Introduction
Raising capital for a startup can feel like an all-consuming task, especially when you’re focused on building the product or service itself. Traditionally, most founders turned to a handful of venture capital firms or angel investors to secure funding. But over the last decade, new regulations have allowed a wider audience—everyday people, not just wealthy insiders—to invest in promising companies. This broader approach is known as equity crowdfunding, and it offers a unique way to secure financial support while building a community of supporters who have a genuine stake in your success.
Still, equity crowdfunding isn’t a one-size-fits-all solution. Different frameworks exist under U.S. law, each with its own requirements and limitations. Regulation CF (commonly called Reg CF), Regulation A+, and Regulation D serve different goals and investor profiles. Some are better suited for smaller raises and grassroots backers, while others are set up for larger, more complex offerings. Understanding these differences can help you choose the path that aligns with your growth goals, investor base, and budget.
In the coming sections, we’ll break down what each regulation entails—from who can invest to how much you can raise—and explore some of the practical considerations involved.
Regulation Crowdfunding (Reg CF)
Reg CF was designed to open up fundraising beyond the usual network of traditional investors. It allows both accredited (high-net-worth) and non-accredited (everyday) investors to buy into your company, creating a broader pool of potential backers. It can be particularly helpful if you have a strong community or customer base that’s excited to be part of your journey.
Offering Limit: Up to $5 Million
One of the biggest changes in recent years is the increase in how much you can raise. Reg CF used to cap offerings at around $1.2 million, but it’s now up to $5 million in a 12-month period. For many startups, this jump has made Reg CF a viable option for more substantial raises rather than just a bridge round or proof-of-concept funding.
Key Requirements
To launch a Reg CF campaign, you’ll need to file Form C with the Securities and Exchange Commission (SEC). Think of this as a detailed snapshot of your business, including financial statements (which may require an independent review, depending on the size of your raise), a clear description of how you plan to use the funds, and background information on your management team.
These disclosures might feel a bit cumbersome at first, but they serve a purpose: they give potential investors enough information to make an informed decision, and they bring structure to your own planning process.
Investor Limitations
Reg CF sets limits on how much each individual can invest over a 12-month period, especially if they’re not accredited. The calculations are based on their annual income and net worth. While the exact formulas can be a bit dry, the short version is that smaller investors can put in up to the greater of $2,500 or 5% of their income/net worth if it’s under $124,000. For those who are above that threshold, the limit jumps to 10%.
Ongoing Obligations
Once you complete a Reg CF raise you’ll generally need to provide annual reports and update investors on your progress. These disclosures keep everyone in the loop and help maintain trust. Most founders find that this transparency can actually become a tool to keep investors engaged and excited about the company’s growth.
Regulation A+
If you need to raise more than what Reg CF offers—or if you’re aiming for a broader base of investors—Regulation A+ could be the right fit. Sometimes referred to as a “mini-IPO,” Reg A+ allows companies to raise larger sums while still welcoming both accredited and non-accredited investors. However, the process can be more involved and may take longer to set up.
Two Tiers, Different Paths
Tier 1 allows you to raise up to $20 million in a 12-month period. It’s often a good choice if you anticipate a more regional investor base or if you’re testing the waters before going bigger. Keep in mind, though, that Tier 1 typically requires you to comply with state securities laws (“blue sky” laws) in each state where you plan to offer your securities.
Tier 2 goes up to $75 million in a 12-month span and overrides most state-level review, making it easier if you want to reach investors nationwide. But you’ll have ongoing reporting obligations—annual, semi-annual, and current event updates—to keep your investors and regulators in the loop.
Qualification Process
Unlike Reg CF, where you file a Form C, Reg A+ calls for filing Form 1-A with the Securities and Exchange Commission (SEC). This document outlines your company’s business plan, financial status, and the details of your offering. The SEC reviews your submission and often comes back with questions or requests for revisions. This back-and-forth can take several months, so you’ll want to budget enough time.
Once SEC “qualifies” your offering, you can officially start accepting investments. The qualification step is more involved than what’s required under Reg CF or some Reg D offerings, but it also grants you the chance to raise significantly higher amounts—and market your offering to the general public.
Financial Requirements
For Tier 1, you’ll generally need to provide audited financial statements, but you won’t have the same ongoing reporting load as Tier 2. Tier 2 demands audited financials as well, plus those regular reports after the raise.
