
Crowdfunding exemption movements have gained significant traction in recent years, allowing small businesses and entrepreneurs to raise funds without the burden of regulatory compliance. This exemption is made possible through various operational platforms.
The key to navigating these platforms is understanding the compliance requirements. To operate effectively, crowdfunding exemption platforms must register with the Securities and Exchange Commission (SEC).
These platforms must also register their offerings with the SEC, which involves filing a Form C with the commission. This step is crucial for compliance.
By registering with the SEC and filing Form C, crowdfunding exemption platforms can ensure compliance and provide a safe and secure environment for investors.
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Advantages and Disadvantages
Intrastate crowdfunding exemptions offer several advantages over the federal crowdfunding exemption found in the JOBS Act, Title III. Companies can run securities-based crowdfunding campaigns today without waiting for the SEC's rule-making process.
The overall cost of capital associated with raising money under the JOBS Act crowdfunding exemption is estimated to be approximately $39,000 for a $100,000 crowdfunding campaign. Most of this cost is due to requirements such as certified or audited financial statements, a FINRA registered broker/dealer or funding portal, and expensive disclosure materials for investors.

A similar capital raise under an intrastate exemption is likely to be significantly cheaper, as many of these requirements are absent at the state level. This makes intrastate exemptions a more cost-effective option for companies looking to raise funds through crowdfunding.
However, companies must be domiciled in the state in which they wish to run the campaign, limiting their potential audience. This restriction can significantly curtail the reach of a crowdfunding campaign.
Compliance with the SEC Rule 147, the intrastate exemption, can be technically challenging and legally difficult, even with recent guidance from the SEC on protecting against 'accidental offers' to non-resident investors.
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Operational Platforms and Requirements
Operational platforms and requirements are key to making crowdfunding a success. Georgia was the first state to permit intrastate securities-based crowdfunding through portals, with the first successful transaction on SparkMarket in October 2013.
Certain states have established operational platforms, such as Georgia, Michigan, and New Jersey, which have successfully hosted crowdfunding campaigns. The Michigan Invests Locally Act (MILE Act) enabled the Tecumseh Brewing Co. to raise $175,000 in May 2014 on the Localstake platform.

To operate a crowdfunding platform, issuers must comply with state regulations, such as the Illinois Intrastate Offering Exemption, which approved VestLo as a registered crowdfunding portal in August 2016. However, the site appears to be inactive as of May 2019.
Here are some key requirements for crowdfunding platforms:
- Transactions must take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal.
- The amount raised cannot exceed $1.07M in a 12-month period.
- Individual investors are limited in how much they can invest across all crowdfunding offerings in a 12-month period.
Operational Platforms
Georgia was the first state to permit intrastate securities based crowdfunding through portals, and the first successful securities based crowdfunding transaction in the United States in over 80 years was posted on the Georgia intrastate only platform SparkMarket in October 2013.
The campaign, run by Georgia-based Bohemian Guitars, raised approximately $129,000. This shows that intrastate crowdfunding can be a viable option for businesses looking to raise funds.
SparkMarket is one of several operational general and market niche platforms in Georgia. This variety of platforms gives businesses a range of options to choose from.
In Michigan, the Tecumseh Brewing Co. successfully closed a crowdfunding campaign on the multi-state platform Localstake in May 2014, raising $175,000. This demonstrates that successful crowdfunding campaigns can be achieved through multiple platforms.
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New Jersey's first Crowdfunding Platform went live in April 2018 and had five issuers as of January 2020. This indicates that the platform is actively being used by businesses in the state.
VestLo, a registered crowdfunding portal under the Illinois Intrastate Offering Exemption, was approved by the Secretary of State in August 2016. However, the site appears to be inactive as of May 2019.
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Crowdfunding Requirements
To successfully navigate the world of crowdfunding, it's essential to understand the requirements that govern this space. The California crowdfunding exemption, for instance, requires issuers to file the California Crowdfunding Exemption Notice with the Department of Financial Protection and Innovation (DFPI) at least 15 days before the initial offer.
The notice must be completed and signed electronically, and no paper copies or manually printed and scanned copies will be accepted. You can find the notice on the DFPI's website and email it to [email protected].
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To comply with the JOBS Act, issuers must also consider the funding limits and investor protections. For example, all transactions must take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal.
Some key details to keep in mind include:
- The amount raised through equity crowdfunding cannot exceed $1.07M in a 12-month period.
- Individual investors are limited in how much they can invest across all crowdfunding offerings in a 12-month period (based on annual income or net worth).
These regulations are in place to ensure a fair and secure experience for both issuers and investors.
Geographic and Legal Considerations
The federal Jumpstart Our Business Startups Act (JOBS Act) created an exemption from federal registration requirements for interstate crowdfunding offerings conducted under section 4(a)(6) of the Securities Act of 1933.
In California, a new state crowdfunding exemption was added to the law in 2021, allowing issuers to sell securities to California residents without qualification. This exemption, section 25102(r) of the California Corporate Securities Law, went into effect on January 1, 2022.
Integration of offers and sales under 25102(r) is governed by the federal regulation 17 C.F.R. 230.152, similar to Regulation CF.
Take a look at this: Regulation a
Where Is?

