What is Equity Crowdfunding?
Equity crowdfunding allows people to invest in an early-stage, private company (a company that is not listed on any stock exchange) in exchange for equity (shares, or a percentage of ownership) in that company. This is different from rewards-based crowdfunding like seen on Kickstarter, where people can contribute money to campaigns in exchange for perks.
Reg CF Equity Crowdfunding (also known as Title III): Startups raising $100k up to $5M in seed capital fit the newly expanded REG CF Equity Crowdfunding. This means that main street investors (both accredited and non-accredited individuals) worldwide can now buy shares in your company.
There is no immediate liquidity as shares are locked up for a 12 month period.
Effective date – May 16th, 2016.
Reg D (Accredited) Equity Crowdfunding (Title II): Startups raising $3M and above fit the existing style of equity crowdfunding, raising capital from accredited (wealthy) investors. RED D 506c allows the use of “General Solicitation.
Effective date – Sept 23rd, 2013
Reg A+ Equity Crowdfunding (Title IV) : Successful mid-stage companies, corporate spin-outs (think management buyout), and low risk, large upside startups – fit Reg A+ platforms. You can raise up to $75M per year using Reg A+. Shares can be liquid immediately after the offering, and Reg A+ can be used to take companies public and list on the NASDAQ or NYSE.
Effective date – June 19th, 2015.
Who can invest in equity offerings?
Since the passing of Title III, any American 18 years or older is eligible to invest in an equity offering. International investors can invest as long as they follow their countries’ securities regulations, so we recommend checking local securities laws before investing.
What are the benefits of investing in equity offerings?
As with any investment, there are always risks. There is always the possibility of losing all or a portion of your investment. However, the unique nature of investment crowdfunding offers many benefits that investors won’t find anywhere else. Because most offering companies are early-stage startups, you get a chance to be a part of the journey, with the potential to participate in the company’s upside. You’re showing your support early on, which gives you the chance to feel more engaged and as though you are actually a part of the business. Plus, you can diversify your portfolio, while supporting new ideas as they come to life. If you have ever wanted to be a part of a company’s journey to success, equity crowdfunding could be for you. Investing in an innovative startup gives anyone the opportunity to own a piece of the company and be along for the ride, whether up or down. It’s also a great option for early-stage companies to bring together their communities and engage with their biggest supporters from the very beginning.
How much does a crowdfunding campaign cost?
For a REG CF offering of $5M expect to spend up to $50,000 for equity crowdfunding marketing and related services. Digital ad costs vary project-to-project, but it’s quite normal to spend at 5 – 10% of your funding target on digital advertising alone.
Expect total costs of a REG CF raise to be around 15 – 20% of your raise.
Timeline: 90-120 days.
Most REG CF portals offer what is known as a rolling close whereby you can set a minimum funding target of let’s say, $25k and once reached, you can begin drawing funds from escrow and redeploying some of the money into future marketing.
*The typical portal captures and owns YOUR data!
For a Regulation D offering of $5 million, you might spend up to $20,000 for a lawyer, $10,000 for platform hosting fees (optional), up to $20,000 for the build of your marketing stack, plus around $10,000 per million which includes your Digital Advertising costs. If you are raising more it will cost you more. We always advise clients to be prepared to add funds to extend the marketing campaign if the need arises.
Expect to budget around 3% -5% of funding goal as total cost of raise.
Timeline: 60-90 days
There is no limit on the amount you can raise using REG D.
*YOU own YOUR data through a self-hosted raise!
Note: The costs of the offering are routinely charged to the investors and recouped by the company when the offering is completed. So, the company has no out-of-pocket costs from the offering when all is said and done.
There are “adjustments” that can be made to some offerings that allow the company to recoup the costs they expended before the full amount is raised. In those cases, the initial legal and marketing costs can be redeployed to provide additional marketing spend to complete the offering.
“Overall, our analysis confirms that Regulation D accounted for significantly more capital raising than Regulation A, with the difference on the order of magnitude of 1000x in a typical year during the examined period.” – Source: SEC
Reg A+ offerings are time consuming and expensive. It can sometimes take 6 months or more for lawyers to prepare the paperwork and for the SEC to review, comment and approve an offering. Legal and accounting fees alone can easily reach
Reg A+ offerings make sense if the company (issuer) is consumer facing (B2C) and are attempting to raise at least $10 million.
Expect total costs, including Digital Advertising, to be in the region of 7% or more of total funds raised.
Timeline: 5 – 9 months.
*The platform/portal operator captures and owns YOUR data!
However, by self-hosting your REG A+ offering, you own your investor data and substantially reduce your cost of raise.
Crowdfunding is never easy. Preparing well in advance means you have tested and optimized all of your marketing assets and tools ready for launch. This period also helps get those critical funds needed within the first hours or days of launch.
Want your own crowdfunding portal?
For companies that are regularly raising capital, we offer portal technology though our partner network. This mean that you own your own data from your marketing efforts. We’ll be happy to walk you through this unique offer.
Want to work with us?
Our crowdfunding process is time-tested and scalable which allows us to achieve your funding goals. We don’t accept every client but if we align, we are ready to engage, offering a high chance of success.
You are in a Large, Lucrative Market:
We look for companies with substantial upside for investors. Ideal startups and early-stage companies who serve large, multi-billion dollar addressable markets.
You Address a Gap in the Marketplace:
We look for companies which provide solutions to major pain points in large, addressable markets.
You Differentiate from the Competition:
Issuers who acknowledge their competition and understand how to sell into new or established marketplaces are best suited. Additionally, companies need to stand apart from the competition and provide a unique value proposition to their customers.
You are Technology Enabled:
We look for companies that are substantially leveraging technology to provide their business with rapid scalability, significant efficiencies, and great profit potential.
You Have an Experienced & Passionate Team:
We seek out strong founders and teams that have vision, the substance to get there, and the tenacity to break through brick walls. A track record of successes are especially desirable.
You have Significant Traction: Companies MUST have an MVP (minimum viable product) with enough significant traction in the marketplace to show product-market fit. We prefer companies that are post-revenue but will consider pre-revenue companies with compelling traction partnerships.
Check out our equity crowdfunding marketing services.
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