Ultimate Guide to Crowdfunding Financial Statement Review

If you have questions about crowdfunding or a crowdfund financial statement review, all the answers are here. This comprehensive guide will explain, in plain English, such confusing topics as GAAP financials, Regulation A funding, SAFEs, affinity vs. equity crowdfunding and much, much more.

The reality is that crowdfunding rules aren’t difficult to understand when someone takes the time to cut through the BS. Helping you gain the knowledge necessary to reach your goal is our job. We also offer resources on reviewed financial statements for your crowdfund raise.

What is a Crowdfund Financial Statement Review?

crowdfunding financial statement review is triggered by the amount of money being raised in an equity funding event. Once a company raises or plans to raise over $107,000 from a single crowdfund, they must have their financial statements reviewed by a licensed CPA. The review consists of analytical procedures and other standards.

In the review the accountant prepares a balance sheet, income statement, statement of owner’s equity, cash flow statement and their related notes. A review process consists of an engagement letter, the reviewed financials, and a management representation letter. The whole process takes less than four weeks and costs between $500 – $5,000.

What are Crowdfunding GAAP Financial Statements?

Generally Accepted Accounting Principles (GAAP) are a common set of accounting rules, procedures and standards. GAAP is issued through the Financial Accounting and Standards Board (FASB). Much of GAAP consists of authoritative standards and common industry practice.

While standards are generally set out in written form, common practice can take many forms. Such as industry publications, statements in the form of industry regulation, or plain old industry norms not set in stone.

GAAP has the goals of completeness, consistency, and comparability in financial statements. This set of rules makes it easier for investors, and the industry to analyze and use financial data for various purposes. In this way individuals and businesses can compare information from different time periods to spot trends and make investment decisions.

Who needs a Crowdfunding Financial Statement Review and Why?

Some platforms may have more stringent requirements; however none can have weaker ones than are required by the Securities and Exchange Commission (SEC) regulation. The minimum reporting standards set by the SEC follow and should be considered when planning your crowdfunding raise. These limits may be used to guide you on how much you initially seek through your funder.

The basics are listed here for raise amounts and needs for your financial statements. But be aware that if this is your second or more fund raise, the rules are slightly different. You should check with your funding platform for specifics of your needs.

  1. If you are raising less than $250,000, you will need 2 years of financial statements in GAAP format. These do not have to be reviewed or audited by a CPA.
  2. If you are raising more than $250,000, you will need 2 years of financial statements in GAAP format and an independent CPA Review. Here is an example.
  3. If you are raising more than $1,070,000, you will need 2 years of financial statements in GAAP format and an Independent Auditor’s Report.

When Should I get a Financial Statement Review?

The best thing you can do for yourself is to be proactive and get your financial statement review early. Preferably before even starting the campaign. Many platforms require the financials be reviewed or audited prior to finalizing your application. This makes it even more imperative to find a CPA now.

Review of limited information will only take a week or two, However, two-year comparative reviews can take four to eight weeks. If you need an audit, you could be looking at several months or more. The platform you use can direct you to the timeline for most of your requirements. Such as when financials are due for submission and whether you need them prior to starting or after completing the crowdfund event.

In the past I have seen some instances where the crowdfunding platform allows submission after completion but prior to receiving the funds. Timing is the area of perhaps the most importance. If you finish and then need a review or audit, you could be waiting an additional two months or more before accessing the cash you raised.

How do I get a Financial Statement Review for a Crowdfund Event?

The first thing you need for a financial statement review of your crowdfund is to find an independent CPA. An independent CPA is one that has a limited relationship with your company in a way that would not impede their ethical standards.

Once engaged for service the CPA will perform some steps to assess and analyze your business and financial data. Also, they will use some of the following procedures and inquiries.

  1. Inquire of management as to the accounting practices and principles used by the business
  2. Gain an understanding of procedures for recording and summarizing financial transactions and information
  3. The CPA will read and get an understanding of actions and decisions at board meetings
  4. Obtain information regarding subsequent events if any exist
  5. Perform analytical procedures on company accounts
  6. Communicate and understand management’s responsibility for internal controls and to prevent and detect fraud
  7. Compare the financial information to knowledge and expectations that the CPA may have
  8. Inquire of management regarding the knowledge of fraud and its impact
  9. Make management inquiries and obtain relevant documentation regarding financial information
  10. And after completion, obtain written representations from management as it relates to information given to the CPA

As you can see, the process for a review is detailed. While far less in scope than an audit, it takes several weeks to complete when performing the review for a several year period. This is why it is always a good idea to start early seeking help and retaining the services of a competent CPA.

What are the Pros and Cons of Affinity Crowdfunding?

