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.
2019 was a blockbuster year for Regulation Crowdfunding. The industry flew by a quarter of a billion dollars in total investments and ended the year with $328 million invested in almost 1,300 companies by over 413,000 investors. In our annual report we dig into the data to uncover where capital is going, what industries are hot and what can be done to improve things. Sign up now get your copy as soon as it is released!
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.
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″]
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:
How many total people (including yourself) worked on your campaign?
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.
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.
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.
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.
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).
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.
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.
On July 19th we submitted a letter to the Securities and Exchange Commission (SEC) providing data and analysis for why the Regulation Crowdfunding cap should be increased from US$1.07M to US$20M. The letter was signed by the largest Regulation Crowdfunding platforms in the industry as well as leading industry influencers. Since then a petition was created on Change.org by SeedInvest and it is starting to gain traction. Washington does pay attention to numbers, so we encourage you to take 2 seconds to sign the petition and share your voice as to why you support increasing the cap. Below is a letter SeedInvest’s CEO, Ryan Feit sent to all their supporters that provides further rationale.
This past week I, along with other industry advocates, delivered a letter to Securities and Exchange Commission (SEC) Chairman Clayton urging the SEC to raise the Regulation Crowdfunding (CF) cap from $1 million to $20 million. When we helped pass The JOBS Act more than six years ago, Congress almost unilaterally agreed with us that startups and small businesses needed better access to capital in order to create more jobs. Although we’ve made great strides to launch an entire industry on the back of these historic changes, we as an industry still have a lot of work left to do. Recent data suggests that, despite the passage of the JOBS Act, the fastest-growing (and job creating) startups and small businesses are still shut out from equity crowdfunding due to the current regulatory constraints.
We have shared below what we believe are a few of the most compelling arguments for expanding Regulation Crowdfunding. If you agree with our findings, we ask that you show your support by signing the petition to increase the Regulation Crowdfunding cap.
Less Venture Capital
Since the passage of The JOBS Act, access to capital for early-stage startups and small business has actually become more challenging. Over the past six years, seed-stage venture capital managers have moved up-market to launch larger funds and invest in later-stage deals. This trend has resulted in a vacuum at the traditional Seed stage, as well as a corresponding, sharp decline in investment activity. After a couple boom years (2013-2015), the number of traditional Seed stage deals declined 41% and the number of dollars invested has also declined dramatically1.
Problematic Regulatory Gap
Meanwhile, as early-stage venture funds decline, the number of companies looking to raise early-stage capital has actually increased, leading to a supply-demand imbalance. As a result, there is large demand from companies looking to raise $1-$20 million through non-traditional channels, but regrettably, the current regulatory framework is untenable. Unfortunately, Regulation Crowdfunding is capped at $1 million and Regulation A+ requires substantial upfront costs and disclosures as well as onerous ongoing reporting and audit requirements. As a result, Regulation A+ is not a great fit for companies which are not looking to raise a more significant amount of capital.
Net Job Creators
Studies have shown that these high growth startups which need to raise $1-$20 million are the very same companies which create jobs in America. Recent SBA research suggests that these companies, which typically have 20+ employees and have been in operation for one to five years, play a significant role in net job creation. We frequently encounter these types of companies that have already raised an initial round of $500k to $1 million and are now looking to raise $5-$20 million in order to accelerate their growth and hire rapidly.
Proof From Abroad
In the United Kingdom, equity crowdfunding has been around for five years longer than the US and has a higher, $10 million maximum-resulting in a much more robust dataset than exists in the US. What we see in the UK is that equity crowdfunding has now become the preferred way for startups and small business to raise capital. In fact, the Cambridge Centre for Alternative Finance recently found that in just a few years, equity crowdfunding has grown to account for a whopping 17% of all seed and venture stage equity investment in the UK. Furthermore, equity crowdfunding has clearly helped to bolster the innovation and job boom in the UK over the past seven years, with the Centre for Economic Performance at the London School of Economics reporting that two thirds of the new jobs in the UK since 2008 have come from small and medium businesses.
