The phrase "regulation by enforcement" is a critique often used in the crypto industry (and other sectors) to describe a regulatory approach where the SEC (or another agency) enforces laws and rules through lawsuits and penalties rather than through clear, proactive rulemaking. This differs from "enforcement of regulations" in significant ways:

1. Regulation by Enforcement

No Clear Rules in Advance: Critics argue that the SEC does not provide explicit guidelines on how crypto firms should comply with securities laws.

Legal Actions Instead of Rulemaking: Rather than issuing tailored regulations or engaging in formal rulemaking processes (such as public comment periods), the SEC takes action by suing companies or imposing fines.

Uncertainty for Businesses: Companies may not know they are violating the law until they face enforcement actions, creating uncertainty and chilling innovation.

Retroactive Punishment: This approach may penalize companies for actions they took before clear guidance existed.

2. Enforcement of Regulations

Based on Established Rules: In a traditional regulatory framework, enforcement follows well-defined rules that were developed through legislation or a formal rulemaking process.

Predictability & Compliance Pathways: Businesses know the compliance requirements in advance, allowing them to operate within a clear legal framework.

Preventative Rather Than Punitive: Regulation aims to guide compliance before violations occur rather than relying on enforcement as the primary mechanism.

Why Is This a Big Deal in Crypto?
The crypto industry argues that securities laws were not designed for digital assets, yet the SEC applies decades-old rules without providing specific new regulations tailored to crypto.

Major cases, such as those against Ripple, Coinbase, and Binance, highlight how the SEC is shaping crypto regulation through litigation rather than clear rulemaking.

The SEC contends that it is simply enforcing existing securities laws, but critics say this approach forces compliance through the courts instead of creating transparent, predictable rules.

Bottom Line
Regulation by enforcement means creating de facto policy through lawsuits and penalties rather than formal rules, whereas enforcement of regulations implies applying already established and clearly defined legal standards. The debate is whether the SEC should issue clearer guidance or continue its current strategy of enforcement actions.

The larger Reg A crowdfunding deals I've followed tend to be high-risk. The companies have gone to crowdfunding, in part, because they've likely struggled to convince VCs to invest. That they can go to the crowd to raise is great, but I fear investors are participating because of exceptional marketing and storytelling rather than investment fundamentals.

I've seen and invested in some deals where existing customers who know the product are invited to invest. This is a positive trend that investors are hoping will increase with traditional IPOs (Reddit offered shares to customers, for example). 

But the Reg A+ IPOs haven't caught on, and private companies pursuing the traditional IPO are waiting longer. Plenty of VC dollars out there for strong business models.

The costs associated with a Regulation A (Reg A) offering are generally lower than those for a traditional S-1 filing (also known as an Initial Public Offering, or IPO). However, the S-1 process has its own set of advantages, such as access to a broader pool of institutional investors and the ability to list on a national exchange. Here's a breakdown of the cost comparison between a Reg A offering and an S-1 IPO:

1. Filing and Regulatory Fees

Reg A (Form 1-A) Filing Fees:

The filing fee for Form 1-A (Reg A) is calculated based on the amount of securities being offered. The SEC charges a fee of $118.20 per $1 million in securities offered.
Example: For a $75 million Reg A offering, the filing fee would be about $8,865.

S-1 (IPO) Filing Fees:

The filing fee for an S-1 registration statement is based on the offering amount as well. The SEC charges $129 per $1 million of securities offered.

Example: For a $75 million S-1 offering, the filing fee would be about $9,675.

Comparison: The filing fees for Reg A and S-1 are relatively close, but an S-1 filing can be marginally more expensive. The real cost difference comes from other areas, such as the legal and underwriting fees.

2. Legal and Accounting Fees

Reg A Legal and Accounting Fees:

For Reg A offerings, legal and accounting fees tend to be lower than those for an IPO because the process is less complex. The company is not subject to the same level of regulatory scrutiny, and the disclosure requirements are less stringent.
Typical range: $50,000 to $250,000 (for a Tier 2 offering, which is more common for larger deals).

S-1 Legal and Accounting Fees:

The legal and accounting fees for an S-1 IPO are significantly higher because of the more intensive SEC review process, greater disclosure requirements, and the need to meet the listing standards of a national exchange (e.g., NYSE, NASDAQ).
Typical range: $500,000 to $2 million (or more), depending on the complexity of the offering and the size of the company.
Comparison: Legal and accounting fees are significantly higher for an S-1 IPO, largely due to the additional regulatory requirements, extensive due diligence, and ongoing compliance obligations post-offering.

3. Underwriting Fees

Reg A Underwriting Fees:

In a Reg A offering, underwriting fees generally range from 5% to 7% of the total amount raised, though this can vary based on the type of offering and the underwriters’ relationship with the company.

