Legal Issues in Equity Crowdfunding
There are specific legal issues regarding equity crowdfunding campaigns.
Here’s a list to keep in mind:
The regulations for fundraising are as follows:
Reg CF — SEC designation for an equity crowdfunding raise that lets anyone invest in a startup for equity up to $5M.
Reg A+ — SEC designation for an equity crowdfunding raise that lets anyone invest in a startup for equity up to $75M.
Reg D — SEC designation for a fundraise that requires the investors to be accredited such as an angel investor or venture capitalist.
The funds raised on a Reg CF or Reg A+ will be placed in a Special Purpose Vehicle (SPV) which takes one line on the cap table of the company.
You can promote your fundraise to your family and friends, but the content must be factual and you cannot include terms.
The terms of the fundraise must be kept on the fundraise platform to ensure all investors receive the same information.
All investments must be made on the fundraise platform.
You can use SAFE notes, convertible notes, as well as equity for the type of security.
You must file a Form C along with two years of GAAP financials.
You’ll need to file one annual report one year from the date of closing the raise.
Keep these legal issues in mind in preparing your fundraise campaign.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.