How to help 80,000 small businesses recover from the pandemic

How Could the Federal Reserve Immediately Help Small Businesses?

WHAT IS NOT WORKING FOR SMALL BUSINESSES TODAY:  

  • The Federal Reserve has allocated $600B to help small and medium businesses to survive the pandemic.
  • So far, they have only spent $2B of that money because they are trying to lend via banks…this is not working.

WHAT THE FED CAN DO TODAY TO IMMEDIATELY HELP SMALL BUSINESS:  

  • Allocate just $20B of the remaining $598B to lend to the businesses that local investors are lending to, via securities-based crowdfunding platforms. The Fed co-invests with communities to help support businesses.
  • This could enable at least 80,000 businesses across the country to receive up to $500,000 in funding ($250,000 raised from local investors + up to $250,000 in matching funds from The Fed).

OUR PLAN USES TECHNOLOGY THAT IS ALREADY WORKING TODAY:  

  • SEC regulated crowdfunding platforms have already raised $712M from over 710,000 Americans in all 50 states.
  • The process is SIMPLE:
    • The Federal Reserve allocates $20B to this program.
    • Securities-based crowdfunding platforms register with the Fed (they are already regulated by the SEC).
    • When a company raises their target amount, the crowdfunding platform notifies the Fed and matching funds are transferred.
    • All the data is reported daily to The Fed for real time transparency on the program.

WHAT CAN YOU DO TO HELP? 

  • Contact your representative in Congress and demand they support the Main Street Recovery Co-Investment Fund
  • Watch the video below to learn the details of the program and post it on all of your social channels.
  • Share this email with people you think can help and post it on your social media channels.
Click the image below to watch a replay of the
Main Street Co-Investment Recovery Fund Webinar!
Click the image above to watch the replay
How Would it Work?

  1. Government tells the Federal Reserve to move $20 billion of the $598 billion remaining into the Main Street Recovery Co-Investment Fund. The Federal Reserve would oversee the Fund.
  2. Online Investment Platforms apply to have access to the Fund for small businesses that raise money on their websites.
  3. Small businesses will create campaigns, disclose information about the business, how much money they need and how it will be used.
  4. Investors (mainly customers of these businesses) decide whether or not to fund the business and help the business hit a minimum funding target.
  5. If a campaign hits the target, the platform would let the Fed know and the Fed would disperse, dollar for dollar, what the investors deployed up to $250,000 per company.
  6. Investors would be paid back principal and interest on the money that they loaned. We suggest that small businesses either borrow the money or offer revenue share notes.
  7. The Government would be paid back after the investors were made whole.
  8. Data about the investments, how the money was used and the impact of the funds would be made available to the Government on a real-time basis.

Where did the Main Street Recovery Co-Investment Fund Come From?

During the last recession, in 2010, we went to Washington with the idea for Regulation Crowdfunding. It was meant to help struggling small businesses access capital. Since then, an entire industry has emerged. More than 2,700 companies across the USA have raised over $712 million from 710,000 local investors in communities all across the USA. This is happening on online investment platforms that are overseen and regulated by the Securities and Exchange Commission. And there has been no fraud.

Now we find our local economies back on the brink due to COVID. Our government carved out $600 billion to help but because of deficiencies with the Main Street Lending Program, PPP and EDIL only $2 billion has been deployed.

Rather than sit on that money, the government should take $20 billion (only 3% of what they have in reserve) and put it into the Main Street Recovery Co-Investment Fund. It has the ability to help over 80,000 struggling Main Street businesses in the next 90 days and it is a turnkey solution!

Download the Presentation Here.
If you think our government and the Federal Reserve should take $20 billion of the $598 billion that is sitting on the sidelines but meant to support Main Street USA businesses and put it into a co-invest fund that will invest alongside millions of local investors in supporting local businesses, contact us or contact your representatives and let them know!

Forbes Reprint – Crowdfunding Success Indicates Small Businesses And Startups Worthy Of Government Matching Program

Forbes REPRINT:
Crowdfunding Success Indicates Small Businesses And Startups Worthy Of Government Matching Program

The following is a reprint of a story that ran in Forbes this morning. You can find the original here.

By: Geri Stengel

Community-focused investing has funded local small businesses and startups across the US. Since 2016, half a billion dollars has been raised from investment crowdfunding, generating $2 billion in economic activity and supporting 100,000 jobs.

According to Regulation Crowdfunding by Congressional District: A Report Card by Crowdfund Capital Advisors, Congress can encourage this more by creating the Main Street Recovery Co-Investment Fund. The United Kingdom has already done this to great success. It worked so well that Fund was re-upped twice, including to support small businesses impacted by the coronavirus pandemic.

A critical lesson from the 2007-2009 financial crisis was that access to capital for small businesses matters. Small businesses were hit harder than large companies by the Great Recession. During and for a period after the financial crisis (2009-2013), big banks reduced lending to small businesses by 20%. Still, they increased loans to larger companies by 4%. During the Covid-19 crisis, access to financing for small businesses is more critical than ever before.

A new category of financing—crowdfunding—was created to meet some of this need. This article is focused on investment crowdfunding and its three forms enacted by the JOBS Act, which allow businesses to raise money via online platforms:

  • Regulation Crowdfunding (Reg CF) enables companies to raise about $1 million per year from both average and wealthy (accredited) investors.
  • Rule 506 of Regulation D enables issuers to raise money from wealthy investors.
  • Regulation A+ (Reg A+) enables issuers to raise up to $50 million from both average and wealthy investors provided that the offering is qualified by the SEC.

Due to the Covid-19 Crisis, the SEC has announced an update of some Reg CF rules, including lifting the cap on how much a company can raise from $1 million to $5 million. Separately, it has recommended making this permanent along with other rules.

Even in 2012, Congress agreed on little, but getting capital to small businesses and startups was something they did. A bipartisan, overwhelming majority passed the JOBS Act. It was intended to encourage funding of small businesses by easing many of the country’s securities regulations. It took four years to phase-in the laws for all three forms of investment.

Sherwood Neiss and his partner, Jason Best, of Crowdfund Capital Advisors, are leading the charge for Reg CF. Neiss is a co-founder of FlavorRX, which offers flavored medicine that kids are more likely to take. “Our phone rang off the hook from mothers and fathers asking to invest in the company,” said Neiss. If you weren’t rich, there was no way, as an average Jane or Joe, to invest in a private company. He sold the company in 2007.

