We believe that startup companies represent the future, and it is our mission to make sure they understand everything they need to in order to be successful. Today, our goal is to help startups understand everything they need to know about Regulation CF.
What is Regulation CF?
In the past we discussed how your startup can raise money using Regulation D. Unlike with Regulation D, Regulation CF (Regulation Crowdfunding) is an exemption from the SEC that allows startups to earn money from anybody rather than just Accredited Investors.
Up until a few years ago, Accredited Investors were the only ones who could invest money into a private company. In 2012, President Obama signed the JOBS Act, which added Title III (AKA Regulation CF) four years later in 2016 allowing early-stage companies to raise money from anyone in America.
The rules of Regulation CF:
- Regulation CF is limited to raising $1,070,000 in a 12-month period
- There is a limit to the amount of individual investors who can invest across all CF offerings in a 12-month period
- Transactions must be conducted on an SEC verified platform such as WeFunder or Kickstarter
- The individuals that are investing in the company can only invest up to $2,000 or 5% of their annual income if their income is less than $100,000 a year
- Securities purchased in a crowdfunding transaction cannot be resold for one year
How Can My Startup Raise Money Using Regulation CF?
Before applying for a crowdfunding platform, a startup must draft and file a Form C with the SEC. After filing a Form C, you can begin to launch your equity campaign.
In order to get accepted onto one of these Crowdfunding platforms, you have to build a buzz around your business and acquire followers to build a strong portfolio. It’s important to anticipate the money you will have to spend in order to get accepted and the money you will continue to spend to market the offering after being accepted.
Most platforms give you an average of 60 daysto raise your target goal. If you do not raise the capital you projected in that time limit, then all the money will go back to those who invested. For example, if you set a $200,000 limit and you only raise $100,000, then you will lose the money that was raised up until that point.
The Bottom Line
If you want to raise money for your startup without the limitations of Regulation D, then Regulation CF is the way to go. As long as you know what to expect when it comes to the legalities and requirements of the Crowdfunding platform you are using, you are on the path for a successful equity campaign.
If you still have questions regarding Regulation CF, we recommend reaching out to an experienced corporate attorney for advice. At Benemerito Attorneys at Law, we offer free consultations and would love to help guide you toward the right decision for your business.
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This blog is for informative purposes only. This information does not constitute legal advice. You should consult with a licensed attorney that can advise you according to your particular circumstances.