Securities laws are complex. Each state - as well as the SEC - highly regulates the manner in which equity or debt may be sold. To avoid the incredibly expensive regulations public companies comply with, startups must qualify under one of several federal exemptions from securities registration. Startups on Wefunder use one of the following federal exemptions:
Companies using the Rule 506(b) exemption can raise an unlimited amount of money from and a maximum of 35 unaccredited investors. Almost all startup investing occured this way until late 2013.
There's one catch. Companies using Rule 506(b) cannot advertise their fundraising. On Wefunder, only our community of pre-vetted accredited investors may see these deals after they are logged in.
Regulation D, Rule 506(c) - Public Fundraising
This is a new exemption released by the SEC on September 23rd, 2013. Like Rule 506(c), startups using this exemption can raise an unlimited amount of capital from . But unlike 506(b) these startups can advertise their fundraising to the public.
There's a downside. Startups using 506(c) must verify that all their investors actually are accredited. This may require the investor to provide a letter from their lawyer, or it can be as burdensome as requiring tax returns or bank statements.
Created by the JOBS Act, Regulation Crowdfunding allows startups to raise up to $5,000,000 per year from an unlimited number of investors, no matter how wealthy they are. This law gets rolled out May 16th, 2016.
Investors are also limited in the amount of capital they may invest in Regulation Crowdfunding startups per year. To calculate your investment limit, first choose either your net income or net worth - whichever is lower. If the lower number is over $107,000, you are allowed to invest 10% of it each year. Otherwise, only 5%. For instance, if your income is $96,000 and your net worth $200,000, you'd be legally allowed to invest $4,800 per year in startups.
Also known as Title IV of the JOBS Act, Regulation A+ allows startups to raise up to $50 million per year from an unlimited number of investors, no matter how wealthy they are. Companies can think of Regulation A+ as a mini-IPO, allowing them to gauge public interest without the strenuous fees and reporting requirements of actually going public before they're ready.
Investors are also limited in the amount of capital they may invest in Regulation A+ startups per year. Non-accredited investors may legally invest no more than 10% of their income or net worth—whichever is greater. Accredited investors (those who have an income of $200K+ or have a net worth of over $1 million) have no investing limit.
A seed round is the first significant money a startup receives, typically from many angel investors. While there are exceptions, most seed rounds raise between $500,000 and $2 million.
720 startups have raised $298,425,857 on Wefunder
Wefunder supports three different federal laws that allow startups to raise money legally. To comply with the law, Wefunder Advisors LLC and Wefunder Portal LLC (both owned by Wefunder Inc) also list startups depending on the regulation used.
Legal May 16th 2016
Wefunder Portal LLC
for 628 startups
Wefunder Advisors LLC
for 156 startups
for 3 startups
Curious how well the companies have done? Or how many raised follow-on financing?
Some fine print: 1) These numbers include startups currently live on Wefunder if they pass their minimum target. 2) Some startups use two different laws at the same time (i.e., Regulation D and Regulation Crowdfunding).
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wefunder.com is a website owned by Wefunder Inc., the parent company of Wefunder Advisors LLC and Wefunder Portal LLC. Wefunder Inc. operates sections of wefunder.com where certain Regulation D and Regulation A+ offerings are available. Wefunder Inc. is not regulated in any capacity, is not registered as either a broker-dealer or funding portal, and is not a member of FINRA or any other self-regulatory organization.
Wefunder Advisors is an exempt reporting adviser that makes filings with the SEC and certain states. Wefunder Advisors advises special purpose vehicles (SPVs) used in certain Regulation D offerings that are available on wefunder.com.
Wefunder Portal is a funding portal (CRD #283503) that is registered with the SEC and is a member of FINRA. Wefunder Portal operates sections of wefunder.com where certain Regulation Crowdfunding offerings are available.