When small businesses struggled to get financing during and after the Great Recession, Neiss asked himself, “What if there was a way to turn customers into investors?” This would require changes to SEC investor laws. Naive to the way laws are made in DC, Neiss and Best sought the help of Karen Kerrigan, president and CEO of the Small Business and Entrepreneurship Council. It advances policies and initiatives that encourage entrepreneurship and small business growth. Together, they walked the halls of Congress, pushing the idea that you could raise money from the masses to invest in local businesses, particularly those owned by minorities and women entrepreneurs.

Some were concerned about fraud and dissed this new form of financing. Even so, on May 16, 2016, Reg CF was the last of the three forms of investment crowdfunding to be enacted. To date, there has been NO FRAUD, proving naysayers wrong. You can fool investors one by one, but it’s hard to pull the wool over thousands of investors’ eyes, commented Neiss. It also turns out that the crowd picks winners as well as, if not better than, the professionals—venture capitalists.

Using these new forms of investment crowdfunding, 3,100 stock offerings from 2,600 plus companies from over 850 jurisdictions across the country have been made. Anecdotal evidence finds minority- and women-led ventures have success raising money through Reg CF. I’ve written about a few female founders who have raised Reg CF funding, including Liza Velarde of Delee, Max Tuchman of Caribu, Amber McDonald of Indemnis, and Desiree Vargas Wrigley of Pearachute. “There is a disconnect between what’s happening in our local communities and what is getting DC’s attention,” said Neiss.

During the pandemic, Reg CF has grown. “[In July and August,] there were over 40,000 investors investing each month in local businesses,” said Neiss. The vast majority of the dollars—80%—comes from wealthy investors. “There’s massive interest from investors in supporting these businesses.” For example, this past August, $25 million was raised—nearly three times the amount raised six months ago, before the crisis. Top industries include a couple of the hardest hit by the coronavirus—restaurants and personal services.

Interestingly, 95% of women-led congressional districts had investment crowdfunding offerings and 93% of minority-led districts. Having role models in leadership positions, not just as entrepreneurs, is particularly important for women and minorities, commented Kerrigan. “It’s very empowering.”

“The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods,” said Jerome Powell, chairman of the Federal Reserve in The Wall Street Journal. With the Main Street Recovery Co-Investment Fund, the federal government would match 100% of debt and equity investments raised from communities by small and high-growth businesses via SEC-regulated crowdfunding platforms. Matching funds are capped at $250,000 per business. A $20 billion fund would impact over 100,000 small businesses and startups.

Community investors have a vested interest in the business’s success and are the users and marketers for these businesses. Loans or equity investments are paid back first to community investors, followed by the government. Data on these companies’ 100 performance metrics are captured and updated daily and reported to the SEC, Bloomberg, and other entities. The database can be provided to Congress, the Treasury, and the SEC to provide transparency and oversight.

Investment crowdfunding is showing the way to a broader, more inclusive recovery. It could do more. The Main Street Recovery Co-Investment Fund not only provides additional capital to worthy companies based on the investment dollars of customers, but it would spur further interest and investments from others who don’t know about investment crowdfunding.

How will you show your support for the creation of the Main Street Fund?

Video Replay – Policy Briefing from Oct. 1st The Main Street Recovery Co-Investment Fund

Video Replay – Policy Briefing from Oct. 1st
The Main Street Recovery Co-Investment Fund

Sherwood Neiss speaking as part of a panel talking about the Main Street Co-Investment Fund
Yesterday Crowdfund Capital Advisors’ principals Sherwood Neiss and Jason Best joined Karen Kerrigan, President and CEO of the Small Business and Entrepreneurship Council and Jeff Lynn, Executive Chairman and Co-founder of Seedrs in the UK to talk about the Main Street Co-Investment Fund.

You can watch the replay by clicking the image above.

Investment crowdfunding is gaining momentum and offers a practical solution that Congress or the Federal Reserve can immediately utilize to efficiently and effectively deploy capital to local businesses in diverse communities across America. In this video we discuss the proposed Main Street Recovery Co-Investment Fund and the United Kingdom’s successful experience using the co-investment model both pre and during the Covid era.

The democratization of capital is truly taking hold through investment crowdfunding, which allows small business owners to more efficiently identify and access investors and capital using SEC regulated platforms. “Supercharging” this proven, fraud-free method of raising capital through a federal co-investment fund will help local small businesses recover, rebuild and reinvent themselves in the aftermath of COVID-19. The co-investment fund is a successful model that is currently being deployed in the U.K. (through the Future Fund). The Main Street Recovery Co-Investment Fund would match the capital raised by small businesses on SEC-regulated platforms.

On September 16, SBE Council and Crowdfund Capital Advisors released the report, Regulation Crowdfunding by Congressional District: A Report Card, which reviews the progress of investment crowdfunding since 2016 and its capability for meeting the significant capital needs of Main Street business and entrepreneurs during and following this challenging period.

As noted in the report, more than 90% of U.S. House congressional districts (393 districts) have had investment crowdfunding offerings, with 700,000 retail investors participating in these diverse offerings across the United States. The average raise per offering is $342,000. Community-focused investing is delivering significant capital to local businesses, and the amount of capital being raised via debt and equity crowdfunding has increased considerably during COVID-19. There has been no fraud reported by the SEC with investment crowdfunding.

A Tale of Two Streets in the COVID-19 Economy

A Tale of Two Streets in the COVID-19 Economy

The following is a reprint of a story that came out in Morning Consult. The original can be found here.

BY MICHAEL ROMAN & KAREN KERRIGAN
September 21, 2020 at 5:00 am ET

“It was the best of times, it was the worst of times…”

The famous opening line to Charles Dickens’ epic novel “The Tale of Two Cities” seems to capture aspects of the dual, divergent and exceedingly difficult COVID-19 realities we are facing in the United States today: Because of the virus, we are bearing witness to both the best and worst of times. Congress and the administration need to take note — especially during National Small Business Week 2020, where this week we officially celebrate the risk-taking and hard work of Main Street business owners.

The coronavirus has certainly taken its toll. The facts are clear – over 6.5 million cases and the heartbreaking loss of nearly 200,000 lives. The economic pain is also well-known by all, with $2 trillion in gross domestic product wiped out during the first two quarters of 2020, 22 million jobs lost (42 percent of which have been regained) and hundreds of thousands of small businesses shuttered. One report estimates 3.5 million closures over the next two months, and possibly 7.5 million closures over the next five months.

