Policy Briefing on Oct. 1 @1pm ET: The Main Street Recovery Co-Investment Fund

Regulation Crowdfunding Issuers Need to Comply with Annual Reporting Requirements – Post from our partner LawCloud

SEC Modernizes the Accredited Investor Definition – More Investors can now Participate in Private Capital Markets

Online Investment Platforms Data now available as part of an Alternative Data catalog through Bloomberg

Since the 2012 US JOBS Act, pre-IPO, startup and small businesses have been raising funds online from both retail and accredited investors on investment platforms that are regulated by the SEC and FINRA. Working with these platforms, Crowdfund Capital Advisors collects and aggregates company, offering and transaction data then cleans and normalizes it. This data is now available as part of Bloomberg Enterprise Access Point. The dataset is updated daily, contains over 3,000 offerings and provides insights into over 400 NAICS code industries, current and historic valuations, and much more.

DENVER (PRWEB) AUGUST 18, 2020 — Crowdfund Capital Advisors, a leader in real time private capital markets data in the United States, announced that its data set is now available to Bloomberg Data License clients via Bloomberg Enterprise Access Point. This offers an additional way for the financial industry to discover pre-ipo/startup and small business data.

Pre-IPO, startup and small business offering data can be a primary indicator of the strength of both the startup funding market and local/state/regional economies across the United States. Many investors and analysts find data on private companies difficult if not almost impossible to source. This dataset provides insights into over 400 NAICS code industries, current and historic valuations, earnings and daily investments into offerings. Such data can help make more educated investment decisions.

Crowdfund Capital Advisors normalizes data from thousands of offerings into a single, easily digestible format. Each offering exemption can have different laws, formats and varying levels of difficulty to obtain data. There are over 100 different metrics within the dataset that include: offering date, company description, location, incorporation date, price per share, valuation, capital raised, naics code classification, summary income statement and balance sheets, number of employees and more.

Companies that raise money under some of these exemptions file annual reports that contain updated information on their financial wellbeing which can track performance over time. Others leverage these exemptions over time to raise capital and revealing how valuations change over time as well.

Crowdfund Capital Advisors has been collecting, enriching and normalizing pre-ipo/startup and small business data for online offerings completed under the 2012 JOBS Act. These offerings include 506c (accredited investor online offerings), Regulation A, and Regulation Crowdfunding since 2016. Crowdfund Capital Advisors is now updating over 3,000 private offerings from over 890 locations across the United States on a daily basis. This frequency, along with millions of records enriched each year, provides an invaluable data resource for clients in the financial sector.

Launched in September 2018, Bloomberg Enterprise Access Point is the company’s web-based data marketplace that allows Data License clients to easily discover, access and immediately use high quality, market leading content from both Bloomberg and third party providers.

About Crowdfund Capital Advisors:
Crowdfund Capital Advisors has created and perfected a data acquisition model that allows it to effectively handle large amounts of data from hundreds of online brokers/dealers as well as online investment platforms. It has proprietary software, built by its own technical team, as well as a large Data Quality team to accomplish this task. Thousands of clients have received information from Crowdfund Capital Advisors to improve their businesses.

Sherwood Neiss
Principal
Crowdfund Capital Advisors
(877) 427-2350 ext: 701
sherwood@theccagroup.com

SOURCE Crowdfund Capital Advisors
Related Links: http://www.theccagroup.com

Regulation Crowdfunding has Best Month in History – July Sees Record Investments, Offerings and Investors

CCA’s VentureBeat Article: How crowdfunding is supporting Black livelihoods and communities

