Frequently Asked Questions [noindex]2022-06-13T08:19:41-07:00

Frequently Asked Equity Crowdfunding Questions

New to the crowdinvesting or capital raise space and want to learn more about some of the basics? Check out our list below of commonly asked questions in the equity crowdfunding space.

If you’d prefer to speak with a member of our team and walk through any questions you have, please don’t hesitate to contact us with your question or request to schedule a call with our team:

What is the difference between a Reg D 506(b) vs 506(c)?2022-04-25T15:33:49-07:00

There are two significant differences between Regulation D Rule 506(b) vs Rule 506(c):

Advertising the Offering

  • Rule 506(b): Advertising IS NOT allowed. Issuers are only allowed to approach existing relationships of theirs to invest in the offering.
  • Rule 506(c): Advertising IS allowed to accredited investors only.

Accredited Investor Verification

  • Rule 506(b): No formal verification is required by the issuer. The investor will simply attest that they are accredited.
  • Rule 506(c): Formal verification is required to verify if the investor is accredited.
What are the Primary Stock Exchanges in the US?2023-01-11T07:29:09-08:00

Here is a list of some of the main stock exchanges in the United States:

  • New York Stock Exchange (NYSE): The largest and oldest stock exchange in the United States, located in New York City. The NYSE lists some of the largest and most well-known companies in the world, including Apple, Coca-Cola, and Microsoft.
  • NASDAQ: The second-largest stock exchange in the United States by market capitalization. The NASDAQ is known for its electronic trading platform and for listing technology companies such as Amazon, Facebook, and Tesla.
  • Chicago Board of Trade (CBOT): A commodity and financial futures and options exchange in Chicago. It’s part of the CME Group, it provides trading in agricultural and financial products.
  • Chicago Mercantile Exchange (CME): A global derivatives marketplace in Chicago that provides trading in futures contracts and options on futures contracts in various asset classes, including agricultural products, energy, and financials.
  • American Stock Exchange (AMEX): A former stock exchange in the US, it merged with the NYSE in 2008 and the name is used for certain NYSE listing option.
  • BATS Global Markets: A global stock exchange, it operates four exchanges, including the BZX Exchange and BYX Exchange in the U.S. It is currently the third-largest stock exchange operator in the U.S.
  • Intercontinental Exchange (ICE): A global network of exchanges, including the New York Stock Exchange, the ice futures exchange and several other marketplaces for futures and options trading
  • OTC Markets: (Over-the-counter) It is a platform for trading securities that do not meet the listing requirements of traditional stock exchanges. It includes the OTCQX, OTCQB, and Pink markets.

This list is not exhaustive and there are other local and regional exchanges across the US, but these are the most widely known and active ones.

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What is an institutional investor?2022-05-04T16:39:53-07:00

An institutional investor is an entity that pools capital to purchase securities or other types of investment assets on behalf of its shareholders or members. Some examples of institutional investors include:

  • Certain types of banks
  • Credit unions
  • Hedge funds
  • Mutual Funds
  • Investment advisors
  • REITs
  • Endowments
  • Pension Funds
  • and more
What is KYC (Know Your Customer) Compliance?2023-01-11T07:24:44-08:00

KYC (Know Your Customer) is a process of identifying and verifying the identity of a customer before an account is opened or a transaction is completed. This is typically done by collecting and confirming personal information such as the customer’s name, address, government-issued identification number, and other relevant details. The goal of KYC is to ensure that the financial institution or company knows who its customers are and can monitor their transactions for suspicious activity, as well as to comply with laws and regulations intended to prevent fraud and money laundering.

The process of KYC may include steps such as:

  1. Collecting personal information from the customer, such as a government-issued ID and proof of address
  2. Verifying the customer’s identity using various means, such as by comparing the information provided by the customer with publicly available information or by checking the customer’s credit report
  3. Checking the customer against various lists of known or suspected criminals, money launderers, or other individuals with a history of financial fraud or illegal activity.

KYC is an important part of the compliance program of financial institutions and other regulated companies, which are required to implement KYC procedures by governments and regulatory bodies.

View Full Answer Page: What is KYC (Know Your Customer) Compliance?

What is an Equity Offering?2023-01-18T23:34:33-08:00

An equity offering is the process by which a company raises capital by issuing and selling shares of stock to investors. The proceeds from the sale of the stock are used by the company to finance various projects, such as building a new facility, expanding operations, or acquiring other companies.

The equity offering process typically begins with the company hiring an investment bank or underwriting firm to help structure the offering and bring it to market. The investment bank acts as an intermediary between the company and potential investors, and is responsible for underwriting the offering, which means they purchase the shares from the company and then resell them to investors.

The company will then file a registration statement with the Securities and Exchange Commission (SEC) and provide potential investors with a prospectus, which is a document that contains detailed information about the offering, including the terms and conditions of the stock, the company’s financial condition, and the use of proceeds from the offering.

After the registration statement is cleared by the SEC, the investment bank will then market the offering to potential investors. The offering can be sold through a variety of channels, including public offerings, private placements, or a combination of both.

In a public offering, the stock is sold to the general public through a network of securities dealers. In a private placement, the stock is sold to a limited number of sophisticated investors, such as institutions or wealthy individuals, and is not generally available to the public.

An equity offering is also known as an Initial Public Offering (IPO) if it is the first time a company is issuing shares to the public. In this case, it is the first time the company’s shares are available to the general public and is usually considered as a sign of the company’s growth and maturity.

In summary, an equity offering is a process by which a company raises capital by issuing and selling shares of stock to investors. Investment banks act as intermediaries and help structure and market the offering to potential investors. The company provides detailed information about the offering through a prospectus, which is filed with the SEC. The offering can be sold through public offerings or private placements. An equity offering can also be an Initial Public Offering (IPO) if it is the first time a company is issuing shares to the public.

View Full Answer Page: What is an Equity Offering?

What is the difference between Common Stock and Preferred Stock?2022-04-25T08:32:38-07:00

The two main differences between preferred and common stock are:

1.  Common stock shareholders typically have voting rights whereas preferred shareholders do not have voting rights

2. Preferred stock is considered the first money out of the business. So whether you are talking about dividends being paid or even the sale of the company; preferred shareholders would be the first ones to be paid.

What is a Seed Round?2023-01-11T07:28:28-08:00

A seed round is the first round of funding for a startup company. It typically involves raising money from a small group of investors, such as friends, family, and angel investors. The money raised in a seed round is used to develop a proof-of-concept and create a working prototype of the product or service. This round is considered the earliest stage of funding and is used to get the startup off the ground, and establish the initial traction for the company. Seed rounds are generally smaller in terms of the amount of capital raised compared to later rounds, with the goal to secure enough funds to validate the business idea and achieve key milestones that would increase the company’s valuation and attract investors.

Seed rounds also usually involve less formal documentation, such as a term sheet or detailed financials, and often involve convertible debt or equity-based crowdfunding, allowing the startup to raise money without giving up too much control or equity in the company. The investors in this stage usually don’t have high expectations on the company’s return, but look to the potential of the startup’s idea.

View Full Answer Page: What is a Seed Round?

What is the Difference Between KYC and AML?2023-01-11T07:24:24-08:00

KYC (Know Your Customer) and AML (Anti-Money Laundering) are both compliance procedures that financial institutions and other regulated companies are required to implement in order to prevent fraud and money laundering.

KYC is the process of identifying and verifying the identity of a customer before an account is opened or a transaction is completed. This includes collecting and confirming information such as the customer’s name, address, and government-issued identification number, as well as verifying the customer’s identity through various means such as a government-issued ID or a credit report. The goal of KYC is to ensure that the financial institution or company knows who its customers are and can monitor their transactions for suspicious activity.

AML, on the other hand, is a set of laws, regulations, and procedures that financial institutions and other regulated companies must follow to prevent, detect, and report money laundering activities. This includes monitoring customer transactions for suspicious activity, filing suspicious activity reports (SARs) with the relevant authorities, and implementing internal controls to ensure compliance with AML regulations. The goal of AML is to prevent the illicit use of financial systems for money laundering or terrorist financing.

In short, KYC is focused on identifying the customer and ensuring the institution have a accurate information of the customer, while AML aim to detect and prevent financial crimes and illegal activity such as money laundering using their financial systems.

View Full Answer Page: What is the Difference Between KYC and AML?

How important is offering structure?2022-04-25T13:03:53-07:00

The structure and terms of the offering can have a significant impact on the success of the raise. It’s highly recommended that you consult with your marketing partner (as well as legal of course) as you plan your offering to ensure you land on an offering structure and offering terms that are going to appeal to the types of investors you’ll be targeting.

Some things to keep in mind:

1. Create time-based incentives

  • When possible, incorporate ways that create time-based investment deadlines into your offering. Investors that get in early before specific deadlines you set, will receive some sort of benefit for doing so.

2. Create amount based incentives

  • When possible, incorporate ways to incentivize investors for investing higher dollar amounts.

3. Select the right minimum investment

  • Choosing the right minimum is key for any type of capital raise. You want to find that sweet spot that isn’t too high, but also isn’t too low.

