The Triumph of Regulation Crowdfunding: A Call to Strengthen Our Entrepreneurial Ecosystem

In the decade since the JOBS Act of 2012 introduced Regulation Crowdfunding (Reg CF), we’ve witnessed a transformative shift in startup financing. This innovative funding mechanism has democratized access to capital, empowering a diverse array of entrepreneurs and invigorating the American economy. The success stories are numerous, with over $2 billion invested across thousands of companies, nurturing innovation, fostering job creation, and driving economic growth.

For instance, restauranteur Hawaiian Bros was able to raise over $3 million through Reg CF, enabling it to expand its operations and create and support an estimated 7,200 local jobs in and around its locations. Similarly, Boxabl secured over $16 million in funding. Boxabl, much like Ford in its pioneering days of assembly line manufacturing, is revolutionizing the housing industry by standardizing and streamlining the production of foldable, transportable homes, thereby making housing more accessible, efficient, and scalable. Their technology is a breakthrough that has the potential to revolutionize the housing industry.

Reg CF has proven to be a vital tool for small businesses, offering a lifeline to many during economic uncertainties. It’s a testament to the resilience and ingenuity of the American entrepreneurial spirit. The process allows startups to secure funding while building a community of supporters, all under a regulatory framework designed to protect investors and promote transparency.

As we look to the future, it’s crucial that we build on this success.

Strengthening Reg CF and Access to Capital

The introduction of the “Expanding Access to Capital Act” (H.R. 2799) and its passage by the U.S. House represent a pivotal opportunity to enhance and expand Reg CF’s impact.

(Read SBE Council’s Statement of Support for H.R. 2799, which covers its key measures here.)

H.R. 2799 is designed to further democratize access to capital, enabling more small businesses to secure the funding they need to innovate, expand, and compete in a global marketplace. By supporting this legislation, Congress can ensure that more small businesses have the resources they need. It’s not just about funding; it’s about fostering a robust ecosystem where startups can thrive, innovate, and contribute to a vibrant and inclusive economy.

The data speaks volumes. Investment in Reg CF offerings has shown consistent growth ($19.6M in 2016 to over half a billion in 2023), signaling strong investor confidence and a thriving market for early-stage investment. The average raise amount ($173K in 2016 to $437K in 2023) and the success rate of campaigns (51% in 2016 to 63% in 2023) have steadily increased, indicating a maturing market that attracts serious entrepreneurs and committed investors.

However, the potential for Regulation Crowdfunding is far from fully realized. With Congressional support for H.R. 2799, we can unlock new opportunities for growth, innovation, and job creation. H.R. 2799 is a forward-looking initiative that adapts our regulatory framework to the evolving needs of the modern economy. It recognizes the increasing importance of alternative financing mechanisms in a digital age and seeks to enhance the effectiveness and reach of Reg CF, ensuring that the United States remains a global leader in entrepreneurship and innovation.

Supporting H.R. 2799 is more than a legislative action; it’s a commitment to the future of American entrepreneurship. It acknowledges the role small businesses play in driving innovation, creating jobs, and enhancing our global competitiveness. By backing this bill, Congress can provide a catalyst for sustained economic growth and a more prosperous future for all Americans.

The success of Regulation Crowdfunding underscores the importance of innovative financial mechanisms in supporting economic growth and entrepreneurship. Now is the time for Congress to act, and for the Senate to follow the lead of the House by advancing H.R. 2799. The bill will not only boost the availability of capital for startups and small businesses, it serves to reaffirm a commitment to America’s small businesses and an inclusive and vibrant economy. Let’s seize this opportunity to strengthen our entrepreneurial ecosystem and pave the way for the next wave of American innovation and prosperity.

Sherwood Neiss is a principal of Crowdfund Capital Advisors, and one of the key players in introducing the idea of regulated crowdfunding to Congress and the White House and subsequent passage of the JOBS Act of 2012.

This Week in Crowdfunding | Recapping What Happened in February w/ Woodie and Yvan

Sherwood Neiss appears on The Next Big Thing to discuss Regulated Investment Crowdfunding February results.