The following is a reprint of an article we wrote for VentureBeat that appeared on June 13th. You can find the original here. The financial challenges facing black entrepreneurs are far reaching. The majority lack the relationships that would get them to either a Silicon Valley VC or a friendly bank loan officer. But Regulation Crowdfunding platforms hold the potential to break down barriers to funding black-founded startups, democratizing access to capital, supporting black livelihoods, decreasing economic inequalities, and supporting communities. This relatively new source of funding — it debuted four years ago — allows startups and small businesses to raise up to $1,070,000 online per year from the general public, not just accredited investors. I check in regularly with the various Regulation Crowdfunding platforms on their progress, and this year, their numbers show proportionate representation of Black-led businesses. According to Cencus.gov, as of 2019, 13% of the population was Black. According to George Cook, Co-founder/CEO crowdfunding platform Honeycomb, 11% of all their campaigns have been run by Black founders. And another platform, Seedinvest, has seen 12% of campaigns run by Black founders, according to Aaron Kellner Director of Ventures. Black founders are also seeing relatively good success rates with their fundraises. According to Ben Blieden, co-founder/CFO of MainVest, 60% of companies with at least one African American founder have had successful raises on its platform, compared to the platform’s average of 63%. The success rate for black founders was 50% on Seedinvest, compared to a 69% average success rate on the platform overall. And Jonny Price, Director of Fundraising at Wefunder asserts that a higher percentage of capital goes to Black founders through Regulation Crowdfunding campaigns than does from traditional VCs. “Whereas Black founders receive around 1% of venture capital, [they] have received 8% of Wefunder investment volume over the last year.” Aaron Kellner at Seedinvest told me, “Minority founded/led companies raised on average of about $415K [per company] through the SeedInvest network. This success rate is slightly higher than the platform average overall.” In a recent blog post, Elizabeth Yin at the Hustle Fund spelled out why VC has been unable to provide these same kinds of opportunities to underserved communities: “A power construct that should worry you, as an entrepreneur, that most people don’t know about: VC funds are only allowed to have 99 investors. There are a couple of exceptions. … But, for the most part, most VC funds can only have 99 investors.  Let’s do the math on that. If you want to raise a $100 million fund, that means that your average check size from an investor in your fund needs to be over $1 million. … The number of people or groups who can easily write a $1 million+ investment check is very few. Power in the investing world is concentrated in the hands of just a few people and that money generally continues to support existing funds and the founders they support who are typically White, Male, graduated from an Ivy League or MIT/Stanford, and worked at a top notch tech company liked Facebook or Google. This is why you don’t see new money or new ideas go into investing. Literally, change is prevented by the laws that are in place. The principles of crowdfunding are based on egalitarian access to capital. Rather than having capital flow from the ivory tower of Silicon Valley, average Americans can fund a community business they believe in. Members of the crowd can jump in with as little as $10. According to an article in the Washington Post, There is “a dearth of black investors in venture capital’s upper echelons — where leaders make investment decisions that shape the startup landscape.” This may explain why only 1% of venture capital dollars goes to black startup founders, according to a RateMyInvestor study. In addition, black entrepreneurs lack relationships with banks, which might also explain why black-owned businesses are being shut out of PPP loans, based on an NBC story. Net net, access to capital is a challenge for Black founders in the traditional capital markets. This doesn’t appear to be the same in Regulation Crowdfunding, where community investors decide which entrepreneurs they want to back. The good news with crowdfunding is that we don’t need to wait for Washington, DC or Silicon Valley to change. We can do it here and now and at a community level, with community investors in community businesses. In a recent press release, MainVest wrote, “We are able to put real investment dollars into local Black-owned businesses, which will then be repaid as a priority debt obligation against their future revenues. This allows small businesses to survive our current situation and gives people the ability to do good, while also getting a potential return on their investment. It also ensures that revenue created by black-owned businesses stays in the community, increasing the community’s strength, development, and diversity. Which is why it is up to us to support them now to ensure their long-term viability. ​In order to drive equality on a socioeconomic level, we need to take an active role in investing in entrepreneurs in underserved communities, especially when the systemic bias of institutional finance continues to be a barrier.” If you are interested in supporting Black-owned businesses currently raising money online, here’s a sample list of active Black-founded campaigns: Company/Campaign Page What do they do? Where they are located? Battery Xchange On the go charge solution for cell phones Charlotte, North Carolina Building Economic Advancement Network Corporation Social network that is centered on economic advancement for urban communities Belle Chasse, Louisiana Charles & Company Organic luxury tea Long Beach, California Daleview Biscuit and Beer Brewery/Café Brooklyn, New York Deuce Drone Deuce Drone designs, builds, and operates drone delivery systems, enabling same-day delivery for retailers Boston, Massachusetts Dome Audio Producing proprietary, disruptive technology headphones for music lovers around the world Rahway, New Jersey ecoText A digital textbook subscription for college students. Creating Opportunity Through Affordability Dover, New Hampshire Green Growth Real Estate LLC Cannabis Real Estate Washington, DC Hemp Real Estate Investments Inc Hemp Real Estate Investments Atlanta, Georgia Love Conquers All Health and Beauty Salon Astoria, New York Nuurez Inc Buying real estate to make permanent AirBnB and temporary rentals Kissmmee, Florida Smokey Vale Salon/Barbershop Brooklyn, New York Sol Cinema Cafe Coffee shop & Cinema New York, New York Strong’s Cleaners Dry cleaner Pittsburg, Pennsylvania The Boogie Down Grind Thematic cafe/bar Bronx, New York Watch Party The Watch Party app makes it easy for friends to connect and share their passion for TV. Allston, Massachusetts