In the US, although we have less data, we have also seen healthy results over the last two years. So far, 715 companies that support 4,172 jobs have raised capital through Regulation Crowdfunding. In addition, early findings suggest that women and minorities have had much greater access to capital, as well as higher success rates, through equity crowdfunding than through traditional channels.
No Fraud, Few Regulatory Challenges
Furthermore, despite meaningful fundraising activity through Regulation Crowdfunding, there have been zero reports of fraud thus far. Back in 2011 and 2012, during our discussions on Capitol Hill, it was suggested that the $1 million Regulation Crowdfunding cap was merely a starting point. At this point, there is sufficient data to show that equity crowdfunding has been effective at providing greater access to capital for startups and small business without materially increasing the risk of fraud. But the true potential of equity crowdfunding is still critically constrained by the arbitrarily low fundraising cap of $1 million per year. In The U.S Department of The Treasury’s October 2017 report, A Financial System That Creates Economic Opportunities, Treasury recommended increasing the Regulation Crowdfunding cap and pointed out that the SEC has the requisite authority to do so. Like The Treasury, we ask that the SEC consider revisiting and raising the current cap.
Show Your Support
If you agree with these points, I encourage you to read our letter to the SEC and to add your support to our Change.org petition. Please also help us spread the word to fellow entrepreneurs and investors. In a few weeks we plan to share the list of supporters with Chairman Clayton which will hopefully prompt additional dialogue with the SEC.
The following is a reprint of a story regarding the letter CCA coordinated to increase the Regulation Crowdfunding cap to US$20M. The original can be found here.
In a letter forwarded to Securities and Exchange Commission (SEC) Chairman Jay Clayton, a group of Fintech leaders demanded the Commission to increase Regulation Crowdfunding (Reg CF) from the current $1.07 million max amount to $20 million – a substantial increase to current rules. The demand to increase Reg CF, an iteration of securities crowdfunding that was created by the JOBS Act of 2012, comes at a time when there is pressure for the US to maintain is position as a leader in investment crowdfunding the space. As pointed out by the signatories, both Germany and the UK have increased their crowdfunding threshold to €8 million (USD $9.4 million). The European Commission may move to make this a pan-European threshold with some EU insiders pushing for a higher amount.
The letter was sent under the letterhead of Crowdfund Capital Advisors (CCA), co-founded by Sherwood “Woodie” Neiss and Jason Best. The two founders were vital to the passage of the JOBS Act when President Obama signed the bill into law.
Neiss told Crowdfund Insider;
“Each of the parts of the JOBS Act served a niche well except for those companies that liked the idea of crowdfunding from Main Street investors without the costs of a Title IV (Regulation A+ offering). By increasing the maximum an issuer can raise to $20 million under Regulation Crowdfunding, we can now fill this void and allow a broader spectrum of small issuers into the marketplace. With 2 years of history and data under our belt, we can see that the system is working, capital is flowing, jobs are being created and money is being pumped into our economy. Rather than ask for another de minimus increase in the cap, let’s raise it to an amount that will really allow the industry to take off but in the same systematic and transparent way that benefits issuers, investors, and regulators.”
Neiss, in an email to Chair Clayton, said “the United States should not be left behind, but should make the bold move to increase the cap to $20 million.”
The SEC has the ability to act and such a move would most likely have the support of much of Congress and most likely the Executive branch. The question is whether, or not, Chair Clayton will be willing to take such a bold move that will clearly support small business and capital formation – a policy area Clayton has consistently said is one of his top leadership priorities.