4. Don’t create unnecessary hurdles

  • Don’t create any unnecessary hurdles that will impede your ability to carry out a successful raise. I’ve witnessed many times in the past where issuers received input that they ran with only to end up regretting they did so as the raise progressed.
  • One major example of this I saw was a first-time Reg A issuer that had a self-imposed investment minimum outlined in their Form 1-A which essentially required that their funds remain in escrow until they reach a threshold of $750K into their offering. This essentially killed the offering as the issuer was not able to reinvest any of their early funds raised back into the offering to sustain the offering. They ended up having to file amendments with the SEC to remove this limitation so that they could continue, but it cost the issuer valuable time and money to remove this.
What is an accredited investor?2022-11-18T20:41:03-08:00

An accredited investor is someone who meets the income or net worth requirements that the Securities and Exchange Commission has defined for an accredited investor:

Financial Criteria for Accredited Investors

1.  Net Worth – Have an individual or joint net worth over $1 million (excluding their primary residence)

2. Income – Have income in excess of the following in each of the prior two tax years:

  • Over $200,000 per year individually
  • Or over $300,000 per year jointly (with spouse or partner)

Professional Criteria for Accredited Investors

3. Investment professionals who hold one of the following:

  • Series 7 – General Securities Representative License
  • Series 65 – Investment Adviser Representative License
  • Series 82 – Private Securities Offerings Representative License

4. Executive officers, directors or general partners of the company selling the securities

5. Any “family office” or “family client” that qualifies as an accredited investor

6. Specifically for investments in a private fund, anyone considered a “knowledgeable employee” of the fund

Anyone who does NOT meet these criteria would be considered a non-accredited investor.

What is Rule 506(b)?2022-05-04T16:33:27-07:00

Rule 506(b) of Regulation D allows companies to raise an unlimited amount of capital from an unlimited number of accredited investors. The primary SEC-regulated rules for this type of investment offering are:

1. Issuers are NOT allowed to advertise the offering to the general public. Any investments must come from existing relationships of the issuer.

2. Securities must be sold to accredited investors only.

What is the Difference Between Regulation A and Regulation S?2023-01-11T07:46:20-08:00

Regulation A and Regulation S are both securities regulations issued by the Securities and Exchange Commission (SEC) in the United States. They both relate to the offering and sale of securities, but they have some key differences:

  • Regulation A is an exemption from the registration requirements of the Securities Act of 1933, which means that companies can raise money from the public without having to register their securities with the SEC. Regulation A is sometimes referred to as “mini-IPO” because it allows companies to raise up to $75 million in a 12-month period, but with less regulatory requirements and costs than a traditional IPO.
  • Regulation S, on the other hand, is an exemption from the registration requirements of the Securities Act of 1933 that applies to offerings made outside the United States to non-U.S. persons (i.e., people or entities that are not residents of the U.S.). Regulation S allows companies to offer and sell securities to non-U.S. investors without registering the securities with the SEC. However, companies must still comply with other securities laws and regulations of the countries in which the securities are being offered and sold.

In summary, Regulation A generally is for companies who want to raise funds from the general public within the US and Regulation S is mainly for companies who want to raise funds from non-U.S persons or entities outside of the country.

View Full Answer Page: What is the Difference Between Regulation A and Regulation S?

What is a Convertible Note?2023-01-11T07:43:41-08:00

A convertible note, also known as a convertible debt or convertible bond, is a type of debt instrument that can be converted into equity at a later date. This means that the holder of the convertible note has the option to exchange the note for a specified number of shares of the issuer’s common stock at a pre-determined conversion price.

Convertible notes are typically issued by startups and early-stage companies that need to raise capital but want to delay the valuation of their company until a later date. The issuance of convertible notes allows companies to raise money now, while avoiding the burden and expense of pricing their equity.

The terms of a convertible note typically include the following:

  • Principal amount: The amount of money that the issuer is raising through the sale of the note.
  • Interest rate: The rate at which interest will accrue on the outstanding principal amount of the note.
  • Maturity date: The date on which the outstanding principal amount of the note must be repaid.
  • Conversion price: The price per share at which the note can be converted into equity.
  • Conversion ratio: The number of shares of common stock that will be issued for each $1 of principal amount converted.

Convertible notes can be attractive to investors because they offer the potential for upside in the form of equity in the company, while also providing downside protection in the form of a fixed interest rate. However, the value of a convertible note depends on the future performance of the underlying stock, and if the stock price doesn’t increase, the value of the note to the investor can decrease.

View Full Answer Page: What is a Convertible Note?

What type of legal resources do I need for my capital raise?2022-10-10T13:56:30-07:00

Before you embark on the journey of an online capital raise, it’s important to understand that you will need legal assistance to ensure you are compliant with your raise. An experienced law firm that specializes in compliance services for online capital raises will be an essential resource for you. They will help you get your offering filed with the SEC and ensure you are able to meet all of the SEC’s obligations.

Also important to note, you’ll want to have this legal resource available to weigh in on matters throughout the raise to help ensure that you are not making any misleading statements; especially for Regulation A and Regulation CF offerings. You need to be fully compliant at the beginning of your raise, but you also need to stay compliant throughout the raise. And there are lots of small intricacies in the regulation crowdfunding laws that often only a legal expert can help advise you on.

Even for Regulation D offerings, for example, where you’re targeting only accredited investors, an experienced legal resource is highly recommended. They can ensure you are legally able to make the type of offering you are planning to make and also can help fulfill various other legal obligations for Issuers (i.e. ensuring that no “bad actors” are involved)

Is there is a difference between Equity Crowdfunding and Crowdinvesting?2022-04-25T07:54:04-07:00

In short, there is no difference between these two terms and they can be used interchangeably.

Looking for a definition of equity crowdfunding? View our article here: What is equity crowdfunding?

What is a Series A Round?2023-01-11T07:28:41-08:00

A Series A round is the first round of venture capital financing for a startup company. It typically follows the seed round, in which a company raises money from friends, family, and angel investors to develop a proof-of-concept and create a working prototype of the product.

In a Series A round, the company will raise capital from venture capital firms and/or institutional investors. These investors usually provide a larger amount of capital than angel investors and in return will receive a larger percentage of ownership in the company. The funds raised in a Series A round are typically used to develop the product further, establish the initial customer base, and set up the necessary infrastructure to scale the business.

The Series A round is considered a more significant funding round than the seed round, as it marks the point at which a company has validated its business model and has demonstrated traction with customers.
Companies are expected to show more detailed information and plan on the use of the funds, the growth of the company and the current state of the market.

In a Series A round, a company may raise several million dollars, valuing the company at tens of millions of dollars, which is significantly more than the valuation in a seed round. The investors in this stage are usually looking for a substantial return on investment, usually, in the form of a buyout or IPO.

View Full Answer Page: What is a Series A Round?

What is Regulation A / Reg A?2023-01-18T21:37:22-08:00

Regulation A (Reg A, Regulation A+ or Reg A+) is a form of equity crowdfunding that allows businesses to advertise, sell and issue securities in their company to both non-accredited and accredited investors. Under Reg A, businesses can raise up to $75M in a 12-month period and are exempt from the more involved registration requirements outlined in the Securities Act of 1933.

Under Regulation A, there are two offering tiers:

  • Tier 1 allows issuers to raise up to $20 million in a 12-month period
  • Tier 2 allows issuers to raise up to $75 million in a 12-month period

This big difference between the two, outside of the maximum dollar limit, is that Tier 2 offerings require additional financial audit and reporting requirements in order to receive SEC qualification. For more on this, click here to read our blog post: What is the Difference Between Tier 1 and Tier 2 Regulation A Investment Offerings.

Regulation A went into effect in July of 2015 after the SEC adopted the final rules under Section 401 of the JOBS Act.

Businesses who want to utilize Reg A to raise capital must file Form 1-A with the SEC which the SEC must then review and qualify prior to the investment offering going live to the general public.

What are Pink Sheets / Pink Sheet Companies?2022-10-10T12:19:38-07:00

Pink sheets refer to stock listings that are traded over-the-counter (OTC) as opposed to on a major stock exchange such as the NYSE or NASDAQ. Oftentimes, companies that trade over-the-counter are able to meet the stricter set of requirements that would need to be fulfilled by a company to list on a major US stock exchange.

What is an ATS / Alternative Trading System?2022-10-10T14:12:01-07:00

An Alternative Trading System (ATS) is a trading venue that matches buyers and sellers of securities that are not listed on a public exchange. From a regulatory standpoint, Alternative Trading Systems are most often regulated as broker-dealers as opposed to being regulated as exchanges. An ATS must be reviewed and approved by the SEC prior to conducting business to operate as an exchange alternative.

For a list of current Alternative Trading Systems, you can visit the SEC’s website here to download the list ((which is updated by the SEC monthly: Alternative Trading System (“ATS”) List))

What are Restricted Securities?2022-04-24T07:30:22-07:00

Restricted securities refer to securities that an investor acquires through a private sale by the issuing company which are typically subject to some type of resale limitations. Types of restricted securities include:

What is a hedge fund?2022-04-25T06:41:57-07:00

A hedge fund is an entity that pools funds from members to invest largely in liquid assets using high-risk methods that have the potential to deliver high returns. Some of the more advanced tactics used by hedge funds include short selling, derivatives and leverage.

What is the maximum amount I can raise?2022-04-24T16:08:08-07:00

The following are the maximum amounts an issuer can raise in a 12 month period:

  • Regulation A (Tier 1) = $20M Limit
  • Regulation A (Tier 2) = $75M Limit
  • Regulation CF = $5M Limit
  • Regulation D 506(b) = No Limit
  • Regulation D 506(c) = No Limit
What is Regulation CF / Reg CF?2022-10-10T14:17:40-07:00

Regulation CF (Reg CF or Regulation Crowdfunding) is a form of equity crowdfunding that allows businesses to advertise, sell and issue securities in their company to both non-accredited and accredited investors. Under Reg CF, businesses can raise up to $5M in a 12-month period and are exempt from the more involved registration requirements outlined in the Securities Act of 1933.

