Regulation Crowdfunding for ICO’s

Originally published on May 18, 2018

(This is for informational purposes only and does not constitute legal advice)

Another fundraising alternative for the ICO issuer is Regulation Crowdfunding. It permits equity crowdfunding under Section 4(a)(6) of the Securities Act of 1933 (as amended, the Securities Act), which was added by Title III of the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). The rules actually came into effect on January 26, 2016.

The short version — You can raise up to $1.070 Million USD from non-accredited investors. You can do so via FINRA registered Crowdfunding portals. There are a several options a company could use: See I have personally worked with two of them: Start Engine and Venture Capital 500. Full disclosure: I was a founding partner of Venture Capital 500; I no longer have any equity in it, but I can personally vouch for their team.


Up to $1,070,000 in any 12-month period. There’s no limitation on the type of securities that can be offered — hence Cryptographic Tokens can be sold.


Yes! There is the ability to do a Regulation D 506(c) offering concurrently with a Regulation Crowdfunding offering, meaning you can raise more than $1 Million, but the rest has to come from Accredited Investors. There are a lot of complications to this method because of the SEC’s advertising restrictions. The 506(c) offering can be advertised through “general solicitation” because it is limited to the Accredited Investors, but the Regulation Crowdfunding requires much stricter advertising rules — referred to as Tombstone Advertising. The issuer using these two fundraising methods concurrently has to be able to prove to the SEC that the people investing through Regulation Crowdfunding (the non-accredited mom & pop investors) did not invest because of a general solicitation ad they saw in connection with the issuer’s 506(c) offering. Basically, by doing Regulation Crowdfunding, you are limiting all your advertising to Tombstone ads because there’s no other practical way to get around this (kind of silly) limitation.

Companies Excluded from Regulation Crowdfunding:

  • Companies not formed in America
  • Companies already subject to the Securities & Exchange Act of 1934
  • Certain investment companies
  • Companies lacking a specific business plan (TAKE NOTE, ICO PEOPLE!)
  • Companies formed solely to engage in a merger or acquisition with an unidentified company

Issuers need to file Form C with the SEC, and usually the Crowdfunding Portal can handle this for you. Form C Disclosures include:

  • Information about officers and directors and < 20% owners;
  • A description of the issuer’s business and how they plan to use the money raised;
  • The token price at the time of the public issuance, and how the price was determined;
  • The target offering amount, the deadline to reach it, and whether the issuer will accept investments in excess of the target offering amount; (note can’t go above $1 M)
  • Certain related party transactions that, in the aggregate, exceed five percent of the aggregate amount of capital raised by the issuer in reliance on Rule 4(a)(6) during the preceding 12-month period;
  • A disclosure of the issuer’s financial condition and financial statements;
  • A description of any material terms of any indebtedness of the issuer
  • Any material terms of any indebtedness of the issuer.
  • Any other material information that is not misleading
  • Compensation paid to the intermediary (ex: the crowdfunding portal)
  • The issuer’s name, SEC file number, and CRD number of the intermediary

Issuers can use a Q&A format to provide certain disclosures and must keep them up to date on the website. The issuer also needs to disclose their website address and the link to where investors can find the issuer’s annual report, and the date the report will be available.


  • Financial statements have to be prepared according to GAAP, but if the financial statements were audited, the audited statements are the ones that need to be disclosed.
  • If the issuer has not yet filed a tax return, and is not required to file a tax return before the end of the offering, then the tax return info doesn’t need to be provided.
  • If raising less than 100K, you only need to disclose the amount of your total income; taxable income and total tax as reflected on the federal tax return and signed by a principal exec officer.
  • If raising between $100K and $500K, or it’s your first time crowdfunding, you are required to provide financial statements that are reviewed by any independent public accounting firm (unless audited financials are available in which case they must be provided.)
  • All other issuers are required to provide financial statements audited by a public accountant that is independent of the issuer.
  • All issuers will be required to provide a complete set of their financial statements, described as balance sheets, income statements, statements of cash flows and statements of changes in owners’ equity as well as notes to the financial statements.


An issuer must file an annual report with the SEC no later than 120 days after the end of the fiscal year covered by the report. This report needs to be posted on the issuer’s website as well.


Rule 204 of Regulation Crowdfunding limits the advertising similarly to the Securities Act Rule 134. The Ad can only include the following:

· A statement that the issuer is conducting an offering;

· The name of the intermediary (crowdfunding portal);

· A link directing investors to the intermediary’s platform;

· The terms of the offering; and

· Limited factual information about the issuer including the name, address, phone number, website, email address of a representative, and a brief description of the business of the issuer.

However, you can shill your tombstone ad anywhere you like, and it can direct them to your website. It can go out on twitter. While the ad can’t have more than the permitted information, it does not have to include each item. The issuer can communicate directly with investors about the terms of the offering and the way that they can buy it as well, as long as they identify themselves as the issuer in all communications.



The final rules allow “mom and pop” investors, and not just accredited investors to part-take in this method of fundraising. There are caps though, and they are reviewed on an aggregate across all issuers in a 12-month period. For example, you can only invest in one ICO per twelve months if you go to the max of your limit. Spouses may calculate their net worth jointly, but then the investor limits are applied jointly as well.

Annual income or net worth of less than $100,000 — Limited to the greater of:(1) $2,000 or (2) 5 percent of the lesser of (emphasis added) the investor’s annual income or net worth.

  • Ex: You earn $80,000 and have net worth of $20,000, you can invest $4,000
  • Ex: You earn $20,000 and have net worth of $80,000, you can invest $2,000

An investor with annual income and net worth equal to or in excess of $100,000 is limited to 10 percent of the lesser of (emphasis added) the investor’s annual income or net worth, not to exceed an investment amount of $100,000.

  • Ex: You earn $120,000 and have net worth of $120,000, you can invest $12,000.
  • Ex: You earn $150,000 and have net worth of $100,000, you can invest $10,000.
  • Ex: You earn 170,000 and have net worth of $500,000, you can invest $17,000.


The Securities (Tokens) are restricted for a year. However, there are a few exceptions where Investors can transfer them.

  • Under Rule 501, an investor can transfer them back to the issuer before the year is up;
  • To any Accredited Investor;
  • As part of an offering registered with the SEC;
  • To a family member of the purchaser;
  • To certain trusts; and
  • In connection with death or divorce or other similar circumstances.


This form of fundraising can only be conducted through an SEC registered intermediary. This includes:

  • Registered broker-dealer; or
  • A registered funding portal (Ex: Start Engine or VC500)
  • And you have to pick one or the other; you can’t use both at the same time.


This is a pretty straightforward way to bring in a million dollars, and can be done in tandem with Regulation D, 506(c). I don’t know why more people aren’t doing it in the crypto world.

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