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Glossary

Oversubscription

What oversubscription means in a Reg CF or Reg A+ offering, the difference between the target and the maximum, and how excess demand is allocated.

Oversubscription is the state of an offering whose investment commitments exceed its target amount. In Regulation Crowdfunding a company may keep accepting money above its target only up to a maximum it disclosed in advance; demand beyond that maximum has to be turned away or scaled back.

Target and maximum

A Reg CF Form C states a target offering amount, the minimum the company must reach by its deadline, and whether it will accept more. Rule 201(h) requires an issuer that will accept oversubscriptions to disclose the maximum it will accept and how oversubscriptions will be allocated: pro rata, first come first served, or another method it describes. The Form C also has to say how the excess proceeds will be used. The maximum can never exceed the Reg CF limit of $5 million in a twelve-month period.

The maximum is also the figure that sets the financial statement tier the issuer must provide, so a high maximum can mean a higher level of review or audit even if the target is modest.

Regulation A+

A Reg A+ offering is qualified for a stated maximum within its tier's cap. How the issuer handles demand above that, and whether there is any minimum, is set by the offering-circular. See reg-a-tiers.

Why it matters to marketing

"We hit our target" and "we sold out" are different claims. Hitting the target while the offering stays open is common and legitimate to report accurately; implying the offering is closed, or that other investors' interest says anything about returns, is not. The allocation method also affects what an investor experiences at checkout. See rolling-close and investment-cancellation.

Further reading

This page is general information about securities rules, not legal advice.

Topics:glossarycrowdfundingregulation

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