Regulation CF went into effect in May of 2016 under Title III of the JOBS Act.

Businesses who want to utilize Reg CF to raise capital must file Form C with the SEC.

What is the NASDAQ?2023-01-11T07:29:24-08:00

The NASDAQ, short for National Association of Securities Dealers Automated Quotations, is a stock exchange based in New York City. It was founded in 1971 and is the second-largest stock exchange in the United States by market capitalization, behind the New York Stock Exchange (NYSE). It is known for its electronic trading platform and for listing technology companies such as Amazon, Facebook, and Tesla.

One of the main difference between NASDAQ and NYSE is that the NASDAQ operates as a dealer market while the NYSE is an auction market, what means that in the NASDAQ market, buyers and sellers negotiate trades directly with market makers, instead of via an auction, like in the NYSE.

The NASDAQ is home to many of the world’s leading technology and growth companies, including Apple, Microsoft, Intel, and Cisco Systems. It also provides trading in a wide range of other securities, including exchange-traded funds (ETFs), options, and bonds. Additionally, NASDAQ operates the NASDAQ Nordic and NASDAQ Baltic exchanges, providing trading in securities across Europe.

NASDAQ also operates other markets such as the Nasdaq Global Select Market, Nasdaq Global Market, and the Nasdaq Capital Market, which are segments of the NASDAQ Stock Market, with different listing and financial requirements, serving different types of companies.

View Full Answer Page: What is the NASDAQ?

What is Crowdfunding?2022-04-25T07:50:18-07:00

At its broadest definition, crowdfunding refers to the method of raising funds for a specific project or organization by raising smaller amounts of money from a very large number of people. Crowdfunding campaigns are typically done via the internet using various digital marketing tactics.

Want to know more about the four primary types of crowdfunding? View our article here: What are the types of crowdfunding?

What is Private Equity?2023-01-11T07:43:59-08:00

Private equity refers to the investment of capital in privately held companies, as opposed to publicly traded companies. Private equity investors typically invest in companies that are not publicly traded, with the goal of generating a high rate of return on their investment.

There are a few different ways that private equity firms may invest in companies, including:

  • Buyout: A buyout is the acquisition of a controlling interest in a privately held company, often with the goal of taking the company private. The investors may acquire all of the outstanding shares of the company or a majority stake.
  • Venture capital: This type of private equity investment is typically made in young, high-growth companies in the technology, healthcare, or other innovative sectors. Venture capital firms provide capital and expertise to help these companies scale and become successful.
  • Growth capital: Growth capital is a type of private equity investment that provides capital to companies that have already established themselves and are looking to expand. The investment is often used to finance new products, enter new markets, or make acquisitions.

Private equity firms generally have a longer-term investment horizon than other types of investors, and they often hold the assets they purchase for several years before exiting the investment. This is often done through an initial public offering (IPO), in which the company becomes publicly traded, or by selling the company to another buyer.

It can also have significant impact on the companies they invest, in both positive and negative way. Private equity firms may focus on cost cutting and streamlining operations to improve profitability, which can result in job losses or closures. On the other hand, they may help support the company’s expansion or bring in industry expertise that can help improve the company’s operations and increase its value.

View Full Answer Page: What is Private Equity?

Does my offering need to be qualified by the SEC?2022-04-25T07:33:36-07:00

For Regulation A offerings, formal SEC review and qualification is required before the issuer is allowed to advertise or sell any securities. This process is done through the submission of Form 1-A to the SEC.

  • Important to note here for a Regulation A – the SEC is in no way endorsing the issuer’s offering; they are simply “qualifying” it to certify that they met the SEC’s regulatory requirements for the offering.

For Regulation CF offerings, no formal SEC qualification is required, but issuers must complete and file Form C with the SEC prior to launching their investment offering.

For Regulation D 506(c) offerings, no formal SEC qualification is required, but issuers must complete and file Form D with the SEC within 15 days after the first sale of securities in the investment offering.

What is Rule 504?2022-05-04T16:33:57-07:00

Rule 504 of Regulation D allows companies to raise up to $10M of capital from accredited investors. The primary SEC-regulated rules for this type of investment offering are:

1. In most cases, issuers are NOT allowed to advertise the offering to the general public.

2. Securities must be sold to accredited investors only.

3. Issuers can raise a maximum of $10M of capital in a 12 month period.

4. Issuers are required to file a notice with the SEC using Form D within 15 days after the first sales of securities in the offering.

What is a SAFE (Simple Agreement for Future Equity)?2023-01-11T07:46:59-08:00

A “Simple Agreement for Future Equity” (SAFE) is a financing instrument that is designed to simplify the process of raising capital for startup companies. It is similar to a convertible note in that it allows investors to provide capital to a company in exchange for the right to receive equity at a later date, usually when the company raises a subsequent round of financing or achieves a liquidity event.

One key difference between a SAFE and a convertible note is that a SAFE does not accrue interest or have a maturity date, meaning that the investors do not have a guaranteed payout in the event that the company does not achieve certain milestones. Additionally, SAFEs are generally simpler to draft and execute than convertible notes, making them a more attractive option for early-stage companies that are looking to raise capital quickly.

A SAFE is often considered a more founder-friendly way of raising capital as SAFEs are simpler to use and don’t have interest payments. However, on the other side, SAFEs do not have any maturity date which means investors don’t have guaranteed return of their investment.

View Full Answer Page: What is a SAFE (Simple Agreement for Future Equity)?

What is the NYSE (New York Stock Exchange)?2023-01-11T07:29:44-08:00

The New York Stock Exchange (NYSE) is a stock exchange located in New York City. It is the largest and oldest stock exchange in the United States, and it is considered to be one of the most prestigious and important stock exchanges in the world. The NYSE lists some of the largest and most well-known companies in the world, including Apple, Coca-Cola, and Microsoft.

The NYSE operates as an auction market, which means that buyers and sellers come together on the trading floor (or remotely) to negotiate prices for securities. A Designated Market Maker (DMM) manages the trading of each security and is responsible for maintaining an orderly market and fair pricing by buying or selling when necessary.

The NYSE is a member-based organization, with companies that want to list on the exchange required to meet certain financial and other requirements. Once listed, companies must comply with ongoing reporting and governance requirements and adhere to strict rules and regulations to maintain their listing.

The NYSE is part of the Intercontinental Exchange (ICE) since 2013 and It operates under the name NYSE Group, Inc. It also operates other markets such as NYSE American and NYSE Arca, which are segments of the NYSE with different listing and financial requirements and serving different types of companies.

Listing on the NYSE can provide a company with increased visibility and credibility among investors, and it also tends to make it easier to raise capital through follow-on offerings. As well, it also generates higher trading volume and liquidity of the company’s shares.

View Full Answer Page: What is the NYSE (New York Stock Exchange)?

What is the CROWDFUND Act?2022-04-24T07:02:58-07:00

The CROWDFUND Act refers to Title III of the JOBS Act which was the core piece of this particular law that created a path for small businesses to use crowdfunding as a way to advertise, sell and issue securities in their business; something that was not previously permitted in the United States.

What is FINRA?2022-04-24T22:42:03-07:00

FINRA stands for the Financial Industry Regulatory Authority. FINRA is a not-for-profit American corporation that is not a government organization. FINRAs primary purpose is to regulate exchange markets and brokerage firms in an attempt to protect investors and ensure the integrity of these capital markets. The SEC oversees FINRA.

What is a broker-dealer (B-D)?2022-10-10T13:59:24-07:00

A broker-dealer (B-D) is a company that has been approved to trade securities; either for its own business directly OR on behalf of its clients. Broker-dealers must be registered with FINRA, which is overseen by the SEC.

Brokers-dealers are commonly used in Regulation A, Regulation CF and Regulation D 506(c) investment offerings.

What is an OTC Market?2022-10-10T12:27:38-07:00

An over-the-counter market (OTC market) is a decentralized market that allows parties to trade stocks, commodities and other instruments without the use of a broker or an exchange.

Funding Rounds Explained2023-01-11T07:27:27-08:00

A capital raise, also known as a funding round, is when a company raises money from investors. The process of raising capital typically involves a company issuing shares of stock or other securities to investors in exchange for money or other assets. Companies may go through multiple funding rounds throughout their life, with each round allowing them to raise larger amounts of capital as they grow and prove their business model.

There are several different types of funding rounds:

  • Seed round: The first round of funding for a company, usually from friends, family, and angel investors. The money raised in this round is typically used to develop a proof-of-concept and create a working prototype of the product.
  • Series A round: This is the first round of venture capital financing, typically led by professional venture capital firms. The funds are used for product development and early-stage operations.
  • Series B round: This round is typically led by growth-stage venture capital firms, and the funds are used for expansion, hiring, and growth.
  • Series C round and beyond: These rounds are for more established companies with proven business models, and the funds are used for further expansion and growth, as well as acquisitions.
  • Initial Public Offering (IPO): This is the process of a company selling shares of stock to the public for the first time, allowing them to raise large amounts of capital while also becoming publicly traded.

It’s worth noting that the naming of the rounds, and the stages of the company might slightly vary depending on the context but the basic idea is the same.

