The Securities and Exchange Commission (SEC), under the auspices of the Division of Economic and Risk Analysis (DERA), published a white paper on Regulation Crowdfunding (Reg CF) earlier this week. The report, written by Vladimir Ivanov and Anzhela Knyazeva, is basically a point in time update on the first few months of issuers using the new securities exemption created by the JOBS Act of 2012. Businesses began using Reg CF in May of 2016 and the report quantified utilization from that date until December 31, 2016.
Under Reg CF, companies may crowdfund up to $1 million from both accredited and non-accredited investors. Reg CF joins the other current crowdfunding exemptions: Reg A+ (up to $50 million) and Reg D 506c (accredited crowdfunding). Reg CF is also in competition, to some degree, with the growing number of intrastate exemptions. Reg CF is viewed as a first step in the capital ladder for early stage companies. The intent was to create a low barrier to capital formation thus empowering businesses to raise sufficient money to get their company off the ground. These same companies frequently are boxed out by banks and may not be sexy enough for traditional VCs.
So what did DERA uncover? The highlights are below:
It should be noted that a single platform, uFundingportal, was yanked from the approved list of intermediaries by FINRA as allegations of bogus offers came to light. Honestly, it was a bit surprising that uFundingportal was ever approved, but that is a discussion for another day. The net effect is that FINRA did the right thing and shut down the platform and not a single investor backed a fraudulent campaign. In fact, there has not been any fraud in the Reg CF space in juxtaposition to what some detractors predicted.
The DERA authors understand that early Reg CF utilization is not necessarily indicative of future results;
These initial results may not be representative of future crowdfunding activity for several reasons. In particular, the early adopters that sought to issue securities in the newly formed crowdfunding market as observed during our sample period may not be representative of the subsequent crowdfunding market entrants. As the market matures, issuers, investors, and portals are likely to gain experience that shapes and potentially changes behaviors in ways that the evidence from this short sample period may not capture. Moreover, potential future changes in the crowdfunding market, such as the entry of new intermediaries, adoption of alternative funding methods by issuers (e.g., intrastate and regional crowdfunding), industry shocks, or changes in aggregate market conditions may cause crowdfunding activity to vary significantly in future periods.
There is plenty more in the DERA white paper (embedded below) but what does this all mean?
The UK is the best market for comparison, and it would be interesting for someone to do a quantifiable comparison on growth trajectory. In many ways, the UK has a far better regulatory regime aligned with a generally supportive government, but this is balanced by a far smaller economy. The UK sector finance has emerged as a robust capital formation ecosystem. Crowdfunding has evolved into a true alternative to both early and later stage funding for companies thus challenging traditional VCs.
The DERA authors are spot on in stating the US industry is still very much evolving and todays activity is probably not wholly indicative of future outcomes. Both issuers and platforms are learning quickly what they can and cannot do. New programs are being tested. The ones that work are kept the ones that dont are quickly jettisoned. Crowdfunding success is never a given and securities crowdfunding is a lot of work.
Additionally, Congress is pushing forward with an update to Reg CF (something attempted last year by Congressman McHenry) that may provide the fuel the exemption needs to drive utilization to a truly meaningful level.
If Congress gets it right, Reg CF may evolve into powerful job creation and innovation catalyst for the economy. Raising the exemption cap to a more realistic level will certainly attract more quality issuers. Allowing special purpose vehicles (SPVs) will make it easier for issuers to manage shareholders and align interests with both big money and small. By now, hopefully, there are no more obstacles for Congress to take the action and do what is necessary to get the job done.
What we do know is that companies that have a strong, committed community perform better and this may be the key to success. Crowdfund Capital Advisors did do some quantifiable work on this highlighting the fact that a bigger social network = more money raised crowdfunding. So build your crowd first before you launch a Reg CF crowdfunding offer otherwise, you may regret it.
In the overall scheme of things, Reg CF is tiny. Reg D, the most popular path to raise private capital is huge at around $1 trillion a year. The incorporation of general solicitation, or allowing an issuer to crowdfund their offer, will keep Reg D at the forefront for most companies raising private capital. But Reg CF has potential as the first step in the capital ladder. One prominent Reg CF platform predicted that $100 million would be raised under this exemption during 2017. If policymakers act and fix Reg CF this number may end up being far larger.
. Bookmark the
.