Where Is Crowdfunding?
Over a year after the JOBS Act, we still await movement on the SEC's rulemaking under Title III, which provides the framework for exempt crowdfunding offerings to non-accredited investors.
The SEC Staff has indicated that crowdfunding rules can be expected sometime this fall, but these would be proposed rules, meaning final rules could not be expected until well into 2014 at the earliest.
The ability to do exempt crowdfunding offerings remains limited, except that many are anticipating the ability to do more accredited investor-only crowdfunding offerings once general solicitation is permitted under Rule 506 after the September 23, 2013 effective date.
Crowdfunding still goes on, either to accredited investors behind password walls or in transactions that don’t involve the offer and sale of a security.
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Geographic and Legal Considerations
In the United States, the federal Jumpstart Our Business Startups Act (JOBS Act) created an exemption from federal registration requirements for interstate crowdfunding offerings.
Additional reading: Jumpstart Our Business Startups Act

The JOBS Act is codified at 15 USC 77d of the United States Code, and its corresponding Regulation Crowdfunding (Regulation CF) comprises Rules 100, 201-206, 300-305, 400-404, and 501-504.
However, this federal exemption has been limited to larger later-stage companies, and it has remained difficult for smaller businesses to conduct crowdfunding activities.
On October 11, 2021, AB 511 was signed into law in California to create a new California state crowdfunding exemption, which went into effect on January 1, 2022.
This exemption, added as new section 25102(r) of the California Corporate Securities Law, created an exemption from qualification in California for crowdfunding offerings conducted under the federal intrastate offering exemption under section 3(a)(11) of the Securities Act of 1933 and its corresponding Rule 147 and Rule 147A.
The 25102(r) exemption deviates from Regulation CF in a few ways, although the integration of offers and sales under 25102(r) is still governed by the federal regulation 17 C.F.R. 230.152.
A unique perspective: Regulation CF
Changes of 2020

The long-awaited changes of 2020 brought significant updates to the exempt offering framework. On November 2, 2020, the SEC voted on amendments that aimed to harmonize, simplify, and improve the framework for investors, emerging companies, and more seasoned issuers.
The existing system was deemed complex and inefficient, which was a costly deterrent for small businesses looking for alternative funding mechanisms. The 2020 ruling sought to clarify standards and raise limits while retaining investor protections.
The Regulation Crowdfunding (Reg CF) changes that took effect on March 15, 2021, included an increase in the offering limit from $1.07 million to $5 million. This significant increase provides more opportunities for companies to raise funds.
Removal of investment limits for accredited investors was another key change. Accredited investors are now no longer subject to investment limits, making it easier for them to invest in crowdfunding campaigns. To qualify as an accredited investor, an individual must have an annual income exceeding $200,000 for the last two years, or $300,000 for joint income, or a net worth exceeding $1 million, either individually or jointly.
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For non-accredited investors, the investment limit changed to be the greater of existing limits based on an investor's annual income or net worth. This change provides more flexibility for non-accredited investors to participate in crowdfunding campaigns.
A new "test the waters" provision was also introduced, allowing Reg CF companies to build crowdfunding pages to share information with potential investors prior to issuing securities. This provision helps companies gauge investor interest and build a community around their campaign.
The time required between Reg CF fundraisers was also reduced from 180 days to 30 days. This change enables companies to lead several successive fundraising campaigns, providing more opportunities for growth and development.
Here are the key changes to Regulation Crowdfunding (Reg CF) that took effect on March 15, 2021:
- An increase in the offering limit from $1.07 million to $5 million
- Removal of investment limits for accredited investors
- A change in investment limits for non-accredited investors to be the greater of existing limits based on annual income or net worth
- A new "test the waters" provision
- A reduction in the time required between Reg CF fundraisers from 180 days to 30 days
Frequently Asked Questions
What is a crowdfunding exemption?
Crowdfunding exemption allows companies to raise up to $5 million without registering with the SEC. This exemption enables businesses to access funding without the usual regulatory hurdles.
What is the biggest drawback about crowdfunding?
The biggest drawback of crowdfunding is the risk of scammers and failed project execution, which can lead to a loss of trust between creators and backers. This can result in a disappointing experience for those who support a project that doesn't deliver as promised.
Sources
- https://en.wikipedia.org/wiki/Crowdfunding_exemption_movement
- https://www.thecorporatecounsel.net/blog/2013/08/where-is-crowdfunding.html
- https://dfpi.ca.gov/rules-enforcement/laws-and-regulations/law-and-regulations-corporate-securities-law/california-crowdfunding-exemption/
- https://www.law.cornell.edu/cfr/text/17/227.100
- https://www.johnstonclem.com/news-insights/new-sec-rules-on-equity-crowdfunding-make-raising-capital-easier/
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