Category Archives: Marketing

We proudly invite you to 4th Annual Crowdfunding USA on May 4-5, 2017 National Press Club Washington, DC.

Crowdfund Beat Media Presents: 
The Important gathering will discuss what’s new on State of Investing and Risk Mitigation through evolving Internet finance space under the label “2017 the Year of 2.0 Equity & SME Finance-Online Lending or Investing- Crowdfunding “Jobs Act” under new congress & President Trump administration”

 See Conference website & Full Agenda Speakers 

For Promotional Opportunities, Group Discount, Sponsorship, and how to become a panelist call 1-888-580-6610 or email to


SEC – FINRA – JOBS ACT – Early Investing
Family Offices – IRA Trust
Rules and Regulations Consideration
Rule 506(c) – Title II Tittle III REG D REG CF
Definition of accredited investor?
Liquidity for the private securities space
Redefining Securities Distribution through Crowdfunding

Real Estate Crowdfunding

Why Hot Real Estate CrowdFunding Is The Next  New Frontier?
Impact of crowdfunding on real estate finance and deal-making
Is Real Estate Crowdfunding Offers An Attractive Alternative For Secure Investments?
The Impact of Technology and Internet on Real Estate Crowdfunding

Trump to Lift Community Bank Regulations (and what that means for house flippers)

Shadow Banking
Dodd-Frank: A Republican Congress
will likely be looking for ways to scale back time and money on business regulation.
Real Estate Crowdfunding and Community Development

Pros & Cons of Internet finance and lending 

2017 State of CrowdFunding

Business of Crowdfunding & Reaching the Goal – How to Make It Happen

Multiple Faces of Crowdfunding on Equity

Future of EB-5 Business Finance & Crowdfunding
Disruption of Equity Crowdfunding on VC’s – Angel Investors
Is Online Lending & Fintech industry here to stay?

Exploring Title II
Why it dominates and will continue to dominate crowdfunding
What initiatives are being pursued to create secondary markets or other means
Effect of IPO window

Regulation A+ Mini IPO
Many of the Reg A deals got pulled this last year.
Is this offering type holding up to investor interest.
Need research on Reg CF, Reg A+ and other offerings.
How much was raised, and how have they performed.
Aftermarket performance of Reg A+ deals

After hours Networking 

Round table discussion


2017 State of Crowdfunding

Brian Korn is a corporate and securities attorney at the law firm Manatt, Phelps & Phillips, LLP

Crowdfunding Platforms Expand Financing to Regions That Suffer From Venture Capital Drought

By Anum Yoon, Crowdfund Beat Media Guest post,

Venture capitalists tend to back entrepreneurial firms that reflect their own ideas and match their social and educational experiences. This type of financing has resulted in a concentrated amount of funds for business endeavors in specific locales. Venture capitalists are typically wealthy investors, investment banks and other financial institutions with similar interests.

Silicon Valley and Boston benefit greatly from venture capitalism, while struggling entrepreneurial startups across the country are suffering from a venture capital drought.

However, the industry is changing with the expansion of crowdfunding platforms, such as Kickstarter, helping to level the playing field. A recent study from the University of California at Berkeley states that crowdfunding financing is now accessible outside of the traditional startup and technological landscape, with even the restaurant industry jumping into the crowdfunding action.

Crowdfunding Platform Expansion Leads to Nationwide Innovation

Crowdfunding appeals to entrepreneurs and investors looking for a different tribe. Since many venture capitalists (VCs) finance people and ideas similar to their own, women and minority entrepreneurs can benefit greatly from crowdfunding expansion outside of the normal VC region.

The study from UC Berkeley identified specific regions where the majority of financing from VCs are concentrated. The study analyzed data from 55,0005 Kickstarter campaigns and 17,493 venture capital investments that were similar in activities.

The researchers mapped the successful campaigns and financing from 2009 to 2015. What the researchers found was that the Kickstarter campaigns originated from all across the country and from areas not typically financed through venture capitalism. This includes the cities of Chicago, Los Angeles and Seattle.

Venture capitalism was responsible for the financing of entrepreneurial firms in highly concentrated areas. As much as 50 percent of all VC financing concentrates in only four counties within Silicon Valley and Boston.

The study took into account the relative intensity of the crowdfunding platform and venture capital funding in each region. Using this formula, the researchers could account for the differences in population and other factors that might skew the results.

The researchers found that areas with Kickstarter investments were located away from venture capitalist funding. For example, in the Bay area, VC funding is primarily focused in San Francisco and the Peninsula, but Kickstarter funding concentrates in Marin and Napa counties.

According to the researchers, the results could show an inequality in entrepreneurial funding in regions. In areas with Kickstarter technology campaigns, the study found that venture capitalist funding increased as VCs find these new ideas attractive.

Other Crowdfunding Platforms Expanding

The six-year study from UC Berkeley focused on Kickstarter as the crowdfunding platform, but others are expanding their reach across the country in hopes of reviving the entrepreneurial legacy while stimulating the economy and supporting charities.

GoFundMe recently acquired CrowdRise to expand fundraising initiatives for charities. GoFundMe processed the transactions for CrowdRise during 2016, and the platform raised $100 million each month and grew 300 percent year-over-year. The acquisition increases the opportunities for social fundraising and charity fundraising.

Other crowdfunding platforms that small businesses and entrepreneurs are using include Indiegogo, Fundable and RocketHub. Indiegogo launched in 2008 and announced in 2016 that it has added equity crowdfunding to open the door for small investors.

Fundable is an Ohio-based crowdfunding platform that attracts accredited investors for entrepreneurial businesses, such as InstaHealthy USA.

RocketHub offers traditional donation fundraising as well as equity-based crowdfunding through the ELEQUITY Funding platform and Bankroll Ventures.

Now entrepreneurial startups in smaller cities and rural areas have a chance to develop and share their ideas with crowdfunding platforms. Not long ago it was determined that U.S. entrepreneurship was at a 40-year low, but this may soon change.

The American entrepreneurial spirit still exists, it just needs a little financial help from its tribe.


New to Crowdfunding? Here’s What to Expect., Crowdfund Beat Guest Post.

With the popularity and success of crowdfunding as a new way to fund new projects, it’s easy for other aspiring entrepreneurs to believe that sites like Kickstarter are their golden ticket to launching a business. But the reality is, crowdfunding isn’t always as simple as it seems.

Whether you’re looking to raise a small amount of startup cash or acquire a larger sum through equity crowdfunding, there are a few challenges you might face during the process that you may not have expected.

cartoon concept for crowdfunding, businessman hand with light bulb and with money. vector illustration in flat design on blue background
cartoon concept for crowdfunding, businessman hand with light bulb and with money. vector illustration in flat design on blue background

Choosing the right platform

The first step is to choose the right platform. Not all of them are created equal. Platforms like Kickstarter or Indiegogo are great for raising smaller amounts of money, but equity crowdfunding portals are best for entrepreneurs looking for large sums of money. If you’re interested in the latter, it’s important to do your research and find the platform that meets your needs. Also, find an experienced attorney who specializes in equity financing.

Establishing a realistic goal amount and time frame

Many entrepreneurs, especially those new to the crowdfunding scene, tend to think that they will be able to quickly raise all the money they need and then more by the time their campaign ends. It’s important to be realistic about time and money when it comes to planning your campaign.

Consider how much capital you would need to take your business to the next major milestones, and don’t rely solely on crowdfunding sites for your fundraising.

Creating a buzz

Having a great business idea that is supported by friends and family is good, but it does not mean that the donations will come pouring in once you launch your crowdfunding campaign. Doing a lot of prep work before your campaign will help create and maintain interest in your project.

