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”


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