How the Recent Reg CF Changes Affect Your Startup

An article we liked from GoingVC:

Reg CF Has Changed Startup Fundraising in a Big Way. Here is What You Need to Know

Last November, the Securities and Exchange Commission (SEC) unveiled several new changes to regulation crowdfunding (CF) and other associated regulations related to raising private capital.

Reg CF was introduced in 2016 as part of the JOBS Act and enabled startups and other early-stage companies to raise money through equity crowdfunding, where a group of people provide capital to startups and small businesses in exchange for equity. The SEC’s changes will have a big impact on the companies raising money and potential investors.

Here is what you need to know.

‍‍1. Startups can now raise more money through equity crowdfunding

Perhaps the biggest headline grabber (as well as the biggest change the SEC made) is that companies can now raise a lot more money through equity crowdfunding. Prior to these changes, the offering limit in a Reg CF raise was $1.07 million. Now, companies can raise nearly five times that amount with $5 million through a Reg CF raise. And the real kicker? They can do this every 12 months.

Slava Rubin, the founder of Indiegogo who actually worked with the Obama administration to help pass the JOBS Act, said $5 million makes all of the work and money that goes into a Reg CF raise much more economical than it was:

“One of the main complaints we heard from entrepreneurs exploring Reg CF were the actual costs associated with the raise. Between financial, legal and platform fees, companies could be looking at setup costs of $100,000 or more. Combined with time, effort and additional marketing expenses, it adds up to a lot of money just to be capped at $1 million. When compared to finding a few angel investors, the costs often don’t justify the effort. But at a $5 million cap, the cost-of-capital economics drastically improve. Also $5 million is real money, not something a few angels can match.”

2. It’s now easier to invest

The SEC also made changes that will allow higher- and lower-income people to invest in startups with greater flexibility, and in larger amounts. Individual accredited investors -- those that have made $200,000 in each of the last two calendar years -- now face no restrictions on...