Before starting the project, gauging level of interest for your investment opportunity or project is a critical part of the process. Even though supporters have told you that they would support the campaign, it gets lost in their email inbox. Without specific requests, it’s difficult for people to actually pull the trigger on an investment or funding opportunity. Make sure you have personalized outreach to your first degree networks, and remember to ask for assistance in spreading the word.

When you’re ready to spread the word and create a buzz around your crowdfunding campaign or project, sites like make this easy. They broadcast and promote your campaign to their large network of several million users across the most popular social networking sites for businesses – including Twitter, LinkedIn, 40Billion, and even Facebook. Innovative services like tweet ads and promoted company listings were created for crowdfunders to tap into a growing, active network online without spending thousands on pay-per-click ads or traditional advertising.

The risk factor

Everyone knows that there’s risk involved in any business venture. What investors want to know is, exactly how much of a risk will they be taking by offering you a large sum of money? Even small venture funds express interest in investing, but ask the entrepreneur to come back to them when they have an investor who is leading the round of funding. Everyone wants to know the amount of risk.

A lot of investors at the early stage simply want to de-risk investing by being the last money in the round once a lot of other sophisticated investors have already committed. This often creates a scenario where founders have a few hundred thousand dollars in “commitments” for months without any way to actually close on anything. Using a reputable equity crowdfunding platform with accredited investors can help solve this problem.

While the “lead investor” issue most commonly affects startups seeking large-scale investors, the same basic principle can apply to a smaller Kickstarter campaign: If potential funders see that no one is backing the project or that people are only contributing a few dollars, what incentive do they have to donate a large amount of money? This is where building interest and spreading the word become critical to raising the funds you need.

Even if you aren’t launching a crowdfunding campaign at this time, it’s important to learn about the industry, as well as what it takes to succeed.


First Crowdfunding portal to be expelled from FINRA

By   Crowdfund Beat Guest post,

On November 2, 2016, FINRA terminated the FINRA registration for UFP, LLC (“UFP”), making UFP the first crowdfunding portal to be expelled from FINRA.   UFP ran an online funding portal,, where it acted as an intermediary in debt and equity crowdfunding offerings conducted in reliance on SEC Regulation Crowdfunding rules.  FINRA’s investigation into UFP alleged that from May through September 2016, UFP violated various SEC Regulation Crowdfunding rules and FINRA Funding Portal Rules. As a result of FINRA’s investigation, UFP pulled its website and submitted a Letter of Acceptance, Waiver and Consent (the “AWC”) in order to settle these alleged rule violations with FINRA.  The AWC is available at:


FINRA alleged that UFP violated Rule 301(a) and Rule 301(c)(2) under SEC Regulation Crowdfunding.  Rule 301(a) requires funding-portal intermediaries like UFP to have a reasonable basis for believing that issuers using its crowdfunding portal comply with applicable regulatory requirements, and Rule 301(c)(2) requires that access to funding portals be denied to issuers that present the potential for fraud or otherwise raise investor protection concerns. FINRA found UFP to be in violation of Rule 301(a) because 16 of the issuers on UFP’s portal had failed to file certain requisite disclosures with the SEC and, in each case, UFP had reviewed these issuers’ SEC filings and therefore had reason to know that these filings were incomplete.

In addition, FINRA found UFP to be in violation of Rule 301(c)(2) by failing to deny access to its portal when it had a reasonable basis to believe these issuers and/or their offerings presented the potential for fraud. For example, FINRA found that these 16 issuers all had impracticable business models and oversimplified and unrealistic financial forecasts; 13 of these issuers disclosed identical amounts for their funding targets, maximum funding requests, price per share of stock, number of shares to be sold, total number of shares and equity valuation; three of these issuers had identical language in the “Risk Factors” sections of their websites; and two issuers listed identical officers and directors even though they had vastly different business plans.  Additionally, UFP had reason to know that four of these issuers either had officers or directors who owed back taxes or had not filed an annual tax return for 2015.   FINRA also alleged that UFP violated Funding Portal Rule 200(c)(3), which prohibits funding portals from including any issuer communication on its website that it knows or has reason to know contains any untrue statement of material fact or is otherwise false or misleading.


FINRA Action Against Crowdfunding Platform

Busted!  SEC Targets Reg A+ Marijuana Company, Med-X, in Administrative Proceeding.

By Samuel S. Guzik, CrowdFundBeat special guest editor,  Guzik & Associate

The Regulation A+ industry was buzzing this week – not with excitement, but with a healthy dose of trepidation.  One of the first, high (no pun intended) profile Regulation A+ offerings, launched in November 2015, after a seemingly successful “Testing the Waters” campaign, was for a company called Med-X, a startup formed to participate in the newly burgeoning marijuana industry – the so called “Green Rush.”


But this month’s headline for Med-X was a bit more sanguine, enough to counteract even the most potent dosage of THC:  “REGULATION A EXEMPTION OF MED-X, INC. TEMPORARILY SUSPENDED.”  The story that followed was not the kind of publicity any company is looking for – especially when it is in the throes of raising money under Reg A+. Actually, it was not a story. Rather, it was an Administrative Order issued by the SEC on September 16, 2016, temporarily suspending the exemption of Med-X under Regulation A+.

Why? Well, it seems that this company failed to notice, or at least heed, the requirement that Reg A+ issuers file periodic informational reports as a condition of maintaining their status as Reg A+ issues. The basic requirement calls for a company, at the least, to file a semi-annual and annual report with the SEC following the “qualification” of the offering.  Seems that Med-X failed to file its annual report, which would include audited financial statements, when due back in the Spring of 2016.

Some have speculated that the SEC was targeting a disfavored industry – marijuana. I doubt it. The SEC  has approved the registered sale of other companies in this industry long before Regulation A+ was adopted.

Others have speculated that this action reflects an uneven hand towards Regulation A+ issuers. After all, this type of swift action is rare for fully reporting companies which are delinquent in their filings. One more time: I think not.

The Staff at the SEC has been remarkably supportive of the rollout of Regulation A+, as measured anecdotally in terms of the efficiency in which it has been processing the review of Regulation A+ offerings.

Rather, I think back to one of the more notable sound bytes I coined in a Webinar back in April 2015: “Regulation A+ is not your daughter’s Kickstarter campaign.”  Raising capital from outside investors is serious, heavily regulated business.  And as indicated by some of the early Regulation A+ participants, the level of sophistication of the management of some of these issuers has hardly met the bar required to file and prosecute a Regulation A+ offering.

Yes, Regulation A+ is a little more complex than the pipedream: filling out a form, waiting for SEC approval, and then crowdfunding your way to $50 million.  Apart from detailed disclosure rules, including audited financial statements, and the always difficult task of raising capital – especially for early stage companies – there is an ongoing SEC reporting requirement. Yes, the requirement is lighter than a fully reporting public company, to be sure, but enough to quickly overload an early stage company, with limited financial and human resources.

So if nothing else, this is one SEC enforcement action can be expected to inject a dose of reality into the Regulation A+ capital raising process.  As our President might say, “A Teachable Moment.”

samuel guzik

Samuel S. Guzik has more than 35 years of experience as a corporate and securities attorney and business advisor in private practice in New York and Los Angeles, including as an associate at Willkie Farr and Gallagher, a major New York based international law firm, a partner at the law firm of Ervin, Cohen and Jessup, in Los Angeles, and in the firm he founded in 1993, Guzik & Associates.

