Investment Crowdfunding Guide

Crowdfunding (alternately investment crowdfunding, securities crowdfunding,  crowdinvesting, crowd financing, debt crowdfunding, crowdlending, equity crowdfunding, crowdsale, or security token offering) describes the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or businesses raise capital. Crowdfunding also includes Peer to Peer Lending or “Marketplace Lending” which combines institutional money with investments from smaller investors.

The term crowdfunding is sometimes used in support of a wide variety of activities but the preferred definition is for online investing activities for securities issuers seeking capital.

The United States

• What is the JOBS act?

• Final Rules of Title II of the JOBS Act or Accredited Crowdfunding

• SEC Fact Sheet on General Solicitation Under Title II of the JOBS Act (Reg D 506(c))

• SEC Fact Sheet Under Title II Regarding General Solicitation on Private Offerings

• Final Crowdfunding Rules Under Title III of the JOBS Act of 2012 (Reg CF)

• SEC Fact Sheet on Final Rules of Title III of the JOBS Act

• Here is Title III or Regulation Crowdfunding in the Federal Register

• Regulation A+, Title IV of the JOBS Act, Investment Crowdfunding (Reg A+)

• SEC Fact Sheet on Final Rules of Title IV of the JOBS Act

• Intrastate Crowdfunding Summary

• The SEC Updates Reg CF, Reg A+ and More. Boosts Reg CF to $5 Million, Reg A+ Increased to $75 Million

European Union

• European Union Approves New Crowdfunding Rules that Apply to Member States, Funding Cap Set at €5 Million

The United Kingdom

• FCA Publishes Final Rules For Crowdfunding In UK

• FCA Publishes Guidance on Social Media Usage for Financial Promotion

• FCA Publishes Review of Crowdfunding Regulations States; “No Need to Change”

• FCA Publishes Consultation on Loan Based Crowdfunding. Agency Seeks to Simplify Client Money Requirements

• Here is the FCA Document Regarding Review of Crowdfunding Regulations

Finland

• Finland Explains Why Investment Crowdfunding is Needed

France

• French Crowdfunding Laws Now in Force

• France’s 2nd Regulatory Reform Enlarges the Scope of Crowdinvesting & Crowdlending

India

• Reserve Bank of India Consultation Paper on Peer to Peer Lending (Document)

 China

• China Peer to Peer Lending Rules

Singapore

• Consultation on Crowdfunding

• P2P Lending in Singapore: MAS FAQ

• Securities Crowdfunding: Monetary Authority of Singapore FAQ & Comments (Document)

Malaysia

• Malaysian Securities Commission Releases Equity Crowdfunding Guidelines

Dubai (UAE)

• Dubai Regulations for Crowdfunding: Issuers May Raise up to $5 Million

Types of Investors

In the discussion of crowdfunding there are generally two types of investors in the United States: accredited investors and non-accredited investors.  These two groups operate by differing rules when investing.  In general, if you make less than $200,000 a year or are worth less than $1 million you are a non-accredited investor, although there are more complex rules that define these two groups.

What is an accredited investor?
What is a non-accredited investor?

The reason crowdfunding is an emerging topic in the United States is due to the JOBS act enabling non-accredited investors to invest in companies via crowdfunded offerings.  This means average citizens can contribute capital to companies without those companies having to deal with the typical bureaucratic overhead of selling stock on typical stock exchanges.

The SEC has published a report on the definition of an accredited investor and may be inclined to update the rule. 

Types of Crowdfunding

Investment Crowdfunding

A platform may crowdfund a diverse group of securities including debt, equity, SAFEs, revenue share, convertibles, or more. Each of these offerings entails an expected return by the investor. Investment crowdfunding is most widely utilized in raising capital for early-stage firms and real estate projects. As the technology matures, a growing number of later stage businesses are utilizing online capital formation.

Security Token Offerings (STOs) or Digital Securities

The advent of Ethereum fueled an entirely new class of investments. Digital assets may now be “tokenized” security offerings of debt, equity, or perhaps a new type of asset in its entirety. This sector of finance is very much in its infancy.

In 2017 and much of 2018, initial coin offerings (ICOs) experienced dramatic growth where digital assets or crypto assets were sold to the public in an effort to raise capital to fund ventures. Regulatory actions around the world curtailed this activity as some jurisdictions deemed these as unregistered offerings securities designed to skirt existing law. The emergence of STOs provides a regulatory compliant path for the issuance of securities using blockchain technology.