The following is a reprint of a story regarding the letter CCA coordinated to increase the Regulation Crowdfunding cap to US$20M. The original can be found here.
In a letter forwarded to Securities and Exchange Commission (SEC) Chairman Jay Clayton, a group of Fintech leaders demanded the Commission to increase Regulation Crowdfunding (Reg CF) from the current $1.07 million max amount to $20 million – a substantial increase to current rules. The demand to increase Reg CF, an iteration of securities crowdfunding that was created by the JOBS Act of 2012, comes at a time when there is pressure for the US to maintain is position as a leader in investment crowdfunding the space. As pointed out by the signatories, both Germany and the UK have increased their crowdfunding threshold to €8 million (USD $9.4 million). The European Commission may move to make this a pan-European threshold with some EU insiders pushing for a higher amount.
The letter was sent under the letterhead of Crowdfund Capital Advisors (CCA), co-founded by Sherwood “Woodie” Neiss and Jason Best. The two founders were vital to the passage of the JOBS Act when President Obama signed the bill into law.
Neiss told Crowdfund Insider;
“Each of the parts of the JOBS Act served a niche well except for those companies that liked the idea of crowdfunding from Main Street investors without the costs of a Title IV (Regulation A+ offering). By increasing the maximum an issuer can raise to $20 million under Regulation Crowdfunding, we can now fill this void and allow a broader spectrum of small issuers into the marketplace. With 2 years of history and data under our belt, we can see that the system is working, capital is flowing, jobs are being created and money is being pumped into our economy. Rather than ask for another de minimus increase in the cap, let’s raise it to an amount that will really allow the industry to take off but in the same systematic and transparent way that benefits issuers, investors, and regulators.”
Neiss, in an email to Chair Clayton, said “the United States should not be left behind, but should make the bold move to increase the cap to $20 million.”
The SEC has the ability to act and such a move would most likely have the support of much of Congress and most likely the Executive branch. The question is whether, or not, Chair Clayton will be willing to take such a bold move that will clearly support small business and capital formation – a policy area Clayton has consistently said is one of his top leadership priorities.
The letter to Chair Clayton was signed by the following crowdfunding industry leaders:
Sherwood Neiss – CCA
Doug Ellenoff – Ellenoff, Grossman & Schole
Youngro Lee – CEO of NextSeed
Tyler Gray – COO of Microventures
James Dowd – Managing Director North Capital
Kendrick Nguyen, CEO of Republic
Ryan Feit – CEO of SeedInvest
Karen Kerrigan – Small Business and Entrepreneurship Council (SBE Council)
The Honorable Jay Clayton
Chairman
U.S. Securities and Exchange Commission 100 F Street, NE
Washington, DC 20549
Dear Chairman Clayton:
We compromise the largest online crowdfunding platforms and industry influencers in the United States. Given the positive early results since 2016 for both entrepreneurs and investors, we believe the time has come to raise the maximum amount an issuer can raise via Regulation Crowdfunding (Reg CF) from US$1M to US$20M. Please keep in mind that during the 2 years of this new exemption there has been no fraud and very limited regulatory issues.
Since the launch of Regulation Crowdfunding:
Over 1,000 companies have filed with the SEC to raise money on online platforms that are registered with FINRA to facilitate capital formation.
Over $137M has been committed to these issuers. 95% ($130.4M) of that capital was funded and invested into 715 companies (68.5% success rate).
These 715 companies are supporting 4,172 jobs and producing over $249M in revenue.
Issuers have filed in almost every state in the Union.
Issuers have been funded in 80 industries (according to Morningstar’s Global Equity Classification Structure).
The cap should be adjusted because:
There has been zero fraud, competent issuers have been able to raise serious capital from investors that believe in their products or services, and retail investors (for the first time in recent history) have a transparent, systematic way to back companies they believe in.
Successfully funded companies are supporting and creating valuable jobs and providing substantial economic activity in a broad range of locally important industries all around the United States.
The initial cap of US$1M was meant to be adjusted. Only once since the launch of Regulation Crowdfunding has this been adjusted and at the time only by $70,000. Such de minimus adjustments do not fully allow meritorious issuers to fully benefit from this new form of online finance nor expand the opportunity for issuers seeking to raise in excess of $1M.
