What Startup Entrepreneurs Need To Know About Crowdfunding Before They Raise Money

| 01/20/2014

[originally published in the January 20 online posting of JD Supra]

Consider Crowdfunding in Tandem with a Reg D Offering

If you are going to take on the expense and responsibility that comes with this type of capital raising, keep in mind that crowdfunding can be used in tandem with traditional Reg D offerings. Richard A. Lyons, business practice partner at law firm Wendel, Rosen, Black & Dean explains:

"The SEC’s proposed crowdfunding rules contain many restrictions. For example, only $1,000,000 can be raised in any 12-month period through crowdfunding, and individual investments are limited to 5% or 10% of an investor’s income or net worth with an overall limit of $100,000 per investor. There are no such financial restrictions in an 'accredited investor' Reg D offering. However, unlike crowdfunding, a Reg D offering cannot be advertised over a public investment portal. So long as a company does not use its crowdfunding offering to attract investors into the Reg D offering, the company can conduct a Reg D offering at the same time that it crowd funds.  This allows the investment materials prepared at some expense for crowdfunding to do 'double duty' as materials for the Reg D offering, allowing the company to amortize the cost over two offerings instead of one while at the same time increasing its opportunities for a successful capital raise."