Equity Crowdfunding

Also called: Crowdfunding (Equity), Reg CF, Reg A+

TL;DR

Raising capital from a large number of small investors via online platforms under regulations like Reg CF or Reg A+ in the US.

Equity crowdfunding lets companies raise from non-accredited investors through registered platforms (Republic, Wefunder, StartEngine in the US). Reg CF caps a company at $5M per 12 months; Reg A+ allows up to $75M with more disclosure. Investors receive equity, SAFEs, or convertible notes depending on the offering structure.

The model is community-driven, successful campaigns usually rely on the company's existing customer or fan base, not on platform discovery. Crowdfunding adds many small holders to the cap table, which can complicate later institutional rounds if not structured cleanly through an SPV.

Worked example

A consumer-hardware startup raises $1.07M from 1,400 backers on Republic at a $12M valuation cap (Reg CF rules cap at $5M/yr for unaccredited investors). Caveats: more than 800 cap-table line items if not pooled into a single special-purpose vehicle.

Common pitfalls

•Underestimating the marketing cost of a successful crowdfunding campaign.
•Adding hundreds of direct holders to the cap table instead of one SPV.
•Treating crowdfunding as 'free money' without budgeting for compliance.

When this shows up in a pitch deck

Crowdfunding plans are usually discussed with later institutional investors during diligence rather than in the public deck.

Related terms

SAFE

Y Combinator's Simple Agreement for Future Equity, a contract that gives an investor the right to equity in a future priced round, with no debt or interest.

Convertible Note

Short-term debt that converts into equity at a future priced round, typically with a discount, a valuation cap, and an interest rate.

Syndicate

The group of investors participating in a round, including the lead and any follow-on investors. Also refers to angel syndicates organized through SPVs.

Lead Investor

The investor who sets the terms of a round, takes the largest check, and typically takes a board seat or significant governance role.

Cap Table

A spreadsheet or system-of-record showing every shareholder, share class, option, warrant, and convertible instrument outstanding in a company.

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