The Pros of Affinity Crowdfunding


Affinity crowdfunding has a big advantage over equity (explained below) in the ease to set up your plan. With affinity there are no decisions on how much equity to sell off. By just providing gifts and access to investors you keep the decisions, computation, and analysis to a minimum.

This convenience can lead to more creativity in what to give investors. Instead of focusing on complex stock cost information, you are free to have fun. Want to give away a weekend with the owner in Florida? Then you can. The freedom of creativity is easy and convenient.

Alternative to a loan

Loans are expensive, especially if your credit is less than stellar or not well developed. Loans can also stick with you if your idea fails to get off the ground. This leaves you paying back a bank for many years beyond the end of the business. Interest rates are another drawback. If you’re going to pay 10, 15 or 20% interest, it takes away from cash you could use to run your company.

With affinity funding you can ramp up your cash flow with no worries of expensive interest payments. As well, if the business should happen to fail, you have no further responsibility to the investors. This is provided you have set up a gift program that provides product up front. If not, you will be governed by the terms of your offer.

Control over ownership

The worst thing a new business can do is give away ownership early on. This is because at that point you have no idea where things will go. You could end up selling interest in your business for pennies now that could have been dollars in a year or two.

With affinity funding you do not sell off stock or equity in your company. Instead, you merely provide incentives to people for their investment. Talk about a win/win. It’s a win for you because you retain ownership. It’s a win for the investor because they receive product or other incentive for their money.

Less risk to investors

Investors in equity generally expect that over time their investment will grow and provide some form of return (higher sell price and/or dividend payments). The investor now has a vested interest in winning as opposed to losing. This risk is not taken lightly by many investors.

By offering a gift or promotional payout to investors, they feel no risk once they receive their payoff. This can create goodwill and good word of mouth up front and can help your campaign excel. Always remember, people love free gifts and trinkets and will look favorably upon you for them.

The Cons of Affinity Crowdfunding

Time and effort

Nothing comes with out a cost and the price for an affinity crowdfund is time. The cost of time lies in what you could be doing instead of focusing on creative ways to garner investors. Affinity raises take creativity and time in order to incubate the perfect mix of offerings and giveaways.

You also need to spend time sending investors their product or planning the services you are offering. All of this will ravage your free time. This is why some choose a standard equity offering, there is less time spent catering to investors.

Idea theft

Nothing says, “steal my idea and my investors” like a crowdfunding campaign. The moment your pet project is live on-line, you are susceptible to idea theft. The biggest problem is that unless you have something proprietary and protected, you can be out done by someone else.

Theft of ideas happens everyday and to companies large and small alike. No one is safe or immune to it. So short of never letting your idea see the light of day, you could be subject to it. The best protection is to be proactive at protecting your process and ideas legally, if possible.

Platform fees

The cost of your crowdfunding campaign can range from minimal to a substantial percentage of the money you raise. For affinity campaigns this is more important than an equity raise. With an equity raise you only have to worry about issuing stock in addition to platform fees.

However, with affinity you have the platform fee and the cost of providing the premiums to the investors. There are development costs, production costs and shipping. Once you add these with platform fees, it can dig into your actual return substantially.

Compliance costs

As with every business venture there are costs to comply with rules, regulations, and laws. Affinity crowdfunding comes with regulation on the size of the offer, financial statement preparation/review/audit, and a host of other measures. These all need to be considered.

Complying by the size of your offering is addressed about in the section on “Who needs a Crowdfunding Financial Statement Review and Why?” As far as the compliance cost with a financial statement review you can read more on that here.

What are the Pros and Cons of Equity Crowdfunding?

The Pros of Equity Crowdfunding

Equity or SAFE

The biggest positive with equity crowdfunding is that it can be equity (stock/ownership) or potential future ownership based on several triggering factors (Simple Agreement for Future Equity SAFE, explained below). The befits of immediate equity is that investors know they will receive ownership up front.

However, with a Simple Agreement for Future Equity (SAFE) you control more of the aspects of the ownership being sold off. Generally, SAFEs are based on a current evaluation of the percentage of equity being provided in the future. This means you set a percentage of the company being sold and not a static amount based on the current value of the stock.

Entices people with a stake in the business

Equity offers give investors a reason to be excited about your company, because they have a stake in it. While this can be a con in the future if your company performs poorly, in the short run it helps. Investors are likely to tell others about their “great new investment”. This helps attract more investors to your company.

The feeling of ownership in the company also allows investors to consider their investment an actual investment and not a give-away, as can happen with affinity funding. The actual ownership of part of a company gives security in that they can sell in the future and recoup their investment and maybe a gain on the sale.

