Introduction to Reg CF
As a real estate sponsor or syndicator, you have several legal options for raising money directly from the public. Three of the most popular methods are 506c (general Solicitation), 506b (Private Placement), and Regulation Crowdfunding or Reg CF. Unlike 506b, where you can’t advertise your offering, and 506c, where you can advertise but need to verify that investors are accredited, Reg CF allows you to promote and accept investments from the general public, including non-accredited investors, but only through a registered Funding Portal.
The Role of the Funding Portal
I’m often asked what the process is for getting a Reg CF offering approved and listed on a funding portal. In this article, I’ll give a high-level overview of the process, but first, it’s crucial to understand the role of a Funding Portal in the context of the JOBS Act.
The JOBS (Jumpstart Our Business Startups) Act was proposed in 2011 and became law in 2012. This act aimed to make it easier for small businesses to raise capital. Reg CF is a part of this act that allows companies to raise funds from the general public, including non-accredited investors, by advertising on a registered funding portal.
The Funding Portal’s role is to protect the investing public by presenting all the relevant disclosures, including explaining the risks associated with private investments. The Funding Portal must also ensure that an escrow account is set up, perform a background check on the issuers, and analyze the company raising funds to check for any red flags that could indicate fraud. One might view the Funding Portal as the SEC’s outsourced partner in protecting investors.
The Process of Getting Listed on Invown
Getting your Reg CF offering approved and listed on a funding portal is a straightforward process that typically takes 30 days. After the initial intake interview, many portals, including Invown, require a non-refundable application fee that covers the cost of underwriting, background checks, escrow account setup, and review of deal documents. Invown can refer you to lawyers that we partner with if you need customized legal structures or documents.
Once the application is signed, Invown will start the underwriting process, reviewing all the deal documents, proforma, and project plans. We will help you form your entity and prepare the relevant legal documents. You’ll need to get an EIN, create an EDGAR account with the SEC, and set up your page on Invown. If necessary, you can engage an advertising agency to help attract investors.
In addition, Form C will need to be created and filled with the SEC. Form C is a regulatory filing that companies must submit as part of a Reg CF offering. Form C is a disclosure document that provides investors with information about the sponsor, their company, its business plan, financials, management team, and other important details relevant to the investment opportunity. As part of the From C filling, the sponsor must obtain certified financials from their CPA.
Once all the legal docs — LLC agreement, Investor Agreement, and Form C — are finalized and filled as needed and the escrow and page on Invown is set up the campaign can go live and start accepting investments from the investing public.
In conclusion, if you have an investment opportunity you’d like to offer the public, the Reg CF exemption may be the right fit for you. This article provided an overview of Reg CF and the process involved in setting up a Reg CF raise on Invown. If you want to list a deal on Invown please get in touch.