Regulation CF (Reg CF or Regulation Crowdfunding) has opened up new opportunities for startups to raise funds from everyday investors for up to $5,000,000 in capital every year. Unlike traditional fundraising methods, Regulation CF allows non-accredited investors to participate, broadening the pool of potential backers. However, navigating Regulation CF’s requirements can be challenging for first-time fundraisers. This article covers the essential steps to compliance, providing a roadmap to launching a successful Reg CF campaign. If you’re a startup considering crowdfunding, explore our Start-Up Services for professional legal guidance.
Step 1: Choose a Registered Crowdfunding Platform
Under Regulation CF, all crowdfunding campaigns must be conducted through a FINRA-registered platform. Choosing the right platform is a critical first step, as each one offers unique features, fees, and audiences.
- Platform Comparison: Platforms like Wefunder and StartEngine are popular choices. Consider the fee structures, user base, and platform success rates.
- Fit for Your Campaign: Select a platform that aligns with your campaign’s goals, whether that’s raising awareness, maximizing investment, or reaching a specific demographic.
For help choosing the best platform, Crowdfunding Lawyers will also provide introductions to multiple crowdfunding platforms for further information about factors to consider, fees, and services.
Step 2: Prepare the Offering Document
Form C is the core disclosure document for your Regulation CF campaign, outlining your business, growth plans, use of funds, and potential risks. Transparency in these areas helps build credibility with potential investors and is a regulatory requirement.
- Key Components: Your document should include a clear business plan, financials, potential risks, and growth projections.
- Importance of Accuracy: Providing accurate, well-organized information is essential for compliance and investor trust. Misleading information can lead to regulatory penalties and damage to your reputation.
You can download a copy of the SEC-provided Form C Guide and questionnaire provides a detailed breakdown of what’s needed to create a compliant offering document, as well as our official Reg CF Compliance Guide here!
Step 3: Understand Compliance with Investment Limits
Reg CF includes investment limits based on an investor’s annual income and net worth, ensuring that individuals do not overextend their financial involvement. Additionally, there is a limitation that a company may only raise up to $5million per year. This limitation attaches to any affiliated entities that have the same management or 20%+ ownership shareholders.
As of November 2024, the investor limits for Reg CF are as follows. Please make sure to ask your attorney to confirm the limitations because they may be updated by the SEC from time to time.
- Investors with either income or net worth less than $124,000 may invest $2,200 or 5% of the greater of annual income or net worth
- Investors with income and net worth greater than $124,000 may invest 10% of the greater of annual income or net worth
- Accredited Investors can invest Unlimited Amounts
For more information on Regulation CF investment limits, you can also learn more about Regulation CF through this 10-minute education video Crowdfunding Offerings Explained.
Step 4: Marketing Your Campaign within Reg CF Guidelines
While Regulation CF allows some flexibility with marketing, you’ll need to follow specific guidelines to stay compliant. These rules cover what you can share pre-launch and during an active campaign.
- Pre-Launch Communication: Prior to launching and while still working on the regulations, terms, and structure of your investment offering, you can announce your upcoming campaign and gather initial interest but should avoid specifics about the investment opportunity. This is called Testing the Waters to pre-market your intended investment plans but there are limitations after you decide the regulations for the offering. Please consult with your legal counsel for any pre-offering marketing.
- Permissible Advertising: Once the campaign is live, you can promote the offering, but all advertisements must link back to the campaign page on your chosen Regulation CF platform. All materials relating to the offering must be made available including webinars, pitch decks/business plans, legal documentation, and all communications with prospective investors.
The CF platform’s compliance officer should provide you additional direction on what the requirements of the specific portal include and to review the advertising materials.
To ensure that your Testing the Waters campaign is legal, you will need to make sure that you include necessary Testing the Waters disclaimers on all advertising that you send out. It’s important to also note that your Testing the Waters materials will be filed with the SEC. Crowdfunding Lawyers will provide you with a few samples of the Testing the Waters Disclaimer Language for additional information on compliant advertising strategies.
Step 5: Post-Campaign Compliance and Reporting Requirements
After your campaign ends, Regulation CF requires you to maintain ongoing communication with investors, including regular updates and annual reports filed with the SEC.
- Form C-AR: Most startups must file Form C-AR annually to report on financials, business updates, and any new risks that may impact investors.
- Transparency: Regular updates are not only best practices but also build trust with your investor community, which can be beneficial for future fundraising rounds.
Conclusion
Reg CF provides startups with a powerful tool for fundraising while engaging a broad investor base. However, meeting compliance requirements is essential for a successful campaign. For customized support with your Regulation CF campaign, contact Crowdfunding Lawyers and leverage our expertise to make your crowdfunding journey smooth and legally compliant.