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This article is based on the academic paper “Equity Crowdfunding ‘Rules’: Compliance with Mandated Ongoing Financial Reporting in an Unenforced Environment” by Gregory Burke and Riley League. For the most up-to-date draft, please download it from SSRN here.
When the United States legalized investment crowdfunding in 2016 under Regulation Crowdfunding (Reg CF), it represented a significant change in securities markets. For the first time, everyday investors, not only wealthy or accredited individuals, could purchase shares in small, early-stage companies through online platforms. Since then, thousands of offerings have raised billions of dollars from millions of small-dollar investors.
Alongside this expansion came a reporting requirement. Every company that raises Money under Reg CF is obligated to file a simple annual report, known as Form C-AR, with the Securities and Exchange Commission (SEC). These reports are intended to provide updates on the financial position and performance of the firm.
Our research finds that compliance with this requirement is strikingly low. Only about 28 percent of companies file their report on time, more than half never file at all, and even among those that do file, many do so months after the deadline.
For many of these companies, the annual report is the only formal source of financial information available to investors. Unlike large public firms, crowdfunded startups rarely have media coverage, audited quarterly reports, or institutional investors monitoring them. As a result, noncompliance has consequences for market transparency.
Why, then, do so many startups fail to file?
At first glance, the reporting requirement does not appear to be burdensome. Form C-AR is brief compared to the filings required of public companies, does not require an audit, and can often be completed with outside assistance for under $1,000. Nevertheless, most companies choose not to comply.
One explanation is the lack of enforcement. While failing to file is a clear violation of securities law, to our knowledge, there have been no SEC enforcement actions against startups for noncompliance to date. With little chance of sanction, many founders may rationally conclude that the costs of preparing a report outweigh the perceived risks of not doing so.
A second explanation is that founders may not perceive significant benefits from filing. They may believe investors neither seek out nor rely on annual reports, or they may worry that presenting financial results, often showing losses, could discourage potential future investment. Relatedly, the absence of strong external monitors differentiates this market from public equity markets. Startups raising capital through Reg CF generally face less pressure from auditors, analysts, or institutional investors to provide ongoing information.
Costs, while modest by some standards, can also be meaningful for very small or resource-constrained firms. For entrepreneurs operating on limited budgets, even a $1,000 preparation fee can be a nontrivial expenditure.
Finally, some firms appear to approach compliance strategically. We find that many startups delay or “catch up” on filings only when preparing to raise additional capital, since companies cannot launch new offerings if they are out of compliance. In practice, this means reporting often occurs only when future fundraising depends on it.
So, do investors use these financial reports when they are available? Our evidence suggests that they do. By examining SEC website traffic data, we observe that visits to annual reports increase sharply around reporting deadlines, especially when companies launch new offerings. This pattern indicates that investors actively seek out financial disclosures at decision-relevant moments, such as when considering new investments. The gap between investor demand for information and the low level of company compliance highlights a tension in the investment crowdfunding market.
To better understand what motivates compliance, we collaborated with KingsCrowd, a leading analyst firm in this space, which conducted a field experiment. In 2024, KingsCrowd sent email reminders to thousands of founders approaching reporting deadlines. The messages varied in emphasis: some stressed the legal obligations and risks of failing to file, others highlighted potential economic benefits of compliance, such as improved fundraising outcomes, and each email presented a different discount code for a third-party filing service.
The results provide clear evidence on managerial behavior. Messages emphasizing regulatory risk increased compliance by about 20 percent. By contrast, messages emphasizing the potential economic benefits of compliance had no measurable effect. Discounts on filing services modestly increased compliance only when regulatory risk was not highlighted, suggesting that costs can matter but are secondary to perceptions of legal obligation.
Taken together, these findings suggest that regulatory risk, even in an environment with little actual enforcement, is a primary driver of financial reporting compliance. Economic incentives, reputational considerations, or moral appeals appear to be much weaker motivators.
This has several implications for the broader investment crowdfunding ecosystem. For investors, the absence of consistent reporting reduces transparency and makes it more difficult to evaluate ongoing company performance. Yet when reports are available, investors do access them, particularly at the time of new offerings. For founders, the choice not to file may appear to save money in the short run, but it can limit credibility and delay access to future capital. For platforms and regulators, the evidence suggests that relying solely on voluntary compliance is ineffective. However, oversight need not be costly. Something as simple as an email reminder that emphasizes legal obligations proved effective at increasing reporting rates in our study.
