What is Regulation CF?

In the past, private companies could only raise capital from what are called “accredited investors” - which typically are made up of the wealthiest 2% of Americans. In 2012, President Obama signed a landmark piece of legislation called The JOBS Act, which allows entrepreneurs to publicly advertise that they are looking for investors pre-IPO. Four years after The JOBS Act was signed a new exemption called Regulation CF went into effect. This exemption allows private early-stage companies to raise money from all Americans. Equity crowdfunding was born - startups could now use equity crowdfunding to turn customers into investors and raise up to $5 million.

Reg CF is a great alternative to getting funding via traditional VC firms, which - in today’s market - seems to be drying up.

Requirements for a raise via Reg CF

• require all transactions under Regulation Crowdfunding to take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal

• permit a company to raise a maximum aggregate amount of $5 million through crowdfunding offerings in a 12-month period

• limit the amount individual non-accredited investors can invest across all crowdfunding offerings in a 12-month period and

• require disclosure of information in filings with the Commission and to investors and the intermediary facilitating the offering

  
  

Choosing Regulation Crowdfunding

As a company, choosing which regulation to follow for your fundraising campaign is critical in determining the rules you must follow as well as how much more of this blog post you must continue reading. For this reason, we felt the question of whether or not Regulation Crowdfunding could be right for you should be answered first.

Regulation Crowdfunding (Reg CF) is ideal for raising up to $5,000,000. This is the maximum amount you are able to raise within a 12-month period under Reg CF. Additionally, you are able to raise at nearly no up-front cost. Obviously, this means that if you need to raise more than $5,000,000, then Reg CF may not be for you. Luckily, Regulation A+ allows individuals to raise up to $50 Million. The catch is there are greater up-front costs associated with Regulation A+. Launching a Regulation A+ campaign can easily cost between $50,000 and $75,000 dollars due to the various requirements.

So, to sum up all of the information presented above, if you need to raise more than $5,000,000 then Reg CF is not right for you. If you only need to raise an amount less than or equal to $5,000,000, then continue reading to learn specifics about Reg CF.

Eligibility

To be eligible for Reg CF issuance, your company would have to be U.S.-domiciled, in compliance with SEC, and have no current plans to engage in a merger or acquisition with an unnamed company. While that rules out going from crowdfunding directly to being merged into a SPAC, there is some good news here. Effective March 15, it will be in compliance to establish a special purpose vehicle for the expressed purpose of facilitating investment in Reg CF securities.

As always, this is directional only and you should speak to your advisor to make the best decision for your capital raise.

Here To Help

Just like that, by following the steps laid out above, you will have successfully completed a round of crowdfunding and put your company in a position to succeed. At Highlander, we realize the process can get overwhelming at times, so we are here to help! We are happy to work with you and your company through the Reg CF process to ensure a successful and compliant crowdfunding campaign.