From Reg. CF to Reg. A+ – How You Can Raise the Full Stack of Capital through the Crowd
Many of the benefits of equity crowdfunding are clear. You stay in control of your business because you set the terms of the raise. You source capital from your early adopters – this is a great way to build brand equity by giving your customers a stake in the company. And there’s no VC pushing you into a liquidity event when times are tight. In fact, equity crowdfunding has proven more resilient in a downturn than institutional capital.
Despite all the benefits and even though it’s been around for close to a decade, many entrepreneurs I speak to still believe equity crowdfunding is only viable at the seed stage. Not true. Through Regulation Crowdfunding and Regulation A+, you can raise the full stack of capital – from your Seed Round to Series C and beyond – with the crowd.
Let’s start with Regulation Crowdfunding. This is a very simple way to raise up to $5 million from the general public. At its most basic level, all you need to do is file a form C with the SEC and display an investment page on a funding portal, like StartEngine.
Though the process is simple, running a successful campaign still requires hard work. And the amount of time needed to get the offering off the ground is comparable to what you’d put into raising seed funding from traditional angels or VCs. The difference? You don’t pitch one person at a time. Instead, you’ll put together a marketing program (we can help you here) to reach friends, family, customers, fans, and the public at large.
Early momentum can make or break a raise. Read strategies to hit your first 100 investors.
For those that reach the $5 million threshold, the logical next step is to file a Regulation A+ offering. This exemption allows you to raise up to $75 million in a year – or $25 million more than the average Series C round – again, all through the public and with the benefits I mentioned above.
Raising under Reg. A+ does require more legal work and the costs and time to launch can be greater (typically anywhere from 60 to 120 days). The good news though is the audit requirements are the same under both exemptions – the only addition here is you’ll write a comprehensive offering memorandum.
A funding solution for good times and bad.
If the 2022 financial crisis has taught us founders anything, it’s this: raise capital – even when you don’t think you need it. The scores of now defunct, would-be unicorns show that it’s hard to predict the future. So how to protect yourself against uncertainty? Stay well capitalized and always be raising.
Of course, securing funds is difficult when times are hard. And VCs today are handing out half as many checks as they did just a year ago. So am I shocked that applications to raise capital on StartEngine have spiked close to 30% in the last quarter alone? Not at all. As we’ve just seen, equity crowdfunding has the flexibility to support businesses of all sizes.