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Read CCA’s Letter to the SEC
in Support of Increasing the Regulating Crowdfunding Cap to $5 Million
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On May 29 th, Crowdfund Capital Advisor submitted a letter of support for the proposed amendments to Regulation Crowdfunding. In particular we are supportive of:
- Increasing the maximum raise from $1.07 million to $5 million;
- Changing the non-accredited investors limits based on the greater of an income or net worth standard;
- Allowing for the use of crowdfunding vehicles;
- Increasing the reviewed financial threshold to $500,000 raises and audits to $5 million for initial offerings.
With Data We Can Make Informed Decisions that Support These Changes
For 4 years, we have collected information on all Regulation Crowdfunding offerings via our CCLEAR database. We pull in over 100 public data points on each offering that includes all key financial data metrics as well as company valuations and daily transactional information. This type of data and standardized datasets on private companies never existed before and has now become industry standard. This delivers more transparency into the private capital markets than has ever existed before. |
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Here are Some Key Quotes from Our Letter
“We believe that regulation must scale to fit the size of a business and that an issuer that is not the same in terms of revenue (i.e. millions vs hundreds of millions), complexity (i.e. local operations vs national or international), tax practices (domestic vs international), etc should not be held to the same standards as a public company. This would be overly burdensome for them without providing additional benefit. In essence, the larger the corporation the more complex. The smaller the less complex. We feel that Regulation Crowdfunding does a fair job in terms of trying to balance the needs of the business with the needs of the investor.”
“In the 4 years since Regulation Crowdfunding went into effect, there have been no media stories about fraud. Rather there has been unspoken coverage of the benefit these locally supported businesses have provided.”
“Because companies must disclose how a valuation was determined and potential investors can discuss this on the forum part of an offering page, it provides investors a means to determine whether they agree with that valuation or not (prior to investing). It cannot be stressed enough how this transparency is unique investor protection in the private capital markets.”
“There has been no fraud. Nor has there has also been no systematic perversion of retail or accredited investors.”
“In interviews conducted with both issuers and portals, it was discovered that the majority of the investors in these offerings had a first or second degree relationship to the issuer and/or industry knowledge about the company’s product, services, IP or technology. Any of these creates a degree of trust that doesn’t exist between investors and public companies, which is why public companies must file detailed disclosures.”
“Based on the crowdfunding data from the last 4 years, the average investment is currently approximately $715. This is an investment quantum that does not appear to raise immediate concerns of undue concentration risk for most individuals with the appetite and ability to make early stage investments.”
“Finally, the system doesn’t benefit one class of investors over another in an offering as they are all presented the same information which is available from one central location the online investment platform, as opposed other exemptions where individual offering memorandums can be amended over time from one group of investors to another.”
“Put simply, the Regulation Crowdfunding disclosure framework improves issuer conduct and accountability.”
Increasing the cap to $5 million will:
- “Provide a balanced way for more issuers to raise funds from investors they are closest to, with prescriptive disclosures that inform/protect investors.”
- “Spread costs out and decrease the fees as a percent of the raise. This not only benefits issuers but investors as their capital investment goes into growing/scaling a company as opposed to paying offering fees.”
- “Enable larger, mid-sized firms, (that may be more stable and lower risk) to use crowdfunding for expansion capital and job creation. This adds more diversity of risk levels to the investment landscape which is an investor protection.”
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Value of the CCLEAR Database to investors, policy makers and regulators:
Three components within the Regulation Crowdfunding framework reveal how issuers are performing over time and display macro-economic SME trends. These are:
- In an initial offering, issuers are required to file disclosures that document the change in their financial wellbeing between the most recent fiscal year and the prior fiscal year.
- Annually, firms that have raised funds via crowdfunding must file an annual report that discloses the changes in their financial wellbeing year over year since their raise. And
- When follow-on capital is raised the new valuation is disclosed. This tracks unrealized returns over time. Since the beginning of Regulation Crowdfunding, there have been almost 150 companies that have used it for follow on rounds.
Because of this data the CCLEAR Database can provide insight into how the industry is growing, where capital is flowing based on demographics, how economic activity is positively impacted, how jobs are promoted, and more. All of this reduces fraud and decreases cost and risk to investors as well as enabling regulators and policy makers to continue to refine regulation to both improve capital formation and investor protection.