Mr. Guzik has represented public and privately held companies and entrepreneurs on a broad range of business and financing transactions, both public and private. Mr. Guzik has also successfully represented clients in federal securities litigation and SEC enforcement proceedings. Guzik has represented businesses in a diverse range of industries, including digital media, apparel, health care and numerous high technology based businesses.
Guzik is a recognized authority and thought leader on matters relating to the JOBS Act of 2012 and the ongoing SEC rulemaking, including Regulation D Rule 506 private placements, Regulation A+, and investment crowdfunding. He has been consulted by Congressional members, state legislators and the U.S. Small Business Administration Office of Advocacy on matters relating to the JOBS Act and state securities matters.

Guzik & Associates

1875 Century Park East, Suite 700

Los Angeles, CA 90067

Telephone: 310-914-8600



Commonwealth Capital Adds New Crowdfunding Chapter to Its Premier E-Book,

CHICAGO, July 28, 2016 /PRNewswire/ — Commonwealth Capital LLC, a pioneering provider of Corporate Finance Advisory and Regulation Crowdfunding services, announced today that it has updated its popular e-book with a new Chapter Two dedicated entirely to crowdfunding.

Secrets of Wall Street E-Book (PRNewsFoto/Commonwealth Capital LLC)

The definition of the term “crowdfunding” has evolved in recent years. The term was originally used for donation-based crowdfunding only, but is now used to define capital-based crowdfunding — also known as Regulation Crowdfunding — under Title II (2) and then under Title III (3) of the Jumpstart Our Business Startups (JOBS) Act of 2012.

The JOBS Act has significantly leveled the investment playing field, encouraging a growing number of entrepreneurs to begin fielding their own crowdfunded offerings. Unfortunately, in their excitement to take advantage of these new opportunities, many entrepreneurs fail to recognize that significant legal and managerial risks remain when raising crowdfunded capital. These risks can be devastating professionally and personally if not identified and addressed from the start.

“What most entrepreneurs don’t understand is that seeking capital though Regulation Crowdfunding is a securities offering and is still a very tricky business,” said Timothy D. Hogan, CEO of Commonwealth Capital.  “We’ve witnessed too many entrepreneurs making too many unnecessary mistakes and we want to do our part in correcting that problem.”

To help entrepreneurs get started right, Commonwealth Capital provides a complimentary 40-page Abridged Edition of the e-book, downloadable from its website. The new Chapter Two includes comprehensive excerpts and summaries from the 685-page document known as the SEC Final Rules regarding crowdfunding.  More importantly, the Abridged Edition enables entrepreneurs to make qualified decisions on whether a securities offering is right for their company’s capitalization needs.

A complimentary copy of the Abridged Edition can be downloaded at  The complete, 140-page Expert Edition can be purchased online and downloaded at

About Commonwealth Capital LLC
Commonwealth Capital LLC, a pioneering provider of Corporate Finance Advisory and Regulation Crowdfunding services, is a subsidiary of Commonwealth Capital Advisors (CCA). Since 1998, CCA has successfully engaged hundreds of start-up and early stage companies in their quest for raising millions of dollars in capital. As former Wall Street investment bankers and experts in compliance matters related to selling securities, the company’s executives are intimately familiar with the criteria employed to successfully raise seed, development and expansion capital. Learn more at

Managing The Risks Of Crowdfunding

By Evan Bundschuh, RPLU  & CrowdFund Beat Guest Editor,

For new ventures looking to raise capital or test their market/product, crowdfunding has proven to be the go-to solution with an ease and excitement that other methods of funding lack. With that excitement though comes challenges. As a fairly young platform with a legal landscape that has yet to develop, the risks of crowdfunding are often overlooked. While the risks may seem invisible, mistakes are inevitable, as are the lawsuits and damages that follow. The challenge is forecasting when and where the potential dangers/disasters will arise (before they do) in order to protect your business, its directors, and its newly formed brand. We outline these risks not to discourage the usage of crowdfunding but to bring risk concerns to the forefront so that they can be properly assessed, managed and mitigated.

  1. Poor communication and lack of transparency. When it comes to describing the performance/effectiveness of your product, prices, associated fees, turn around times, etc. be as descriptive and transparent as possible. In a well published recent case, a disgruntled buyer filed a lawsuit over the failure to disclose a simple shipping fee, ultimately bankrupting the company which could not afford to issue full refunds to its purchasers.
  2. Lack of solvency and reserve capital: The same case example above also highlights the importance of having enough reserve capital on hand for the unexpected. The unexpected can come in the form of disgruntled backers demanding returns, expedited fulfillment costs following unexpected success, or attorney’s fees to defend your IP to name a few.
  3. Poor customer support & upsetting dissatisfied customers. Whether or not you are contractually required to provide a full refund, consider erring on the side of generosity when encountering dissatisfied backers. Dissatisfied customers are, without saying, the most vocal and the most likely to take action, whether that be taking to social media to inflict brand damage or taking legal action. Most crowdfunding backers are also of the tech generation and know how to effectively utilize social media outlets to voice dis-taste for a company.
  4. Failure to qualify and diversify: In order to help ensure business continuity, attempt to source from multiple suppliers/manufacturers and diversify your supply chain when possible. Dependence on any single supplier/manufacturer can prove financially damaging if/when they encounter a loss. Losses can range from natural disasters to political unrest to bankruptcy. The inability to obtain your product is only the tip of the iceberg. It’s the inability to fulfill orders and deliver on your goods sold that can quickly escalate financial damages sustained. Developing and maintaining vendor qualification checklists also help ensure manufacturers, suppliers, vendors and outside parties meet certain risk criteria to ensure product quality and business continuity.
  5. Exposing your (unprotected) intellectual property: For companies planning on filing patents, it’s wise to discuss this with a qualified IP attorney as early in the process as possible and before beginning any campaign. Beginning a crowdfunding campaign also begins a one year “time to file” clock, as it is considered public disclosure. If any patents are planning to be filed, that have not been already, they must be filed within that one year clock. Once expired, the ability to file can be lost. In addition to working with an IP attorney to protect your own IP, it is equally important to do so early in the process to ensure that you are not infringing on others. Without thorough trademark searches, you are exposing your company to potential trademark infringement claims.
  6. Overlooking a proper insurance portfolio: When it comes to placing insurance, companies will often only place what is either being requested of them, or seek out the coverage that is believed to be “standard”, but may fail to listen to the advice of their actual broker. The most commonly requested insurance is general & product liability. While this is often a good place to begin, securing only the most basic insurance leaves many of your exposures still exposed. For companies without excess capital and an in house risk manager, this can be particularly problematic. Placing insurance protections for: cargo (during shipment), the directors & officers of the company, product recalls and cyber liability for data breaches is equally important. Considering that many of policies require careful review, coordination and negotiation further highlights the importance of working with a knowledgeable broker that can help you assess your risk and craft a proper portfolio.
  7. Compliance & accusations of fraud: With crowdfunding bypassing any meaningful reporting/oversight, the threats of fraud accusations are increased. A recent FTC Alert warns companies engaged in crowdfunding to: 1) ensure crowdfunding promises be kept, and 2) utilize crowdfunding funds only for the purposes advertised. The SEC has also issued a recent alert (among others) adressing acceptable donation limits. Understanding the compliance environment and implementing best practices & strong internal controls can help avoid accusations of fraud.
  8. Lack of sufficient R&D: It is important that sufficient R&D has been performed under varying conditions before bringing any product to market. Will this product cause electrical shocks? Is this product mixed or bottled in a factory that contains allergens? Is there any potential for injury? Is the product properly labeled? Is it in compliance with all US customs laws? Are the claims that we are asserting, properly supported? Purchasing product liability insurance does offer protection, but it’s no substitute for sufficient R&D, internal controls and legal counsel. For higher risk products a product liability audit may also be recommended.
  9. Implementing outside ideas: It’s important to read the platform’s user agreements and understand exactly what implications they have. There has been much talk about the concern of companies implementing product feedback from users/backers. Whether it be in the form of comments on the platform or elsewhere, implementing ideas provided by users/backers can create a potential legal issue.
  10. Overlooking tax liability & implications: Complete tax compliance can be deceivingly difficult. Crowdfunding poses many tax questions and areas of concern including applicable securities laws, differing state laws, and requirements of 1099’s to name a few. Before launching any campaigns be sure to contact an accountant or financial advisor that understands the crowdfunding sector.  Source @

