In the U.S. equity crowdfunding space, companies raising capital under Regulation Crowdfunding (Reg CF) are required to work with a registered intermediary. These intermediaries fall into two categories: funding portals and broker-dealers.

While both are regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), their legal responsibilities, permitted activities, and service models differ significantly. Understanding these differences may help both founders and investors navigate online private markets more effectively.

This informational article aims to help readers better understand how these two types of intermediaries differ in structure and regulation.

What Are Crowdfunding Intermediaries?

Under Reg CF, companies are not permitted to raise capital directly from the public. Instead, offerings must be conducted through a regulated intermediary either a funding portal or a broker-dealer.
These entities act as a bridge between the company and investors, providing the infrastructure to conduct offerings in accordance with federal securities laws.

Examples of intermediaries include:

• Funding Portals: A category of intermediary introduced under the JOBS Act specifically for Regulation Crowdfunding. They are limited in scope and may only operate in connection with Reg CF offerings. Funding portals must adhere to strict regulatory limitations on their role, including prohibitions on investment advice, solicitation, and the handling of investor funds.
• Broker-Dealers: More broadly authorized intermediaries within the securities industry. In addition to supporting Reg CF offerings, they may also facilitate offerings under other exemptions such as Regulation A or Regulation D. Broker-dealers may provide a wider range of services, including advisory functions, direct solicitation, and custody of investor funds or securities, subject to applicable regulatory requirements.

Each has a distinct regulatory framework and operational scope.

Funding Portals  

Funding portals were created under Title III of the JOBS Act and are exclusive to Reg CF. They offer startups a way to reach retail investors through online platforms. However, their activities are strictly limited.

According to SEC regulations, funding portals are prohibited from:

• Offering investment advice or making recommendations
• Solicit purchases or sales of securities
• Handle investor funds or securities
• Compensate others for bringing in investors

They are also required to apply objective criteria, such as funding momentum or time left in a campaign, when deciding which offerings appear more prominently on the site or in communications. These rules are designed to prevent portals from influencing investor decision-making in a way that resembles solicitation.

Broker-Dealers 

Generally, broker-dealers are subject to a broader set of rules under the Securities Exchange Act of 1934. Unlike funding portals, broker-dealers may facilitate a variety of offering types, including Reg CF, Reg A+, and Reg D.

• Broker-dealers may:
• Provide investment advice
• Solicit investments directly
• Handle and custody investor funds and securities
• Assist in offering structure and marketing

These broader permissions allow broker-dealers to work more directly with both issuers and investors, though often at a higher cost or complexity level.

Comparison Table: Funding Portals vs. Broker-Dealers

What This May Mean for Investors

For investors, the choice of intermediary may influence the investment experience and potentially the outcome, depending on the intermediary's services and compliance with regulations.

• Due Diligence Standards: While broker-dealers may apply stricter KYC/AML rules and review processes, these measures are intended to enhance compliance and reduce risk, though they do not guarantee better deals or outcomes.
• Investment Advice: Broker-dealers may provide guidance tailored to an investor’s goals. Funding portals are prohibited from doing so.
• Offering Access: Broker-dealers may offer a wider range of investment opportunities, including those limited to accredited investors (e.g., under Reg D). Funding portals typically focus on Reg CF, which is open to both accredited and non-accredited investors.

What This May Mean for Founders

For companies planning to raise capital, the intermediary choice may shape the cost, regulatory process, and investor engagement strategy.

• Cost: Funding portals often charge standardized fees and require less upfront diligence. Broker-dealers may have higher compliance costs but offer more customized services.
• Compliance Requirements: Broker-dealers may require audited financials, more documentation, and ongoing compliance support.
• Investor Outreach: Funding portals apply objective visibility rules and may not promote one offering over another. Broker-dealers may actively assist in solicitation and targeting.
• Strategic Use: A company seeking a broader base of retail investors for a Reg CF raise may find a funding portal suitable. Additionally, a company with a more complex offering, or one targeting accredited investors, may benefit from a broker-dealer’s expanded capabilities.

Both types of intermediaries are typically regulated and must take steps to prevent fraud, but they offer different levels of service and flexibility.

Conclusion

Funding portals and broker-dealers serve distinct roles in the crowdfunding ecosystem. Both are essential to supporting compliant offerings under Reg CF, but they vary in terms of services offered, regulatory responsibilities, and cost structures.

Founders may want to weigh their fundraising goals, target investor profiles, and legal considerations when choosing an intermediary. Similarly, investors may consider the nature of advice, offering types, and due diligence processes available through different platforms.

Understanding these differences may help stakeholders navigate online capital markets more confidently and responsibly.

Disclaimer: This article is provided for informational purposes only and does not constitute legal, financial, or investment advice. The content is not intended to be a substitute for professional advice or guidance from licensed attorneys, registered broker-dealers, or financial professionals. Readers should consult appropriate professionals to understand the regulatory requirements and implications applicable to their specific circumstances under U.S. securities laws, including Regulation Crowdfunding (Reg CF). Additionally, past performance is not indicative of future results, and investors should conduct their own due diligence.