The current $1M level is now far below what startups and SMEs need for seed stage capital. May 2018 data indicates that the median sized funding round for Angel or Seed stage companies in the US is $2M. This means that even for the smallest funding round the current limits do not allow an issuer to raise their entire round via Regulation Crowdfunding. This dramatically increases costs and time spent on raising capital by US businesses. This reduces the number of American innovators and job creators in the United States.
While the “funding gap” that Regulation Crowdfunding was meant to address is filling the void. The funding “opportunity” really comes from those small/medium firms that are seeking to raise up to $20M. Raising funds under $20M has become increasingly challenging as Venture Capital/Private Equity has moved upstream over the past decade. Raising the cap will allow issuers that wish to utilize this form of online finance the ability to raise in excess of $1M and tap their local investors without having to deal with the costly, time consuming process of either filing a full prospectus with the SEC or spending hundreds of thousands of dollars on a private offering.
Many companies forego Regulation Crowdfunding in favor of Reg D, 506(c), because of the low Reg CF limit. This has the effect of reduced disclosure to investors, since Form D provides less information even than Form C. In addition, ordinary investors are cut out of some of the most attractive deals that have already attracted institutional funding, which seems unfair and counter to one of the goals of Reg CF.
Both the United Kingdom and Germany have adjusted their caps to 8M EUR (US$9.4M). The United States should not be a follower but a leader
In a FINRA live chat with Robert Cook you said, “I continue to worry that retail investors do not have access to as broad a slice of our capital markets as I would like them to have. Said another way, you have private capital and public capital. Retail investors can really only participate in the public capital, and to the extent private capital has become so robust, you’ve shrunk opportunities. That bothers me a bit. If that trend continues, a much more select group is participating in the growth of the economy.”
We believe increasing the caps on Regulation Crowdfunding will address your concerns and invite more retail investors into a systematic, transparent part of the private capital markets that is creating jobs and providing valuable economic stimulus.
We kindly urge you to adjust the maximum amount an issuer may raise to $20M. Sincerely,
Sherwood Neiss, Crowdfund Capital Advisors Doug Ellenoff, Ellenoff Grossman & Schole Youngro Lee, CEO NextSeed Tyler Gray, COO Microventures James Dowd, Managing Director North Capital Kendrick Nguyen, CEO Republic Ryan Feit, CEO SeedInvest Karen Kerrigan, Small Business and Entrepreneurship Council Ron Miller, CEO StartEngine Nick Tommarello, CEO Wefunder
Are you seeking investors to help you fund your business idea or growth? With the launch of equity crowdfunding in 2016, businesses can now raise money from ordinary investors online.
This recorded webinar will share the ins and outs of equity crowdfunding and highlight the type of businesses that can benefit from this opportunity.
You will learn:
What is equity crowdfunding?
Equity vs rewards-based crowdfunding and which is the best for your business
How to evaluate an equity crowdfunding platform
Keys to a successful crowdfunding campaign and how to attract investors
The impact of raising money via equity crowdfunding to your business
Sherwood Neiss, is a Principal at Crowdfund Capital Advisors and a Partner at Crowd Capital Ventures. He is a serial entrepreneur, investor and avid worldwide speaker discussing crowdfund investing and how to build winning companies.
The following is a reprint of an article we wrote for VentureBeat. You can find the original here.
For startups and small businesses interesting in raising money online, it can be tough to choose a crowdfunding platform — there are so many out there. And they rank differently depending on whether you’re looking at the size the platform, the total amount of capital it has raised, its overall success rate, or the average amount the platform raises per deal.
My team decided to find out who was the leader in each of these categories. We pored over two years of data. Then we reached out to the top platforms to get their feedback. Their answers were surprisingly similar: Sourcing the best deals leads to the best results. Yet at the end of the day, the data shows one platform leads in an area that may make all the difference in the eyes of the entrepreneur: average capital raised.
Regulation crowdfunding (Reg CF) began on May 16, 2016. It allows any startup or small business to raise up to $1,070,000 online from family, friends, and followers (accredited or not) provided issuers use a crowdfunding website that is registered with the Securities and Exchange Commission (SEC). Since its launch, nearly 1,000 companies have registered with the SEC on 50 platforms, and over $127 million has been committed to campaigns. But that funding hasn’t been evenly distributed across campaigns or platforms. Eight platforms have already gone belly up, 25 have done fewer than 10 deals each, and only eight platforms have raised over $1 million for their campaigns. Clearly, deals and dollars are flowing to a select few. Competition for quality deals is fierce among platforms, entrepreneurs are heading to the top players, and investors are looking for opportunities across industries and regions. So who are the leaders?
