7: CrowdFunding

A forum with help, questions/answers and discussion for crowdfunding issuers, portals, investors and backers.


CrowdFunding is when a company funds projects or ventures by raising many small amounts of money from a large number of people, typically via the internet. The total amount raised through crowdfunding offerings may not exceed an aggregate of $5 million in a 12-month period.

  • The company or entity raising the money is called the Issuer (even though it may or may not actually issue any securities).
  • The people investing in the project are called Investors or Backers.
  • The issuer is required to interact with the investors/backers via an Intermediary, which is either a Conventional Securities Broker/Dealer, or a CrowdFunding Portal. The Intermediary is sometimes called the CrowdFunding Platform.

The Broker/Dealer or CrowdFunding Portal

The Intermediary (i.e., Broker/Dealer or CrowdFunding Portal) is central to the Issuer’s crowdfunding project. The Issuer may communicate with and raise money from Investors only via the Intermediary, who communicates and interacts with both, the Issuer and Investors/Backers. This Intermediary must:

  1. be registered with the SEC, and must file the appropriate SEC forms. For example, a CrowdFunding Portal must file SEC Form CF.
  2. be a member of FINRA (Financial Industry Regulatory Authority).

The Intermediary must provide and support an online platform to facilitate the crowdfunding, and may provide marketing and other services to the Issuer. It also accepts funds from Investors/Backers, and depending on the outcome of the offering transfers the funds to the Issuer or returns them to the Investors, deducting its fees for its services. Among other obligations, the Intermediary must conform to SEC regulations and FINRA requirements.

Examples of Intermediaries (Crowdfunding Platforms) are KickStarter, GoFundMe, Rally Up, Indiegogo, Planview, and StartEngine. A complete list of registered CrowdFunding Portals may be found here.

The Issuer

The Issuer must select its Intermediary (Broker/Dealer or Crowdfunding Portal) carefully, making sure that the Intermediary’s policies, services and fees are consistent with the Issuer’s goals, operations and workflow. The Issuer must then:

  1. register with the Intermediary.
  2. file the SEC Form C, in which it discloses material information that Investors/Backers can rely on when deciding to invest.

The Issuer may advertise and market its offering though the Intermediary only.

The Investors/Backers

Investors/Backers are typically individual investors making small investments, and fall into one of two categories:

  • Accredited – The SEC defines an accredited investor as (1) an individual with gross income exceeding $200,000 in each of the two most recent years and a reasonable expectation of the same income level in the current year; or (2) joint income with a spouse or partner exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or (3) a net worth that exceeds $1 million, either alone or with a spouse or spousal equivalent. There is no limit to the amount an accredited investor may invest in a crowdfunding offering.
  • Non-accredited – These are individuals who do not meet the above income and net worth thresholds for accreditation. The amount that such investors may invest in crowdfunding offerings is limited, and the limit depends on income and/or net worth. Details on these limits can be found here.

Types of CrowdFunding Investments

The funding provided by Investors and Backers falls into one of four categories:

  • Donation – This is where Backers provide funding and neither expect nor receive anything in return. This is often the case for non-profit and charity offerings.
  • Rewarded – This is where Backers provide funding and receive only some kind of reward in return. The reward may be a T-shirt, a free or discounted product or service from the Issuer, or some such return in kind.
  • Debt – This is where the Investors’ funds are loaned to the Issuer, and the Issuer must eventually return to the Investors the invested amount with interest.
  • Equity – This is where the Investors receive shares (and hence proportional ownership) of the Issuer. Tthe shares may or may not carry voting rights.

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