Raising capital is a necessity for companies across all industries, but there is always a cost associated with the fundraising process. There are multiple fundraising options available, but Regulation Crowdfunding, usually shortened to Reg CF, has become more popular during the past few years. What is Reg CF, and what are the costs associated with a Reg CF issuance?
Take a look at some of the factors involved in the price of Reg CF issuances, and be sure to work with the professional who can help you put your fundraising efforts in the best position possible to be successful.
A Quick Overview of Reg CF
Reg CF is a specific type of offering that gives private companies the ability to raise up to $5 million from the public. In the past, private companies were only able to raise capital from accredited investors, which limited their options. In 2012, the Jumpstart Our Business Startups Act, or JOBS Act, was passed. This gave entrepreneurs and new business owners the opportunity to advertise their fundraising efforts to the public.
Then, in 2016, Title III of the JOBS Act was passed, giving private, early-stage companies a chance to raise money from the public. This limit was initially capped at $1 million dollars, but in 2021, the limit was increased to $5 million, which benefited both investors and business owners alike. It gives the public an opportunity to invest in businesses that were previously only available to the wealthiest individuals, and it made it easier for new businesses to raise capital.
Reg CF Fees
5-10% of the offering
$1,000 – $10,000
Auditors – CPA Review
$1,000 – $7,000
$500 – $5,000
Often included in Funding Portal Fees
Stock Transfer Agent
$50 – $1,000/mo
Required for safe harbor protections or if company has more than 500 shareholders
$500 – $20,000/mo
Optional – recommended to gain additional traffic
Live Offering Expenses
$300 – $5,000+
Often included in Funding Portal Fees
Potential Expenses Associated With Reg CF Issuance
Of course, the exact expense of raising money under Reg CF can vary significantly from company to company; however, there are several common examples of expenses that businesses may incur.
Here is a list of Regulation CF campaign expenses:
Funding Portal: Regulation Crowdfunding offerings can only take place on a FINRA-approved funding portal. A portal like this can help you centralize all of your information, allowing you to keep track of the fundraising process as it moves forward. We can help you find the right platform. This typically costs anywhere from 5-10% of the offering and this is typically the largest cost.
Attorney: Most funding portals prepare the Form C filing to the SEC for issuers. A securities attorney may be needed for drafting contracts and subscription documents and providing securities legal advice (recommended). Some funding portals include templates and other items to help lower attorney costs. These fees typically range from $1,000 – $10,000, depending on your needs.
Auditors: You will also need to hire a CPA to review your financials before you file SEC Form C, so this is going to be one of the first steps involved in the process as well. This can typically cost anywhere from $1,000 to $7,000, depending on how complex and clean the financials are.
Escrow Provider: The SEC requires that all funds involved need to be held in escrow when you are raising capital through Reg CF. You must have an escrow provider when you file Form C. Most funding portals include this in their fees. If the funding portal you use doesn’t, it could be a one-time fee of $500-$5,000. We can help introduce you to providers for this if needed.
SEC-registered Stock Transfer Agent: You may need an SEC transfer agent to help manage the shareholder list and capitalization reports, assist with stock transfers, and provide shareholder support that is in compliance with SEC rules. The costs are generally minimal if you use Colonial Stock Transfer. Learn more about the transfer agent services and requirements and request a proposal.
Crowdfunding Marketing Services: Depending on the Funding Portal that you use, you may want to hire a third-party marketing firm. You will want to have a strong website and social media marketing campaign among other things which can be accomplished through a marketing firm that specializes in crowdfunding offerings. Many companies spend several thousand dollars per month trying to attract as many investors as possible.
Live Offering Expenses: Once the offering process actually begins, you may need to pay for all of your Know Your Customer (KYC and AML) search fees. You may also have to pay for your payment processors, such as credit card, ACH, and WireTransfer partners. These costs are included by some of the Funding Portals, but many others do not. This could be a few hundred to a couple of thousand dollars.
This is just a brief overview of the expenses that you might incur as you go through the Reg CF fundraising process. The exact cost of these expenses will depend on the size of your company, the number of investors involved, and the resources you have internally. To streamline the process, you need to partner with an experienced transfer agent.
Start Your Reg CF Offering Today
If you need help with the Reg CF fundraising process, we can help you. We are Colonial Stock Transfer, and we can assist you with all aspects of the Reg CF fundraising process, helping you save time and money. Contact us today to speak to a member of our team.