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Title III / Reg CF Crowd-Sourced Funding for Start-Ups

At Epic we have the privilege of working with primarily two types of clients:  The first type is the established, well-funded company, where we help them design and build enterprise software – primarily apps and websites – to power their existing business needs.  The second type of client is the bootstrapping entrepreneur that needs a killer app and/or website to further their ‘aha’ moment.

With the bootstrapping entrepreneur, we have yet to see one who is not energized by an unlimited amount of drive and ideation. But sadly, what’s usually not in abundance are the cash funds to seed their brilliant ideas!

So where can an early stage, cash-strapped company turn to find grassroots funding?  Maybe a place that connects everyday people who could really use or engage with what the entrepreneur’s app or website provides…

Let’s talk crowdfunding!

On traditional crowdsourced funding sites like Kickstarter.com, ordinary folks (not accredited investors) can pledge small amounts of money to a startup that usually has a product or service in development.  If the company meets their funding goal, they can later return the favor to the backers in the form of a finished product or service equal in value to the small amount which was pledged by each backer.

This type of crowdfunding can work miracles for the right type of company who has tangible goods, services or some form of art which has a relatively definable value that can be given to backers at a later date if they get funded.  However, if a startup is either in need of a larger amount of cash, say up to a million dollars, and/or has a concept that’s more centered around an intangible app or website platform, they traditionally have to rely on a very lengthy process of building their own syndicate of angel investors to back a large initial seed round of investment.

However, on May 16th, 2016, a brand new funding option became available for that type of startup!  In 2017 we have been seeing some amazing mobile/web startups tap this new funding route, referred to as Title III of the JOBS Act and also known as Regulation Crowdfunding, or Reg CF.

Without getting into a long discussion about securities laws and federal statutes, suffice it to say that since 1933 it was illegal to invest in a private startup offering unless you were an accredited investor, as defined by the SEC (must have a net worth of at least $1 million dollars or an annual income of over $200K for the past two years).

Title III / Reg CF funding became law last year, and is part of the federally approved JOBS (Jumpstart Our Business Startups) Act that was originally signed into law in April of 2012.  Title III essentially allows, for the first time in 83 years, ordinary people – not just the super rich – to invest in the next Facebook or Uber.

It’s important to note the basic requirements for an issuer (i.e., the company raising funds) about Title III, such as; you can only raise up to $1M during a rolling 12-month period, you must be a U.S. entity, and you may raise funds from both accredited and non-accredited investors.   But what’s historic about Title III is that it specifically recognizes a new type of intermediary for CF transactions, called a Funding Portal.  Funding Portals are essentially websites connecting issuing companies with investors, all of which are regulated by the SEC and FINRA.  These sites act not only as connectors, but they are set up in a way that makes it much easier for entrepreneurs to raise their capital without the worry of violating any of the host of regulations that govern Title III.

To get started in this fast growing method of obtaining crowdsourced equity funding, there are over 30 CF portals that qualify under Title III which your startup can access.  However, if you are brand new to raising money this way, we recommend you stick with one of the more established CF portals, which we’ve listed below.

Keep in mind, there are myriad ways to fund your startup.  However, which method you choose completely depends on the type of company you have, the network you have (or do not have) available already, the time you have to raise capital, and the amount of equity you are willing to give up.   For upstart mobile app and website-based concepts who can demonstrate strong early engagement with their platform, Title III / Reg CF has created one of the most powerful sources of capital raising that we’ve seen in a long time!

Recommended Title III / Reg CF funding portals:

  1. MicroVentures
  2. Wefunder
  3. SeedInvest
  4. StartEngine
  5. Republic

By Scott Curtis, Co-Founder of Epic Apps

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