StartEngine, one of the most active investment platforms offering securities under Reg CF, has posted that Q3 2020 was the biggest quarter ever for Reg CF (Regulation Crowdfunding). During the quarter, issuers raised around $72.9 million – over a 50% increase versus Q2 and more than double versus the same quarter in 2019 ($33.3 million). Remember this is during a global pandemic which apparently has had a positive effect on crowdfunding platforms and companies in need of growth capital.
Since the securities exemption became actionable in mid-2016, companies have raised over $410 million with zero reported cases of fraud – something policymakers fretted about at one time. Of course, not all early-stage companies become a success but that is typical in the entrepreneurial world. Facilitating an innovation-driven economy is key to driving wealth and prosperity for everyone as some companies inevitably do well.
StartEngine also notes that there were 15 active Reg CF platforms (there are over 50 FINRA approved funding portals) with StartEngine being one of the leaders.
During Q3, Wefunder facilitated $22.4 million in Q3 followed by StartEngine at $18.5 million. The next three largest funding portals were in the following order: Republic, SeedInvest, and NetCapital, respectively responsible for raising $9.4 million, $2.8 million, and $2.7 million. Most platforms also utilize other securities exemptions, like Reg A+ and Reg D, so these numbers do not indicate total platform activity during the quarter.
Recently, the Securities and Exchange Commission updated rules governing Reg CF. Currently, issuers may only raise $1.07 million and thus the exemption turns away a good number of potential issuers – especially as the size of the average seed round has hurdled that amount. Within the next few months, Reg CF will have a new funding cap of $5 million – a number that should entice a greater amount of issuers to leverage the securities exemption. Other important updates included removing the investment cap on accredited investors – a rule that never really made sense. So you can expect this sector of online capital formation is poised for a bit of boom.
If you are interested in reading about all of the changes you review the SEC documents here.