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The ”Lack of Transparency” Argument is Moot
People and organizations should not hide behind 80 year old arguments that “investors are unaware” in private transactions. If they do, they clearly haven’t read the Regulation Crowdfunding regulations or analyzed tens of thousands of pages of disclosures or carefully analyzed the data. If they did, they would realize that due to this piece of legislation investors now have access to more data and information to make an informed decision than they ever did before.
It is inaccurate and unfair for any individual or organization to say that there is no transparency in this segment of the private capital markets. There is more data and more prescriptive disclosures than probably anywhere else in the private markets with the exception of Regulation A.
We commend the SEC and its staff for the hard work they are doing to promote the interests of capital formation for startups and small businesses while maintaining the hallmark of investor protection.
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- Growth of offerings/commitments over time
- Retail and Accredited Investor appetite for regulation crowdfunding offerings
- How Reg CF solves for the Valley of Death
- Reg CF as a jobs engine
- Reg CF across the United States
- Reg CF appeal by industry
- Reg CF application by startups vs established firms
- Average valuations
- 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
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8 Minute Video: How to Save America’s Small Businesses by Turning Customers into Investors
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Last week we were interviewed by Devin Thorpe who is also a contributing author to Forbes about how to get customers back into businesses. Our idea, for the next stimulus package, is a fund that would co-invest alongside the crowd in Main Street businesses that have been hit hard by the pandemic.
You can see the video explaining the idea by clicking the image below. |
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| Sherwood Neiss’ interview with Devin Thorpe |
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Let Congress Know You Support the Co-Investment Fund Idea
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| Many of you have asked us how you can help promote the co-investment fund idea. Help us by sending a letter to your Congressional representatives. You can click the image below to do so. Then copy and paste the summary of the framework below the image. |
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| If you want to contact your congressional member directly (or state or local government official) and need talking points, contact us. We’d be happy to share what we are sending around. |
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SEC Makes Emergency Amendment to
Regulation Crowdfunding Rules to Help Restore America’s Small Businesses
and How YOU Can Help Get America Back on Her Feet
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| According to a press release “The Securities and Exchange Commission is providing temporary, conditional relief for established smaller companies affected by COVID-19 that may look to meet their urgent funding needs through a Regulation Crowdfunding offering. [These] actions, which follow suggestions made by members of the SEC’s Small Business Capital Formation Advisory Committee, will expedite the offering process for eligible companies by providing relief from certain rules with respect to the timing of a company’s offering and the financial statements required. To take advantage of the temporary rules, a company must meet enhanced eligibility requirements and provide clear, prominent disclosure to investors about its reliance on the relief. The relief will apply to offerings launched between the effective date of the temporary rules and Aug. 31, 2020.”
“In the current environment, many established small businesses are facing challenges accessing urgently needed capital in a timely and cost-effective manner,” said SEC Chairman Jay Clayton. “Today’s action responds to feedback we have received from our Small Business Capital Formation Advisory Committee and others about the difficulties these companies may face in conducting an offering within a time frame that meets pressing capital needs, while continuing to provide appropriate protections for investors.
Key changes include the following:
- Companies raising up to $250,000 will only need to self-certify the financials as opposed to spending time and money on a comprehensive CPA review
- Removing this will expedite the process to list an offering
- 21 days waiting period to take commitments has been temporarily removed and
- Offerings can close sooner than the campaign deadline date as long as the target offering amount has been reach
To read the comprehensive temporary amendment to the rules click here. |
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Let Congress Know You Support the
Co-Investment Fund Idea
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| Many of you have asked us how you can help promote the co-investment fund idea. Help us by sending a letter to your Congressional representatives. You can click the image below to do so. Then copy and paste the summary of the framework below the image. |
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The USA Public-Private Partnership to Save Small Business
SUMMARY
This program would create a co-funding facility specifically for Main Street USA businesses. The federal government would match up to $250,000 per business, in funds raised from their communities via private sector online funding platforms that are currently permitted by the JOBS Act, passed by bipartisan majorities in 2012. Online financing started in 2016 and since then, communities have raised over $370,000,000 for American small businesses, with no fraud.
WHY IS THIS PROGRAM NEEDED?
This powerful program tackles many of the problems with the existing stimulus programs to efficiently and transparently deliver capital to true small businesses across the U.S. because it:
WHAT ARE THE NEXT STEPS TO ENACT THIS PROGRAM?
- Agree that a co-funding facility for American small businesses can create jobs, save small businesses and rebuild local economies.
- Approve funding for a “Phase 1 Program” (a $20 billion program would benefit up to 80,000 small businesses).