The uncertainty of what lies ahead adds to a level of anxiety that is only mitigated by the knowledge that our medical and first responders continue their relentless dedication to caring for the sick, while our best scientific minds are working to quickly deliver an effective vaccine. It is with all this in mind that we have hope that we will eventually return to a world that looks and feels just a little less anxious and a little more like the normal we knew not that long ago.

But times are clearly not normal. Wall Street for example, due to quick action by the Federal Reserve and Congress, has achieved a rather remarkable recovery from the depths of the stock market sell-off in March. Investor portfolios, even with a current breather, have largely recovered their losses, bolstered by a combination of fiscal and monetary stimulus. Here, it looks to be among the best of times.

But Wall Street is not Main Street, and it is Main Street that will ultimately determine the strength of the U.S. economy and a successful recovery.

Despite a commitment of more than $6 trillion of monetary and fiscal stimulus, all is not well, and in fact, far from it. Wall Street’s apparent success masks a harsh truth — businesses of all sizes, both public and private, and especially small and medium-sized businesses, are straining to survive. Although August’s jobs report shows continued improvement in employment, Main Street businesses, as noted above, are in jeopardy, as they operate in a world a void of typical customer interaction and where consumers are hanging tighter to their dollars. Sadly, the inability of Congress to find a way to compromise is seriously undermining business recovery, and along with that, sapping the entrepreneurial energy of many business owners.

For those on Main Street, it is among the worst of times.

The Fed attempted to address the dire need for capital among small-business owners with its “Main Street” lending program, but the result has been very poor given terms and rules that were not realistic for most small businesses. This speaks to the need for Fed officials, and others “designing” capital access and recovery programs, to engage with Main Street businesses and lenders to ensure their programs align with practical needs and conditions on the ground.

More importantly, members of Congress must find a way to put partisanship aside for the sake of local businesses and the communities dependent on them, like they did at the beginning of pandemic — as eloquently mentioned by Kevin Hassett, former chairman of the White House Council of Economic Advisers, in an ACCF webinar. There appears to be clear consensus, for example, on retooling the Paycheck Protection Program by allowing for a second draw, easing some restrictions that have kept many small businesses from applying for a loan and expanding forgiveness to include personal protective equipment and cloud services expenses. Congress created this program on a bipartisan basis, and must now make it work more effectively for small businesses. There is no excuse for inaction!

The U.S. economy remains in a deep hole, and therefore, Congress and federal officials must look at a broad range of solutions to fuel recovery. A strong and resilient recovery needs an innovative approach and government leaders must consider a range of ideas. The proposed “Main Street Recovery Co-Investment Fund,” for example, being advanced by the SBE Council, would leverage the early success of investment crowdfunding by matching federal dollars with local investors’ capital to enable broad and inclusive small business support across diverse communities – urban and rural alike.

Every effort must be made to convene the smartest business and policy minds to identify and implement sound economic, tax, fair trade and social policies, along with programs that boost local growth and entrepreneurship.

True commitment, followed with timely action by government leaders to aggressively confront the challenges with which we are faced, will give us the best chance to write a tale of two streets, Main and Wall, that converge into the very best of times.

Michael J. Roman is a nonresident senior fellow at the American Council for Capital Formation and president of CertainPoint Strategies LLC. Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.

Policy Briefing on Oct. 1 @1pm ET: The Main Street Recovery Co-Investment Fund

Policy Briefing on Oct. 1 @1pm ET: The Main Street Recovery Co-Investment Fund

The Main Street Recovery Co-Investment Fund:
How Washington Can Immediately Deliver Matching Capital to Help Local Businesses Recover and Grow

October 1, 2020
1:00 p.m. ET

RSVP Info Below

Investment crowdfunding is gaining momentum and offers a practical solution that Congress or the Federal Reserve can immediately utilize to efficiently and effectively deploy capital to local businesses in diverse communities across America. Join us for this virtual event, where the world’s leading experts and practitioners on investment crowdfunding discuss the proposed Main Street Recovery Co-Investment Fund and the United Kingdom’s successful experience using the co-investment model both pre and during the Covid era.

Speakers:

MODERATOR: Karen Kerrigan, president & CEO, Small Business & Entrepreneurship Council

Jason Best, Co-Founder and Principal, Crowdfund Capital Advisors

Jeff Lynn, Executive Chairman and Co-Founder, Seedrs (U.K.)

Sherwood Neiss, Co-Founder and Principal, Crowdfund Capital Advisors

The democratization of capital is truly taking hold through investment crowdfunding, which allows small business owners to more efficiently identify and access investors and capital using SEC regulated platforms. “Supercharging” this proven, fraud-free method of raising capital through a federal co-investment fund will help local small businesses recover, rebuild and reinvent themselves in the aftermath of COVID-19. The co-investment fund is a successful model that is currently being deployed in the U.K. (through the Future Fund). The Main Street Recovery Co-Investment Fund would match the capital raised by small businesses on SEC-regulated platforms.

Please join us on Thursday, October 1 to learn more about this innovative idea, the growing momentum behind investment crowdfunding, and to hear about the U.K.’s experience with its Future Fund.  

On September 16, SBE Council and Crowdfund Capital Advisors released the report, Regulation Crowdfunding by Congressional District: A Report Card, which reviews the progress of investment crowdfunding since 2016 and its capability for meeting the significant capital needs of Main Street business and entrepreneurs during and following this challenging period.

As noted in the report, more than 90% of U.S. House congressional districts (393 districts) have had investment crowdfunding offerings, with 700,000 retail investors participating in these diverse offerings across the United States. The average raise per offering is $342,000. Community-focused investing is delivering significant capital to local businesses, and the amount of capital being raised via debt and equity crowdfunding has increased considerably during COVID-19. There has been no fraud reported by the SEC with investment crowdfunding.

Please join us for this exciting discussion about the Main Street Recovery Co-Investment Fund!

RSVP: Register in advance for this meeting:
https://us02web.zoom.us/meeting/register/tZ0lcuytpzgpGtF1GW-_8GNYkZXcL9h3D-2m  

After registering, you will receive a confirmation email containing information about joining the meeting.

To access or share this event invitation online, please click here.

