The JOBS Act of 2012 has now expanded traditional fundraising methods to allow emerging companies (start-ups to medium sized enterprises) to sell securities (equities or debt instruments) to the everyday public, without having to become a publicly traded company with its strict SEC reporting regulations. Under the Act’s regulations, dynamic, crowdfunding platforms (like emergeco.international) to create an online space for small and medium sized businesses to showcase their ideas and engage with investors willing and able to directly invest in these emerging companies. By leveraging the Internet and social media, entrepreneurs can transcend geographical boundaries by reaching a national and even a global audience, that is passionate about supporting their innovative projects with direct investment.  

It is important to understand how equity crowdfunding stands apart from platforms like Kickstarter. Backers here aren’t just supporters; they invest to own a piece (equity) of a company. This unique funding method allows a business to tap into the power of numerous retail investors, willing to financially back their company by offering them a stake, without the usual founder-VC dynamics of stringent investment terms and interference in operations. 

Equity Crowdfunding vs. Venture Capital: How They Differ 

For the fewer than 1% of companies that secure VC funding, the relationship dynamics between themselves and the VC are often shaped by those well-funded backers, whose priorities might not align with the long-term vision of the young company’s founders. The VC’s corporate governance demands, misalignments between growth and profitability, and other concessions can lead founders to relinquish more control than desired. Equity crowdfunding, on the other hand, empowers founders to maintain more control over the business and their vision. The absence of a dominant investor and a broader investor base enables companies to tap into the strength of a particular investor community for growth; such as a company’s customer base, their social media followers, or others interested in their unique business story. It also shifts the focus from the “2/20” mentality of VCs1, which may potentially be misaligned with the company’s objectives. In no way does this mean that traditional VC and equity crowdfunding are mutually exclusive, however; they can effectively complement each other as a company matures. Starting with equity crowdfunding can even enhance an enterprise’s attractiveness to VCs during subsequent funding rounds; and, a company having successfully raised funds through equity crowdfunding is in a much stronger bargaining position with any potential VC investor. 

A Shift in the Investment Landscape 

Historically, angel investing (i.e., direct investment from investors into a company not publicly listed with the SEC) was limited to accredited investors only – i.e., those with substantial income or net worth. The Jumpstart Our Business Startups (JOBS) Act of 2012 changed this, opening the doors for all investors. Following continued efforts by Emergeco’s founders and others in the securities investment community, pushing for legislation to relax the laws regarding investment in non-public companies, President Barack Obama’s groundbreaking JOBS legislation initiated a new era in investment regulations.  Regulation CF and Regulation A+ (see more details here) legitimized equity crowdfunding, by providing flexible fundraising avenues for startups, including upping the per year public capital investment limit. The 2020 SEC rule changes increased the caps for Reg CF to $5 million and for Reg A+ to $75 million within each 12-month period, allowing equity crowdfunding to be a year-on-year source for private companies to solicit direct public investment.  

Real-Life Success Stories 

Equity crowdfunding has already created a powerful pathway for startups to secure funds and grow. For example, NowRX, an on-demand pharmacy and telehealth pioneer, utilizing the power of equity crowdfunding, went from a year-old startup exercising a successful Reg CF equity raise, to one year later having $1 million in revenues. Then raising in the following years (2018 and 2020), substantial Series A and Series B rounds under Reg A+. Their CEO notes that it was their equity crowdfunding campaigns that catapulted their impressive revenue growth and marketplace brand recognition, thus demonstrating the potential of equity crowdfunding. 

Understanding Equity Crowdfunding 

Equity crowdfunding provides an alternative or complementary method to traditional venture financing. It enables startups to gather funds from a wide investor base, including smaller individual contributions. Conversely, small investors can access private companies’ growth potential with relatively modest investments, anticipating substantial returns if the company succeeds. In other words, Equity Crowdfunding leverages a large number of investors to enhance a company’s funding potential, while creating enthusiastic communities eager for its commercial success. For companies seeking capital, equity crowdfunding can coexist with traditional funding methods, potentially strengthening that company’s position for future VC negotiations. 

Navigating Regulations for Equity Crowdfunding 

Equity crowdfunding operates within specific rules and exemptions. These include Regulation D, Regulation CF, and Regulation A+. Each exemption serves different purposes depending on your company’s needs: 

Regulation D: Raising from Accredited Investors 

Reg D allows companies to raise funds by selling equity directly to accredited investors without SEC registration. Rule 506(b) and Rule 506(c) provide distinct approaches, offering varying degrees of solicitation and investor verification. Rule 506(b) allows private sales to an unlimited number of accredited investors without public solicitation. Rule 506(c) enables general advertising, but all investors must be accredited and verified. (Read more on Regulation D offerings here). 

Regulation Crowdfunding: Early-Stage Capital from the Community 

Reg CF permits private companies to raise up to $5 million from the general public, allowing retail and accredited investors to participate. Filing a Form C with the SEC and providing annual updates are mandatory. It offers an opportunity to engage the community in your company’s growth.  (Read more on Reg CF offerings here). 

Regulation A+: Growth Capital from the Public 

Reg A+ lets companies offer shares to the general public, raising up to $75 million. It functions as a “Mini-IPO,” providing a cost-effective alternative to traditional IPOs. It involves two tiers, with Tier 2 offering more flexibility but requiring compliance with SEC regulations. (Read more on Regulation A+ offerings here). 

Equity Crowdfunding: A Path for All Industries 

Equity crowdfunding isn’t limited to consumer-focused ventures; various sectors can succeed, including Enterprise Software, Robotics, and Health-tech. Emergeco supports companies with traction rather than just ideas. This platform provides dedicated guidance throughout the fundraising process and only receives compensation when funding is successfully raised. Emergeco offers a turnkey solution from application to launch and beyond, making equity crowdfunding accessible and effective. Ready to get started? (Learn how to Launch A Campaign here).