Regulation D
When you hear about private “friends and family” rounds or angel investments, that often falls under Regulation D. Unlike Reg CF and Reg A+, Reg D keeps the focus on accredited investors (and sometimes a limited number of sophisticated non-accredited investors). This route can be straightforward to set up, but it’s generally not the best fit if you want to invite the broader public into your cap table.
Rule 506(b): The Traditional Approach
Under Rule 506(b), you can raise an unlimited amount of money from an unlimited number of accredited investors, plus up to 35 non-accredited investors who meet “sophistication” requirements. The main restriction is that you can’t advertise or publicly promote your deal. In other words, you typically rely on existing networks or private introductions.
Rule 506(c): The Modern Twist
For founders who want more flexibility in marketing, Rule 506(c) allows general solicitation (public promotion), but all investors must be accredited. You also need to take reasonable steps to verify accreditation, such as reviewing tax documents or getting a written confirmation from a financial professional.
Why Consider Reg D?
- Simplicity: There’s no formal SEC qualification process, which can speed things up. Instead, you file a Form D shortly after you start raising funds.
- Higher Check Sizes: Since it’s accredited-only in most cases, you may secure larger investments from fewer people.
- Less Public Disclosure: You’re not required to publish financials for the general public, although serious investors will still expect thorough documentation.
Reg D works well if you already have a network of well-capitalized backers or if your startup has enough traction to interest accredited investors who can write bigger checks. However, if your vision involves rallying a broad community or leveraging your customer base for funding, you might find Reg CF or Reg A+ a more inclusive route.
Choosing the Right Path
1. Target Raise Amount
- Smaller Raises (Up to $5 million): Reg CF might be enough if you plan to bring on many smaller investors.
- Mid-Range to Larger Raises ($5 million to $75 million): Reg A+ is designed for bigger rounds and can appeal to a wide audience, though it takes more time and paperwork.
- No Formal Limit: Reg D doesn’t impose a maximum raise but restricts who can invest (mostly accredited investors).
2. Investor Base
- Democratized Funding: Reg CF and Reg A+ let non-accredited investors join, broadening your pool of potential backers.
- Accredited Investors Only: Reg D cuts out the general public and can mean bigger checks from fewer investors, but it also means you can’t turn your entire community into co-owners.
3. Marketing Flexibility
- Reg CF and Reg A+: Generally allow you to publicly advertise your raise, which can be a huge advantage if you plan to leverage social media, email campaigns, or PR.
- Rule 506(b) under Reg D: Prohibits general solicitation, so you have to rely on private networks.
- Rule 506(c) under Reg D: Allows public marketing but restricts you to accredited investors, and requires a more rigorous process to verify their status.
4. Timeline and Costs
- Reg CF: Often quicker to launch but still requires preparation, including filing Form C and having financial statements in order.
- Reg A+: The SEC qualification process can take several months, and fees for audits, legal, and marketing can add up.
- Reg D: Usually the fastest to set up (especially 506(b)), but you’re limited in who you can pitch if you choose that route.
5. Platform Selection
- Reg CF Often involves hosting your campaign on a FINRA-registered portal. Well-known examples include Wefunder, StartEngine or Republic. These platforms can handle critical tasks like investor onboarding, funds transfers, and compliance, allowing you to focus on marketing and engaging with potential backers.
- Reg A+ You can launch a Reg A+ offering on platforms like StartEngine or Republic as well, or go through smaller specialized. Some companies also choose to run these campaigns directly on their own websites—although this requires a robust tech infrastructure to manage investor accreditation (if needed), payment processing, and ongoing disclosures.
- Reg D If your target audience is primarily accredited investors, you may opt for a more direct approach, especially if you already have strong relationships and can conduct the raise through private channels. Alternatively, you could use networks like AngelList or other specialized investor platforms that cater to private placements. These services often assist with investor verification, subscription agreements, and other administrative tasks.
Disclaimer: The information provided in this article is for educational and informational purposes only. It does not constitute financial, legal, or professional advice, and should not be treated as a recommendation or endorsement of any specific course of action. The content is compiled from publicly available sources and is presented “as is.” Always consult qualified professionals, such as financial advisors or attorneys, and conduct your own due diligence before making any investment or business decisions.For the most current rules and regulations, please visit www.sec.gov