Platform Trends that are Impacting Issuers and Investors

Sherwood Neiss appears on an expert panel taking a look at the regulations set by the SEC and FINRA along with the pending legislations in Congress, and the platform trends that are impacting issuers and investors.

Introducing the Crowdfinance50 Index: A Daily Barometer for Investor Sentiment in the Crowdfunding Arena

Unlock the Future of Finance: Explore the Regulated Investment Crowdfunding Trends 2024 Report

In the ever-evolving world of finance, staying ahead is key. That’s why we’re excited to present our comprehensive “Investment Crowdfunding Trends 2024” report, your free gateway to understanding the future of investment crowdfunding. With over 200 meticulously curated slides, this report offers a macro-level overview of the industry from its inception, drawing parallels to the seminal Mary Meeker Internet Trends Report but focusing on the niche of crowdfunding.

Dive deep into data-driven insights, sector-specific analyses, and forward-looking predictions that are crucial for investors, entrepreneurs, and market analysts. This extensive resource is designed to arm you with the knowledge to navigate the complexities of tomorrow’s investment opportunities, highlighting pivotal trends, technological advancements, regulatory landscapes, and market dynamics.

Whether you’re a seasoned investor or new to the crowdfunding scene, this report is an invaluable tool for anyone looking to harness the potential of the future financial landscape. Download your free copy today and embark on a journey to financial foresight.

📬 Setting the Record Straight: Our Response to NASAA’s Objections

Correcting the Course: Our Evidence-Based Rebuttal to NASAA’s Claims

We find ourselves at a crucial juncture in the journey of Regulated Investment Crowdfunding, a path recently clouded by the North American Securities Administrators Association’s (NASAA) objection letter to Congress dated January 26th. The letter, laden with fear, uncertainty, and doubt, lacked a critical element – relevant data to support its assertions.

In a robust defense of innovation and economic progress, Crowdfund Capital Advisors crafted a data-driven rebuttal to NASAA’s claims, drawing on 8 years of comprehensive Investment Crowdfunding insights. Our intention was clear: to present an accurate, evidence-based perspective to Congress, countering NASAA’s unfounded concerns.

We are heartened to see that our efforts have gained recognition, with a CrowdfundInsider feature story on our letter . This coverage is not just a testament to our commitment but also a call to action for all stakeholders to engage in informed dialogue.

To further underscore the gravity of our counter-argument, Sherwood Neiss, Principal at Crowdfund Capital Advisors, shared his thoughts with CrowdfundInsider: ”

In my view, the NASAA’s recent communications to Congress represent a particularly insidious form of disinformation, characterized by a willful disregard for the current data and realities of Regulation Crowdfunding. Their approach, which selectively cites outdated figures and ignores the transformative impact of recent regulatory changes, does a disservice not only to the innovative platforms and entrepreneurs driving economic growth and creating jobs but also to the very principles of informed legislative debate. I find it imperative to counter such narratives with rigorous, data-driven analysis to ensure that policy decisions are grounded in the realities of today’s financial landscape, rather than the misconceptions of yesterday.  My rebuttal to their letter is not just about setting the record straight; it’s about advocating for a more honest and evidence-based discourse that truly serves the interests of American businesses and investors.“<

We invite you to read the full letter [click the image below] and join us in this critical conversation. Your support propels us forward as we advocate for policies rooted in truth and data, shaping a future that benefits all.

Together, we stand for transparency, integrity, and the power of crowdfunding to transform lives and economies.

With gratitude,

The Team at Crowdfund Capital Advisors

2023 Year in Review: A Comprehensive Insight into Investment Crowdfunding

The 2023 Annual Report is an indispensable resource for anyone involved in or interested in the investment crowdfunding sector. Written by the team that co-authored the framework for regulated investment crowdfunding and launched the industry, this 150-page comprehensive report delves deep into the industry’s dynamics over the past year, providing critical data and analysis that make it an essential read for stakeholders.