Allows funding from an untapped resource, the public

Being able to attain funding from the public opens a larger group for you to work with. In traditional financing you have a small pool of banks, or family and friends to seek help from. These limited resources can hinder your start up and come with strings attached. One of the biggest drawbacks is that you have family and friends rooting for you, but also concerned for their investment. This can be bad if things go awry, and they resent you for it.

You can decide how much of the company to “sell”

With equity founding you have complete control over how much of the company to release to the public. In a straight equity offer you put out a certain amount of stock. This means you only have to offer what you want and could be 10% or 75% depending on the value and amount being raised.

With a SAFE you can offer a future percentage of the business based on current valuation. This allows you to put a number on the percentage of the company that you are selling and the amount you’re raising is tied to it. Obviously, there are limits and shooting for too high a value can be detrimental.

The Cons of Equity Crowdfunding

Compliance with the SEC

All regulation comes at a price. Compliance with the SEC can be confusing, complicated, and frightening. This is one of the top things that moves people away form equity crowdfunding, the scary SEC. First the SEC as an agency is like most bureaucracies, it sets up convoluted and confusing rules and regulations. This leaves the average person having to seek out a lawyer for every answer on the declaration page.

Second, the web of complicated, interwoven, and circular rules is mind-numbing. Alone the SEC regulations number in the tens of thousands. Not something the average person can consume. Last, all of this adds up to fear and aversion on your part. These are all real tangible reasons to fear getting involved with the SEC at all.

Investors are not “sophisticated” and may overlook a strong company

Investors can be sophisticated (accredited) or unsophisticated (non-accredited). See accredited and non-accredited investors below for more detail. When setting up a crowdfunding campaign you are able to garner non-accredited investors, but this comes with a price.

Non-accredited investors are less likely to understand how a company manages money, invests and survives on a daily basis. This is because these may be people with limited business and financial knowledge. This isn’t necessarily a bad thing, but it is something to consider. These types of investors may believe that they have recourse against you should the company fail.

Your platform could get hacked

The possibility of a website or funding platform being hacked is a real possibility. Daily we hear reports of ecommerce sites, service providers and others have client information stolen. Depending on the site you use, this could leave your fund raise vulnerable.

When choosing a platform, do your due diligence to investigate their safeguards. The last thing you need is to work for six months or a year preparing and implementing your offering only to have a hacker tear it down, or worse find a way to get your cash.

What is a Simple Agreement for Future Equity (SAFE)?

Pros of SAFEs

Company friendly and easy

SAFE’s are generally a company friendly and easy way for a business to acquire interment cash inflow. A SAFE is a simple form that can be set up quickly by the company or their legal counsel. As well there are fewer variables to negotiate. This ease in setup is a key feature of SAFEs.

Also, a SAFE by Y-combinator is a standard form and format. This leads to lower cost in setting up the plan. With most of the agreement fill-in-the blank, you can save time and money related to legal costs. Terms of a SAFE are easily determined and you can set up more in the future as your company grows and extra cash flow is required.

No Interest payments

With tradition financing or financing from family and friends, you may encounter high interest rates and tough repayment terms. This creates hardship for your new business. With a SAFE you avoid this scenario. The agreement is based on potential ownership of the company. While the percentage of ownership varies by the agreement, you are under no obligation beyond the offering. If the company does not survive, the agreement is essentially over.

There is no requirement that the company repay the investors or guarantee that the investor shall receive equity. The investment shall convert into equity if, and only if, the SAFE’s conversion trigger is achieved pursuant to a subsequent qualified financing by the company.

No deadlines

Unlike convertible notes and similar debt with functional triggers, a SAFE contains incredible flexibility. The triggers in a SAFE are most often set up to the benefit of the company more than the investor. While not all the benefit goes the company way, the flexibility lies with the business more so.

Cons of SAFEs


There are fees and cost associated with a SAFE offering. Preparation costs, enforcement costs and the costs to comply with triggers all can be a detriment. While these hurdles can be less than other options, all should be considered before moving forward.

Different Investor pool

Accredited investors may not be interested in a SAFE offering. Many sophisticated investors are not interested in holding a SAFE because it doe not initially have any real value. Its value is derived once a trigger fires and the SAFE converts to actual equity in the company. This function can turn off those that are seeking upfront ownership.

Sophisticated investors may object to using a SAFE. Depending on the respective bargaining power of the parties involved, a company may need to instead offer a convertible promissory note or other financing option.

What is Regulation A Crowdfunding?

Regulation A refers to a crowdfund under SEC rules for crowdfunding. It allows companies to sell shares of stock to the public and avoid the reequipments that are generally enforced when gathering over 100 investors. This allows almost anyone to invest in a company.

