SEC Issues Three-Year Research Study on Title III, Regulation Crowdfunding (Reg CF) Fundraising Campaigns

Leading Crowdfunding Industry Analyst Firm, Crowdfund Capital Advisors, States Now is the Time to Update the Regulation to Further Enable Capital Formation

Washington, DC – Recently the Securities and Exchange Commission (SEC) published a staff report on Regulation Crowdfunding (Reg CF), also known as Title III Crowdfunding. The Commission, in the adopting rules, stated that the “staff will undertake to study and submit a research report to the Commission no later than three years following the effective date of Regulation Crowdfunding on the impact of the regulation on capital formation and investor protection.” The report finds the size of market, while modest in comparison to the broader financial markets, is evolving and doing so without any material risk to investors. Crowdfund Capital Advisors (CCA) data and analysis were cited in 7 references throughout the report.

“The industry is evolving systematically and responsibly,” says CCA Principal Sherwood Neiss. “With the appropriate adjustments to the regulation we can further enable capital formation without risk to investors. The time is now for the SEC to act.”

Sherwood Neiss, Crowdfunding Capital Advisors, testifies at the SEC The CCA data and references used by the SEC were attributed to analysis by CCA and published in VentureBeat as well as Crowdfund Insider. The data comes from CCA’s 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. 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. Issuers that seek to raise funds via Reg CF must file a Form C (a form filed by a company (issuer) with the SEC before starting to raise capital and discloses financial information for its current and prior fiscal years) as well as a Form C-U (a progress report that an issuer files that discloses total capital raised). Data that the SEC does not collect in either of these disclosures includes information like industry, a breakdown on the cost of the offering, daily change in capital commitments, daily changes in investors and information on a company’s valuation. CCLEAR collects all this missing data which allows for more detailed analysis of the market including which industries are most popular with the crowd, which regions of the country have the lowest/highest overall valuations, what industries the crowd is most interested in supporting, etc. An entire section of the report titled “Cost to issuers of undertaking a crowdfunding offering” came directly from research CCA did with issuers successful with Regulation Crowdfunding. A key finding from our research, which was highlighted in the report, was that “the total cost of creating a campaign page, issuer disclosures, film, and video, and hiring a marketing firm, a lawyer, and an accountant amounts to approximately 5.3% of the amount raised.” This average was based on feedback from 81 issuers. “This amount is substantially less than what a typical issuer would incur in a Regulation D offering,” says CCA principal Sherwood Neiss “and is a key reason why more companies should be looking at Reg CF as an attractive pathway to raising funds.” The report provides a detailed look at how Regulation Crowdfunding has performed through December, 2018. (For people interested in data through today’s date, you can find it on CCLEAR’s Daily Dashboard – see below for the latest data).

“Unlike opponents who said regulated crowdfunding would open the floodgates to fraud, we have yet to see fraud materialize,” says Neiss. “This is because there are easier ways to defraud investors than to come up with an idea for a business, incorporate it under federal laws, convince a funding portal to list you, spend hundreds of hours and thousands of dollars trying to bring your friends, family and followers to the campaign page, and then hitting 100% of your funding target or the commitments get returned. Add on top of this the hundreds of discerning eyes picking apart a campaign in the comments section. These types of ‘built-in investor protections don’t exist in other parts of the private capital markets.” Multiple recommendations were included in the report on how to improve Regulation Crowdfunding. The SEC cited a US treasury Report entitled “A Financial System That Creates Economic Opportunities.” The Report recommends: Allowing single-purpose crowdfunding vehicles advised by a registered investment adviser; Waiving certain crowdfunding offering limits for accredited investors; Amending certain crowdfunding investment limits by other investors; Modifying the Exchange Act’s Section 12(g) exemption; And increasing the limit on how much can be raised through crowdfunding from $1M to $5M. CCA’s principals were interviewed and cited in the Treasury report. The Fed’s recommendations were a summary of CCA’s more detailed recommendations as requested. “The industry is evolving systematically and responsibly,” ended Neiss. “With the appropriate adjustments to the regulation we can further enable capital formation without risk to investors. The time is now for the SEC to act.” # # #

Robert Hoskins
(512) 627-6622
@Crowdfunding_PR

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Mr. Robert Hoskins is a seasoned marketing veteran with a proven track record of helping entrepreneurs, startups, small businesses as well as Fortune 500 corporations launch successful marketing communications campaigns to gain market traction for a wide variety of products and services.