The letter to Chair Clayton was signed by the following crowdfunding industry leaders:
Sherwood Neiss – CCA
Doug Ellenoff – Ellenoff, Grossman & Schole
Youngro Lee – CEO of NextSeed
Tyler Gray – COO of Microventures
James Dowd – Managing Director North Capital
Kendrick Nguyen, CEO of Republic
Ryan Feit – CEO of SeedInvest
Karen Kerrigan – Small Business and Entrepreneurship Council (SBE Council)
The Honorable Jay Clayton
Chairman
U.S. Securities and Exchange Commission 100 F Street, NE
Washington, DC 20549
Dear Chairman Clayton:
We compromise the largest online crowdfunding platforms and industry influencers in the United States. Given the positive early results since 2016 for both entrepreneurs and investors, we believe the time has come to raise the maximum amount an issuer can raise via Regulation Crowdfunding (Reg CF) from US$1M to US$20M. Please keep in mind that during the 2 years of this new exemption there has been no fraud and very limited regulatory issues.
Since the launch of Regulation Crowdfunding:
Over 1,000 companies have filed with the SEC to raise money on online platforms that are registered with FINRA to facilitate capital formation.
Over $137M has been committed to these issuers. 95% ($130.4M) of that capital was funded and invested into 715 companies (68.5% success rate).
These 715 companies are supporting 4,172 jobs and producing over $249M in revenue.
Issuers have filed in almost every state in the Union.
Issuers have been funded in 80 industries (according to Morningstar’s Global Equity Classification Structure).
The cap should be adjusted because:
There has been zero fraud, competent issuers have been able to raise serious capital from investors that believe in their products or services, and retail investors (for the first time in recent history) have a transparent, systematic way to back companies they believe in.
Successfully funded companies are supporting and creating valuable jobs and providing substantial economic activity in a broad range of locally important industries all around the United States.
The initial cap of US$1M was meant to be adjusted. Only once since the launch of Regulation Crowdfunding has this been adjusted and at the time only by $70,000. Such de minimus adjustments do not fully allow meritorious issuers to fully benefit from this new form of online finance nor expand the opportunity for issuers seeking to raise in excess of $1M.
The current $1M level is now far below what startups and SMEs need for seed stage capital. May 2018 data indicates that the median sized funding round for Angel or Seed stage companies in the US is $2M. This means that even for the smallest funding round the current limits do not allow an issuer to raise their entire round via Regulation Crowdfunding. This dramatically increases costs and time spent on raising capital by US businesses. This reduces the number of American innovators and job creators in the United States.
While the “funding gap” that Regulation Crowdfunding was meant to address is filling the void. The funding “opportunity” really comes from those small/medium firms that are seeking to raise up to $20M. Raising funds under $20M has become increasingly challenging as Venture Capital/Private Equity has moved upstream over the past decade. Raising the cap will allow issuers that wish to utilize this form of online finance the ability to raise in excess of $1M and tap their local investors without having to deal with the costly, time consuming process of either filing a full prospectus with the SEC or spending hundreds of thousands of dollars on a private offering.
Many companies forego Regulation Crowdfunding in favor of Reg D, 506(c), because of the low Reg CF limit. This has the effect of reduced disclosure to investors, since Form D provides less information even than Form C. In addition, ordinary investors are cut out of some of the most attractive deals that have already attracted institutional funding, which seems unfair and counter to one of the goals of Reg CF.
Both the United Kingdom and Germany have adjusted their caps to 8M EUR (US$9.4M). The United States should not be a follower but a leader
In a FINRA live chat with Robert Cook you said, “I continue to worry that retail investors do not have access to as broad a slice of our capital markets as I would like them to have. Said another way, you have private capital and public capital. Retail investors can really only participate in the public capital, and to the extent private capital has become so robust, you’ve shrunk opportunities. That bothers me a bit. If that trend continues, a much more select group is participating in the growth of the economy.”
We believe increasing the caps on Regulation Crowdfunding will address your concerns and invite more retail investors into a systematic, transparent part of the private capital markets that is creating jobs and providing valuable economic stimulus.