Crowdfunding Curriculum



Four years after Congress passed the JOBS Act, requiring the relaxing of certain rules on raising funds, equity crowdfunding for non-accredited investors finally arrived May 16. According to The National Law Review, here are some of the most important facts to know:1

  • Non-public US companies may raise funds on the Internet from accredited and non-accredited investors alike.
  • Crowdfunding must be conducted through SEC approved fundraising portals that are managed by registered broker-dealers (i.e., not a company’s own website).
  • The amount raised cannot exceed $1,000,000 in a 12 month period.
  • Individual investors with annual income under $100,000 are limited to investing the greater of $2,000 or 5% of their net worth. Individual investors with annual income of at least $100,000 are limited to investing 10% of their annual income or net worth, whichever is lower, subject to a total limit of $100,000.
  • Prior to the start of fundraising, the company must file with the SEC a new Form C, which requires a fairly detailed disclosure of corporate and financial information.
  • The public filing must include financial statements, which must be certified by a company officer if less than $100,000 is being raised, reviewed by public accountants, if between $100,000 and $500,000 is being raised, and must be audited if more than $500,000 is being raised. 
Crowdfunding was previously only available to accredited, high net worth individuals. 
In 2014, for example, MicroVentures announced
the first equity crowdfunding liquidity event with the $14.5 million purchase of cloud-based ad platform called Republic Project.2 “The Republic Project acquisition was a milestone for equity based crowdfunding,” MicroVentures founder, Bill Clark said at the time. “It definitively proved that startups can utilize this model to not just raise money from the crowd, but then go on to raise even more money from VCs and get acquired.” 
Called equity or debt crowdfunding in its investment incarnation, this capital raising mechanism substitutes equity participation for rewards and prizes. While creating hope for entrepreneurs, 
and potential fees and returns for investment sponsors, platforms, financial advisors and investors, investment crowdfunding has also worried some consumer advocates. 
To help navigate the potential pros and cons of investment crowdfunding, Equity Institutional is pleased to present

The Crowdfunding Curriculum.


The Crowdfunding Curriculum:

What Sponsors and Advisors Need to Know about Investment Crowdfunding


The Crowdfunding Curriculum is designed primarily for investment sponsors and advisors who are looking
for an information primer on the investment crowdfunding phenomenon. Relying on a wide variety of third- party sources, The Crowdfunding Curriculum has curated some of the commentary and content related to this emerging marketplace.

Organized into a five-part lesson plan, The Crowdfunding Curriculum begins with an overview of the global climate for asset growth and ends with a review of some of this nascent industry’s better practices, according to former FINRA Examiner, Patrick W. McKeon, JD, CFP®.

  1. Riding the rising tide of assets Many of the investment industry’s most-respected and prolific researchers are forecasting an exceptional near-term future for asset growth in general and alternative investments in particular. See how such trends are fueling interest in equity and debt crowdfunding.
  2. Imagining investment crowdfunding How regulators and policymakers combined forces to permit smaller investors to access the type of private investments once enjoyed by the wealthiest investors alone.
  3. Weighing potential pros and cons Discover what investment crowdfunding is and where it fits among other capital raising mechanisms.
  4. Networking See how investment crowdfunding considerations vary among entrepreneurs, investment sponsors and financial advisors. How to reach out and network with potential partners.
  5. Applying better practices by Patrick W. McKeon JD, CFP.® Mr. McKeon summarizes what he has learned from successful crowdfunders and others who are looking to build their presence and create new relationships. In this section, he shares examples of what sponsors and advisors are doing to succeed in their crowdfunding efforts. For more than 20 years, Patrick McKeon has been helping RIAs and investment sponsors use regulatory requirements as a catalyst to growing and retaining assets. Since 2013, he has consulted with Private Equity firms looking to expand their reach through venture capital funding.
  6. “Crowdfunding has emerged as a multibillion- dollar global industry.” – The World Bank,





Part 1. Riding the rising tide of assets

According to PricewaterhouseCoopers’ (PwC) “Asset Management 2020: A Brave New World,” global investable assets for the asset management industry will increase to more than $100 trillion by 2020, reflecting a compound annual growth rate of nearly 6%.3

To put that in perspective, assuming a global population of 7 billion by 2020, $1 billion would represent approximately $14,300 of securitization for every man, woman and child on the planet.

PwC explained its methodology this way: “To predict 40 AuM growth, we examined the correlations between AuM and a number of economic factors over the past
13 years – including two financial crises (the late 1990s’ boom-and-bust and the global financial crisis of 2008- 2009). We found a strong correlation between nominal gross domestic product (GDP) and overall AuM growth, especially relating to the fund industry. We also analyzed the main products offered by the AM industry and developments in institutional assets.”

 “The future is bright. Few people in the asset management industry would have shared this sentiment in 2008 or 2009. Not many believed it even as asset prices recovered in 2010–12. However, changing markets and investor needs will combine to produce a positive environment and huge opportunities for asset managers through 2020 and beyond.”

– From PwC’s Asset Management 2020: A Brave New World


Investment sponsors and advisors have seen client demands for alternative investments increase as investors endeavor to find non- correlative selections to hedge against traditional volatility. In CaseyQuirk’s “Retooling U.S. Intermediary Sales,” the search for more sophisticated choices is leading the market to embrace alternative investments with more intensity.4

Tracking advisor changes in portfolio allocations, CaseyQuirk estimated that through 2017, alternatives and active international equity will lead all other asset categories.

Meanwhile, McKinsey & Company reported that “money has continued to pour into alternatives… with assets hitting a record high of $7.2 trillion in 2013,” in their publication, “Trillion Dollar Convergence: Capturing the Next Wave of Growth in Alternative Investments.”5


  • “The future is bright.” PwC

 In effect the alternative category, which would likely include investment crowdfunding candidates, has now doubled in size since 2005, “with global AUM growing at an annualized pace of 10.7%, twice the growth rate of traditional investments,” McKinsey reported.

The combination of strong asset growth overall and an expansion of alternative investments provides a vantage point from which to view the role crowdfunding may play as advisors shift from “buy-and-hold” portfolios to a more diversified approach.


Alternatives are growing at twice the rate of traditi


Part 2. Imagining investment crowding

Instead of prizes for crowdfunding participation, equity crowdfunding investors are offered a share of the financial returns or profits from investment projects. Investors will be able to use crowdfunding portals to invest capital in an equity idea to receive a potential rate of return.


Source: CaseyQuirk, “Retooling U.S. Intermediary Sales”


Mandated by the Jumpstart Our Business Startups Act signed by President Obama in 2012, crowdfunding was a provision of the JOBS Act. The purpose of the crowdfunding provision was to unlock capital for small businesses by attracting millions of smaller investors into the private equity funding process.

By inviting small, innovative entrepreneurs and the average American investor to the same crowdfund portal or platform, as the theory goes, new sources of capital will act as a catalyst for expanding businesses – and hiring more workers.