Read more:
SEC Report on Reg CF Crowdfunding: What Does it Mean? - Crowdfund Insider
- About Cystic Fibrosis | CF Foundation [Last Updated On: June 10th, 2016] [Originally Added On: June 10th, 2016]
- Cystic fibrosis - Wikipedia, the free encyclopedia [Last Updated On: June 10th, 2016] [Originally Added On: June 10th, 2016]
- cf. - Wikipedia, the free encyclopedia [Last Updated On: June 16th, 2016] [Originally Added On: June 16th, 2016]
- CF - Definition by AcronymFinder [Last Updated On: July 3rd, 2016] [Originally Added On: July 3rd, 2016]
- Cf Indus Hldgs - CF - Stock Price Today - Zacks [Last Updated On: August 12th, 2016] [Originally Added On: August 12th, 2016]
- Cf. - Wikipedia [Last Updated On: October 27th, 2016] [Originally Added On: October 27th, 2016]
- Technicals in Focus for CF Industries Holdings, Inc. (CF) - The USA Commerce [Last Updated On: February 6th, 2017] [Originally Added On: February 6th, 2017]
- Real Madrid CF still on top of La Liga as Villarreal hold Sevilla to a draw - Hindustan Times [Last Updated On: February 6th, 2017] [Originally Added On: February 6th, 2017]
- Black Heart Bart heads Weir's CF Orr Stakes nominations - HorseRacing.com.au [Last Updated On: February 6th, 2017] [Originally Added On: February 6th, 2017]
- One Simple Thing Reg CF Issuers Can Do To Raise More Money Crowdfunding - Crowdfund Insider [Last Updated On: February 6th, 2017] [Originally Added On: February 6th, 2017]
- Analysts Valuations For 2 Stocks: CF Industries Holdings, Inc. (NYSE:CF), Nordstrom, Inc. (NYSE:JWN) - The Voice Registrar [Last Updated On: February 6th, 2017] [Originally Added On: February 6th, 2017]
- Andrew McCutchen to Move from CF to RF in 2017: Latest Comments and Reaction - Bleacher Report [Last Updated On: February 6th, 2017] [Originally Added On: February 6th, 2017]
- Basic Materials Stocks To Look Out For: Range Resources Corporation (RRC), CF Industries Holdings, Inc. (CF) - The Independent Republic [Last Updated On: February 7th, 2017] [Originally Added On: February 7th, 2017]
- Here's Why CF Industries Stock Gained 10.7% in January - Motley Fool [Last Updated On: February 7th, 2017] [Originally Added On: February 7th, 2017]
- Canyon releases lightweight Ultimate EVO CF 10.0 SL - Cyclingnews.com [Last Updated On: February 7th, 2017] [Originally Added On: February 7th, 2017]
- How Does CF Industries Holdings, Inc. (CF) Stack Up Right Now? - StockNewsJournal [Last Updated On: February 7th, 2017] [Originally Added On: February 7th, 2017]
- CF Orr Stakes - An Early Look - Racing.com [Last Updated On: February 7th, 2017] [Originally Added On: February 7th, 2017]
- Own a Piece of the Pot: Fundanna is First Reg CF Crowdfunding Portal for Cannabis Industry - Crowdfund Insider [Last Updated On: February 7th, 2017] [Originally Added On: February 7th, 2017]
- LaLiga: Valencia CF on the brink of a civil war - Yahoo Sports [Last Updated On: February 9th, 2017] [Originally Added On: February 9th, 2017]
- CF Orr Stakes day Caulfield racing preview - The Sydney Morning Herald [Last Updated On: February 9th, 2017] [Originally Added On: February 9th, 2017]
- CF Industries Holdings, Inc. Declares Quarterly Dividend - Business Wire (press release) [Last Updated On: February 9th, 2017] [Originally Added On: February 9th, 2017]
- CF Athletic and Cage Warriors Announce Exclusive Long-Term Apparel Partnership Deal - PR Newswire (press release) [Last Updated On: February 10th, 2017] [Originally Added On: February 10th, 2017]
- Gallery: Tiago Machado's Canyon Aeroad CF SLX - BikeRadar.com [Last Updated On: February 10th, 2017] [Originally Added On: February 10th, 2017]
- CF man pleads guilty to role in Eagle Point murder - Eau Claire ... - Leader-Telegram [Last Updated On: February 10th, 2017] [Originally Added On: February 10th, 2017]
- Cystic Fibrosis - National Library of Medicine - PubMed Health [Last Updated On: February 10th, 2017] [Originally Added On: February 10th, 2017]
- CF - CF Industries Holdings Inc Stock quote - CNNMoney.com [Last Updated On: February 10th, 2017] [Originally Added On: February 10th, 2017]
- Cystic Fibrosis | CF | Cystic Fibrosis Symptoms | MedlinePlus [Last Updated On: February 10th, 2017] [Originally Added On: February 10th, 2017]
