Escrow

Escrow, in a securities offering, is an arrangement in which investor money is held by a third party until a condition is met, usually that the offering reaches its minimum and closes. If the condition is not met, the money goes back to investors. In an exempt offering the escrow agent is typically a bank or trust company.

Regulation Crowdfunding

A funding-portal may not hold investor funds. Under Rule 303(e) of Regulation Crowdfunding, a portal must direct investors to send money to a qualified third party, generally a bank or credit union, that holds it for the investors' benefit. A broker-dealer acting as intermediary may handle funds under its own rules.

The intermediary directs the release of funds to the issuer only once the aggregate commitments meet or exceed the target and the offering closes, which cannot happen before the materials have been public for at least 21 days. If the offering is cancelled or misses its target, the funds are returned. Money that has arrived in escrow is still a commitment the investor can cancel within the rules; see investment-cancellation.

Regulation A+ and other offerings

Regulation A+ has no universal minimum. If an offering is sold on an all-or-none or minimum-amount basis through a broker-dealer, Exchange Act Rule 15c2-4 requires the funds to be held in a separate account or a bank escrow until the contingency is met. An offering with no minimum can release funds at each closing. See rolling-close.

Why it matters to a raise

Escrow is why a committed dollar is not yet a raised dollar. The escrow agent's fees are part of the all-in cost, and the escrow's timing sets when the company can use the money.

Further reading

• Oversubscription in a raise
• Reg CF limits explained
• A measurement dashboard for a raise

This page is general information about securities rules, not legal advice. The escrow terms of a particular offering are set by its documents and its intermediary.