Top 100 Cities in the United States for Investment Crowdfunding

In March 2023, Crowdfund Capital Advisors released its annual report of the top up-and-coming cities for Pre-IPO startups. Each city was ranked according to our “Startup Viability IndexTM” (SVI) by the amount of money invested into pre-IPO startups, the number of fundraising campaigns, the average valuation for companies, the number of investors into fundraising rounds, the success rate of campaigns, and the number of unique industries represented. Our team of researchers calculated a score based on how impactful each category was to local entrepreneurship, technological innovation, economic stimulus, and job creation. Below is the 2023 list of the top 100. For more information on the Top 100, contact data@theccagroup.com.

Seven Charts that Summarize Investment Crowdfunding in 2022

2022 was a challenging year for venture-back companies. Supply chain issues, soaring inflation, skyrocketing gas prices, geopolitical crises, and market volatility sent us on a wild ride. But there were many silver linings for Investment Crowdfunding. Last week we released our 7th annual Year in Review report. This 105-page report (our longest yet) contains 100 charts, tables, images, and maps.

Here are seven charts that sum up key findings:

Pitchbook Angel/Seed Deals are Trending Down. Investment Crowdfunding Deals are Trending Up and Hit Record Highs

Pitchbook released the “Q4 Venture Monitor First Look” that breaks down its data. While they show Angel and Seed deals declining in 2022, Investment Crowdfunding saw the most deals funded in history. Also, this trendline continues to show an increase in funded deals. As more issuers find it challenging to access capital in 2023, we expect to see them turn online for capital.

The Valley of Death is Dead Thanks to Investment Crowdfunding

Much has been written about the Valley of Death. It refers to a crucial early phase of a new venture when work has begun, but a company hasn’t generated sufficient revenue to support its growth. In this case, outside capital is a necessity that either comes from an entrepreneur’s savings or access to credit. After seven years of Investment Crowdfunding experience and the growth in average raises, we can officially announce that the ‘Valley of Death’ is dead. The average raise since the industry launched has grown to $365K, expanding beyond where the Valley existed previously; $25K to $250K. With the maximum issuers can raise now at $5 million, there is much room for successful issuers to perform follow-on raises to not only get them through the Valley of Death but beyond it.

Naysayers be Damned. Investment Crowdfunding Issuers Appear Less Risky

The profile of the average successful investment crowdfunding issuer is changing. The data finds that most of them can be seen as less risky. They tend to be older, are post-revenue, and have average revenues over $1 million. Investors see the logic. The more established issuers raised more money and had more investors than their startup counterparts. As larger, more established issuers come online, this will further derisk investment in this space.

Investment Crowdfunding has Proven its Ability to Democratize Access to Capital

It used to be that if you wanted to access Venture capital, you needed to reside in or near Silicon Valley, New York, or Boston. However, thanks to Investment Crowdfunding, we see that it has successfully been able to democratize access to capital across the country. Even more importantly, the data shows that women and minority entrepreneurs (that routinely struggle to access capital) have had greater success within Investment Crowdfunding and are raising up to 50% of the capital. Show us where else the private capital markets have been able to accomplish that!

Investment Crowdfunding is the Economic Engine we Envisioned

Issuers successful with Investment Crowdfunding are scaling startups and small businesses. They create products and services. Pay business, sales, and payroll taxes. And are massive consumers of local and regional products and services. Investment Crowdfunding issuers are responsible for pumping more than $4 billion into our economy since the industry launched in 2016. All of this capital is going into over 1,600 communities across the USA. This is a local economic stimulus unlike we’ve ever seen. If our government officials are looking for ways to promote economic development, they should focus their attention on Investment Crowdfunding issuers.

Investment Crowdfunding Makes its Namesake, “The JOBS Act,” Proud

Since Investment Crowdfunding began, Issuers successful with Investment Crowdfunding are responsible for supporting over 226,000 jobs. We believe this is an underestimate because it doesn’t take into account issuers that reported no full-time employees but either have grown to support them or outsource jobs altogether. Either way, we went to Washington, DC, and promised jobs. And one can see the industry is delivering on it! Whoever came up with the acronym “The JOBS Act” deserves an award!

Investment Crowdfunding Will Make Some Average American Investors Millionaires

Liquidity is the Holy Grail for private company investors. Why would investors pour billions of dollars into Private Equity or Venture funds if not? Investment Crowdfunding allowed the average American to play the role of mini-VC and invest in pre-IPO startups that they believe in for the first time in history. A small percentage of these will most likely go on to phenomenal exits. If and when that happens, many millionaires will be made, and they will be your next-door neighbor. Over $54B of value is currently sitting inside successful Investment Crowdfunding issuers. Only $1.6 billion has been invested to date by Investment Crowdfunding investors. You do the math. Someone is going to get rich …

And this scratches the surface. In the report, we list all million-dollar-plus raises from 2022. We analyze what would have happened if someone had just invested in all million-dollar-plus deals. And much more! Don’t wait; download your copy now!