One of the report’s key highlights is its detailed examination of the financial trends and investment patterns that shaped the crowdfunding landscape in 2023. It covers a wide range of metrics, from the total amount of capital raised to the average investment sizes, giving a clear picture of the market’s health and trajectory. Particularly notable is the discussion on median valuations, which saw significant fluctuations throughout the year, influenced by broader economic conditions and sector-specific developments.

The report also offers insights into the geographic distribution of crowdfunding activities, identifying hotspots of growth and regions where the market may be underpenetrated. This geographic analysis is crucial for investors and entrepreneurs alike, as it highlights emerging opportunities and markets ripe for expansion. In addition, the report hones in on the use of regulation crowdfunding by women and minorities, highlighting a number of deals, capital raised, average investors, and more.

Moreover, the “2023 Year in Review” sheds light on the regulatory environment that continues to evolve, impacting how companies can raise funds and how investors can participate in crowdfunding ventures. The discussion on regulatory changes provides valuable context for the financial data presented, helping readers understand the external factors influencing market movements.

This annual review is celebrated as the most important piece of industry research published each year due to its depth and breadth of coverage. It not only provides historical data and year-on-year comparisons but also forecasts trends and potential future shifts in the crowdfunding ecosystem. For professionals in the field, this report is not just a reflection on the past but a roadmap for the future, offering strategic insights that can inform decision-making in the coming year.

For anyone invested in the future of crowdfunding, whether from a business, regulatory, or investment standpoint, the “2023 Year in Review” is a critical tool for staying ahead in this dynamic industry.

Download a free sample of the report:

Download the full report here.

Check out the table of contents below:

Unlocking Capital: The Transformative Journey of Investment Crowdfunding in 2023

CCLEAR, Inc. Launches CapitalPulse Ratings for Enhanced Analysis of Regulation Crowdfunding Investments

For Immediate Release

CCLEAR, Inc. Launches CapitalPulse Ratings for Enhanced Analysis of Regulation Crowdfunding Investments

Denver, CO – January 4, 2023: CCLEAR, Inc., a subsidiary of Crowdfund Capital Advisors, LLC (CCA), is excited to announce the launch of CapitalPulse RatingsTM, a pioneering rating system designed for private companies engaged in Regulation Crowdfunding. This innovative system represents a significant step forward in the analysis of crowdfunding investments, offering dynamic, data-driven insights.

Under the stewardship of CCA – the team behind the framework of Regulation Crowdfunding – CCLEAR, Inc. stands at the forefront of crowdfunding data analysis. CCA’s contributions to the industry are substantial, including their role in the legislative process of Regulation Crowdfunding, the creation of a comprehensive dataset of all crowdfunding offerings, the CCLEAR CrowdFinance 50TM, an index that tracks the overall health and trends of the Regulation Crowdfunding market, and authorship of the ‘Dummies Guide to Investment Crowdfunding.’

CapitalPulse Ratings: Merging Traditional Analysis with Investor Sentiment
CapitalPulse Ratings offers an intricate look at the investment landscape, merging traditional venture analysis—such as company performance and industry benchmarks—with groundbreaking insight into investor sentiment. Sherwood Neiss, Principal at Crowdfund Capital Advisors, states,”CapitalPulse Ratings consider the tried-and-true metrics that angels and venture capitalists rely on, then enhance this with real-time data on how much and how quickly investors are backing these companies. This dual approach gives a 360-degree view of a company’s true investment potential.”

The CapitalPulse algorithm reviews investment crowdfunding offerings and rates them from good to bad based on when a business was incorporated, where it is located, if it has sales, how fair its valuation is compared to others in its industry, how much capital has been invested, how many investors in the round, and other factors like cash, accounts receivables, short-term debt, long-term debt, and income. Each company is scored and ranked into categories.