We kindly urge you to adjust the maximum amount an issuer may raise to $20M. Sincerely,
Sherwood Neiss, Crowdfund Capital Advisors Doug Ellenoff, Ellenoff Grossman & Schole Youngro Lee, CEO NextSeed Tyler Gray, COO Microventures James Dowd, Managing Director North Capital Kendrick Nguyen, CEO Republic Ryan Feit, CEO SeedInvest Karen Kerrigan, Small Business and Entrepreneurship Council Ron Miller, CEO StartEngine Nick Tommarello, CEO Wefunder
Are you seeking investors to help you fund your business idea or growth? With the launch of equity crowdfunding in 2016, businesses can now raise money from ordinary investors online.
This recorded webinar will share the ins and outs of equity crowdfunding and highlight the type of businesses that can benefit from this opportunity.
You will learn:
What is equity crowdfunding?
Equity vs rewards-based crowdfunding and which is the best for your business
How to evaluate an equity crowdfunding platform
Keys to a successful crowdfunding campaign and how to attract investors
The impact of raising money via equity crowdfunding to your business
Sherwood Neiss, is a Principal at Crowdfund Capital Advisors and a Partner at Crowd Capital Ventures. He is a serial entrepreneur, investor and avid worldwide speaker discussing crowdfund investing and how to build winning companies.
The following is a reprint of an article we wrote for VentureBeat. You can find the original here.
For startups and small businesses interesting in raising money online, it can be tough to choose a crowdfunding platform — there are so many out there. And they rank differently depending on whether you’re looking at the size the platform, the total amount of capital it has raised, its overall success rate, or the average amount the platform raises per deal.
My team decided to find out who was the leader in each of these categories. We pored over two years of data. Then we reached out to the top platforms to get their feedback. Their answers were surprisingly similar: Sourcing the best deals leads to the best results. Yet at the end of the day, the data shows one platform leads in an area that may make all the difference in the eyes of the entrepreneur: average capital raised.
Regulation crowdfunding (Reg CF) began on May 16, 2016. It allows any startup or small business to raise up to $1,070,000 online from family, friends, and followers (accredited or not) provided issuers use a crowdfunding website that is registered with the Securities and Exchange Commission (SEC). Since its launch, nearly 1,000 companies have registered with the SEC on 50 platforms, and over $127 million has been committed to campaigns. But that funding hasn’t been evenly distributed across campaigns or platforms. Eight platforms have already gone belly up, 25 have done fewer than 10 deals each, and only eight platforms have raised over $1 million for their campaigns. Clearly, deals and dollars are flowing to a select few. Competition for quality deals is fierce among platforms, entrepreneurs are heading to the top players, and investors are looking for opportunities across industries and regions. So who are the leaders?
Of the nearly 1,000 companies that have registered to raise money online, 50 percent chose to register on either Start Engine or Wefunder. And according to the data, it is a tight race, with StartEngine leading. According to Ron Miller, CEO of StartEngine, the platform’s success has to do with sourcing and setting expectations. “We have more successful campaigns because we source the very best entrepreneurial talent out there. We also set appropriate expectations in terms of how much work it takes to make a campaign successful, and we provide the coaching and support at each step of the process.” This sourcing and coaching probably explains why, over the past two quarters, the company’s new deal volume has surged.
When it comes to total amount of money raised by platform, Wefunder is the leader, with over $38 million. To put this in perspective, since the market began almost one out of every three dollars committed to all campaigns went to Wefunder. According to Wefunder cofounder and CEO Nick Tommarello, the company’s strength on this front has to do with its experience with Silicon Valley entrepreneurs and investors. “Our edge against other platforms comes from our background as product-oriented tech founders who want to empower communities, not broker/dealers who want to take a slice of a transaction. When we attended Y Combinator, we were immersed in an environment where our friends went on to start billion-dollar unicorns. From 2013-2016, Wefunder then invested in these types of startups. We had to learn how to get access to high-quality “oversubscribed” deals. Our DNA applied these lessons to Reg CF deals.” And it seems to be working.
