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

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

Why the SBIC Program?

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

How Could this Work with Regulation Crowdfunding Platforms?

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

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

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

Conclusion

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

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

Thousands in Local Communities Become the “Lenders of First Resort” as Banks Fail to Provide Needed Funding Amid Coronavirus Cash Crunch

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.

Crowdfunding Platform Aims to Tackle Two Specific Small Business Needs During Coronavirus – Wefunder to Assist Small Businesses Access Cash as well as Fund Innovation

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 12^th. 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 12^th, 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 12^th to March 18^th. 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.

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.

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

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

SEC to Increase Regulation Crowdfunding Cap from $1 Million to $5 Million

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.

Crowdfunding Update – SEC Proposes Increasing Reg CF Cap to $5 Million!

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.

Crowdfunding Update – 2019 State of Regulation Crowdfunding

Regulation Crowdfunding Surpasses $250,000,000 in Commitments The Model is Working but its Potential is Much Greater

It has been just over 3 years since Regulation Crowdfunding (Reg CF) went into effect and most recently the industry surpassed a quarter of a billion dollars in commitments. Since inception over 1,800 companies in cities all across the United States have filed to raise money under Regulation Crowdfunding. Over 271,000 investors, most of which are friends, followers or customers of these businesses have made commitments to start, scale or expand operations. The average raise stands around $237,000 which firmly addresses the Valley of Death[1] issue. Most of the successful companies are raising funds in less than 90 days which is far faster than other forms of financing like Venture Capital or Bank Loans. There’s been no fraud or Wild West as opponents had claimed. “Essentially we built a financing mechanism which is doing exactly what we said it would,” said Sherwood Neiss Principal at Crowdfund Capital Advisors (CCA) “We’re funding local businesses with a vested group of local investors that is creating local jobs and powering local economies.”

Regulation Crowdfunding 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 an online investment platform that is registered with the Securities and Exchange Commission (SEC) and disclose information about their company and financial wellbeing.

Since the industry began, Crowdfund Capital Advisors has been collecting information on every offering in its CCLEAR Database. CCLEAR is the leading Regulation Crowdfunding database that collects, cleans, aggregates and reports on all companies seeking funds via Regulation Crowdfunding as well as those doing parallel 506(c) offerings[2]. This information includes financial performance, security offering, valuation, industry, daily commitments and number of investors. The information is summarized and published on a daily basis on the CCLEAR Regulation Crowdfunding dashboard.

Here are some key data trends:

• Capital commitments – From FY17[3] to FY18 capital commitments increased 78% from $45.7M to $81.1M. The second full FY of Reg CF saw capital commitments increase 39% to $113M. Total capital commitments to date is over $250M.
• Issuers – During the same period the number of companies seeking to raise funds increased 87% from 317 to 592 and 37% to 810 in FY19. Total issuers to date is over 1,800.
• Investors – The number of individual investors grew from 44.5k in FY17 to 92.6K in FY18 to 117.8K in FY19. Total investors to date is over 270,000.

“No matter how you look at it, there’s been an impressive growth of at least 150% in 2 years,” says Neiss. “If we extrapolate out over the next 2 years, we estimate that over 3,400 companies across the United States will receive half a billion dollars by over half a million investors.”

CCLEAR captures a maximum of 56 different industries from Advertising and Marketing, to Healthcare and Utilities. During the first fiscal year there were 44 industries represented. That number increased to 47 last fiscal year. While application software, alcoholic beverages, business services, consumer packaged goods, entertainment, personal services and restaurants were the most common industries seeking funds, financial services, business services, employment services and retail saw the greatest increase in offerings between the first and third fiscal years. “The wide representation of so many industries speaks to the broad appeal of regulation crowdfunding to both companies seeking and investors looking to deploy capital,” says Neiss. “No matter what industry you are in, if you have an engaged group of customers that could be investors, Regulation Crowdfunding is something you should explore.” Companies in 48 of the 50 States have registered to raise funds via Reg CF.

From an employment perspective, the data shows that Reg CF continues to sustain and support local jobs. In the first fiscal year over 1,482 jobs were supported. This grew by another 3,150 in the second fiscal year and another 4,448 in the third. “Collectively almost 10,000 jobs have been supported around the United States since the launch of Regulation Crowdfunding,” says Neiss. “We expect this number to grow by another 10,000 in the next 2 years. 20,000 jobs means 20,000 people employed by local businesses and reinvesting their income back into these communities through mortgage payments, groceries, dining out, education and more. This is how we support local economies. And we are doing it despite the current $1M cap on company raises. Imagine what we could do if we increased these caps from $1M to $5M, $10M or $20M? It is easy to see how we could increase this from 20,000 to 200,000 jobs.”

While not all Regulation Crowdfunding companies are revenue generating those that are had over $400M of Revenue in their most recent fiscal year. “Given that the majority of these firms are growing and reinvesting their earnings, you can only imagine the multiplier effect that this has on local economies,” says Neiss. “Businesses are reinvesting into their local economies by purchasing goods and services to support them and hiring employees. And employees are using their paychecks to support themselves. Together we estimate they are pouring close to a billion dollars into local economies.”

“You would think everyone would be thrilled about this and talking about it much more,” says Neiss. “If Washington really wants to help small businesses and our economy, they have this hidden gem whose potential has yet to be discovered and promoted.” Major industry players sent a letter to the Securities and Exchange Commission during the summer of 2018 seeking to raise the cap from $1M to $20M, as of yet there’s been no response.