CCA Sends Letter to SEC in Support of Increasing the Regulating Crowdfunding Cap to $5 Million

VIDEO: How to Save America’s Small Businesses/Local Economies by Turning Customers into Investors

Sherwood Neiss’ interview with Devin Thorpe

SEC Makes Emergency Amendment to Regulation Crowdfunding Rules to Help Restore America’s Small Businesses

The $62.5 Billion Dollar Main Street Co-Investment Fund that could reemploy 20 Million Americans within 60 Days

While well intentioned, a significant portion of the first round of PPP funds did not reach Main Street businesses. We need to expand a financing service already up and running in the US since 2016 that is 1) targeted at true small businesses;  2) fast – that can be rolled out in 60 days or less; and 3) harnesses communities in partnership with the government to reopen businesses that we all count on in our daily lives. How do we know it will work? The British government has run a similar program for the last 4 years with great success and no fraud.

The Federal Government can form a partnership with online investment platforms to leverage the power of Regulation Crowdfunding (Reg CF) to immediately launch a $62.5 billion dollar co-investment fund. Reg CF allows small businesses to raise money from any American as long as companies provide disclosures and leverage platforms that are registered with the Securities and Exchange Commission (SEC). This tool has been in the works for 4 years now and there has been no fraud. Most importantly, it supports small businesses in communities all across the United States in over 80 industries and supplies critically important jobs.

Why $62.5 Billion? Consider this:

1. According to data from companies that have leveraged Reg CF, the average small business employs around 7 individuals.
2. Between independent contractors and support vendors that provide critical products and services an additional 49 employees are supported (according to data from Paychex).
3. This is a total of 54 direct and indirect jobs created and supported by each small business.
4. If there are 27 million people that filed for unemployment, that’s 500,000 business affected (27 million unemployed / 54 jobs supported per business).
5. If we assume on average they need $250,000 cash to get back up and running, the crowd comes in with $125,000 and the government matches up to $125,000 that the crowd invested. That’s $62.5 billion from the local community ($125,000 * $500,000 businesses) and $62.5 billion from the government.
6. Together with the crowd that would be a $125 Billion dollar investment into local communities. These businesses would re-employ those individuals that lost their jobs. The money would reinvigorate these local economies.
7. The Crowd and government could be repaid in full, with interest, over an agreed upon period of time.

How would it work?
A co-investment debt fund could engage local customers/citizens to invest in local businesses they use and trust. These lenders would have a vested interest in the outcome of the business and hence would be frequent users and brand ambassadors for the business. By investing $1 from the fund for every $1 that came from the crowd, the cash infusion would double and the oversight would be greater than traditional debt investments from banks.

