Private vs Public Crowdfunding: the US and EU Markets

An increasing number of start-ups and established companies use crowdfunding to raise money for launching or scaling their business. 

If you’re building a crowdfunding platform, it’s important to understand the target audience and whom you can rely on to finance more deals:

  • raising funds from “the public”, also known as retail investors
  • or addressing the fundraising needs to high net-worth investors

It might seem that the second option offers more opportunities. Yet, it depends on the limitations imposed in each region on every crowdfunding type. 

Let’s explore the regulations in the major crowdfunding regions, so that you can decide which one works better for you. 

Public Crowdfunding

  • high net-worth fundraising including raising funds from accredited investors
  • general public crowdfunding – raising funds from non-accredited and retail investors.

Public crowdfunding platforms will need to meet specific requirements to raise funds from the public.  

Public crowdfunding or public fundraising normally implies one of the two cases:

Investors usually interact with the fundraising company via a fundraising platform. The platform must be registered with the SEC and be a member of the Financial Industry Regulatory Authority (FINRA) in the USA. 

In Europe, crowdfunding platforms must be authorized in accordance with Regulation (EU) 2020/1503 of the European Parliament and of the Council

To process the funds, the platform needs to have a license or to collaborate with a third party that has such a license. 

In the USA, crowdfunding platforms work with FundAmerica and NorthCapital, and in Europe, the preferred providers are Lemonway and Mangopay.

Investors in Public Fundraising

While both accredited and non-accredited investors are permitted to participate in public fundraising projects, conditions for them are different in the USA and EU.

Accredited Investors in the USA

In the USA accredited investors are classified as individuals that meet the following requirements:

  • have a net income of $200,000.00 and above;
  • have a combined income with a spouse of $300,000.00 or higher;
  • have a net worth of $1,000,000 excluding the value of the primary residence;
  • holds specific certifications, credentials, or designations;
  • high-net worth investors that have at least $1,000,000 in liquid assets excluding the value of primary residence, are also considered accredited investors;
  • a business with the value of assets of $5,000,000 or more. 

Accredited investors can invest unlimited amounts because it is believed that they are aware of the associated risks and can handle them. 

Non-accredited Investors in the USA

Non-accredited investors are limited in the investment amount per year depending on their income. 

If an investor has a yearly income of more than $107,000.00 they can invest either up to $2,200.00 or 5% of their annual income.

If the income is equal to or exceeds $107,000.00 the investor is permitted to allocate up to 10% of the annual income for the public crowdfunding. 

Sophisticated Investors in the EU

In the UK and EU fundraising practices via a public crowdfunding platform are pretty similar to the practices applied in the USA. 

However, there are differences in requirements to accredited, also known as sophisticated, investors, and the limits imposed on the maximum amount a company can set.

In public fundraising, both sophisticated and unsophisticated investors can participate. 

To be qualified as a sophisticated investor, a company or an individual must meet one of the following requirements. 

If it’s a legal entity, it must meet at least one of the following criteria:

  1. own funds of at least EUR 100,000.00;
  2. have a net turnover of at least EUR 2,000.000;
  3. or to have at least EUR 1,000,000 balance sheet.

Individuals must meet at least two of the following criteria:

  1. have personal gross income of not less than EUR 600,000.00 per fiscal year or a financial instrument portfolio that exceeds EUR 100,000.00.
  2. the investor works currently or worked in the financial sector, or the investor has been in an executive position for at least 12 months in a respective company.
  3. the investor has made a significant number of transactions of an average frequency of ten per one quarter over the previous four quarters or more.

Unsophisticated investors in the EU

The requirements and limitations imposed on unsophisticated investors in the EU are similar to those that are applied in the USA.

Limitations to Fundraisers

Companies in the USA raising funds via public crowdfunding campaigns have some limitations. 

For instance, a company might need to disclose some information by filling a Form C with the SEC. The maximum amount the company can raise within a 12-months period is limited to $5,000,000.

The same limitations are applied to public crowdfunding portals in Europe. 

Advertising and Informational Support of Crowdfunding Campaigns

Public fundraising aims to make the most of the web and social media to attract the attention of potential investors. Therefore, companies can advertise their fundraising campaigns in a way they believe to be most beneficial for them.

While it is permitted to advertise crowdfunding campaigns, the platform operators should pay attention to potential restrictions and make sure that unsophisticated investors understand the risks connected with participating in a fundraising project. 

To provide transparent information for investors, European project-owners usually share a document called the Key Investment Information Sheet. There they describe all the project details including the financial information. 

Also, according to the EU Crowdfunding Regulation, unsophisticated investors are given a reflection period, usually 48 hours, during which the investor can revoke their investment without incurring any penalties. 

This rule might not be applied if the investor has entered the project when the fundraising campaign was close to the end. 

Private Crowdfunding

In private crowdfunding a company addresses its needs to a list of private investors. 

While investors can invest substantial sums, there is a limit on how many investors can participate in a private campaign. 

A company is allowed to raise funds from up to 2,000.00 high net-worth investors or from 35 unaccredited investors. 

That’s why in Europe, it is common to use a Single Purpose Vehicle to collect funds from smaller investors. An SPV makes it easier to draw money to startups by representing a number of smaller investors as one big investor.


Selecting a crowdfunding model depends entirely on your business model and your company needs. 

If you are aimed at working with startups, the public crowdfunding model might suit you better. 

For established companies that are looking to launch a new product or get qualified financing, the private capital raising model may be the go-to solution. 

Whatever your plans are, our golden mantra says “always check the regulation applicable” before making any investment decisions. 

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