Regulation CF (Crowdfunding) lets startups and small businesses sell securities to anyone, including non-accredited investors, through regulated online platforms. It opened early-stage investing to retail investors while capping how much each can put in and requiring standardized disclosure on Form C.
What Is Regulation CF?
Regulation CF is a set of SEC rules that allows eligible companies to raise up to $5 million in a 12-month period from the general public, including non-accredited investors, through registered crowdfunding platforms. Created under Title III of the JOBS Act and effective in 2016, it was the first exemption to let a private company make an online offering to the general public without registration or state-by-state review (see blue sky laws). Browse companies raising under Reg CF to see live offerings.
Key Features
- Broad Investor Access: Open to both accredited and non-accredited investors
- Online Platform Requirement: Must be conducted through registered intermediaries
- Investment Limits: Individual investment limits based on income and net worth
- Disclosure Requirements: Standardized disclosure through Form C filings
- Investor Protections: Built-in safeguards and education requirements
Historical Context
Prior to Regulation CF, private company investing was largely restricted to accredited investors. The JOBS Act of 2012 mandated the creation of this framework to:
- Democratize access to startup investments
- Provide new funding sources for small businesses
- Enable broader economic participation
- Foster innovation and entrepreneurship
Offering Limits and Requirements
Company Eligibility
To conduct a Regulation CF offering, companies must:
- Be US Companies: Organized under the laws of a US state or territory
- Not Be Investment Companies: Cannot be an investment company, or a fund excluded from that definition under section 3(b) or 3(c) of the Investment Company Act
- Not Be Public Companies: Cannot be reporting companies under the Exchange Act
- Not Be Disqualified: Cannot be subject to the bad-actor disqualification
- Use a Registered Intermediary: Must sell through a single SEC-registered broker-dealer or funding portal
There is no revenue or company-size test; the limits fall on the amount raised and on what each investor may put in.
Offering Amount Limits
Maximum Offering Amounts
- Up to $5 million in any 12-month period
- Includes all securities sold under Regulation CF in that period
Financial Disclosure Requirements
Companies must provide different levels of financial disclosure based on offering size:
- Up to $124,000: Financial statements certified by principal executive officer
- $124,000 to $618,000: Financial statements reviewed by independent CPA
- Over $618,000: Audited financial statements, except that first-time Reg CF issuers raising up to $1,235,000 may use reviewed statements
Individual Investment Limits
Non-Accredited Investor Limits
Non-accredited investors face annual investment limits across all Regulation CF offerings:
| Income/Net Worth | Annual Investment Limit |
|---|
| Annual income or net worth below $124,000 | Greater of $2,500 or 5% of the greater of annual income or net worth |
| Annual income and net worth both $124,000 or more | 10% of the greater of annual income or net worth, capped at $124,000 |
Accredited Investor Limits
- No Limit: Since the 2021 amendments, accredited investors have no Regulation CF investment limit
- Self-Certification: Must self-certify accredited status to platform
- Platform Verification: Platforms may require additional verification
Investment Calculation Examples
Sample Calculations
- $40,000 income, $30,000 net worth: Can invest up to $2,500 a year (5% of $40,000 is $2,000, so the $2,500 floor applies)
- $80,000 income, $50,000 net worth: Can invest up to $4,000 a year (5% of $80,000)
- $150,000 income, $200,000 net worth: Can invest up to $20,000 a year (10% of $200,000)
- Accredited investor: No limit
Crowdfunding Platforms
Platform Requirements
All Regulation CF offerings must be conducted through SEC-registered intermediaries that serve as either:
- Funding Portals: Registered with SEC and FINRA, limited activities
- Broker-Dealers: Full broker-dealer registration with broader permitted activities
embarc lists the registered Reg CF funding portals, such as Wefunder and StartEngine, with the offerings each has hosted. See investment portals explained for how they compare with Reg A and accredited-only platforms.
Platform Responsibilities
- Investor Education: Provide educational materials about crowdfunding risks
- Due Diligence: Conduct background checks on issuers and key personnel
- Transaction Facilitation: Facilitate the offer and sale of securities
- Disclosure Hosting: Make offering documents available to potential investors
- Communication Management: Provide communication channels between issuers and investors
Popular Crowdfunding Platforms
Types of Platforms
- General platforms (broad range of companies)
- Sector-specific platforms (tech, real estate, etc.)