This type of program could be implemented fairly quickly. Since the technology and regulation is already in place and operating, it could be immediately launched. Since the platforms that exist are already registered with the Securities and Exchange Commission as well as FINRA these platforms are known entities. The regulation already requires that companies seeking funds have disclosures necessary to inform investors so investors aren’t making blind decisions. And the framework requires that companies exceed minimum funding targets that they set, so if a company fails to reach its minimum funding target, no money is transferred to them and the crowd doesn’t lose. A co-investment fund could start as a trial and then expand if successful, thus mitigating risk and also increase speed to market.

Strategy 
The Federal government would work with online investment platforms to co-lend to America’s small businesses and entrepreneurs. The loans could be up to $500,000 with the crowd able to fund up to $250,000 and the Federal Government to match the loans, dollar for dollar, up to $250,000. (A majority of the loans would be less than $500,000 … with the mean loan being around $250,000 with half coming from the local community).

In 2012, the JOBS Act was enacted on a bipartisan basis to create new sources of funding for small businesses and entrepreneurs. There are now over 50 online funding platforms that  enable entrepreneurs and small businesses to raise money from local investors, customers, and fans. These funding portals enable businesses to raise money via debt or equity (stock) instruments. The platforms are licensed and regulated by the SEC and FINRA. This provides infrastructure to activate this program immediately.

Investment Instruments Available
While there is no limit on the type of securities a company may issue under Reg CF, it is suggested that initially, bonds, debt and revenue-based financing vehicles would be the types of securities for this pilot program.

Repayment Process
This program would be similar in structure to the PPP program, but more targeted to small businesses.

• The maximum funding is to be determined by the Federal Government. If the pilot program is deemed successful, it can choose to expand the program over time.
• The Federal Government could choose to forgive part or all of their portion of the funding.
• Funds are repaid in full, first to private investors.
• The Federal Government is repaid after all private investors have been repaid.
• The Federal Government can choose to forgive part or all of the loans.  Examples would be to forgive 50% or 75% of the government’s portion of the loan, providing the private sector has been fully repaid on time.

Oversight
As with any type of financing, oversight is critical. The following key levers will provide oversight for the program:

1. Fund manager provides oversight on fund operations and works with the fund administrator to deliver periodic reporting to the appropriate government agency on fund performance and operations.
2. Fund managers engage with platforms to provide oversight.
3. Portals provide oversight on individual company diligence.
4. Community investors provide oversight on company performance.

We need bold action now.  This program can quickly deliver capital to the small businesses that puts millions of Americans back to work, and delivers services that everyone will depend on to start feeling some sense of normalcy back in our lives.

For details of a draft plan, contact us.

Innovative Way Federal (or State) Government(s) Can Support Small/Medium Enterprises During the COVID Cash Crunch – A $250 Million Co-Investment Fund

After almost 4 years in action, Regulation Crowdfunding has not only proven to be a successful model for investing into startups and small businesses but how such investments can mitigate risk, invigorate local economies and provide critical jobs. Since May 2016, almost half a million individuals have invested over $360 million via Regulation Crowdfunding into 1,4000 businesses in over 80 industries across the United States. Despite the collapse of the public markets since the beginning of the Coronavirus pandemic, the private markets have been resilient. This is some positive news as now is the most critical time for small businesses that are struggling to stay afloat, are in a cash crunch and have nowhere to turn as government programs for small businesses run out of fuel. Crowdfunding platforms like Wefunder and Nextseed have created programs to leverage the power of the crowd to assist businesses during the COVID crisis. But there is more that our government can do … and not as a bailout but as a partner to small businesses. The government could leverage one of the tools in its tool chest, the Small Business Investment Company (SBIC) program, to develop a new $250 million co-investment fund that will invest alongside the crowd where campaigns hit their funding targets. If the government invested $1 for every dollar that was invested into local economies, that would be a half a billion dollar boost to regions of the country that are most impacted. Think about that in terms of economic activity and jobs.

Why the SBIC Program?

