Update on Reg CF Crowdfunding

Reg CF Title III

Title III of the JOBS Act, or Reg CF, kicked off on May 16th of this year. The final portion of the JOBS Act to receive final rules by the SEC, Reg CF was perhaps the most heralded aspect of the legislation. Under the securities exemption, small issuing companies may raise up to $1 million via the internet from both accredited and non-accredited investors. Retail crowdfunding, as it is sometimes called, has been both praised and criticized. Supporters view it as a step to democratize access to capital for firms that are more challenged in raising money. Retail investors also get access to a new asset class.  Detractors believe existing rules are too unwieldy saddled with many mandates that cripple effectiveness and do not make sense.

So while the industry is only beginning and, over time, platforms and issuers will become more effective is utilizing Reg CF, we thought we would do a quick review on progress for the companies raising under the new exemption.

To date, 50 companies have filed with the SEC. The average minimum funding round is about $140,000.  The smallest targeted offer is for just $20,000. While the minimum raise is on the low end of what an issuer can raise, many issuers set a maximum raise that is higher than this amount. If an issuer is raising over $500,000 they are required to file reviewed financial statements.

Of these issuers, 26 have filed amended Form-Cs.  There are various reasons for updating the forms. Some issuers have adjusted their minimum raise. At least one issuer has extended their campaign as their minimum had not yet been reached. As many of these offers have not fully funded, we expect more issuers to extend the time period investors may purchase securities in their company. More companies filed in May than July.  This may be due to platforms working to make certain they had a decent number of offers listed soon after rules went into effect.  In June the number of new issuing companies under Reg CF dropped.

Money Eyes Benjamin Look SeeThere are some companies that have met their funding target. A few notable funding rounds that have topped their goal include Hops and Grain Productions, Cleveland Whiskey and TAXA Biotechnologies.  As one may expect, the majority of the companies are very much consumer facing.

While it is still too early to draw and profound conclusions it is easily apparent that not having a Testing the Waters (TTW) provision is making it more difficult for firms to gauge investor interest, while diminishing overall transparency. The Fix Crowdfunding Act initially incorporated a TTW clause, with several other important adjustments for Title III. Hopefully, by the time the bill makes it through the Senate, our elected officials will recognize the importance of promotion for these small security offers.

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