Regulation Crowdfunding Campaign Process FAQ

Regulation Crowdfunding Campaign Process FAQ


Campaign FAQ

Pre-Campaign Process

The Crowdfunding Campaign

Funding Portals

Pre-Campaign Process

Q:    Do I need to work with a funding portal to use the Regulation Crowdfunding exemption?

A: Yes. You will need to engage an SEC/FINRA registered intermediary, either a broker-dealer or a funding portal, in order to launch your Reg CF campaign. The intermediary will provide financial and marketing materials to potential investors. The complete list of intermediaries can be found here.

Q:     Do I need to file a Form C with the SEC before launching my campaign?

A:     Yes, under Rule 201, issuers are required to prepare and file a Form C on the SEC’s EDGAR site prior to making an offer or sale of securities under Reg CF.  By filing a compliant Form C with the SEC and providing it to your funding portal, an issuer will satisfy the requirements of Section 4A(b). A compliant Form C will contain a significant amount of information about your business, financials, directors and officers, capitalization, prior offerings, use of proceeds and the terms of the Reg CF offering, among other specified disclosures.

Q:     What type of information is disclosed in the Form C?

A:     An issuer is required to disclose all material documentation and information relating to:

  • The price of the securities or the method for determining the price;

  • The target offering amount;

  • The maximum offering amount;

  • The deadline to reach the target offering amount;

  • Whether the company will accept investments in excess of the target offering amount;

  • A discussion of the company’s financial condition;

  • Financial statements of the company:

    • Accompanied by information from the company’s tax returns,

    • reviewed by an independent public accountant, or

    • Audited by an independent auditor.

  • A description of the business and the use of proceeds from the offering,

  • Information about key persons at the company; and

  • Certain related-party transactions, among other disclosures.

 For a more comprehensive overview, feel free to contact us!

Q:     How much does the Regulation Crowdfunding campaign process cost?

A:      Costs vary depending on which funding portal you are working with and the professional service providers you choose to work with. Still, a capital raise under Reg CF can be far less expensive than a traditional round where more robust offering documents, audited financials or investor negotiations come into play.

The Crowdfunding Campaign

Q:     How long will the fundraising take?

A:     The minimum campaign period is 21 days. This is because of the requirement that disclosure be made publicly available on the intermediary's platform for this period of time before any securities are sold in an offering. Typically, the campaign period is 30-90 days. Issuers have discretion to extend the deadline, if necessary.

Q:     What happens if an issuer doesn’t meet the minimum target offering amount?

A:      In the event an issuer does not meet the minimum target campaign goal before the offering deadline, the investment commitments will be canceled and returned to investors.

Q:     What happens if the round is oversubscribed?

A:      An issuer will determine in advance of the offering whether they will accept investments in excess of the target offering amount. Specifically, an issuer will have to decide how over-subscriptions will be allocated (e.g., pro-rata basis, first-come, first served basis, or at the company’s discretion). This decision will be disclosed in the Form C.

Q:     What if I want to raise more than the $1,070,000 cap?

A:      An issuer may conduct side-by-side offerings under Reg CF and Regulation D, Rule 506(c) as long as both offerings are compliant. This would permit an issuer to raise up to $1,070,000 from the crowd under Reg CF while raising additional capital from accredited investors under Reg D, Rule 506(c). A company offering a side-by-side round would need to disclose the fact that it was conducting the side-by-side offerings to all investors. Further, these companies must give investor disclosure documents that are generally the same as those in Regulation Crowdfunding to the Reg D investors. In addition to filling a form D with the SEC, Reg D issuers must comply with state blue sky laws requirements. Although securities sold under the Rule 506 safe harbor are exempt from state level registration, most states’ securities laws require the issuer to file a notice filling and pay related filling fees in the states where investors reside. Pro-tip: Timing is important. The Reg CF offering cannot be disclosed until the Form C is filed! Thus, launching the two side-by-side offerings in unison may be important for each to be compliant.

Q:     Does the company need a valuation in order to raise capital under the Reg CF exemption?

A:      A valuation may not be necessary to conduct a Regulation Crowdfunding campaign. Fundraising through convertible debt or debt instruments will allow an issuer to value the company in a later round of financing.

Q:     How can I advertise my campaign to the public?