This isn’t about creating something new that the government is unfamiliar with. This is about finding something the government is already doing and expanding it to apply to the current crisis. It is also about layering on new methodologies (i.e. Regulation Crowdfunding) to existing practices such that the risk is less for the government. The SBIC is a program that helps finance small businesses. An SBIC is a private lending company which is licensed and regulated by the Small Business Association (SBA). SBICs offer venture capital financing to higher-risk small businesses and SBIC loans are guaranteed by the SBA. An added advantage of SBICs for small businesses is that, in addition to funding small business growth and more jobs, SBICs offer management expertise and assistance to companies. SBICs are privately owned and managed investment funds, licensed and regulated by the SBA. These companies use their own capital, along with funds borrowed with an SBA guarantee, to invest in qualifying small businesses. SBICs use a combination of funds raised from private sources and money raised through the use of SBA guarantees to make equity and capital investments in small businesses. The SBA matches SBIC funds at the rate of $2 for every $1 the SBIC puts in.

How Could this Work with Regulation Crowdfunding Platforms?

Crowdfunding platforms could apply with the SBA to be “Limited SBICs.” The approved platforms would have access to the $250 co-investment fund. In order for small businesses to qualify for co-investment funds they must meet certain criteria. For example, it might be required that a crowdfunding campaign hit its minimum funding target or a minimum dollar amount (like $50,000 from the crowd); that a certain number of investors be part of the offering, that those investors have a 1^st or 2^nd degree connection to the company, etc. Triggers like this will mitigate risk for the government by making sure there is an engaged group of investors looking out not just for the company but their investment as well. In a way, the crowd will act like the SBIC management company by providing capital and oversight.

Companies on the crowdfunding platforms could apply for matching funds from the “Limited SBIC COVID Co-Investment Fund.” Since the crowdfunding platforms don’t handle any funds (funds are held in escrow) they could notify the SBA when a company qualifies. Depending on how much the company has raised, the “Limited SBIC COVID Co-Investment Fund” would come in with a matching investment. This money would be automatically transferred to the company.

Since the crowd is “investing” in these offerings. The government would be investing as well. A popular type of investment vehicle that works well for cash flowing small businesses is a revenue share note. With a revenue sharing note, investors can earn a multiple on their principal, such as 1.2x (each deal has a different potential return). Businesses pay investors a small percent of their monthly revenue (for example 3-6%) over a set period of time (usually 4 years) or until the multiple is paid. Revenue sharing notes could work particularly well for businesses in crisis because when revenue is slow, paybacks (that are based on a percent of revenue) are lower as well. This eases the cash burn on these establishments. Then when business picks up, the note repayments pick up as well. Hence when these COVID affected businesses are back up and running, customers will be short-term investors, we will have saved local economies, businesses will have cash to survive and thrive, they will also be generating revenue and be able to repay their loans. Most importantly the money the government put up will be returned to the government with interest as opposed to all these current loan forgiveness programs.

Conclusion

The government could support startups and small businesses affected by COVID (and keep local economies invigorated as well as people employed), by creating a co-investment fund that matches (perhaps $1 dollar by US Government to every $1 by the crowd) into local businesses that raise funds to keep them going.  A $250 million co-investment fund could then equate to $500 million invested into local economies. The government won’t be taking all the risk. The community is sharing in this risk. And because these local investors have a stake in the outcome of these local businesses, they will visit them and be marketing agents for them such that they thrive (and the investors get a return on their investment).

If this seems innovative, it isn’t. Right now, governments like Malaysia already do this with any company that is raising funds under their equivalent Regulation Crowdfunding regimes. Now is the time for fast acting solutions, this could be one of them.

Crowdfunding Update – How Regulation Crowdfunding Stood up to the First Weeks of Coronavirus –Almost Opposite of the Public Markets

