Inside the FSCA Sandbox: A Practical Guide to Crowd‑Equity Fundraising

Equity crowdfunding has been simmering beneath the surface in South Africa, and the Financial Sector Conduct Authority’s (FSCA) Regulatory Sandbox is finally allowing it to move into the mainstream. By welcoming the first equity‑crowdfunding platforms, the sandbox provides a supervised environment where founders can match retail investors with early‑stage shares without jumping through all the hoops of a full public-offer prospectus.

For startups in need of capital, the big advantage is regulatory flexibility: the equity crowdfunding portal, rather than each issuing company, carries the primary compliance burden while the FSCA maintains oversight. This frees campaigners to focus more on crafting compelling pitches and less on exhaustive regulatory compliance.

Within this sandbox environment, a company can develop a funding plan with a goal as high as five million rand without a prospectus. Here’s how such a strategy could work:

1. Small-Offer Exemption (Section 96 of the Companies Act): Section 96 allows a company to make private offers to up to 50 investors in a 12-month period without requiring a prospectus. While there is no explicit monetary cap in the Act, in practice, many legal advisors recommend keeping individual rounds moderate (for example, around R1 million) to avoid regulatory complications.

2. Professional/Qualified Investor Placement: Offers can be made to certain categories of professional or institutional investors, such as licensed banks, investment funds, or individuals whose ordinary business is investing in securities. These placements also benefit from exemptions under section 96.

3. FSCA Sandbox/Portal Crowdfunding: Participating equity-crowdfunding portals in the FSCA sandbox may, on a case-by-case basis, be granted special permission to facilitate retail investments under controlled conditions and caps. The FSCA closely supervises these experiments and has so far allowed cumulative models that can, with their approval, approach a target such as R5 million by combining several private and professional investor tranches with a capped retail crowd component.

Important caveat: This multi-tranche approach—combining various safe harbours—only works with FSCA approval and in the context of the sandbox. Artificially splitting a public offer outside such oversight would likely breach the Companies Act.

Cap Table Management for Crowdfunding

Crowd-equity brings dozens or even hundreds of micro-investors onto your shareholder register. If you're raising funds this way, build crowd-friendly terms into your shareholders’ agreement from the start. Consider:

• Special share classes for portal investors with limited voting rights

• A digital shareholder register to simplify communication

• Pre-emptive rights that activate only above a set holding threshold

• Tag-along and drag-along rights so minority investors can exit or not block significant transactions

• Quarterly information updates for all portal investors, rather than individual requests

• Buy-back provisions for very small holdings, and internal dispute resolution to keep disagreements out of the public eye

The Bottom Line

A well-crafted, sandbox-approved equity crowdfunding round keeps compliance and legal costs manageable, broadens your supporter base, and doesn’t create major headaches later for more conventional investors (like a Series A VC round), provided your shareholder and cap table structuring is robust.

With the sandbox open and a roadmap in hand, local startups no longer need to look offshore to run a legitimate equity crowdfunding campaign. However, it’s vital to understand that these strategies hinge on FSCA approval and strict adherence to the Companies Act exemptions. Before raising funds, consult an experienced fintech lawyer to ensure your fundraising complies with all relevant laws and FSCA guidance.

The StartUp Legal offers expert legal services tailored for SMEs, helping you secure a winning edge. For personalized support, book a complimentary consultation: https://calendar.app.google/jvrnTkNsYSZijq1T7 or email us at hello@thestartuplegal.co.za.