- Why Investors remained confident on Paycom Software, Inc. (PAYC), CF Industries Holdings, Inc. (CF)? - StockNewsJournal [Last Updated On: February 11th, 2017] [Originally Added On: February 11th, 2017]
- Two Canadian CF-18s were on approach to land at Florida airport ... - National Post [Last Updated On: February 11th, 2017] [Originally Added On: February 11th, 2017]
- CF. Goldman Fall 2017 - WWD [Last Updated On: February 11th, 2017] [Originally Added On: February 11th, 2017]
- CF Industries to Announce Its 4Q16 Earnings: What to Expect - Market Realist [Last Updated On: February 11th, 2017] [Originally Added On: February 11th, 2017]
- Man steals $237 champagne from CF liquor store, police respond ... - Chippewa Herald [Last Updated On: February 12th, 2017] [Originally Added On: February 12th, 2017]
- CF Orr Stakes Where To Next - Racing.com [Last Updated On: February 12th, 2017] [Originally Added On: February 12th, 2017]
- Chainfire updates CF.lumen, Recently apps with Nougat-specific updates - Android Community [Last Updated On: February 13th, 2017] [Originally Added On: February 13th, 2017]
- Real Madrid Castilla 2-1 CF Fuenlabrada: Match Review ... - Managing Madrid [Last Updated On: February 13th, 2017] [Originally Added On: February 13th, 2017]
- CF Industries' Rally Just Starting to Grow - TheStreet.com [Last Updated On: February 13th, 2017] [Originally Added On: February 13th, 2017]
- U-CF School Board adds new member and approves preliminary budget - Chester County Press [Last Updated On: February 14th, 2017] [Originally Added On: February 14th, 2017]
- Tiago Machado's Canyon Aeroad CF SLX Gallery - Cyclingnews.com [Last Updated On: February 14th, 2017] [Originally Added On: February 14th, 2017]
- Agriculture Stocks Feb 15 Earnings Roster: ANDE, BG, CF - Zacks.com [Last Updated On: February 14th, 2017] [Originally Added On: February 14th, 2017]
- CF Industries Holdings, Inc. (CF) Shares Bought by FIL Ltd - The Cerbat Gem [Last Updated On: February 15th, 2017] [Originally Added On: February 15th, 2017]
- CF Industries' 4Q16 Profitability Disappointed Investors - Market Realist [Last Updated On: February 17th, 2017] [Originally Added On: February 17th, 2017]
- CF Industries Holdings (CF) Q4 2016 Results - Earnings Call Transcript - Seeking Alpha [Last Updated On: February 17th, 2017] [Originally Added On: February 17th, 2017]
- Op/Ed: Sanville wrong for U-CF - Chadds Ford Live [Last Updated On: February 18th, 2017] [Originally Added On: February 18th, 2017]
- Canyon Ultimate CF Evo 10.0 SL review - BikeRadar - BikeRadar.com [Last Updated On: February 18th, 2017] [Originally Added On: February 18th, 2017]
- Kansas City Royals: Yost Plans To Use Alex Gordon In CF - Call to the Pen [Last Updated On: February 19th, 2017] [Originally Added On: February 19th, 2017]
- CF Industries (CF) Q4 Loss Wider than Expected, Sales Miss - Zacks.com [Last Updated On: February 19th, 2017] [Originally Added On: February 19th, 2017]
- Father's death, mother's strength inspire Tigers CF Mikie Mahtook - Detroit Free Press [Last Updated On: February 19th, 2017] [Originally Added On: February 19th, 2017]
- CF Rayo Majadahonda 0-1 Real Madrid Castilla - Managing Madrid [Last Updated On: February 20th, 2017] [Originally Added On: February 20th, 2017]
- GridShare Targets Renewable Energy Crowdfunding under Reg CF, Plans International Expansion - Crowdfund Insider [Last Updated On: February 20th, 2017] [Originally Added On: February 20th, 2017]
- CF group claims new data supports case for Orkambi approval - Irish Times [Last Updated On: February 20th, 2017] [Originally Added On: February 20th, 2017]
- Cleveland Indians: Brandon Guyer To See Time In CF - Factory Of Sadness [Last Updated On: February 22nd, 2017] [Originally Added On: February 22nd, 2017]
- KC Royals: Alex Gordon CF Trial Suggests Worry About Lorenzo Cain - Kings of Kauffman [Last Updated On: February 22nd, 2017] [Originally Added On: February 22nd, 2017]
- CF Foundation lands big gift - Ocala [Last Updated On: February 22nd, 2017] [Originally Added On: February 22nd, 2017]
