On March 28, 2013, the SEC's Division of Trading and Markets granted no-action relief to AngelList LLC, an operator of a membership-only web portal limited to accredited investors, and AngelList Advisors LLC, the manager of investment funds formed to invest in start-up companies. The letter advises that, subject to certain conditions, the staff of the Division will not recommend enforcement action against the AngelList entities for failure to obtain broker-dealer registration.

This is the second no-action letter issued to an "accredited crowdfunding" platform by the Division during the final week of March. In both letters, registered investment advisers sought to operate internet-based platforms through an investment vehicle that matches accredited investors and startup companies seeking capital. Both investment vehicles will receive compensation in the form of a carried interest for traditional advisory and consulting services and not transaction-based compensation, permitting them to avoid broker-dealer registration.

The no-action request explains that AngelList plans to form a new, separate platform (through AngelList Advisors LLC) designed to provide accredited investors the opportunity to invest in early stage companies alongside investors identified by AngelList Advisors as experienced angel investors (referred to as lead angels). AngelList Advisors would require companies seeking funding through the new platform to undergo a diligence and approval process and meet certain established guidelines. Accredited investors on the AngelList Advisors platform would have the opportunity to invest alongside lead angels via investment vehicles. Investments in the vehicles would be exempt from registration under Rule 506.

AngelList Advisors would provide investment advice and administrative services to the investment vehicles under an agreement in exchange for a right to receive carried interest and reimbursement of expenses.

Neither the AngelList request for relief nor the staff's no-action letter suggests that the relief provided to AngelList is premised on exemption from broker-dealer registration provided by Section 201(c) of the Jumpstart Our Business Startups Act of 2012 (JOBS Act) and codified in Section 4(b) of the Securities Act. Instead, the request for relief discusses SEC guidance on broker-dealer registration pre-dating the JOBS Act.

Industry participants and commentators have referred to platforms like the ones described in these requests as "accredited crowdfunding platforms" because of certain similarities to the funding portals contemplated by Title III of the JOBS Act. Practitioners should note that the SEC has not yet adopted crowdfunding rules, and therefore Title III's exemptions from the securities laws are not yet available. For additional information on Title III, see Practice Note, JOBS Act: Crowdfunding Summary.

For more information on these "accredited crowdfunding platform" no-action letters and the Section 4(b) exemption from broker-dealer registration, see Practice Note, JOBS Act: Regulation D and Rule 144A General Solicitation Summary: Exemption from Broker-Dealer Registration.