Reg CF: The Number of Funding Portals Stabilizes as Industry Expects More Growth

Crowdfund Insider last reported on the growth of FINRA-regulated Funding Portals at the beginning of 2022. A Funding Portal is a new entity created by the JOBS Act of 2021 designed to issue securities under the Reg CF (Regulation Crowdfunding) – a securities exemption created by the JOBS Act. As was last reported, there were 70 approved Funding Portals and that number has held about the same in the past few months with 71 as of today. It is important to note that Broker-Dealers may also issue securities under Reg CF and there are multiple Brokers that take advantage of this option.

So what is new in the past four months?

As previously reported, there are three Funding Portals that have been suspended because they have not paid their FINRA dues but remain on the regulated list – even though they are not active.

More recently, one Funding Portal was the target of an action by FINRA that compelled it to exit the sector.

Buy the Block is no longer allowed to operate as a Funding Portal, according to FINRA.  The Funding Portal is “statutorily disqualified.”

According to the filing by FINRA:

“This matter originated from Member Supervision’s investigation of Respondents’ potential misuse of investor funds and failure to use a qualified third party to hold investor funds as required by Regulation Crowdfunding Rule 303(e).”

In February, the Respondent accepted and consented to the findings by FINRA without admitting or denying them. The settlement includes a bar from associating with any FINRA funding portal member in all capacities and Buy the Block consents to expulsion from FINRA funding portal membership.

Trucrowd is another platform that has been statutorily disqualified due to an enforcement action taken by the Securities and Exchange Commission that started in 2021 with a settlement being reached in January 2022. When the enforcement action was announced, the SEC reported it as the first-ever against a Funding Portal.

Indie Crowd Funder, once an aspiring funding portal targeting the film, TV, and media sector, has withdrawn from the sector as of January. No other news is available as to why this decision was made.

Which platforms have been added to the list?

Invown Funding Portal, LLC is a new real estate investment platform based in Connecticut. No live offerings as of yet with several “coming soon” listings.

Libertas Funding Portal, LLC is another Canadian operation with headquarters in Toronto. Its website is not live so little information is available as of today.

Secure Living based in Charlotte, North Carolina, is another real estate investment platform. Approved in Q1, as of today there are no securities offerings listed on the platform.

Crowd Wallstreet, based in Florida, has a live site but has yet to list any offerings.

The number of Funding Portals has effectively remained static. Meanwhile, some industry insiders talk about possible or looming consolidation or question whether there is a sufficient amount of quality issuers to support the nascent industry. The sector continues to be dominated by a handful of platforms but there are several that appear to be emerging as viable operations and an ability to scale. And don’t forget about broker-dealers, like Dalmore Group, Rialto Markets, or MicroVentures.

As the SEC made several material changes to Reg CF in 2021, most importantly – increasing the funding cap to $5 million – online capital formation under Reg CF has gotten a boost. Crowdfund Capital Advisors has predicted $1 billion in total funding under the exemption.

Currently, you can separate Reg CF operators into two groups: ecosystems or providers that are “full-stack,” offering securities under other exemptions like Reg D and Reg A+, and aiming to service multiple verticals, adding new services and features and perhaps expanding geographically; and second, targeted early-stage or investment platforms that have more modest goals of providing localized funding or targeting a specific vertical (like real estate). The first segment is better positioned to scale over time.

Of course, inflation, a struggling economy, and geopolitical challenges will influence everything, including investment crowdfunding – it is just a question of how much impact.

On a positive note, Senate Republicans have recently put forward the JOBS Act 4.0, a bundle of legislation aiming to support entrepreneurs and investors. If this legislation, or at least some of it, becomes law, this can help support the ecosystem during a challenging economy and rising interest rates.

The Funding Portal list, as of today (April 18, 2022) is available below.


 


 



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