Raising Capital
Regulation Crowdfunding
 May 15, 2023
Regulation Crowdfunding (also known as Regulation CF or Reg CF) was introduced in 2015 as one part of the Jumpstart Our Business Startups Act, or JOBS Act. It allows companies to raise up to $5 million in a 12-month period through a registered funding portal or broker-dealer.

Regulation CF is an exemption to the registration requirements under the Securities Act of 1933 which means that a full registration of the security offering is not required.

Although a registration and review of the offering by the securities regulators is not required, an issuer of securities under the Reg CF exemption must meet certain disclosure requirements and must comply with regulations regarding, among others, the marketing of the securities and investor limitations.

Some of the key components of the exemption are:
  • Any type of U.S. entity can utilize Regulation CF
  • Companies required to provide financial statements certified by an independent public accountant for offerings over $107,000
  • Raise amount limited to $5M in a 12-month period
  • Entities may sell securities in all 50 states
  • An online intermediary must be used to market and sell the securities 
  • Companies must disclose how the funds will be used and provide updates on the progress of the project.
  • Both accredited and non-accredited investors can invest, although investors are limited to investing a certain dollar amount based on their income or net worth;
  • Typically $2,200 or 5% of their annual income or net worth (whichever is greater) in a 12-month period; and 
  • Regulations now permit issuers to “test the waters” or solicit indications of interest prior to choosing which exempt strategy, such as Reg CF, Rule 506 or Reg A, to use.

Advantages of Reg CF
  • Access to a larger pool of investors: With Reg CF, companies can solicit investments from anyone, regardless of their income or net worth.
  • Lower costs: Compared to other regulations, Reg CF is less expensive because the legal and compliance costs are lower.
  • No SEC registration: Companies don't need to register with the SEC to raise funds under Reg CF.
  • Easier disclosure requirements: The disclosure requirements for Reg CF are less stringent than other regulations, which makes it easier for companies to comply.

Disadvantages of Reg CF
  • Low investment limits: Investors can only invest up to a certain amount depending on their net worth and income.
  • Limitations on the amount of capital raised: Companies can only raise up to $5 million in a 12-month period.
  • No secondary market: Investors are not able to sell their shares until a liquidity event occurs.

Regulation CF requires issuers to file a disclosure document that includes 2 years of GAAP financial, who your officers, directors and significant stakeholders are, past financings, intended use of funds, and all material risks.

Some limitations of Regulation CF:

The $5 million raise limit may not be sufficient for some businesses (we can help with strategies to work in conjunction with a Reg CF raise to increase the overall raise amount). 

Non-accredited investors are limited to investing the greater of 10% of their income or net worth each year.

Any advertisements done outside the portal are limited to the following information:
  1. a statement that the issuer is conducting an offering and a link to their funding portal;
  2. the terms of the offering; and
  3. identifying facts like name, legal identity, location, phone, website, e-mail, and a brief description of the business.
  4. the “terms of the offering” including:
  •     the amount of securities offered
  •     the nature of the securities
  •     the price of the securities; and
  •     the closing date of the offering period.
Regulation CF requires ongoing reporting for at least 1 year including CEO certified financial statements. 
Interested in learning more about Regulation Crowdfunding? 

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. 

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