Equity Crowdfunding and the March 2021 Reg CF Expansion

Equity Crowdfunding and the March 2021 Reg CF Expansion

What will result from the rollout of the Reg CF amendments made in March 2021?

For those of you that missed it, the Federal Register are now in receipt of the Reg CF file amendments. We have seen a few changes in our lifetime, with investors forced to take note each time.

Some Reg CF changes we have seen in the past cover a boosted cap up to $5million, the “test-the-waters” feature being added to the pre-launch, and improved limits on investments. All this following on from the ability to class Reg CF financiers as a single funding source in cap table notes.

The updating of the Reg CF investment rulings comes as a relief for many. Potentially, it could pave the way for better funding opportunities in unknown markets.

As experts in the equity crowdfunding sector, we are delighted to implement these changes. We have believed 1.07 million USD to be too small a number for investors. In a recent podcast, investment manager George Einstein has agreed with our belief, claiming that issuing a 1.07m dollar cap is akin to trying to buy a house on the coast in Miami… you just don’t have the funds.

George believes that this small cap for legal clientele doesn’t give them enough to be competitive in the current markets. When dealing with Reg CF projects, marketing practices cannot be factored in because of the concerns surrounding low return.

Both the pre-campaign testing coupled with this new boost to the usable amounts, will improve Reg CF projects at both ends.

How to Work with REG CF Moving Forward

Below are some of the campaign stratagems likely to become important in the coming months as a result.

1 – Drive for Accreditation

The amendments mean investors that have already been vetted will no longer face a limit on spends. In turn, this will let them aim marketing for their equity crowdfunding campaigns at a higher level of investor. These larger investments mean investors have a bigger stake in your campaign, particularly if you use that test the waters feature. Theoretically, those issuing campaigns can market to bigger cash investors before anyone has looked at the finances.

As a further bonus, campaign runners can list all the donors in their cap table as one investor. This makes the deal more lucrative and attractive to big money.

Top Tip: Aim your marketing at the accredited investors and promote yourself to them, online.

2 – Test the Waters

Make use of this test the waters feature. The pre-launch focuses on the first 24 hours of your campaign, thereby pushing your project when it is likely to attract the most money. Equity crowdfunding now aligns with the new regulatory framework, making everyone that little bit better off.

Before the amendments, campaign drivers would be breaching compliance guidelines if they talked about the Reg CF project they were running. This is no longer the case. New campaigners can get a good sense of how their campaign will be received before they even run it.

This move will let campaigners develop an email list, accumulate an audience, and take reservations for investment places. By clearing up trepidation, you can invest full force in that key initial period.

Top Tip: Heavily develop during pre-launch, so that you can immediately attract 200 reservations on day 1.

3 – Social Media Advertising Will Continue in Importance

Social media marketing will be around for a long time. Those clients we have worked with that start off in the $5-25 thousand region, will usually turn to Facebook to bring the budget up the rest of the way to the cap. Now the cap has been pushed further, we can expect to encounter budgets closer to a hundred thousand dollars per month.

Top Tip: Ensure your ads budget is scalable all the way up to that new cap.

4 – Networking will become Essential for Execs

CEOs are going to have to rise to meet demand created by accredited investors taking a more active role in the equity crowdfunding field. Turn to Signal, Clubhouse, or even the old LinkedIn networking platforms if you want to make the most of your digital ads.

Being the first on the board means being the first to draw all the awareness towards your campaign. Gary Vaynerchuk often tells his followers that the first to do anything in marketing, are those that get the most attention. That could be you.

Top Tip: Network until you can find someone that will invite you to the Clubhouse[iii]. That’s where the big investors are.

5 – Focus on Shares

Likes and shares are the new way to improve on an established brand reach. They will become vital to any equity crowdfunding campaign that wants to reach the cap.

Modern digital marketing strategies will be the key to lead generation and content creation. A greater number of campaigns will emerge with this as their focus. Of all of these, it will be the drive towards shares that will play the most prominent role.

Funnelling traffic towards your equity crowdfunding campaign can be done by either natural reach or PPC means. At the mouth of the funnel, clicks are fed into the model. At the base, engagement and conversion forms the reward.

If we go past conversion rates, however, we will see that advocacy is more important. If you can get the consumer talking about and sharing your campaign, you will have a greater reach – and a wider funnel – than even the paid clicks.

Top Tip: Devise a plan to retrieve feedback that you can use as testament to your campaign. As part of that plan, ask everyone to like and share as often as possible.

We Predict Massive Growth in a Slowing Industry

When we look back over how far the industry has come in the last half a decade, we can see major changes already. The boost in the average amount raised this way is massive – from $75-500 thousand. This is going to cause tremendous positive change throughout all areas of the equity crowdfunding sector.

Expect a boom in campaigners aiming for that new cap, resulting in a boost in portals. The more work there is, the more we need the lawyers, financial advisors, and auditors that will go with it. At the other end, this means more investors with bigger cash sums, better deals and an industry that’s becoming attainable to your average Joe.

We would love to see larger client numbers because of all this. We’re staying pleasantly optimistic about the financial future, and you should too. But don’t forget that you can get in touch if you need further help. We are only ever a phone call away.