[1] The Valley of Death commonly refers to funding that is needed for businesses that is above that which can be personally supplied by the founders and is less that that which is commonly provided by Venture Capital. It is typically from $30,000 to $250,000.

[2] A 506(c) offering is an online accredited investor offering. A parallel offering allows an issuer to run two offerings side-by-side and group the accredited investors in one pool and the Reg CF investors in another. This type of offering is popular for issuers that seek to raise in excess of the $1.07M cap in Regulation Crowdfunding.

[3] We consider the first fiscal year of Regulation Crowdfunding from May, 2016 – April, 2017.

The 2018 State of Regulation Crowdfunding COMPLETE REPORT

The 2018 State of Regulation Crowdfunding

COMPLETE REPORT

Over 100 pages of Charts, Graphs and Analysis

2018 was a solid third year for Regulation Crowdfunding with triple digit growth all around. There were 680 unique offerings, up from just 178 in 2016. Since inception, approximately $194 million in total proceeds was raised. The average amount raised across all firms is approximately $270,000. California leads the way in terms of deals and funded capital. Firms reported creating 2.9 jobs, and saw revenues increase 137%.

But that just scratches the surface on what is poised to become a billion-dollar industry in the next 5 years. In this full report we dig into the who, what, when, where and why of Regulation Crowdfunding. We answer questions like how does location affect raise? What industries are the most successful with Reg CF? What does the average Reg CF company look like? And how do Reg CF valuations compare to early venture finance?

Special Sections – Get these industry reports for FREE. They break down the industry by capital commitments, investors, valuation, top raises and more! More importantly we provide a link to every successful campaign within that industry so you can dig into their disclosures on your own.

• Blockchain in Reg CF Report
• Alcoholic Beverages in Reg CF Report
• Restaurants in Reg CF Report
• Application Software in Reg CF Report
• Entertainment in Reg CF Report
• Personal services in Reg CF Report
• Consumer packaged goods in Reg CF Report

Want to see the complete report? Here’s your chance to pre-order the full report with charts, images, and complete analysis.

The full report is estimated to be out the end of February 2019.

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Over 100 pages of charts, graphs and analysis. Including:

• Analysis of all offerings since the launch of Regulation Crowdfunding
  • Capital commitments by year
  • Investors by year
  • Successful campaigns by year
  • Average raise by year
• Breakdown of successful offerings by:
  • Geography
  • Industry
  • Type of security offered
  • Funding target
  • Maximum amount sought
  • Company revenues
  • Company earnings
  • Company assets
  • Company debts
  • Employees
  • Amount raised
    • Special Section: The $1 million club – Who are they?
  • Valuation
  • Length of campaign
  • Investors
  • Fees
    • Special Section: How much does a Reg CF campaign actually cost?
  • Analysis of proceeds by:
    • Geography
    • Industry
    • Type of security offered
    • Funding target
    • Maximum amount sought
    • Company revenues
    • Company earnings
    • Company assets
    • Company debts
    • Employees
    • Amount raised
    • Valuation
    • Length of campaign
    • Investors

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• Analysis of what the median Reg CF issuer looks like
  • Assets
  • Cash
  • Debt
  • Revenues
  • Income
  • Employees
• Analysis of repeat offerings:
  • Performance
  • Average raise
  • Total capital raised over time
  • Total investors over time
  • Change in company valuation
  • Change in company employees
  • Change in company financials
  • Complete list of repeat offerings including
    • Company name
    • Listing url
    • Capital raised in each offering
    • Valuation during each offering
    • Financial report from each offering
  • Annual report analysis
    • Impact on revenues
    • Impact on earnings
    • Change in employees
    • Regions with most growth
    • Complete list of annual reports including
      • Company name
      • Listing url
      • Capital raised in each offering
      • Valuation during each offering
      • Financial report from each offering
    • Portal performance
      • Geography
      • Industry
      • Funding target
      • Maximum amount sought
      • Amount raised
      • Valuation
      • Length of campaign
      • Investors
      • List of active vs withdrawn portals
        • Max offerings at time of withdraw
        • Max capital commitments at time of withdraw
        • Max investors at time of withdraw
      • Valuation analysis
        • Valuation by industry
        • Valuation by Region
        • Valuation by type of security offered
        • Valuation by number of investors
        • Valuation by revenue
        • Valuation by earnings
      • State Analysis
        • Rank
        • Capital commitments
        • Investors
        • # of successful campaigns
        • Success rate for the state
        • Average raise by state
        • Average days campaign
        • Map of company location
        • Image of commitments over time
        • Most popular industries
        • List of companies by state
          • City
          • Company name
          • Portal
          • Industry
          • Campaign summary
          • Link to campaign
          • Capital raised
          • Employees
          • Valuation
        • Recommendations for improvement
        • Special Sections – Get these industry reports for FREE
          • Blockchain in Reg CF Report
          • Alcoholic Beverages in Reg CF Report
          • Restaurants in Reg CF Report
          • Application Software in Reg CF Report
          • Entertainment in Reg CF Report
          • Personal services in Reg CF Report
          • Consumer packaged goods in Reg CF Report

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The full report will be out the end of February, 2019. You must pre-order it in order to receive a copy. The discount price is only available for pre-orders and is only available on a limited basis.

Here’s a decision tree to help you figure out what type of crowdfunding is right for your business

People often group crowdfunding under one umbrella. In reality there are 5 very different types of crowdfunding. If you want to use it for your business or startup it is important to know which one is right for you. This decision tree will help point you in the right direction. [zingtree id=”186220336″ style=”panels” hide_title=”yes” persist_names=”Restart” persist_node_ids=”1|5″]

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.