While the core crowdfunding provisions under Title III for non- accredited investors have been implemented, the pathway to capital formation for small companies was also expanded by the passage of Title IV in 2015, also known as Reg A and Reg A+. Still another rule, Title II, permits general solicitation under Rule 506(c) so long as investors are accredited.



Federal regulators have agreed to permit accredited investors to purchase private equity through investment crowdfunding portals in addition to the traditional private equity firms they can already access.

Not everyone is encouraged about the current crowdfunding trend. Some consumer advocates have been cautioning,
“not so fast.” A recent article in Slate, for example, opined, “Crowdfunding won’t significantly improve the supply of investment capital, and the capital that crowdfunding does supply won’t significantly improve the bank accounts of investors.”7

However, according to a survey of 2,400 millionaires published by Legg Mason Global Asset Management,8 43% of millionaire assets were positioned in equities both public and private; with fixed income a distant second at 19%, followed by 17% in cash. When the surveyed millionaires were asked what they would like to tell future generations about their most successful investment decisions, their top three responses were:


  1. Develop a financial plan
  2. Engage with a financial advisor
  3. Invest in products other than stocks and bonds


For advisor and investors, private equity, private debt participation and investment crowdfunding may be one of the “other” products that could lead to a positive investing experience.



Termed a “mini-IPO,” Reg A and Reg A+ allow non-accredited investors to participate in two types of offerings:

  • Tier 1 offerings may raise up to $20 million in proceeds in a 12-month period, including no more than $6 million of securities sold on behalf of selling security holders. The issuer will be required to provide only reviewed, unaudited financials. A state level qualification is also required.
  • Tier 2 offerings may raise up to $50 million in proceeds, including no more than $15 million of securities sold on behalf of selling security holders. The issuer will be required to provide two years of audited financial statements. No state level qualification is needed.
Additionally through Regulation A+ investment sponsors can access a “testing the waters” provision which permits communications to prospects prior to SEC approval. Providing the solicitation is for information purposes only and presents no implied or direct obligations, investment sponsors can communicate their venture idea. This way, companies can ascertain the interest level for their 
product concept, prior to finalizing legal and accounting commitments. 
“Testing the waters” is allowed with no pre-filing, although solicitation materials must be filed with the first solicitation statement and an offering circular must be filed 48 hours prior to the first sale.
One of the biggest opponents to an overhaul of Regulation A was the North American Securities Administrators Association, due to concerns about investment fraud. At the heart of the NASAA’s criticism is Regulation A+’s allowance for a company to bypass individual state review of the investment process, especially considering the “high-risk” nature of the investments. 
The Wall Street Daily’s Louis Baseness also noted that “the SEC is hoping to revive the use of Regulation A offerings by putting a new spin on them. The SEC is significantly increasing the maximum amount of money that a company can raise – from $5 million to $50 million. That’s enough for such offerings to be considered mini IPOs. Additionally, the SEC is letting companies use Regulation A+ offerings to solicit investments from ‘the crowd.’ In other words, for the first time ever, non-accredited investors can invest up to 10% of their annual income or net worth in each deal.”10 
Finally, the costs of implementing Reg A may prove prohibitive. “It was estimated that a Regulation A+ offering will cost companies upwards of $100,000 or more to prepare the necessary documents,” Mr. Baseness continued. “Then there’s the added expense of accountants’ fees, in order to comply with reporting obligations, as well as state regulatory fees, depending on the size of the offering.”
  • Reg A permits issuers to “test the waters” before committing to a


Other choices, like Regulation D (Reg D) products for accredited investors, may dominate the market for the near future. Under the Securities and Exchange Commission’s (SEC) Reg D, accredited investors can gain immediate access to the burgeoning number of private equity and debt offerings, as well as crowdfunding opportunities, coming onto the market every week.

By laying down the guardrails for how entrepreneurs can raise capital without the costs of registering with the SEC, Reg D has a provision under Rule 506, which lets accredited investors commit unlimited amounts of money to an offering. With its convenience and cost-efficiencies, Rule 506 Reg D has emerged as the offering of choice for many of America’s private offerings.

Features11 of Reg D include:

  • Capital raising in unlimited amounts in contrast to Reg A’s two-tiered limits of $20 million and $50 million
  • No filing requirements with SEC
  • Faster closing speed due to absence of SEC involvement, unlike Reg A’s significantly slower SEC approval process


However, Reg D issuers are obligated through their own firm or a third-party service provider to determine that self-designated non-accredited investors understand their liability for vetting their investment choices.

As of May 16, 2016, the JOBS Act would allow crowdfunding portals to solicit money from virtually any private investor. 
Previously, only accredited investors could invest, which meant that an individual (or with spouse) had to have a net worth above $1 million and an annual income in excess of $200,000 
in each of the last two years (or $300,000 with a spouse).



With the SEC-mandated crowdfunding rules now implemented, Attorney Mark Roderick updated a table that breaks out the crowdfunding regulations by title and topic as part of his helpful “Crowdfunding Cheat Sheet,”12 which can be found at

Part 3. Weighing pros and cons

For many supporters, investment crowdfunding is presented as a positive game changer. For some consumer advocates, on the other hand, relaxing accreditation standards for investors may lead to record numbers of broken nest eggs for the unwary.


  • Frees up capital for investment purposes Through crowdfunding, many more small businesses will hopefully be launched. According to Wharton finance professor Krishna Ramaswamy, “Small businesses in the U.S. are a good source of employment growth.”13
  • Crowdfunding can act as a bootstrap device By building up a lead generation strategy through “the crowd,” an entrepreneur may attain scale, validate the business model and open the door to much bigger private placement or hedge fund sponsors. Crowdfunding can be a first step toward larger asset commitments, too, from major institutions.
  • A chance to uncover the next FaceBook For investors who dream big – or like to play the lottery – investment crowdfunding does offer the potential excitement of playing the long odds on winning big. Having a strong diversification strategy in this alternative investment area to spread the risk is as necessary as the traditional investment side.
  • Build a network Investors who may be open to other ideas from an entrepreneur or investment sponsor, may quickly become a group of people dedicated to making your venture successful.
  • Simple and direct Crowdfunding is relatively easier to implement than more traditional forms of capital investing.



  • Crowdfunding can feel like gambling Some are less cheerful about investment crowdfunding’s prospective benefits. Barbara Roper, a director at the Consumer Federation, has said: “No one has to commit fraud, no one has to do anything wrong for this to be one stage removed from gambling. So now we’re going to connect unsophisticated investors with unsophisticated issuers to harness the power of the internet to buy these stocks? What can possibly go wrong?”14
  • Start-ups have their risk Many firms that rely on crowdfunding will likely be in their earlier seed stage, which is riskier than startups which are at a later stage and already proven their ability to attract capital. In fact, three quarters of startups backed by venture capital don’t return the original investment, according to a study by Shikhar Ghosh of Harvard Business School.15
  • Find the balance between over- and under-regulation The stock price of a larger company is more or less established by market demand and fundamental performance. A private company’s stock, on the other hand, may be difficult to value.
  • A game changer or gambling?
  • Equity crowdfunding could bootstrap an enterprise to a larger level of funding.
  • How too much regulatory oversight can work to the advantage of fraudsters. 8 © Copyright 2016 Equity Institutional®. All Rights Reserved.


For the first time, investors with online access can invest relatively small amounts in the type of alternative assets favored by many of the world’s most affluent individuals.

Investors can profit if the start-up is acquired, providing the business has demonstrated an attractive track record which has attracted buyers. What the World Bank has termed “the democratization of global assets” now seems underway. Changing views toward the value of holding only traditional stock and bond investments, a growing demand for alternative selections, and a supportive regulatory environment made the expansion of crowdfunding possible.