Of the nearly 1,000 companies that have registered to raise money online, 50 percent chose to register on either Start Engine or Wefunder. And according to the data, it is a tight race, with StartEngine leading. According to Ron Miller, CEO of StartEngine, the platform’s success has to do with sourcing and setting expectations. “We have more successful campaigns because we source the very best entrepreneurial talent out there. We also set appropriate expectations in terms of how much work it takes to make a campaign successful, and we provide the coaching and support at each step of the process.” This sourcing and coaching probably explains why, over the past two quarters, the company’s new deal volume has surged.
When it comes to total amount of money raised by platform, Wefunder is the leader, with over $38 million. To put this in perspective, since the market began almost one out of every three dollars committed to all campaigns went to Wefunder. According to Wefunder cofounder and CEO Nick Tommarello, the company’s strength on this front has to do with its experience with Silicon Valley entrepreneurs and investors. “Our edge against other platforms comes from our background as product-oriented tech founders who want to empower communities, not broker/dealers who want to take a slice of a transaction. When we attended Y Combinator, we were immersed in an environment where our friends went on to start billion-dollar unicorns. From 2013-2016, Wefunder then invested in these types of startups. We had to learn how to get access to high-quality “oversubscribed” deals. Our DNA applied these lessons to Reg CF deals.” And it seems to be working.
When it comes to who closes the most deals, Nextseed leads the pack with a 93 percent success rate. Twenty-eight of 30 of its deals have been funded. Nextseed CEO Youngro Lee said the platform’s high success rate has to do with focusing on a particular crowdfunding model (debt), businesses types (retail, bricks and mortar), and immediate, easy-to-understand returns. “We viewed the passage of the JOBS Act as an opportunity to democratize private financing in local communities — allowing everyday people to invest in local businesses. We thus focused our efforts on businesses and investment terms that an average investor could actually understand and appreciate. We only work on debt crowdfunding for brick and mortar businesses, and all investments have a finite maturity and monthly payment requirements. We also seek to provide comprehensive services to our issuers throughout their campaign creation process from start to finish, including marketing and PR advice, providing templates, and supporting post-closing investor communication and payment servicing.”
Category: Average raise per campaign – leader SeedInvest
However, when you drill down and look at what really matters — how much money the average campaign raises — the data reveals something powerful. While StartEngine and Wefunder might lead in the number of successful campaigns and Nextseed in success rate, SeedInvest leads in this category, with an average raise of $435,780 per campaign. From an entrepreneur’s point-of-view, this metric is likely the most important one. SeedInvest CEO Ryan Feit said the high average raise amount comes down to extreme vetting and the investor base. “With over 37,000 accredited investors, SeedInvest is by far the largest platform in terms of the number of high net worth investors. In addition, unlike other platforms, we have family offices, venture funds, and high net worth individuals who can write checks between $250,000 and $2 million. This sets us apart from all other platforms and ultimately results in larger raises for startups on SeedInvest. We have never been interested in simply trying to list more startups than other platforms or generate the most investment volume. Historically we have only launched 1 percent of the startups that apply to raise capital, and we invest meaningful time in those startups we select.”
The bottom line
If you are a brick and mortar entrepreneur looking to improve your odds of getting financed, consider heading to Nextseed. Chances are you’ll hit your funding target and do so in less time than applying for a bank loan. If you are looking to get your campaign in front of potential backers, head to StartEngine (or Wefunder, where you’ll pay less in success fees). Keep in mind, you’re going to have to bring the majority of your investors to the deal; they don’t just show up. But if your priority is simply to raise the most money possible, try SeedInvest (and I mean “try,” since they only accept 1 percent of applicants). Entrepreneurs on SeedInvest are raising 89 percent more than the current industry average of $244,000. If you look at the last two quarters alone, investors are pouring their capital into SeedInvest deals ($9.5 million vs $7.7 million for StartEngine and $6 million for Wefunder).
Sherwood Neiss is a partner at Crowdfund Capital Advisors. He helped lead the U.S. fight to legalize debt and equity based crowdfunding and coauthored the book Crowdfund Investing for Dummies.
