Reg CF vs Reg A+ vs Reg D: what investors should know

When you invest through a platform like StartEngine, Republic, tZERO, or Securitize, you’re investing in a security. That sounds obvious, but its implications are far-reaching: securities are regulated by the SEC, and the rules governing who can buy them, how they can be sold, and whether they can be resold are set by federal law. Understanding the exemption framework — Regulation CF, Regulation A+, and Regulation D — is the foundation of being an informed participant in the security token ecosystem.

Why exemptions exist

Registering a securities offering with the SEC is extraordinarily expensive and slow. A full public offering (an IPO) requires audited financials, an S-1 registration statement, SEC review, and ongoing quarterly and annual reporting. For a small company raising $2 million, the cost of full registration can exceed what they’re raising. The system would be self-defeating.

Exempt offerings are the practical solution: companies can raise capital under specific rules that waive the full registration requirement, in exchange for limitations on deal size, investor eligibility, or how the resulting securities can be traded. The three main exemptions used by platforms in the security token space are Regulation CF, Regulation A+, and Regulation D.

Regulation CF: the crowd’s door

Regulation Crowdfunding, commonly called Reg CF, was created by the JOBS Act and became effective in 2016. It’s the exemption that most closely resembles what the public thinks of when they hear “crowdfunding,” except the investments are actual equity or debt securities rather than perks or products.

Under Reg CF, any U.S. investor — regardless of income or net worth — can participate. However, the SEC limits how much any individual can invest in all Reg CF offerings combined within a 12-month period. The limits scale with income and net worth:

• If either annual income or net worth is below $124,000: you can invest the greater of $2,500 or 5% of the lower figure.
• If both annual income and net worth are at or above $124,000: you can invest up to 10% of the lower figure, capped at $124,000 total across all Reg CF deals in that year.

Companies raising under Reg CF are capped at $5 million per 12-month period. The offering must be conducted through an SEC-registered crowdfunding portal. Platforms serving this market include StartEngine, Republic, and Wefunder. Securities purchased under Reg CF are subject to a one-year holding period before they can be resold to the general public — though they can be transferred between family members and in certain other specific circumstances.

Regulation A+: the mini-IPO

Regulation A+ is the middle tier — larger than Reg CF, less burdensome than a full SEC registration. It’s sometimes called a “mini-IPO” because the SEC reviews the offering before it can proceed, which creates a baseline of due diligence that Reg CF doesn’t require.

Reg A+ has two tiers. Tier 1 allows raises up to $20 million but requires state-level “blue sky” compliance in every state where securities are sold, which is complex and expensive. Tier 2 allows raises up to $75 million annually, preempts state blue sky requirements, and requires audited financial statements. Most meaningful Reg A+ offerings use Tier 2.

Like Reg CF, Reg A+ is open to any investor — accredited or not. Tier 2 does impose per-investor limits for non-accredited investors: no more than 10% of the greater of annual income or net worth per offering. The more important practical difference from Reg CF is that Reg A+ securities can typically be resold immediately on secondary markets — making them more liquid than Reg CF shares and closer in spirit to publicly traded stock.

Regulation D: where most STOs live

The majority of security token offerings — including most of the larger ones on tZERO and Securitize — are conducted under Regulation D, specifically Rules 506(b) and 506(c). Reg D is distinct from CF and A+ in one critical way: it is restricted to accredited investors (with limited exceptions under 506(b)).

The trade-off for that restriction is significant. Reg D has no statutory cap on how much a company can raise. A startup can raise $10 million, $100 million, or $1 billion under Reg D, provided all investors qualify. There is no SEC review of the offering documents before the raise begins — companies file a Form D notice after the first sale, not before. This makes Reg D the fastest and least expensive path to a compliant securities offering, which is why it dominates the institutional STO market.

Under Rule 506(b), companies can take investments from up to 35 sophisticated but non-accredited investors alongside unlimited accredited investors, but cannot use general solicitation or advertising. Under Rule 506(c), general solicitation is permitted — companies can advertise openly — but all investors must be verified as accredited. Most tokenized security platforms use 506(c) because it allows public marketing of the offering.

How these exemptions show up in security tokens

When a company issues equity or debt as a blockchain token, the token is a wrapper around the underlying security — not a new legal category. The token inherits all the regulatory characteristics of the exemption used. A Reg D security token carries transfer restrictions encoded directly in the smart contract: only wallets that have passed KYC/AML and meet the accredited investor standard can receive the token. An attempted transfer to a non-whitelisted wallet fails at the contract level.

This is one of the genuine advantages of tokenized securities over paper certificates: compliance is enforced programmatically rather than relying on manual record-keeping and legal agreements. tZERO’s platform, for example, embeds transfer restriction logic in the token contract so that resale is automatically blocked to non-eligible wallets, even in peer-to-peer transactions.

Holding periods work the same way. A Reg CF token may have a one-year lockup clock embedded in the contract from the date of issuance. Until that date passes, the token simply cannot be transferred. The investor doesn’t need to track the date; the contract tracks it for them.

What does “accredited investor” actually mean

The accredited investor standard is defined by the SEC in Rule 501 of Regulation D. As of the 2020 amendments, you qualify as an accredited investor if you meet any of the following:

• Income test: Individual income exceeding $200,000 in each of the two most recent years (or $300,000 combined with a spouse), with a reasonable expectation of reaching the same level in the current year.
• Net worth test: Net worth over $1 million, individually or jointly with a spouse or spousal equivalent, excluding the value of a primary residence.
• Professional certifications: Holders of Series 7, Series 65, or Series 82 licenses in good standing qualify, regardless of income or net worth.
• Knowledgeable employees: Employees of the fund being invested in who have a knowledgeable role qualify automatically.

Where to start if you’re a retail investor

If you’re new to security token investing and don’t yet qualify as an accredited investor, Reg CF and Reg A+ are your entry points. Both allow any investor to participate; the key difference is position sizing (the per-investor caps under CF) and liquidity (Reg A+ Tier 2 securities can be resold sooner).

StartEngine and Wefunder are the highest-volume Reg CF platforms. Republic operates in both Reg CF and Reg D, with different sections of their site for each tier. For Reg A+ specifically, look at their offerings that carry the “Regulation A” designation prominently — these have gone through SEC review and typically have more disclosure than CF deals.

The practical advice for a retail investor starting out: treat your first Reg CF investments as education. The position limits protect you from overconcentrating in illiquid early-stage securities. Use the one-year holding period as a forcing function to evaluate the underlying company carefully before you invest, since you won’t be able to easily exit. And read the Form C filing — the disclosure document all Reg CF issuers must file — with the same scrutiny you’d apply to any investment: financials, use of proceeds, risk factors, and management backgrounds.

The platforms that Teshy tracks — StartEngine, tZERO, Wefunder, Republic, Realio, NetCapital, and Securitize — span all three exemptions. Each has a different investor profile and a different liquidity story. Knowing the exemption behind an offering is the first question to ask, not the last.