Crowdfunding
How to Raise Funds Under Reg CF
Sep 01, 2023
Raising funds for a startup is a complex process that involves not only attracting investors but also ensuring legal and regulatory compliance. This is part of our educational series on how to raise funds in the United States.
What is equity crowdfunding or Reg CF?
Equity crowdfunding, also known as Regulation Crowdfunding or Reg CF, is a method for companies in the United States to raise capital by offering securities to investors through online platforms and social media. Here are some key points about equity crowdfunding:
Legal Framework: Reg CF was introduced as part of the JOBS Act under Title III. It allows companies to conduct online-only offerings of securities, reaching out to both accredited and non-accredited investors.
Fundraising Limit: Companies can raise up to $5 million in a rolling 12-month period under Reg CF.
Intermediaries: To conduct a Reg CF offering, companies must use SEC-registered intermediaries, which can be either broker-dealers or funding portals.
Investor Expectations: Unlike other forms of crowdfunding (like donation-based or reward-based crowdfunding), in equity crowdfunding, investors expect to receive securities (e.g., equity, convertible notes) in return for their investment.
Eligibility: Only U.S. companies are eligible to raise funds under Reg CF. Some categories of issuers, such as reporting companies and those with no specific business plan, are ineligible.
Form C: Companies conducting Reg CF offerings are required to file a detailed offering document known as Form C with the SEC. This document provides information about the company, its business, financial condition, management team, and more.
Investor Limits: Both accredited and non-accredited investors can participate in Reg CF offerings. However, non-accredited investors are subject to certain investment limits based on their income and net worth.
Resale Restrictions: Securities purchased through Reg CF offerings generally cannot be resold for a year, unless specific conditions are met.
Advertising: Companies are allowed to advertise their Reg CF campaigns, and it is often recommended to do so to attract investors. However, advertising must comply with SEC rules.
Financial Information: Reg CF issuers are required to provide financial information, including financial statements, in their Form C. The level of financial review (e.g., certification by the CEO, review by an independent accountant) depends on the amount of funds sought and whether it's the company's first Reg CF offering.
Campaign Duration: The minimum duration for a Reg CF offering is 21 days, but campaigns can last longer, typically one to three months. Investors have the right to cancel their investment during this period.
Equity crowdfunding provides a way for startups and small businesses to raise capital from a broad investor base, which can include individual retail investors.
However, it also comes with regulatory requirements and limitations to protect investors and maintain market integrity. Companies considering Reg CF should carefully plan and comply with all regulatory requirements to have a successful crowdfunding campaign.
About Capital Engine®
Capital Engine® provides forward-thinking organizations with efficient and scalable private capital and investor management solutions, for both traditional and digital assets.
Built for high-performance capital raising, our technology helps leverage the opportunity to better originate and showcase a diverse selection of private investment deals and offer these to investors i.e. a deal’s potential viability can be better assessed, market appetite determined and transaction promptly closed.
Our clients include broker dealers, family offices, wealth managers, incubators, accelerators, social impact and real estate funds, in providing customized SaaS solutions to power private capital and alternative investment platforms, with a strong focus on investor management services.
Interested in raising capital
Request a Call / Demo
What is equity crowdfunding or Reg CF?
Equity crowdfunding, also known as Regulation Crowdfunding or Reg CF, is a method for companies in the United States to raise capital by offering securities to investors through online platforms and social media. Here are some key points about equity crowdfunding:
Legal Framework: Reg CF was introduced as part of the JOBS Act under Title III. It allows companies to conduct online-only offerings of securities, reaching out to both accredited and non-accredited investors.
Fundraising Limit: Companies can raise up to $5 million in a rolling 12-month period under Reg CF.
Intermediaries: To conduct a Reg CF offering, companies must use SEC-registered intermediaries, which can be either broker-dealers or funding portals.
Investor Expectations: Unlike other forms of crowdfunding (like donation-based or reward-based crowdfunding), in equity crowdfunding, investors expect to receive securities (e.g., equity, convertible notes) in return for their investment.
Eligibility: Only U.S. companies are eligible to raise funds under Reg CF. Some categories of issuers, such as reporting companies and those with no specific business plan, are ineligible.
Form C: Companies conducting Reg CF offerings are required to file a detailed offering document known as Form C with the SEC. This document provides information about the company, its business, financial condition, management team, and more.
Investor Limits: Both accredited and non-accredited investors can participate in Reg CF offerings. However, non-accredited investors are subject to certain investment limits based on their income and net worth.
Resale Restrictions: Securities purchased through Reg CF offerings generally cannot be resold for a year, unless specific conditions are met.
Advertising: Companies are allowed to advertise their Reg CF campaigns, and it is often recommended to do so to attract investors. However, advertising must comply with SEC rules.
Financial Information: Reg CF issuers are required to provide financial information, including financial statements, in their Form C. The level of financial review (e.g., certification by the CEO, review by an independent accountant) depends on the amount of funds sought and whether it's the company's first Reg CF offering.
Campaign Duration: The minimum duration for a Reg CF offering is 21 days, but campaigns can last longer, typically one to three months. Investors have the right to cancel their investment during this period.
Equity crowdfunding provides a way for startups and small businesses to raise capital from a broad investor base, which can include individual retail investors.
However, it also comes with regulatory requirements and limitations to protect investors and maintain market integrity. Companies considering Reg CF should carefully plan and comply with all regulatory requirements to have a successful crowdfunding campaign.
About Capital Engine®
Capital Engine® provides forward-thinking organizations with efficient and scalable private capital and investor management solutions, for both traditional and digital assets.
Built for high-performance capital raising, our technology helps leverage the opportunity to better originate and showcase a diverse selection of private investment deals and offer these to investors i.e. a deal’s potential viability can be better assessed, market appetite determined and transaction promptly closed.
Our clients include broker dealers, family offices, wealth managers, incubators, accelerators, social impact and real estate funds, in providing customized SaaS solutions to power private capital and alternative investment platforms, with a strong focus on investor management services.
Interested in raising capital
Request a Call / Demo
Latest Articles