When it comes to who closes the most deals, Nextseed leads the pack with a 93 percent success rate. Twenty-eight of 30 of its deals have been funded. Nextseed CEO Youngro Lee said the platform’s high success rate has to do with focusing on a particular crowdfunding model (debt), businesses types (retail, bricks and mortar), and immediate, easy-to-understand returns. “We viewed the passage of the JOBS Act as an opportunity to democratize private financing in local communities — allowing everyday people to invest in local businesses. We thus focused our efforts on businesses and investment terms that an average investor could actually understand and appreciate. We only work on debt crowdfunding for brick and mortar businesses, and all investments have a finite maturity and monthly payment requirements. We also seek to provide comprehensive services to our issuers throughout their campaign creation process from start to finish, including marketing and PR advice, providing templates, and supporting post-closing investor communication and payment servicing.”
Category: Average raise per campaign – leader SeedInvest
However, when you drill down and look at what really matters — how much money the average campaign raises — the data reveals something powerful. While StartEngine and Wefunder might lead in the number of successful campaigns and Nextseed in success rate, SeedInvest leads in this category, with an average raise of $435,780 per campaign. From an entrepreneur’s point-of-view, this metric is likely the most important one. SeedInvest CEO Ryan Feit said the high average raise amount comes down to extreme vetting and the investor base. “With over 37,000 accredited investors, SeedInvest is by far the largest platform in terms of the number of high net worth investors. In addition, unlike other platforms, we have family offices, venture funds, and high net worth individuals who can write checks between $250,000 and $2 million. This sets us apart from all other platforms and ultimately results in larger raises for startups on SeedInvest. We have never been interested in simply trying to list more startups than other platforms or generate the most investment volume. Historically we have only launched 1 percent of the startups that apply to raise capital, and we invest meaningful time in those startups we select.”
The bottom line
If you are a brick and mortar entrepreneur looking to improve your odds of getting financed, consider heading to Nextseed. Chances are you’ll hit your funding target and do so in less time than applying for a bank loan. If you are looking to get your campaign in front of potential backers, head to StartEngine (or Wefunder, where you’ll pay less in success fees). Keep in mind, you’re going to have to bring the majority of your investors to the deal; they don’t just show up. But if your priority is simply to raise the most money possible, try SeedInvest (and I mean “try,” since they only accept 1 percent of applicants). Entrepreneurs on SeedInvest are raising 89 percent more than the current industry average of $244,000. If you look at the last two quarters alone, investors are pouring their capital into SeedInvest deals ($9.5 million vs $7.7 million for StartEngine and $6 million for Wefunder).
Sherwood Neiss is a partner at Crowdfund Capital Advisors. He helped lead the U.S. fight to legalize debt and equity based crowdfunding and coauthored the book Crowdfund Investing for Dummies.
The 2017 State of Regulation Crowdfunding – U.S. Securities-based Crowdfunding Under Title III of the JOBS Act[1]
Regulation Crowdfunding allows startups and SMEs to raise up to $1,070,000 per year from both retail and accredited investors by utilizing registered funding portals (or broker-dealers) to conduct exempt offerings online. This exemption requires issuers to file in a Form C and post online disclosures about a company’s operations, team, financials and other material information for investors to review. Regulation Crowdfunding started in the United States on May 16, 2016. The second calendar year for the industry ended on December 31, 2017. Because data about issuers, their financial wellbeing, and the capital that is committed is public information we can analyze the data and bring transparency to a segment of the markets (exempt private offerings) that has been fairly opaque until the JOBS Act went into effect.
The number of unique offerings increased 267%[2] from 178 in 2016 to 481 in 2017
Proceeds increased 178% from $27.6 million in 2016 to $49.2 million in 2017. Total proceeds by the end of 2017 was $76.8 million
The number of successful offerings increased 202% from 99 in 2016 to 200 in 2017
The average success rate of offerings to date is 66.7%
The total number of investors in Regulation Crowdfunding increased 158% from 28,180 in 2016 to 44,433 in 2017
Issuers that filed annual reports and reported creating jobs created on average 13.9 jobs.
Revenues for Issuers that filed annual reports increased on average 131% between the year in which they leveraged Regulation Crowdfunding and the Prior Fiscal Year.
Analysis:
The results of this data show that the market, while still in its infancy, is growing at a rapid pace.
