Risk is Part of the Game

General

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Disclaimers

Neither Jason Rowley nor Graham Peck are financial advisors or tax professionals. We're just a couple of friends talking about our opinions of money and tech stuff on the internet.

Fully Vested content is primarily for entertainment purposes only; although we do try hard to stick to the facts according to the best of our knowledge at the time of recording, this content is not to be taken as legal or investment advice. Consult your own advisors and do your own research before deciding to make investments in private-market companies.

Equity Crowdfunding

New companies have several options for funding their startup and scale-out. They may solely rely on revenue from customers and clients, may be funded through the personal savings of their founder(s), may sell securities to outside investors, or some combination thereof.

Equity crowdfunding is a relatively new option for raising capital. Prior to June 2015, equity crowdfunding in the U.S. was limited to accredited investors participating in Regulation D offerings brokered through registered online portals like AngelList, CircleUp, SeedInvest, and others. These offerings were limited to accredited investors only.

Title IV of the JOBS Act of 2012 became effective in June 2015, which allowed unaccredited investors to invest in Regulation A+ offerings (with some minor restrictions depending on the terms of the deal).

Title III of the JOBS Act went into effect in May 2016, which allows companies to sell shares to unaccredited investors through a registered online portal. Under these Regulation CF offerings, unaccredited investors are limited in the amount of money they can invest annually, and issuers (companies) are required to disclose significantly more information about their businesses than they would otherwise be required to under a traditional private placement offering.

2020 changes coming into effect for Reg CF

In March 2020, the Securities and Exchange Commission released a proposed set of changes to various regulations governing exempt securities offerings. Many of those rule changes were passed in November 2020 and went into effect in early 2021.

A vastly simplified list of changes includes:

• Raising the offering limit in Reg CF offerings from $1.07M to $5M
• Removing annual investment limits for accredited investors
• Changing the investment limits for non-accredited investors by taking the "greater" rather than the "lesser" of annual income or net worth when calculating the investment limits. For most non-accredited investors, this rule change results in significantly increased limits.

Further reading

• Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers (Needs updating to new limits, as of time of publishing, but it's still a solid resource on SEC.gov)
• SEC's page on exempt offerings
• SEC's overview of Exempt Securities Offerings

About The Co-Hosts

• Jason D. Rowley is a researcher and writer at Golden.com. He volunteers with startup outreach for the open-source community and sends occasional newsletters from Rowley.Report.
• Graham C. Peck is a Venture Partner with Cultivation Capital and additionally helps companies build technology development teams in partnership with Brightgrove and other technology development organizations.