WHAT DOES REGULATION CF PROVIDE FOR
Regulation CF provides limited relief to persons wishing to obtain funding from the public. The concept is that companies, after filing a brief notice with the Securities and Exchange Commission, can post their offering materials on a crowdfunding site which is available and accessible on the Internet. Investors with which they have absolutely no prior relationship can access offering materials, and decide to invest in the offering company if they so desire.
The offering materials are not reviewed by the SEC or any other regulatory agency, and must follow certain requirements. There are strict limitations on the amount of money that can be raised.
We can compare Regulation CF with the two alternatives. An IPO through a registration statement on Form S-1, or in offering via Regulation A, requires an issuer to prepare a comprehensive disclosure document and file it with the SEC for review. The process can take months and require hundreds of thousands of dollars – even before the issuer is able to raise one penny. Obviously, this is a process which represents a significant barrier to companies seeking to go public.
The alternative, prior to Regulation CF, was a private placement. A private placement doesn’t require as much preparation as a public offering, doesn’t need to be reviewed by the regulators. However, it can be only offered and sold in transactions that involve any kind of public solicitation or advertising. This, of course, significantly limits the pool of potential investors.