Regulation Crowdfunding by Congressional District: A Report Card

Washington, D.C. – Access to capital continues to be a top challenge for struggling local businesses and entrepreneurs, and COVID-19’s economic impact is deepening its toll on Main Street and local economies. Congress is struggling to respond to this profound need, but doing nothing is not an option for small business owners and their employees who are working harder than ever to stay afloat and relevant during this uncertain period. That is why the trio of advocates who stewarded the policy and legislative changes that made investment crowdfunding a reality, are urging Congress to supercharge this promising model by establishing a co-investment fund that would support small business owners by boosting the capital they raise locally.  Today, Crowdfund Capital Advisors (CCA) and the Small Business & Entrepreneurship Council (SBE Council) released a new report detailing the growing power and prevalence of investment crowdfunding and the need for a “Main Street Recovery Co-Investment Fund.”

“We need to act quickly to stop the bleeding on Main Street,” says Sherwood Neiss, Principal at Crowdfund Capital Advisors. “Short term band aids might slow the trauma, but we need a program that can quickly get capital to local businesses in a way that is supported by local investors. This will create a long-term win that will rebuild and sustain local economies, provide dividends to investors and achieve what Congress is trying to accomplish at the local level,” adds Neiss.

In the report, Regulation Crowdfunding by Congressional District: A Report Card, CCA and SBE Council review the progress of investment crowdfunding since 2016.  The Jumpstart Our Businesses Startup Act (JOBS Act) of 2012 enacted changes that ushered in investment crowdfunding, which officially launched following the finalization of Securities and Exchange Commission (SEC) rules in 2016. Currently, the SEC is in the process of advancing regulatory proposals that would enable issuers to raise more capital than what is allowed by current caps, and provide for other changes to make Regulation Crowdfunding more accessible and effective for small businesses and startups. In addition, in response to COVID-19, the SEC recently extended temporary rules intended to expedite the offering process for small businesses by providing conditional relief from certain requirements of Regulation Crowdfunding.

As noted in the report, there are no cases of fraud with investment crowdfunding. And the democratization of capital is truly taking hold through this method, which allows small business owners to more easily identify investors and raise capital using SEC regulated platforms. However, the effects of COVID-19 have created a capital dearth, and CARES Act programs have not been a good fit for many small businesses. SBE Council president & CEO Karen Kerrigan asserts that innovative solutions like a “Main Street Recovery Co-Investment Fund” are desperately needed to help the nation’s economy dig out of its deep hole, and allow local communities to survive by supporting their businesses and new startups.

“As noted by a Goldman Sach’s recent 10,000 Small Business Survey, small business owners believe Washington is putting the needs of big business above small business, and 99% of survey respondents think a comprehensive federal agenda is important to help small businesses recover from COVID-19. A comprehensive approach needs to include a co-investment fund to help local economies recover, rebuild and reinvent themselves. This includes urban and rural areas alike, along with enabling new business creation given the massive volume of business closures that will profoundly affect local communities. The good news is that this type of fund has been successful in the UK through its Future Fund, which means our government will not be testing a new concept. The co-investment fund injects federal dollars into businesses that have been validated by local investors on regulated platforms, accountable under an existing federal framework. There has been no fraud since inception,” said Kerrigan.

Under the co-investment funding model, the federal government would match 100% of funds raised from communities via a securities-based crowdfunding platform (not to exceed $250,000 per business). The federal money that is received by small businesses would be paid back.

The early numbers for investment crowdfunding are very promising, and almost every member of the U.S. House has business constituents that have used regulation crowdfunding along with local investors who have supported a small business in this way.

Highlights of the data include:

JOBS Act Equity and Debt Crowdfunding Results Since 2016:

  • 3,100 stock offerings have been listed by 2600-plus companies.
  • These offerings occurred in 90% of U.S. Congressional Districts (393 districts):
    • 95% of women-led districts had JOBS Act stock offerings
    • 93% of minority-led districts had JOBS Act stock offerings
    • 77% of districts had multiple offerings
    • Nearly 50% of districts had campaigns that raised from $250,000 to $5 million
  • $500,000,000 has been committed to these offerings.
  • 700,000 retail investors participated in diverse offerings across the United States.
  • Capital has been delivered to companies in 450-plus industries and across 850 cities.
  • This capital has supported over 100,000 JOBS.
  • Average amount raised per offering: $342,000.
  • Since inception, the SEC and Crowdfund Capital Advisors have each concluded that there has been NO SECURITIES FRAUD in these offerings.
  • Pre-Covid-19: The monthly volume of capital raised in February 2020 was $9 million. During the Covid-19 crisis, the monthly amount raised has increased dramatically.
  • In August 2020, the amount of capital raised was $25 million, which represents an INCREASE of 2.8x in just 6 months. Community-focused investing is delivering significant capital to local businesses.
    • During the last 2 months (July and August, 2020) equity and debt crowdfunding delivered the same amount of capital ($48 million) as the first full year (2016-2017) of online fundraising.
  • Top 10 industries by dollars raised:
    • Restaurants (*Currently one of the largest local industries suffering the most.)
    • Diversified Media
    • Personal Services
    • Household/Personal Products
    • Software Applications
    • Specialty Finance
    • Beverages (e.g. wineries/distilleries)
    • Packaged Foods
    • Information Technology Services
    • Education and Training Services
  • 13% of companies that raised capital once via the JOBS Act have already raised a second round of capital via the JOBS Act.
    • Companies that have done a follow-on round saw an average increase in revenues of 23%

“This program can deliver meaningful capital to small businesses all across the United States immediately,” says Jason Best, Principal at Crowdfund Capital Advisors. “And because it happens online on regulated platforms where standardized data is fed through us, we can provide real-time insights into how this capital is being used and how local economies are benefitting. This data transparency is something that doesn’t exist in other programs advanced by Congress,” he added.

ABOUT CCA

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

CONTACT: Sherwood Neiss  sherwood@theccagroup.com

                     Jason Best, jason@theccagroup.com

ABOUT SBE COUNCIL

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

CONTACT: Karen Kerrigan, kkerrigan@sbecouncil.org

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Regulation Crowdfunding Issuers Need to Comply with Annual Reporting Requirements – Post from our partner LawCloud

The following post is a reprint from our partner LawCloud. LawCloud is a Legal Technology platform that can help a company with legal forms related to not just incorporation by capital formation and compliance. It makes all sorts of complicated legal parts of running a corporation affordable and easy.

ANNUAL REPORTING
A Crucial SEC Requirement

 Filing annual reports with the SEC is a requirement for any business which raises funds through a crowdfund offering using a regulated crowdfunding portal.  The purpose of these reports is to provide investors and the public with an update on important developments with the company and its business.

