Reg. CF Education

Photo courtesy of Crowdfund Insider

Photo courtesy of Crowdfund Insider

Regulation Crowdfunding
This guide provides an overview of the newly enacted rules around Regulation CF. All investors are recommended to read SEC’s Bulletin on Crowdfunding for Investors before making an investment decision. FINRA has also published useful information under the title, Crowdfunding and the JOBS Act: What Investors Should Know.


Crowdfunding is an evolving method of raising money through the Internet, but it has generally not been used to offer and sell securities. That is because offering a debt vehicle to finance business activities could trigger the application of the federal securities laws, and an offer or sale of securities must be registered with the SEC unless an exemption is available.

The JOBS Act included an exemption to permit securities-based crowdfunding and established the foundation for a regulatory structure for these transactions. It also created a new entity – a funding portal – and allows these Internet-based platforms or intermediaries to facilitate the offer and sale of securities without having to register with the SEC as brokers. The SEC was tasked with adopting rules to implement these provisions, which are intended to facilitate capital raising by small businesses while providing significant investor protections.

Regulation CF enables individuals to purchase securities in debt crowdfunding offerings subject to certain limits, requires companies to disclose certain information about their business and securities offering, and creates a regulatory framework for the intermediaries facilitating crowdfunding transactions.

Investment Limitations Under Regulation CF

Investors are subject to certain limitations to balance the risk that typically comes along with small business lending.  Specifically, Regulation CF limits the amount individual investors may invest across securities offered under Regulation CF over a trailing 12-month period.  The limitations are as follows:

If the investor’s annual income or net worth is less than $100,000, then an investor may invest the greater of:

  • $2,000 across all securities offered under Regulation CF over the trailing 12-month period and
  • 5% of the lesser of their annual income or net worth across all securities offered under Regulation CF over the trailing 12-month period.

If the investor’s annual income and net worth are at least $100,000, then an investor may invest the lesser of:

  • 10% of their annual income across all securities offered under Regulation CF over the trailing 12-month period and
  • 10% of their net worth across all securities offered under Regulation CF over the trailing 12-month period.

Furthermore, for any 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.


Investing Process Under Regulation CF

To invest in securities offered under Regulation CF on Funding Wonder, register as an investor or click on the “Bid” button on the profile page of the company you are interested in.


Once you make an investment, your investment amount will be funded and held in escrow or an escrow-like account at a third-party agent. Investors are allowed to cancel their investment at any time up to 48 hours before a closing. In the event the target offering amount is reached prior to the offering deadline, all investors that have confirmed their investment by completing the investment flow on Funding Wonder will be notified five business days prior to the new closing date, which is meant to give investors adequate time to cancel their investment.


Furthermore, in the case that the Issuer has a material change in their offering (e.g., terms are updated, company operations have materially changed), all investors will receive a notice of that material change and are required to confirm their investment.  In the case that the investor does not confirm their investment within five business days, their investment will be automatically canceled and the funds committed and placed in escrow will be returned to the investor.

After The Investment Under Regulation CF

Securities purchased in a debt crowdfunding transaction generally cannot be resold or transferred for a one-year period. There are resale restrictions on investments made into securities offered under Regulation CF for the first twelve months.

In addition, companies relying on the crowdfunding exemption must file information with the SEC and post it on their websites on an annual basis. Receiving regular company updates is important to keep debtholders educated and informed about the progress of the company and their investment. This annual report includes information similar to a company’s initial Reg CF filing and key information that a company will want to share with its investors to foster a dynamic and healthy relationship.

In certain circumstances a company may terminate its ongoing reporting requirement if:

  • The company becomes a fully-reporting registrant with the SEC;
  • The company has filed at least one annual report, but has no more than 300 shareholders of record;
  • The company has filed at least three annual reports, and has no more than $10 million in assets;
  • The company or another party purchases or repurchases all the securities sold in reliance on Section 4(a)(6); or
  • The company ceases to do business.


Disclosure by Issuers Under Regulation CF

Companies that rely on Regulation CF to conduct a debt crowdfunding offering must file certain information with the Commission and provide this information to investors and the intermediary facilitating the offering, including among other things, to disclose:

  • The price to the public of the securities or the method for determining the price,
  • The target offering amount,
  • The deadline to reach the target offering amount,
  • Whether the company will accept investments in excess of the target offering amount,
  • A discussion of the company’s financial condition,
  • Financial statements of the company:
  • Accompanied by information from the company’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor.
  • A description of the business and the use of proceeds from the offering,
  • Information about key persons at the company, and
  • Certain related-party transactions.