How to Raise Your $1 Million

How to Raise Your $1 Million: Learning from the First Company to Complete Max Reg CF Campaign

A "fan-funded" Hollywood studio, Legion M, made financial history as the first start-up company to successfully raise the maximum $1 million allowable through Reg CF, the brand new crowdfunding process. They didn't do it alone, of course. They hired KCSA, a marketing and public relations firm, to guide them through the process of creating their message to investors, reaching the public with it through both traditional and social media, and remaining within the regulatory guidelines the Securities and Exchange Commission enforces on what those small Reg CF companies can say.

In a recent interview, Lewis Goldberg, Managing Partner of KCSA, discussed what they did to put Legion M over the top so quickly. While there isn’t only one way to sell out a Reg CF crowdfunding capital raise, it’s useful to learn from what Legion M and KCSA did to achieve success.

Legion M

Let’s learn a little bit about Legion M first.  Legion M plans to create content for film distribution and television, and disrupt the entertainment industry. Legion M obtained its campaign money through Wefunder from over 3,000 individuals. According to their filings with the SEC, Legion M plans to use the capital to finance a Title IV, Regulation A+offer afterward.

What is Reg CF?

Reg CF, or Title III of the JOBS Act, just went into effect on May 16, 2016. It allows companies to ask for the $1 million USD within the span of a year, but it does come with a whole suite of obligations and restrictions.  For most companies, Reg CF won’t be practical unless changes to the law improve Reg CF.  However, for some companies, like Legion M, Reg CF might just be that perfect way to raise much-needed capital.  Particularly enticing is that Reg CF allows companies to raise money from all types of investors, including non-accredited investors.

By contrast, Title II of the JOBS Act, which was adopted as Rule 506(c) of Regulation D, allows companies to raise capital, but only from accredited investors. Title IV of the JOBS Act, or Regulation A+ as it’s commonly referred to, allows companies to raise up to $50 million, but they must undergo a rigorous qualification process with the Securities and Exchange Commission. It sets a bar that is much harder for small companies to reach than does Reg CF.

Social Media and Influencing Influencers

A large part of the plan included leveraging Twitter, Facebook, and the blogosphere. Key influencers were identified in these areas. They launched campaigns to make these influencers, especially thought leaders in the comic book and entertainment industries. Legion M was kept visible in many different kinds of media.  Legion M’s business appeals not only to customers from the comic book and entertainment industry, but also to the business and finance types. It was different and interesting enough to appeal to many people.

Goldberg's Advice to Crowdfunding Companies

1. Know your target investors.

This is elementary from a marketing point of view. Crowdfunding investors are passionate and committed. Understand what they want from you and your company. It's not just about the money.

2. Know the rules about what you can say and what you can't.

The SEC will stop the crowdfunding campaigns of companies that violate the regulations. Legion M worked with Sara Hanks of CrowdCheck, who is one of the top legal experts on Reg CF. Come up with a message that speaks to your potential investors without, of course, violating the SEC regulations.

3. Prepare to spend money to raise money.

Approach investment crowdfunding much like a marketing campaign. Calculate how many investors you need to raise your goal. You'll need them to see your message multiple times before they invest the funds. Look at all channels, including social media, and prepare a budget.

While many companies will find that Reg CF is impractical, it is a viable way for some small companies to raise $1 million.  The best thing a company seeking to conduct a Reg CF capital raise can do is to surround itself with crowdfunding experts and learn from the experiences of those who have been successful before.

 Updated 2/1/2023

To expand on Goldberg’s advice:

1. If you are unable to determine a target audience, a wider net may be necessary. Using demo days such as Rule 148 or relying on Rule 506(c) for general solicitation can both help find interested investors.

2. The VerifyInvestor.com blog is a valuable resource in keeping up with changing compliance laws. We keep our finger on the financial industry pulse to provide the most up-to-date news on SEC law, and general private equity and finance.

3. Onboarding investors can be costly, so outsourcing compliance such as Rule 506(c) and Rule 506(b) verifications can help reduce those costs and the headaches these processes can create.