The 2022 Investment Crowdfunding Annual Report: What a Wild Ride

Crowdfund Capital Advisors is pleased to announce the release of its 2022 Investment Crowdfunding Annual Report.

 

If you were an investor in 2022, it was quite the ride. From supply chain shortages to hyperinflation, soaring gas prices, to market volatility, rocketing interest rates, and the war in Ukraine. It was one twist after another. With the lingering effects of the pandemic still present, it is no surprise that investors pulled back.

This was equally felt in Investment Crowdfunding, where the industry saw its first down year for capital commitments. While investors showed up less, they wrote larger checks than ever. Issuers’ demand for capital shrunk as they postponed offerings, and valuations that rose to record highs earlier in the year began to crack and settled down to more normal seed round levels.

In 2022, over 320,000 Americans poured half a billion dollars into more than 1,500 offerings on Regulation Crowdfunding websites. Women and minorities were some of the biggest beneficiaries, and at-risk and distressed communities all across the United States saw deals. Over $4 billion was pumped into local economies thanks to Investment Crowdfunding and hundreds of thousands of jobs supported. Investment Crowdfunding is definitely living up to its namesake, the JOBS Act.

We share with the reader a list of all companies that raised over $1 million this year and have a case study that digs into what $1,000 invested into all deals that raised $1 million would be worth today. With $54 billion in enterprise value pent up and exits forthcoming, these average American crowdfund investors stand to gain.

We expect another volatile year in 2023 as the Fed struggles with the economy and markets react to inflation, jobs, and a pending recession. All this and much more in our 105-page report with 100 tables, charts, and images.


Our annual report is a comprehensive review of the online investment industry with a comparison to prior years and predictions for 2023. The data in the report is aggregated from all online investment platforms that are registered with the Securities and Exchange Commission (SEC) and overseen by FINRA. Each day, data is collected, normalized, aggregated, and reported to Bloomberg for industry analysis and coverage.


* The above prices are for single-license use. For a Team/Corporate license, contact: sales@theccagroup.com
** Contact sales@theccagroup.com for special discounts

Federal Reserve Needs to Pivot to Get Capital to Main Street Businesses

NEWS

For Immediate Release

Washington, D.C. –  The Federal Reserve’s Main Street Lending Program has been a bust for small businesses, and billions of additional dollars are sitting idle in the Paycheck Protection Program (PPP) due to its expiration. Still, Main Street businesses across America are in desperate need of capital to readapt, operate effectively, or simply survive the COVID-19 economy. That is why Small Business & Entrepreneurship Council (SBE Council) president & CEO Karen Kerrigan, and the principals of Crowdfund Capital Advisors (CCA), Jason Best and Sherwood Neiss, are urging the Federal Reserve to leverage a proven solution to broadly deliver capital to small businesses in need.

“Small business owners and entrepreneurs cannot afford for Washington to get stuck, but it seems our elected officials and policy leaders have reached that point. They need to fully explore innovative ideas to fuel capital formation and access, and a co-investment fund is one that will leverage local capital through federal support. It utilizes the power and security of regulated crowdfunding to drive capital to local businesses and startups, providing a turn-key solution that can be implemented quickly and with existing regulatory guardrails,” said Kerrigan.

The latest report from the Federal Reserve reveals that the Main Street Lending program has lent approximately $4 billion of the $600 billion available with just 420 loans made. And these are bigger loans with an average loan size of $9.6 million.  The results are an extremely poor showing for a program that was supposed to focus on boosting Main Street businesses by providing a bridge to economic recovery. The program was established with $75 billion in equity provided by the Treasury Department from the CARES Act, and with approval from the Treasury Secretary.

“The bottom line is that the Main Street Lending Program is a bust for Main Street. It’s time for the Fed to pivot like so many small businesses are doing. Members of Congress have urged Chairman Jerome Powell to think innovatively about how the Fed can deliver some of the massive amount of capital it is sitting on to Main Street businesses. A co-investment fund is a simple, safe and transparent way of doing that,” added Kerrigan.