View Full Answer Page: Funding Rounds Explained

What is the SEC / Securities and Exchange Commission?2022-04-24T07:48:37-07:00

The U.S. Securities and Exchange Commission, commonly referred to as the SEC, is an independent agency of the United States federal government whose authority was established by the Securities Act of 1933 and Securities Exchange Act of 1934; both parts of Franklin D. Roosevelt’s New Deal initiative.

The primary purpose of the SEC is to enforce laws that prevent market manipulation and protect investors.

What Are Stock Options?2023-01-18T22:55:33-08:00

Stock options are a form of equity compensation that gives the holder the right to purchase shares of a company’s stock at a specific price (called the exercise or strike price) at a future date. The holder of a stock option has the right, but not the obligation, to buy the shares at the exercise price. There are two main types of stock options: incentive stock options (ISOs) and non-qualified stock options (NSOs).

Incentive stock options (ISOs) are options that are granted to employees and are eligible for special tax treatment under the Internal Revenue Code. If the holder of an ISO meets certain holding period and other requirements, they will not be subject to ordinary income tax when they exercise the option. Instead, they may be subject to capital gains tax when they sell the shares.

On the other hand, non-qualified stock options (NSOs) are options that are granted to employees, independent contractors, and directors, and are not eligible for the special tax treatment that ISOs receive. When the holder of an NSO exercises the option, they will be subject to ordinary income tax on the difference between the fair market value of the shares at the time of exercise and the exercise price.

Stock options are often granted as part of an employee’s compensation package. They can be used as a form of long-term incentive compensation, aligning the interests of employees with those of shareholders by giving employees a stake in the company’s success.

In accounting and financial statements, stock options are recorded as an expense, and the company will record an expense over the vesting period, reflecting the service condition of the award. This expense is calculated using the fair value of the options on the grant date, which is an estimate of the expected price of the underlying stock at the time of exercise.

Overall, stock options can be a valuable form of compensation for employees, providing them with a direct financial interest in the company’s performance and potential for appreciation in the value of the shares.

View Full Answer Page: What Are Stock Options?

What Are Restricted Stock Units (RSUs)?2023-01-18T23:37:53-08:00

Restricted stock units (RSUs) are a form of equity compensation provided by an employer to its employees. They represent the right to receive shares of the employer’s stock at a future date, typically when certain conditions, such as continued employment or performance milestones, are met. Unlike stock options, which give the holder the right to buy shares at a specific price, RSUs are typically awarded outright to the employee, with no purchase required. They are “restricted” because they cannot be sold or transferred until the restrictions have been lifted. Upon the vesting of the RSU, it is converted into a certain number of shares of stock and the employee becomes a shareholder of the company.

The terms of RSUs, including the number of units awarded, the vesting schedule, and the restrictions on transferability, are typically set forth in a grant agreement or award agreement. The vesting schedule can be based on time, such as vesting over a period of several years, or on performance-based milestones, such as achieving certain revenue or earnings targets. Once the units vest, the employee becomes the owner of the underlying shares and may be able to sell or transfer them, depending on the terms of the grant agreement.

RSUs are considered a form of taxable income when they vest and the employee becomes the owner of the underlying shares. The employee will be required to pay taxes on the fair market value of the shares at the time they vest. The company may also be required to withhold taxes at the time of vesting.

There are different ways to account for Restricted Stock Units in the financial statement of the company, depending on the accounting standards used. But in general, the company will recognize an expense for the fair value of the RSUs on the grant date and will adjust it over the vesting period reflecting the service condition of the award.

Overall, Restricted Stock Units are a way for companies to align the interests of employees with those of shareholders by giving employees a stake in the company’s success. They can also be a valuable form of compensation for employees, providing them with a direct financial interest in the company’s performance and potential for appreciation in the value of the shares.

View Full Answer Page: What Are Restricted Stock Units (RSUs)?

What is Due Diligence?2023-01-11T07:24:03-08:00

Investment due diligence is the process of carefully researching and analyzing an investment opportunity to make an informed decision about whether to invest. This typically includes analyzing financial statements, reviewing management and organizational structure, assessing market conditions and competition, and conducting legal and regulatory research. The goal of due diligence is to identify any potential risks or red flags associated with an investment, as well as to confirm that it meets the investment criteria established by the investor. Due diligence may be done by the investor themselves or by a professional due diligence firm.

View Full Answer Page: What is Due Diligence?

What is a typical minimum investment size?2022-04-24T16:57:23-07:00

Minimum investment sizes vary by offering and can be set by the Issuer. Here are some common minimum investment sizes for the following types of offerings:

Regulation A

  • A good average is typically about $500.
  • Though you’ll see Reg A offerings in the market ranging from anywhere from $250 to $1,000 (with some outliers).

Regulation CF

  • The average typically ranges anywhere from about $250 to $500.
  • Though you’ll see Reg CF offerings in the market ranging from anywhere from $100 to $1,000 (with some outliers).

Regulation D 506(c)

  • Minimum investment sizes for a Reg D 506(c) can have a wide range.
  • If we’re looking at marketed Reg D raises, I typically see most issuers go with something in the $10,000 to $25,000 range.
  • Though minimum investments can get as high as $50,000 to $100,000 in some cases if the company is of particular interest and can command those types of minimums.

These are simply minimum investments here and are not average investment sizes which would be much higher in most cases.

What are the types of crowdfunding?2022-10-10T12:31:45-07:00

There are four different types of crowdfunding: donation, debt, equity and rewards:

Donation Crowdfunding: When people give money to an organization in return for nothing. These campaigns are often focused around charitable causes or efforts that support some type of “greater good”.

Debt Crowdfunding: When people give money to an organization in the form of a loan. Money given under this format must be repaid by the organization at a specified interest rate and by a certain deadline.

Equity Crowdfunding: When people give money to a business in exchange for equity in the company. The two most popular formats of equity crowdfunding are Regulation A and Regulation CF.

Rewards Crowdfunding: When people give money to an organization in exchange for some type of reward. The reward could be something like a t-shirt or it could even be related to the product or service the organization provides.

What is the Difference Between Regulation D and Regulation S?2023-01-11T07:43:28-08:00

Regulation D and Regulation S are both regulations issued by the US Securities and Exchange Commission (SEC) that pertain to the offering and sale of securities.

Regulation D is a safe harbor provision that allows companies to raise capital through the sale of securities without having to register with the SEC or comply with certain disclosure requirements. Instead, companies must file a Form D with the SEC after the sale of securities. There are three different rules under Regulation D: Rule 504, Rule 505 and Rule 506. These rules have different requirements for the amount of money that can be raised and the types of investors that can participate.

Regulation S, on the other hand, is a set of rules that apply to the offer and sale of securities outside the United States. It creates a safe harbor from the registration requirements of the Securities Act of 1933, as long as the securities are sold in offshore transactions, and that the issuers, underwriters, and selling security holders are not engaged in directed selling efforts in the US.

Both regulation D and regulation S help companies to raise capital without having to register with the SEC and without having to provide the same level of disclosure that would be required in a registered offering. However, they have different requirements and apply to different situations.

View Full Answer Page: What is the Difference Between Regulation D and Regulation S?

What is a Retail Investor?2022-04-24T07:23:20-07:00

A retail investor typically refers to a nonprofessional individual investor who buys and/or sells securities through a brokerage firm.

Why are escrow services needed for my capital raise?2022-05-04T16:42:07-07:00

In equity crowdfunding campaigns, such as investment offerings using Regulation A or Regulation CF, SEC regulations require all funds to be processed and managed by a 3rd party escrow account. In Regulation CF, funds are required to remain in escrow until the funding goal is achieved. In Regulation A, funds must still process through an escrow account, but in most cases, can be dispersed to the issuer throughout the raise.

In both Regulation A and Regulation CF, the actual funding portals that act as the gateway for investors to purchase the securities, are not allowed to touch any of the funds. As such, a third-party escrow company is used so that both national and state-specific equity crowdfunding regulations are met.

What is Regulation S / Reg S?2022-10-10T14:16:52-07:00

Regulation S (Reg S) is an SEC-regulated format of capital raising where US companies can raise funds from investors outside of the US while maintaining exemption from the more involved registration requirements outlined in the Securities Act of 1933.

The key distinction here is that investments from US investors are not allowed under this format. Issuers who are looking to raise funds from US investors will need to use a different format such as Reg A, Reg CF or Reg D.

Regulation S falls under the equity crowdfunding umbrella as it still generally involves raising smaller individual investments from a large number of investors.

What is a stock transfer agent?2022-04-24T16:34:04-07:00

A stock transfer agent (also known as a transfer agent, share registry or transfer agency) manages the change in ownership of a company’s stock. In addition, the stock transfer agent is responsible for maintaining a record of ownership as well as paying distributions and dividends to individual investors, when applicable.

What is a mutual fund?2022-10-10T12:12:28-07:00

A mutual fund is a type of professionally managed investment fund where the fund manager will pool money from its members or shareholders to purchase a range of securities, such as stocks and bonds.

It is important to note that mutual funds are typically investing in many different companies and so they offer built-in diversification, which is often tied to lower risk to the investor.

What are stock warrants?2022-04-25T12:43:46-07:00

A stock warrant is essentially a legal agreement between a company and an investor. This agreement, or warrant, gives the investor the right to purchase shares in the company at a specified price.