Some of the highlights:

All transactions under Regulation Crowdfunding are to take place online through an SEC-registered intermediary, i.e. a funding portal

It permits a company to raise a maximum aggregate amount of $5 million through crowdfunding offerings in a 12-month period

There are limits on the amount individual non-accredited investors can invest across all crowdfunding offerings in a 12-month period

It requires disclosure of information in filings with the Commission and to investors and the intermediary facilitating the offering

What is an Accredited investor?

An accredited investor is allowed to trade securities that may not be registered with financial authorities, the SEC. And can be a business or individual. They must generally satisfy one or more requirements to be considered accredited. The rules for an individual are to have an annual income exceeding $200,000 for the last two years, if they have a net worth of over $1,000,000, or are a business head for a company that issues unregulated securities.

A business is accredited if it is a private business development company or an organization with assets exceeding $5 million. Or if the entity consists of equity owners who are accredited investors, the entity itself is an accredited investor.

What is a Non accredited investor?

The short answer is one that does not meet the qualifications of being an accredited investor. Which means they have two-year annual income of less than $200,000, and a net worth less than $1,000,000.

Who do I need to perform a crowdfunding Campaign?


They will help you prepare your financial statements and perform a review or audit as required by your type of arrangement. They can also help you stay compliant with regulations and other financial requirements.


This person will aid you in preparing and filing your crowdfunding documents. They are a needed asset when it come to filing Form C and the other various requirements in a crowdfund. You should always run thoughts and ideas by the lawyer first as it will save you time and money in the long run by avoiding errors.

Business Advisors and Accountants

These individuals will help you with many things including budget preparation, ongoing review and long-term planning. As well they should be able to provide good cash flow management advice with  forecasting and analysis. If they cannot help you implement sound control systems, find someone else for your needs.

Funding Portals

The key to your crowdfunding raise is the portal. Picking the wrong portal can end your fund in disaster and waste precious time. Below is a brief overview of a few of the top portals.


We help everyone invest as little as $100 in the startups they love.  You can think of us like “Kickstarter for investing”. Unlike Kickstarter, you are not buying a product or donating to an artist. Instead, you are investing in a business with the hope of earning a return.

You decide which companies are worthy of funding. If the business does well, you may make money.  If it doesn’t do well, you lose all your money. Either way, you join a community of other investors who seek to help the startup succeed. You sometimes get neat perks from the companies too.

If you want to grow your existing business, WeFunder can help you get funded. Your investors receive a small stake in your company, and the platform aims to increase their emotional investment in your success.


Kickstarter campaigns make ideas into reality. It’s where creators share new visions for creative work with the communities that will come together to fund them.

Some of these creators, like Critical Role, TLC, and The Smithsonian Institution already had huge fanbases. But many projects have been as small-scale as a limited run of silent meditation vinyl’s or as up-and-coming as early versions of Issa Rae’s Insecure and Phoebe Waller-Bridge’s Fleabag.

No matter what, creators always control how the work comes together—no 100-page grant applications, no donors demanding you modify your message, no last-minute edits from investors. When backers chip in funding and help spread the word, they too become part of these independent works.


Entrepreneurs create over 6 million new businesses each year in the United States, and yet only a fraction receive funding. We’ve set out to change that by creating a business crowdfunding platform that enables companies to raise capital from investors, customers, and friends. Here are the three things that have made Fundable the leading platform for business crowdfunding:

Fundable focuses on helping entrepreneurs, startups, and companies raise capital from the public through business crowdfunding. The site allows users to offer either rewards or equity in return for financial support.


Crowdfunder is the leader in equity crowdfunding and has helped raise capital for thousands of companies from our network of 12,000 VCs and angel investors. We’ve helped startups at all stages raise money from Pre-Seed to Series A.

This equity crowdfunding platform allows businesses to sell shares to accredited investors. Crowdfunder has a network of 15,000 venture capitalists and angel investors.


StartEngine is the largest equity crowdfunding platform in the US and the first mover in the industry. We have raised over $400M for over 500 company offerings on our platform to date, and we have helped more companies raise capital than any other platform.

What is the Form C Crowdfunding Filing?

The Form C is an offerng statement filed by businesses looking to raise capital from accredited and non-accredited investors through online crowdfunding without all of the responsibilities that come with registering the offer and sale of securities with the SEC. Form C must include the following information:

  1. A description of the issuer’s business and the use of proceeds from the offering
  2. The price to the public of the securities or the method for determining the price
  3. The target offering amount and the deadline to reach the target offering amount
  4. Whether the issuer will accept investments in excess of the target offering amount
  5. Information about officers, directors, and owners of 20 percent or more of the issuer certain related-party transactions
  6. A discussion of the issuer’s financial condition and financial statements for up to two years

Leave a Reply