On a regular basis, Mr. Hoskins consults with crowdfunding campaign managers as well as crowdfunding sites, portals and platforms to deliver successful crowdfunding marketing campaigns.

Google search “Robert Hoskins Crowdfunding PR” to see why Mr. Hoskins is considered one of the industry’s foremost crowdfunding experts that has amassed a huge social media following, which is dedicated to supporting donation-, rewards- and equity-based crowdfunding campaigns.

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Crowdfunding Industry Petitions the SEC to Raise Title III, Regulation Crowdfunding (Reg. CF) Private Equity Fundraising Cap to $20 Million

Crowdfunding experts cite 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, now have a transparent, systematic way to invest in startups

Sherwood Neiss, Crowdfund Capital Advisors, testifies at the SEC

In a letter to the SEC dated July 19^th, the Regulation Crowdfunding (Reg CF) industry’s largest equity crowdfunding platforms and industry influencers provided data and analysis to support increasing the Regulation Crowdfunding cap to $20 million.

The letter comes after SEC Chairman Clayton said in a live chat with FINRA President and CEO Robert Cook, “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.”

The following bullet points below and the following analysis is provided to support the increase in Reg. CF.

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 $249 million n 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 fundraising 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 $1 million 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 $1 million.
• The current $1 million 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 $2 million. 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 $20 million. Raising funds under $20 million 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 $1 million 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 8 million EUR (US$9.4 million). The United States should not be a follower, but instead a leader.

People are being asked to call their Senators and Representatives to ask them to support increasing the cap and helping small businesses access capital, create jobs and foster local innovation.

# # #

Robert Hoskins
(512) 627-6622
@Crowdfunding_PR

---

Mr. Robert Hoskins is a seasoned marketing veteran with a proven track record of helping entrepreneurs, startups, small businesses as well as Fortune 500 corporations launch successful marketing communications campaigns to gain market traction for a wide variety of products and services.

On a regular basis, Mr. Hoskins consults with crowdfunding campaign managers as well as crowdfunding sites, portals and platforms to deliver successful crowdfunding marketing campaigns.

Google search “Robert Hoskins Crowdfunding” to see why Mr. Hoskins is considered one of the industry’s foremost crowdfunding experts that has amassed a huge social media following, which is dedicated to supporting donation-, rewards- and equity-based crowdfunding campaigns.

The State of Equity-Based Crowdfunding…Primed, Capitalized and Waiting on the SEC

Capitol Hill Briefing on the
State of Equity-Based Crowdfunding

Please Join  for a Capitol Hill Briefing on:

WHO:            Small Business & Entrepreneurship Council

WHAT:        The State of Equity-Based Crowdfunding
                       …Primed, Capitalized and Waiting on the SEC

WHERE:     Washington, DC – The Capitol:  HVC 201 A & B

WHEN:        Tuesday, February 19, 2012 from 12:00 p.m – 1:30 p.m.

WHY:           Attend Crowdfunding Panel Discussion 

Moderator: Karen Kerrigan, President & CEO, SBE Council

Panel of Crowdfunding Subject Matter Experts:  

• Sherwood Neiss/Jason Best, Crowdfund Capital Advisors
• Candace Klein, SoMoLend
• Ryan Feit, SeedInvest
• Sara Hanks, CrowdCheck 
• Chris Tyrell, Nehemiah Investments
• Vince Molinari, GATE Technologies
• Kim Wales, Crowdfunding Professionals Association
• Judy Robinett, Entrepreneur, Advisor to Early Stage Companies
• Doug Ellenoff, Ellenoff, Grossman & Schole, LLP
• Chance Barnett, Crowdfunder

RSVP by February 15:   rsvp@sbecouncil.org  Please provide Full Name, Title and Association or Member/Committee Office

Purpose of Crowdfunding Briefing:

At this February 19 briefing, the nation’s principal leaders and experts on equity and debt-based financing will provide an in-depth review of the extensive build out and preparation that has taken place to help entrepreneurs’ access capital through online platforms, while protecting the investors who will finance these enterprises.  The group will touch upon the global advancement of equity-based crowdfunding, the significant challenges entrepreneurs still face in accessing capital and why it is vitally important that the SEC finalize JOBS Act rulemakings.

JOBS Act Background:

President Obama signed the Jump Start Our Businesses Start Up Act (JOBS Act) on April 5, 2012, which among other smart reforms to outdated securities laws, made equity-based crowdfunding legal.  The Securities and Exchange Commission (SEC), however, has missed important deadlines in issuing rules that will govern this promising and transformative marketplace for entrepreneurs.

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