CapitalPulse Ratings categorizes companies into five distinct tiers, each reflecting the company’s potential and current market position:

• Rapid Raiser: Companies with swift capital inflow, showing strong investor confidence.
• Steady Climber: Companies demonstrating consistent growth in investor interest.
• Emerging Contender: Companies with unfulfilled potential but showing promise.
• Potential Unlocker: Companies with latent potential yet to be realized.
• Emerging Opportunity: Companies whose value may not be immediately evident from current data.

Updated weekly, CapitalPulse Ratings ensures that subscribers receive the most current and relevant insights. Each category is crafted to provide a comprehensive understanding of a company’s standing, aiding subscribers in making informed decisions.

Important Disclaimer
The ratings provided by CCLEAR, Inc.’s CapitalPulse Ratings serve as a powerful tool for gauging company performance and market sentiment, offering a unique layer of insight for investors navigating the Regulation Crowdfunding space. However, they are intended for informational and analytical purposes only and should not be the basis for investment decisions.

While CapitalPulse Ratings provide a snapshot of a company’s financial momentum and investor interest, they do not replace the essential, in-depth analysis of a company’s leadership, including the founders’ industry experience, their track record in building startups, or their proficiency in securing capital. Investors are encouraged to conduct thorough due diligence on all aspects of a company to build a complete investment profile.

Exclusive Access for Subscribers
Access to CapitalPulse Ratings is exclusive to subscribers of CCLEAR’s dataset, which represents a complete collection of all Regulation Crowdfunding offerings. This exclusivity emphasizes CCLEAR’s commitment to delivering high-quality, actionable data.

CONTACT: Yvan De Munck, Yvan@cclear.ai

About CCLEAR, Inc.
As a wholly owned subsidiary of Crowdfund Capital Advisors, LLC, CCLEAR, Inc. is a leader in Regulation Crowdfunding data analysis. The team’s involvement in developing the Regulation Crowdfunding framework positions them as a key player in the industry, equipped to provide unparalleled insights and data.

Defying Expectations: Regulation Crowdfunding Issuers Prove More Resilient Than Traditional Companies

In the dynamic world of business, longevity and success are often viewed through the prism of traditional metrics and pathways. However, recent CCLEAR¹ Data on Regulation Crowdfunding issuers paints a different picture, one that challenges conventional wisdom and suggests that businesses funded through online platforms may have a surprising edge in longevity compared to their traditionally funded counterparts.

A New Era of Business Longevity
Contrary to popular belief, businesses that seek capital online through Regulation Crowdfunding are not merely outliers or ‘last resorts.’ In fact, they might just be the vanguards of a new era of business resilience. According to data analyzed by Crowdfund Capital Advisors, there’s a compelling trend that emerges: businesses funded through Regulation Crowdfunding exhibit a higher survival rate than the general business population.

“The Bureau of Labor and Statistics reports that approximately 50% of all new businesses fail within five years. Yet, our analysis of over 6,800 companies engaged in Regulation Crowdfunding tells a different story. Here, only 17.76% of funded companies have gone out of business, a stark contrast to the national average,” says Sherwood Neiss, Principal at Crowdfund Capital Advisors. “This is a significant finding that underscores the viability and strength of Regulation Crowdfunding as a funding mechanism.”

The Data Speaks: Visualizing Success Over Time
Employing Tableau for an in-depth analysis, our team effectively visualized the data to shed light on significant patterns. One of the most revealing visualizations is the survival rate over time, segmented by the year of funding. This line chart (below) uncovers a critical insight: companies funded before 2019 demonstrate a remarkable tenacity, with a higher-than-expected rate of continuing operations. This observation notably contrasts with the Bureau of Labor and Statistics’ findings, which suggest a higher likelihood of failure for businesses as they age. Companies utilizing Regulation Crowdfunding defy the typical business failure rates in their later years and have a very high survival rate in the years surrounding their funding.

Startups vs Established Companies: A Surprising Revelation
While established companies funded through Regulation Crowdfunding show admirable resilience, the data on startups is particularly striking. “Even though startups are traditionally seen as higher risk, those funded via Regulation Crowdfunding are defying expectations. The data indicates that these startups have a better chance of survival than many of their counterparts in the traditional business world,” Neiss observes.

