Equity Crowdfunding Terms Sheet Generator
Equity Crowdfunding Terms Sheet Generator
This interactive tool helps startups and small businesses create a professional equity crowdfunding terms sheet – a critical document that outlines the key terms of your investment offering. With the rise of platforms like Wefunder, Republic, and StartEngine, equity crowdfunding has become an accessible way for early-stage companies to raise capital from a broad investor base.
The generator walks you through the essential components of an equity crowdfunding terms sheet, ensuring you’ve addressed all necessary elements while helping you avoid common pitfalls. Simply complete each section, and you’ll receive a customized terms sheet that can serve as a solid foundation for your offering.
Understanding Equity Crowdfunding
Equity crowdfunding allows companies to raise capital from both accredited and non-accredited investors through regulated online platforms. Unlike rewards-based crowdfunding (Kickstarter, Indiegogo), equity crowdfunding provides investors with actual ownership interests in your company.
Regulation Crowdfunding (Reg CF) enables companies to raise up to $5 million in a 12-month period. This funding method requires specific disclosures and adherence to securities regulations, including filing a Form C with the SEC before launching your campaign.
Attorney Pro Tip
While equity crowdfunding opens doors to capital, it’s still a securities offering. Ensuring your terms are clear, compliant, and attractive to investors is essential for a successful raise. The terms sheet is often the first substantive document potential investors will review.
Key Components of Your Terms Sheet
The generator helps you create a comprehensive terms sheet with these critical sections:
1. Company Information
Your company’s legal name, entity type, and contact details. Delaware C-Corporations are typically preferred by investors due to their well-established legal framework and flexibility for future funding rounds.
2. Offering Details
Target raise amount, minimum and maximum thresholds, investment limits, and campaign deadline. These parameters define the scope of your offering and set expectations for investors.
3. Security Type & Terms
Choose between SAFEs, direct equity, convertible notes, revenue share, or debt instruments. Each security type has different implications for your cap table and future fundraising.
Attorney Pro Tip
SAFEs (Simple Agreements for Future Equity) are popular in equity crowdfunding because they postpone valuation decisions until a priced round, but require careful consideration of valuation caps and discount rates to be fair to early investors.
4. Investor Rights
Specifies what rights investors will have, including voting, pro-rata participation in future rounds, information access, and provisions for company sale scenarios.
5. Use of Funds
Transparency about how you’ll allocate the capital you raise builds investor confidence. Breaking this down by percentage across key areas helps investors understand your priorities.
6. Professional Advisors
Listing your legal counsel and accounting partners demonstrates professionalism and proper governance, which can increase investor confidence.
Risk Factors to Consider
When structuring your equity crowdfunding offering, be mindful of these common risk factors that could impact your raise or create problems down the road:
| Risk Factor | Impact | Mitigation Strategy |
|---|---|---|
| Unclear valuation methodology | Sophisticated investors may question or avoid your offering | Provide transparent reasoning for your valuation based on metrics relevant to your industry |
| Insufficient investor protections | May reduce investment interest and signal poor governance | Include appropriate information rights and other standard protections even if not required |
| Unrealistic funding targets | Failed campaign if minimum threshold isn’t reached | Set achievable minimums with room to exceed expectations rather than unrealistic maximums |
| Complex or unusual terms | Confusion among non-accredited investors, increased questions | Keep terms simple and aligned with industry standards; clearly explain any unusual provisions |
| Missing professional advisors | Reduced investor confidence | Engage qualified legal counsel and accounting professionals before launching |
| Vague use of funds | Skepticism about financial planning and discipline | Provide specific percentages and clear descriptions of fund allocation |
Attorney Pro Tip
The terms sheet is just the starting point. For a compliant equity crowdfunding campaign, you’ll also need to prepare Form C, financial statements (reviewed or audited depending on raise amount), and comprehensive risk disclosures. Allow 4-6 weeks for proper preparation before launching.
Legal Considerations & Best Practices
Regulatory Framework
Equity crowdfunding in the US is primarily governed by Regulation Crowdfunding (Reg CF) under the JOBS Act. This framework establishes:
- Maximum raise amount of $5 million in a 12-month period
- Required disclosures via Form C filing with the SEC
- Investment limits for investors based on income and net worth
- Requirement to use a registered funding portal or broker-dealer
Platform Selection
Different equity crowdfunding platforms have varying fee structures, investor communities, and success rates. Research platforms like Wefunder, Republic, StartEngine, SeedInvest, and Netcapital to find the best fit for your industry, stage, and raise amount.
Post-Raise Compliance
After a successful raise, you’ll have ongoing obligations including:
- Annual reports filed with the SEC and provided to investors
- Regular investor updates (frequency specified in your terms)
- Material change notifications when significant events occur
Attorney Pro Tip
Many companies fail to factor in the costs of post-raise compliance. Budget for annual legal and accounting expenses to maintain compliance with SEC requirements after your raise closes. Non-compliance can lead to legal issues and damage investor relations.
Future Fundraising Implications
How you structure your equity crowdfunding round will impact your ability to raise institutional capital in the future. Key considerations include:
Cap Table Management
Having hundreds or thousands of small investors can create administrative challenges. Many platforms now use SPVs (Special Purpose Vehicles) or similar structures to aggregate investors, which simplifies cap table management.
Signaling to VCs
Some venture capitalists view equity crowdfunding positively as validation of market interest, while others may have concerns about messy cap tables or community governance issues. The right structure can minimize these concerns.
Future Valuation Impact
The valuation or terms of your crowdfunding round establish a baseline for future raises. Setting an unrealistically high valuation may create challenges for subsequent rounds if significant milestones aren’t achieved.
Attorney Pro Tip
If you anticipate raising venture capital in the future, consider using a SAFE with industry-standard terms (such as YC SAFE templates) for your crowdfunding round. This approach is familiar to VCs and simplifies future due diligence processes.