Stock warrants must specify an expiration date and the holder of the warrant (the investor) must exercise the warrant before the expiration rate; otherwise, the warrant will expire and the holder will no longer be able to exercise it. Holders of warrants are under no obligation to exercise the warrant and may simply choose to let the warrant expire.

Depending on the specific warrant agreement, some agreements may also include contract provisions that allow the holder of the warrant to transfer their purchase rights to another party.

What is a Debt Offering?2023-01-18T23:35:27-08:00

A debt offering, also known as a bond offering, is the process by which an entity raises capital by issuing and selling bonds to investors. The proceeds from the sale of the bonds are used by the issuer to finance various projects, such as building a new facility, expanding operations, or refinance existing debt.

The debt offering process typically begins with the issuer hiring an investment bank or underwriting firm to help structure the bond offering and bring it to market. The investment bank acts as an intermediary between the issuer and potential investors, and is responsible for underwriting the bond offering, which means they purchase the bonds from the issuer and then resell them to investors.

The issuer will then file a registration statement with the Securities and Exchange Commission (SEC) and provide potential investors with a prospectus, which is a document that contains detailed information about the bond offering, including the terms and conditions of the bonds, the issuer’s financial condition, and the use of proceeds from the offering.

After the registration statement is cleared by the SEC, the investment bank will then market the bond offering to potential investors. The bond offering can be sold through a variety of channels, including public offerings, private placements, or a combination of both.

In a public offering, the bonds are sold to the general public through a network of securities dealers. In a private placement, the bonds are sold to a limited number of sophisticated investors, such as institutions or wealthy individuals, and are not generally available to the public.

In summary, a debt offering is a process by which an entity raises capital by issuing and selling bonds to investors. Investment banks act as intermediaries and help structure and market the bond offering to potential investors. The issuer provides detailed information about the bond offering through a prospectus, which is filed with the SEC. The bond offering can be sold through public offerings or private placements.

View Full Answer Page: What is a Debt Offering?

What Are Advisory Shares?2023-01-18T22:52:55-08:00

Advisory shares, also known as non-voting shares or Class B shares, are a type of stock that gives the holder the right to receive dividends and participate in the distribution of assets upon liquidation, but not the right to vote on matters related to the company. This means that the holders of advisory shares have a financial interest in the company but do not have a say in its management or direction. Advisory shares are typically issued to a select group of investors, such as family members or long-term advisors, and are intended to provide them with a stake in the company without diluting the voting power of the existing shareholders.

Advisory shares are similar to non-voting common shares, but they are often used in situations where the company wants to provide a financial stake to a specific group of people without giving them voting rights. They may be issued in addition to voting common shares, or as a separate class of stock altogether.

In accounting and financial statements, advisory shares are accounted for as part of the common shares outstanding. They are considered a liability in the balance sheet and the company can choose to account them as a liability or equity.

Overall, advisory shares can be a useful tool for companies to reward key advisors or family members with a stake in the company without diluting the voting power of the existing shareholders. It can also be a way to ensure that the company’s direction and management is controlled by those who are actively involved in its operations.

View Full Answer Page: What Are Advisory Shares?

What is the Difference Between Regulation A and Regulation D?2023-01-11T07:46:47-08:00

Regulation A and Regulation D are both SEC regulations that pertain to securities offerings.

Regulation A, also known as “Reg A,” is a safe harbor for smaller companies to raise capital through offerings of securities. Reg A allows companies to raise up to $75 million in a 12-month period from both accredited and non-accredited investors. Reg A offerings are typically less complex and less expensive to conduct than traditional IPOs, but they do require companies to file ongoing reports with the SEC.

Regulation D, also known as “Reg D,” provides an exemption from the registration requirements of the 1933 Securities Act for certain private offerings of securities. Rule 506 of Reg D is the most commonly used exemption and allows an unlimited amount of money to be raised, but with some restrictions, the main one being that these types of offerings can only be sold to accredited investors.

So in summary, Reg A allows companies to raise more money but with more regulatory compliance and can be sold to both accredited and non-accredited investors. Reg D is a more streamlined process that is limited to accredited investors, but allows an unlimited amount of money to be raised.

View Full Answer Page: What is the Difference Between Regulation A and Regulation D?

What is a Bond?2023-01-18T23:01:03-08:00

A bond is a financial instrument in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a fixed interest rate. The entity that issues the bond is the borrower (issuer), and the bond holder is the lender. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.

Bonds are issued by companies, municipalities, and governments to raise capital. The issuer promises to pay the bondholder a fixed rate of interest (coupon) during the life of the bond and to repay the principal (face value) of the bond when it matures. The bond’s term, or maturity, can range from a few months to 30 years or more.

When an investor buys a bond, they are essentially lending money to the issuer in exchange for regular interest payments and the return of the bond’s face value when it matures. The bond’s interest rate, also called the coupon rate, is determined by the issuer at the time of issuance and is fixed for the life of the bond.

Bonds are generally considered to be less risky investments than stocks, but the risk of bond investment varies depending on the creditworthiness of the issuer and the bond’s terms. Government bonds, for example, are considered to be among the safest investments because they are issued by sovereign nations with the power to tax its citizens to repay bondholders. On the other hand, bonds issued by companies with poor credit ratings are considered to be high-risk investments.

Bonds can be traded on secondary markets, and their prices fluctuate based on interest rates and the creditworthiness of the issuer. When interest rates rise, bond prices fall, and vice versa.

In summary, bonds are a type of debt security that allows investors to lend money to an entity in exchange for regular interest payments and the return of the principal at maturity. They are considered to be less risky than stocks, but the risk varies depending on the creditworthiness of the issuer and the bond’s terms.

View Full Answer Page: What is a Bond?

What is the Difference Between Regulation A (Reg A) and Regulation A+ (Reg A+)?2022-04-23T09:09:05-07:00

In short, Regulation A (Reg A) and Regulation A+ (Reg A+) are the exact same law and both terms can be used interchangeably.

Historically, Regulation A was the term originally adopted by the SEC under Section 3(b) of the Securities Act in 1936. At this time in history, there was no “Regulation A+” terminology being used. Beginning in 2012 when the Jumpstart Our Business Startups (JOBS) Act was signed into law by President Barack Obama, the SEC started using the terms “Regulation A+” and “Reg A+” as a way to differentiate the new version of Regulation A law from the original version dating back to 1936.

Most notably with the passing of the JOBS act, the maximum offering amount was increased from a limit of $5M up to $50M… and eventually up to $75M for Tier 2 Reg A offerings (Tier 1 Reg A offerings capped at $20M). More on the difference between a Tier 1 vs Tier 2 Reg A can be found here.

What is an Investment Bank?2023-01-18T23:08:13-08:00

An investment bank is a financial institution that assists companies and governments in raising capital by underwriting and issuing securities, and by acting as a broker or advisor in merger and acquisition activities. Investment banks also provide a wide range of financial services, such as providing market insights, helping to structure and price securities, and trading securities on behalf of clients.

One of the primary functions of an investment bank is to act as an underwriter, which means that they purchase securities from a company or government and then resell them to the public or to other investors. Investment banks also help companies and governments structure their securities offerings and determine the appropriate price for the securities.

Another important function of investment banks is to act as a financial advisor, providing advice and counsel to companies and governments on a wide range of financial matters, such as mergers and acquisitions, divestitures, and other strategic transactions. Investment banks also provide a variety of research and analytical services to clients, such as market and industry analysis, and financial modeling.

Investment banks also have a trading arm, where they buy and sell securities for their own account or for clients, and market making activities where they act as intermediaries between buyers and sellers of securities.

Investment banks are typically divided into two main categories: bulge bracket and middle market. Bulge bracket banks are the largest and most well-known investment banks and have a global reach, while middle market banks tend to focus on specific regions or industries.

In summary, an investment bank is a financial institution that assists companies and governments in raising capital by underwriting and issuing securities, and by acting as a broker or advisor in merger and acquisition activities. Investment banks also provide a wide range of financial services, such as providing market insights, helping to structure and price securities, and trading securities on behalf of clients.

View Full Answer Page: What is an Investment Bank?

What is Regulation D / Reg D?2023-01-18T21:35:16-08:00

Regulation D (Reg D) is a format of capital raising that allows businesses to sell and issue securities in their company to accredited investors. Under Reg D, there is no limit to the amount of money that can be raised or limit to the total number of investors that can invest in the offering.

There are three different rules that currently exist under Regulation D:

  • Rule 506(b): Private placements in which advertising to the general public is strictly prohibited. Issuers are only allowed to approach existing relationships of theirs to invest in the offering.
  • Rule 506(c): Allows issuers to advertise the offering to the general public and take investments from accredited investors.
  • Rule 504: For offerings up to $10 million. In most cases, issuers cannot advertise the offering to the general public.

For more on the difference between these first two options, check out our article: What is the difference between a Reg D 506(b) vs 506(c)?

While Regulation D dates back to the Securities Act of 1933, it became a more useful format for businesses in July of 2013 when the SEC issued new regulations under the JOBS Act which allowed businesses to advertise their private placement offering to the general public (which is specific to Rule 506c).

Businesses that want to utilize Reg D to raise capital must file Form D with the SEC within 15 days after the first sale of securities in the investment offering.

What is an Angel Investor?2023-01-11T07:44:24-08:00

An angel investor is an individual who provides capital to startup companies in exchange for ownership equity or convertible debt. Angel investors are typically high-net-worth individuals who are looking for higher returns on their investment than can be obtained from more traditional investments. They often have experience in the industry in which the startup is focused, and may provide mentoring or other support in addition to capital. Angel investing is typically considered higher risk than traditional investing, but also has the potential for higher returns.

