A Quick Guide to Fundraising via Crowdfunding Exemptions
In 2012 Congress passed the JOBS Act which aimed to make it easier for early stage companies to raise capital from retail investors. The “JOBS” Act stands for Jumpstart Our Business Startups, and was implemented as a response to the global financial crisis (GFC) when access to capital had dried up. (Yes, it took several years to finally get passed). While the GFC is firmly in the rear view mirror, the conditions for startup capital formation are now similarly tight. The venture funding market remains very tight with most VCs selectively focusing on their best portfolio companies.
According to Crunchbase, global venture funding fell 50% in Q2 2023 compared with a year earlier[1].
Source: Crunchbase
So if you’re an early stage company planning to raise capital this year, leveraging crowdfunding could be an important alternative or compliment to institutional funding sources. Here is a brief summary of the retail crowdfunding options available:
➡ US companies can raise up to $75mm through a Reg A+ offering, and up to $5mm through a Reg CF offering
➡ To conduct a Reg A+ offering, companies will need to work with a law firm, and file paperwork with the SEC. Allow 3 – 6 months for the offering to become effective.
➡ Companies will also need to have their financials audited for a Reg A+ offering
➡ You can get up and running with a Reg CF offering much more quickly and can raise up to $1.235mm without the need for audited financials (for first time Reg CF issuers)
➡ You can utilize a Reg A+ or Reg CF in conjunction with a Reg D offering (i.e., you can raise money from VCs and retail investors at the same time – it’s not mutually exclusive!)
➡ You can raise capital from your customers and partners directly from your branded website
➡ We can help you conduct a security token offering (may be of particular interest to digital asset companies)
➡ Reg A+ and Reg CF offerings can be a great way to leverage or enhance your community, by giving them a stake in your success
If you’d like to understand more about how crowdfunding can help your company raise capital in this difficult environment, please reach out for a consultation.
Please note there are risks associated with investing in early stage companies: https://www.texture.capital/risks
[1] https://news.crunchbase.com/venture/vc-funding-falling-report-data-q2-2023-north-america/