Crowdfunding has long been pitched as a game-changer for raising private capital—opening the door for everyday investors to participate in opportunities once reserved for institutions. But how much of that promise has actually held up?
In a recent episode, crowdfunding attorney Mark Roderick cuts through the noise to explain how the JOBS Act has really reshaped the landscape—and what real estate sponsors need to know before choosing a path.
The Three Paths to Crowdfunding
Not all crowdfunding is created equal. Mark breaks down the three primary frameworks:
Regulation Crowdfunding (Reg CF) – Designed to allow non-accredited (“mom and pop”) investors to participate in deals.
Rule 506(c) – Allows sponsors to publicly market offerings, but limits investors to accredited individuals.
Regulation A (Reg A) – A more complex, mini-public offering that can reach a broader audience but comes with heavier compliance requirements.
While each option has its place, their real-world performance has been far from equal.
Accredited vs. Non-Accredited Investors: Why It Matters
One of the biggest distinctions in crowdfunding comes down to who you’re raising money from.
Suppose you raise money using Rule 506(c) offering. In your next offering you want to include a handful of non-accredited investors. Your AI assistant tells you to use Rule 506(b) for the new offering and that you must have a “romantic relationship” with every investor. Do you have “romantic relationships” with the investors from your Rule 506(c) offering?
Whoops! That’s what you get from using ChatGPT. It’s a “pre-existing relationship,” not a “romantic relationship.”
Can you claim to have “pre-existing relationships” with investors you found online?
A Quick Refresher
Rule 506(b) and Rule 506(c) are both exemptions under SEC Regulation D, but they’re very different. Rule 506(c) lets you advertise — websites, social media, email blasts, whatever you want — but every investor must be accredited, and you have to verify that, most of the time. Rule 506(b) is the old-fashioned version: you can take up to 35 non-accredited investors and you don’t have to verify that anyone’s accredited, apart from asking them. And most important, you can’t advertise. You can include only investors with whom you have a pre-existing substantive relationship.
The question is whether you can use a 506(c) offering to find investors, then include them in a subsequent offering under Rule 506(b), sort of a two-step.
SEC Guidance
The SEC has answered this question in a Compliance and Disclosure Interpretation, sort of. In C&DI 148.01, the SEC confirms that it’s possible to convert Rule 506(c) investors into Rule 506(b) investors, which is good. It just doesn’t tell you how to convert them.
For a blueprint how to convert them, we turn to a no-action letter the SEC issued to an online venture capital platform called Citizen VC. For reasons that aren’t clear, Citizen VC wanted to conduct offerings under Rule 506(b), not Rule 506(c), but they wanted to do it by soliciting prospective investors online. As a first step, they had investors complete an online questionnaire. After the questionnaire, they went through a “relationship establishment period” that involved several steps. Among the most important, they spoke with the investor personally. They also accumulated information from the investors and third-party sources regarding the investor’s sophistication, financial circumstances, and ability to understand the nature and risks related to an investment. When they were able to reach a reasonable conclusion that the investment and the investor were suitable for one another, poof!, the preexisting relationship came into being.
If only romantic relationships were so easy!
Caveats
One, the Citizen VC investor was shown investments only after the process was completed. That’s very different than the typical Rule 506(c) kind of solicitation.
Two, C&DI 148.01 and Citizen VC do not mean that soliciting investors for Rule 506(c) offerings has anything to do with creating a pre-existing relationship. It doesn’t. If you have a pool of Rule 506(c) investors, you are starting from scratch.
Are self-hosted Reg CF Offerings legal? I think so, but FINRA might differ.
NOTE: Self-hosted offerings are not legal for funding portals. If they are legal, it’s only for broker-dealers.
What Is A Self-Hosted Offering?
We call a Reg CF offering “self-hosted” if it appears on the website of the issuer rather than the website of a funding portal or broker-dealer.
We are accustomed to seeing multiple offerings listed side-by-side on sites like WeFunder. You click one and see the details. A self-hosted offering, accessible only on the issuer’s website, has one obvious benefit for the issuer: the offering isn’t competing for attention with all the other offerings. Most investments in Reg CF come through the marketing efforts of the issuer, not the marketing efforts of the portal. Why spend money bringing investors to WeFunder’s site when some of them might invest in something else?