The crowdfunding industry at large has developed a negligent attitude toward complying with this critical SEC requirement with widespread violations in meeting the simple requirements to file.  Issuers may fail to file annual reports with sufficient updates about their company, supply investors with poor quality financial reports or, as is most often the case, simply choose not to file an annual report at all under the assumption that there are no negative repercussions for violating securities law.

This is discouraging as the SEC requirements are not difficult to comply with when compared to requirements for publicly traded companies.  The SEC’s decision to lighten crowdfunding annual reporting requirements was specifically made in an effort to ease the burden on the less-sophisticated businesses expected to utilize crowdfunding for raising capital.

Issuers in the crowdfunding space seem to have come to regard annual reports as a nuisance rather than an opportunity to communicate new and important information (whether good or bad) to their investors.  This problem has been ongoing for some time; last year in an open letter to the SEC signed by four state Attorneys General, this issue is directly addressed with stern enforcement action recommended:

“The pattern of noncompliance with Reg CF’s disclosure requirements may provide an environment in which fraud and manipulation flourish.  Coupled with data that the SEC has engaged in very limited enforcement activity against Reg CF issuers or the portals who host them, this evidence raises concerns about whether investors are actually receiving the protections Reg CF currently mandates.  The SEC should engage in meaningful enforcement of the disclosure requirements to incentivize issuers to provide this critical information to investors.”

– Xavier Becerra, Attorney General of California

Read the Full Letter
 The growing size of the equity crowdfunding market will likely result in more scrutiny across the board for issuers, platforms, and the individuals involved as it relates to disclosure and compliance issues.  We encourage platforms to assist issuers with understanding the importance of compliance and encourage issuers to be compliant before a fairly simple task becomes a significant business issue. The SEC’s Division of Enforcement has made it clear that “holding individuals accountable is the Commission’s most effective method of achieving deterrence. Experience teaches that individual accountability drives behavior and can also broadly impact corporate culture.”
LAWCLOUD ANNUAL REPORTING SOLUTIONS

Crowdfunding Issuers who have completed and filed their Form C through LawCloud are well aware of the time and cost reductions our Form C tool can provide.  LawCloud also offers a cost-effective Form C-AR (Annual Report) service.  LawCloud helped issuers file over 140 C-ARs in the last two years.  These numbers are encouraging, but when taking into account that over 715 Form Cs were filed in 2019 and 763 were filed in 2018, it begins to highlight the disparity between Form C filers and subsequent C-AR filings.

The following data points from the SEC’s EDGAR database show the discrepancy of annual report filings versus Form C filings.  While not all deals were completed or require annual report filing, there is clearly a shortfall in annual report compliance.


Since Equity Crowdfunding is still relatively new, there has yet to be an enforcement action brought by the SEC against an issuer that has failed to meet its annual reporting requirement.  This is likely not an indicator of the SEC’s ambivalence toward the issue, rather, we interpret the current situation as one that has yet to reach the SEC’s radar given the small size of the market.

With new rule changes going into effect later this year that will permit Reg CF issuers to raise substantially more money, we fully expect that the SEC’s Division of Enforcement will focus more of its attention on this market and any disclosure deficiencies that have been previously ignored.

About LawCloud

LawCloud, previously known as iDisclose, was founded in 2015 and is an industry leading platform in the Crowdfunding and legal disclosure space with major contracts with various law firms as well as platforms such as WaterWorks, Title3Funds, MicroVentures, and FundMe. LawCloud offers legal document solutions for all small businesses, including regulatory documents, transactional documents, HR documents and more.
For more information about LawCloud, visit our website at LawCloud.co

Contact LawCloud Now

SEC Modernizes the Accredited Investor Definition – More Investors can now Participate in Private Capital Markets

Securities & Exchange Commission Updates Definition of Accredited Investor –
Increasing Access  to Private Capital Markets for Investors

According to a press release yesterday, The Securities and Exchange Commission today adopted amendments to the “accredited investor” definition, one of the principal tests for determining who is eligible to participate in our private capital markets.  Historically, individual investors who do not meet specific income or net worth tests, regardless of their financial sophistication, have been denied the opportunity to invest in our multifaceted and vast private markets.  The amendments update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in those markets.

A SUMMARY OF THE NEWLY EXPANDED ACCREDITED INVESTOR DEFINITION IS BELOW

“Today’s amendments are the product of years of effort by the Commission and its staff to consider and analyze approaches to revising the accredited investor definition,” said Chairman Jay Clayton.  “For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication.  I am also pleased that we have expanded and updated the list of entities, including tribal governments and other organizations, that may qualify to participate in certain private offerings.”

“This is a fundamental shift,” says Sherwood Neiss, Principal at Crowdfund Capital Advisors. “It brings the definition of accredited investor closer in line with what we see in much of the rest of the world: “sophisticated investors.” Investors like finance professors or employees of financial institutions who have knowledge and experience in the private capital markets but don’t meet the income or net worth thresholds shouldn’t be precluded from investments.”

“This adjustment now makes these opportunities available to a broader class of investors and expands the capital markets for issuers,” says Jason Best, Principal at Crowdfund Capital Advisors, “Given the struggles many startups and SMEs have faced given the global pandemic, this should help them access capital where the government stimulus programs have fallen short. A next logical step for the SEC to consider is what several other countries have done and include ‘educationally accredited investors’ including CPA’s, MBAs, JDs and other financials certifications/degrees that include significant financials and/or accounting requirements. We look forward to continuing our dialogue with the Commission on these and other issues.”

The amendments allow investors to qualify as accredited investors based on defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth.  The amendments also expand the list of entities that may qualify as accredited investors, including by allowing any entity that meets an investments test to qualify.

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FACT SHEET
Updating the Accredited Investor Definitions

Aug. 26, 2020

The Securities and Exchange Commission adopted amendments to update and improve the definition of “accredited investor” in the Commission’s rules and the definition of “qualified institutional buyer” in Rule 144A under the Securities Act of 1933.  The amendments to the accredited investor definition add new categories of qualifying natural persons and entities and make certain other modifications to the existing definition.  The amendments to the qualified institutional buyer definition similarly expand the list of eligible entities under that definition.

Background

These amendments are part of the Commission’s ongoing effort to simplify, harmonize, and improve the exempt offering framework, thereby expanding investment opportunities while maintaining appropriate investor protections and promoting capital formation.