Example: For a $75 million offering, underwriting fees could range from $3.75 million to $5.25 million.
S-1 Underwriting Fees (IPO):

Underwriting fees for an S-1 IPO tend to be higher than those for a Reg A offering. They typically range from 6% to 7%, but the size and complexity of the deal could push these fees higher.

Example: For a $75 million offering, underwriting fees could range from $4.5 million to $5.25 million.

Comparison: Underwriting fees are generally similar between Reg A and S-1, but for larger IPOs, underwriting fees could be slightly higher due to the greater number of institutional investors and a more complex underwriting process.

4. Marketing and Investor Relations Costs

Reg A Marketing Costs:

Reg A offerings often require significant marketing efforts, particularly if the company is using an online platform. Marketing costs typically range from $100,000 to $500,000 depending on the scale of the offering and the target investor base.

Reg A offerings can be marketed to both accredited and non-accredited investors, meaning a more extensive retail investor outreach may be necessary.

S-1 Marketing Costs (IPO):

IPO marketing costs can be significantly higher due to roadshows, institutional investor targeting, and broader media outreach. Marketing costs for an IPO can range from $500,000 to several million dollars.

Unlike Reg A, IPO marketing is targeted primarily at institutional investors, and the company typically needs to travel internationally to promote the offering.

Comparison: Marketing costs for an S-1 IPO tend to be much higher, especially due to the extensive roadshow and media campaign required to target institutional investors.

5. Ongoing Compliance and Reporting Costs

Reg A Ongoing Costs:

Tier 1: Less expensive compliance, as the company only needs to file with state securities regulators in addition to the SEC.

Tier 2: Requires more extensive ongoing reporting, including semi-annual and annual reports, as well as compliance with ongoing SEC regulations. These costs are typically lower than the ongoing costs for a public company with an S-1.

Typical range: $50,000 to $200,000 per year.

S-1 Ongoing Costs (IPO):

After an S-1 IPO, the company must comply with Sarbanes-Oxley Act requirements and file periodic reports (e.g., 10-Q, 10-K, 8-K), as well as proxy statements, and other disclosures required by the SEC. Additionally, there are the costs of being listed on a stock exchange.

Typical range: $500,000 to $2 million per year or more, depending on the size and complexity of the company.

Comparison: Ongoing compliance costs are significantly higher for a public company after an S-1 IPO, especially considering the more rigorous reporting requirements and additional governance requirements (e.g., Sarbanes-Oxley).

6. Total Cost of Capital

Reg A Total Costs:

Total cost of capital for a Reg A offering typically ranges from 7% to 15% of the total funds raised, depending on the size of the offering, the complexity of the business, and the professional fees involved.

S-1 (IPO) Total Costs:

The total cost of capital for an IPO can be much higher, typically ranging from 10% to 20% of the total offering amount. This includes underwriting fees, legal and accounting fees, marketing costs, and other expenses.

Comparison: Reg A offerings are generally less expensive than an S-1 IPO, particularly in terms of legal, accounting, and compliance costs.

7. Key Differences Beyond Costs

Investor Base: Reg A allows for both accredited and non-accredited investors, meaning a broader retail investor base can participate, while an IPO typically focuses on institutional investors and accredited individuals.

Regulatory Requirements: IPOs involve more detailed SEC scrutiny and extensive due diligence, which increases the complexity and cost of the process.

Time to Market: Reg A offerings can often be completed more quickly (e.g., 3 to 6 months) compared to an IPO, which may take 6 months to over a year due to regulatory review, roadshows, and other steps.

Liquidity: An IPO provides liquidity by listing on a major exchange like the NYSE or NASDAQ, while Reg A can result in a listing on smaller exchanges or over-the-counter (OTC) markets, which may have less liquidity.

Conclusion

Reg A is more cost-effective than an S-1 IPO and is often used by companies looking for a faster, lower-cost alternative to going public, especially if they don't need to raise large sums of capital or are targeting a retail investor base.

S-1 IPOs are better suited for larger companies with significant capital needs, as they provide access to institutional investors and listing on major exchanges, but they come with a significantly higher cost and more regulatory scrutiny.

Under Regulation Crowdfunding, the Securities and Exchange Commission (SEC) has established specific criteria that a self-regulatory organization (SRO) must meet to oversee funding portals. These criteria ensure that the SRO can effectively regulate the activities of funding portals to protect investors and maintain market integrity. The key criteria include:

1. Registration with the SEC: An SRO must be registered with the SEC. This ensures that the SRO is recognized by the SEC and subject to its oversight.

2. Rulemaking Authority: The SRO must have the authority to create and enforce rules governing the conduct of funding portals. These rules should be designed to:
   - Prevent fraudulent and manipulative acts and practices.
   - Promote just and equitable principles of trade.
   - Protect investors and the public interest.
   - Facilitate capital formation.