The flip side, of course, is that when an issuer self-hosts, its offering isn’t seen by anyone browsing the other offerings. Statistics show that very few of those browsers end up investing, but still.
The Law
Rule 100(a)(3) provides that a Reg CF offering must be “conducted exclusively through the intermediary’s platform.”
Rule 300(c)(4) defines “platform” as “a program or application accessible via the Internet or other similar electronic communication medium through which a registered broker or a registered funding portal acts as an intermediary.”
Applying the Law to Self-Hosted Offerings
When you read Rule 100(a)(3), you might say “Ah-ha! The issuer’s website isn’t the intermediary’s platform! Therefore, the self-hosted offering is illegal.”
But then read Rule 300(c)(4) carefully. It doesn’t define “platform” as a website, as you might expect. Instead, it defines “platform” as a “program or application accessible via the Internet.”
When an issuer self-hosts a Reg CF offering, it uses software provided by the broker-dealer. The software handles the investment process from beginning to end. I believe this software – a “program” – is the broker-dealer’s “platform” for purposes of these rules. Hence, I think the offering satisfies Rule 100(a)(3) and is legal.
The history of the regulations is also on our side. Originally, the regulations (in Rule 100(d)) defined “platform” as “an Internet website or other similar electronic medium.” That language might have inhibited self-hosted offerings. But the rule was changed to read as it does today in Rule 300(c)(4), talking about “programs or applications.”
The Policy Also Lines Up
Why aren’t funding portals allowed to provide self-hosting? The answer is in Rule 402, which prohibits funding portals from “highlighting” any individual issuer, except by using criteria “reasonably designed to highlight a broad selection of issuers.” By definition, a self-hosted offering highlights only one issuer.
Rule 402 doesn’t apply to broker-dealers. Even if it listed three dozen Reg CF offerings on its own website, a broker-dealer could highlight as many or as few as it liked. If it may highlight a single issuer on its own website, there’s no reason why it shouldn’t be allowed to allow self-hosting by issuers.
FINRA Begs to Disagree
FINRA issued the following FAQ:
Q3. Is it permissible for an issuer to conduct a Regulation Crowdfunding offering on its own website? What if the issuer’s website says that my firm is the intermediary for the offering?
A3. No. An issuer may not conduct a Regulation Crowdfunding offering on its own website. As discussed above, a transaction involving the offer or sale of securities under Regulation Crowdfunding must be conducted exclusively through the platform of a single intermediary. The platform must display in such manner that it is clear to viewers and users that the platform is that of the intermediary. Posting a statement on the issuer’s website that your firm is the intermediary for the offering would not suffice to make this activity consistent with Regulation Crowdfunding.
In my opinion, FINRA is ignoring the definition of “platform” in Rule 300(c)(4). FINRA says, “[A] transaction involving the offer or sale of securities under Regulation Crowdfunding must be conducted exclusively through the platform of a single intermediary,” as if that statement answered the question. But if “platform” just means software, there should be no problem.
FINRA also says, “The platform must display in such manner that it is clear to viewers and users that the platform is that of the intermediary.” The regulations say no such thing. But if the software is branded with the broker-dealer’s name and logo, that might be good enough anyway.
Does it Matter?
I would like to see statistics demonstrating whether self-hosted offerings are more or less successful. To be meaningful, these statistics would have to account for differences in the marketing spend. My sense is that we wouldn’t see much difference, but that’s just a guess.
Soon after ChatGPT was released, I predicted with customary confidence that existing legal publishers like Thompson Reuters would dominate the AI-for-lawyers marketplace because of the content they’ve accumulated over a zillion years.
As if to spite me, the legal publishers sat on their hands and watched brute-strength tools like ChatGPT and Claude pass them by.
They aren’t sitting on their hands any longer. Yesterday I watched a demonstration of the latest version of Westlaw’s AI tool, called Co-Counsel. It’s far better than it was the last time I looked, more features, more polished, more useful. Thompson Reuters isn’t a weather man but knows which way the wind is blowing.