In June 2019, the Commission requested public comment on its Concept Release on Harmonization of Securities Offering Exemptions.  In the Concept Release, the Commission requested comments on possible approaches to amending the accredited investor definition, which is a central component of several exemptions from registration, including Rules 506(b) and 506(c) of Regulation D, and plays an important role in other federal and state securities law contexts.  The Concept Release was preceded by a Commission staff report issued in December 2015 on the accredited investor definition, which examined the background and history of the definition and considered comments and recommendations on amending the definition.

After taking into account the views expressed by members of the public and recommendations over the years from various Commission advisory committees and the annual SEC Government-Business Forum on Small Business Capital Formation, the Commission proposed in December 2019 to amend the accredited investor definition.  In March 2020, the Commission continued the harmonization effort by proposing amendments to the exempt offering framework.

Highlights

The amendments revise Rule 501(a), Rule 215, and Rule 144A of the Securities Act.

The amendments to the accredited investor definition in Rule 501(a):

  • add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time by order.  In conjunction with the adoption of the amendments, the Commission designated by order holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons.  This approach provides the Commission with flexibility to reevaluate or add certifications, designations, or credentials in the future.  Members of the public may wish to propose for the Commission’s consideration additional certifications, designations or credentials that satisfy the attributes set out in the new rule;
  • include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund;
  • clarify that limited liability companies with $5 million in assets may be accredited investors and add SEC- and state-registered investment advisers, exempt reporting advisers, and rural business investment companies (RBICs) to the list of entities that may qualify;
  • add a new category for any entity, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered;
  • add “family offices” with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act; and
  • add the term “spousal equivalent” to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.

The amendment to Rule 215 replaces the existing definition with a cross reference to the definition in Rule 501(a).

The amendments expand the definition of “qualified institutional buyer” in Rule 144A to include limited liability companies and RBICs if they meet the $100 million in securities owned and invested threshold in the definition.  The amendments also add to the list any institutional investors included in the accredited investor definition that are not otherwise enumerated in the definition of “qualified institutional buyer,” provided they satisfy the $100 million threshold.

The Commission also adopted conforming amendments to Rule 163B under the Securities Act and to Rule 15g-1 under the Exchange Act.

What’s Next?

The amendments and order become effective 60 days after publication in the Federal Register.

Regulation Crowdfunding has Best Month in History – July Sees Record Investments, Offerings and Investors

Online Investment Sees the Highest Month of Activity in July
Small Firms Most Affected by COVID-19 Find Ready Investors and Capital
The Time is Now for Washington to Invest Alongside the Crowd
Online investment by both retail and accredited investors into startups and small businesses was legalized by the JOBS Act in 2012. Regulation Crowdfunding, one of the provisions in the Act, allows firms to raise up to $1.07 million online each year and went into effect in May 2016. The industry was slow to gain traction but 4 years later, momentum is building. July, which has typically been one of slowest months, saw records for the highest number of offerings in a single month, the highest amount of commitments, as well as the highest number of investors.

Our data analysis signals a few things:

  1. Based on the number of firms that reference COVID-19, many companies are coming online to search for capital where they can’t get it from banks or government programs like the Payroll Protection Program (PPP). We expect this to continue.
  2. Based on the number of firms that are more than 3 years old and are revenue generating, companies see online finance as a viable alternative that puts them in control of their fundraising efforts as opposed to relying on a bank or venture capital.
  3. Market awareness about this new method of raising funds is finally gaining traction and expanding at a rate we have yet to see.

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Here is how July 2020 compares:

Offerings:

  • July is typically the second slowest month for new offerings.
  • This July was the highest month of new offerings since the industry started with 128 new offerings. This was 74 more offerings than July 2019 or a 137% increase.
  • The next month closest to that was October 2019 with 100 new offerings.
  • Since the launch of Regulation Crowdfunding there have 2,768 offerings. Of all these offerings 11% happened in the first quarter of this fiscal year.

Commitments:

  • July was the highest month of investor commitments at $23.2 million. The next closest month was October 2019 with $18.5 million. (See chart below)
  • June and May of this year were the 3rd and 4th highest months of commitments.
  • The first quarter of this fiscal year saw more commitments than the entire first year of Regulation Crowdfunding.
  • We expect this trend to continue throughout the year.

Investors:

  • July was the highest month of investors with more than 40,000.
  • According to interviews with the platforms and issuers, 80% of investors are retail and 20% are accredited and 80% of capital comes from friends, family, customers and followers.
  • October 2019 was the second highest at 39,400.
  • There have been more investors in the first quarter of this fiscal year than the first seven quarters of Regulation Crowdfunding.
  • This proves that there is an appetite among local investors to support their local businesses as more than just customers but as investors as well.


The figures above indicate that we are probably at the tipping point for the industry. More than 70 online investment platforms have registered with the Securities and Exchange Commission to facilitate these offerings. And there has been over $700 million committed to Regulation Crowdfunding, Regulation A and 506c offerings on these platforms.

According to a SEC report, there has been zero fraud. With the introduction of supporting technology platforms like LawCloud that facilitate offering documents and disclosures, more and more issuers are entering the space with the confidence that fundraising doesn’t have to be as complicated, scary or costly as it used to be. Market awareness is also growing to a point whereby issuers have a choice of which platforms they wish to approach, and platforms are building verticals to differentiate themselves in the space.

Company Statistics:

  • The average number of employees for issuers raising funds in July was 6.4. The average number of employees overall is 3.6.
  • Average revenues for companies raising funds in July was $463,000. The average revenues of all Regulation Crowdfunding companies raising funds online was $342,000.

The growth in both average number of employees as well as average revenues has been a continual trend and shows that more mature companies are turning online for their capital needs. We expect this trend to continue as the SEC proposed raising the limits issuers can raise under both Regulation Crowdfunding and Regulation A+. This will lead to larger firms turning online. (We encourage the SEC to take up the vote and adopt the amendments such that struggling firms can leverage online fundraising).

COVID-19:

  • 13 companies referenced COVID in their fundraising campaigns since March 2020.
  • Some of them provide services like food delivery, some of them were raising funds to make it through the pandemic, some were focused on technologies to enable remote learning, while others were developing diagnostics to test for COVID-19 or other telehealth services.

As we’ve seen in economic downturns in the past, opportunities are flourishing. Many of these companies are trying to survive COVID-19 with the help of community investors while others are launching new products or services to address how we will live in a post-pandemic world. We should be doing more to support these businesses.