A Main Street Recovery Co-Investment Fund would utilize the power and protection of regulated crowdfunding to supercharge local investment. The model that has been successfully utilized in the U.K., and offers a turn-key approach for the Federal Reserve to put to use some of the billions of dollars in capital that is currently sitting idle. SBE Council and CCA are asking the Fed to set aside $20 billion of that unused capital – a tiny fraction of what is available – to launch a co-investment fund.

“It would appear under procedures for emergency lending under Section 13(3) of the Federal Reserve Act that the Fed has the power to allocate such funds,” says Neiss. “The fund would be ‘broad-based,’ tied to debt-type instruments, and used to aid Main Street businesses to fund the gap until restrictions are lifted on consumer behavior. Given the unusual and exigent circumstance we are in, this appears to be the emergency time to create this fund,” he added.

Despite the pandemic, interest among Main Street businesses to raise money from their customers and community has increased dramatically. The number of offerings has increased 47.5% since February alone, according to data from Crowdfund Capital Advisors. Investments over the same period are up 300% and the number of local investors is up 99%.

“This is just over the past 9 months,” says Neiss. “Clearly the data is showing that despite the pandemic, both Main Street business and Main Street investors are eager to keep their local businesses alive. This co-investment fund will only further the positive results we are seeing in the data.”

“If the Fed would direct just 3% of the $600 billion already allocated to support SMEs it could deliver up to $250,000 to at least 80,000 businesses.  This is a 200x greater impact than has been achieved to date by the Main Street Lending Program.  This can be done using existing technology, existing regulation and existing industry data standards that provide for real-time transparency and oversight of every dollar.  This data is already being used by Bloomberg clients to track SME sentiment and activities,” added Best.

Recently, SBE Council and CCA released the report “Regulation Crowdfunding by Congressional District: A Report Card,” which reviews the progress of investment crowdfunding since 2016.  The Jumpstart Our Businesses Startup Act (JOBS Act) of 2012 enacted changes that ushered in investment crowdfunding, which officially launched following the finalization of Securities and Exchange Commission (SEC) rules in 2016. As noted in the report, there have been no cases of fraud with investment crowdfunding. And the democratization of capital is truly taking hold through investment crowdfunding, which allows small business owners to more easily identify investors and raise capital using SEC regulated platforms. Ninety percent of U.S. House Congressional districts (393) have had a regulated crowdfunding offering, and woman and minority entrepreneurs are finding significant success accessing capital via investment crowdfunding.

You can learn more about the co-investment fund by watching SBE Council’s recent webinar on how it works here, or watch Kerrigan’s appearance on FinTech television here.

Related Content:

Q&A: CCA and SBE Council on the Main Street Co-Investment Fund Idea, Start Us Up.

Crowdfunding Success Indicates Small Businesses and Startups Worthy of Government Matching Fund, Forbes.

ABOUT CCA

Crowdfund Capital Advisors (CCA) is a consulting and advisory firm. Its principals created the framework that became the basis for Regulation Crowdfunding. They have testified in front of 5 US House and Senate Committee Hearings on the subject and authored a book and World Bank report on the topic. They created the CCLEAR database that collects, cleans, normalizes and reports on offerings available under the JOBS Act. This data is transmitted to Bloomberg on a daily basis. They have worked in 43 countries helping governments and regulators create policy to enable startup and small business finance and job creation. Visit CCA’s website for additional information.

CONTACT: Sherwood Neiss  sherwood@theccagroup.com
Jason Best, jason@theccagroup.com

ABOUT SBE COUNCIL

SBE Council is nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For 25 years, SBE Council has worked on and advanced a range of private sector and public policy initiatives to strengthen the ecosystem for strong startup activity and small business growth. Visit www.sbecouncil.org for additional information. Twitter: @SBECouncil

CONTACT: Karen Kerrigankkerrigan@sbecouncil.org

# # #

Regulation Crowdfunding Turns Four – CCA Report Analyzes the Data

  1. Growth of offerings/commitments over time
  2. Retail and Accredited Investor appetite for regulation crowdfunding offerings
  3. How Reg CF solves for the Valley of Death
  4. Reg CF as a jobs engine
  5. Reg CF across the United States
  6. Reg CF appeal by industry
  7. Reg CF application by startups vs established firms
  8. Average valuations
  9. Conclusion – The “Year of the Crowd” is upon us

Report Length: 19 pages

# of charts: 5

Chart 1: Growth of Reg CF over time
Chart 2: Investors into Reg CF over time
Chart 3: Reg CF in the face of the Global Pandemic
Chart 4: Map of USA with detail on # of offerings, # of investors and capital commitments ($) by State
Chart 5: Tree map of top 15 industries in Reg CF with # of offerings and capital commitments ($) by Industry

 

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 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.
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.