The 2017 State of Regulation Crowdfunding – U.S. Securities-based Crowdfunding Under Title III of the JOBS Act[1]
Regulation Crowdfunding allows startups and SMEs to raise up to $1,070,000 per year from both retail and accredited investors by utilizing registered funding portals (or broker-dealers) to conduct exempt offerings online. This exemption requires issuers to file in a Form C and post online disclosures about a company’s operations, team, financials and other material information for investors to review. Regulation Crowdfunding started in the United States on May 16, 2016. The second calendar year for the industry ended on December 31, 2017. Because data about issuers, their financial wellbeing, and the capital that is committed is public information we can analyze the data and bring transparency to a segment of the markets (exempt private offerings) that has been fairly opaque until the JOBS Act went into effect.
The number of unique offerings increased 267%[2] from 178 in 2016 to 481 in 2017
Proceeds increased 178% from $27.6 million in 2016 to $49.2 million in 2017. Total proceeds by the end of 2017 was $76.8 million
The number of successful offerings increased 202% from 99 in 2016 to 200 in 2017
The average success rate of offerings to date is 66.7%
The total number of investors in Regulation Crowdfunding increased 158% from 28,180 in 2016 to 44,433 in 2017
Issuers that filed annual reports and reported creating jobs created on average 13.9 jobs.
Revenues for Issuers that filed annual reports increased on average 131% between the year in which they leveraged Regulation Crowdfunding and the Prior Fiscal Year.
Analysis:
The results of this data show that the market, while still in its infancy, is growing at a rapid pace.
The velocity of capital into funded offerings appears to be steady without showing signs of abnormal activity or irrational investor behavior.
The rapid increase in the number of offerings and investors proves that there is appetite for Regulation Crowdfunding from both issuers seeking capital as well as investors looking to diversify.
Given the high success rate for offerings, Regulation Crowdfunding represents a very structured yet viable alternative for access to capital for startups and SMEs.
Given the ability for firms to leverage capital raised to scale operations and create jobs, Regulation Crowdfunding should be promoted by local Chambers as well as the Small Business Administration.
Given the lack of irregularities or fraud, Regulation Crowdfunding (and the structure under which it provides for transparency), should be advocated by policy makers and government organizations.
Conclusion:
2017 represented a strong first complete calendar year for Regulation Crowdfunding. We expect the industry to exceed $100M in funded offerings during the first quarter of 2018. When considering the growth of securities-crowdfunding globally, we expect the market to reach $1B in funded offerings within the next 5 years. This can be further supported by making adjustments to the exemption that would allow for greater issuer caps.
In looking for how to consider the growth rate and size of this market over time, one can look at the UK market for data. With now 5 years of active equity crowdfunding in the UK, according to Cambridge University’s Center for Alternative Finance, in 2017, 17% of all seed stage capital in the UK came via equity crowdfunding. The CCLEAR database will continue to track these markets both domestically and globally as we begin to offer services to other regulators outside of the United States.
Download the full report here.
[1] This report is an excerpt of a report we wrote for the Securities and Exchange Commission (SEC) that summarizes the year end cumulative results for Title III of the JOBS Act (aka Regulation Crowdfunding)
Show me the CCLEAR Regulation Crowdfunding Dashboard
[2] Given Regulation Crowdfunding started on May 16, 2016, the first calendar year of Regulation Crowdfunding only encompasses 7 ½ months. Had it been a full calendar year, this growth percent would have likely been lower.
The following is a piece we wrote for VentureBeat. The original can be found here.
10 reasons the $1 million crowdfunding cap should be raised to $20 million
It’s been18 months since the final rule of the JOBS Act went into effect, allowing equity crowdfunding. In those 18 months, everything proponents of the rule said would happen (and none of what the detractors said would happen) has become a reality. Over $82 million dollars of previously untapped capital from local investors has been committed to over 650 companies. No fraud has been perpetrated. And everyone (including investors, the Government, the Securities and Exchange Commission, and the media) has more insight into the private capital markets than has ever existed before, bringing a new level of transparency, accountability, and data analysis. This is the time to raise the maximum a company can raise from $1 million to $20 million.
Why? Entrepreneurs all across America are finally raising funds faster than they could through traditional channels. Investors now have a transparent and efficient way to support local businesses that they love and believe in by receiving information about these offerings online. Regulators have transparency into the private capital markets, an auditable trail of disclosures, and a digital footprint full of data. And our government has a jobs engine, a way to promote women- and minority-run businesses, an economic booster, and a tax engine. Not bad!
