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Legal Primer for Founders

How do Fundraising Regulations Work?

Even for repeat founders, fully understanding the nuances of securities regulations can be overwhelming. It’s even more complex today, thanks to new laws rolled out recently. While we can’t replace your lawyer's expertise, we can give a good layperson's overview.

Wefunder supports three different ways to legally raise funding from investors in all 50 states under federal law: Regulation Crowdfunding, Regulation D Rule 506, and Regulation A+. Each has their own strengths.

Comparison of Fundraising Exemptions

How much can I raise? Disclosures Required Who can invest? Can I advertise? Year enacted
$1,070,000 1 Medium Anyone Yes 2016
Regulation D,
Rule 506b
unlimited Low The Rich2 No3 1982
Regulation A+
$50 million High Anyone Yes 2015
  1. If you end up raising $1,070,000, we'll spin up a concurrent Regulation D, Rule 506(c) offering so you can raise an unlimited amount from accredited investors.

    *Starting January 2021, you'll be able to raise up to $5M through Regulation Crowdfunding! This is big doings 🎉

  2. Rich means accredited investors with over $1M in net worth (minus their home) or earn more than $200K per year ($300k with spouse) in each of the past 2 years. It also means institutions like banks and VCs.  Technically, 35 non-rich unaccredited investors are allowed.
  3. There is a variant of Regulation D (Rule 506c) that permits advertising, if investors are verified as accredited. We support 506c raises only when the issuer is also doing a Regulation Crowdfunding offering.  

Which one should I use? 

  • Regulation Crowdfunding is used by over 90% of the companies on Wefunder. It turns your most passionate fans into investors that are a marketing force, and puts you in front of a half-million investors on Wefunder.

  • Regulation D, Rule 506b is used if you invite investors you already know to invest in you, before you are ready to launch a Regulation Crowdfunding campaign.

  • Regulation D, Rule 506c helps you raise more than $1,070,000 - if you hit the Regulation Crowdfunding maximum.

  • Regulation A+ is best for late-stage companies with serious traction, seeking to raise up to $50 million publicly. It’s like a "mini-IPO".

Regulation Crowdfunding

Kickstarter for Investing

Regulation Crowdfunding is a new law that rolled out in 2016. It's now legal for the public - not just the rich - to make investments in startups. Businesses can raise capital from their friends and local communities instead of just banks or venture capitalists.


Everyone - not just the rich - can invest as little as $100 in your company. You can also advertise your fundraise to your customer list, in the press, or on social media. For most companies, Regulation Crowdfunding is the best way to maximize the amount invested, while allowing customers and friends the opportunity to support you.


A Form C must be filed with the SEC before fundraising can begin. You’ll need to disclose up to two years of GAAP financials1, along with other items, like number of employees, officers & directors, stakeholders with more than 20% voting power, past fundraising rounds, use of funds, all material risks. We can guide you through this in one phone call and then generate a Form C for you. 

How Wefunder Makes it Easier

We handle the grunt work of fundraising... so you can focus on what’s important: growing your business.

  • We generate and file a Form C
    . After your profile on Wefunder is finished, we generate your Form C based on information you provide, which you can opt to have your lawyer review.
  • One entity on your cap table.
     XX Investments LLC - a SEC-registered transfer agent - will be the only entity on your cap table.  A Lead Investor that you choose will direct the vote for these securities.
  • We provide free investment contracts.
     You can choose among our library of investment contracts2 (SAFE, convertible note, revenue share, loan, etc) free, or use one your lawyer drafts.
  • Our software handles contract signing, payment transfer, escrow, etc
    . Your job is to email your customer list, contact your friends, and post on your social networks. We’ll handle the rest: contract signing, payment transfer, escrow, reminders, ongoing SEC filings3, and all the other little annoying details. When it’s all over, we’ll wire the funds to your corporate account.

Things to be Aware Of

There are other limitations that are not necessarily major weaknesses but are good to be aware of. They include:

  • $1,070,000 annual limit from Regulation Crowdfunding
    . Only $1,070,000 can be raised from a Regulation Crowdfunding offering each year. However, you can raise unlimited dollars by running a concurrent Regulation D, Rule 506(c)4 offering for accredited investors (we’ll set this up for you free). 
  • Investment Limitations
    . Investors in a Regulation Crowdfunding offering are limited to investing between 5% to 10% of their income or net worth each year5. However, Wefunder monitors and enforces these limitations for you.
  • No Offline Crowdfunding
    . By law, all Regulation Crowdfunding investments must be made through a funding portal like Wefunder or a broker/dealer. So you can’t collect checks in person — instead, you must direct potential investors to your Wefunder profile. However, you are allowed to accept funding in person from accredited investors investing in a concurrent Regulation D fundraise.
  • Advertisements must be factual
    . Get the full scoop on advertising your offering within legal rules here.
  • An Annual Report
    .  In a year, you are supposed to file an annual report 8 updating your investors. If you neglect to do so, you will be unable to fundraise with Regulation Crowdfunding again until you file the annual report (however, you may still raise funds from accredited investors with Regulation D).
  • Don't mislead investors
    . This one is obvious. But sometimes in your excitement to describe your business, you can mislead investors unintentionally. It's best to stick to factual statements or historical data, and avoid "forward looking information" or projections. You should also be careful not to omit any important facts investors should know about - for instance, if someone is suing you for patent infringement, you should mention it. All information you provide will be sent to the SEC database.

