To issue securities under Reg CF (Regulation Crowdfunding), a platform must either be a FINRA regulated funding portal or a broker-dealer. In this sector of online capital formation, both types of regulated entities issue securities under this rule.
Periodically, we re-visit the number of FINRA regulated funding portals to monitor the growth of the sector. As of today, there are 62 funding portals – but being approved by FINRA does not mean a platform is active (nor successful). Of note, there remain two platforms that have been suspended (pursuant to FINRA Rule 9553) as they have not paid their dues. So in reality there are 60 funding portals but, as has been covered before, the industry tends to be dominated by several platforms that capture the bulk of issuers and investors. Additionally, MicroVentures is an example of a broker-dealer that is active in the Reg CF investment sector but does not show up on the list.
The last time we visited the number of funding portals, it stood in the mid-50s – so who is new?
Common Owner is a real estate investment platform based in Buffalo, New York. Common Owner is actually two separate companies, Common Owner Portals LLC, is a listing service for exempt offerings issued under Rule 506c (for accredited investors). The second company, Common Owner CF LLC, offers real estate investments under Reg CF. As of today, there are not any listings under either exemption.
Gainvest is a Pittsburgh based Reg CF platform that offers equity and debt securities for real estate projects, small business projects, and opportunity zone projects. Currently, there are three offerings live on the site but little money raised.
Ignite Social Impact is new to the list. The platform anticipates offering investments in early-stage firms with securities offerings of debt, equity, etc. As of today, no securities offerings are listed.
Based in Florida, Miventures is another new funding portal that is yet to list a security offering. Music Benefactors lives up to its name by seeking to finance recording artists either with debt or equity offerings. Only a test listing is up on the site.
PicMii Crowdfunding has launched with several live offerings on the site – including a self crowdfunding round seeking $100,000. Zero funding raised as of yet.
As well, Seed at the Table is new starting with securities offering to fund itself.
Two platforms of interest that have exited the funding portal realm include GrowthFountain Capital in New York City. No announcement as to why but the site remains live with numerous 404s as some of the information has been scrubbed. Razitall is another company that is no longer pursuing the Reg CF sector. The site is no longer live.
The entire list of funding portals that are no more include the following sites:
- DreamFunded Marketplace
- First Democracy VC
- Good Capital Ventures
- GrowthFountain Capital
- Neighbor Capital
- Spark Investments
- Venture Capital 500
There are various reasons as to why these sites are no longer FINRA regulated portals. They range from choice to encouragement from securities regulators.
One industry follower has predicted that the Reg CF sector can support about 12 active platforms. Most investment crowdfunding firms offer securities under all online capital formation exemptions. Several offer additional services to build out chargeable services. In brief, it is a struggle to survive and thrive as the runway is long and requires deep pockets to sustain the burn. Eventually, to become a sustainable industry investment crowdfunding must work for each constituent party: Issuers must be able to raise the capital they need in an efficient manner; Investors must generate positive returns; and platforms must be able to generate a profit. Cut one leg off this three-legged stool and no-one wins.
NextSeed, on the exited list above, was recently acquired by Republic – one of the Reg CF leaders. Expect more consolidation, as well as voluntary exits, to take place in the coming year.
The good news is that the SEC has improved Reg CF by increasing the funding cap from an unworkable $1.07 million to a more rational $5 million amount. This increase, along with several other updates to the various exemptions, should help the industry scale over time. This should encourage potential entrants as there is chatter that more are in the queue to enter an increasingly crowded sector of Fintech.
If you are new to Reg CF – send us a note and let us know your plans.
FINRA Regulated Funding Portals as of December 15 2020