Regulation Crowdfunding: What is it, Pros, Cons, and more

Discover the ins and outs of Regulation Crowdfunding, from its potential benefits to its drawbacks and regulatory compliance challenges.
February 24, 2024
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Hi, I'm Kieran. I worked at a Regulation Crowdfunding platform, Wefunder, from 2017-2020. I made this guide to help you understand whether Regulation Crowdfunding is the right funding option for your business.

To see more options to raise money for your business, read my post How to Raise Money for your Business afterward.

What is Regulation Crowdfunding?

Regulation Crowdfunding (Reg CF), commonly called equity crowdfunding, is a way for businesses to raise money. From 1933 to 2016, investing in a private company was illegal unless you were an "accredited investor" (i.e., very wealthy). Reg CF made it so anyone, including non-accredited investors, could invest in private small businesses and startups. 

Regulation Crowdfunding follows these rules:

  • All transactions under Reg CF must occur online through an SEC-registered intermediary, either a broker-dealer or a funding portal.
  • Companies are permitted to raise a maximum aggregate of $5 million through Reg CF offerings in a 12-month period.
  • The SEC limits how much individual non-accredited investors can invest in Reg CF offerings in a 12-month period.
  • Companies must disclose information in filings with the SEC, investors, and the SEC-registered intermediary facilitating the offering.

Pros of Regulation Crowdfunding

  • Turn your customers – often your most passionate evangelists – into owners. Now they have a financial incentive to continue supporting your business by spending more money, recommending you to friends and family, and more.
  • Increase the total amount of capital you raise. Platforms help market you to their investors, which can increase the amount you raise by 30-40% more than you could fundraise without them. Platforms like Wefunder have 1 million registered investors.

Cons of Regulation Crowdfunding

  • You are required to disclose your financials to the general public when you raise via Reg CF. So if you don't want your financials out there, this may not be the best way to fundraise.
  • Raising money via the crowd comes with signaling risk for future financing rounds. Angels and venture capitalists assume, sometimes incorrectly, that companies fundraise from the crowd as a last resort. The signaling risk will decrease in the coming years as more notable venture-backed companies, such as Replit and Levels Health, decide to open up community rounds as part of more significant capital raises.
  • Similar to any fundraising, raising from the crowd is work. Unless you are a top company or have a vast audience, most Reg CF raises take anywhere between 3 - 6 months. So, be ready to put in the work promoting your campaign to your network.
  • Receiving money from Reg CF platforms takes time. For starters, companies can only pull money from their campaign once they have reached their campaign minimum. In addition, even if a company surpasses its minimum quickly, companies must be live for at least 21 days before pulling money out of escrow. Lastly, finalizing specific campaign investments, such as an investor increasing or decreasing their investment, requires manual approvals, which can add up and take weeks or months.

Where can I conduct a Regulation Crowdfunding offering?

How much money can you raise?

A company can raise a maximum aggregate of $5 million through Reg CF offerings in a 12-month period. 

What's the minimum amount of money you can raise?

It depends on the platform. Wefunder's minimum is $50,000. Start Engine's minimum is $10,000.

How much does it cost?

It depends on how much capital you raise, as most platforms charge you a success fee in cash, equity, or a mix of both. Here are the fees for the top Reg CF platforms:

  • Wefunder - 7.5% cash success fee. For example, if you raise $100,000, Wefunder charges you $7,500 in cash upon close. If you find a better price, Wefunder will match it.
  • Republic - 6% cash, 2% equity success fee. For example, if you raise $100,000, Republic charges you $6,000 in cash upon close and a face value of $2,000 in equity on a Crowd Safe.
  • Start Engine - Between $1,000-$20,000 upfront for campaign management services and a mix of cash and equity as a success fee. Start Engine's pricing is intentionally opaque, so approach cautiously, as many entrepreneurs have complained about their hidden fee model.
  • Equifund - 7% cash, 7% equity success fee. For example, if you raise $100,000, Equifund charges you $7,000 in cash and a face value of $7,000 in equity on a 
  • NetCapital - 4.9% cash success fee. For example, if you raise $100,000, NetCapital charges you $4,900 in cash upon close.

What types of companies can raise capital with Regulation Crowdfunding?

Platforms accept nearly every type of company – brick-and-mortar businesses to high-growth tech startups – as long as you're incorporated in the United States, with a few exceptions explained in the next section.

What types of companies can't raise capital with Regulation Crowdfunding?

  • Publicly-traded companies.
  • Investment companies.
  • Companies whose primary business model is acquiring other companies.
  • Companies not formed in the United States or the District of Columbia.
  • Companies that have already raised under Reg CF, and have not complied with annual reporting requirements.
  • Companies disqualified from selling securities under the SEC's "bad actor provisions"
  • Companies not supported by the platform's banking partner, including cannabis (cultivation, sales, or delivery), porn, gambling, banks, certain financial institutions, virtual currency companies, pawnbrokers, gun manufacturers, and more. If you are in one of these industries or an adjacent one, I recommend contacting the platform to double-check before you invest time getting set up to fundraise.