So if it’s working, why raise the cap to $20 million? Let me explain:
1. We can make it a bigger jobs engine. Data from companies that have been successful with an equity crowdfunding offering shows they hire on average 2.7 people within 90 days of a $300,000 raise. That’s about one job per every $100,000 raised. If we increase the cap to $20 million, that could equate to 200 new jobs for each issuer that raises $20 million. So raising the cap would make equity crowdfunding the Main Street jobs engine we expected it to be.
2. It will provide regulators with more transparency. Companies that raise money via equity crowdfunding file specific disclosures about their businesses, their operations, and their financial wellbeing. All of this is digitally recorded, and For the first time in 80 years, regulators can actually see where capital is flowing in the private capital markets, which can allow them to further protect investors. Increasing the limit to $20 million will attract larger firms that seek more capital down this public path. This means regulators AND investors will have real-time actionable visibility into a larger part of the private capital markets.
3. Startups can make a bigger impact. $1 million dollars is nice, but consider how much more a company can do with $20 million. Increasing the cap doesn’t mean every company would get $20 million (currently only about 50 percent of companies are successful with their campaigns and raise on average $300,000), but those that are worthy and can win over the support of the crowd can take on much greater goals.
4. Communities will get more engaged. Want to know how to engage local communities? Make them investors in the local businesses that are not just mom and pop shops but large employers and high-growth startups. They will have a vested stake in the performance of those companies, and by default these businesses will benefit from the marketing power of the community. Increasing the cap to $20 million gives local investors a greater stake in their local communities. Research shows that money invested locally circulates in the local economy rather than being sucked out.
5. We’ll see gender and minority benefits. Data my firm has been collecting proves that equity crowdfunding is democratizing access to capital among women- and minority-founded businesses. Increasing the cap to $20 million means more capital to this underserved group of founders.
6. Investors can diversify their portfolios. Increasing the cap to $20 million will give investors the ability to diversify more into their own communities. This doesn’t mean they should take all their investments out of the public markets, but why not put it into a local company that might be less likely to be impacted by fluctuating oil and commodity prices?
7. More data analytics. More data online means more opportunity to analyze it and present it to consumers of media. This data analytics can educate new issuers, give investors more opportunities to compare companies in similar industries and show our government where the greatest economic impact is taking place.
8. It will fix Title IV, Tier I of the JOBS Act. Title IV, Tier I allows companies to raise up to $20 million online from both retail and accredited investors but requires state review. Getting one state approval is slow and cumbersome. 50 is nearly impossible and insanely costly. Increasing the limit to $20 million will solve this problem and still provide state regulators information, disclosures, and data on all companies raising money from investors in their state.
9. It will allow the platforms to experience their true potential. Platforms are playing the role of intermediary incredibly well. As an extra benefit, they are acting as a vetting mechanism, only listing deals that meet minimum criteria and working to make sure issuers provide full and robust disclosures. Increasing the limit to $20 million will further enable these platforms to play this vital role and earn the fees to help support their operations.
10. Address the emerging blockchain/ICO nightmares. Let’s face it, there is a lot of uncertainty about blockchain and ICOs from regulators and Washington. This is particularly true given the amount of capital flowing through this unregulated industry. Increasing the cap to $20 million will allow ICO issuers that wish to sell security tokens on the blockchain a regulated process to follow. The emerging ICO marketplace would have an approved regulatory process to follow, giving blockchain startups the opportunity to sell their security tokens and give investors confidence that they aren’t risking their capital without some recourse.
Let’s not wait. The SEC should update the amount now or Congress should intervene to do so.
Sherwood Neiss is a partner at Crowdfund Capital Advisors. He helped lead the U.S. fight to legalize debt and equity based crowdfunding and coauthored the book Crowdfund Investing for Dummies.
CCLEAR Regulation Crowdfunding Database covering all Portals and Offerings
MIAMI, FLORIDA, OCTOBER 17, 2017 – Today at a Private Capital Markets forum, Crowdfund Capital Advisors (CCA) announced immediate availability of CCLEAR™, (http://www.CrowdfundCapitalAdvisors.com/data) to enable entrepreneurs, investors, policy-makers, educators, industry stakeholders and government leaders to immediately and transparently analyze all Regulation Crowdfunding offering data. The CCLEAR service can also be easily customized and implemented by securities regulators globally to monitor their private capital market activities.
