Exemptions

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:

Regulation D, Rule 506(b) - Private Fundraising

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.

Learn more about 506(c)

Regulation Crowdfunding

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.

To find out your annual investment limits, open an investor account.

Regulation A

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.

To find out your investment limits, open an investor account.

Deal Terms

Valuation Cap

Discount Rate

Interest Rate

Pre-Money Valuation

Post-Money Valuation

Other Jargon

Accredited Investor

Seed Round

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.

Series A

Carried Interest