The New Regulations for the ICO Phenomenon 7

StartEngine’s ICO 2.0 conference enlightens entrepreneurs

An Initial Coin Offering, also commonly referred to as an ICO, is a fundraising mechanism in which new projects sell their underlying crypto tokens in exchange for bitcoin and ether. It’s somewhat like an Initial Public Offering (IPO) in which investors purchase shares of a company.


ICOs are a relatively new phenomenon but have quickly become a dominant topic of discussion within the blockchain community.


Many view ICO projects as unregulated securities that allow founders to raise an unjustified amount of capital, while others argue it is an innovation in the traditional venture-funding model. The U.S. Securities and Exchange Commission (SEC) is re-examining the funding models of many ICOs. The most important criteria to consider is whether or not the token passes the Howey Test. If it does, it must be treated as a security and is subject to certain restrictions imposed by the SEC.


StartEngine is the leading regulated ICO (Initial Coin Offering) 2.0 platform in the U.S., connecting everyday investors with tomorrow’s progressive companies. StartEngine has raised capital for more than 150 companies and has nearly 140,000 registered investors. The company based in LA was created in 2014 by Howard Marks and is committed to revolutionizing the ways companies raise capital.


At the ICO 2.0 conference in April in Santa Monica, business leaders from around the world discussed the next phase of the marketplace: how companies can sell security tokens using exemptions from registration under the Securities Act.


With more than 1,000 attendees, 40 speakers and panelists, and 20 ICO pitches, the event was a huge success. Keynote speakers included Patrick Byrne (CEO of, tZERO), Gil Penchina (Investor in Brave, Ripple, Filecoin, Civic, Paypal, Polychain, AngelList), Tai Lopez (Investor, Entrepreneur, Author, Forbes Top 20 Influencer), and Lou Kerner (Partner, CryptoOracle). The event effectively educated the audience on the path to liquidity for security tokens and how they will be traded on the secondary market.


“Much has changed since November with the SEC taking action and issuing subpoenas to existing ICOs. It’s more important than ever that the industry learns about the ICO 2.0 and how to move forward with government regulation along the path to liquidity,” said Howard Marks, co-founder and CEO of StartEngine.


Companies today are starting to learn how to use the JOBS Act exemptions and stay out of trouble when launching their ICOs (Initial Coin Offerings). At ICO 2.0, conference-goers learned how funds can be raised and how funds need to be managed and disclosed. Some of these regulations or exemptions are:


••Regulation A+ allows companies to raise up to $50 Million per year. It requires a two-year audit and a SEC qualification, which can take up to 3-4 months to get and costs around $100,000 in legal and financial services. The great thing about this regulation is that the shares are immediately tradeable after they are sold and delivered. Due to the high cost, this is a great regulation for larger businesses.


••Regulation Crowdfunding allows companies to raise up to $1.07 million per year and is faster to implement and far less expensive ($5,000 to $20,000). It is ideal for smaller companies.


These two exemptions can be paired with other exemptions that allow accredited investors only. These accredited investors can contribute with unlimited amounts without affecting the total allowable amount under these exemptions. These exemptions are:


••Regulation D 506 (c) allows companies to raise unlimited amounts from accredited investors. There are not specific requirements about what needs to be disclosed and the SEC is not involved. The shares become tradeable after one year, and the cost is minimal.

••Regulation S is like the previous one but specifically used for international accredited investors. This regulation is not necessary as international investors can also be accepted under Regulation D 506. Many companies prefer regulation D 506 because it blocks US investors from seeing it.


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