3. Compliance and Enforcement: The SRO must have the capacity to enforce compliance with its rules. This includes having procedures for monitoring the activities of funding portals, conducting investigations, and taking disciplinary actions when necessary.

4. Governance and Independence: The SRO must have a governance structure that ensures its independence from the funding portals it regulates. This includes having a board of directors or a similar governing body with a significant representation of non-industry members.

5. Transparency: The SRO must operate in a transparent manner. This includes making its rules, disciplinary actions, and other regulatory information publicly available.

6. Resources: The SRO must have adequate resources, including financial, technological, and human resources, to carry out its regulatory responsibilities effectively.

7. Conflict of Interest Policies: The SRO must have policies and procedures in place to manage conflicts of interest. This includes ensuring that the regulatory activities are not influenced by the business interests of the funding portals.

8. Record-Keeping: The SRO must maintain comprehensive records of its regulatory activities, including rulemaking, enforcement actions, and communications with funding portals and the SEC.

These criteria are designed to ensure that the SRO can provide effective oversight and maintain the integrity of the crowdfunding market, thereby protecting investors and facilitating capital formation through crowdfunding platforms.

You bring up an important point about terminology in the crowdfunding industry. The term "equity crowdfunding" can indeed be misleading if it implies that all offerings provide equity stakes, when in fact, many do not. The Crowdfunding Professional Association's recommendation to use "regulated investment crowdfunding" is a more accurate and inclusive term.

Here’s an expanded discussion on this topic:

Equity Crowdfunding vs. Regulated Investment Crowdfunding

Equity Crowdfunding
- Traditional Definition: In its original sense, equity crowdfunding refers to a method of raising capital where investors receive shares or equity in the company in exchange for their investment.
- Misleading Aspects: The term can be misleading because not all investment crowdfunding campaigns offer equity. Some might offer other types of securities, such as debt instruments, revenue shares, or convertible notes.

Regulated Investment Crowdfunding
- Broader Definition: This term encompasses all types of crowdfunding that involve regulated securities offerings, not just equity.
- Types of Securities: This can include equity, debt, revenue shares, and other forms of investment contracts.
- Regulatory Frameworks: These offerings are typically conducted under specific regulatory frameworks, such as Regulation Crowdfunding (Reg CF), Regulation A+, and Regulation D in the United States, which provide different levels of oversight and investor protection.

Benefits of Using "Regulated Investment Crowdfunding"

1. Clarity and Accuracy:
   - The term "regulated investment crowdfunding" accurately reflects the range of financial instruments available and the regulatory environment governing these offerings.
   - It helps avoid confusion for investors who might otherwise expect equity stakes in all crowdfunding opportunities.

2. Investor Education and Protection:
   - Using precise terminology is crucial for investor education. It ensures that potential investors understand the nature of the securities being offered and the associated risks and returns.
   - It underscores the fact that these offerings are subject to regulatory scrutiny.

3. Inclusiveness:
   - The broader term encompasses a wider array of investment opportunities, making it more inclusive of different types of fundraising campaigns.
   - It reflects the diversity in the crowdfunding space, acknowledging that companies might choose different financial instruments based on their specific needs and strategies.

Examples of Regulated Investment Crowdfunding

1. Regulation Crowdfunding (Reg CF):
   - Purpose: Allows smaller companies to raise up to $5 million per year from a large number of investors through an online platform.
   - Securities Offered: Can include equity, debt, and other types of securities.

2. Regulation A+:
   - Purpose: Enables companies to raise up to $75 million per year from the public with fewer disclosure requirements than a full public offering.
   - Securities Offered: Primarily equity, but can also include debt and other securities.

3. Regulation D (Rule 506(c)):
   - Purpose: Allows companies to raise an unlimited amount of money from accredited investors with general solicitation and advertising.
   - Securities Offered: Can include equity, debt, and other types of investment contracts.

Conclusion

The shift from using "equity crowdfunding" to "regulated investment crowdfunding" is a positive development that enhances clarity, accuracy, and inclusiveness in the crowdfunding industry. This terminology better reflects the variety of financial instruments available to investors and underscores the regulatory framework that governs these offerings. By adopting this term, industry stakeholders can help ensure that investors have a clear understanding of what they are investing in, ultimately fostering a more transparent and trustworthy investment environment.

There is a federal exemption for Demo Days but it is useless because it doesn't preempt state law. To legally do a demo day where the public is invited, even if the event fits under the Demo Day exemption, it will still be illegal to do public solicitation under state law (unless the offering is being done under Reg CF or Rule 506(c) in which case there is federal preemption).

It means that the instrument/contract that is being assessed will be considered a "security" under applicable laws.  This means you will need to either register the offering of that security (with the SEC and applicable state regulators) or find an exemption for those registration requirements.