For this Inside Innovation episode, we’re deep diving into Equity Crowdfunding. If you haven’t heard anything about Equity Crowdfunding, I promise you’re not the only one. Equity Crowdfunding is a relatively new concept in the world of entrepreneurship and innovation. You may also hear it called Regulation Crowdfunding or more commonly, Reg CF.
Reg CF was started back in 2012 through the JOBS Act. The JOBS Act was a significant piece of legislation because it essentially allowed anyone to be able to invest in startups. Before the JOBS Act, to be able to invest in startups, you had to be what is called an accredited investor. To put it simply, it’s someone with a net worth of over $1 million. It’s not to say accredited investors aren’t still important today, because they are, especially for those that raise traditional venture capital through what is called Regulation D or Reg D.
Now, I just mentioned that Reg CF started 2012, but that is a bit of a misnomer because the Securities and Exchange Commission, or SEC, still had to enact rules around Reg CF. These rules by the SEC didn’t go live until May of 2016. A whole 4 years after congress had passed the JOBS Act. So, yes, Reg CF is still very new and we’re still in the early days of it.
To get into the nuts and bolts of Reg CF, one of the rules that the SEC created was the formation of portals. Essentially, to be able to raise money through Reg CF, you have to go through one of the Reg CF portals, companies that have the rights and ability to help you raise money through Reg CF. In some ways, this has been helpful because these portals, one of them you’ll meet in a minute, become partners with you in your fundraise. They only get paid if you successfully fundraise and because they’re helping a lot of other companies, they’re building up a network of investors that you probably didn’t have access to before.
It’s one of the reasons why I love equity crowdfunding and am excited about the future of it. It allows those that might be disadvantaged when it comes to funding, to have better opportunities, and creates an entirely new avenue for companies that might not have the ability to raise capital through traditional means.
At this time too, a lot of the big issues with Reg CF were recently ironed out with new legislation in 2021. You can now raise up to $5 million with Reg CF and have all of the investors pooled into one line item on your cap table which is pretty significant for transactions down the line.
To learn more about equity crowdfunding, I brought in one of my favorite people in equity crowdfunding, Adie Akuffo-Afful, who heads up Wefunder’s Venture Programs. Wefunder is one of the Reg CF portals and I’m excited to introduce you to Adie!
Adie's email: [email protected]
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