US Investment Crowdfunding Exemptions Explained

In the United States, securities or investment crowdfunding was legalized under the JOBS Act of 2012. This bi-partisan legislation was in recognition of changes in technology as well as an understanding of the need to better facilitate capital formation for early-stage firms.

Effectively, there are three main securities exemptions utilized in the US to raise money online:

  • Regulation Crowdfunding or Reg CF
  • Regulation A or Reg A+
  • Regulation D 506c or Reg D 506c

Reg CF is an exemption that enables issuers to raise up to $5 million from anyone. Issuers must list the securities offering on a FINRA regulated Funding Portal or Broker-Dealer.

Reg A+, open to any investor, is divided into two separate iterations: Tier I and Tier II. Under Tier I an issuer may raise up to $20 million but must go through a state review process. Under Tier II, an issuer may raise up to $75 million without any state review. A Reg A+ offering must be qualified by the Securities and Exchange Commission and is sometimes referred to as a mini-IPO due to its similarities with a registered offering but on a scaled-down basis.

Reg D 506c is a private placement that may be promoted online but can accept accredited investors only. In brief, an accredited investor is an individual that earns over $200,000 a year ($300,000 if married) or has a net worth of over $1 million (not counting a primary residence).

Securities crowdfunding is still a young industry that continues to evolve. Last year, the SEC enabled several material changes to improve online capital formation. Meanwhile, the sector continues to grow as industry providers leverage the internet to connect investors with promising young firms – a vital policy goal in boosting economic growth and prosperity.

The below document is a high-level summary of the different exemptions. Please note, this is not legal advice. If you are interested in raising growth capital online be certain to hire a securities attorney with experience in this sector of finance.

You may download the document here or below.


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US Crowdfunding Securities Exemptions Explained

 

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