And yet. . . .
During the demonstration, I asked Co-Counsel this question:
My client will form a fund (a limited liability company) and raise $3M of capital from accredited investors to trade in the prediction markets. Which laws apply? What registrations are required, if any?
The answers aren’t terrible, but they aren’t great. The point of the question is about regulation of the futures markets under the Commodity Exchange Act. Both answers mention the Commodity Exchange Act but focus mostly on securities laws.
They also say the fund will be subject to the Investment Company Act. Because trades in the predictions markets are “futures” rather than “securities,” the Investment Company Act doesn’t apply.
Still, the answers at least pointed me in the right direction. That’s a big improvement over previous versions.
When the demonstration ended, I asked Claude the same question. Here’s the answer.
You’ll see that Claude’s answer is much better. More on point, more detailed, better organized. Claude’s answer isn’t perfect. Among other things, Claude makes the same mistake about the Investment Company Act that Co-Counsel makes. Still, if you’re a partner in a law firm and ask two associates for a memo, you will like the memo from the Claude associate a lot more.
I don’t pretend to understand how AI tools do what they do. I don’t understand why Thompson Reuters and others legal publishers haven’t been able to leverage their content more effectively. I do know that LLMs hallucinate and will always hallucinate, meaning that a lawyer will always have to check their answers. Maybe this built-in flaw will eventually work in favor of the legal publishers. As of now, they’re still far behind.
In February, the SEC published five new Compliance and Disclosure Interpretations — C&DIs — about Reg CF. The SEC issues C&DIs to tell the public its views without issuing formal regulations. Unlike what you might be told in a telephone conversation with the SEC staff, you can rely on a C&D.
Moving Your Offering to a Different Platform
A Reg CF offering may be conducted on only one platform. If you start on one platform, can you switch to another?
Yes, according to the new guidance, but only if you haven’t made any sales. You must cancel the offering on the original platform, have the offering materials removed from that platform, and file a new Form C to start fresh on the new platform.
Former Exchange Act Reporting Companies
Public companies – companies required to file reports under Section 13 or 15(d) of the Exchange Act — may not use Reg CF. But the new guidance clarifies that the disqualification ends for a company whose reporting obligations are terminated.
The Rolling 12-Month Cap
Rule 100(a)(1) limits how much an issuer can raise through Reg CF to $5 million in any 12-month period. The question is: when does the 12-month period start?
The new guidance says the cap uses a rolling 12-month calculation measured from the date of each closing. If you closed your first tranche on June 15, 2025, the one-year anniversary of that closing is June 15, 2026. On that date, the amount raised in that closing – but just that closing – drops out of the calculation.
“Annual Income” for Investor Limits
Rule 100(a)(2) limits how much a non-accredited investor can invest in Reg CF offerings over a 12-month period, based on the investor’s “annual” income and net worth. The new guidance clarifies that “annual” means the calendar year.
Stale Financial Statements in Ongoing Offerings
Suppose you start a Reg CF Offering on March 3, 2026 using financial statements from 12/31/2024 and 12/31/2023. If the offering is still open on 04/30/2026, then you must file your financial statements for 12/31/2025 before proceeding. In other words, you can’t keep an old set of financials in your Form C indefinitely just because the offering is still technically open.
There is no compelling reason to use a custodian in Reg CF and a very good reason not to. But some funding portals, like StartEngine, keep doing it. Why?
On its website, StartEngine explains that custodians are used for:
Safekeeping of Assets: Custodians are responsible for holding and protecting securities and other assets.
Settlement of Transactions: Custodians facilitate the settlement of securities transactions, ensuring that trades are executed correctly and that the ownership of securities is accurately transferred.
Income Collection: Custodians collect income generated by the securities, such as interest and dividends, and ensure that these funds are credited to the correct accounts.
Corporate Actions: Custodians manage corporate actions, ensuring that all changes are accurately recorded and reflected in the investor’s accounts.
