Resources

What is Crowdfunding?

Crowdfunding generally refers to a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people. The Jumpstart our Business Startups (“JOBS”) Act of 2012 required the SEC to adopt rules providing for securities-based crowdfunding. As a result, in 2015, the SEC adopted crowdfunding rules that allowed the general public the opportunity to participate in the early capital raising activities of start-up and early-stage companies and businesses.

What is Regulatory Crowdfunding?

Regulatory Crowdfunding enables eligible companies to offer and sell securities to a large pool of investors through online platform. Companies can use Regulation Crowdfunding to offer and sell securities to the investing public giving the public the opportunity to participate in the early capital raising activities of start-up and early-stage companies and businesses. 

The rules: Require all transactions under Regulation Crowdfunding to take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal permit a company to raise a maximum aggregate amount of $5 million through crowdfunding offerings in a 12-month period limit the amount individual non-accredited investors can invest across all crowdfunding offerings in a 12-month period and require disclosure of information in filings with the Commission and to investors and the intermediary facilitating the offering. 

Pros of Equity Crowdfunding: 

Terms: One of the primary advantages of equity crowdfunding is the ability for companies to set their own terms, including valuation and Employee Stock Ownership Plan (ESOP). This flexibility empowers entrepreneurs to structure deals that align with their business goals and vision. 

Quick Access to Capital: Equity crowdfunding platforms often support a rolling close feature, enabling companies to receive funds incrementally as they reach milestones. 

Control Over Timeline: Unlike traditional fundraising routes, equity crowdfunding allows companies to define their own fundraising timeline. This autonomy enables entrepreneurs to adapt their approach based on market conditions and investor interest. 

Consolidated Investor Management: Most crowdfunding platforms streamline investor management by consolidating all investors into a Special Purpose Vehicle (SPV). This simplifies administrative tasks such as communication, reporting, and shareholder engagement. 

Inclusivity of Investors: Equity crowdfunding opens doors to both accredited and non-accredited investors, expanding the pool of potential backers. This element is key if you have non-accredited acquaintances that would like to support your company. Access to 

Investor Networks: Crowdfunding platforms boast extensive investor networks, providing companies with exposure to thousands of potential backers. Leveraging these networks can amplify outreach efforts and increase the likelihood of fundraising success.

Investor Type

Because of the risks involved with securities-based crowdfunding, you are limited in how much you can invest during any 12-month period in these transactions.

Networth Calculation

Generally, to qualify as an accredited investor under the net worth test, you must have a net worth that exceeds $1 million, either alone or with a spouse or spousal equivalent, at the time of the sale of the securities

Types of Securities

Financial Securities are certificates of investment, evidence of debt or equities representing ownership in a company or enerprise. Your ownership in the company is bounded by an agreement between you and the issuer. The term refes to traditional and alternative investment such as Stocks, Bonds, Mutual Funds and Derivatives The way it works is that when invest in a company through capital raising, you own a piece of that company and model for calculating your % stake depends on the type of securities the issuer is offering.