How Regulation Crowdfunding lets startups raise money from the public

How much you can raise

A startup can raise a maximum of $5 million in any rolling 12-month period through Regulation Crowdfunding offerings. This cap includes amounts sold by entities controlled by or under common control with the issuer, as well as amounts sold by any predecessor of the issuer. Amounts sold in other exempt offerings (non-crowdfunding) are not counted toward this limit.

Investor limits

Individual investors are capped based on their income and net worth. If either annual income or net worth is less than $107,000, the investor can invest the greater of $2,200 or 5% of the lesser of their income or net worth in a 12-month period across all Regulation Crowdfunding offerings. If both income and net worth are $107,000 or more, the limit rises to 10% of the lesser of income or net worth, with an absolute cap of $107,000 per investor per 12 months.

Where the offering must happen

Every Regulation Crowdfunding offering must take place exclusively on one SEC-registered online platform. The intermediary must be either a broker-dealer or a funding portal registered with the SEC and FINRA. The issuer can rely on the intermediary to enforce investor limits unless the issuer knows the investor would exceed the cap.

Disclosure rules

Startups must file Form C electronically on EDGAR and provide it to the intermediary and investors. Form C requires details about officers, directors, and 20%+ owners; a business description; use of proceeds; offering terms (price, target, deadline); related-party transactions; and financial condition. Financial statements must meet specific standards based on the amount raised in the prior 12 months:

For offerings up to $107,000: financial statements certified by the principal executive officer, unless reviewed or audited statements are available.

For offerings over $107,000 but not more than $535,000: reviewed financial statements, unless audited statements are available.

For offerings over $535,000: reviewed statements for first-time issuers, audited statements for repeat issuers.

Updating investors and the SEC

After filing Form C, startups must file progress updates on Form C-U within 5 business days of reaching 50% and 100% of the target. If the intermediary provides frequent updates on its platform, only a final Form C-U is required. Startups must also file an annual report on Form C-AR within 120 days of the fiscal year-end, continuing until one of five exit conditions is met (e.g., fewer than 300 holders, assets under $10M, or dissolution).

What you can say off-platform

Startups may not advertise the offering terms off the intermediary’s platform. A brief notice is allowed, directing investors to the platform and including only:

a statement that the offering is under Section 4(a)(6) of the Securities Act, the intermediary’s name, and a link to the platform;

the offering terms (amount, type, price, closing date); and

factual business information (name, address, phone, website, email, brief business description).

On the intermediary’s platform, startups can discuss the offering but must identify themselves as the issuer.

Resale restrictions

Securities bought in a Regulation Crowdfunding offering cannot be resold for one year unless transferred to the issuer, an accredited investor, in a registered offering, or to a family member or trust in limited circumstances.

Section 12(g) exemption

Securities issued under Regulation Crowdfunding are exempt from Exchange Act Section 12(g) registration if the startup is current on annual reports, has total assets of $25 million or less, and uses a registered transfer agent. If the startup exceeds $25 million in assets and has more than 2,000 holders (or 500 non-accredited holders), it gets a two-year transition period before registration is required.