Footnotes for your lawyer:
  1. Financial numbers that must be disclosed include assets, cash, accounts recievable, short term debt, long term debt, revenues, cost of goods, taxes paid, and net income. Financials are certified by CEO if raised under $100k. Otherwise, financials must be reviewed by an independent CPA. No audited financials are required for the issuer's first Regulation Crowdfunding raise.
  2. Our library includes industry standard investment contracts like the Y Combinator SAFE and the Techstars Convertible Note. However, Wefunder can handle any type of custom security.
  3. During the fundraise, the SEC requires periodic fundraising progress updates on Form C-U and any amendments to the offering statement on Form C/A. We file these automatically based on information the issuer provides.
  4. If the issuer raises more than $1m and opts for a concurrent Regulation D 506(c) raise, Wefunder will handle the verification of accredited status of investors. Additionally, any public solicitation should comply with the tighter rules of Regulation Crowdfunding - see footnote #7.
  5. Investment limits are calculated from self-reported income and net worth. Wefunder helps enforce investor limitations. The issuer is not liable unless it can be proven they know an investor lied.
  6. Advertisements can include no more than: (1) a statement that the issuer is conducting an offering and a link to their Wefunder profile; (2) the terms of the offering; and (3) facts like name, legal identity, location, phone, website, e-mail, and a brief description of the business. “Terms of the offering" include: (1) the amount of securities offered; (2) the nature of the securities; (3) the price of the securities; and (4) the closing date of the offering period.
  7. The issuer is not exempt from Exchange Act Section 12g and is subject to the Exchange Reporting Act if they have over 500 hundred unaccredited shareholders or over 2000 total shareholders, while also having over $25m in assets.
  8.  Annual reports terminate after 1 year if there are fewer than 300 shareholders. All investments on Wefunder held in "street name" by the custodian count as one shareholder.   Filing the annual report is not a condition of the exemption.  The report includes financial statements self-certified by the CEO as well as a business discussion. No review or audit is required.

Regulation D, Rule 506

Only Rich ‘Accredited Investors’ may invest

If you've already received money from an angel investor or venture capital firm, you likely have already done a Reg D fundraise.


This is the easiest, oldest, and most-used fundraising exemption. There are no public disclosure or ongoing reporting requirements other then one simple notification called a Form D. There is no limit to the amount you can raise.


Only accredited investors — i.e., rich people — may invest in your company. 1

How Wefunder Uses Reg D

  • To help you raise more than $1,070,000 per year
    . If your company exceeds the maximum you are allowed to raise under Regulation Crowdfunding, we will move your accredited investors to a Reg D, 506(c) round, and verify their accredited status. 2 This will give you more room to accept more unaccredited investors in your Regulation Crowdfunding offering.  We do this for free.
  • To get commitments from people you already know
    . If you are not sure that you are ready for a Regulation Crowdfunding offering, you may invite people that you already have a pre-existing relationship with to commit funds, under Regulation D, Rule 506(b).  No advertising is allowed.  Wefunder only supports this type of fundraise if you use our software to individually invite each investor one by one using their e-mail address.

Footnotes for your lawyer:

  1. It's legal to accept up to 35 unaccredited investors under Regulation D, Rule 506(b).  However, there are prohibitive and costly state laws that vary in all 50 states, which make it very rarely a good idea to do.  Wefunder Inc. will only close a Regulation D round with unaccredited investors if a letter is provided from a law firm that attests that state laws have been followed. Otherwise, the company must file for a Regulation Crowdfunding round to raise on Wefunder.

  2. In a Regulation D, Rule 506(c) round, Wefunder verifies that all investors are accredited.  We use this policy: http://wefunder.test/accredited/verification.

Regulation A+

A “mini-IPO” for late-stage companies

Regulation A+ is a new fundraising exemption that became active in late 2015, designed for later-stage companies who want to raise more funds publicly, but don’t want to do a full-blown IPO yet. It’s like a mini-IPO.



You can raise up to $50 million per year from anyone. 

Weakness: It’s Expensive

Before you can start fundraising and collect funds, you need to pre-file an offering placement memorandum (OPM) with the SEC. An OPM is like a business plan wrapped with a whole bunch of legal disclaimers, and can cost up to $50,000 in legal fees. For this reason, early stage or unproven companies should not use Regulation A+.

Even if you think you could raise over $5 million, it's often best to start off with Regulation Crowdfunding. We can get you started raising money months before your Reg A+ campaign will be ready.  Plus, if you first raise $1 million or more on Wefunder in a Regulation Crowdfunding campaign, we'll waive our fees if you later do a Regulation A+ offering.  

How Wefunder Makes it Easier

While drafting an OPM is a lot of work for your lawyer, once that’s done, we’ll handle everything else. We can work with nearly any type of security, and group all shareholders in one entity on the cap table using a custodian that will hold securities in street name.

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