The Coronavirus is taking the financial markets by storm. It began its attack on the public markets around February 12th. Since then, the markets have dropped 30% off their highs and have made wide swings from one day to the next. It has been one of the most volatile periods in history. While we have yet to see how everything will play out, it is encouraging to see that this volatility has seemingly not had the same impact on private funding online. The data shows that people are still investing in their local businesses via online platforms. And their numbers are growing year over year. This will play an important role as we emerge out of this pandemic. We wanted to understand what is happening, so we dug into the data, reached out to a few platforms, and this is what we learned. Since February 12th, over $11.6 million has been invested into over 320 active companies, who are raising money on 13 online investment platforms. Over 21,000 investors have made individual investments into these companies. Comparing this to the same period last year, $9.8 million was invested into 227 active companies on 17 platforms by over 11,000 investors. There were 41% more active companies during the same period last year. The amount invested was up 16.3%, and the number of investors engaged was up 90%. All of these select private market indicators were up despite the public markets being in a free fall. The image below shows period over period activity from February 12th to March 18th. What we see is that, despite the volatility in the public markets, this segment of the private capital markets appears to be withstanding the negative impacts … for now. There have been several breakout companies during this period of public volatility. The list below shows the top 10, who they are, where they are based, where they are raising funds, and how much they’ve raised during this period. Company City Listing URL Amount Raised Between 2/12/20 and 3/18/20 Mightly Quinn’s Passaic https://www.seedinvest.com/mightyquinns/series.b  $1,075,619 Lost Spirits Vernon https://wefunder.com/lost.spirits  $1,070,000 Black Sands Entertainment Brooklyn https://wefunder.com/black.sands.entertainment  $480,000 Ample Foods San Francisco https://republic.co/ample-foods  $295,836 McSquares Denver https://wefunder.com/mcSquares_The_Art_Of_Whiteboarding  $282,207 Neurohacker Carlsbad https://wefunder.com/neurohacker  $277,529 Called Higher Studios Franklin https://www.startengine.com/called-higher-studios  $274,730 GenesisAI Allston https://wefunder.com/genesis.ai  $263,725 Copperworks Distilling Seattle https://wefunder.com/copperworks.distilling  $259,637 Fisher Wallace New York https://www.startengine.com/fisherwallace  $249,693 We asked some of the platforms for their thoughts on why the private capital markets might be operating differently from the public ones. Ryan Feit, CEO of SeedInvest, shared an interesting perspective. As he put it: “Sentiment is good. Venture will freeze up and entrepreneurs will need to utilize alternative sources of capital more than ever. On the investor front, the public markets will undoubtedly take a toll but given that the private markets have a low correlation to public and with interest rates at zero, hopefully people will continue to shift capital away from traditional assets.” Chuck Pettid, CEO Republic Crowdfunding Portal, said “Investors may be starting to turn more to private markets because their numbers don’t move so rapidly as we’ve seen in the public markets.” Over the past week he’s heard that “Investors are looking for more long-term stability and when I see this being repeated it ends up being a theme.” Given the high volatility in the public markets this might be a reason to increase one’s diversification. “Sure some startups will fail but not in one day,” he says “it will take time.” When asked why he thinks people are investing, he shared “People are looking to diversify while some are investing strictly out of support. They want these businesses to be around and these investors can play an important part in America getting back on her feet.” When asked if he’s sees any correlation between the markets he remarked that the periods where the stock markets took deep dives, they saw very little investments happening on their platform but when it picked up, so did their volume. And while investors in this segment of the private markets can cancel their investments he acknowledged that they are seeing very little of that. Jonny Price, Director of Fundraising at Wefunder felt “It is too early to tell. While he could certainly see how this crisis would lower investment volume March 2020 has been is our best month ever already.” He also agreed with Pettid and Feit above by stating, “You can make a case that when the stock market is crashing, investors will seek alternative investment opportunities. And when conventional sources of capital dry up (e.g. VC), more founders might turn to their fans and customers for capital.” His last thought was most poignant, “High level — if there was ever a historical moment for a democratic and people-powered financial system, this would seem to be it.” We will continue to monitor this segment of the private capital markets to see how they are impacted. We will also share with you stories coming from both the platforms and the companies raising money on them that are focused on COVID-19. In the meantime, it is heartening to see that investments haven’t trailed off. At some point we will come out of this downturn, when we do these startups and small businesses will play an important role in helping to reinvigorate local economies and provide valuable jobs. Two of the things that seem most impacted by the coronavirus to date.