How Much Does a Regulation Crowdfunding Campaign Actually Cost?



The following is a reprint of a story Sherwood Neiss wrote for Venture Beat. The original can be found here. The full report is available for paid download:


I wrote this article because I was irritated by reporters calling me and saying, “I’ve heard that a Regulation Crowdfunding campaign is very expensive.” “Really,” I’d say? “Can you tell me who said that and how much is ‘very expensive’?” This was usually followed by an awkward silence and then an “Um, I don’t know. It’s just what I’ve heard.” So, I decided to answer the question myself since I have access to all the successful regulation crowdfunding campaigns.

I created a survey, emailed 485 campaigns owners (also known as issuers), and received 81 responses; a 16.7 percent response rate. So, we will consider these preliminary findings. I asked two main questions up front:

  1. How many total people (including yourself) worked on your campaign?
  2. What would you estimate to be the total cost of putting your campaign together?

I then broke the campaign down into the following tasks: creating the copy and graphics that appear on the campaign page, creating company disclosures (like the pitch deck, business plan, product or service overview, financials, and cap table), creating the campaign video, marketing and PR, and finally hiring legal and accounting help to create the offering memorandum, investor agreements, file Form C with the SEC, and review financials/provide opinion letters.

I asked about how many people worked on each task, time spent, cost, and any comments they had. I summed up the data and analyzed the results.

Here are the key findings.

  1. Startups spent an average of $16,878 (median $10,600) and raised on average $319,040 ($164,375 median). Since the average raise among the survey responders ($319,040) was greater than the current industry average of $225,000, our results are biased towards issuers who raised more money.
  2. The average startup had three people focused on launching their campaign. They spent on average a collective 241 hours from campaign preparation to launch and funding. This indicates there is a lot of effort required by more than one person to run a successful campaign.
  3. You can estimate the costs to put your campaign page together, create your company disclosures, film the video, hire a marketing firm, lawyer and accountant at around 5.29 percent of your raise. This is much less than a typical Reg D offering would cost in legal and accounting fees alone.
  4. There is a direct correlation between how much time and money is spent and how much money is raised (the more spent, the more raised).
  5. No two issuers spent the same amount of time, effort, or funds on all tasks. However, the majority of time and effort went into creating the company disclosures, followed by creating the campaign page, marketing outreach, and video production.
  6. The majority of issuers outsourced the legal and accounting tasks associated with putting together a regulation crowdfunding offering. Given that selling securities is a regulated process and that CPA review of financials over $100k is necessary, this makes sense.

So if you are raising the current average amount of $225,000, you can expect to spend $11,902.50. An amount that actually seems quite realistic for that amount of money (and for the effort required to raise that money). It is also an amount that is NOT very expensive when considering the alternative options in the private capital markets.

Chart One: Average Resources (Individuals) Required Per Activity

Chart Two: Average Time (hours) Allocated Per Activity

Chart Three: Average Breakdown Costs (US$) Per Activity

Based on this preliminary research, I’ve put together the following chart outlining the amount a company should budget for its  fundraising campaign based on how much it hopes to raise.

Keep in mind that, just because there is a correlation between the more time/money spent and the amount raised, you shouldn’t just spend the maximum amount in an attempt to hit the maximum funding target – it doesn’t work that way. Crowdfunding comes down to marketing and who you know, so work on managing your expenses and focus your efforts on pulling in as many supporters to your campaign as possible.

Prominent Group of Fintech Leaders Send Letter to SEC Chair Jay Clayton Seeking an Increase in Regulation Crowdfunding to $20 Million

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)
  • Ron Miller – co-founder of StartEngine
  • Nick Tommarello – CEO of Wefunder

The letter is available for download here and is re-published below.


July 19, 2018

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

How to Crowdfund and Not Fall Flat on Your Face: Best Practices for Investment Crowdfunding Offerings and the Data to Prove It

Using data published by Crowdfund Capital Advisors, Zachary J. Robins wrote the following article for the Mitchell Hamline Law Review.

 

Find Investors and Finance Your Business with Equity Crowdfunding

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

Download the webinar transcript.

ABOUT THE PRESENTER(S)

Sherwood Neiss - Crowdfund Capital Advisors (CCA)

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.

Co-Founder, Crowdfund Capital Advisors (CCA)

Today’s best crowdfunding platforms — by the numbers

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?

Category: Campaigns – leader StartEngine

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.

Category: Capital commitments – leader Wefunder

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.

Category: Success rate – leader Nextseed

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.

2017 State of Regulation Crowdfunding Report

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.

Show me the CCLEAR Regulation Crowdfunding Dashboard

Key findings:

  • 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.