Crowdfunding and 506(c) Offerings Important Differences

By  VerifyInvestor.com. Crowdfund Beat Guest Post,

Crowdfunding has become a popular way for start-up entrepreneurs to raise – or attempt to raise – money for their new ventures. All you need is a good idea, a good marketing campaign, and a robust and engaged social network. While the JOBS Act and Rule 506(c) were intended to at least partially address the new crowdfunding reality, there are key differences.

download (27)

 

 

 

 

Crowdfunding

Crowdfunding allows small companies, startups and other entrepreneurs to raise money from the “crowd”.  With rewards based crowdfunding, people can contribute to your campaign and receive nothing in exchange, other than the perks promised in the campaign. People give money because they care about your company or product and want to help it succeed, not because they will become shareholders. They don’t, and are not entitled to any portion of your successful and growing company.

If a “crowdfunding” campaign offers investors a profit interest in the company such as equity, convertible notes, or debt, it is considered securities and is regulated by the Securities and Exchange Commission (SEC). The SEC has a mandate to protect investors from fraud.

Registering Securities

The rules for registering securities are generally:

  1. You register the securities before starting to sell them. At this time, your company becomes a public company and is then subject to much more stringent and voluminous reporting requirements.
  2. You take advantage of one of the registration exemptions provided under securities laws. Until recently, none of these exemptions adequately addressed the changes that the Internet and social media have introduced to the way people communicate, market, and interact.  That changed with the implementation of the JOBS Act, and the subsequent adoption of Title II of the JOBS Act as Rule 506(c).

Rule 506 (c) Offerings

If you think that an offering under Rule 506(c) looks an awful lot like crowdfunding, you are not alone. There are some key differences, the main ones being the requirements around accredited investors. Crowdfunding is open to non-accredited investors. Not so under Rule 506(c). A company is permitted to advertise, or conduct general solicitation, but they must ensure every investor is accredited before the investment transaction can be finalized. So-called ‘self-certification’ from the investors themselves is not permitted.

Other Forms of Crowdfunding

If you’re set on equity crowdfunding with non-accredited investors, you’ll be looking for Regulation A+ or Regulation CF.  Regulation A+ comes with high upfront costs and a lot of strings while limiting your capital raise to a maximum of $50 million.  Regulation CF won’t become effective until mid-2016 and comes with a maximum capital raise of $1 million.  Learn more about Regulation A+ and Regulation CF by staying tuned to our blog.

When you wish to become an accredited investor, or verify the accredited investor status of potential investors, turn to the experts at VerifyInvestor.com.

Tags: , , , , , , , , , , , , , , , , , ,

nov2017-fintech confernce-dc

HEADLINE NEWS

Business Insider Nordic (blog)The 11 coolest crowdfunding hits in the Nordics 2017Business Insider Nordic (blog)In crowdfunding, there really are no limits. With the public deciding what flies and what doesn't, platforms such as Kickstarter and Indiegogo give tech enthusiasts a c [...]

The SunMum slammed for setting up crowdfunding page asking people to send cash for son's birthday instead of presentsThe SunA MUM has come under fire for setting up a crowdfunding page requesting cash instead of presents for her son's birthday. Paramita Sarkar says nine-year [...]

LeaflyCrowdfunding Site Cancels Aid to California Wildfire Victims - LeaflyLeaflyWith the most devastating wildfire in California history laying waste to its members' homes and livelihoods, the California Growers Association responded in the ...and more » [...]

AdweekThe Brewers Association Is Launching a Crowdfunding Campaign to Buy AB InBev for $213 BillionAdweekIt's the largest crowdfunding effort ever and even its backers realize it has the slimmest chance of possibly succeeding. So why is Sterling-Rice Group (SRG) helping the nonpr [...]

Phoenix Business JournalCrowdfunding comes to Arizona real estatePhoenix Business Journal“The new crowdfunding legislation has empowered all Arizonans with the opportunity to invest locally in business startups, which had been for decades, reserved for only qualified investors. Neighb [...]

Associations NowCraft breweries start lofty crowdfunding campaign to take over Anheuser-Busch InBevKMOV.comNo money is actually being collected. On the website where you can pledge between $10 and $1000, it says "we'll be in touch if somehow, miraculously, against every odd, [...]

Futurity: Research NewsTo predict crowdfunding, scan consumers' brains - FuturityFuturity: Research NewsBrain activity can predict consumer choices more accurately than what consumers say they want in questionnaires, a new study of people's decisions to back ...and more » [...]

ForbesThe Recipes For Crowdfunding Success On Kickstarter -- And What To AvoidForbesConversely, how should we analyze the crowdfunding flops like the Cuppress, a coffee capsule sealing machine which is both economical and user-friendly? Too little is known about the recipes for a succ [...]

RecodeCrowdfunding site Indiegogo will now let you sell products as it shifts ...RecodeIn the past, entrepreneurs on the crowdfunding site Indiegogo could offer contributors a gift in exchange for cash. Then a year ago, they could begin offering ...and more » [...]

My Yellowknife NowNACC launches crowdfunding campaignMy Yellowknife NowAfter a more expensive last few months than expected, the Northern Arts and Cultural Centre is launching a crowdfunding campaign. An ambitious Northern play “featuring perspectives from a range of Indigenous women” [...]

CFB Finance

Marketwired

  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

CrowdFund Beat Media

Please share with your network. speaking at the @2020Fintech in #WashingtonDC  #bitcoin  National Press Club next m…lnkd.in/gwrtfGg

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |