How does Regulation Crowdfunding work?
As opposed to donation or rewards crowdfunding, with investment crowdfunding your supporters become investors in your business. This new type of crowdfunding was made possible by the passage of the JOBS Act of 2012, which created exemptions to the U.S. Securities laws around how private companies can raise capital, including allowing for general solicitation (i.e. advertising).
One of these exemptions, Regulation Crowdfunding (Reg CF), allows private companies to raise up to $5M per year from their community using SEC-approved portals. If you launch a Regulation Crowdfunding campaign you’ll be able to offer equity or debt securities in your company to the general public, not just to accredited investors (i.e. qualified angels and VCs).
Who can invest in a Regulation Crowdfunding campaign?
As with all crowdfunding, businesses are primarily responsible for bringing potential investors to the campaign. But unlike a private investment raise where the pool of potential investors is small, the number of potential investors is much bigger with a public investment raise via Regulation Crowdfunding. Companies are not limited to angel investors who tend to focus on high growth companies, but can advertise their investment opportunity and gather a large number of smaller investments from individuals who believe in their business. These community investors may also be less focused on big financial returns and more focused on the value the business is bringing to their community.
What are the costs to consider for a Regulation Crowdfunding offering?
Unlike other types of crowdfunding, Regulation Crowdfunding does have some upfront fees for legal and financial compliance that will vary based on the complexity of your securities offering and the target amount of your financial goal. Other fees include platform fees of 5-10% that, like other types of crowdfunding, are charged after a successful capital raise.
Want to dig deeper into Regulation Crowdfunding?
Our Investment Crowdfunding for Everyone online course demystifies using investment crowdfunding to raise capital from everyday people, not just wealthy investors. Take this course to learn the rules of the road and what you need to know to do it right.
Want to know if your business is a good fit for Regulation Crowdfunding?
Our Crowdfunding Roadmap Package is focused on helping you understand your crowdfunding potential and assisting you in developing a campaign strategy poised for success.