- Include language in the next recovery bill that clarifies the JOBS Act regarding these types of collective funding vehicles are explicitly permitted.
- Approve the framework that explains how existing portals may register, businesses may apply, determines targets and specifies fund distribution timeline and requirements.
- Use existing data standards and reporting to create transparency via weekly reporting to federal/state governments and the public.
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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:
- According to data from companies that have leveraged Reg CF, the average small business employs around 7 individuals.
- Between independent contractors and support vendors that provide critical products and services an additional 49 employees are supported (according to data from Paychex).
- This is a total of 54 direct and indirect jobs created and supported by each small business.
- If there are 27 million people that filed for unemployment, that’s 500,000 business affected (27 million unemployed / 54 jobs supported per business).
- 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.
- 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.
- 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:
- 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.
- Fund managers engage with platforms to provide oversight.
- Portals provide oversight on individual company diligence.
- 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.
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 1st or 2nd 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.
It has been a wild ride for the US economy ever since the floor fell out from under us when the Coronavirus hit. More than 17 million Americans have filed for unemployment, hundreds of thousands of businesses have had to close their doors while social distancing has kept customers away, and our public markets saw a 30% decline before a recent uptick. Millions more are expected to file for unemployment and our economy is expected to contract even more as the trillions in stimulus money fails to arrive in the bank accounts of those in need. With the banks and Federal government failing, it is uplifting to see local communities coming together not just to make protective gear but also to provide the critical cash small businesses need to stay afloat during these challenging time.
NextSeed, the popular Houston-based investment crowdfunding platform for consumer-facing businesses has also entered the COVID-funding arena with two programs aimed to help small businesses navigate this period. One offers a new financing product under Reg CF and, the other has been launched as a donation campaign that provides much needed revenue to restaurants by purchasing meals to be delivered to medical facilities for free.
NextSeed has been helping startups and small businesses raise funds since Regulation Crowdfunding first went into effect in 2016. Since then, they have raised over $17 million for community-building small businesses. Their platform is unique in that they have built a core competency in funding restaurants (some of the hardest hit businesses in the Corona crisis) with term notes or via revenue share agreements. With a revenue sharing note, investors can earn a multiple on their principal, such as 1.5x (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.
NextSeed is rolling out a new special financing product for qualified small businesses, specifically designed to meet the working capital needs of businesses during and in the immediate aftermath of COVID-19. The NextSeed Community Bridge Note (CBN) will leverage Regulation Crowdfunding rules to provide small businesses with an alternative and efficient way to raise flexible, lower cost, lower fee financing.
NextSeed redesigned their application to streamline the process, with a renewed focus on helping businesses move quickly through their review and diligence process to launch a campaign in as little as 2-4 weeks.
Here are some of the CBN program highlights:
- Working capital for established businesses
- No payments due until Jan 31, 2021
- Maturity of 48 months
- Revenue sharing note designed to give flexibility to businesses
- $10,000 minimum raise (maximum based on projected working capital needs and debt service coverage ratio)
For those that want to get started here is the application.
In addition to the CBN, NextSeed joined forces with Impact Hub Houston and formed a donation campaign called the LIFE Fund. The fund supports local businesses and feeds the healthcare workers and first responders on the frontline of the COVID-19 crisis. Through the generous contributions of donors to date, the LIFE Fund has ordered and scheduled over 1,000 meals to over 15 hospitals and clinics!
“We have always been about connecting investors who care with businesses that matter. On the NextSeed platform, businesses can raise capital directly from community-minded investors that already know and love their businesses — investors that want these businesses to exist tomorrow,” said Youngro Lee, CEO NextSeed. “We’ve raised millions of dollars for businesses at various stages of growth. While the new CBN product is exclusively for working capital needs, if anyone is looking to raise capital for a new business, expanding an existing business, or not immediately affected by the current crisis, please explore the other products and services that NextSeed offers.”
It is great to see how crowdfunding platforms are using both their core competencies and communities to raise cash for businesses that are most affected. But it isn’t just the fact that these local investors are putting up cash to keep these local businesses operating. These businesses provide critical economic activity and jobs. The cash these investors provide help support these local communities. These investors aren’t giving money away but stand to earning a return which may just be less risky than the volatility we are seeing in the public markets today.
| The power of the crowd to both spur innovation and finance it is sky rocketing. Ever since the launch of Regulation Crowdfunding in May 2016 over 2,100 companies in over 100 industries have registered to raise funds on Securities & Exchange Commission (SEC) approved websites. These companies cross the United States in communities both large and small. Over 485,000 investors have poured over $355 million into pre-IPO startups and small businesses, invigorating local communities, creating new jobs and spurring innovation. However, cash is king and without it startups and small businesses cannot innovate and grow. At challenging times like this, with the public markets crashing around us and institutional investors pulling back, it is heartening to see that the crowd continues to invest.
