Regulation Crowdfunding (or Reg CF), created by Title III of the JOBS Act, has been available for several years now. While not without its shortcomings, Reg CF has been leveraged by hundreds of issuers, typically smaller firms, raising over $100 million since May 2016.
This past week, Crowdfund Capital Advisors (CCA) published a report on Reg CF entitled “2018 State of Regulation Crowdfunding,” providing a snap-shot of the securities exemption and its overall performance.
Crowdfund Insider communicated with CCA principle Sherwood “Woodie” Neiss regarding the report. Neiss told CI the promise of Reg CF as a jobs creator and economic engine is starting to prove true:
“Back in 2012, the promise of Regulation Crowdfunding was jobs, a local economic generator, and an industry revitalizer. With the close of the 3rd calendar year of Reg CF we can see that those promises are holding true. Reg CF is proving to be a jobs engine (creating on average 2.9 jobs per issuer), economic generator (pumping over $289 million of revenues into local economies) and industry supporter (enabling 82 unique industries in regions across the USA).”
According to their research, proceeds for campaigns that closed in 2018 increased 154% from $71.2 million in 2017 to $109.3 million in 2018. Total proceeds since inception by the end of 2018 was $194 million.
The number of successful offerings increased 189% from 221 in 2017 to 417 in 2018. The average success rate of a campaign jumped from 58.9% in 2017 to 63.9% in 2018.
The average raise by an issuer is $271,000.
The total number of investors in successful offerings increased 190% from 77,558 in 2017 to 147,448 in 2018.
Unlike the hubris of the initial coin offering world, Reg CF offerings have experienced slower, more sustainable growth, according to CCA.
“Yes there has been no Gold Rush into Reg CF,” says Neiss. “We consider that a good thing. Reg CF issuers tend to be early stage, high risk firms. Investors need to take care when deciding if and how much they want to invest in these enterprises. A slow and methodical growth of the industry now will help the industry in the future.”
While the hope was for online capital formation to provide access to funding beyond established innovation hubs, that hasn’t happened:
“The data shows the entrepreneurial hubs like New York, San Francisco, Los Angeles, Chicago and Austin are popular locations for Reg CF companies. Other cities and states around the USA that are interested in promoting jobs and supporting industries in which they have a core competency, should look at these cities/states and copy their success,” explains Neiss.
CCA believes that Reg CF has been good but it could be even better. Notably, Reg CF could be “poised for serious growth if the SEC would increase the issuer cap from $1,070,000 to $20,000,000:”
“We expect the industry to hit $1 billion in funded capital within 5 years. This can be sooner realized if be realized sooner if the $1.07 million cap were to be increased as well as certain recommendations implemented per an industry letter to the SEC, a 2017 U.S. Treasury report, the Fix Crowdfunding Act and the JOBS and Investor Confidence Act of 2018.”
So will the 116th Congress listen?
The report is available for download here.