Equity Crowdfunding: How Regulation CF and Regulation A+ Offerings Work

Regulation CF: Crowdfunding for Non-Accredited Investors

Regulation CF (Reg CF) allows companies to raise up to $5 million per year from both accredited and non-accredited investors. For non-accredited investors, the amount they can invest is capped based on their income and net worth: if annual income or net worth is less than $124,000, the cap is the greater of $2,200 or 5% of the lesser of annual income or net worth. If both income and net worth exceed $124,000, the cap is 10% of the lesser of annual income or net worth, up to $124,000. Companies must raise funds through an SEC-registered intermediary (a broker-dealer or funding portal). Required disclosures include: business description, use of proceeds, target offering amount, ownership and capital structure, financial statements (reviewed by an independent accountant for offerings over $124,000), and related-party transactions. Ongoing reporting obligations: annual reports on Form C-AR must be filed with the SEC. Crowdfunding securities are subject to a 12-month transfer restriction — they cannot be resold for one year. How crowdfunding fits into an alternatives portfolio →

Regulation A+: Mini-IPOs for Larger Raises

Regulation A+ (Reg A+) allows companies to raise up to $75 million annually in what is often called a "mini-IPO." Reg A+ has two tiers: Tier 1 (up to $20M) requires state-by-state securities law compliance and is rarely used. Tier 2 (up to $75M) preempts state securities laws and is the more common path. Tier 2 offerings require audited financial statements, ongoing reporting (annual, semi-annual, and current event reports on Form 1-K, 1-SA, and 1-U), and investment limits for non-accredited investors (10% of the greater of annual income or net worth). Unlike Reg CF, Reg A+ securities are not subject to transfer restrictions and can trade on alternative trading systems like the OTC Markets. Some companies that raise via Reg A+ eventually list on Nasdaq or NYSE. Reg A+ is more expensive than Reg CF (legal and accounting costs of $100K-500K) but allows larger raises and secondary trading. Companies like Elio Motors, Knightscope, and Nextdoor have used Reg A+ for their offerings. How Reg A+ compares to traditional IPOs →

Platforms: StartEngine, Wefunder, Republic, and SeedInvest

StartEngine: The largest equity crowdfunding platform by number of offerings, StartEngine hosts both Reg CF and Reg A+ deals. It has its own secondary trading platform where investors can buy and sell shares of funded companies, though liquidity is extremely limited. StartEngine also offers a self-directed IRA option for tax-advantaged investing.

Wefunder: Focused on early-stage startups, Wefunder pioneered the community round model where companies raise small amounts from large numbers of investors. Wefunder was the first platform to allow non-accredited investors to participate in startup investing. It features a "roll-up" feature where multiple small investments are pooled into a single SPV for each portfolio company.

Republic: A platform that offers equity crowdfunding, revenue-sharing notes (Republic Note), and real estate and video game financing. Republic has partnered with AngelList and has a broader investment menu than just equity crowdfunding. It also operates Republic Capital, a venture capital arm.

SeedInvest: A more selective platform (accepts fewer than 1% of applicants) that focuses on high-quality startups. SeedInvest has been acquired by Circle and offers both Reg CF and Reg A+ deals. Its selective approach means fewer offerings but potentially higher quality due diligence. Real estate crowdfunding platforms →

Can you lose all your money in equity crowdfunding?

Yes. The majority of startups fail, and equity crowdfunding investments are among the riskiest available. Unlike public company stocks, crowdfunding investments have no guarantee of ongoing disclosure, no analyst coverage, no institutional oversight, and no liquid secondary market. The SEC reports that crowdfunding investors should expect to lose their entire investment in most cases. Platform data is limited because the industry is young (most Reg CF offerings have been less than 5 years old), but early indicators suggest failure rates are at least as high as traditional startup investing (60-70%). Unlike angel investing where investors can diversify across 20-30 deals, most crowdfunding investors participate in only 1-5 deals due to the small check sizes — making total loss more likely. Treat every crowdfunding investment as a complete loss until an exit proves otherwise.

How do you sell equity crowdfunding shares?

Equity crowdfunding shares are extremely illiquid. Reg CF shares have a mandatory 12-month holding period during which they cannot be sold at all. After 12 months, there is no established secondary market for most crowdfunding shares. StartEngine operates a secondary trading platform, but trading volume is minimal — most shares have no buyers even years after the initial offering. Reg A+ shares can trade on the OTC Markets, but liquidity is typically very thin. Some companies eventually up-list to a national exchange (Nasdaq or NYSE), providing real liquidity for early investors. Most crowdfunding investors should expect to hold their shares for 5-10+ years before any exit event (acquisition or IPO). The lack of liquidity means crowdfunding is suitable only for money you will not need for a decade or more.

What fees do equity crowdfunding platforms charge?

Equity crowdfunding platforms charge fees at both the company and investor level. Companies typically pay 5-12% of the amount raised in platform fees, plus additional costs for legal, accounting, and marketing. Some platforms charge a monthly subscription fee for companies to list their offering. Investors typically pay no upfront fees on most platforms, but some charge a 0-2% processing fee on investments. A few platforms charge an annual account maintenance fee. The platform makes money primarily from the company side. However, investors should be aware that their ownership may be diluted by future fundraising rounds, and some platforms take warrants or equity as part of their compensation. Always read the offering documents carefully to understand the full fee structure and dilution potential before investing.

Is equity crowdfunding a good investment for beginners?

Equity crowdfunding is generally not recommended for beginner investors. The risks are extreme: high failure rates, no liquidity, limited information (startups provide minimal disclosure), and no ability to conduct proper due diligence for most investors. Beginners should first establish a solid foundation of traditional investments (diversified stock and bond portfolios) before allocating any capital to crowdfunding. If you do invest, limit crowdfunding to 5-10% of your total portfolio, diversify across 10+ offerings, invest only what you can afford to lose, and expect a 5-10+ year holding period. Treat it as a speculative allocation, not a core investment strategy. Platforms like Wefunder and StartEngine make investing easy, but easy does not mean safe — the ease of clicking "invest" masks the extreme risk of total loss.

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