Equity-based Crowdfunding

Home » Equity-based Crowdfunding

Equity-based Crowdfunding

Equity-based crowdfunding is when a project creator offers equity or revenue-sharing in return for an investment in their project or company. Equity crowdfunding platforms tend to have a higher barrier of entry for new campaigns, requiring that financial documents be filed with the SEC and crowdfunding campaigns are regulated.

In addition to making financial disclosures and submitting a Form C, there are restrictions on what forms of advertising are allowed and how information about an offering’s terms may be communicated. In some cases, an audit from a CPA may be required before an offering can be listed on an equity-based crowdfunding platform.

Some platforms that support equity-based crowdfunding are WeFunder, StartEngine, and Republic.

What terms can be offered?

Most equity crowdfunding platforms allow founders to offer SAFEs, convertible notes, revenue shares, loans, and more.

Did you know? It is possible to concurrently run a Reg CF and Reg D+ offering to maximize your potential funds raised if it looks like you will exceed the cap on a Reg CF offering.

Risks & Benefits of Donation-Based Crowdfunding Platforms

Equity-based crowdfunding is regulated by the Securities and Exchange Commission, and any crowdfunding platforms that allow founders to provide offerings must be approved through FINRA as a funding portal and comply with all applicable regulations. This means that the process of launching an equity-based crowdfunding campaign is much more complicated and restrictive in order to protect both the founders and investors involved in an offering.

Benefits

  • Businesses that are less likely to be approved for traditional funding due to their scope may have a greater chance of receiving funding from individual investors
  • Investors are more likely to support your business longterm as brand ambassadors because they have a stake in your success
  • A crowd of investors is a helpful resource for recruiting necessary talent and labor
  • Only one entry shows up on your Cap table through a SPV
  • It’s possible to raise capital quickly
  • Only your Lead Investor gets a vote
  • No up-front fees for equity-based crowdfunding platforms, you only pay a percentage based on what you raise if you are successful

Risks

  • Financials have to be disclosed to the public
  • Annual reports are required to fundraise under Reg CF
  • Campaigns without a concrete business plan may be rejected
  • Failing to comply with legal restrictions may result in your organization being named a “Bad Actor” and prohibit you from launching any future crowdfunding attempts
  • Advertising is restricted by SEC rulings and must follow a specific format to avoid incurring legal penalties
  • Any funds raised count as income (most platforms issue a 1099), and is subject to applicable taxes in the fiscal year that they are withdrawn.
  • If you cannot find a Lead Investor, you cannot withdraw any funds raised through the equity-crowdfunding platform

Learn more about Equity Crowdfunding

What You Need to File a Form C

If you intend to engage in Regulation Crowdfunding (Reg CF), your company will be required to file Form C with the Securities Exchange Commission. Read more to learn some of the basic legal requirements and see our suggestions for things you will need to know or have on hand before you file.

Reg CF Advertising Regulations

Equity crowdfunding is regulated by the Securities Exchange Commission, and has specific restrictions on when and how companies can promote offerings made as part of Regulation Crowd Funding (Reg CF). Violating these regulations can incur penalties and result in your filing being rejected.

Main Components of a Campaign Page for Equity Crowdfunding

Most equity crowdfunding platforms follow the same basic structure for what is included on your campaign page. View our article for suggestions on what to include and helpful tips on how to get the most out of your campaign pages.

Creating a Company Profile for a WeFunder Crowdfunding Campaign

Platforms like WeFunder request that you provide certain information so that a company profile can be made, which will be presented to investors on the platform and fill out part of your Form C filing, specifically the business plan portion.