- What legal issues do I need to be aware of?
- What's the minimum amount I can raise?
- What's the maximum I can raise?
- How should I set my fundraising target?
- How should I write the Use of Funds?
- How do I write Risks?
- Financial Requirements: Regulation Crowdfunding
You should carefully read the Founder Legal Primer.
With Regulation Crowdfunding, you can raise $1,070,000 per year.
You can, however, raise an unlimited amount under Regulation D from accredited investors. Wefunder will spin up a free Regulation D campaign for you if you cross $1,070,000, so you can raise more money.
For those who raise $1 million with Regulation Crowdfunding on Wefunder, we will host a Regulation A+ campaign for free. With Regulation A+, you can raise up to $50 million per year.
You must hit your minimum funding goal for the campaign to be successful.
We recommend setting the funding goal to the lowest amount of money you can make use of, then specifying how you'd use any extra cash. For instance, if it costs $50,000 to purchase a new budget-widget-maker, but you could use $500,000 for a super-awesome-widget maker, set $50,000 as your funding target. Then indicate what you'd do with the $500,000.
We also require that your minimum goal be enough to give your business at least 6 months of runway.
The SEC requires you to disclose how you will be using the funds you raise. Obviously, you can’t be sure where every dollar will go, but you can estimate how you’ll use the $100,000 you raise. Tell us your plans for both your minimum and maximum funding goals.
You should include every risk that you can think of that is specific to your business.
Do not think in terms of “these risks are going to scare away investors!” because painting a rosy (but incomplete and inaccurate) picture for your investors is bad for every party involved, including yourself.
Investors respect transparency. Writing down the risks not only helps investors make a sound decision; it also protects you as a founder.
- Disclose All Risks. Disclose everything you can think of that is specific to your company and industry.
- Be Specific. The law requires that these risks be specific to your business, not generic boilerplate.
- Write At Least Six. Our system requires a minimum of six risks along with a few sentences of description for each. But we strongly recommend erring on the side of caution — even if you’re not sure, add it.
It's hard to think up risks out of thin air. This is why we've drafted a huge document trying to capture all the risks that can be relevant. It's a beast of a document, but definitely useful to dig through.
You ready? Open if you dare.
The law requires that you disclose up to two years of financials in GAAP (generally accepted accounting principles) format.
If you are raising less than $107,000 you must provide GAAP financials as explained below, which include an explanation of your taxes in the notes section (note: full tax statements will not be required.) These do not have to be reviewed by an independent CPA.
If you are raising more than $107,000, you will also need a CPA Review Statement.
We can introduce you to CPAs that can do this work for you quickly and cheaply.
However, if you are using your own CPA, please provide them with this information:
1. GAAP Financials must include:
Statement of Cash Flows
Statement of Stockholder's Equity
Notes ← Make sure this is included.
Notes are typically 2-5 pages and describe your major accounting policies. Here's an example of GAAP financials.
2. Years required:
Incorporated within 120 days of the fundraise: Need balance sheet as of a date in that period, which may be the inception date
Incorporated 2018: Need GAAP compliant 2018 financials (from inception)
Incorporated 2017: Need GAAP compliant 2017 financials (from inception)
Incorporated 2016: Need GAAP compliant 2016 and 2017 financials
Incorporated earlier: Need GAAP compliant 2016 and 2017 financials
If your fiscal year is not 12/31, please provide year end financials. Your financial statements cannot be more than 16 months old.
Even if you are pre-revenue and have $0s all the way through- these statements are still required.
NOTE: PLEASE DO NOT JUST SUBMIT YOUR TAX STATEMENTS, OR QUICK BOOKS. THEY MUST BE IN THE CORRECT FORMAT TO BE ACCEPTED BY THE SEC.
Have you raised a Reg CF round in the last 12 months?
If yes, and you are raising more than $535,000 through two offerings, within a 12 month period, you will need audited financials. These will have to be completed by a CPA who is qualified to complete audits.