This document outlines key aspects of regulation crowdfunding, which allows startups and small businesses to sell securities to the general public through online platforms. It discusses eligibility, investment limits, disclosure requirements, and the operational frameworks necessary for conducting regulation crowdfunding offerings. The document also addresses the advantages and challenges associated with this fundraising method, particularly in relation to compliance costs and reporting obligations.

1. Nutter McClennen & Fish LLP
Attorneys at Law
Six Questions on Regulation Crowdfunding:
An Early-Stage Company Perspective

2.  WHY should I care about regulation crowdfunding?
 WHO can engage in regulation crowdfunding?
 WHAT is regulation crowdfunding?
 WHERE can regulation crowdfunding happen?
 How are companies conducting regulation crowdfunding offerings?
 IS regulation crowdfunding right for me?
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Six Questions on Regulation (i.e., JOBS Act) Crowdfunding

3. WHY should I care about regulation crowdfunding?
• To sell “securities” in the U.S. (equity, debt, hybrid), companies must:
1. Register those securities with the SEC (e.g., an IPO); or
2. Find a registration exemption.
• Problems:
1. Registration is expensive ($2.5M for IPO; $1.5M/annually for compliance).
2. Exemptions restrict who you can sell to (high net-worth individuals,
companies, etc.) and how (e.g., limits on use of social media).
• Regulation crowdfunding is a new exemption that permits the issuance of
securities to the general public (i.e., the crowd) via online crowdfunding platforms.
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4. WHO can engage in regulation crowdfunding?
• May 16, 2016: SEC rules permitting regulation crowdfunding became effective
• Target Issuer: Startups and small businesses
• Who cannot engage in regulation crowdfunding:
1. Non-U.S. companies;
2. Public companies;
3. Investment companies (e.g., mutual funds);
4. Issuers with no specific business plan;
5. Bad actors (e.g., past SEC sanctions); and
6. Past crowdfunding issuers that did not comply with reporting rules
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Securities Registration? Exemption?
Sales to the general
public
Kickstarter No1 N/A N/A Yes
Rule 506
Crowdfunding
Platforms
Yes No Rule 506 of
Regulation D
No (accredited
investors only)
Regulation
Crowdfunding
Platforms
Yes No
Section 4(a)(6) of the
Securities Act
Yes
1 Pledges receive no equity interests, only tangible “rewards” (e.g. t-shirt, album, credit in movie)
WHAT is regulation crowdfunding?
Examples of different “crowdfunding” models:

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WHAT is regulation crowdfunding?
Key Features of Regulation Crowdfunding:
• Issuers may sell securities to the general public: $1 million in a 12-month period.
• Investor Limits: Individuals’ crowdfunding investments capped in any 12-month period.
• Non-Exclusive/No Integration: Issuers may simultaneously conduct offerings under
different exemptions (e.g., Rule 506(b)) provided they comply with all applicable rules.
• Crowdfunding Platforms Only: Offerings must take place on internet-based
crowdfunding platforms run by SEC-registered intermediaries (see below).
• Securities: May sell any type of security (equity, debt, hybrid); voting or non-voting.
• Resale Restrictions: 1-year holding period requirement(limited exceptions).
• Advertising Restrictions: Tombstone ads and platform communication channels.
• Disclosure/Continuous Reporting Obligations: SEC, intermediaries and investors.

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WHAT is regulation crowdfunding?
Investor
Annual Income
Investor Net
Worth
Calculation Investment Limit
$30,000 $105,000 Greater of $2,000 or 5% of
30,000 ($1,500)
$2,000
$150,000 $80,000 Greater of $2,000 or 5% of
$80,000 ($4,000)
$4,000
$150,000 $100,000 10% of $100,000 ($10,000 $10,000
$200,000 $900,000 10% of $200,000 ($20,000) $20,000
$1,200,000 $2,000,000 10% of $1.2 million ($120,000)
subject to $100,000 cap
$100,000
Investor Limits in a 12-Month Period:
• If annual income or net worth is less than $100,000, the greater of
$2,000 or 5% of the lesser of annual income or net worth
• If annul income and net worth are greater than $100,000, 10% of the
lesser of annual income or net worth up to $100,000

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WHAT is regulation crowdfunding?
Disclosure Requirements (filed publicly on the SEC Edgar website):
• Form C: Offering Statement
• Form C-U: Progress Update
• Form C/A: Amendment to Offering Statement
• Form C-AR: Annual Report
• Form C-AR/A: Amendment to Annual Report
• Form C-TR: Termination of Reporting

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WHERE can regulation crowdfunding happen?
• Crowdfunding Platforms: Regulation crowdfunding may only take place on internet
platforms operated by an SEC-registered “broker” or “funding portal”
• Offerings may only occur on one internet platform at a time
• Key Feature of Crowdfunding Platforms:
 Investors must open accounts with platforms  Investors must consent to electronic delivery
 Intermediary has due diligence obligations as
to both issuers and investors
 Form C information must be published on
platform for at least 21 days before sale
 Communication channels (required)  Several compensation options (including
securities sold in offering)
 Funding portals may not solicit purchasers or
handle investor funds
 Must provide status updates: Progress,
completion, cancellation or reconfirmations
 Educational Materials must be provided to investors by intermediaries (e.g., platform mechanics,
investing process, risk factors, investment limits, cancellation rights, etc.)

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HOW are companies conducting regulation crowdfunding offerings?
Statistics: Regulation Crowdfunding Offerings
May 16, 2016 – December 31, 2016
Lowest Highest Average
Offering Duration 8 days 452 days (1.2 years) 140 days
Target Offering $10,000 $1,000,000 $105,383
Maximum Offering $25,000 $1,000,000 $642,030
Age of Issuer 6 days 15 years 863 days (2.4 years)
Minimum Investment $1 or no reported
minimum
$25,000 $444
• Types of Securities Offered:
• Common Stock: 29%
• Agreements for Future Equity (includes SAFEs and crowd SAFEs): 28%
• Debt: 20%
• Other (including Convertible Debt, LLC Units, Preferred Stock, and Class A
Shares): 23%

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IS regulation crowdfunding right for me?
The door is opened – but . . .
•Disclosure and reporting obligations
•Compliance costs
•Liability for “material” misstatements or omissions
•Size of investment pool (Exchange Act reporting)
•Non-price terms
•Effect on subsequent financings