In 2020, the Securities and Exchange Commission approved several improvements for securities crowdfunding. One of the most impactful updates was raising the funding limit under Reg CF to $5 million from $1.07 million. Prior to this, many industry insiders viewed the old funding cap as unsustainable and difficult to generate sufficient revenue as a stand alone exemption. How many one million funding rounds would you have to complete to operate a profitable funding portal? At least one securities crowdfunding platform operator viewed it as a loss leader designed to engage with firms and hopefully have them pursue a Reg A+ or Reg D down the road. In 2021 the changes came into effect and almost immediately issuers were raising $5 million under the exemption – indicative of the need.
Today, Republic has tweeted out that so far they have funded 12 offerings under Reg CF that have hit the $5 million funding cap.
📢 We just hit our 12th $5M Reg CF campaign! 🎉
To learn more about how founders can raise up to $5M from the public + their community, head to https://t.co/9OuEorDejL 🙌
— Republic 🌎 (@joinrepublic) June 28, 2022
It has been reported that the average seed round in 2021 was $3.8 million. While venture funding may be slowing down today, most certainly it will be a pause and not permanent. So perhaps the SEC should next consider increasing Reg CF to $10 million or $20 million. This should enable some issuers to make it through a seed round and perhaps a Series A. in 2021, the median Series A was $13 million per Crunchbase.
In the end, the goal should be to enable issuers access to the growth capital they need while allowing smaller investors access to quality deals – not just big money. Many promising private firms will seek future funding rounds and Reg CF can be a more effective ladder in this process while creating more opportunity for smaller investors.