The Language of Crowdfunding

Start The Fundraise Process

Engagement Letter | noun | en·gage·ment – let·ter

1. The engagement letter refers to a legal agreement between the issuer and the crowdfunding platform / broker dealer that outlines the terms and conditions of the arrangement.

The Due Diligence Process

Due Diligence | noun | due – dil·i·gence

1. Due diligence is an investigation into a business for the purpose of being able to make an informed investment decision.

The Onboarding Process

Company Profile | noun | com·pa·ny – pro·file

1. A company profile refers to the online web page that describes your company and your raise to potential investors.

Special Purpose Vehicle | noun | spe·cial – pur·pose – ve·hi·cle

1. A Special Purpose Vehicle (SPV) can be used as a funding structure, by which all investors (or investors under a given investment threshold) are pooled together into a single entity.

2. Note that currently only Regulation D raises can utilize SPVs. You cannot use a SPV for Regulation CF or Regulation A+ raises.

Offering Documents | noun | of·fer·ing – doc·u·ments

1. Offering Documents are documents prepared by the issuer’s attorney and have detailed information and disclosures about the terms under which the offering is being conducted. Typically, this would consist of, at a minimum, a note purchase agreement and convertible promissory note if the issuer is doing a debt offering, or a subscription/stock purchase agreement if the issuer is raising equity.

Regulation D Rule 506(b) Offering | noun | re·gu·la·tion – d – rule – 506·b – of·fer·ing

1. Rule 506 of Regulation D is considered a “safe harbor” for the private offering exemption of Section 4(a)(2) of the Securities Act. Companies relying on the Rule 506 exemption can raise an unlimited amount of money. There are actually two distinct exemptions that fall under Rule 506.

2. Under Rule 506(b), a company raise is subject to the following rules:

• The company cannot use general solicitation or advertising to market the securities;

• The company may sell its securities to an unlimited number of “accredited investors” and up to 35 other purchases.

Regulation D Rule 506(c) Offering | noun | re·gu·la·tion – d – rule – 506·c – of·fer·ing

1. Rule 506 of Regulation D is considered a “safe harbor” for the private offering exemption of Section 4(a)(2) of the Securities Act. Companies relying on the Rule 506 exemption can raise an unlimited amount of money. There are actually two distinct exemptions that fall under Rule 506.

2. Unlike Rule 506(b), under Rule 506(c), a company raise is allowed to generally solicit, but the company must verify each investor’s status as an accredited investor prior closing and accepting funds.

Regulation A+ Offering | noun | re·gu·la·tion – a·plus – of·fer·ing

1. Your company’s information will be made publicly available on SeedInvest.

2. Regulation A+ is a type of offering which allows private companies to raise up to $50 Million from the public. This includes accredited and non-accredited investors alike.

3. Regulation A+ is one way for companies to convert their customers into investors in the company.

4. Companies looking to raise capital via Regulation A+ will first need to file with the SEC and get qualification before launching their offering. The costs associated with a Regulation A+ offering are much lower than a traditional IPO and the ongoing disclosure requirements are much less burdensome, effectively making a Regulation A+ offering a mini-IPO.

Regulation CF Offering | noun | re·gu·la·tion – cf – of·fer·ing

1. Regulation CF is also known as “equity crowdfunding”

2. Like Regulation A+, Regulation CF is a type of offering which allows private companies to raise from the public and one way for companies to convert their customers into investors in the company.

3. Regulation CF allows private companies to raise up to $1 million from the public.

4. Companies looking to raise capital via Regulation CF will first need to file with the SEC, but the offering does not need to be qualified. The costs associated with a Regulation CF offering are much lower than a Regulation A+ offering and ongoing disclosure requirements are much less burdensome.

The Live Campaign

Offline Investor | noun | off·line – in·vestor

1. An offline Investor refers to an investor who does not invest through the platform

2. There may be restrictions on offline investors we can accommodate

3. Due to regulatory restrictions, we cannot accommodate any offline investors for Regulation CF raises.

Escrow | noun | es·crow

1. All invested funds are held by an independent third party bank escrow until closing conditions have been met and a closing occurs.

2. If the escrow has a minimum target amount, all investor funds will be promptly returned if you do not successfully raise that amount within the specified timeframe.

3. An investor can revoke or cancel their investment for any reason and at any time before a closing occurs.

The Closing Process

Blue Sky Filings | noun | blue – sky – fi.lings

1. Blue sky law is a state law designed to protect investors against fraudulent sales practices and activities.

2. Blue sky laws license brokerage firms, their brokers, and investor adviser representatives.

3. For more information about Blue Sky Filing, read the guide to an Special Purpose Vehicle.

Form D | noun | form – d

1. Form D is a brief notice that includes basic information about your company and the offering, such as the names and addresses of your company’s executive officers, the size of the offering and the date of first sale.

2. Companies must file a Form D to use an offering exemption under Regulation D, and avoid having to register with SEC.

3. Companies that are not raising under Regulation D do not need to file Form Ds, instead they will be required to file a Form C (for those raising under Regulation CF) or an Offering Circular (for those raising under Regulation A+).

Post-Closing | noun | post – clos·ing

1. Post-Closing refers to process after a company conducts a close on their investments.