Equity Crowdfunding

Why should I raise funds in a crowdfunding environment?
This gives the founders an opportunity to attract investors that are your friends, family, and customers through an approved crowdfunding platform. Think of your most loyal customers as investors in your company.

What is the maximum amount I can raise?
With Reg CF – Regulation Crowdfunding, you can raise up to $1,070,000 per 12-month period. There are ongoing discussions that this amount may be increased in the future. With a Regulation D offering, you can raise an unlimited amount from accredited investors. A Regulation A+ offering can raise up to $50 million per year. A high percentage of offerings on the major crowdfunding platforms are Reg CF and it is a small percentage of companies that actually reach the maximum of $1,070,000 (WhiteClouds was one of those few).

How many investors can I have?
In theory, this is unlimited, but at certain numbers the SEC requires different reporting requirements. As per the SEC, “SEC Section 12(g) registration is required if an issuer has on the last day of its fiscal year, total assets greater than $25 million and the class of equity securities is held by more than 2,000 persons, or 500 persons who are not accredited investors. In that circumstance, an issuer is granted a two-year transition period before it is required to register its class of securities pursuant to Section 12(g), so long as it timely files all of the annual reports required by Regulation Crowdfunding during such period.” Depending on the crowdfunding platform you use, the type of security you are offering, and the contractual aspects of the offering, there are different ways of dealing with many shareholders on your cap table. This can be as simple as using a contract that proxies all voting power to a lead investor and the CEO. StartEngine and Wefunder both have solutions for dealing with large numbers of shareholders. Voting Rights thresholds can also be defined (for example, a minimum of $25,000 investment) before an investor has any voting rights.

What kind of financial reports do I need?
You must disclose up to two years of financials in GAAP format (Generally Accepted Accounting Principles). If you are raising less than $107,000, you must provide GAAP financials with an explanations of taxes. If you are raising more than $107,000 you will need “reviewed” financials from an independent accounting organization. Certain equity crowdfunding portals required “audited” financials. Most of the portals have relationships with accounting firms that can prepare “reviewed” financials for much less than you might normally find, sometimes for as little as a few thousand dollars.

Can I publicly promote my crowdfunding campaign?
If you are using Reg CF, Reg D Rule 506(c), or Reg A+, you can promote your fundraising (with a few caveats). See Section 4 on the SEC’s website for more details: https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm. You are not allowed to advertise if you use Reg D, Rule 506(b). You can’t begin any promotions until your Form C is filed with the SEC, but once this is done, you can advertise with any method you choose such as, emails, Facebook and other social platforms, traditional advertising, and word of mouth. You must include a link to your campaign in any advertisements.