Regulation Crowdfunding in Motion

Regulation Crowdfunding (Reg CF) is a new securities exemption (Title III of the JOBS Act) that enables startup and emerging companies to raise funding from the retail public. All Reg CF offerings must be facilitated through an Internet based SEC and Finra registered intermediary, either a broker-dealer or Funding Portal. Before launching a campaign on the intermediary’s site, companies are required to disclose certain information about themselves and their offerings in a disclosure document called a Form C. The Form C must be filed with the SEC before the campaign goes live. This exemption is appropriate for companies looking to streamline their seed stage or series financing round through an online platform utilizing digital marketing strategy.

Since its inception, the Firm has developed its expertise in supporting clients seeking to utilize equity crowdfunding as a pathway to capital formation. Equity crowdfunding is industry agnostic, and our broad range of equity crowdfunding clients represent the Food & Beverage, Blockchain, Technology, Media, Fintech, Alcoholic Beverage, Social Impact and Fashion industries, as well as artists, filmmakers restaurateurs, real estate developers and others.

Under this exemption, issuers are permitted to:

• Raise up to $5M in capital per 12-month period
• Testing the waters capabilities prior to filing Form C
• Leverage a Funding Portal’s network and marketing activities
• Utilize social media to promote campaigns
• Openly pitch fundraising efforts at events
• Experience simplified investor onboarding and relations through their chosen Funding Portal
• Accept investments from both accredited investors and non-accredited investors

Under Rule 201, issuing companies are required to prepare and file a Form C on the SEC’s EDGAR site prior to making a sale of securities under Reg CF. In order to file a compliant Form C with the SEC, the issuing company must satisfy a number of requirements and disclose extensive yet specific information. With years of experience in Form C preparation and filing, and having supported dozens and dozens of Reg CF issuers, we are able to offer our clients a streamlined, affordable process for conducting a compliant and safe Reg CF offering.

Regulation A+ in Motion

The Reg A+ mini-IPO exemption (Title IV of the JOBS Act) similarly allows issuers to raise funds from both accredited and non-accredited investors. The SEC adopted the proposed rules March 25, 2015, which earmarked Reg A+ as the first exemption available to issuers seeking funds from an uncapped number of unaccredited investors. The Reg A+ exemption is available to US and Canadian issuers seeking to raise up to $75M in a 12-month period. The rules create a two-tiered approach, where Tier I issuers can raise up to $20M in a 12-month period and Tier II issuers can raise up to $75M.

The Reg A+ securities exemption has limited marketing restrictions post-qualification and other notable benefits for issuers, including:

• Immediate liquidity opportunity for investors as securities sold under Reg A+ are unrestricted securities
• Testing the waters capabilities prior to qualification –issuers may generally solicit interest in a potential offering, both before and/or after the filing of the Form 1-A offering statement, so long as any solicitation materials are preceded or accompanied by a preliminary offering circular
• Opportunity to raise up to $75,000,000 in a Tier-2 Offering
• Collaborating with broker-dealers to provide solicitation and execution support
• Accepting investments from both accredited investors and non-accredited investors
• Utilizing social media to promote a campaign
• Openly pitch fundraising efforts at events
• Simplified investor on-boarding with the help of technology service providers, brokers-dealers, and fundraising platforms

Regulation D, Rule 506(c) in Motion

Regulation D (Reg D) provides the simplest set of safe harbors to registration when compared to its alternatives (Reg A+; Reg CF). The most commonly utilized rules under Reg D are 506(b) and 506(c), the latter of which allows for general solicitation and was created under Title II of the JOBS Act. Reg D, Rule 506(c) has been the most utilized exemption of all the JOBS Act exemptions, likely due to the following factors:

• Issuers can raise unlimited capital on an annual basis from accredited investors
• Accreditation verification service providers make compliance with the "reasonable steps requirement" simple for issuers and investors
• Issuance platforms are accustomed to the Reg D exemption and have built compliance checks into their workflows
• There is no qualification or pre-approval required by the SEC, simply a Form D notice filing is required
• Issuers are exempt from registration and qualification requirements at the state level as securities sold under this safe harbor are deemed “covered securities.” State blue sky compliance, which typically entails notice filings and payment of associated fees, can be satisfied with the support of counsel

2020 Amendments

On November 2, 2020, the SEC announced the adoption of amendments to harmonize registration exemptions for certain offerings commonly utilized by small and mid-sized companies. The amendments are intended to “simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections.” Important changes include:

• Revision of integration framework to establish “a general principle of integration” that considers the facts and circumstances of each offering, along with four safe harbor exceptions
• Expansion of Rule 506(c) verification options
• Reg D, Rule 504, Reg A and Reg CF maximum offering amounts raised
• Investment limits for Reg CF individual investors revised
• Testing the Waters capabilities introduced for Reg CF offerings
• Use of SPVs introduced in Reg CF Offerings
• Amending the Investment Company Act to permit issuers to use crowdfunding vehicles as a “conduit” for crowdfunding investors to invest directly in a company
• Changes in solicitation and advertising rules concerning “testing the waters” and demo day communications,
• Expansion of Rule 204 to include a brief description of the planned use of proceeds and information on the issuer’s progress toward meeting its funding goals, and
• Harmonization of “bad actor” disqualification provisions across Reg A, Reg CF, and Reg D offerings.

For more information on equity crowdfunding, please visit Regulation CF Offerings, Reg A+ Offerings and our answers to frequently asked questions from Campaign Issuers, Campaign Investors, and the Crowdfunding Campaign Process.