Part 4. Networking

If you decide to explore investment crowdfunding opportunities further, consider engaging with entrepreneurs, platforms and others in the crowdfund universe.


According to Robb Mandelbaum of The New York Times, “The only restriction on portals taking a commission based on how much money they raise is that the portal must fully disclose how it will be compensated by issuers when a prospective investor opens an account. This is not a requirement set by the JOBS Act itself, but the SEC added it to help ‘ensure investors are aware of any potential conflicts of interest of an intermediary that arise from the manner in which the intermediary is compensated.’”16


The issue of commissions flared up earlier in 2016 with the release of the Department of Labor’s (DOL) rule to address “conflicts of interest in retirement advice” in situations where financial advisors receive commissions for product recommendations which might not be wholly in the investor’s best interest. While a restrictive asset list covered by the DOL’s related Best Interest Contract Exemption (BICE) was eliminated, the BICE itself must still be signed by the client for commissionable products for IRAs and other non-ERISA retirement accounts.






Part 5. Applying better crowdfunding practices by Patrick W. McKeon, JD, CFP®

This section on Better Crowdfunding Practices was written by Patrick W. McKeon, JD, CFP.®

For more than 20 years, Mr. McKeon has been helping RIAs and investment sponsors use regulatory requirements as a catalyst for growing and retaining assets. Since 2013, he has consulted with private equity firms looking to expand their reach in venture capital funding. Mr. McKeon summarizes here what he has learned from investment crowdfunders who are looking to build their presence and create new relationships. In this section, he shares examples of what sponsors and advisors are doing to succeed in their crowdfunding efforts.

Success in investment crowdfunding is suddenly becoming a lot easier to quantify. The top 50 crowdfunding deals are listed daily on the CNBC “Crowdfinance 50 Index”17 and range in size from $150,000 to $5,246,000.

Some start-up companies have increased in value by a factor of several hundred while they were still private. The Wall Street Journal “Billion Dollar Startup Club” now lists 90 members worth at least $1 billion and in a couple of cases more than $40 billion.

The fact is that crowdfunding has been in operation long enough that some best practices sign posts are beginning to appear in my view.


To get a timely reading on the emerging investment crowdfunding market, participants may wish to scan the CNBC “Crowdfinance 50 Index.”18 It is the daily average index of the 50 largest capital commitments by private U.S. companies listed on Crowdnetic’s data platform, which collates real-time offerings from 18 of the leading securities-based crowdfunding sites.

Companies on the index are operating companies raising money, not equity funds. They represent eight sectors: commerce and industry; consumer goods; energy; finance; health care; materials; services and technology.

To find a personal, professional or stylistic platform match, here is a list of factors to consider before committing to a platform:

  • Personal interests Many crowdfunding platforms specialize in an industry or other facet of the market. Ensure a platform reflects preferred investment types and sectors.
  • Minimum amounts An investor’s financial resources should correspond to a platform’s funding requirements of the platform.
  • Expertise of platform team How seasoned are the investment professionals behind the platform? Evaluate biographies, track records and background before making a commitment. See what can be learned from information concerning or strategic partnerships the platform has cultivated.
  • Transparent fee structure Fees vary from platform to platform. Investors should clearly understand what they are paying before they invest. Also, all of the startup’s fundamental information should be accessible and easy to understand.



Real estate is a natural door opener to crowdfunding

Because it is an investment many investors understand already, real estate deals have taken the lead in investment crowdfunding. In fact, according to CNBC, the three largest investment-crowdfunded deals to date have been in real estate.

The CrowdFinance Real Estate Average is a daily arithmetic average of total capital commitments in excess of $1,000 by private U.S. real estate companies listed on CNBC’s Crowdnetic’s data platform, which collates real-time offerings on securities-based crowdfunding sites.

Consider investment crowdfunding the tax-advantaged way with self-directed IRAs

As discussed earlier, portfolio construction trends,
according to CaseyQuirk, have been pointing to rising
investor demand for access to alternative strategies.
Consistent with the growing appetite for such investments is the growing awareness of diversification as a factor in tempering investment risk.


For enterprising investment sponsors looking to bring alternative crowdfunding opportunities to retirement- minded investors, self-directed IRAs offer attractions, as well as an added measure of diversification. With a self- directed IRA, investors can choose alternative investment options including fund-raising start-ups and private equity. Those who invest in a crowdfund through self-directed IRAs, whether through a traditional approach or a Roth, also gain a significant tax advantage, as the chart above illustrates.

With a Roth IRA, the value of an investment has the opportunity to multiply since taxes are not paid on gains. However, as with any investment, there is a potential downside: If a company fails, investors may lose not only their investment, but the underlying taxes they paid initially on the Roth IRA. A tax and financial advisor should always be consulted to determine the right choice for any investor.


With private equity, private debt funds and investment crowdfunding opportunities on the increase, advisors, platforms and investors are becoming more aware of the need to utilize the services of a qualified custodian.

While passive custodians, like Equity Trust, do not perform due diligence reviews or make any determination as to the prudence or viability of any investment, they make other valuable administrative contributions.

As emerging companies in this new industry turn to qualified custodians to manage payments, documentation and financial reporting, they should make sure custodians exhibit excellence in the following areas:

  • Execution of complex transactions
  • Record account contributions and distributions
  • Perform all functions under regulatory oversight from State and Federal authorities.
  • Have experience administering private equity funds, private debt funds, real estate funds, infrastructure investment funds, hedge funds, venture capital funds, as well as crowdfunding investments.

Crowdfunding capital can be used to fund new technologies, expand working capital within an existing company, make acquisitions, or simply shore up a thin balance sheet for the possible betterment of publicly traded shares.

Retirees and pre-retirees who have spent a significant amount of time in major U.S. industries may have real- world experience with the type of product trends that contribute to awareness about growth opportunities
in private equity or crowdfunding situations. Employees or former employees of companies in technology, consumer goods, financials, materials and other sectors can apply their own industry insights to examining and vetting private equity ideas with their financial advisor for suitable investments.

A potent source for lead generation

Crowdfunding will likely serve as an important lead generation vehicle for advisors as new offerings come into the market. Additionally, an investment crowdfunding idea presented by an investment professional can provide an especially attractive way to diversify a retirement strategy with a new IRA.








Equity Institutional (through Equity Trust Company) offers IRAs, qualified retirement plans and non-qualified custodial accounts for alternative and traditional assets. We service RIAs, registered reps, broker-dealers, investment sponsors, precious metals dealers and other financial professionals. We service 300,000+ accounts that total more than $30 billion under custody and administration.


Contact us today at: 855-355-Alternatives (2587) or

Equity Institutional services institutional clients of Equity Trust Company. Equity Trust Company is a passive custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Institutional is for educational purposes only and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with a legal, tax or accounting professional.







1 The National Law Review
2 CrowdfundInsider; “MicroVentures Announces Exit of Equity Crowdfunded Company Republic Project;”

3 “Asset Management 2020, A Brave New World”
4 “Retooling U.S. Intermediary Sales New Advisor Targeting Strategies”
5 “McKinsey & Company’s Trillion Dollar Convergence: Capturing the Next Wave of Growth in Alternative Investments”
6 Forbes
8 “How Millionaires Invest”
9 Bloomberg
10 Wall Street Daily
11 SEC
12 “Crowdfunding Cheat Sheet”
13 “The Promise and Perils of Equity Crowdfunding”
14 Washington Post 15 The Wall Street Journal
16 The New York Times
18 CNBC “Equity Crowdfund 50 Index”


The Equity Crowdfunding Paradox

By Jorge Sanchez III Partner,, Crowdfund Beat Guest Contributor,

Crowdfunding is a broad classification used to categorize a variety of modern digital funding activities aimed at engaging wide networks of people. In this article I will refer to the equity crowdfunding of venture capital.