The velocity of capital into funded offerings appears to be steady without showing signs of abnormal activity or irrational investor behavior.
The rapid increase in the number of offerings and investors proves that there is appetite for Regulation Crowdfunding from both issuers seeking capital as well as investors looking to diversify.
Given the high success rate for offerings, Regulation Crowdfunding represents a very structured yet viable alternative for access to capital for startups and SMEs.
Given the ability for firms to leverage capital raised to scale operations and create jobs, Regulation Crowdfunding should be promoted by local Chambers as well as the Small Business Administration.
Given the lack of irregularities or fraud, Regulation Crowdfunding (and the structure under which it provides for transparency), should be advocated by policy makers and government organizations.
Conclusion:
2017 represented a strong first complete calendar year for Regulation Crowdfunding. We expect the industry to exceed $100M in funded offerings during the first quarter of 2018. When considering the growth of securities-crowdfunding globally, we expect the market to reach $1B in funded offerings within the next 5 years. This can be further supported by making adjustments to the exemption that would allow for greater issuer caps.
In looking for how to consider the growth rate and size of this market over time, one can look at the UK market for data. With now 5 years of active equity crowdfunding in the UK, according to Cambridge University’s Center for Alternative Finance, in 2017, 17% of all seed stage capital in the UK came via equity crowdfunding. The CCLEAR database will continue to track these markets both domestically and globally as we begin to offer services to other regulators outside of the United States.
Download the full report here.
[1] This report is an excerpt of a report we wrote for the Securities and Exchange Commission (SEC) that summarizes the year end cumulative results for Title III of the JOBS Act (aka Regulation Crowdfunding)
Show me the CCLEAR Regulation Crowdfunding Dashboard
[2] Given Regulation Crowdfunding started on May 16, 2016, the first calendar year of Regulation Crowdfunding only encompasses 7 ½ months. Had it been a full calendar year, this growth percent would have likely been lower.
CCLEAR Regulation Crowdfunding Database covering all Portals and Offerings
MIAMI, FLORIDA, OCTOBER 17, 2017 – Today at a Private Capital Markets forum, Crowdfund Capital Advisors (CCA) announced immediate availability of CCLEAR™, (http://www.CrowdfundCapitalAdvisors.com/data) to enable entrepreneurs, investors, policy-makers, educators, industry stakeholders and government leaders to immediately and transparently analyze all Regulation Crowdfunding offering data. The CCLEAR service can also be easily customized and implemented by securities regulators globally to monitor their private capital market activities.
“The CCLEAR solution is a revolutionary data analysis service that provides unique insights to investors and issuers. Until Title III of the JOBS Act went into effect, there had been no transparency into what is happening in the private capital markets,” said Sherwood Neiss, Principal at Crowdfund Capital Advisors. “Now with Regulation Crowdfunding there is a digital footprint of all private companies raising money online. With this unique data in the private capital markets, investors and regulators can immediately understand where capital is flowing by region, what industries benefit, where jobs are being created, what kind of economic impact is being delivered by city, state and region, where investors are from, where they are investing, the financial health of reporting companies, average valuations, average check size by portal, average raise by industry, average length of fundraising and much more.”
CCLEAR™ (standing for Collect, Clean, Aggregate and Report) is the first comprehensive securities-based crowdfunding database to collect, cleanse, aggregate and report on the underlying companies, portals and industries. CCLEAR uses a standards-based method and data structure (CCA Data Standards) for collecting over 153 static and transactional data points from Regulation Crowdfunding offerings. Crowdfunding websites can plug into CCLEAR via an API. Data is collected, cleansed and normalized then stored in cloud based servers and indexed for rapid response. The CCA Data Standards provides a taxonomy for use by public and private sectors and is promoted through marketplace collaboration.