“The CCLEAR solution is a revolutionary data analysis service that provides unique insights to investors and issuers. Until Title III of the JOBS Act went into effect, there had been no transparency into what is happening in the private capital markets,” said Sherwood Neiss, Principal at Crowdfund Capital Advisors. “Now with Regulation Crowdfunding there is a digital footprint of all private companies raising money online. With this unique data in the private capital markets, investors and regulators can immediately understand where capital is flowing by region, what industries benefit, where jobs are being created, what kind of economic impact is being delivered by city, state and region, where investors are from, where they are investing, the financial health of reporting companies, average valuations, average check size by portal, average raise by industry, average length of fundraising and much more.”
CCLEAR™ (standing for Collect, Clean, Aggregate and Report) is the first comprehensive securities-based crowdfunding database to collect, cleanse, aggregate and report on the underlying companies, portals and industries. CCLEAR uses a standards-based method and data structure (CCA Data Standards) for collecting over 153 static and transactional data points from Regulation Crowdfunding offerings. Crowdfunding websites can plug into CCLEAR via an API. Data is collected, cleansed and normalized then stored in cloud based servers and indexed for rapid response. The CCA Data Standards provides a taxonomy for use by public and private sectors and is promoted through marketplace collaboration.
There are 4 Dashboards available in CCLEAR. The Industry/Media Dashboard is free to registered users and visually displays summary information about the industry. The Investor Dashboard is subscription based, contains all-in-one detail on each offering with a live link to the campaign page, as well as industry analysis. The Regulator/Government Dashboard is subscription based, provides detailed information on all offerings as well as summary information about the entire industry. And the Portal Dashboard is free to Crowdfunding Platforms that plug into the database and provides industry comparisons as well as averages, trends and analysis.
CCLEAR has been in private beta for the past 6 months,” said Jason Best, Principal at Crowdfund Capital Advisors “during this time we’ve had a chance to work closely with our network of media, government leaders, platforms and investors to deliver them more than just data. CCLEAR delivers actionable information to benefit the decisions of all market participants. This type of data standardization tool will also accelerate the growth of the industry.”
Ellenoff Grossman and Schole, a law firm that advises issuers and portals, recently committed to deploying CCLEAR to all lawyers in its firm. “CCLEAR will further enable Ellenoff Grossman and Schole to speak to our clients about market evolution, where niche opportunities exist for portals and set expectations in data driven results way,” said Doug Ellenoff, Partner. “It is truly revolutionary to be able to see what is happening in a market that has had no sunlight for the past 80 years.”
Karen Kerrigan, President & CEO of the Small Business & Entrepreneurship Council said, “Access to capital is a perennial issue for America’s Small Businesses, as well as startup entrepreneurs. Now that we have a new avenue for entrepreneurs and their enterprises to seek capital from their friends, family and followers we need industry data to educate those companies on what they can realistically raise based on region of the country and industry sector. CCLEAR answers these questions for entrepreneurs and small businesses. It is a great tool that will help them succeed!”
CCLEAR Background
CCLEAR is a service created by successful entrepreneurs with Wall Street and Silicon Valley experience. Having raised millions of dollars in the private capital markets as well as crafting the Regulation Crowdfunding framework used in the JOBS Act, the team built a database and standard dataset that answers questions government regulators, policy makers, entrepreneurs and investors want to know about investing in private companies, raising capital online and spurring economic activity. CCLEAR is part of Crowdfund Capital Advisor’s commitment to deliver the latest tools to promote market credibility and efficiency. CCLEAR is available for immediately access at http://www.crowdfundcapitaladvisors.com/data.
About CCA
Founded in 2012, Crowdfund Capital Advisors is the worldwide leader in Securities-based Crowdfunding Policy, Research, Analysis and Data Analytics. The company offers highly customized services designed to assist governments, multilateral organizations, regulators, entrepreneurs and investors in understanding how to promote economies via regulated online securities exchanges. Clients include the World Bank, Inter-American Development Bank, country governments and global financial institutions.