Investing is a risk-taking endeavor where return on investment is the premium harvested by investors for allocating funds to a venture executing a business plan and confronting the risk of failure and loss of capital. The uncertainty of the outcome that the business pursues gives rise to the primary barrier to investment, information asymmetry. Investment decisions are information driven and based heavily on knowledge that investors can derive from their analysis of the team, the business plan, and the market. Investors commit a great deal of time, effort, and money on conducting due diligence to determine to the best of their understanding the likelihood of a venture being a success and them harvesting the return on their investment.

Crowdfunding is designed to increase the access to capital for small businesses and startups by allowing for them to solicit and raise a smaller dollar amount per investment from a larger pool of investors, which is the inverse of traditional private placement where a small number of investors provide a greater share of the funding. This is where the paradox of equity crowdfunding arises; Because the average ticket is greatly reduced in size, the cost of due diligence is no longer economically feasible and must be reduced if equity crowdfunding for new ventures is to achieve wide adoption as an asset class. By implementing the economic principle of specialization throughout the investment process, the necessary efficiencies for the economic feasibility of equity crowdfunded venture capital can be realized.

There are three major costs that are associated with the information asymmetry problem as it pertains to crowdfunding: awareness, due diligence, and transactional. Minimizing these costs through the economic principle of specialization will greatly reduce the amount of friction currently involved in conducting private placement activities. This can permit a wider adoption of private placement of venture capital via equity crowdfunding by investors in the general public. This specialization has three major actors: the portal, the lead investor, and the syndicate.


The issue of minimizing the cost of the awareness is solved by both the platform and the lead investor, each specializing in different activities, that ultimately allow for members of a wider audience to become aware of potential investments. By providing a platform for deals to be posted and having registration requirements, portals conduct an initial screening that makes it easier for people to locate potential ventures to invest in. Because lead investors have a transparent investment record, they allow for deal seekers to quickly sort through the noise created by the wave of new opportunities, and follow or join syndicates that bring to their attention preselected opportunities that meet their often value-based investment criteria.

Due Diligence

Since the due diligence process contributes tremendously to the decision to invest in an opportunity, it is a paramount part of the process that is considerably costly, timely, and burdensome. It is because of this that it may be the greatest source of friction and cost to overcome for the successful adoption of equity crowdfunding for venture capital. Crowdfunding is designed for each of many contributors to invest a relatively small amount into the venture. However, the cost, knowledge, and experience necessary to conduct accurate due diligence is beyond both what can be expected from the investor and what is economically justifiable for the size and expected value of the investment. This creates a paradox that excludes the target demographic of crowdfunding from easily adopting or being successful in equity crowdfunding for venture capital. By utilizing a syndicate with a lead investor, that is ideally and most likely local to the venture’s management team, the costs of conducting due diligence can be absorbed by the lead investor and repaid to them in the form of carried interest from the syndicate. This enables a specialist to efficiently conduct due diligence, provide validation for promising opportunities, and promote them through their syndicate. With this cost greatly reduced for the people equity crowdfunding is intended to serve, the biggest non regulatory challenge facing this new industry is overcome as people can now focus on providing capital to projects that resonate with them while a professional investor works to only provide them the best opportunities.


The introduction of funding portals has been a great innovation that has created the possibility of crowdfunding as we imagine it. It is also a great contributor to the reduction of transaction costs that were previously a critical obstacle for the wider investor base to participate in the private placement market. By providing a platform to find and conduct the trade, the costs for investors to participate in this market has been dramatically reduced by the innovation of funding portals.

The costs associated with investing is generally informational and often driven by the gathering and analysis of information.   If equity crowdfunding for new venture development is to achieve success, the costs of doing so needs to be reduced. Because information asymmetry is a fundamental problem that is critical to investing and crowdfunding, reducing it through the use of platforms and syndicated lead investors lowers the friction to participate and reduces the failure rate of investments. Both of which are necessary to have a significant adoption of crowdfunding and having the market survive as a whole.


Crowdfunding with Self Directed IRA?

“The Fix Crowdfunding Act”

BY Lauren LeibowitzPrincipal at 1st BridgeHouse Securities, LLC, Crowdfund Beat Sr. contributing editor,

The Evolving Crowdfunding Regulations: Now Presenting “The Fix Crowdfunding Act”

On April 5, 2012 the JOBS Act was passed. On October 30, 2015 Title III: Equity Crowdfunding final rules were passed which marked all 7 Titles of the JOBS Act were approved. Recently, the ‘‘Fix Crowdfunding  Act’’ was  introduced to Congress to improve Regulation Crowdfunding.  FINRA and SEC has taken an approach of letting the crowdfunding industry cultivate the business model and the regulators will oversee and implement regulations on an as needed basis. The integration of technology within the private capital markets is monumental since in the 21st century the internet is incorporated in every aspect of your daily life and business.

 9 Funding Portals have been FINRA approved as of May 16. A handful of previously interested business and FINRA member Broker Dealers announced they would not join the crowdfunding marketplace because the current crowdfunding regulations are not conducive to operate in but hope that the ‘Fix Crowdfundung Act’ will be passed in order for them to reconsider joining the crowdfunding marketplace.  Jeff Lynn, CEO and co-founder of Seedrs-a leading UK based investment crowdfunding platform, intended to expand its operations across the pond but believes the current crowdfunding regulations to be “not workable in its current form”, especially burdensome compared to FCA’s crowdfunding regulations that has made the United Kingdom a workable model of successful crowdfunding.  His full statement is below:

“Title III of the JOBS Act, which comes into force today, should have been one of the most important pieces of legislation to impact US fintech in recent years. But although Title III nominally makes it possible for non-accredited (regular) investors to invest in startup businesses and private firms in the US, the legislation’s considerable limitations and poor drafting means we believe it is simply not workable in its current form. Among other things, Title III:

  • Makes it likely that only lower-quality investment opportunities will use equity crowdfunding in the U.S. Title III places such significant burdens on companies seeking to raise capital—making crowdfunding far more expensive, time-consuming and difficult than raising money through other channels (such as institutional or private angel investors)—that businesses will only to turn to crowdfunding as a last resort after more efficient capital-raising methods have failed. The result will be that ordinary retail investors will have access only to those businesses that cannot raise capital elsewhere, which is an adverse selection phenomenon that has not occurred in Europe.
    • Gives insufficient protection given to investors. While Title III and the related regulations place significant focus on limiting the losses that may be experienced by investors, loss of capital is not the only risk in this asset class. Also important is that investors be protected in the case of a business’s success: a successful business can see its valuation increase 100-fold or more, but if the investment has not been properly structured or monitored, investors may receive nothing. Where restrictions interfere with crowdfunding platforms’ ability to provide those protections—which is precisely what Title III does—investors will be significantly worse off in the long run.
    • Reduces the likelihood of businesses succeeding raising capital. One of the key lessons from the growth of equity crowdfunding in Europe is that raising capital in this way is a dynamic process that requires the business to build momentum behind its campaign. Successful crowdfunding campaigns tend to require active outreach, ongoing and multi-modal engagement with prospective investors, and the participation of one or more “anchor” angel or institutional investors, all before the crowd investors start to commit capital in a meaningful way. Title III’s significant marketing restrictions mean that companies will be very limited in their ability to create momentum, which in turn will make it exceptionally difficult for their campaigns to succeed.

“What is particularly unfortunate in all this is that Europe, and the UK in particular, has shown how a regulatory system can facilitate a thriving equity crowdfunding environment, allowing the best companies to raise funds successfully and giving investors the protections they need. US lawmakers would have been well advised to look much more closely at the UK system when developing Title III.

