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Equity Crowdfunding Regulations: The Four Options

16500431-abstract-word-cloud-for-financial-regulation-with-related-tags-and-terms-stock-photoA startup’s equity crowdfunding round can be accomplished using any one of a handful of longstanding regulations as well as the new Regulation Crowdfunding rule, also known as Title III of the JOBS Act, that went into effect earlier this year. But the specific regulation used for a given fundraise can impact a number of important aspects of the round, including:

  • How much total money can be raised
  • Who can participate in the fundraise – whether they have to be “accredited investors” as defined by the SEC, or whether they can be non-accredited investors (aka “sophisticated” investors)
  • Whether or not the fundraise can be advertised to the general public, otherwise known as “solicitation”
  • What the audit requirements may be required – whether a full external audit is required, whether certification of financials by internal officers will suffice (or something in between) or whether no audit or certification is required
  • How long the fundraise will take
  • How much the fundraise will cost the company
  • Other considerations, including additional compliance requirements or investment limits

When considering crowdfunding, there are four regulations that could come into play:

  • Reg D 506(b)
  • Reg D 506(c)
  • Title IV Reg A+
  • Regulation Crowdfunding – also known as Title III

Each regulation has its pros and cons. Over the next few weeks, we’ll be exploring each of the four regulations in more depth.

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