While the government continues to grapple with how to tackle the Coronavirus on a Federal level, we are seeing State and Local Governments not waiting and stepping in to craft their own solutions. Drilling down, we are even beginning to see local businesses jumping in and craft their own solutions to the current challenges. Wefunder, one of the largest crowdfunding platforms out there, today launched two initiatives to tackle the challenges. |
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1) PROBLEM – CASH – Without cash, companies cannot survive. According to a press release by Wefunder, “Small businesses critically need access to cash in order to survive, and simultaneously, customers and community members desperately want to help,” said Jonny Price, Director of Fundraising at Wefunder. “Small businesses should be exploring multiple options for raising capital immediately, and one of those options can be their friends, family, and customers who love them and want to support them.” The economic impact of coronavirus is expected to be devastating for many small businesses, which make up 99.7% of all U.S. firms with paid employees, and employ nearly 50% of America’s workforce. A 2016 report by JP Morgan Chase notes that the median small business holds 27 cash buffer days in reserve. And a recent survey conducted by Goldman Sachs revealed 51% of small business owners say they can only continue to operate for 0-3 months.
SOLUTION – Coronavirus Crisis Loan. Wefunder’s Coronavirus Crisis Loan is designed to help small businesses leverage the support they already have from their community and customers, into a loan with terms that are very friendly for small business owners. According to the press release companies can apply for loans from $20,000 to $1 million. Repayments will be deferred until 2021.
When repayments begin they will be based on revenue and lenders can opt to lend for as low as 3% simple (non-compounding) interest. According to Johnny Price, Director of Fundraising “Typically Wefunder’s Revenue Share Note is based on a multiple of investment.” For example, if you invest $1 you are entitled to 1.5 times your investment or $1.50. “However, this one is a simple interest note. The interest accumulates on the loan and not the interest,” says Price. In addition, “Quarterly repayments are based on a percent of revenue. Hence, if we are slower to get out of this economic crisis, and revenues are slower in the beginning, then the debt payments will be lower. This is exactly what small businesses want/need at this time.”
2) PROBLEM – INNOVATION – Unless you’ve been absent from the news there is a dire need for equipment, supplies, treatment and vaccines. “However, it really goes beyond this,” says Price. “We need to support companies that can provide innovation into senior care and remote education.” While State Governments are trying to source desperate equipment, companies are gearing up to supply demand. Many of them need both cash and guidance.
SOLUTION – FIGHT THE VIRUS CHALLENGE – Wefunder is launching a three-month accelerator to invest in startups tackling the crisis in sectors including biotechology, senior care and remote education. The online accelerator will invest $50,000 to $1 million in these startups. The program is 3 months long and besides
receiving cash, companies will receive “support from a network of world-class mentors” from Wefunder’s network that will allow these companies to innovate and “move faster.” Companies can apply online and the deadline for applications is April 3rd.
“This is our generation’s moment to rise to the occasion,” said Nick Tommarello, Wefunder’s CEO. “We’re 100% focused on doing our part. We can’t match the heroism of our doctors and nurses, but we can help save more small businesses, and fund more startups tackling this crisis head-on.”
Governments both State and Federal cannot move at the same speed as small enterprises. At times like this we need to identify those small enterprises that can help tackle some of the larger challenges we face. If we can pull them together and help fund them we will not only address significant challenges and bottlenecks but create a blueprint for dealing with these economic challenges going forward
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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.
| 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. |
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We are excited to share with you today’s press release by the Securities and Exchange Commission with long awaited improvements to Regulation Crowdfunding as well as other exempt offerings. These changes should significantly increase the utilization of online finance in the United States over time.
In particular, we are thrilled that the years we have spent in Washington, DC advocating for changes and represented in letters and reports from the Treasury Department have resonated with the Commission. The changes outlined below will make the industry more appealing to issuers, allow the industry to scale and make online fundraising more efficient. Many thanks goes to the hard working people at the Commission.
