limitations on sponsor advertising and disbursement, which increase sponsor rivalry and sponsorship quality.
For entrepreneurs who don’t have the resources or experience to go through the traditional process of raising capital, Series 79 sponsorship is an ideal option. It also gives venture capitalists more opportunities to invest in promising startups without having to devote significant resources to due diligence. Furthermore, it eliminates the need for a large administrative staff and costs associated with broker-dealer registration.
Keep in Mind!
In order to avoid violating the provisions of the Series 79 sponsorship, it is crucial to adhere to a few fundamental guidelines. First, professionals must not engage in unethical and dishonest operational practices, as this would be a clear violation of the rules governing Series 79 sponsorship. Secondly, unauthorized sharing of confidential information is strictly prohibited, as it could lead to severe legal penalties. Lastly, it is essential to continually update one’s knowledge about the changing regulatory landscape and be mindful of the professional obligations and responsibilities that come with Series 79 sponsorship, as ignorance or lack of compliance can result in sanctions or even sponsorship withdrawal.
The recent change in Series 79 sponsorship regulations by the SEC marks a significant milestone in the realm of business and finance. Entrepreneurs, business owners, and franchise owners must acquaint themselves with these new rules to reap their benefits. These regulations level the playing field and broaden the spectrum of sponsorship possibilities, simplifying the process for privately held businesses to raise capital. This presents an exceptional opportunity for small companies to secure funding at a reasonable cost and foster their growth. While this new approach to capital raising may seem daunting, it opens up greater prospects for both smaller businesses and investors alike.