While established companies and startups show varying degrees of resilience, another layer of analysis presents an even more compelling narrative about diversity in business success. In the realm of Regulation Crowdfunding, 90.4% of companies founded by women are still operational, compared to 81.6% of those founded by men. Similarly, businesses founded by minorities exhibit a commendable survival rate of 87.8%, slightly higher than the 82% for companies founded by non-minorities.

These statistics not only highlight the significant role of diversity in business success but also challenge some of the traditional biases prevalent in business funding. The success rates of women and minority-founded companies in the Regulation Crowdfunding sphere are not just numbers; they represent a shift in the entrepreneurial landscape, where access to capital through alternative platforms is enabling a broader range of founders to succeed. This trend is a positive indication that the democratization of funding could be contributing to a more inclusive and diverse business environment.

An additional layer of insight is revealed when examining the correlation between the revenue and survival status of companies. The data shows a clear trend: companies with higher revenue bands tend to have a higher survival rate. This pattern indicates that financial robustness, reflected in their revenue figures, plays a crucial role in the longevity of a business. Specifically, companies in the higher revenue bands are more likely to be operational, which could point to a direct relationship between financial health and business survival.

Equally telling is the relationship between the amount of capital raised and business status. Businesses that secured higher funding through Regulation Crowdfunding demonstrate a noticeably lower closure rate than those that raised smaller sums. This suggests that the level of funding acquired not only provides the necessary capital for growth but also serves as a marker of investor confidence and business viability. It appears that higher funding targets correlate with better business resilience, further underscoring the importance of access to adequate capital in ensuring business longevity.

“These trends, when combined with the previously discussed insights on the success rates of women and minority-founded companies, paint a picture of an evolving business landscape. Regulation Crowdfunding is not only facilitating a higher survival rate across the board but is also promoting diversity and financial stability, challenging traditional narratives in the business funding domain,” said Neiss.

Policy Implications: Time for a Change
This data challenges the notion of adverse selection in Regulation Crowdfunding. “Far from being a haven for ‘bad seeds,’ these platforms appear to be nurturing businesses with a higher propensity for survival,” Neiss explains. “It’s a testament to the power of community support, due diligence, and perhaps, the democratization of funding.”

Given these insights, Neiss advocates for reevaluating current policies: “The current cap of $5 million for Regulation Crowdfunding might be unduly limiting. Considering these businesses’ apparent resilience and success rate, raising the cap to $20 million could be a bold step forward, enabling more companies to benefit from this pathway to success.”

Conclusion: A Paradigm Shift in Funding and Success
The world of business funding is witnessing a paradigm shift. Regulation Crowdfunding is not just an alternative funding route but a potentially more viable one for many businesses. “This data doesn’t just speak; it heralds a new era of business resilience and success,” concludes Neiss. As we move forward, it’s crucial for both entrepreneurs and policymakers to heed these numbers and embrace the changing landscape of business financing.

1. CCLEAR is the data division of Crowdfund Capital Advisors. CCLEAR has a 100% complete dataset of all Regulation Crowdfunding offerings that is inclusive of more than 6,800 companies and 7,900 offerings including business status, investor sentiment, valuation, and more.

Unlock the Secrets of Investment Crowdfunding: Exclusive 50% Pre-Order Discount!

Are you ready to navigate the intricate world of investment crowdfunding in 2023? Our 2023 Annual Investment Crowdfunding Report: A Game of Chess comes out in January to guide you through the dynamic landscape.

In this year’s edition, we delve into the economic chess game, marked by Federal Reserve’s maneuvers, the roller-coaster stock market, and geopolitical tensions. Despite these challenges, discover how investor sentiment in the crowdfunding space has shown incredible resilience, with record-breaking investment trends.

Key Highlights of the 2023 Report:

• Over seven years of comprehensive data analysis.
• Insightful exploration of market dynamics, investor behavior, and economic impacts.
• A staggering 130 pages, adorned with nearly 100 charts, graphs, and images.
• A special focus on the roles of women and minorities in crowdfunding.
• Predictions for 2024, identifying emerging opportunities in a shifting landscape.

