Periodically, CI takes a tally of the Reg CF (Regulation Crowdfunding) sector to capture a measure of both platforms and activity. The last time we reviewed FINRA regulated funding portals was mid-2021 and as you can understand things have changed since then.
At that time, there were 65 FINRA regulated funding portals, today that number has moved higher and stands at 70.
The Funding Portal is a new entity that was created by the JOBS Act of 2021 – the legislation that legalized online capital formation. These platforms may issue securities using Reg CF, a securities exemption guided by rules outlined by the Securities and Exchange Commission (SEC). Congress envisioned a path to facilitate access to capital for early-stage firms while enabling smaller investors the ability to participate in these securities offerings – without the need to be deemed, accredited investors. It is important to note that regulated broker-dealers may also issue securities under Reg CF and there are multiple brokers doing just that – like MicroVentures or Dalmore Group.
First, let’s look at the platforms that have entered the Reg CF space since last July.
Allocations Crowdfunding, LLC, based in Miami is an SPV [special purpose vehicle] – fund platform that is also offering Reg CF securities. As of today, Reg CF is said to be “coming soon” so no deals yet.
BaseNote, LLC, is located in Walnut, California, that appears to be operating under SwarmMedia. According to the website, the company “connects artists seeking funding with supporters who want to invest. By investing through BaseNote, you support artists’ creative control and have the opportunity to share in their success.” No securities offerings as of today.
BitAngel is another new funding portal based in California but the site is not yet live.
BlueDot Capital, based in California, is affiliated with Flim Capital. There is an announcement on the site that Film Capital plans on being the future of filmmaking with a launch at some point this month (January 2022).
ChainRaise Portal, based in Arizona, is a blockchain-based platform in the real estate securities sector. No real estate offerings so far.
Mustrdseed Portal, LLC, in Atlanta is new. This funding portal is targeting the BIPOC market. There are no live securities offerings on the site.
Round Here, LLC, out of Richmond, Virginia is aiming to raise capital for early-stage tech firms. The site has yet to post its first securities offering.
SM Portal, LLC, or SmartMoney.inc is another Virginia-based online capital formation site. There is a single security offering live on the site for a 24-hour urgent care clinic, First24Health, based in Denver.
There are 18 former funding portals that have exited either by choice or by the encouragement of regulators and two platforms remain suspended as they have not paid their FINRA dues.
The exits include Chonky, and Funders USA.
As has been previously covered, Reg CF received a materially important upgrade in March of this year. The SEC correctly increased the funding cap from an anemic $1.07 million to $5 million making the exemption far more useful for early-stage firms. Today, it is common for seed-stage funding rounds to top $2 million and a Series A round to go way beyond that amount. This, along with other improvements, is helping to drive Reg CF growth.
As was reported last week, aggregate Reg CF funding since 2016 has now surpassed $1.1 billion and is predicted to double to over $2 billion in 2022. This means more innovative entrepreneurs raising growth capital while creating more jobs – both positives for the economy.
The sector continues to be dominated by 5 or 6 platforms and this past week a series of tweets referenced that Wefunder captured 37% of the market followed by StartEngine, Republic, Netcapital, SeedInvest, and Mainvest. Of course, most funding does not necessarily mean the best deals but overall, growth is good.
Regulation Crowdfunding surpassed $500M of investments in 2021, 2.4X up over 2020. @Wefunder market share was 37% ($186M), up from 33% in 2020.
$2B in 2022. Let’s Go. pic.twitter.com/N6y6HTQcps
— Jonny Price (@JonnyCPrice) January 1, 2022
So what could get in the way of sector growth?
Well, the SEC can give, but also take away. The top item on the SEC’s agenda for 2022 is exempt securities offerings which include Reg D, Reg A+ along with Reg CF. While it is not immediately clear what the Commission may do, the current leadership has focused more on investor protection concerns rather than access to capital. And as everyone should understand, early-stage investing is risky (normal for a market economy).