- Fundraise Exemption
- Regulation Crowdfunding
- Regulation D, Rule 506(b) - Private Fundraising
- Regulation D, Rule 506(c) - Public Fundraising
- Regulation A+
Startups must qualify under one of several federal exemptions from securities registration. Otherwise, they are violating securities law. Exemptions supported on Wefunder include Regulation D, Regulation A+, and Regulation Crowdfunding.
Created by the JOBS Act, Regulation Crowdfunding allows startups to raise up to $1,070,000 per year from an unlimited number of investors, no matter how wealthy they are. This law was 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.
Companies using the Rule 506(b) exemption can raise an unlimited amount of money from Accredited Investors 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.
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 Accredited Investors . 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.
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.