View Full Answer Page: What is an Angel Investor?

What is Rule 144a?2022-04-25T07:05:06-07:00

Rule 144A is a method that companies can use to raise capital from institutional investors as well as investors outside of the United States. This rule requires that any investment from the United States be from institutional investors only. And for investors outside of the US, money can be raised from the general public using Regulation S.

What is Regulation Crowdfunding?2022-05-04T16:36:09-07:00

Regulation Crowdfunding simply refers to the use of Regulation CF / Reg CF by small businesses to advertise, sell and issue securities in their company.

The terms Regulation Crowdfunding, Regulation CF and Reg CF can be used interchangeably.

More on Regulation Crowdfunding can be found in our related article here: What is Regulation CF / Reg CF?

What is a joint venture?2022-04-24T22:45:54-07:00

A joint venture is an entity that is created when two or more businesses pool funds to accomplish a specific business objective. With a joint venture, you typically have:

  • Shared ownership in the entity
  • Shared corporate governance
  • Shared profits and returns
  • Shared risks
What is Form D?2022-10-10T13:21:41-07:00

Form D is a legal document that outlines the terms of an investment offering when a company is raising capital from accredited investors using Regulation D (Reg D). Form D is a relatively short form that bypasses the formal registration process for businesses that meet certain criteria. It is used for the following types of exempt offerings:

  • Rule 506(b): Private placements in which advertising to the general public is strictly prohibited. Issuers are only allowed to approach existing relationships of theirs to invest in the offering.
  • Rule 506(c): Allows issuers to advertise the offering to the general public and take investments from accredited investors.
  • Rule 504: For offerings up to $10 million. In most cases, issuers cannot advertise the offering to the general public.

Form D is the primary legal document filed with the Securities Exchange Commission (SEC) when a company is using the Regulation D format to raise capital. Issuers must file this form with the SEC within 15 days after the first sale of securities in the investment offering.

A blank copy of Form D can be found at the SEC’s website by clicking here: View Form D on the SEC’s website

What is “Test-the-Waters”?2022-05-04T16:46:24-07:00

“Test-the-Waters” is a rule that the SEC adopted in 2019 which allows companies to create a test offering with the sole purpose of trying to determine if there is enough investor interest to justify a full investment into an equity crowdfunding raise. This also provides an opportunity for the Issuer to test different marketing messages to determine which messages best resonate with potential investors.

“Test-the-Waters” is commonly used by companies considering either a Regulation A or Regulation CF capital raise.

It is important to note that when an issuer does file with the SEC to begin their equity crowdfunding raise, the SEC examiner will review all “Test-the-Waters” materials and that it can have impact on your qualification.

What is an IR / Investor Relations Firm?2022-10-10T13:50:36-07:00

An Investor Relations firm (IR Firm) is typically a 3rd party company that helps Issuers communicate with their pool of existing investors. Their primary objective is to accurately communicate company news and operational progress to the shareholders. IR firms must be acutely aware of the regulatory landscape to ensure they are not communicating anything that would violate any SEC regulations.

In equity crowdinvesting, investor relations is a critical part of the process as repeat investments from your existing pool of investors can be significant if you are properly marketing your crowdinvesting raise. It can be particularly helpful to engage an IR firm that also has licensed brokers on staff.

For more information, click here to read our blog post: Why Sales & Investor Relations is Important for All Crowdinvesting Capital Raises

What is a Follow-on or Secondary Offering?2023-01-11T07:30:07-08:00

A follow-on offering, also known as a secondary offering, is a process by which a publicly-traded company raises additional capital by issuing and selling more shares of stock. This is in contrast to an Initial Public Offering (IPO), which is the process by which a privately-held company first becomes publicly traded by issuing and selling shares to the public for the first time.

The main reason for a company to conduct a follow-on offering is to raise additional capital for the business. The company can use the proceeds from the sale of the additional shares for various purposes, such as funding research and development, expanding operations, making acquisitions, paying off debt, or returning capital to shareholders through a dividend or share buyback.

Follow-on offerings can be done through various forms such as a public offering or a private placement. Public offerings are registered with the Securities and Exchange Commission (SEC) and made available for purchase by the general public, while private placements are typically done with a smaller group of accredited investors.

In a follow-on offering, existing shareholders of the company will often see a dilution in the value of their shares due to the influx of new shares into the market, which can increase the supply of shares and decrease the demand. Therefore, the company should have a clear plan on how to use the funds and how it will positively impact the company’s growth and profitability to maintain or increase the value of the existing shareholders.

View Full Answer Page: What is a Follow-on or Secondary Offering?

What is an Exempt Offering?2022-05-04T16:35:50-07:00

An exempt offering refers to an investment offering that is exempt from the registration requirements of public offerings. Examples of exempt offerings include:

How much will my raise cost me as an issuer?2022-05-04T16:43:25-07:00

The answer here is highly variable and depends largely on 5 elements:

1.  How interesting is the company/issuer?

  • This impacts the raise significantly – for example, an exciting electric vehicle manufacturer might expect to see a lower cost of capital compared to a less exciting company such as a flooring company or a car wash chain (the latter two examples being actual companies that approached Funded)

2. How much operational progress is the issuer making?

  • During a raise, the operational progress of the business is one of the key drivers of share sales. Businesses that are growing and communicating that growth to prospective investors will typically do far better than say an early-stage company that is pre-revenue and does not have any meaningful operations taking place on a week-to-week or month-to-month basis.

3. Does the issuer have an existing member base to leverage?

  • This can be a big factor in the raise as well – say a company comes to us with a member base of 20,000 active users that we can market to. These already loyal brand advocates will likely become some of your first investors as they are already familiar with your brand. And the best part; there is no meaningful additional expense to market to these existing members.

4. What type of offering is it (i.e. Reg A vs Reg D) and what are the terms of the offering (i.e. minimum investment size)?

  • The structure of the offering itself can also have a big impact on the cost of capital. Generally speaking, Reg D offerings will see a lower cost of capital than a Reg A; largely due to the investment minimums being much higher (and the cost to acquire accredited leads costing only slightly more than non-accredited leads).

5. Does the funding portal that is being used have a built-in member base that can be leveraged?

  • Choosing a funding portal with a built-in existing member base that your raise will be exposed to can definitely become a nice catalyst for investments. This is especially true for first-time issuers with no existing member base, this can provide a big advantage.
  • When selecting your funding portal, have this discussion with the portal and make sure you are clear on the size of their member base and if/how they are willing to expose your offering to their members

First Time Reg A Issuer Example

A common scenario I see to give you a firmer answer – I’ll have a company come to me looking to do their first Reg A offering and they will have no existing member base of the business the leverage. In this instance, I would tell the issuer to prepare for a total cost of capital that could reach 20-25%. In other words, the issuer is getting back $4-5 for every $1 they spend.
What is a family office?2022-10-10T13:28:12-07:00

Family offices are privately-held wealth management advisory firms that typically service high net worth individuals and families. The goal of family offices is typically to both grow and transfer a family’s wealth from generation to generation. Unlike traditional wealth management firms, family offices typically offer an end-to-end solution for their clients and get involved in areas such as:

  • Investments
  • Donations and charitable giving
  • Budgeting
  • Wealth transfer to children and other family members
  • Insurance
  • Tax services
What is a Subscription Agreement?2023-01-11T07:23:42-08:00

A securities subscription agreement is a legal contract between an investor and a company that outlines the terms and conditions of an investment in the company’s securities, such as stocks or bonds. It is typically used in private placement transactions, where a company raises capital by issuing securities to a small number of accredited investors.

The subscription agreement is the formal document that details the terms of the investment, including the type and number of securities being purchased, the purchase price, the rights and obligations of the investor and the company, the conditions for closing the transaction, and any other relevant terms of the agreement.

The subscription agreement is typically signed by both the investor and the company, and it is considered binding once it is executed. It is also usually accompanied by other legal documents such as the private placement memorandum (PPM) which provides detailed information about the company, the securities being offered and the terms of the investment, and the articles of incorporation and bylaws of the company.

The subscription agreement is a key document in the private placement process and is used to define the rights, responsibilities and expectations of both parties, protect the interests of the investors and ensure compliance with the legal and regulatory requirements. It helps to ensure that the interests of the investors and the company are aligned, and that the terms of the investment are clear and enforceable.

View Full Answer Page: What is a Subscription Agreement?

What is Form 1-A?2022-10-10T13:26:34-07:00

Form 1-A is a legal document that outlines the terms of an investment offering when a company is raising capital from both accredited and non-accredited investors using Regulation Crowdfunding; specifically Regulation A (Reg A). Form 1-A is used to disclose to prospective investors key information in an attempt to prevent fraud in the sale of the securities that are offered by issuers.

Issuers have two options when filing Form 1-A:

  • Tier 1: Offerings of securities up to $20 million in a 12-month period
  • Tier 2: Offerings of securities up to $75 million in a 12-month period.

Both Tier 1 and 2 issuers are required to file Form 1-A with the SEC. Click here to learn more about the difference between Tier 1 and Tier 2 Regulation A investment offerings.

Unlike both Reg CF and Reg D, Regulation A requires a formal review and qualification from the SEC before the Issuer begins to sell securities. This process varies and can take anywhere from a few weeks to a few months; sometimes longer for companies in industries of specific interest or concern to the SEC (i.e. Crypto and Blockchain companies).

