Did you know that you can execute a Regulation CF offering and not launch on one of the expensive and overcrowded “crowdfunding” platforms? The key to executing a “Direct” Regulation CF offering lies in having a FINRA Broker Dealer as your securities sales intermediary and using a custom Regulation CF investment portal website built to administer your raise with that broker dealer.
In a Regulation Crowdfunding (Reg CF) offering, an intermediary broker dealer plays a crucial role in facilitating the capital-raising process between issuers (companies) and investors. Their responsibilities include:
1. Hosting the Offering
- Reg CF requires that offerings be conducted through either a FINRA-registered funding portal or a broker-dealer. Red Rock Securities Law’s services for Regulation CF allow for executing “Direct” with your own custom Regulation CF raise portal and FINRA broker-dealer acting as intermediary.
- The intermediary administers the custom Regulation CF portal website (which Red Rock Group builds) where investors can review, analyze, and invest in your offering.
2. Compliance & Due Diligence
- Broker-dealers must conduct Know Your Customer (KYC) and Anti-Money Laundering (AML) checks to ensure compliance with securities laws.
- They perform background checks on the issuer’s executives and key stakeholders to reduce fraud risk.
3. Investor Qualification
- They ensure that investors adhere to investment limits under Reg CF, which are based on income/net worth.
- They provide educational materials to inform investors about the risks of crowdfunding investments.
4. Processing Transactions
- Broker-dealers facilitate the movement of funds between investors and issuers.
- They often work with third-party escrow agents to hold investor funds until the offering is successfully closed or has cleared a minimum offering amount.
5. Marketing & Investor Outreach
- Broker-dealers can actively market the offering and assist with development of marketing strategies.
- They may help issuers structure their campaigns and optimize their outreach strategies.
6. Regulatory Filings & Reporting
- They ensure that issuers comply with SEC and FINRA regulations, including Form C filings and ongoing disclosure requirements.
- They assist in coordinating amendments, progress updates, and post-offering reporting obligations.
Why Choose to Execute “Direct” with a Broker-Dealer Instead of a CrowdFunding Portal?
- More Flexibility: Broker-dealers can provide additional services, including solicitation, investor matching, and secondary trading.
- Higher Compliance Standards: Broker-dealers undergo stricter regulatory oversight than funding portals.
- Greater Investor Confidence: Having a licensed broker-dealer involved can enhance credibility with investors.
- Lower Cost: Executing through Red Rock’s affiliated Broker Dealers is typically a 3% commission and no equity requirement – much less expensive than the big crowdfunding platforms.
