Lustro - What is Equity Crowdfunding?

For the last 80 years, private companies could only raise capital from accredited investors, the wealthiest 2% of Americans. On April 5, 2012, President Obama signed a landmark piece of legislation called The JOBS Act, allowing entrepreneurs to go to the crowd and publicly advertise their capital raises. On May 16, 2016, four years after the JOBS Act was signed, Title III (aka Regulation CF) of the JOBS Act went into effect, allowing private early-stage companies to raise money from all Americans. Startups can now use equity crowdfunding to turn their customers into investors.

What is Regulation CF?

Title III of the JOBS Act outlines Reg CF, a type of offering allowing private companies to raise up to $5 million from all Americans. Prior capital raising options, limited private companies to raising money only from accredited investors, historically the wealthiest ~2% of Americans. Like a Kickstarter campaign, Reg CF allows companies to raise funds online from their early adopters and the crowd. However, instead of providing investors a reward such as a t-shirt or a card, investors receive securities, typically equity, in the startups they back.

Step 1: Preparing the Reg CF Offering

All Regulation CF raises must occur entirely through a single SEC/FINRA registered broker-dealer or funding-portal. In addition, a company must draft and file a Form C with the SEC before proceeding with their raise. SeedInvest works with companies throughout this process to make it as painless and efficient as possible.

Step 2: Launch the Raise

After filing the Form C, a company may launch their equity crowdfunding campaign on the SeedInvest platform. SeedInvest's online platform has been engineered to seamlessly accept investments online, including verifying investor identities, performing anti-money-laundering checks on investors, facilitating investment document execution, funds transfer and regulatory compliance.

Step 3: Accepting Investments

To allow for adequate time for investors to make investment decisions, the company is prohibited from closing on any investments until 21 days after listing their Regulation CF offering with a funding-portal.

Step 4: Material Changes to the Offering

If there is a material change in the offering, each investor will be notified and investors must re-confirm their investment within 5 business days. If an investor does not re-confirm their investment within 5 business days of a material change in the offering, their investment will be automatically canceled and unwound.

Step 5: Closing the Round

SeedInvest will manage the entire closing process and ensure that all legal and regulatory obligations are met. The funds from escrow will be transferred to the company upon completion of the offering.

Step 6: After the Fundraise

The platform provides messaging and managing tools for the company and investors to collaborate online after closing the round.