Equity crowdfunding (Reg CF).

In plain English

Regulation Crowdfunding allows a company to raise money from the general public through a registered funding portal or broker-dealer, without a full public offering. The company must file disclosures with the SEC, including financial statements whose level of review scales with how much is being raised, and it must post updates afterward. Individual investors face limits on how much they can put in across all such offerings in a year, tied to income and net worth, and the current figures come from the SEC. Shares generally cannot be resold for a set period. Because these are early-stage businesses, total loss is a normal outcome rather than an unusual one.

01Why it matters

This is the one route by which someone who is not wealthy can legally buy into a startup, and the disclosure they receive is far thinner than a public company provides.

02The math, step by step

Say a company raises $400,000 by selling 8 percent of itself, implying a $5,000,000 value for the whole business. An investor putting in $1,000 owns 1,000 divided by 5,000,000, which is 0.02 percent. Later funding rounds issuing new shares would shrink that percentage further.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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