Crowdfunding: A New Way to Invest in Startups

May 10, 2016 | Business

Starting May 16, 2016, companies can start raising money through crowdfunding. The rules governing crowdfunding were developed by the Securities and Exchange Commission (SEC). Here are some highlights on these new rules.


Limit on Amount Raised

A company can only raise $1 million through crowdfunding in a 12-month period.


Limit on Amount Invested

Limited amount an investor may invest depending on net worth and annual income.

    • If net worth or annual income less than $100,000, an investor can only invest the greater of $2,000 or 5% of the lesser of the net worth or annual income.
    • If net worth and annual income is greater than $100,000, an investor can invest up to 10% of the net worth or annual income, which ever is less.

No investor can invest more than $100,000 in a 12-month period.



A company raising money through crowdfunding must provide certain information to the SEC, investors and crowdfunding intermediaries. The information that must be provided include:

    • General information about the company.
    • The price of a share or interest in the company.
    • The target offering amount (i.e., amount to be raised).
    • The time to reach the target offering.
    • Whether investments in excess of the target offering will be accepted.
    • A discussion of the company’s financial condition.
    • Financial statements of the company. If more than $1 million will be raised, then the financial statements must be audited.
    • A description of the business and how the money raised will be used.
    • Information about officers, directors and owners with more than a 20% ownership interest.
    • Certain “related-party” transactions.
    • Annual report filed with the SEC.

These disclosures are made on SEC “Form C: Offering Statement.” If you want to see a Form C, check out Page 603 of this PDF. To see a detailed analysis of the final SEC rules governing crowdfunding, click here.

Crowdfunding Intermediaries

Money can only be raised through a broker or a funding portal (crowdfunding intermediary). Currently, only a Financial Industry Regulatory Authority (FINRA) member can be a crowdfunding intermediary.


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