How Washington can Help:

While our government is focused on bail-outs for big business what we need is a program to prop up and support local communities/businesses. These entities are responsible for the majority of the jobs and economic activity in cities all across our nation.

It is time for our government to create what the United Kingdom has done, the Future Fund. The Future Fund is a co-investment vehicle that invests alongside the crowd. It doesn’t pick winners but helps support business and jobs that local investors believe in. If we can encourage local businesses to seek capital from their local customers and turn them into investors while adding on government stimulus we’ve accomplished a few things:

  1. We now have a vested group of customers who will frequent those businesses (solving for the problem of how do we get customers back into businesses so they can survive)
  2. We have addressed the credit crunch these local businesses are facing (solving for the capital crisis at the local level that our government cannot address at a macro level)
  3. We have created a process to support local economies (solving for the problem of how do we get Americans back to work).
A co-investment fund will allow Washington to support local businesses in local economies all across the USA without having to pick winners or layering on unreasonable covenants that make business owners decide between taking capital or not (and risking going out of business).
Our government should carve out $1 billion or more to support these businesses.
If they did, they would be having a direct impact on communities all across the nation. Because the crowd is in control, no one should have to worry about “Washington insiders” getting all the money. And because everything is happening online with a digital footprint, we actually have a real-time understanding of where the money is going and how it was used. This type of transparency is built into the system of how Regulation Crowdfunding works and it doesn’t exist in any other stimulus program the government is backing.

If you think our government should carve out $1 billion to co-invest alongside the crowd in supporting local businesses, contact us or contact your representatives and let them know!

CCA’s VentureBeat Article: How crowdfunding is supporting Black livelihoods and communities

The following is a reprint of an article we wrote for VentureBeat that appeared on June 13th. You can find the original here.

The financial challenges facing black entrepreneurs are far reaching. The majority lack the relationships that would get them to either a Silicon Valley VC or a friendly bank loan officer. But Regulation Crowdfunding platforms hold the potential to break down barriers to funding black-founded startups, democratizing access to capital, supporting black livelihoods, decreasing economic inequalities, and supporting communities.

This relatively new source of funding — it debuted four years ago — allows startups and small businesses to raise up to $1,070,000 online per year from the general public, not just accredited investors.

I check in regularly with the various Regulation Crowdfunding platforms on their progress, and this year, their numbers show proportionate representation of Black-led businesses. According to Cencus.gov, as of 2019, 13% of the population was Black. According to George Cook, Co-founder/CEO crowdfunding platform Honeycomb, 11% of all their campaigns have been run by Black founders. And another platform, Seedinvest, has seen 12% of campaigns run by Black founders, according to Aaron Kellner Director of Ventures.

Black founders are also seeing relatively good success rates with their fundraises. According to Ben Blieden, co-founder/CFO of MainVest, 60% of companies with at least one African American founder have had successful raises on its platform, compared to the platform’s average of 63%. The success rate for black founders was 50% on Seedinvest, compared to a 69% average success rate on the platform overall.

And Jonny Price, Director of Fundraising at Wefunder asserts that a higher percentage of capital goes to Black founders through Regulation Crowdfunding campaigns than does from traditional VCs. “Whereas Black founders receive around 1% of venture capital, [they] have received 8% of Wefunder investment volume over the last year.”

Aaron Kellner at Seedinvest told me, “Minority founded/led companies raised on average of about $415K [per company] through the SeedInvest network. This success rate is slightly higher than the platform average overall.”

In a recent blog post, Elizabeth Yin at the Hustle Fund spelled out why VC has been unable to provide these same kinds of opportunities to underserved communities: “A power construct that should worry you, as an entrepreneur, that most people don’t know about: VC funds are only allowed to have 99 investors. There are a couple of exceptions. … But, for the most part, most VC funds can only have 99 investors.  Let’s do the math on that. If you want to raise a $100 million fund, that means that your average check size from an investor in your fund needs to be over $1 million. … The number of people or groups who can easily write a $1 million+ investment check is very few. Power in the investing world is concentrated in the hands of just a few people and that money generally continues to support existing funds and the founders they support who are typically White, Male, graduated from an Ivy League or MIT/Stanford, and worked at a top notch tech company liked Facebook or Google. This is why you don’t see new money or new ideas go into investing. Literally, change is prevented by the laws that are in place.

The principles of crowdfunding are based on egalitarian access to capital. Rather than having capital flow from the ivory tower of Silicon Valley, average Americans can fund a community business they believe in. Members of the crowd can jump in with as little as $10.

According to an article in the Washington Post, There is “a dearth of black investors in venture capital’s upper echelons — where leaders make investment decisions that shape the startup landscape.” This may explain why only 1% of venture capital dollars goes to black startup founders, according to a RateMyInvestor study. In addition, black entrepreneurs lack relationships with banks, which might also explain why black-owned businesses are being shut out of PPP loans, based on an NBC story. Net net, access to capital is a challenge for Black founders in the traditional capital markets.

This doesn’t appear to be the same in Regulation Crowdfunding, where community investors decide which entrepreneurs they want to back.

The good news with crowdfunding is that we don’t need to wait for Washington, DC or Silicon Valley to change. We can do it here and now and at a community level, with community investors in community businesses. In a recent press release, MainVest wrote, “We are able to put real investment dollars into local Black-owned businesses, which will then be repaid as a priority debt obligation against their future revenues. This allows small businesses to survive our current situation and gives people the ability to do good, while also getting a potential return on their investment. It also ensures that revenue created by black-owned businesses stays in the community, increasing the community’s strength, development, and diversity. Which is why it is up to us to support them now to ensure their long-term viability. ​In order to drive equality on a socioeconomic level, we need to take an active role in investing in entrepreneurs in underserved communities, especially when the systemic bias of institutional finance continues to be a barrier.”