Reporting and Compliance: Custodians provide detailed reports on the assets they hold and manage, ensuring transparency and compliance with regulatory requirements. They play a vital role in providing accurate and timely information to both issuers and investors.
For a publicly traded company, those things are true. But for a Reg CF offering, none of them matters very much.
In any case, they can all be handled more effectively by using a crowdfunding vehicle. NewCo, Inc. is raising money using Reg CF. NewCo forms and serves as the manager of NewCo CF LLC. NewCo CF LLC is one entry on the cap table of NewCo, Inc. Investors buy stock in NewCo CF LLC rather than in NewCo, Inc.
Everything – distributions, reporting, etc. – works the same as if investors owned stock in NewCo, Inc. directly, with no custodian needed.
The crowdfunding vehicle is also a more effective solution for the thing that really does matter, protecting the issuer from section 12(g) of the Exchange Act.
As discussed here, section 12(g) provides that if a company has more than $10 million of assets and at least 500 non-accredited shareholders (or 2,000 total), it must file all the reports required of a public company. When a crowdfunding vehicle is used – NewCo CF LLC in the example above – only entity investors, not individuals, are counted toward those limits. Hence, a crowdfunding vehicle all but eliminates the risk of section 12(g).
A custodian might avoid section 12(g) as well, but not necessarily. On one hand, SEC Rule 12g5-1(a)(3) (17 CFR §240.12g5-1(a)(3)) provides that, in general, where stock owned by many investors is held by a custodian, only the custodian will be treated as a shareholder for purposes of the 500 and 2,000 shareholder limits.
On the other hand, Rule 12g5-1(b)(3) provides that where the issuer knows or has reason to know that the custodian was used “primarily” to avoid section 12(g), then the custodian is ignored.
In the world of public companies, nobody thinks custodians are used primarily to avoid section 12(g), inasmuch as public companies are already filing like public companies. But in the world of Reg CF, section 12(g) was a central challenge from the beginning. In fact, the SEC created crowdfunding vehicles to help the Reg CF industry avoid section 12(g). Given that background, there is no chance, in my opinion, that StartEngine chose to use custodians without thinking about section 12(g). That they listed the benefits of custodians without mentioning section 12(g) suggests they were also thinking about Rule 12g5-1(b)(3).
Without seeing the internal discussions and emails, nobody can know whether StartEngine is using custodians primarily to avoid section 12(g). At some point, however, a successful issuer that raised capital using Reg CF and a custodian is going to ask its lawyer, “Do we have to start reporting publicly?” And after listening to the lawyer hesitate and talk about Rule 12g5-1(b)(3), “Why didn’t we use a crowdfunding vehicle instead?”
That’s the question. Why use a custodian in Reg CF?
Why “standard” SAFE terms can produce unintended – and unfair- results.
Simple Agreements for Future Equity are used widely in the startup world, including the Crowdfunding world. My impression, however, is that almost nobody reads them, not companies, investors, or funding portals. That’s too bad, because while SAFEs are simple in theory, they can be extremely complicated and lead to unintended results. Today, I’ll describe what can happen with one variation still being used by some funding portals.
Background
We use SAFEs in the earliest stages of a company’s life, when it’s impossible to know what the company is worth. A founder creates what he believes is an incredible app and goes to the market to raise $700,000 in development costs. Looking into a rosy-colored future, he thinks his company is worth about $50 million already. His investors, aided by their snarky lawyers, think it might be worth $5 million, if everything goes right.
To bridge the unbridgeable gap, we don’t agree on a value. Instead, we issue a SAFE. The SAFE says, essentially, “We’ll wait until later to put a value on the company, when it’s farther along.” Everyone agrees that when the company raises more money in the future, in a round where the parties can agree on a price, then the early investors will get what same price as the new investors get.
Well, not exactly the same price. Because they took more risk by coming in sooner, the early investors get a better price, typically in one of two ways:
A Discount: The earlier investors get a discount vis-à-vis the priced round. If the new investors buy shares for $10.00 each, maybe the earlier investors convert at $8.50 per share, a 15% discount.
