The number of FINRA regulated “funding portals,” investment crowdfunding platforms that have been approved to issue securities under Reg CF, has continued to move upward since the new entity was created under the JOBS Act of 2012. Today, there are well over forty funding portals.
To date, ten previously approved funding portals have ceased all activity. Either never launching a platform or just deciding the business was not viable or sustainable. Two exited due to some type of enforcement action.
Perhaps the most prominent funding portal to turn off the lights was “First Democracy VC” – a partnership between Indiegogo and Microventures to crowdfund under the Reg CF exemption. Indiegogo quietly exited the space at the beginning of 2019 representing a high profile failure for Reg CF.
Microventures, on the other hand, appear to have a robust issuance platform. As a FINRA regulated Broker-Dealer, Microventures does not need to be regulated as a funding portal. Microventures continues to offer securities under Reg CF as well as the more popular Reg D.
But several platforms appear to have skipped the notification process and tell the SEC and FINRA they no longer plan to operate as a funding portal. Instead, they have simply decided to not pay their FINRA dues and fees and thus have been suspended.
The following three funding portals have been suspended under FINRA Rule 9553.
- Fundpaas Inc – Suspended effective 03/08/2019
- Gridshare LLC – Suspended effective 12/03/2019
- GrowthFountain Capital, LLC – Suspended effective 12/03/2019
Crowdfund Insider has previously reported on Fundpaas skipping out on its dues and fees.
Gridshare and GrowthFountain were just recently suspended at the beginning of this month (December).
Gridshare is ostensibly a renewable energy crowdfunding site. While the site is still live, currently there are no offerings on the platform.
GrowthFountain’s site is dead.
At least part of the challenge with funding portals is the draconian regulatory regime. Most of the more prominent platforms have received a broker-dealer license to be able to better compete. Many offer the full stack of security exemptions (Reg A+, Reg D, Reg CF). Some offer digital asset opportunities and other complimentary services.
In the end, as a stand-alone exemption, the cap is so low it makes it nearly impossible for any funding portal to be sustainable or at a minimum exceptionally difficult to scale.
Earlier this month, the Securities and Exchange Commission (SEC), Small Business Capital Formation Advisory Committee, published a series of improvements to make Reg CF viable. The advocacy was led by Youngro Lee, CEO and founder of Nextseed and Chairman of the Association of Online Investment Platforms (AOIP). The recommendations are several common-sense updates. Hopefully, the Commission will act on the guidance and improve Reg CF. As it stands today, according to one prominent funding portal, Reg CF is frequently the exemption of last resort and “issuers even often choose to raise no money rather than potentially hamstring their future.”
That is not what Congress intended when it asked the Commission to finalize the Reg CF rules.