Form 1-A is made up of three parts and must be prepared by all companies seeking exemption under Regulation A:

  • Part I  – Notification
  • Parts II – Information Required in the Form 1-A Offering Circular
  • Part III  – Exhibits and Signatures

Form 1-A is the primary legal document filed with the Securities Exchange Commission (SEC) when a company is using the Regulation A format to raise capital.

A blank copy of Form 1-A can be found at the SEC’s website by clicking here: View Form 1-A on the SEC’s website

What is a Private Placement?2023-01-11T07:23:10-08:00

A private placement is a method of raising capital by issuing and selling securities directly to a small number of select investors, rather than to the general public. These investors are typically institutions, such as insurance companies, pension funds, and wealthy individuals, known as “accredited investors,” as they are considered financially sophisticated and have the resources to bear the risks of the investment.

Private placements are not registered with the Securities and Exchange Commission (SEC) and are not subject to the same disclosure and registration requirements as securities sold in a public offering. This means that the company issuing the securities does not have to provide the same level of information about its financials and operations as it would in a public offering, which can make the process quicker and less expensive.

The process of a private placement usually starts with a company issuing a private placement memorandum (PPM), which is a document that provides detailed information about the company, the securities being offered, and the terms of the investment. The investors review the PPM and conduct their own due diligence before deciding whether to invest. Once the investors have decided to invest, the company and the investors will execute a subscription agreement, which sets forth the terms of the investment, including the purchase price, the number of shares being purchased, and the rights of the investors.

Private placements can be an attractive option for companies that are not yet ready or able to go public, but need to raise capital quickly. However, it’s also worth noting that private placement securities are often subject to restrictions on resale, and may not be as liquid as publicly traded securities.

View Full Answer Page: What is a Private Placement?

What is Rule 506(c)?2022-05-04T16:33:39-07:00

Rule 506(c) of Regulation D allows companies to raise an unlimited amount of capital from an unlimited number of accredited investors. The primary SEC-regulated rules for this type of investment offering are:

1. Issuers are allowed to advertise the offering to the general public.

2. Securities must be sold to accredited investors only.

3. Issuers must take reasonable steps to formally verify the accredited status of the investor

  • This is a key difference from Rule 506(b) where investors go through a simplified process where they attest to their accredited investor status

4. Certain other conditions must also be satisfied that relate back to the broader scope of Regulation D.

What is the Difference Between Regulation CF and Regulation D?2023-01-11T07:43:16-08:00

Regulation CF (Regulation Crowdfunding) and Regulation D are two different rules issued by the U.S. Securities and Exchange Commission (SEC) that govern how companies can raise capital from investors.

Regulation CF is a crowdfunding exemption that allows small companies to raise capital from a large number of investors through online platforms. Under this rule, companies can raise up to $1.07 million in a 12-month period by selling securities (such as stocks or debt) to both accredited and non-accredited investors. These securities are typically sold through crowdfunding platforms, such as Kickstarter or GoFundMe.

Regulation D, on the other hand, is a set of rules that provides an exemption from the registration requirements of the Securities Act of 1933 for certain private offerings. These rules provide a way for companies to raise money from investors without registering the securities with the SEC. Under Rule 504 of Regulation D, companies can raise up to $5 million in a 12-month period and can sell securities to both accredited and non-accredited investors.

In summary, Regulation CF is intended for smaller offering and lower threshold investors, while Regulation D is designed for more sophisticated investors, and it has a higher cap on raise.

View Full Answer Page: What is the Difference Between Regulation CF and Regulation D?

What is an equity crowdfunding platform?2022-10-10T13:53:02-07:00

An equity crowdfunding platform essentially acts as an investment facilitator between the issuer and the end investors.  These platforms must be registered with the SEC as either a broker-dealer or as a standalone funding portal.

There are three core elements that any good equity crowdfunding platform should have:

1.  Investment Checkout/Payment Process

  • One of the core needs of a platform is the ability to actually take payment from the investor and have them provide and/or sign any relevant documents.
  • The regulatory requirements surrounding the checkout / payment process can make it somewhat involved and so it is critical that the platform has a well laid out and easy to use investment flow that works great across both mobile and desktop.

2. Investor Login Portal

  • Platforms should also provide a login portal where investors can check the status of their investment to ensure their funds have cleared and shares are issued.
  • This portal typically serves as an interim resource for the end investor as their shares will eventually be managed by a stock transfer agent.

3. Issuer Portal

Good platforms will also have an actual portal for the issuers to log into and manage the raise.

Two key examples of what a really good issuer portal will allow for:

    • Reporting – the Issuer will be able to see real-time reporting on their raise and see fundamental metrics such as: investments cleared vs pending, investments by media channel, investments by age-range and gender, etc
    • Sales/IR Team Resources – really good platforms should also contain tools for the sales and Investor Relations teams to work with. One example from a platform we work with; they have an actual CRM in the backend of their system which the Sales/IR teams can work directly out of. They offer functionality such as:
      • Automated lead scoring (utilizing data from all raises the platform has conducted).
      • Investment flow screen mirroring – allowing a sales/IR team member to walk an investor through the investment steps while seeing the same screen as the investor is. This allows Sales/IR to actually close business over the phone and makes for a much smoother process.

The Current Landscape of Equity Crowdfunding Platforms

The current reality of the equity crowdfunding platform landscape is one that has a lot of room for improvement in the coming years. Most platforms out there today lack key functionality that is necessary for a successful capital raise. Some examples of major issues that we come across all the time when evaluating platforms:

  • Reporting – Many platforms available today offer no useful reporting to Issuers. To be honest, most platforms simply send the Issuer (and their marketing partner) an automated raw Excel data dump every night and leave the Issuer to make sense of what’s happening with their raise.
  • Issuer Portals – Many platforms don’t have an Issuer portal which leaves the issue in the dark about many aspects of their raise. This creates a massive transparency issue and does provide the Issuer or their marketing partner with the tools they need to successfully manage the raise.

If you are an issuer that is considering raising capital using one of these platforms; contact us first and we can guide you through the process to ensure you select the best platform for your raise. We have worked with just about every platform out there and have a fundamental understanding of the features and functionality available on these platforms as well as the often significant cost differences between each platform.

For more information, click here to read our related blog posts:

What is the Difference Between Regulation CF and Regulation S?2023-01-11T07:46:07-08:00

Regulation CF (Regulation Crowdfunding) and Regulation S are two different securities regulations in the United States.

Regulation CF is a securities exemption that allows certain companies to raise money from a large number of investors through crowdfunding platforms, such as Kickstarter or Indiegogo. The regulation is designed to make it easier for small businesses and startups to raise capital by allowing them to sell securities to a large number of small investors, rather than just a few wealthy ones.

On the other hand, Regulation S is a securities exemption from the registration requirements of the Securities Act of 1933, which allows companies to offer and sell securities to non-U.S. persons outside of the United States without registering them with the SEC. It does not have the same requirements for investor protection as the Regulation CF

Regulation CF and Regulation S are used for different purposes and target different types of investors.

View Full Answer Page: What is the Difference Between Regulation CF and Regulation S?

What is the Jumpstart Our Business Startups (JOBS) Act?2022-05-04T16:32:58-07:00

The JOBS Act, which stands for “Jumpstart Our Business Startups” was signed into law by President Barack Obama on April 5, 2012 with bipartisan support. The intention of the law was to make it easier for small businesses in the United States to raise capital.

In terms of Regulation Crowdfunding, the law set specific guidelines in Title III, also referred to as the CROWDFUND Act, which allows for small businesses to advertise, sell and issue securities through the use of crowdfunding. This was not something businesses were allowed to do previously and set the path for Regulation A, Regulation CF and even Regulation D 506(c).

Specifically looking at Regulation A, the JOBS Act raised the maximum offering size from $5M to $50M. This $50M limit would again be raised to $75M in a series of amendments approved by the SEC on November 2, 2020. In this series of November 2020 amendments, the Regulation CF maximum offering size was also increased from $1M to $5M.

What is a private placement memorandum (PPM) / offering memorandum / offering circular?2022-10-10T13:11:30-07:00

A private placement memorandum (PPM) is a document that is provided to prospective investors when selling stock or another security in a company. This legal document outlines the terms of securities to be offered in a private placement investment offering.

The term Private Placement Memorandum can be used interchangeably with Offering Memorandum and Offering Circular.

What is Venture Capital?2023-01-11T07:44:10-08:00

Venture capital (VC) is a type of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been identified as having high growth potential or which have demonstrated evidence of having achieved or being on a path to achieving significant market traction. The goal of venture capital is to invest in companies that will generate a return through an initial public offering (IPO) or a strategic acquisition by another company.

View Full Answer Page: What is Venture Capital?

What is equity crowdfunding?2022-10-10T12:45:49-07:00

Equity Crowdfunding refers to the specific type of crowdfunding where private companies are able to advertise, sell and issue securities in their company.

Since this specific format of crowdfunding involves investments (most often by retail investors) into private companies which has inherent risk, equity crowdfunding is subject to a variety of securities and financial regulation by the SEC.

Equity crowdfunding has enabled businesses to use Regulation A, Regulation CF and even Regulation D 506(c) to raise capital for their business.

Can Non-Accredited Investors Invest in a Regulation D 506b or 506c?2022-05-04T16:34:35-07:00

For the most part, non-accredited investors are NOT allowed to invest in Regulation D offerings, including both 506(b) and 506(c).