The U.S. Department of the Treasury released a report detailing how to streamline and reform the U.S. regulatory system for the capital markets. Treasury’s evaluation of current capital market regulations found that there are significant reforms that can be undertaken to promote growth and vibrant financial markets while maintaining strong investor protections. The report was in response to Executive Order 13772 issued by President Trump on February 3rd, which calls on Treasury to identify laws and regulations that are inconsistent with a set of Core Principles of financial regulation.
“The U.S. has experienced slow economic growth for far too long. In this report, we examined the capital markets system to identify regulations that are standing in the way of economic growth and capital formation,” said Treasury Secretary Steven T. Mnuchin. “By streamlining the regulatory system, we can make the U.S. capital markets a true source of economic growth which will harness American ingenuity and allow small businesses to grow.”
In July, 2017 CCA was interviewed for the report in a call with Karen Kerrigan, President and CEO of the Small Business and Entrepreneurship Council. All their recommendations were included in the final report. They included:
Allowing the use of Single Purpose Vehicles
Fixing an error in the final bill to now allow investors limits based on the ‘greater of’ income or net worth
Today marks a milestone for Regulation Crowdfunding. The 500th company has filed with the Securities and Exchange Commission to raise funds via online portals. The chart below show the cumulative number of offerings since the launch of Regulation Crowdfunding on May 16, 2016. Since then 51% of these companies have raised over $66M from over 65,000 investors.
A key take away from the image is the rate of growth in offerings from 2016 to 2017. 2016 ended the year with 188 total offerings. 2017 is into its 3rd quarter and has already hit 500 offerings; a 266% growth over 2016 offerings … with another quarter yet to come.
From the forward written by Bryan Zhang Co-Founder and Interim Executive Director Cambridge Centre for Alternative Finance:
“Following their trailblazing work on Crowdfunding’s Potential for the Developing World (infoDev,2013), the authors of this report [Crowdfund Capital Advisors] carried out empirical research to assess the potential of crowdfunding in the Caribbean. It focuses on the prerequisite ‘building blocks’ for a thriving crowdfunding ecosystem – user capacity, laws and regulations as well as technology. It also put forward an array of actionable recommendations for key stakeholders, both public and private, to foster financial innovation, empower entrepreneurs and scale crowdfunding development in the Caribbean.
This assessment is comprehensive, lucid and timely. In essence, it provides a practical ‘road map’ for Caribbean nations to not only unleash the power of crowdfunding, but also to effectively harness it for the benefits of businesses, communities and the wider economy. To develop crowdfunding and make it work for individual countries, a deeper understanding of the evolving local market dynamics, the need of funders and fundraisers, the intricacy of regulatory environments, the robustness of legal system and aspects of technical capability is required. Therefore, as this report advocates, a holistic and ‘ecosystem-based’ approach would be best placed to unlock the potential of crowdfunding in the Caribbean, whilst ensure the development is sustainable and appropriately regulated.
(The following is a reprint of a story we wrote for Crowdfund Insider. The original can be found here)
The first Fiscal Year of Regulation Crowdfunding has come to an end and our data continues to deliver valuable information for investors, founders and government officials. Overwhelmingly, California has taken the early lead in Regulation Crowdfunding from both an entrepreneur (aka issuer) and investor point-of-view. Currently, Texas is in second place and New York is third. If you are an entrepreneur in any of these states, you have an increased chance that potential investors in your network/community may be familiar with Regulation Crowdfunding already. States including Idaho, Connecticut, Massachusetts, Utah, Alabama, Colorado and West Virginia also have higher than average number of backers which may indicate a warming of those markets to Regulation Crowdfunding over the last 12 months.
Which States Have Built an Early Lead in Number of Campaigns?
As the image above shows, as of June 30th California leads. Of the 399 total offerings across the USA, California had 34% (134) of the total. Behind that is New York with 30 offerings and Texas with 29. The fact that California is 447% higher in the number of offerings than New York shows that there is much more awareness about Regulation Crowdfunding in California than anywhere else.
Digging a little deeper, the data shows us that almost 50% of the companies were based in greater Silicon Valley area – (an area replete with Angel Investors). This might be due to a few reasons: a) The ingrained startup culture in the region with entrepreneurs flocking to the area b) Since there are many startups in Silicon Valley they are actively competing for investor dollars and c) Because VCs are now requiring more “social proof” of a company’s business model, companies are turning to Regulation Crowdfunding as that evidence.
