CrowdFunding is surprisingly simple. Once you understand the concept, you’ll understand that it’s very similar to the traditional mechanism of investing and in fact, it’s generally even easier.
First it’s important to understand that a CrowdFunding investment is no different fundamentally from any other kind of investment except that the capital probably comes from more people in potentially smaller increments – but not necessarily.
The sponsor who prepares a Private Placement for a CrowdFunding investment prepares it exactly the same as any other Private Placement except that new Private Placements are based on the CrowdFunding rules which were adopted by the US congress in April 2012 and under regulations promulgated by the Securities and Exchange Commission in September of 2013. These offerings are exempt from SEC registration under rules known as Regulation D, 506(c). A reader might not really notice any differences between 506(c) (i.e. CrowdFunding) and the old rules which are now known as 506(b) (i.e. before CrowdFunding). But what predominately is different is the ability to generally solicit investors. In other words, Promoters can now reach out to the Crowd. And members of the Crowd can invest – as long as they are accredited which mean having income in excess of $200,000 (single), or $300,000 (married), or a net worth in excess of $1 million exclusive of their primary residence. Historically, the investor would “self-certify” that he or she is accredited to invest, but it is a new requirement that that the status as an accredited investor be verified by a third party.
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