What Founders Should Actually Know

Regulation Crowdfunding (Reg CF) can give eligible companies a way to raise capital from a large number of investors without relying exclusively on traditional venture capital or angel investors. But there's an important distinction; Reg CF isn't simply "put your startup online and let anyone invest." There is a regulatory framework behind the offering that founders need to understand.

Under Reg CF, eligible companies can raise up to $5 million in a 12-month period through a registered intermediary. The offering must be conducted through a platform registered with the SEC and FINRA. Unlike a private placement where information may be shared primarily with a relatively small group of investors, Reg CF involves public-facing disclosure.

Depending on the size and circumstances of the offering, companies may have requirements involving:

• Financial statements

• SEC Form C disclosures

• Information about officers, directors, and significant shareholders

• Description of the business and use of proceeds

• Material risks

• Related-party transactions

• Ongoing annual reporting

Your investor base can look very different under Reg CF. Instead of raising from a handful of institutional investors, you could have hundreds or potentially thousands of investors participating in a round which creates a capitalization and investor-administration challenge. That's why structuring and administration is so important, founders need to think about how investor information, securities, communications, and ownership records will be managed after the campaign closes, and not just how the money gets raised.