But there is one exception for 506(b) offerings where the SEC allows up to a maximum of 35 non-accredited investors to participate. Issuers are still not allowed to advertise the investment offering to these non-accredited investors and they must be existing relationships of the issuer.

The SEC rule on this states the following for 506(b) offerings:

  • Securities may not be sold to more than 35 non-accredited investors.
  • All non-accredited investors must meet the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment.

And when these non-accredited investors are participating in the offering, the following rules will apply:

  • The issuer must give any non-accredited investors disclosure documents that generally contain the same type of information as provided in Regulation A offerings.
  • They must also give any non-accredited investors financial statement information specified in Rule 506.
  • And lastly, the issuer should be available to answer questions from prospective purchasers who are non-accredited investors.

For more on this specific provision of Rule 506(b), you can learn more by visiting the SEC’s website and reading their article on: Private placements – Rule 506(b).

What is AML (Anti-Money Laundering) Compliance?2023-01-11T07:25:09-08:00

Anti-Money Laundering (AML) refers to a set of laws, regulations, and procedures that financial institutions and other regulated companies must follow to prevent, detect, and report money laundering activities. The goal of AML regulations is to prevent criminals from using financial systems to launder the proceeds of illegal activity, such as drug trafficking, fraud, and corruption, and to detect and deter money laundering activity that may be used to finance terrorism.

AML compliance typically involves implementing internal controls and procedures to detect and report suspicious activity, such as monitoring customer transactions for patterns indicative of money laundering, filing suspicious activity reports (SARs) with the relevant authorities, and conducting customer due diligence. Financial institutions and other regulated companies are also required to have an AML compliance program which includes:

  • Establishing and maintaining an AML policy and procedures
  • Designating a compliance officer
  • Providing AML training for employees
  • Implementing customer identification and verification procedures
  • Periodic review of the program

The specific AML requirements can vary depending on the jurisdiction and the nature of the business but the general aim is to prevent financial systems from being used to launder the proceeds of illegal activity and/or fund illegal activities.

View Full Answer Page: What is AML (Anti-Money Laundering) Compliance?

What is a “non-accredited” investor?2022-05-04T16:30:04-07:00

A non-accredited investor is someone who does NOT meet the income or net worth requirements that the Securities and Exchange Commission has defined for an accredited investor.

In most cases, a non-accredited investor will:

1.  Net Worth – Have an individual or joint net worth of under $1 million (excluding their primary residence)

2. Income – Have income under the following in each of the prior two tax years:

  • Under $200,000 per year individually
  • Or under $300,000 per year jointly (with spouse or partner)
What is the maximum offering size of Tier 1 vs Tier 2 Reg A offerings?2023-01-18T22:32:36-08:00

Under Regulation A, there are two offering tiers – each with a different limit on maximum dollars raised:

  • Tier 1 allows issuers to raise up to $20 million in a 12-month period
  • Tier 2 allows issuers to raise up to $75 million in a 12-month period

This big difference between the two, outside of the maximum dollar limit, is that Tier 2 offerings require additional financial audit and reporting requirements in order to receive SEC qualification.

But even for Tier 1 issuers, there are many states in the country that require the same upfront audit as is needed for a Tier 2 so in the majority of cases, that is something that most issuers will need to do anyway.

There is still a difference in post offering reporting requirements though which is something to consider; with Tier 2 being more involved than Tier 1.

For more information on these two tiers, click here to read our blog post: What is the Difference Between Tier 1 and Tier 2 Regulation A Investment Offerings

What is an Initial Public Offering (IPO)?2023-01-11T07:28:55-08:00

An Initial Public Offering (IPO) is the process by which a privately-held company raises capital by issuing and selling shares of stock to the public for the first time. The shares of stock are made available for purchase by investors through a securities exchange, such as the NASDAQ or the New York Stock Exchange (NYSE).

The company going public will typically retain the services of an investment bank, which acts as an underwriter for the IPO. The underwriter’s role is to determine the offering price of the shares and to manage the process of selling the shares to the public.

Once the shares are sold, they begin trading on the open market, and investors can buy and sell them just like any other publicly traded stock. The company that goes public receives the proceeds from the sale of the shares, which it can use for business operations or to pay off debt.

Going public through an IPO can be a significant event for a company, providing it with access to large amounts of capital and increasing its visibility among investors. it also can lead to increased credibility, greater liquidity, and liquidity for its shareholders, also it can make it easier to attract and retain talented employees and managers.

However, an IPO also has its downsides, as the company is now subject to greater regulatory and compliance requirements, and it also exposed to greater scrutiny from investors and the public. Additionally, the company will have to share financial information regularly with the public and face pressure to meet earnings expectations.

View Full Answer Page: What is an Initial Public Offering (IPO)?

What is Form C?2022-10-10T13:19:37-07:00

Form C is a legal document that outlines the terms of an investment offering when a company is raising capital from both accredited and non-accredited investors using Regulation Crowdfunding; specifically Regulation CF (Reg CF). Form C is used to disclose to prospective investors the following types of information:

  • Business Overview
  • Leadership Team
  • Valuation of the Company
  • Financial Statements & Current Financial Condition
  • Ownership & Capital Structure
  • Use of Proceeds From the Raise
  • Recent Offering of Securities (if applicable)
  • Risk Factors

Form C is the primary legal document filed with the Securities Exchange Commission (SEC) when a company is using the Regulation CF format to raise capital.

A blank copy of Form C can be found at the SEC’s website by clicking here: View Form C on the SEC’s website

What is the Difference Between Regulation A and Regulation CF?2023-01-11T07:46:33-08:00

Regulation A and Regulation CF (Reg A and Reg CF, respectively) are both securities regulations in the United States that allow for crowdfunding.

Regulation A is a SEC regulation that allows companies to raise up to $20 million in a 12-month period from both accredited and unaccredited investors. Companies are required to file offering statements with the SEC and provide ongoing reports to investors.

Regulation CF (or Regulation Crowdfunding) is also a SEC regulation, but it allows companies to raise a maximum of $1.07 million in a 12-month period, and is more focused on small start-ups and entrepreneurial ventures. Only unaccredited investors can participate in Reg CF offerings, but the offering process is less costly and simpler than under Reg A.

Both Reg A and Reg CF are part of the JOBS Act (Jumpstart Our Business Startups Act) of 2012 that lifted many restrictions on small and emerging companies. Reg A is considered a more established and traditional route for raising capital, while Reg CF is relatively newer and focused on startups and early-stage companies.

View Full Answer Page: What is the Difference Between Regulation A and Regulation CF?

What are the common types of offering structures used?2022-10-10T14:10:49-07:00

Speaking primarily of Regulation A and Regulation CF, most offerings I see fall into one of these three categories:

  • Equity – Simply put, offering equity in the business in exchange for the investment.
  • Debt – Where the investor is not getting any actual equity, but rather providing capital that the company will pay back at a later date with some sort of interest or gain for the investor.
  • Hybrid – Here you’ll see combinations of various offering structures used. For example, an issuer that is offering equity, but also proving a dividend on top of the equity.
The key for Reg A and Reg CF, which largely target non-accredited retail investors – issuers need to keep their offering structure simple and easy to understand for investors of all experience levels. I typically recommend that issuers avoid utilizing any more complicated instruments (i.e. convertible notes) as they can quickly confuse prospective investors.
Regulation D allows for slightly more complexity to be involved in the offering structure as you’re typically dealing with more sophisticated investors who will have a better understanding of more complex instruments (i.e. incorporating stock warrants into the offering structure)
What is a private equity fund?2022-09-09T18:07:29-07:00

A private equity fund is an investment vehicle in which an investment advisor pools funds from multiple investors to make investments on behalf of the fund.

Often, the pooling of funds allows for the negotiation of a better price than would otherwise be possible with multiple smaller investments.

Private equity funds are similar to both mutual funds and hedge funds.

View Full Answer Page: What is a private equity fund?

Brands We Have Worked With

Here are some of the great brands we have worked with planning and executing capital raises:

Reg D + Reg S
Reg A + Reg CF + Reg D
Reg A + Reg D
Private Equity Fund / Reg D
Reg D
Reg A + Reg D
Private Equity Fund / Reg D
Private Equity Fund / Reg D
Reg D + Reg S
Private Equity Fund / Reg D
Private Equity Fund / Reg D
Reg D
Private Equity Fund / Reg D
Reg D + Reg S
Private Equity Fund / Reg D
Reg A
Reg A
Reg A
Reg A + Reg D
Reg A

Brands We Have Worked With

Here are some of the great brands we have worked with planning and executing capital raises:

Reg D + Reg S
Reg A + Reg CF + Reg D
Private Equity Fund / Reg D
Reg A + Reg D
Private Equity Fund / Reg D
Reg D
Reg A + Reg D
Private Equity Fund / Reg D
Reg A
Private Equity Fund / Reg D
Reg D + Reg S
Reg A + Reg D

Let’s Make Things Happen

Funded provides end-to-end marketing and advertising solutions for your Reg D, Reg S, Reg A or Reg CF raise. Drop us a line today and let’s talk!

“The Funded team has been instrumental in our Reg D, Reg A and Reg CF raises. I wouldn’t hesitate to recommend them to any company looking to raise capital online!”

Matt Belcher

CEO & Co Founder
CalTier Realty

Ryan Frank
CEO & Founder of Funded
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