Special Pre-Order Offer: Secure your copy now at an exclusive 50% discount! This offer is only valid until December 31st, 2023. Learn more and preorder here.

Don’t miss this opportunity to gain unparalleled insights into the investment crowdfunding world. Pre-order your copy today and be prepared for the opportunities and challenges of 2024.

Capital Ideas: Sherwood Neiss on the Evolution of Crowdfunding

The following is a reprint of the article. The original can be found here. 

With the investment crowdfunding industry surpassing the $2 billion mark and involving over 6,600 companies conducting 7,600 offerings across 580 industries, Capital Ideas checks in with Sherwood “Woodie” Neiss, one of the early architects of what evolved into Regulation Crowdfunding [Reg CF]. Among other things, Woodie is now employing AI as part of his effort to collect, analyze, and disseminate data to enable the crowdfunding industry to grow further. Hear Woodie discuss his efforts and some of the regulatory barriers facing the industry including CPA reviews, regulatory exposure for CF platforms, and accredited investor restrictions.

Woodie highlights the growth and success of equity crowdfunding since its inception. He mentions the database his firm Crowdfund Capital Advisors created to collect information on companies raising money through Regulation Crowdfunding. The data reveals a significant increase in committed capital, with October 2023 recording $52.4 million, marking a substantial shift from the initial slow adoption.

One noteworthy transformation is the shift in the profile of companies participating. Initially dominated by pre-revenue startups, the industry has seen a change after the SEC lifted the cap from $1 million to $5 million in 2021. Now, 65% of companies are post-revenue and over three years old. The average raise has also increased, reaching $715,000 in October.

Role of AI in Crowdfunding
Woodie delves into the challenges faced by the crowdfunding industry, emphasizing the lack of media coverage and institutional capital. To address these challenges, he introduces the concept of using AI, specifically machine learning algorithms, to analyze and predict the success of crowdfunding campaigns.

The algorithm developed by Crowdfund Capital Advisors examines signals from companies that have succeeded in crowdfunding, such as revenue changes, expense changes, earnings changes, and valuations. The goal is to identify patterns that indicate potential success. This data-driven approach allows for weekly predictive models that recommend companies for further human evaluation.

Application of AI in Investment Decision-Making
Woodie explains the investment process at D3 VC, a $5 million starter fund aiming to invest $25,000 into 200 companies. The algorithm guides the selection process, considering signals from successful companies and investor sentiment. By backtesting the algorithm against successful companies like Boxable, the team aims to demonstrate the effectiveness of their approach.

He emphasizes the potential for institutional capital to enter the crowdfunding market if AI-driven algorithms can provide reliable signals for early-stage companies. The vision is to attract larger funds by showcasing successful outcomes and offering a diversified investment strategy.

Regulatory Impediments and Gray Areas
Neiss acknowledges regulatory impediments within the crowdfunding space. He addresses issuer concerns about CPA reviews and emphasizes the importance of third-party verification for investor confidence. Neiss suggests that despite complaints, there are resources available for issuers to navigate regulatory requirements.

He also highlights gray areas, particularly concerning platform accountability and potential enforcement actions. Neiss advocates for clear regulations and accountability for crowdfunding platforms while suggesting that the industry needs to address these issues collectively.

Closing Thoughts and Future Prospects
In the end, Woodie expresses optimism about the crowdfunding industry’s future. He acknowledges the industry’s achievements and diverse participation across various sectors. He calls for continued efforts to raise the Regulation Crowdfunding cap from $5 million to $20 million, arguing that the industry has proven its viability and is ready for further expansion.

Woodie provides a comprehensive overview of equity crowdfunding’s journey, the role of AI, regulatory challenges, and the potential for institutional capital to play a more significant role in the future. Woodie’s insights contribute to the ongoing dialogue about the evolution and maturation of crowdfunding as a viable alternative finance option.