Over the last 4 years, the data that CCA has collected on the industry has clearly shown that these offerings are conducted in a secure, efficient and nearly fraud-free market. This demonstrates the importance of a common data standard for the industry to enable transparency in the markets for regulators and investors. Other governments around the world should take note of these newly expanded rules as they contemplate their own opening of the private capital markets.
According to the press release, here are the highlights:
Offering and Investment Limits. The Commission proposed revisions to the current offering and investment limits for certain exemptions.
For Regulation Crowdfunding:
- raise the offering limit in Regulation Crowdfunding from $1.07 million to $5 million;
- amend the investment limits for investors in Regulation Crowdfunding offerings by:
- not applying any investment limits to accredited investors; and
- revising the calculation method for investment limits for non-accredited investors to allow them to rely on the greater of their annual income or net worth when calculating the limit on how much they can invest.
For Regulation A:
- raise the maximum offering amount under Tier 2 of Regulation A from $50 million to $75 million; and
- raise the maximum offering amount for secondary sales under Tier 2 of Regulation A from $15 million to $22.5 million.
For Rule 504 of Regulation D:
- raise the maximum offering amount from $5 million to $10 million.
“Test-the-Waters” and “Demo Day” Communications. The Commission proposed several amendments relating to offering communications, including:
- a proposed new rule that would permit an issuer to use generic solicitation of interest materials to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use for the sale of the securities;
- a proposed rule amendment that would permit Regulation Crowdfunding issuers to “test-the-waters” prior to filing an offering document with the Commission in a manner similar to current Regulation A; and
- a proposed new rule that would provide that certain “demo day” communications would not be deemed general solicitation or general advertising.
Regulation A and Regulation Crowdfunding Eligibility. The proposal includes amendments to the eligibility restrictions in Regulation Crowdfunding and Regulation A. These proposed rules would permit the use of certain special purpose vehicles to facilitate investing in Regulation Crowdfunding issuers, and would limit the types of securities that may be offered and sold in reliance on Regulation Crowdfunding.
| We are excited to share with you today’s press release by the Securities and Exchange Commission with long awaited improvements to Regulation Crowdfunding as well as other exempt offerings. These changes should significantly increase the utilization of online finance in the United States over time.
In particular, we are thrilled that the years we have spent in Washington, DC advocating for changes and represented in letters and reports from the Treasury Department have resonated with the Commission. The changes outlined below will make the industry more appealing to issuers, allow the industry to scale and make online fundraising more efficient. Many thanks goes to the hard working people at the Commission.
Over the last 4 years, the data that CCA has collected on the industry has clearly shown that these offerings are conducted in a secure, efficient and nearly fraud-free market. This demonstrates the importance of a common data standard for the industry to enable transparency in the markets for regulators and investors. Other governments around the world should take note of these newly expanded rules as they contemplate their own opening of the private capital markets.
According to the press release, here are the highlights:
Offering and Investment Limits. The Commission proposed revisions to the current offering and investment limits for certain exemptions.
For Regulation Crowdfunding:
- raise the offering limit in Regulation Crowdfunding from $1.07 million to $5 million;
- amend the investment limits for investors in Regulation Crowdfunding offerings by:
- not applying any investment limits to accredited investors; and
- revising the calculation method for investment limits for non-accredited investors to allow them to rely on the greater of their annual income or net worth when calculating the limit on how much they can invest.
For Regulation A:
- raise the maximum offering amount under Tier 2 of Regulation A from $50 million to $75 million; and
- raise the maximum offering amount for secondary sales under Tier 2 of Regulation A from $15 million to $22.5 million.
For Rule 504 of Regulation D:
- raise the maximum offering amount from $5 million to $10 million.
“Test-the-Waters” and “Demo Day” Communications. The Commission proposed several amendments relating to offering communications, including:
- a proposed new rule that would permit an issuer to use generic solicitation of interest materials to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use for the sale of the securities;
- a proposed rule amendment that would permit Regulation Crowdfunding issuers to “test-the-waters” prior to filing an offering document with the Commission in a manner similar to current Regulation A; and
- a proposed new rule that would provide that certain “demo day” communications would not be deemed general solicitation or general advertising.
Regulation A and Regulation Crowdfunding Eligibility. The proposal includes amendments to the eligibility restrictions in Regulation Crowdfunding and Regulation A. These proposed rules would permit the use of certain special purpose vehicles to facilitate investing in Regulation Crowdfunding issuers, and would limit the types of securities that may be offered and sold in reliance on Regulation Crowdfunding. |
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