What types of securities can you offer to investors?

You can offer either debt or equity to investors when raising capital through Reg CF. Here are some of the most popular securities offered:


  • SAFE (Simple Agreement for Future Equity) – best for tech startups. 
  • Convertible Note – best for tech startups outside of Silicon Valley.
  • Priced Round – best for tech startups post-seed.


  • Simple Loan – best for small businesses.
  • Revenue Share – best for small businesses with less predictable cash flows.

What legal and accounting work is required before you raise?

  • Form C – A compliance document you must submit to the SEC to collect investments via Reg CF. This includes company incorporation information, investment terms, risks with your business, and more. For most platforms, the Form C filing is free.
  • Financials – Your last two years (or from inception) of financials in GAAP format. If you raise $124K or more, then they need to be reviewed by an independent CPA. On average, the independent review costs between $2,000 - $5,000.
  • Investment contract – Many platforms like Wefunder offer out-of-the-box investment contracts that you can use for free, but if you want a custom contract with special provisions, you'll need to work with a lawyer. On average, a custom investment contract costs between $1,000 - $3,000.

What legal and accounting work is required after you raise?

  • Annual report – An update to the SEC and your investors no later than 120 days after your fiscal year-end.

Examples of successful Regulation Crowdfunding raises

1. Meow Wolf

A bunch of people dressed up in galaxy movie-like costumes

In July 2017, Meow Wolf, the immersive art experience, became one of the first companies to raise capital via Reg CF on Wefunder. They raised $1M, the maximum amount at the time, in 48 hours. The company used a Regulation D exemption to go a little over the limit to secure an additional $322,006 in investment. The company raised capital to fund its expansion from New Mexico to open exhibits in Denver, Austin, and Las Vegas. The company would later receive criticism for buying backing its Reg CF investors in August 2019. Investors made a return, but not nearly the same amount they would receive in 5-10 years if Meow Wolf continues to grow at its current pace.

2. Gumroad

A screenshot of Gumroad's homepage which features a creat

In March 2021, Gumroad, the e-commerce company that helps creators sell products directly to their audience, raised $5 million on Republic from 7,331 individual investors, including 2,300 Gumroad creators, in 12 hours. The company set a new record for the quickest raise to $5 million by leveraging their founder's social audience of ~300K followers on Twitter and the positive signal from previous investors, including First Round Capital, SV Angel, and Max Levchin.

3. Modern Times

A beer tap room with Christmas lights draping over the room and a monkey mural in the background

In April 2019, Modern Times Beer, one of the largest craft breweries in the United States, raised $1,224,431 from 1,189 investors on Wefunder. The company decided to raise via Reg CF to let its fans and customers become owners and share in the potential upside of the company's success.

4. HackerNoon

A screenshot of the bright green HackerNoon homepage

In March 2019, HackerNoon, the technology publisher, raised $106,993.60 from 1,219 investors on Start Engine. The company ran a very active campaign by sharing significant company milestones throughout the raise to drive more investments in the company. In addition, they received a couple of huge endorsements from notable tech leaders, including Garry Tan, the current CEO of Y Combinator, and Alexis Ohanian, the Founder of Reddit. As a result, the company now has over 25,000 contributing writers and receives close to 2 million website visitors per month.


2 girls and 4 guys posing with boxing gloves in workout gear

In April 2020, GRIT BXNG raised $654,290, surpassing their initial fundraising goal by 880%, from 1,041 investors on Republic. The company raised money to extend its runway during the pandemic. The brand is known for being out there – attaching itself to celebrities like Pitbull and Tony Robbins, letting customers pay with Bitcoin, and having a full liquor bar in the studio.

Tips for businesses to raise money with Regulation Crowdfunding

  • Funnel large angel or venture capital checks through the platform to drive early momentum. Most platforms waive fees on investments over a certain amount (i.e., $25K for Wefunder) that come from your network. 
  • Find a notable lead investor, such as a well-known venture capital firm or angel investor, for your Reg CF raise. Investors tend to follow professional investors. So someone like Garry Tan, CEO of Y Combinator, investing $100 into your raise on the same terms as everyone else could drive $100K+ in follow-on investments from the crowd.
  • Use simple language on your profile. Make it easy for first-time investors to understand what they are investing in.
  • Use a professional investor to help set your terms. There are rules set by the SEC to prevent platform teams from telling you what terms you should use for your raise. So, run your terms by a professional investor instead to see if they think they are fair. Doing so can derisk your Reg CF raise from falling flat if the terms are unfavorable for investors.

Common mistakes made by businesses with Regulation Crowdfunding

  • Expecting the platform's investors to fill your entire round. Platforms can only market you to their investors if you pass objective thresholds, which they will inform you of before your raise. For example, you may need to raise $50K from your network before you get featured in the platform's newsletter, which goes out to their investors.
  • Not treating Reg CF investors, mostly unaccredited investors, like professional investors. These people want to help your business succeed. It would be unwise not to utilize them to help you with marketing, recruiting, and other business needs.

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