Equity Crowdfunding for All

The Eyebrow Raiser of Public Equity Crowdfunding

Jose de Dios, Investor, Mentor & Advisor

I discuss Angel Investing, Advising and Mentoring startups towards success.


The day finally came for anyone to have the option to invest in small business and startups, “May 16, 2016” the new “Regulation Crowdfunding” became effective! Any American Citizens will have the opportunity to back/invest in the next startup that can potentially become the “Facebook, LinkedIn, Twitter, etc… of our time!”  Americans can buy stock in startups.

So what is the Eye Brow Raiser?  Investors and the companies raising money might not realize. These rules may mean that equity crowdfunding, won’t deliver the financial impact that Congress intended for startups when it passed the JOBS Act four years ago.

Here are a few eyeball raisers that any American in the startup community must be aware of:

The “crowd” doesn’t mean fully public. It turns out Regulation Crowdfunding restricts what entrepreneurs can say about their securities offerings to the general public. Here is what that means:

  1. The offering details can only be on the one approved crowdfunding platform they choose.

  2. Additionally, those details must only be in the password-protected part of the platform.

    1. Why is this a big deal? It nullifies one of the biggest reasons that entrepreneurs are successful in rewards-based crowdfunding that allows strong promotional plans with details that are used to communicate fundraising efforts to friends, family and anyone else in the public who might be interested.

With the Jobs Act – equity crowdfunding – Entrepreneurs must be very general about the fundraising information that they put on their websites and in social media.  Yet the key is they will need to connect potential investors to their chosen platform for offering details.

With one exception, I haven’t seen anything in the media that underscores this important point for entrepreneurs. And angels interested in these crowdfunding offerings need to know about it to ensure they ask the right questions in due diligence on investment opportunities.

  • Here is the SEC’s precise language in the rule: “Under the final rules, an advertising notice that includes the terms of the offering can include no more than: (1) a statement that the issuer is conducting an offering, the name of the intermediary through which the offering is being conducted and a link directing the investor to the intermediary’s platform; (2) the terms of the offering; and (3) factual information about the legal identity and business location of the issuer, limited to the name of the issuer of the security, the address, phone number and website of the issuer, the e-mail address of a representative of the issuer and a brief description of the business of the issuer. Consistent with the proposal, the final rules define “terms of the offering” to include: (1) the amount of securities offered; (2) the nature of the securities; (3) the price of the securities; and (4) the closing date of the offering period.543” (Yes, that is footnote #543 – there are more than three times that many footnotes in the complicated rules.)

All investors – are limited in how much they can invest. Please take a moment and read the SEC’s bulletin for investors and you’ll see a chart that shows a sliding scale of how much investors can put into equity crowdfunding offerings in a 12-month period.

Those with lower incomes or net worth are well protected by being limited to a total of $2,000 in equity crowdfunding offerings each year. But accredited investors are also limited annually. For instance, a person with an annual income of $1.2 million or a net worth of $2 million would be able to invest a maximum of $100,000 yearly in equity crowdfunding offerings. No doubt investors need to think through the right amount to invest in early stage companies annually, but this adds restrictions that are not in Regulation D offerings (typically angel investments) that startups should consider.