Reg CF: The Number of FINRA Regulated Funding Portals Increases as Investment Crowdfunding Grows

 

The number of FINRA regulated funding portals continues to increase. Created by the JOBS Act of 2012, a “funding portal” is a bit like a broker-dealer light and may offer securities under Reg CF (Regulation Crowdfunding). While an approved broker-dealer may sell securities under Reg CF as well, currently much of this sector of crowdfunding is dominated by funding portals.

While Reg CF became actionable in May of 2016 (years after the JOBS Act was signed into law), the number of funding portals started with just a handful but has since blossomed into dozens of platforms. In fact, as of today, FINRA indicates there are 57 approved funding portals. When we last visited the funding portal count (May 21) there were 51 approved platforms so more crowdfunding sites are entering the space.

Now that number includes two funding portals (Gridshare and Fundpaas) that have been suspended due to FINRA rule 9553 which effectively means they have not paid their dues (and are probably no longer in the business) so in all fairness, there are 55 active funding portals.

The number of former funding portals is growing as well. The following platforms were once aspiring crowdfunding sites but are no longer on the active list:

  • Avonto
  • Crowdboarders
  • Dreamfunded Marketplace
  • First Democracy VC (Indiegogo)
  • Good Capital Ventures
  • Neighbor Capital
  • NextSeed US
  • SeedingVR
  • Spark Investments
  • StartWise
  • UFP
  • Venture Capital 500

Most of these businesses voluntarily gave up their status with several being encouraged to exit the funding portal space.

Of note, is NextSeed – an investment platform that became a broker-dealer and is still issuing securities under Reg CF. NextSeed is expanding its list of services and going beyond its prior mandate of being a bank-replacement platform providing credit for smaller firms.

So which funding portals are new to the list?

First, we have Akemona, Inc. based in Fremont, California. While filing to receive approval some time ago, Akemona’s website is currently not live.

Another new site is Amplify Funding that is based in Los Angeles. A “launching soon” notice is posted on its site that explains that AmplifyX wants to issue securities based on assets affiliated with the music industry. AmplifyX is currently accepting registrations – including for recording artists.

Greenville, South Carolina based Vicinity Capital wants to connect local capital with local businesses. Currently, there are no live securities offers on the site.

Recently, it was reported that Reg CF had its best month ever. In fact, it appears that online capital formation is thriving during the COVID-19 health crisis.

Crowdfund Capital Advisors (CCA) reported that July was the highest month of investor commitments ever at $23.2 million. The next closest month was pre-COVID and almost a year ago in October 2019 with $18.5 million. CCA shared that July is typically the second slowest month for new offerings but this July had the highest month of new offerings since the industry started with 128 new filings – 74 more than a year prior.

While the number of FINRA regulated funding portals and issuers raising capital online continues to grow, this sector of Fintech remains dominated by several platforms. Recently, StartEngine announced having topped $200 million in money raised. SeedInvest has surpassed $200 million as well according to a recent article. Most platforms list securities under several exemptions and not just Reg CF which has been hamstrung a bit by an arbitrary funding cap ($1.07 million) that does not align with the realities of seed funding today. It is common for an issuer to list a side-by-side Reg CF/Reg D offering to circumvent the funding cap. Under Reg D, only accredited investors may participate.

Additionally, digital assets are gaining traction and Republic recently announced investment commitments for Republic Note that topped $16 million. The Republic Note allows holders to earn a portion of the income generated by the platform’s operations.

But while Reg CF may have started slowly, and could have been more effective from the beginning, it is difficult not to acknowledge the exemption as a success. Reg CF has provided access to capital to an underserved segment of young companies that needs funding for any chance to grow and succeed. It is a fact that small businesses drive most of the job creation in the country and fostering an ecosystem that provides access to capital is an important and obvious policy goal.

Currently, the Securities and Exchange Commission (SEC) is considering raising the funding limit for Reg CF to $5 million. Many people believe it should be moved higher than that to $10 or $20 million. Regardless, it is expected that the Commission will boost Reg CF to $5 million before the end of the year, along with several other improvements, and thus make the exemption more appealing to more issuers.

An increase in the funding cap may also help funding portals achieve sustainability (profitability) too – vital to the success of this sector of online capital formation.

For the Reg CF ecosystem to thrive and survive, it must work for each of the three constituent parties: Issuers must be able to raise the capital they need, investors must have access to quality investments that may provide investment returns, and platforms must be able to generate enough revenue to become profitable. It’s as simple as that.


FINRA Regulated Funding Portals as of August 27 2020 a

 

 


 

 

 

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