Regulation CF is a Securities and Exchange Commission rule that permits private companies to raise up to $5 million in a 12-month period through equity crowdfunding from both accredited and non-accredited investors via SEC-registered intermediary platforms. Enacted in 2016 as part of the JOBS Act, Regulation CF democratized startup investing by allowing everyday investors to purchase equity in early-stage companies, a privilege previously reserved for wealthy individuals and institutions.
Why It Matters
Regulation CF fundamentally changed the landscape of early-stage investing by opening startup capital markets to the general public. For investors, this regulation provides legal access to high-risk, high-reward opportunities that were historically off-limits. Companies benefit from accessing a broader pool of potential investors while building community support and brand awareness, though they must accept increased regulatory compliance costs and public disclosure requirements that come with the exemption.
Example
A craft brewery in Portland decides to raise $1.2 million to expand its distribution network. Instead of pursuing traditional venture capital, the founders launch a Regulation CF campaign on a registered platform like Wefunder. They offer equity at a $6 million valuation, with a minimum investment of $100. Over 90 days, 847 investors participate, including 780 non-accredited investors who collectively contribute $680,000. The brewery must file Form C with the SEC, provide financial statements, and publish annual reports to all shareholders. An investor who purchases $500 in equity receives ownership proportional to their investment, typically around 0.0083% of the company, and gains the same rights as other common shareholders, though with significant liquidity constraints since these shares cannot be easily resold for at least one year.
Related Terms
Understanding Regulation CF requires familiarity with other securities exemptions and investor classifications. See Regulation D for the most common private placement exemption used by startups raising from accredited investors. Learn about Accredited Investor requirements and how Regulation CF differs by allowing participation from non-accredited individuals. Explore Regulation A+ for companies seeking to raise larger amounts up to $75 million annually with fewer restrictions.