Start-ups have an exciting brand new option to raise money! Regulation Crowdfunding (Reg CF), which went into effect on May 16, 2016, presents to start-ups an unprecedented equity financing opportunity. For the first time ever, companies can raise capital by selling unregistered securities online to the general public. Those start-ups that have so far not been able to secure angel investors or venture capital will find Reg CF a more accessible avenue to raise critical start-up capital. Advantages of raising capital using the Reg CF exemption compared to venture capital financing or an IPO are:
Start-ups can raise up to $1M using Reg CF in a 12-month period;
Reg CF can be used in combination with other types of financing like private placements;
Investors can include the general public and are not restricted to accredited investors;
Founders typically give up less equity percentage compared to angel and VC funding;
Limited initial and ongoing disclosure required compared to a public offering; and
Transaction fees are much lower than those of registered offering and the terms are better than VC financing.
Start-ups raising money using Reg CF must do so through a FINRA-licensed crowdfunding portal or broker-dealer. Through a fundraising portal with a broader investor based, start-ups will be able to reach investors beyond their own networks.
Fundraising success is closely tied to a strategic marketing plan that uses digital experience and big data tools that drives the momentum of the crowdfunding offering.
CW attorney Connie Dai is available for any questions.