The Securities and Exchange Commission (SEC), Division of Economic and Risk Analysis (DERA) has provided an analysis of Reg CF and Reg A as enabled under the JOBS Act of 2012.
The SEC has previously provided data on the various online capital formation exemptions, but this is the first time they are analyzing the data, concluding that Reg CF “continues to gain momentum over time and serve small and early-stage companies seeking access to capital, often for the first time.”
According to the document, “as of December 31, 2024, 3,869 offerings reported proceeds on Form C-U, with aggregate proceeds of approximately $1.3 billion. The average successful offering reported raising approximately $346,000 (the median reported raising approximately $113,000). This indicates that many offerings continued to raise capital above the target amount.”
Under Reg CF, issuers frequently set a low hurdle rate for the offering, with the expectation that the securities sale will generate more, potentially up to the maximum allowable amount of $5 million.
While stating that Reg CF has gained momentum over the years, the report acknowledges a decline in recent years, which is somewhat similar to the overall venture marketplace.
DERA notes that issuers that successfully raised funds tend to be operated by more mature leadership, more established, and with more initial assets and employees. These offerings also tend to have a shorter duration of the time allotted to the sale of the security.
The report states:
“Overall, these results suggest that crowdfunding was filling capital raising gaps for some small issuers and potentially providing a new source of capital for entrepreneurial and small businesses. At the same time, a subset of crowdfunding issuers is exploring other exempt offering methods (in addition to follow- on crowdfunding offerings), primarily, Regulation D, perhaps as a way of building on the accredited investor interest in the issuer as well as meeting additional financing needs.”
In regard to exits for investors, the following information was gleaned:
- 0.25% of issuers have made it to an IPO either via a traditional registered offering or via a Reg A funding
- 2.2% have provided an exit via an acquisition
- 3.4% proceeded to raise traditional venture capital funding
As has been reported in the past, there are five platforms that have dominated the Reg CF sector, capturing 70% of the offerings and 75% of the proceeds. Wefunder continues to be the dominant platform in terms of the number of offerings, followed by StartEngine, Honeycomb, Republic, and NetCapital.
The analysis is not accompanied by any policy recommendations such as increasing the funding amount or other adjustments to the exemption.
The report is available here or below.