Under Regulation Crowdfunding, the Securities and Exchange Commission (SEC) has established specific criteria that a self-regulatory organization (SRO) must meet to oversee funding portals. These criteria ensure that the SRO can effectively regulate the activities of funding portals to protect investors and maintain market integrity. The key criteria include:

1. Registration with the SEC: An SRO must be registered with the SEC. This ensures that the SRO is recognized by the SEC and subject to its oversight.

2. Rulemaking Authority: The SRO must have the authority to create and enforce rules governing the conduct of funding portals. These rules should be designed to:
   - Prevent fraudulent and manipulative acts and practices.
   - Promote just and equitable principles of trade.
   - Protect investors and the public interest.
   - Facilitate capital formation.

3. Compliance and Enforcement: The SRO must have the capacity to enforce compliance with its rules. This includes having procedures for monitoring the activities of funding portals, conducting investigations, and taking disciplinary actions when necessary.

4. Governance and Independence: The SRO must have a governance structure that ensures its independence from the funding portals it regulates. This includes having a board of directors or a similar governing body with a significant representation of non-industry members.

5. Transparency: The SRO must operate in a transparent manner. This includes making its rules, disciplinary actions, and other regulatory information publicly available.

6. Resources: The SRO must have adequate resources, including financial, technological, and human resources, to carry out its regulatory responsibilities effectively.

7. Conflict of Interest Policies: The SRO must have policies and procedures in place to manage conflicts of interest. This includes ensuring that the regulatory activities are not influenced by the business interests of the funding portals.

8. Record-Keeping: The SRO must maintain comprehensive records of its regulatory activities, including rulemaking, enforcement actions, and communications with funding portals and the SEC.

These criteria are designed to ensure that the SRO can provide effective oversight and maintain the integrity of the crowdfunding market, thereby protecting investors and facilitating capital formation through crowdfunding platforms.

You bring up an important point about terminology in the crowdfunding industry. The term "equity crowdfunding" can indeed be misleading if it implies that all offerings provide equity stakes, when in fact, many do not. The Crowdfunding Professional Association's recommendation to use "regulated investment crowdfunding" is a more accurate and inclusive term.

Here’s an expanded discussion on this topic:

Equity Crowdfunding vs. Regulated Investment Crowdfunding

Equity Crowdfunding
- Traditional Definition: In its original sense, equity crowdfunding refers to a method of raising capital where investors receive shares or equity in the company in exchange for their investment.
- Misleading Aspects: The term can be misleading because not all investment crowdfunding campaigns offer equity. Some might offer other types of securities, such as debt instruments, revenue shares, or convertible notes.

Regulated Investment Crowdfunding
- Broader Definition: This term encompasses all types of crowdfunding that involve regulated securities offerings, not just equity.
- Types of Securities: This can include equity, debt, revenue shares, and other forms of investment contracts.
- Regulatory Frameworks: These offerings are typically conducted under specific regulatory frameworks, such as Regulation Crowdfunding (Reg CF), Regulation A+, and Regulation D in the United States, which provide different levels of oversight and investor protection.

Benefits of Using "Regulated Investment Crowdfunding"

1. Clarity and Accuracy:
   - The term "regulated investment crowdfunding" accurately reflects the range of financial instruments available and the regulatory environment governing these offerings.
   - It helps avoid confusion for investors who might otherwise expect equity stakes in all crowdfunding opportunities.

2. Investor Education and Protection:
   - Using precise terminology is crucial for investor education. It ensures that potential investors understand the nature of the securities being offered and the associated risks and returns.
   - It underscores the fact that these offerings are subject to regulatory scrutiny.

3. Inclusiveness:
   - The broader term encompasses a wider array of investment opportunities, making it more inclusive of different types of fundraising campaigns.
   - It reflects the diversity in the crowdfunding space, acknowledging that companies might choose different financial instruments based on their specific needs and strategies.

Examples of Regulated Investment Crowdfunding

1. Regulation Crowdfunding (Reg CF):
   - Purpose: Allows smaller companies to raise up to $5 million per year from a large number of investors through an online platform.
   - Securities Offered: Can include equity, debt, and other types of securities.

2. Regulation A+:
   - Purpose: Enables companies to raise up to $75 million per year from the public with fewer disclosure requirements than a full public offering.
   - Securities Offered: Primarily equity, but can also include debt and other securities.

3. Regulation D (Rule 506(c)):
   - Purpose: Allows companies to raise an unlimited amount of money from accredited investors with general solicitation and advertising.
   - Securities Offered: Can include equity, debt, and other types of investment contracts.

Conclusion

The shift from using "equity crowdfunding" to "regulated investment crowdfunding" is a positive development that enhances clarity, accuracy, and inclusiveness in the crowdfunding industry. This terminology better reflects the variety of financial instruments available to investors and underscores the regulatory framework that governs these offerings. By adopting this term, industry stakeholders can help ensure that investors have a clear understanding of what they are investing in, ultimately fostering a more transparent and trustworthy investment environment.

There is a federal exemption for Demo Days but it is useless because it doesn't preempt state law. To legally do a demo day where the public is invited, even if the event fits under the Demo Day exemption, it will still be illegal to do public solicitation under state law (unless the offering is being done under Reg CF or Rule 506(c) in which case there is federal preemption).

It means that the instrument/contract that is being assessed will be considered a "security" under applicable laws.  This means you will need to either register the offering of that security (with the SEC and applicable state regulators) or find an exemption for those registration requirements.  

Sometimes but it really depends on your particular circumstances.

Investment crowdfunding can potentially limit future financing options due to the large number of shareholders on the cap table. When a company has numerous individual investors from a crowdfunding campaign, it can complicate future fundraising efforts as new investors may be wary of coming into a situation with such a dispersed ownership structure. Additionally, managing communication and decision-making with a large number of shareholders can be challenging and time-consuming for the company's management team.

There are ways to limit the effects of both of these concerns with planning.  For instance, a company may be suited to issued non-equity securities, like revenue share notes, or might utilize transfer agents that consolidate ownership into one record holder.  You could also limit voting rights on regulated investment crowdfunding issued securities. 

Institutional and angel investors have varying views on crowdfunding.  There has been a significant shift in "acceptance" of the use of regulated investment crowdfunding by many more (but not all) institutional and angel investors.  It may also depend on the region of the country where those investors are located. 

I'd be happy to chat more about the realities as they would apply to your circumstances if you want to chat directly. 

Yes, both the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) play roles in regulating investment crowdfunding. 

The SEC oversees securities markets in the United States, ensuring that investors are protected, markets are fair, orderly, and efficient, and capital formation is facilitated. The SEC has established regulations for crowdfunding, which are designed to help smaller companies raise money while still providing protections for investors. These rules are part of Regulation Crowdfunding (Reg CF), which allows companies to offer and sell securities through crowdfunding.

FINRA, on the other hand, is a non-governmental organization that acts as a self-regulatory organization (SRO) for brokerage firms and exchange markets. FINRA is authorized by Congress to protect America’s investors by making sure the securities industry operates fairly and honestly. Within the context of crowdfunding, FINRA is responsible for regulating crowdfunding portals, which are online platforms that facilitate the offering and selling of securities through crowdfunding. Crowdfunding portals must register with the SEC and become a member of FINRA to operate legally.

Both organizations ensure that platforms adhere to the regulations set forth to protect investors and maintain the integrity of the securities market. This includes rules about who can invest, how much they can invest, and how companies can raise funds through crowdfunding.