Regulation Crowdfunding (“Reg CF”) has already celebrated its first anniversary. After a frustratingly long delay during Securities and Exchange Commission (SEC) rulemaking for the JOBS Act’s most modern securities fundraising technique, issuers may now tap the Internet’s vast populace to raise money. By many measures, the law is working—existing small businesses and new startups alike are getting the jumpstart they need. As an added benefit, the companies funded by investment crowdfunding also seem to be creating the kinds of jobs (if perhaps not yet in the desired numbers) originally envisioned by lawmakers. It seems that, barring some shift in the legislative agenda of Congress, federal investment crowdfunding is here to stay.
At the same time, many states have also waded into the fray with their own crowdfunding solutions. In fact, several states had operational investment crowdfunding systems months and even years before the federal government. Many of the same benefits— job creation, driving community entrepreneurship, survival of small businesses—seem to be trickling down in the intrastate models as well. The probability exists, especially as the federal model builds steam and gains even broader support across state legislatures, that state-level investment crowdfunding will also be around for the long haul.
While there have been comparatively few Reg CF offerings to date (with relatively small offering amount aggregates, at least as compared to other options like Regulation A+ and Regulation D), there have been enough offerings to amass sufficient data from which to draw some meaningful conclusions about the likely causes of the success or failure of an offering. And some practitioners have already begun to crunch the numbers. To the extent that it is possible to glean some useful guidance from previous offerings, this article attempts to synthesize the data with the authors’ personal and practical experiences to propose some investment crowdfunding best practices. In addition, this article suggests some best practices for potential crowdfunders in areas of offerings not easily reduced to numerical data points. In the end, the authors hope to provide actionable advice to the potential crowdfund issuer and its counsel for crafting the most appropriate offering structure for a given capital raise.
The article proceeds in four parts: Part II provides a brief description of investment crowdfunding, as a necessary history for an uninitiated reader. Next, Part III examines the publicly available data on federal crowdfunding offerings to date. Then, Part IV uses the data to recommend best practices for investment crowdfunding offerings using Reg CF, including some best practices that do not submit easily to numerical data points. Part V offers some next steps in the evolution of federal- and state-level crowdfunding and a brief conclusion to the article.