- Just the Facts on CF Industries Holdings, Inc. (CF) - StockNewsJournal [Last Updated On: February 23rd, 2017] [Originally Added On: February 23rd, 2017]
- CF Industries Holdings, Inc. to Participate in Upcoming Investor Conference - Yahoo Finance [Last Updated On: February 23rd, 2017] [Originally Added On: February 23rd, 2017]
- Galapagos doses first healthy volunteer with CF combo GLPG2222 and GLPG2451 - P&T Community [Last Updated On: February 24th, 2017] [Originally Added On: February 24th, 2017]
- Nivalis Therapeutics (NVLS) Says Cavosonstat Phase 2 Clinical ... - StreetInsider.com [Last Updated On: February 24th, 2017] [Originally Added On: February 24th, 2017]
- Pawtucket man arrested for narcotics in CF - WPRI 12 Eyewitness News [Last Updated On: February 24th, 2017] [Originally Added On: February 24th, 2017]
- Limerick CF parents: 'Our kid's lives are priceless' - Limerick Leader [Last Updated On: February 25th, 2017] [Originally Added On: February 25th, 2017]
- Real Madrid CF battle back to win at Villarreal CF and stay on top of La Liga - Hindustan Times [Last Updated On: February 26th, 2017] [Originally Added On: February 26th, 2017]
- Real Madrid CF slump to loss vs Valencia CF in La Liga - Hindustan Times [Last Updated On: February 26th, 2017] [Originally Added On: February 26th, 2017]
- CF Industries Holdings, Inc. (CF): What's the Story? - StockNewsJournal [Last Updated On: February 28th, 2017] [Originally Added On: February 28th, 2017]
- CF-18 pilot killed at Cold Lake did not eject or make mayday call - CBC.ca [Last Updated On: February 28th, 2017] [Originally Added On: February 28th, 2017]
- Get rough with Panasonic's new hybrid Toughbook - CNET [Last Updated On: February 28th, 2017] [Originally Added On: February 28th, 2017]
- The Technicals For CF Industries Holdings, Inc. (CF), An Important Analysis - NY Stock News [Last Updated On: February 28th, 2017] [Originally Added On: February 28th, 2017]
- The Panasonic CF-33 is a Toughbook you can tote - CNET [Last Updated On: February 28th, 2017] [Originally Added On: February 28th, 2017]
- Sherby named CF mayor Falls mayor - Iron County Reporter [Last Updated On: March 1st, 2017] [Originally Added On: March 1st, 2017]
- New classes at the CF Contemporary Center - Iron County Reporter [Last Updated On: March 1st, 2017] [Originally Added On: March 1st, 2017]
- Comment: You know the medical definition... but how many of you ... - Irish Independent [Last Updated On: March 1st, 2017] [Originally Added On: March 1st, 2017]
- Taoiseach expects deal on CF drug Orkambi in coming weeks - Irish Times [Last Updated On: March 1st, 2017] [Originally Added On: March 1st, 2017]
- Matheny on CF prospect Sierra: 'He's an electric player' - STLtoday.com [Last Updated On: March 1st, 2017] [Originally Added On: March 1st, 2017]
- Panasonic Toughbook CF-33 gets the 2-in-1 Windows 10 treatment - SlashGear [Last Updated On: March 2nd, 2017] [Originally Added On: March 2nd, 2017]
- PTC Therapeutics' ataluren flunks late-stage CF study; shares slump 24% premarket - Seeking Alpha [Last Updated On: March 2nd, 2017] [Originally Added On: March 2nd, 2017]
- CF to host men's and women's state hoops tournaments - Ocala [Last Updated On: March 4th, 2017] [Originally Added On: March 4th, 2017]
- Tigers CF Mikie Mahtook: Expect The 2015 Version Of Me - CBS Detroit [Last Updated On: March 4th, 2017] [Originally Added On: March 4th, 2017]
- Lat strain abates, Collins to rejoin CF fight soon - Detroit News - The Detroit News [Last Updated On: March 4th, 2017] [Originally Added On: March 4th, 2017]
- PTC notches up full house of failures in CF with ataluren, dumps program - FierceBiotech [Last Updated On: March 4th, 2017] [Originally Added On: March 4th, 2017]
- Panasonic's Toughbook CF-33 Might Be the Most Durable 2-in-1 Yet - Laptop Mag [Last Updated On: March 4th, 2017] [Originally Added On: March 4th, 2017]
- CF Industries Holdings, Inc. (CF): How Do the Technicals Stack Up? - The USA Commerce [Last Updated On: March 6th, 2017] [Originally Added On: March 6th, 2017]
- Mr. Brewster Raises $33500 for CF Research - HamletHub [Last Updated On: March 6th, 2017] [Originally Added On: March 6th, 2017]