Use of funds

Use of funds, also called use of proceeds, is a company's description of how it will spend the money it raises in an offering. It says what the money is for and roughly how much goes to each purpose: hiring, product development, inventory, marketing, paying down debt, and the costs of the offering itself.

What the rules require

• Regulation Crowdfunding. The Form C must describe the purpose of the offering and the intended use of the proceeds. If the company may accept more than its target amount, it must describe how it will use the money it raises above the target too.
• Regulation A+. The Offering circular must describe the principal purposes for which the net proceeds will be used, and the amount for each. If the offering may not sell its maximum, the circular explains the order of priority.

A use of funds is a disclosure, so it has to be accurate when it is made. If the company's plans for the money change materially during a raise, it may need to amend the filing. See campaign updates and material changes.

Why it matters to marketing

Investors read the use of funds closely. It is where they find out whether the company's ambitions are funded by this raise or only described in the pitch. The marketing must match it. An ad that says the raise will open new stores, when most of the money goes to existing debt, is a misstatement, not a stretch. A clear use of funds is also one of the most persuasive parts of an offering page: it shows investors exactly what their money will do.

Further reading

• What goes on an offering page
• The 17 decisions to make before your crowdfunding raise launches

This page is general information about securities rules, not legal advice. What a particular offering must disclose is a question for the company's securities counsel.