The Ultimate Equity Crowdfunding Dictionary of Terms/Terminology

New to the equity crowdfunding space and unsure of some of the terminology being used? Here is a list of commonly used terms and their definitions to help you make sense of this all:

Accredited Investor – Someone who meets the income or net worth requirements that the Securities and Exchange Commission has defined.

Alternative Trading System (ATS) – A trading venue that matches buyers and sellers of securities that are not listed on a public exchange.

Broker-Dealer (B-D) – A company that has been approved to trade securities; either for its own business directly OR on behalf of its clients.

Common Stock – Common stock is a type of security that gives the shareholder corporate equity ownership; typically with voting rights included.

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

Crowdfunding – A method of raising funds for a specific project or organization by raising smaller amounts of money from a very large number of people.

Crowdinvesting – Same definition as Equity Crowdfunding and can be used interchangeably.

Equity Crowdfunding – The specific type of crowdfunding where private companies are able to advertise, sell and issue securities in their company. Typically by getting smaller investments from a larger number of people.

Exempt Offering – An investment offering that is exempt from the registration requirements of public offerings.

Family Office – Privately-held wealth management advisory firms that typically service high net worth individuals and families.

FINRA – 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.

Form 1-A – A legal document, which gets reviewed and qualified by the SEC, that outlines the terms of an investment offering when a company is raising capital using Regulation A.

Form C – A legal document, which gets filed with the SEC, that outlines the terms of an investment offering when a company is raising capital using Regulation CF.

Form D – A legal document, which gets filed with the SEC, that outlines the terms of an investment offering when a company is raising capital using Regulation D.

Hedge Fund – 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.

Institutional Investor – An entity that pools capital to purchase securities or other types of investment assets on behalf of its shareholders or members.

Investor Relations (IR) – Typically a 3rd party company that helps issuers communicate with their pool of existing investors.

JOBS Act – The JOBS Act, which stands for “Jumpstart Our Business Startups” is a law that was intended to make it easier for small businesses in the United States to raise capital.

Joint Venture – An entity that is created when two or more businesses pool funds to accomplish a specific business objective.

Mutual Fund – 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.

Non-Accredited Investor – Someone who does not meet the income or net worth requirements that the Securities and Exchange Commission has defined for an accredited investor.

Offering Circular – Same definition as Private Placement Memorandum and can be used interchangeably.

Offering Memorandum – Same definition as Private Placement Memorandum and can be used interchangeably.

OTC Market – A decentralized market that allows parties to trade stocks, commodities and other instruments without the use of a broker or an exchange.

Pink Sheets / Pink Sheet Companies – 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.

Preferred Stock – A type of security that gives the shareholder corporate equity ownership; typically without voting rights, but is considered first money out of the business in the event of a liquidity event.

Private Equity Fund – An investment vehicle in which an investment advisor pools funds from multiple investors to make investments on behalf of the fund.

Private Placement Memorandum (PPM) – A document that is provided to prospective investors when selling stock or another security in a company.

Regulation A (Reg A) – A form of equity crowdfunding that allows businesses to advertise, sell and issue securities in their company to both non-accredited and accredited investors; capped at a maximum raise size of $75M.

Regulation A+ (Reg A+) – Same definition as Regulation A and can be used interchangeably.

Regulation CF (Reg CF) – A form of equity crowdfunding that allows businesses to advertise, sell and issue securities in their company to both non-accredited and accredited investors; capped at a maximum raise size of $5M.

Regulation Crowdfunding – Same definition as Regulation CF and can be used interchangeably.

Regulation D (Reg D) – A form of capital raising that allows businesses to sell and issue securities in their company to accredited investors.

Regulation S (Reg S) – An SEC-regulated form of capital raising where US companies can raise funds from investors outside of the US.

Restricted Securities – Securities that an investor acquires through a private sale by the issuing company which are typically subject to some type of resale limitations.

Retail Investor – Typically refers to a nonprofessional individual investor who buys and/or sells securities through a brokerage firm.

Rule 144a – A method that companies can use to raise capital from institutional investors as well as investors outside of the United States.

Rule 504 – Rule 504 of Regulation D allows companies to raise up to $10M of capital from accredited investors.

Rule 506(b) – Rule 506(b) of Regulation D allows companies to raise an unlimited amount of capital from an unlimited number of accredited investors. 506(b) offerings cannot be advertised to the general public and can only be solicited to existing relationships of the issuer.

Rule 506(c) – Rule 506(c) of Regulation D allows companies to raise an unlimited amount of capital from an unlimited number of accredited investors. 506(c) offerings can be advertised to the general public.

Securities and Exchange Commission (SEC) – An independent agency of the United States federal government whose purpose is to enforce laws that prevent market manipulation and protect investors.

Share Registry – Same definition as Stock Transfer Agent and can be used interchangeably.

Stock Transfer Agent – A stock transfer agent manages the change in ownership of a company’s stock.

Stock Warrants – A legal agreement between a company and an investor that gives the investor the right to purchase shares in the company at a specified price.

Test-the-Waters – 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.

Transfer Agency – Same definition as Stock Transfer Agent and can be used interchangeably.

Transfer Agent – Same definition as Stock Transfer Agent and can be used interchangeably.

Do you know of any other commonly used terminology that didn’t make it into our list above? If so, please shoot us an email and let us know so that we can expand our list!