Our work also contributes to a broader understanding of compliance in financial markets. In public markets, high levels of enforcement make it difficult to observe alternative motivations for following financial reporting rules. In the Reg CF market, where enforcement is minimal, we can see more clearly why managers do or do not comply. The results suggest that even absent active enforcement, the perception of regulatory risk remains a powerful influence, while other potential drivers are much less significant.
For the impact Investing community, these findings underscore the central role of transparency. Investment crowdfunding expands access to capital and investment opportunities, but its success depends on maintaining trust between investors and entrepreneurs. Annual financial reporting is one of the few structured mechanisms that can sustain this trust. Investors who value accountability may wish to favor firms that comply with their reporting obligations. Platforms can promote compliance by requiring it as a condition for hosting new offerings. Regulators have low-cost tools, such as targeted reminders, that could meaningfully improve compliance rates.
Investment crowdfunding has created new opportunities for Small Businesses to raise capital and for individuals to participate in early-stage ventures. At the same time, it has introduced new challenges for oversight and transparency. Our research documents that compliance with ongoing financial reporting requirements is currently low, identifies the factors that make reporting more likely, and provides evidence that modest interventions can improve outcomes.
While the long-term implications for the Reg CF market remain uncertain, our findings suggest that strengthening perceptions of regulatory risk, even through simple, low-cost measures, can enhance financial reporting compliance and, in turn, improve transparency for investors. By reinforcing the expectation that rules are to be followed, the investment crowdfunding ecosystem can continue to grow on a foundation of greater accountability and trust.
Greg is an assistant professor at the Quinlan School of Business at Loyola University Chicago, located in downtown Chicago. He completed my Ph.D. in accounting at Duke University’s Fuqua School of Business and completed a two-year visit at the Kelley School of Business at Indiana University.
Greg’s research focuses on financial accounting issues, particularly those related to securities regulation/enforcement, financial reporting and disclosure, entrepreneurial Finance, and corporate governance. Currently, he is particularly interested in the securities market promulgated by Regulation Crowdfunding. While Greg’s primary research method is empirical-archival, he has some projects that use experimental, survey, and analytical methods to better address research questions where archival methods are less appropriate.
Greg has taught undergraduate and graduate courses in financial accounting, managerial accounting, and basic mathematics. He has also instructed new hire assurance associates at PwC as well as professionals at a start-up incubator.
Outside of academia, Greg enjoys getting outside, doing a good DIY household project, and finding an unbeatable sale.
Greg is a member of the Crowdfunding Professional Association.
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If a location is not noted, the events below are virtual.
Superpowers for Good Live Pitch on September 29, 2025, hosted by Devin Thorpe on e360tv, will feature Core Tax Deeds, Dopple, ProActive Realty Group, and Victory Hemp Foods pitching their active Regulation Crowdfunding campaigns to a nationwide audience. Viewers can vote for their favorite companies, win prizes, ask live questions, and join a private investor Zoom session to engage directly with founders and even invest during the show. Don’t miss this free chance to discover and support purpose-driven startups—register here: https://thesupercrowd.com/25q3pitch
Impact Cherub Club Meeting hosted by The Super Crowd, Inc., a public benefit corporation, on October 28, 2025, at 1:30 PM Eastern. Each month, the Club meets to review new offerings for investment consideration and to conduct due diligence on previously screened deals. To join the Impact Cherub Club, become an Impact Member of the SuperCrowd.
Successful Funding with Karl Dakin, Tuesdays at 10:00 AM ET – Click on Events.
KingsCrowd Investment Crowdfunding Week: September 29 through October 2nd, featuring speakers, panels and live pitches (Devin Thorpe will be judging the Clean Energy pitch session on September 30 at 2ET/11PT). Free registration!
Neighborhood Economics: Chicago takes place September 29–October 1, 2025, at Venue SIX10, bringing together changemakers, innovators, and community leaders reimagining wealth, ownership, and entrepreneurship to drive real community transformation.
Earthstock Festival & Summit (Oct 2–5, 2025, Santa Monica & Venice, CA) unites music, arts, ecology, Health, and green Innovation for four days of learning, networking, and celebration. Register now at EarthstockFestival.com.
Regulated Investment Crowdfunding Summit 2025, Crowdfunding Professional Association, Washington, DC, October 21-22, 2025.
Impact Accelerator Summit is a live, in-person event taking place in Austin, Texas, from October 23–25, 2025. This exclusive gathering brings together 100 heart-centered, conscious entrepreneurs generating $1M+ in revenue with 20–30 Family offices and venture funds actively seeking to invest in world-changing businesses. Referred by Michael Dash, participants can expect an inspiring, high-impact experience focused on capital connection, Growth, and global impact.
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