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 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 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 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 A / Reg A?2022-10-10T14:21:19-07:00

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 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 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 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.

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 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 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 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.

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 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 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 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 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 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 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 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 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 the maximum offering size of Tier 1 vs Tier 2 Reg A offerings?2022-05-04T16:46:57-07:00

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 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 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))

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 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
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).

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 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.

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 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 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 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 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 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 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 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)

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 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 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 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.

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?

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 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 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 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 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 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 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 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 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 Regulation D / Reg D?2022-10-10T14:19:53-07:00

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 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 A
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

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
Private Equity Fund / Reg D
Reg D + Reg S

Let’s Make Things Happen

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

“The Funded team has been instrumental in both our 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
  • End-to-End Equity Crowdfunding Marketing & Advertising Solutions

  • Guidance on All Aspects of Your Raise

  • Access to Our Extensive Partner Network