How to read a Form C

Every Reg CF campaign has two faces. The campaign page is marketing: a video, a story, testimonials, a progress bar. The Form C is the legal disclosure the company files with the SEC. When the two disagree, the Form C is the one that counts.

You'll find it linked from the platform's offering page, usually under "Documents" or "SEC filings." You can also search the company name on the SEC's EDGAR database. Here's what to read, and in what order.

1. The offering terms

Start with the deal itself, because it frames everything else:

• Security type. SAFE, convertible note, common stock, preferred stock, or revenue share. Each works very differently — see our investor guide for a comparison.
• Price or valuation. For equity, the price per share and implied valuation. For a SAFE or note, the valuation cap and discount.
• Target and maximum. The minimum the company must raise to close, and the most it will accept.
• Deadline. When the offering ends if it isn't closed early.

2. The financial statements

This is the most important section and the one most people skip. Look for:

• Revenue and growth. Compare the two fiscal years provided. Is it growing? How fast?
• Burn rate. How much cash does the company lose each month? Divide cash on hand by that number to estimate how long it can survive.
• Debt. Loans from founders or banks get paid before shareholders.
• The accountant's report. A "going concern" note means the accountant has doubts the company can survive another year without new money. That's common for startups, but you should know it.

3. Use of proceeds

The company must say how it plans to spend the money at both the minimum and maximum raise. Specific plans ("hire two engineers, open a second location") are a good sign. Watch for large amounts going to repaying founder loans or paying back salary, or vague catch-alls like "general working capital" taking most of the raise.

4. The people

The Form C lists officers, directors, and anyone owning 20% or more of the voting stock, with their work history for the last three years. Ask whether this team has the experience to do what the pitch promises. Check whether the founders work full-time on the company.

5. Ownership and capital structure

This section shows who owns what and what securities already exist. Pay attention to:

• Voting rights. Crowd investors often get non-voting shares or vote through a proxy.
• Liquidation preferences. If earlier investors hold preferred stock, they get paid first in a sale.
• Dilution. Future fundraising will shrink your percentage. The Form C should explain how.

6. Related-party transactions

Deals between the company and its insiders — a founder leasing office space to the company, a family member on contract — must be disclosed. They aren't automatically bad, but they deserve a second look.

7. Risk factors

Every Form C has pages of risk factors. Most are boilerplate. Skim for the ones that are specific to this company: a single customer making up most of the revenue, a pending lawsuit, a key patent not yet granted. Those are the real ones.

Red flags, in one list

• The campaign page's numbers don't match the Form C
• Valuation far out of line with revenue and stage
• Most of the money going to repay insiders
• Founders who aren't full-time
• Previous Reg CF raise with missing annual reports
• Frequent material amendments during the campaign

Next: What is Regulation Crowdfunding? — the rules that shape every offering.