“However, I am hopeful about the future of Title III, and under revised legislation (a version of which is already being considered by Congress), I would love for Seedrs to use it to facilitate investments in the US.

“In the interim, Seedrs will launch stateside under Title II of the JOBS Act, which is limited to accredited investors, and which will offer a specific demographic of investor access to many of the European businesses seeking capital on our platform. Whilst it means that entrepreneurs will only have access to a portion of the American crowd, the opportunity for those investors who are accredited is really exciting. We believe Europe has the fastest-growing ecosystem of early-stage businesses in the world, and the combination of reasonable valuations and fast growth that many companies see on this side of the pond should make them highly appealing investment opportunities for accredited American investors.”



  1. Increase the Issuer offering limit to $5,000,000 from $1,000,000.
  2. Take the “Greater of Approach” rather than the “Lesser of Approach” regarding the Crowd’s annual investing limitations.

An investor will be limited to investing: (1) the greater of: $2,000 or 5 percent of the lesser GREATER of the investor’s annual income or net worth if either annual income or net worth is less than $100,000; or (2) 10 percent of the lesser GREATER of the investor’s annual income or net worth, not to exceed an amount sold of $100,000, if both annual income and net worth are $100,000 or more.




ADD (e) to “Under the rules issued pursuant to subsection (d), a funding portal shall have a reasonable basis for disqualifying an issuer from offering securities through such funding portal pursuant to section 4(a)(6) of the Securities Act of 1933 if the funding portal, through a background check of the issuer or other means, has found that such issuer, in connection with the offer, purchase, or sale of securities, has knowingly—

‘‘(1) made any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

‘‘(2) engaged in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.’’.


Securities Act Section 4A(a)(5) requires an intermediary to “take such measures to reduce the risk of fraud with respect to [transactions made in reliance on Section 4(a)(6)], as established by the Commission, by rule, including obtaining a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by such person.”

Amend language to read as follows:

“(5) as a minimum to reduce the risk of fraud with respect to such transactions obtain a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by such person;’’.


Securities Act Section 4A(c) provides that an issuer will be liable to a purchaser of its securities in a transaction exempted by Section 4(a)(6) if the issuer, in the offer or sale of the securities, makes an untrue statement of a material fact or omits to state a material fact required to be stated or necessary in order to make the statements, in light of the circumstances under which they were made, not misleading, provided that the purchaser did not know of the untruth or omission, and the issuer does not sustain the burden of proof that such issuer did not know, and in the exercise of reasonable care could not have known, of the untruth or omission. Section 4A(c)(3) defines, for purposes of the liability provisions of Section 4A, an issuer as including “any person who offers or sells the security in such offering.”

In describing the statutory liability provision in the Proposing Release, the Commission noted that it appears likely that intermediarieswould be considered issuers for purposes of the provision. Several commenters agreed that Section 4A(c) liability should apply to intermediaries noting that it “may serve as a meaningful backstop against fraud” and would create a “true financial incentive” for intermediaries to conduct checks on issuers and their key personnel.

However, a large number of other commenters disagreed that Section 4A(c) liability should apply to intermediaries. Some of these commenters stated their views that applying statutory liability to intermediaries would have a chilling effect on intermediaries’ willingness to facilitate crowdfunding offerings. Others cited the cost of being subject to this liability as overly burdensome on funding portals, to the extent that they may not be able to conduct business. Several commenters also explained that the nature of funding portals, as intended by Congress, is distinct from that of registered broker-dealers. According to these commenters, a funding portal’s role is not to offer and sell securities, but rather to provide a platform through which issuers may offer and sell securities. As such, these commenters asserted that it would not be appropriate to hold them liable for statements made by issuers.

Section 4A(c) of such Act (15 U.S.C. 77d–1(c)) is amended by adding the end the following:

‘‘(4) LIABILITY OF FUNDING PORTALS.—For purposes of this subsection, an intermediary shall not be considered an issuer unless, in connection  with the offer or sale of a security, it knowingly—  ‘‘(A) made any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or ‘‘(B) engaged in any act, practice, or  course of business which operates or would operate as a fraud or deceit upon any person.’’.


  1. Amend Section 12(g)(6) of the Securities Exchange Act

Reader note- (The words in bold are new text)

(6 )Exclusion for persons holding certain securities.— The Commission shall, by rule, exempt, conditionally or unconditionally, securitiesSecurities acquired pursuant to an offering made under section 4(6)  of the Securities Act of 1933 [15 U.S.C. 77d(a)(6)] shall be exempt from the provisions of this subsection.


  1. Amendment to Section 4A(f) of the Securities Act of 1933:

(f) APPLICABILITY.—Section 4(6) [8] shall not apply to transactions involving the offer or sale of securities by any issuer that—

(1) is not organized under and subject to the laws of a State or territory of the United States or the District of Columbia;

(2) is subject to the requirement to file reports pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934;

(3 2 ) is an investment company, as defined in section 3 of the Investment Company Act of 1940, or is excluded from the definition of investment company by section 3(b) or  paragraphs (1) to (14) of section 3(c) of that Act; or

(4) the Commission, by rule or regulation, determines appropriate.


Add to Definition of Investment Company (Investment Company Act of 1940 Section 3(c))

(c) Notwithstanding subsection (a), none of the following persons is an investment company within the meaning of this title:

ADD ‘‘(15) any issuer that holds, for the purpose of  making an offering pursuant to section 4(a)(6) of  the Securities Act of 1933 and the rules issued pursuant to such section, the securities of not more than one issuer eligible to offer securities pursuant to such section and such rules.’’.

  1. APPLICATION OF RULES.—Single-purpose funds that are excluded from the definition of investment company under paragraph (15) of section 3(c) of the Investment Company Act (15 U.S.C. 80a– 3(c))— (A) shall be allowed to sell and offer for sale securities under section 4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6)) under the rules adopted on October 30, 2015, pursuant to title III of the JOBS Act (Public Law 112–106); and (B) shall be considered venture capital  funds for purposes of section 275.203(l)–1 of  title 17, Code of Federal Regulations.


Section 4A of the Securities Act of 1933


(1) IN GENERAL.—At any time prior to the  filing of information with the Commission and the commencement of an offering made in reliance on section 4(a)(6), an issuer may solicit non-binding indications of interest from potential investors in a prospective offering using the same means and pursuant to the same regulations (other than the filing of information with the Commission) as if conducting an offering pursuant to such section if—

(A) no investor funds are accepted by such issuer; and

(B) any material change in the information provided to potential investors during the  actual offering pursuant to such section from  the information provided to potential investors  during such solicitation of interest are highlighted to potential investors in the information  filed with the Commission.

(2) STATUS.—Such solicitation of interest shall not be considered an offer or sale of securities under this Act or the Securities Exchange Act of  1934, regardless of whether or not the issuer actually conducts an offering pursuant to such section 4(a)(6).


Consistent with the effective date of the final rules on regulation crowdfunding adopted by the Securities and Exchange Commission on October 30, 2015, pursuant to title III of the JOBS Act (Public  Law 112–106), funding portals established under such Act shall make a good faith effort to comply with all such  rules. Notwithstanding such effective date, no enforcement action may be brought against a funding portal before May 16, 2021.


Regulation Crowdfunding is in its infancy stages. The crowdfunding industry, the SEC and FINRA will hopefully be able to work together to cultivate the crowdfunding marketplace to empower entrepreneurs while protecting the crowd. Crowdfunding today will continue to evolve as different funding models and Issuers use regulation Crowdfunding.