Texas demonstrates similar city concentration effects within the state because the clear majority of the offerings are split between Austin and Houston. (A full breakdown by City, State and Industry can be found here). Again, these are 2 cities in Texas that have significant experience in Angel investing/risk capital deployment. Austin has more experience with Angel investment in technology companies, and Houston has significant experience in deploying risk capital for early stage oil and gas ventures.
Which States Lead in Dollars Raised?
The top 4 states in total funds raised via Regulation Crowdfunding are: California ($20.3M), Texas ($6M), Massachusetts ($3.5M) and New York ($2.7M). While California may lead in the number of offerings and the overall dollars committed they do not lead when it comes to the average amount raised by campaign. If we look at data from campaigns that closed and exceeded their Minimum Funding Target, (and we require at least 5 successes in a State to add some credibility to the averages) we find that Massachusetts leads the way with $445k on average (n=6), followed Texas $312k (n=15), New York $278k (n=6) and then California $255k (n=54). The average of all successfully funded campaigns for the first fiscal year was $302k. The takeaway here: In the first year, entrepreneurs in Massachusetts and Texas raised more per campaign than the national average. A key reason stakeholders in those states should be promoting Regulation Crowdfunding as an alternative for of fundraising.
Which States Have Engaged the Most Investors?
Next, we look the size of the crowd that is investing in 2 ways: First, the total number of investors in the state. California led the way with over 21,750 people investing in Regulation Crowdfunding campaigns. Texas followed with 4,500 investors, New York with 3,900 investors, and Connecticut with over 2,500 investors. Interestingly, Massachusetts, Utah, Delaware, Colorado, Alabama, Idaho, Washington and Ohio all had over 1,000 backers.
Second, we looked at the average number of investors in a campaign, by state. Interestingly, Massachusetts leads with the highest average number of backers 595, followed by New York (518), California (368) and Texas (352).
Which States Have Investors Making the Largest Average Investments?
Finally, we answer the question where do investors write the largest checks? Texas leads with the average check size of $1,364 for campaigns that hit their Minimum Funding Target. Colorado at $1,154, Delaware follows at $962 followed by California at $847 and New York at $537.
Is this early data? Yes, this is just the first years’ worth of data. Are the number of campaigns still small at this point? Yes but they are growing every day and we have controlled the data where possible for statistical significance. Is there any indication of where this may lead? Sure. When we look at the UK data, we can see significant market growth in years 2 and 3 regarding campaign size, total number of campaigns, and average investment. We expect to see similar dynamics in the US over the next 12 months. Will we see different states building expertise in using different types of securities or becoming more successful in crowdfunding different industries? The data is beginning to show that to be true. Will the time to reach funding goals decrease over time as more people become familiar with securities-based crowdfunding? Stay tuned…we will continue to report on the data to provide early signals to the market.
Looking for Regulation #Crowdfunding Data? Email: Sherwood@theccagroup.com for more information.
June 30, 2017 ended the first full Fiscal Year of Regulation Crowdfunding. The first year saw a healthy start with over $51.3M being committed to almost 400 campaigns. Companies seeking Regulation Crowdfunding can raise up to $1,070,000 from retail investors provided that they do so on platforms that are registered with the Securities and Exchange Commission (SEC) and provide certain disclosures to investors.
Crowdfund Capital Advisors built a database to aggregate all the data about companies issuing Regulation Crowdfunding securities. This database has the most industry-wide data out there. For each company over 80 data points are collected. This information is analyzed and reported during quarterly webinars as well as to industry stakeholders in private events.
The following is a report from CAFDAB (The CCA Crowdfunding Database) that shows the Top Industries by City and State. For more information/analysis, email us.
Source: Crowdfund Capital Advisors
Source: Crowdfund Capital Advisors
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The U.S. Department of the Treasury released a 
“Following their trailblazing work on Crowdfunding’s Potential for the Developing World (infoDev,2013), the authors of this report [Crowdfund Capital Advisors] carried out empirical research to assess the potential of crowdfunding in the Caribbean. It focuses on the prerequisite ‘building blocks’ for a thriving crowdfunding ecosystem – user capacity, laws and regulations as well as technology. It also put forward an array of actionable recommendations for key stakeholders, both public and private, to foster financial innovation, empower entrepreneurs and scale crowdfunding development in the Caribbean.
Source: Crowdfund Capital Advisors