A Valuation Cap: No matter how much the new investors think the company is worth, the earlier investors convert at a price that assumes the value of the company is no higher than a “valuation cap” established in the beginning. Here, the early investors might have insisted on a $5 million valuation cap. If the new investors value the company at $10 million, the early investors pay half the price as the new investors. But if the new investors value the company at only $4 million, the earlier investors get that price instead.
I said that early investors typically get either a discount or a valuation cap. But sometimes they get both. In that case, when the new money comes in the SAFE holders get the lower of the price they would get from the discount or the price they would get from the valuation cap.
That’s the best kind of SAFE for investors. Unfortunately, the standard SAFE with both a discount and valuation cap can reach the wrong result.
The Standard SAFE Form Doesn’t Work as it Should
Suppose NewCo, Inc. issued a SAFE with both a discount (15%) and a valuation cap ($5 million), for $500,000. Other than the SAFE, NewCo has 1,000,000 shares outstanding. Now the company is preparing for a priced round of Series A Preferred, in which NewCo will raise $1 million. That triggers a conversion of the SAFE.
NewCo and the new investors agree that NewCo is worth $4 million immediately before the investment. That means that immediately following the investment, the new investors should own 20% of the stock ($1 million investment divided by $5 million post-money valuation). All that’s left is some simple arithmetic to decide how many shares they should receive for their 20% interest.
They should get that number of shares such that, if NewCo were sold for $5 million the next day, they would get exactly their $1 million back.
To calculate that number, we need to calculate how much all the other shareholders would get, including the SAFE holders.
Given the structure of the SAFE, where the holders get the better of X or Y, you might think the standard SAFE would say that upon a sale of NewCo, the SAFE holders receive the higher of the amount they would receive from the discount and the amount they would receive from the valuation cap. But it doesn’t. Instead, it says they will receive the higher of the amount they paid for the SAFE or the amount they would receive from the valuation cap. The discount is nowhere to be found.
In this case, because the valuation cap is higher than the new valuation, the SAFE holders would receive their $500,000 back, nothing more. The other stockholders, who own 1,000,000 shares, will get $3.5 million, or $3.50 per share. And the new investors, to get their $1 million back, should get 285,714 shares of the new preferred for $3.50 each.
Upon a conversion, the SAFE holders receive the better of the number of shares they would receive under the valuation cap and the number of shares they would receive under the discount. Because the $5 million valuation cap is higher than the new valuation, the SAFE holders will get the number of shares under the discount. The share price for the new investors is $3.50, so the conversion price for the SAFE holders, with a 15% discount, is $2.98. Having invested $500,000, they receive 168,067 shares.
The fully diluted cap table now shows:
Owner
Shares
Percentage
Original Stockholders
1,000,000
69%
New Investors
285,714
20%
SAFE Holders
168,067
12%
TOTAL
1,453,781
100%
Here’s how a $5 million selling price would be divided based on those percentages:
Owner
Percentage
Consideration
Original Stockholders
69%
3,439,308
New Investors
20%
982,658
SAFE Holders
12%
578,034
TOTAL
100%
$5,000,000
As you see, the new investors get less than they’re supposed to, the original stockholders get less than they’re supposed to, and the SAFE holders get the difference. And that’s not because the SAFE is ambiguous. It’s because that’s how the SAFE was written.
Although Y Combinator no longer uses that SAFE, many still do, including funding portals like WeFunder.
What Do We Do Now?
If you’re the new investors, you don’t do the deal unless someone makes you whole.
If you’re the SAFE holder, you hold your ground or, if you really want the investment, you negotiate with the existing stockholders.
If you’re the existing stockholders, you try to talk reason to the SAFE holders. That’s not how it’s supposed to work!
If you’re the unlucky founder and own only a chunk of the 1,000,000 shares already outstanding, you’re squeezed. To make the new investors whole on your own, you’ll have to give up 5,042 more shares to the new investors, on top of the shares you’ve already transferred to the SAFE holders because of the structural flaw in the SAFE.
What Do We Do in the Future?
If you’re the company or funding portal, you correct the standard SAFE.
If you’re the new investor and see such a SAFE, you don’t spend a lot of time until the existing stockholders and the SAFE holders figure something out.