- Geographic focus platforms (local businesses)
- Impact investing platforms (social/environmental focus)
The Investment Process
For Companies Raising Capital
- Select and work with registered crowdfunding platform
- Prepare and file Form C with the SEC
- Create compelling offering page and materials
- Launch offering and engage with potential investors
- Respond to investor questions and provide updates
- Close offering and issue securities to investors
- Provide ongoing annual reports
For Investors
- Create account on registered crowdfunding platform
- Complete investor education requirements
- Review offering materials and Form C
- Assess investment within annual limits
- Make investment commitment
- Observe 48-hour cancellation period
- Receive securities upon successful closing
Cancellation Rights
Investors have important cancellation rights:
- 48-Hour Window: Can cancel investment up to 48 hours before offering deadline
- Material Changes: Can cancel if company makes material changes to offering terms
- 5-Day Window: Additional 5 days to cancel after material changes
Form C: The Disclosure Document
Required Information
Form C must include comprehensive information about:
- Company Information: Name, address, website, form of organization, number of employees
- Business Description: Business plan, products/services, competition
- Use of Proceeds: How the company will use investor funds
- Target Offering Amount: Target and maximum amounts, the deadline, and whether oversubscriptions are accepted
- Intermediary: The portal or broker-dealer used, its compensation, and any interest it takes in the issuer
- Securities and Price: The type of security (common, preferred, debt, or a SAFE), its terms, and how the price was set
- Ownership Structure: Current ownership and voting arrangements
- Financial Information: Financial statements and key metrics
- Risk Factors: Material risks facing the business
Ongoing Reporting Requirements
- Annual Reports: Form C-AR, due 120 days after fiscal year-end, with financial statements
- Updates: Form C/A for material changes during the offering and Form C-U for progress updates
- Termination of Reporting: Allowed, for example, after one annual report with fewer than 300 holders of record, or three annual reports with total assets of $10 million or less
- Public Availability: All filings are publicly available on SEC website
Risks and Investor Protections
Investment Risks
- High Failure Rate: Startups have high failure rates; total loss is possible
- Illiquidity: Securities cannot be resold for one year (with limited exceptions)
- Dilution Risk: Future financing rounds may reduce ownership percentages
- Limited Information: Less disclosure than public company investments
- Minority Position: Little to no control over company decisions
Built-in Protections
Investor Safeguards
- Investment limits based on financial capacity
- Mandatory investor education requirements
- Standardized disclosure through Form C
- Cancellation rights until 48 hours before the deadline
- Platform due diligence and oversight
- Anti-fraud provisions apply
Due Diligence Considerations
- Business Model Viability: Assess the company's path to profitability
- Management Team: Evaluate experience and track record
- Market Opportunity: Understand target market size and competition
- Financial Health: Review financial statements and burn rate
- Use of Funds: Ensure funds will be used productively
Rule Changes and Market Development
2021 Amendments
Significant improvements to Regulation CF included:
- Increased Limits: Offering limit raised from $1.07 million to $5 million
- Investor Limits: Removed for accredited investors; for everyone else, measured against the greater of annual income or net worth rather than the lesser
- Special Purpose Vehicles: Allowed for pooled investment structures
- Demo Day Communications: Permitted certain pre-offering communications
- Testing the Waters: Issuers may gauge interest before filing Form C
Market Development
- Offering volume and investor participation grew sharply after the 2021 limit increase
- Platforms have specialized by sector, geography, and security type
- Companies often combine Reg CF with Reg D or Reg A rounds (see Reg A vs. Reg D vs. Reg CF)
- Secondary trading remains limited, so most investments are held until an exit
Best Practices for Investors
Portfolio Approach
- Diversification: Spread investments across multiple companies and sectors
- Risk Management: Only invest what you can afford to lose
- Education: Continuously learn about startup investing and evaluation
- Professional Guidance: Consider consulting with financial advisors
Evaluation Framework
Investment Evaluation Checklist
- Understand the business model and value proposition
- Assess the size and growth potential of the target market
- Evaluate the competitive landscape and differentiation
- Review the management team's experience and qualifications
- Analyze the financial projections and assumptions
- Consider the valuation and terms offered to investors
- Understand the use of proceeds and funding requirements
Platform Selection
- Reputation and Track Record: Research platform history and success rates
- Due Diligence Process: Understand how platforms vet companies
- Fee Structure: Compare fees and costs across platforms
- Post-Investment Services: Consider ongoing support and communication
Conclusion
Regulation CF opened early-stage investment opportunities to retail investors. While the regulation includes important investor protections, success requires careful evaluation, diversification, and understanding of the inherent risks in startup investing.
Every offering leaves a public record: the Form C, any amendments and progress updates, and annual reports afterward. Reading those filings, including the intermediary's fee and the company's financial statements, is the starting point for any crowdfunding investment.
For investors considering crowdfunding investments, education and due diligence remain paramount. While the potential for significant returns exists, investors must be prepared for illiquidity, high failure rates, and the possibility of total loss. A disciplined, diversified approach with proper risk management is essential for success.