MicroVentures is a broker-dealer that raises capital under the various crowdfunding exemptions including Reg CF+, Reg D, and Reg A+. An early entrant into the sector, MicroVentures got its start catering to accredited investors but expanded its portfolio of services following the enactment of the JOBS Act of 2012 – the legislation that legalized investment crowdfunding. MicroVentures’ historic portfolio includes some pretty well-known names like 23andme, Circle, DropBox, Slack, and many more. As a full-stack issuing platform, MicroVentures seeks to raise capital online for private firms at all stages of maturity. The platform also facilitates secondary transactions for qualified individuals thus providing an additional liquidity path.
In March of 2021, the Securities and Exchange Commission improved the exempt offering ecosystem allowing issuers to raise up to $5 million under Reg CF (previously $1.07 million) and $75 million under Reg A+ (previously $50 million) thus benefiting both issuers and platforms – as well as investors. Recently, Crowdfund Insider connected with MicroVentures CEO Bill Clark and President Tyler Gray to get an update on platform progress. As a side note, MicroVentures is a founding board member of the Association on Online Investment Platforms (AOIP) and thus is active in advocating on behalf of issuers and investors in improving access to the private securities market.
Our discussion with MicroVentures is shared below.
As a broker-dealer in the “crowdfunding” sector, how is MicroVentures performing?
We are performing very well. Over the past several years, our investor community has grown to about 200,000, and the volume of investments has grown significantly as well. We have surpassed $450 million in total completed investments on our platform and anticipate closing the year with a 100%+ year-over-year growth rate. As the private market continues to grow over the next several years, we expect to keep pace with it. We have also distributed over $135M back to investors this year.
You issue securities under Reg CF. I believe you list these offerings free of charge – correct? What type of volume are you doing under Reg CF?
We do not charge investors any fees for our Reg CF investment opportunities. Our approach to Reg CF deals is similar to how we look at our private primary and secondary offerings.
We have 10 years of experience investing in hundreds of early- and late-stage companies and have learned a lot from our successes and failures. We use these as a guide for the types of companies we want to offer our investor base, and we are very selective. Unlike most other platforms, we intentionally only list one or two new opportunities each month. For 2021, we anticipate our volume for Reg CF raises should be around $5 to $7 million, whereas our private deals should be over $150 million.
Have you seen an improvement in Reg CF with the recent funding cap increase? (are you doing Reg A+ offerings)?
Raising the cap for Reg CF has brought more attention to the space from companies that never would have considered equity crowdfunding in the past. With all the work that goes into conducting a Reg CF raise, the $1.07 million 12-month cap was a deterrent for many. Since the cap has been raised, we have seen deal quality improve.
We are open to doing Reg A deals, and we do have some companies that are on the path to a Reg A. However, most of our companies find that a Reg CF raise with the new $5 million cap is enough for their first raise.
You generate most of your volume under Reg D, correct? Does MV participate in these investments? Do you take a carry from outside investors?
We don’t participate in our Reg D deals as a company, as we do hundreds of deals each year. We do, however, invest discretionary funds in some of the companies that raise capital on MicroVentures. The funds also invest in companies that are not listed on our platform.
As part of our fee structure, we do take a carried interest. We view the companies that raise through MicroVentures as part of our overall portfolio that we manage until there is an exit. While we remain a passive investor for most of the company’s life, we are willing to help when a company needs it. Through our active investor network, we can provide contacts at companies or VCs and help with other requests as well. We don’t just list a company and move on; we will support that company through raising capital again in the future.
What about secondary transactions. How do you manage these transactions?
Secondary investing in pre-IPO companies is a big piece of our overall business. We are more active in the secondary space than we advertise, and that is on purpose. To access some of the deals we list to our investors, we have to keep a low profile because most companies don’t want to draw attention to the fact that there is an active secondary market. Some of our recent IPO’s include Robinhood, SoFi, Palantir, and Airbnb, but we have had many IPOs. Like our primary business, we invest in our secondary companies many times over several years as they grow.
How do you source most of your deals?
There are a few ways we source deals. We have a team for both our primary and secondary deals. We also receive a high volume of inbound requests, and the quality of those funding applications has increased significantly over the last several years. We also make connections through our investor and startup founder networks.
As a broker-dealer, as opposed to a funding portal, this provides some advantages in the marketplace when raising capital. Correct?
Being a broker-dealer gives us more flexibility and options on how to raise money for a company. I have seen competitors start as a funding portal and move to become broker-dealers over time as they grow.
There are a lot of funding portals operating in the same space. What is MicroVentures’ competitive advantage?
On the investor side, it is the selectiveness of our deal flow and the level of support we provide. We do a significant amount of due diligence on our companies that some other portals are not doing.
When you look at our Form C’s versus some of our competitors, you can see the difference. We push back on high valuations, don’t invest in common stock, and look out for our investors’ best interest. We won’t always get it right, and many companies will still fail, but we try to provide an additional layer of due diligence. Our investor relations team is also always there to answer investor questions via chat, email, or phone.
We believe that our selectiveness, highly engaged investor network, and broker-dealer status are major advantages for companies looking to raise capital. Because we have fewer deals listed at a given time, there is less competition within the platform for investor dollars. We’ve also been around for a while, so we have a very active, engaged network, which is great for a startup that might not have the largest marketing budget or following. As a broker-dealer, we can use Reg CF or Reg D to get the company into the right type of raise for their situation.
What needs to be improved in this market? What about regulatory improvements?
We started MicroVentures with the goal of opening up investing to investors who might not have access to private investment opportunities independently. From a regulatory standpoint, we hope to see continued expansion of the accredited investor definition. Lowering the income and net worth requirements would provide more investors access to the private market, which would open up another opportunity to manage risk through portfolio diversification.
We would also like to see an increase in the maximum number of investors permitted in an LLC or SPV. It can be challenging to hit raise goals when you’re limited to 100, or in some cases, 250 investors. If you want to allow investors to invest a smaller amount but are limited to 100 investors, you have to increase the minimum investment to hit that goal.