There are 4 Dashboards available in CCLEAR. The Industry/Media Dashboard is free to registered users and visually displays summary information about the industry. The Investor Dashboard is subscription based, contains all-in-one detail on each offering with a live link to the campaign page, as well as industry analysis. The Regulator/Government Dashboard is subscription based, provides detailed information on all offerings as well as summary information about the entire industry. And the Portal Dashboard is free to Crowdfunding Platforms that plug into the database and provides industry comparisons as well as averages, trends and analysis.
CCLEAR has been in private beta for the past 6 months,” said Jason Best, Principal at Crowdfund Capital Advisors “during this time we’ve had a chance to work closely with our network of media, government leaders, platforms and investors to deliver them more than just data. CCLEAR delivers actionable information to benefit the decisions of all market participants. This type of data standardization tool will also accelerate the growth of the industry.”
Ellenoff Grossman and Schole, a law firm that advises issuers and portals, recently committed to deploying CCLEAR to all lawyers in its firm. “CCLEAR will further enable Ellenoff Grossman and Schole to speak to our clients about market evolution, where niche opportunities exist for portals and set expectations in data driven results way,” said Doug Ellenoff, Partner. “It is truly revolutionary to be able to see what is happening in a market that has had no sunlight for the past 80 years.”
Karen Kerrigan, President & CEO of the Small Business & Entrepreneurship Council said, “Access to capital is a perennial issue for America’s Small Businesses, as well as startup entrepreneurs. Now that we have a new avenue for entrepreneurs and their enterprises to seek capital from their friends, family and followers we need industry data to educate those companies on what they can realistically raise based on region of the country and industry sector. CCLEAR answers these questions for entrepreneurs and small businesses. It is a great tool that will help them succeed!”
CCLEAR Background
CCLEAR is a service created by successful entrepreneurs with Wall Street and Silicon Valley experience. Having raised millions of dollars in the private capital markets as well as crafting the Regulation Crowdfunding framework used in the JOBS Act, the team built a database and standard dataset that answers questions government regulators, policy makers, entrepreneurs and investors want to know about investing in private companies, raising capital online and spurring economic activity. CCLEAR is part of Crowdfund Capital Advisor’s commitment to deliver the latest tools to promote market credibility and efficiency. CCLEAR is available for immediately access at http://www.crowdfundcapitaladvisors.com/data.
About CCA
Founded in 2012, Crowdfund Capital Advisors is the worldwide leader in Securities-based Crowdfunding Policy, Research, Analysis and Data Analytics. The company offers highly customized services designed to assist governments, multilateral organizations, regulators, entrepreneurs and investors in understanding how to promote economies via regulated online securities exchanges. Clients include the World Bank, Inter-American Development Bank, country governments and global financial institutions.
The U.S. Department of the Treasury released a report detailing how to streamline and reform the U.S. regulatory system for the capital markets. Treasury’s evaluation of current capital market regulations found that there are significant reforms that can be undertaken to promote growth and vibrant financial markets while maintaining strong investor protections. The report was in response to Executive Order 13772 issued by President Trump on February 3rd, which calls on Treasury to identify laws and regulations that are inconsistent with a set of Core Principles of financial regulation.
“The U.S. has experienced slow economic growth for far too long. In this report, we examined the capital markets system to identify regulations that are standing in the way of economic growth and capital formation,” said Treasury Secretary Steven T. Mnuchin. “By streamlining the regulatory system, we can make the U.S. capital markets a true source of economic growth which will harness American ingenuity and allow small businesses to grow.”
In July, 2017 CCA was interviewed for the report in a call with Karen Kerrigan, President and CEO of the Small Business and Entrepreneurship Council. All their recommendations were included in the final report. They included:
Allowing the use of Single Purpose Vehicles
Fixing an error in the final bill to now allow investors limits based on the ‘greater of’ income or net worth
Unlock unparalleled insights into the crowdfunding landscape with our exclusive data reports! Visit shop.cclear.ai to access detailed analytics, industry trends, and regional rankings that can supercharge your investment strategies. Don’t miss out on the opportunity to stay ahead in the dynamic world of crowdfunding. Click here to explore our reports now!
The U.S. Department of the Treasury released a 