If you are interested in supporting Black-owned businesses currently raising money online, here’s a sample list of active Black-founded campaigns:

Company/Campaign PageWhat do they do?Where they are located?
Battery XchangeOn the go charge solution for cell phonesCharlotte, North Carolina
Building Economic Advancement Network CorporationSocial network that is centered on economic advancement for urban communitiesBelle Chasse, Louisiana
Charles & CompanyOrganic luxury teaLong Beach, California
Daleview Biscuit and BeerBrewery/CaféBrooklyn, New York
Deuce DroneDeuce Drone designs, builds, and operates drone delivery systems, enabling same-day delivery for retailersBoston, Massachusetts
Dome AudioProducing proprietary, disruptive technology headphones for music lovers around the worldRahway, New Jersey
ecoTextA digital textbook subscription for college students. Creating Opportunity Through AffordabilityDover, New Hampshire
Green Growth Real Estate LLCCannabis Real EstateWashington, DC
Hemp Real Estate Investments IncHemp Real Estate InvestmentsAtlanta, Georgia
Love Conquers AllHealth and Beauty SalonAstoria, New York
Nuurez IncBuying real estate to make permanent AirBnB and temporary rentalsKissmmee, Florida
Smokey ValeSalon/BarbershopBrooklyn, New York
Sol Cinema CafeCoffee shop & CinemaNew York, New York
Strong’s CleanersDry cleanerPittsburg, Pennsylvania
The Boogie Down GrindThematic cafe/barBronx, New York
Watch PartyThe Watch Party app makes it easy for friends to connect and share their passion for TV.Allston, Massachusetts

CCA Sends Letter to SEC in Support of Increasing the Regulating Crowdfunding Cap to $5 Million

Read CCA’s Letter to the SEC
in Support of Increasing the Regulating Crowdfunding Cap to $5 Million
On May 29th, Crowdfund Capital Advisor submitted a letter of support for the proposed amendments to Regulation Crowdfunding. In particular we are supportive of:

  • Increasing the maximum raise from $1.07 million to $5 million;
  • Changing the non-accredited investors limits based on the greater of an income or net worth standard;
  • Allowing for the use of crowdfunding vehicles;
  • Increasing the reviewed financial threshold to $500,000 raises and audits to $5 million for initial offerings.

With Data We Can Make Informed Decisions that Support These Changes

For 4 years, we have collected information on all Regulation Crowdfunding offerings via our CCLEAR database. We pull in over 100 public data points on each offering that includes all key financial data metrics as well as company valuations and daily transactional information. This type of data and standardized datasets on private companies never existed before and has now become industry standard. This delivers more transparency into the private capital markets than has ever existed before.

Click Here to Read our Letter to the SEC
Here are Some Key Quotes from Our Letter

“We believe that regulation must scale to fit the size of a business and that an issuer that is not the same in terms of revenue (i.e. millions vs hundreds of millions), complexity (i.e. local operations vs national or international), tax practices (domestic vs international), etc should not be held to the same standards as a public company. This would be overly burdensome for them without providing additional benefit. In essence, the larger the corporation the more complex. The smaller the less complex. We feel that Regulation Crowdfunding does a fair job in terms of trying to balance the needs of the business with the needs of the investor.”

“In the 4 years since Regulation Crowdfunding went into effect, there have been no media stories about fraud. Rather there has been unspoken coverage of the benefit these locally supported businesses have provided.”

“Because companies must disclose how a valuation was determined and potential investors can discuss this on the forum part of an offering page, it provides investors a means to determine whether they agree with that valuation or not (prior to investing).  It cannot be stressed enough how this transparency is unique investor protection in the private capital markets.”

“There has been no fraud. Nor has there has also been no systematic perversion of retail or accredited investors.”

“In interviews conducted with both issuers and portals, it was discovered that the majority of the investors in these offerings had a first or second degree relationship to the issuer and/or industry knowledge about the company’s product, services, IP or technology. Any of these creates a degree of trust that doesn’t exist between investors and public companies, which is why public companies must file detailed disclosures.”

“Based on the crowdfunding data from the last 4 years, the average investment is currently approximately $715.  This is an investment quantum that does not appear to raise immediate concerns of undue concentration risk for most individuals with the appetite and ability to make early stage investments.”

“Finally, the system doesn’t benefit one class of investors over another in an offering as they are all presented the same information which is available from one central location the online investment platform, as opposed other exemptions where individual offering memorandums can be amended over time from one group of investors to another.”

“Put simply, the Regulation Crowdfunding disclosure framework improves issuer conduct and accountability.”

Increasing the cap to $5 million will:

  • “Provide a balanced way for more issuers to raise funds from investors they are closest to, with prescriptive disclosures that inform/protect investors.”
  • “Spread costs out and decrease the fees as a percent of the raise. This not only benefits issuers but investors as their capital investment goes into growing/scaling a company as opposed to paying offering fees.”
  • “Enable larger, mid-sized firms, (that may be more stable and lower risk) to use crowdfunding for expansion capital and  job  creation.  This adds more diversity of risk  levels to the investment landscape which is an investor protection.”
Value of the CCLEAR Database to investors, policy makers and regulators:
Three components within the Regulation Crowdfunding framework reveal how issuers are performing over time and display macro-economic SME trends. These are:
  1. In an initial offering, issuers are required to file disclosures that document the change in their financial wellbeing between the most recent fiscal year and the prior fiscal year.
  2. Annually, firms that have raised funds via crowdfunding must file an annual report that discloses the changes in their financial wellbeing year over year since their raise. And
  3. When follow-on capital is raised the new valuation is disclosed. This tracks unrealized returns over time. Since the beginning of Regulation Crowdfunding, there have been almost 150 companies that have used it for follow on rounds.
Because of this data the CCLEAR Database can provide insight into how the industry is growing, where capital is flowing based on demographics, how economic activity is positively impacted, how jobs are promoted, and more. All of this reduces fraud and decreases cost and risk to investors as well as enabling regulators and policy makers to continue to refine regulation to both improve capital formation and investor protection.
Click Here to Download the 4 Year Analysis of Regulation Crowdfunding
The ”Lack of Transparency” Argument is Moot

People and organizations should not hide behind 80 year old arguments that “investors are unaware” in private transactions. If they do, they clearly haven’t read the Regulation Crowdfunding regulations or analyzed tens of thousands of pages of disclosures or carefully analyzed the data. If they did, they would realize that due to this piece of legislation investors now have access to more data and information to make an informed decision than they ever did before.

It is inaccurate and unfair for any individual or organization to say that there is no transparency in this segment of the private capital markets. There is more data and more prescriptive disclosures than probably anywhere else in the private markets with the exception of Regulation A.

We commend the SEC and its staff for the hard work they are doing to promote the interests of capital formation for startups and small businesses while maintaining the hallmark of investor protection.

Regulation Crowdfunding Turns Four – CCA Report Analyzes the Data

Regulation Crowdfunding celebrates 4 years and it is at a tipping point. This report summarizes some of the key insights from 4 years of data including analysis and charts.

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

Report Length: 19 pages

# of charts: 5

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

 

$4.95 – Purchase