Reg CF vs Reg D: What’s the Difference?
In May 2016, Title III of the JOBS Act was enacted and allowed, for the first time, both accredited and unaccredited investors to finance companies through regulated crowdfunding portals. Most of the campaigns you see on the Honeycomb portal fall under these regulations.
Regulation Crowdfunding features:
No accreditation needed for investors. Anyone can invest up to $2,200 per year.
Investors with higher incomes and net worth can invest more
A business can raise up to $1.07 million through a funding portal
Businesses must be primarily doing business within the US and be incorporated in the US
Investments can be made via a convertible note, SAFE note, debt or revenue share notes, or common stock
Because of the broad appeal of Reg CF, main street businesses that typically would not be good candidates for equity fundraising can find success using debt crowd financing via Reg CF. For restaurants, breweries, distilleries, and other brick and mortar businesses, it also provides an option for financing when banks or other traditional funding sources are unavailable.
Regulation D is a set of exemptions for businesses looking to raise larger sums of money without some of the restrictive requirements of an IPO. These types of offerings are only available to accredited investors. Regulation D campaigns can be in the form of equity or debt notes (both traditional amortizing or a revenue share model).
Businesses can raise up to $5,000,000 through a funding portal or outside of one
Open to accredited investors only
The business takes steps to verify that all of the investors meet the definition of “accredited”
Business must be incorporated in the US
What is an accredited investor?
According to the SEC’s regulations, to invest in a Regulation D campaign, an accredited investor must:
Have an income over $200,000 annually ($300,000 if filing jointly)
Have a Net Worth over $1,000,000 (excluding primary residence)
Be a company with assets exceeding $5 million
Be a company where all equity owners are accredited investors