Crowdfunding is one of those terms that can mean many different things.
It can refer to non-equity crowdfunding (e.g., Kickstarter) or equity crowdfunding.
In the equity crowdfunding bucket there are a bunch of different possibilities:
- Title III Equity Crowdfunding under the JOBS Act--which is not yet available.
- Rule 506(c) all accredited investor crowdfunding--either directly to the public or through portals such as CircleUp.
- State level equity crowdfunding under various state laws that have been passed in the last several years (e.g., the Washington equity crowdfunding law).
Since Title III Equity Crowdfunding under the JOBS Act is not yet available, private companies wondering about whether equity crowdfunding can help them are really asking about either 506(c) or state equity crowdfunding alternatives.
A quick summary of the pros and cons of 506(c) and state-level equity crowdfunding:
- No limit on the amount of funds that can be raised.
- No pre-filing requirement or pre-approval from any securities regulators required.
- Accredited investors only.
- Advertising allowing.
- Form D filing required within 15 days of first taking money.
State Level Equity Crowdfunding
- Typically there are caps on how much you can raise (e.g., $1M under the Washington law during any 12 month period).
- Both accredited and non-accredited persons can invest.
- Pre-approval of securities regulators is frequently required.
- These offerings can be "integrated" with all accredited investor offerings that are ongoing or within 6 months before or after the crowdfunding offering, blowing those offerings securities law exemptions.
Is equity crowdfunding right for your business? It might be. 506(c) offerings are becoming more commonplace. State level equity crowdfunding offerings are still rare. Time will tell how these two different types of crowdfunding offerings develop.
In general I think state level equity crowdfunding offerings are going to be best suited for companies that would have historically attempted to raise a friends and family offering from both accredited and non-accredited family members. The new state laws will allow these types of offerings to proceed in a legally compliant manner.