Crowdfunding has become more than just a buzzword—it’s a real way for startups and small businesses to raise capital. Whether you’re launching a tech product, scaling a service-based business, or building something entirely new, crowdfunding can be a valuable tool to connect with backers and generate funding without going the traditional venture capital route.
However, while it may seem simple on the surface, crowdfunding comes with a range of legal and regulatory considerations. We’ll walk you through the types of crowdfunding, the legal requirements at both the state and federal levels, and how to structure a campaign that helps your business grow without running into avoidable issues.
Types of Crowdfunding: Which Model Fits?
Before you launch a campaign, it’s helpful to understand the different crowdfunding models available. Each offers a unique way to raise money and comes with its own rules and expectations:
Donation-Based Crowdfunding
Supporters give money without expecting anything in return. This model is often used for charitable causes, community projects, or mission-driven startups. Platforms like GoFundMe make this approach accessible, though it’s less common for traditional for-profit businesses. If your venture has a public benefit or social impact, this may be a viable path. Just be mindful of Pennsylvania’s charitable solicitation laws if you’re asking for donations from residents.
Rewards-Based Crowdfunding
This is the model most people think of first. Supporters contribute money in exchange for a reward, usually an early version of the product, branded swag, or access to special content. Platforms like Kickstarter and Indiegogo follow this model. It’s best suited for consumer-facing products or creative projects.
Equity Crowdfunding
With equity crowdfunding, backers invest in your business in exchange for shares or a financial interest. Platforms like Wefunder and StartEngine allow both accredited and non-accredited investors to participate. This model is regulated by the SEC and requires a higher level of disclosure. It’s a good option if you’re looking to raise a significant amount of capital and are comfortable sharing ownership.
Debt Crowdfunding (Peer-to-Peer Lending)
Debt crowdfunding allows individuals to lend money to your business, which you agree to repay over time with interest. It can be appealing for entrepreneurs who want to raise capital without giving up equity. Sites like LendingClub offer this model, which is also subject to regulatory oversight.
Legal Requirements: Federal and Pennsylvania-Specific Rules
Raising capital through crowdfunding isn’t just about setting up a campaign and watching the money roll in. Depending on the model you choose, there are legal requirements that you must follow to stay compliant.
Federal Rules
For equity and debt crowdfunding, the Securities and Exchange Commission (SEC) regulates how offerings are made. Regulation Crowdfunding (Reg CF) allows businesses to raise up to $5 million per year through approved portals. You’ll need to register with the SEC, follow advertising rules, and stay within specific limits for how much each investor can contribute.
Pennsylvania Requirements
Pennsylvania offers an intrastate exemption for equity crowdfunding under certain conditions. If both your business and your investors are based in Pennsylvania and you only advertise within the state, you may qualify for a streamlined path. However, you’ll still need to comply with notice filings and other securities regulations enforced by the Pennsylvania Department of Banking and Securities.
We recommend working with an attorney early to make sure your campaign is set up properly. Choosing the wrong exemption or failing to follow the rules can lead to fines or a failed raise.
What You’re Required to Disclose
Regardless of the platform or type of crowdfunding, transparency is a must. Here are some of the disclosures you may need to provide:
- A clear business plan and description of how the funds will be used
- Background information on founders and key team members
- Financial statements—often reviewed or audited, depending on the amount being raised
- Risk factors that investors should be aware of
- Details of the offering, including target raise, valuation, and terms
It’s tempting to focus only on the upside, but honest disclosures build trust and reduce legal risk.
After the Raise: Staying Compliant
Your obligations don’t end once you hit your funding goal. Especially under Reg CF, ongoing reporting and communication are part of the deal. Depending on your raise, you may be required to:
- File annual reports with the SEC
- Keep accurate investor records
- Maintain updated corporate governance documents
- Respond to investor inquiries
Many businesses overlook these steps until it’s too late. Staying compliant after your raise helps protect your credibility and prepares you for future financing rounds.
Building a Campaign That Works
A successful crowdfunding campaign isn’t just about having a great idea; it’s also about smart planning. Here are a few tips that can make a big difference:
- Pick the right platform. Each site has its own audience and focus.
- Tell a strong story. A clear mission and compelling pitch help people connect.
- Set realistic goals. Overpromising can lead to issues with fulfillment or investor expectations.
- Line up early support. Early momentum often drives later-stage contributions.
- Plan for fulfillment. Whether you’re shipping products or issuing equity, you need a follow-through strategy.
Bringing legal counsel into the conversation from the start helps ensure your campaign is structured in a way that protects you and builds confidence with your backers.
Partner With a Legal Team That Supports Your Vision
At Jones, Gregg, Creehan & Gerace, we help entrepreneurs throughout Pittsburgh understand their fundraising options and build solid legal foundations for long-term success. From reviewing disclosure documents to advising on compliance and exemption strategies, our team is here to support your crowdfunding journey.
If you’re thinking about launching a campaign, contact us today. We’ll help you make sure it’s done right.