A:     After selecting a funding portal, many companies rely on the portal to market the campaign to potential investors. On the funding portal’s site, issuers create a campaign page that often have a 2-3 minute video advertisement. Some companies also choose to incentive participation with non-monetary perks.  Before filling the Form C with the SEC, the company is prohibited from making any offers of securities, either publicly or privately. After filling the Form C, companies are limited to publicizing the offering via a “tombstone” advertisement. This includes a very limited set of facts including:

  • A statement that the issuer is conducting an offering pursuant to Section 4(a)(6) of the Securities Act;

  • The name of the intermediary through which the offering is being conducted and a link directing the potential investor to the intermediary’s platform;

  • The terms of the offering (i.e. the amount of securities offered, the nature of the securities, the price of the securities and the closing date of the offering period); and

  • Factual information about the legal identity and business location of the issuer, limited to the name of the issuer of the security, the address, phone number and website of the issuer, the e-mail address of a representative of the issuer and a brief description of the business of the issuer.

Q:  May an issuer advertise the “terms of the offering” through a video that complies with Rule 204(b) of Regulation Crowdfunding?

A:  Yes. Source: SEC C&DI, available here.

Q:  If an issuer’s advertisement does not include any of the “terms of the offering,” is the issuer limited to notices that include no more than the information described in Rule 204(b) of Regulation Crowdfunding?

A:  No. The limitation on advertisement applies only when the advertisement includes any of the “terms of the offering.” Source: SEC C&DI, available here.

Q:  Could a third party publication, such as a media article, constitute a notice that would subject an issuer to the limitations of Rule 204?

A:  Yes. If the media article advertises the terms of the offering and the issuer has been directly or indirectly involved in the preparation of the publication, the article would be a notice subject to Rule 204. Because Rule 204 limits the information that may be in such a notice, it would likely be difficult for the issuer to comply with the rule’s requirements. If the media article did not advertise the terms of the offering, it would not be a notice subject to Rule 204, although it could still constitute an “offer” under the securities laws. Source: SEC C&DI, available here.

Q:     After filing the Form C, are there additional reporting requirements?

A:    A company must provide an update on its progress toward meeting the target offering amount within 5 business days after reaching 50% and then 100% of its target offering amount. These updates are filed on a Form C-U. If the intermediary provides frequent updates on its platform regarding the progress of the issuer meeting its target offering amount, the issuer will need only to file a final Form C-U at the conclusion of the offering to disclose the total amount of securities sold. Additionally, after completing the crowdfunding campaign, an issuer is required to provide an annual report on Form C-AR no later than 120 days after the end of its fiscal year. The report must be filed on EDGAR and posted on the issuer’s website.

Q: If my company is subject to Form C-AR reporting requirements, do I have to file the Form C-AR forever?

Issuers must comply with the annual reporting requirement until one of the following occurs:

  • (1) the issuer is required to file reports under Exchange Act Sections 13(a) or 15(d);

  • (2) the issuer has filed at least one annual report and has fewer than 300 holders of record;

  • (3) the issuer has filed at least three annual reports and has total assets that do not exceed $10 million;

  • (4) the issuer or another party purchases or repurchases all of the securities issued pursuant to Regulation Crowdfunding, including any payment in full of debt securities or any complete redemption of redeemable securities; or

  • (5) the issuer liquidates or dissolves in accordance with state law.

Any issuer terminating its annual reporting obligations is required to file notice on Form C-TR reporting that it will no longer provide annual reports pursuant to the requirements of Regulation Crowdfunding. Source: SEC Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers available here.

Q:  How does an issuer calculate the number of holders of record for purposes of determining eligibility to terminate its duty to file ongoing reports pursuant to Rule 202(b)(2) of Regulation Crowdfunding?

A:  The issuer would count all holders of record of securities of the same class of securities issued in the Regulation Crowdfunding offering for which the reporting obligation exists, regardless of whether the holders of record purchased their securities in the Regulation Crowdfunding offering. Source: SEC C&DI, available here.

Crowdfunding Portals

Q:     What are funding portals?

A:      “Funding Portals”, also known as “Registered Intermediaries”, are SEC-registered, FINRA members that facilitate the transactions and market the issuer’s campaign to interested investors. 

Q:     How are the portals paid?

A:      Typically, the issuer pays the intermediary at the conclusion of the offering a fee consisting of a cash commission based on the amount of funds raised in the offering and a commission in the form of securities. Some funding portals have additional on-boarding fees, including escrow set-up fees and fees related to transfer agent services.

Q:     What percentage of total cash and securities are issued to the portals from the campaign?

A: Cost may vary depending on which portal the issuer selects. Please confirm the below estimates with the funding portal directly.

  • Republic.Co will charge 6% of the total funds raised in cash, and 2% in securities.

  • First Democracy VC will charge 7% in total cash, and 2% in securities.

  • WeFunder will charge 7% in total cash raised

  • SeedInvest will charge 7.5% in total cash raised, and 5% in securities.

  • NextSeed will charge 10% in total cash raised.


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