If you’re investing in a startup and are offered such a SAFE, you say, Sure!
Does either of my readers remember Hall & Oates? They were among the most successful pop acts of all time, with hits like ‘She’s Gone,’ ‘Sara Smile,’ ‘Turnaround,’ and ‘Back Together Again.’
But they’re not together anymore. In fact, they recentlyemerged from painful and expensive litigation. Their saga is one more example of what happens for lack of a good Operating Agreement.
They signed a partnership agreement when they were young, successful, and close friends. As they drifted apart musically their interests were no longer as completely aligned. Disagreements crept into their friendship, disagreements that their partnership agreement hadn’t anticipated. John Oates tried to sell his stake in their business; Daryl Hall sued to stop him. The words they used were typical of this situation, words like “betrayal” and “outlandish.”
The litigation was settled but the friendship is finished and the wounds won’t heal. Both declare they will never work together again.
Their partnership agreement failed to address the most important question that any Operating Agreement should address: how we get away from another if things don’t work out, treating one another fairly and inflicting as little emotional and economic damage as possible?
I’ve seen this play many times, just with different actors. One client didn’t want to spend a few thousand dollars on an Operating Agreement because his partners were close friends. By the time the litigation was finished, he had paid me in the seven figures and both the business and the friendship were destroyed.
A good Operating Agreement should address, among other things:
Who puts up how much money, when, and what happens if they don’t.
Who makes decisions.
How the partners can get away from one another.
Ownership percentage.
Compensation.
How the partners share profits.
Time commitment.
Whether partners can compete.
What happens on death, disability, retirement, etc.
You’ll notice that none of those things is industry specific. Operating Agreements are about people, and people are the same.
Those can be tough issues to discuss at the beginning of a business relationship, like a bride and groom negotiating a pre-nuptial agreement. The good news is that all of them can be dealt with.
Two tech guys come to me asking for documents: a new corporation, a stock option plan, an inventions agreement, an offer letter, corporate resolutions, a contribution agreement, all the things to start a unicorn. What they never ask for is a good Operating Agreement. Because, you know, they’re friends.
In every business, the Operating Agreement is the most important document of all, like the foundation of a sturdy house. Put it in the (digital) drawer and know you’ve saved yourself lots of time and money, and possibly your friendship.
Most of the time, the SEC writes rules to clarify technical legal issues. When the SEC allowed crowdfunding vehicles, on the other hand, it was in response to a psychological issue, not a legal issue.
Entrepreneurs tempted to raise capital using Reg CF, thereby bypassing VCs and other professional investors, were told by those same VCs and professional investors that Reg CF would “screw up your cap table.” Even though that wasn’t true, many entrepreneurs believed it was true. The SEC gave us crowdfunding vehicles to solve the psychological problem: with a crowdfunding vehicle, you can put all your Reg CF investors in one entity with one entry on your cap table.
In that way, using a crowdfunding vehicle for your Reg CF offering is like using a C corporation rather than an LLC. You the entrepreneur might know it’s unnecessary, but if your prospective investors think it’s necessary, then it’s necessary. As I often say only partly tongue-in-cheek, that’s why they call it capitalism.
In fact, there is one reason for using a crowdfunding vehicle beyond the psychological. That’s because of a quirk in section 12(g) of the Securities Exchange Act of 1934.
Section 12(g) of Exchange Act
Section 12(g) of the Exchange Act provides that any company with at least $10 million of assets and a class of equity securities held by at least 2,000 total investors or 500 non-accredited investors of record must provide all the reporting of a fully public company. You don’t want that burden for your startup.
The good news is that Reg CF investors aren’t counted toward the 2,000/500 limits, provided:
The issuer uses a registered transfer agent to keep track of its securities; and
The issuer has no more than $25 million of assets.
Most startups will never have $25 million of assets. Most startups will never have 500 non-accredited investors or 2,000 total investors. Some startups will issue debt securities rather than equity securities. But some startups could find themselves subject to full public reporting under section 12(g).
