The introduction of Regulation Crowdfunding (Regulation A+) in 2015 opened up equity crowdfunding to all investors, although some limitations remain.

Limitations for investors. For investors with a net worth or annual income of less than $107,000, the SEC limits the maximum investment to $2,200 or 5% of the investor’s annual income or net worth (whichever is less) during a 12-month period. If your annual income and net worth exceed $107,000, you can invest up to 10% of annual income or net worth (whichever is less) during a 12-month period, but cannot exceed $107,000. 

Limitations for companies. Companies using crowdfunding are allowed to raise up to $1,070,000 during a 12-month period. The amount of money the company seeks to raise determines the level of financial information it is required to disclose:

• $107,000 or less – Companies must provide financial statements and specific line items from income tax returns, both certified by the principal executive officer.

• $107,000.01 to $535,000 – Company financial statements must be reviewed by an independent public accountant and the accountant’s review report must be available to investors.

• $535,000.01 to $1.07 million – If the company is crowdfunding for the first time, requirements are the same as the $107,000.01 to $535,000 crowdfunding amount. If the company has previously raised capital by crowdfunding and wants to crowdfund again, its financial statements must be audited by an independent public accountant.

Some of the portals also have limitations. Initial investment requirements may be as low as $20 to as high as $10,000, which disallows those who are restricted from investing that amount by Regulation Crowdfunding. Some allow only accredited investors to participate.

Reducing Your Risk

The attraction of crowdfunding, of course, is that an investor can share the wealth if a start-up succeeds. Contribute to a traditional crowdfunding campaign and you may get a free T-shirt or CD. Invest in an equity crowdfunding campaign and you may get rich.

That’s a long shot, of course, but your odds of earning a profit and maybe even getting rich will be improved if you proceed with caution. A few tips can help.