Companies have a variety of options for raising capital online. Generally, the two most common options are private and public. Each option is structured in various ways such as the regulation types permitted, ways of attracting investors, and how your investors interact with your platform.
As an issuer, you may be wondering which type of raise is the best option for you. In this article, we will go over the differences between private and public fundraising to help you understand what that means for you and your investors.
Regulation Types
Private Fundraising
Companies will use the Reg D 506(b) exemption for private capital raises. Reg D 506(b) allows you to raise an unlimited amount of money to an unlimited number of high net-worth investors and up to thirty-five unaccredited investors (as long as they fulfill certain sophistication requirements).
Public Fundraising (Investment Crowdfunding)
General public equity crowdfunding can be split into 2 categories. Companies can choose between high net-worth crowdfunding or general public crowdfunding.
High Net-Worth Crowdfunding
Companies will use the Reg D 506(c) & Reg S exemptions for high net-worth crowdfunding.
General Public Crowdfunding
Companies will use the Reg A+ & Reg CF exemptions for general public crowdfunding which allows non-accredited investors to participate.
Advertising
Private Fundraising
Companies may not advertise their security offering. Generally, companies may approach potential investors if there is a substantive, pre-existing relationship.
Public Fundraising
General advertising is permitted. Companies may advertise via social media, email, or offline. No substantive, pre-existing relationship with potential investors is required.
Platform Interaction
Private Fundraising
If you plan on raising capital online through private fundraising, it is important to remember that these deals are only accessible to your private network of investors. The public is not able to see the deal(s) on your platform. Potential investors from your private network of investors will have to create an account first before gaining visibility and access to the deal(s) on your platform.
Public Fundraising
If you plan on raising capital online through public fundraising, potential investors and the general public can view and access the deal(s) on your platform first without the need to create an account to gain visibility and access to the deal(s) on your platform.
In the examples below, you will notice the differences in how your platform will interact with your potential investors depending on the type of raise you choose to conduct.
Private
Vs
Public