For those startups, a crowdfunding vehicle makes sense. That because, through a quirk in the rules, if you use a crowdfunding vehicle then the only investors who count toward the 2,000/500 limits are entities, like LLCs and corporations. Individual investors aren’t counted at all, and the assets of the company don’t matter.
Thus, if you’re a startup that might otherwise trigger section 12(g), a crowdfunding vehicle makes sense.
Requirements for Crowdfunding Vehicles
A crowdfunding vehicle must:
Have no other business.
Not borrow money.
Issue only one class of securities.
Maintain a one-to-one relationship between the number, denomination, type, and rights of the issuer’s securities it owns and the number, denomination, type, and rights of the securities it issues.
Seek instructions from investors with regard to:
Voting the issuer’s securities (if they are voting securities).
Participating in tender or exchange offers of the issuer.
Provide to each investor the right to direct the crowdfunding vehicle to assert the same legal rights the investor would have if he or she had invested directly in the issuer.
Those are requirements, not suggestions. In a later post I’ll explain what they mean. Here, I’ll just point out that some high-volume portals violate some of the requirements routinely, in my always-humble opinion.
******
NOTE: Crowdfunding vehicles work only with Reg CF. If you raise money from 127 accredited investors using Rule 506(c), you can’t put them in a separate entity. But don’t worry, it doesn’t have to screw up your cap table.
Investors want to know the people running the show. That’s why we always include a brief biography of the principals in a securities disclosure document, whether a Form C, a Private Placement Memorandum, or an Offering Statement. In Regulation A offerings, for example, companies must:
Give a brief account of the business experience during the past five years of each director, executive officer, person nominated or chosen to become a director or executive officer, and each significant employee, including his or her principal occupations and employment during that period and the name and principal business of any corporation or other organization in which such occupations and employment were carried on. When an executive. officer or significant employee has been employed by the issuer for less than five years, a brief explanation must be included as to the nature of the responsibilities undertaken by the individual in prior positions to provide adequate disclosure of this prior business experience. What is required is information relating to the level of the employee’s professional competence, which may include, depending upon the circumstances, such specific information as the size of the operation supervised.
Note the italicized language: “What is required is information relating to the level of the employee’s professional competence. . . .” I point that out because to often we see business biographies like this:
John Smith is a visionary leader with an unwavering commitment to excellence, known for his dynamic approach to seizing opportunities and delivering unparalleled value. With a forward-thinking mindset and a passion for innovation, he leverages his far-reaching vision to create transformative strategies that align with stakeholder interests. His results-oriented leadership style empowers teams, drives growth, and positions the company for long-term success in a rapidly evolving market landscape. Outside of his professional achievements, Mr. Smith enjoys spending time with his [fourth] wife and three children, traveling to exotic destinations, and pursuing hobbies such as gourmet cooking, marathon running, and landscape photography.
Alas, that has nothing to do with Mr. Smith’s professional competence.
Mr. Smith’s biography should look more like this:
John Smith has more than 25 years of experience in the logistics and supply chain sector, with a track record of leading operational growth and efficiency in both privately held and publicly traded companies. From 2012 to 2021, he served as Chief Operating Officer of MidAtlantic Freight Systems, where he managed a network of five regional distribution centers, implemented a company-wide warehouse automation initiative that reduced order fulfillment times by 30%, and oversaw a workforce of more than 300 employees.
Before that, Mr. Smith was Director of Business Development at Eastern Transport Group, where he negotiated long-term contracts with Fortune 500 clients and led market expansion into three new states, increasing annual revenue by 45% over four years. Earlier in his career, he held senior operations roles at Interstate Logistics and Northstar Supply Chain Solutions, where he specialized in integrating newly acquired facilities and standardizing operational processes across multiple regions.
Mr. Smith holds a B.S. in Business Administration from Rutgers University and an MBA from Temple University’s Fox School of Business. He has extensive experience in vendor contract negotiations, ERP system implementation, transportation network optimization, and capital project management. Over the course of his career, he has built a reputation for data-driven decision-making, disciplined cost control, and the ability to align operational capabilities with long-term strategic goals.
That’s much more useful to investors. And it’s much more impressive, isn’t it?
