Investment crowdfunding under Reg CF (Regulation Crowdfunding) has emerged as a powerful legislative success, boosting economic growth and providing access to capital for early-stage firms in need of money. Created under the JOBS Act of 2012 – a bipartisan act of legislation, Reg CF has proved its detractors wrong as any malfeasance has been minimal; meanwhile, raising capital online means more firms in flyover country have been able to pursue their entrepreneurial ambitions.
This past week, the Association of Online Investment Platforms (AOIP) visited with multiple House and Senate offices, along with the Securities and Exchange Commission, to share the success of the exemption, alongside the other exemptions that help companies raise money online.
Crowdfund Capital Advisors (CCA) was helpful in providing an update on Reg CF. Sherwood “Woodie” Neiss, Principal at CCA, stated that Washington, DC needs to be reminded of the success:
“As we enter this uncertain period for our economy, we are reminded that the key to keeping local economies strong is supporting local businesses.These local businesses include small/medium businesses as well as pre-IPO startups that aren’t heading to Silicon Valley anymore. As the capital markets recoil, investment crowdfunding will play a larger role in supporting these businesses and our overall economy.”
Some key points provided by CCA, include:
- The economic value of successful issuers is scaling and will lead to some sizable returns for investors
- Companies are receiving funding all across the USA, in more than 1,500 cities, and in over 500 different industries
- The success rate of issuers raising funds online is greater than other forms of financing which is why women and minorities are turning to investment crowdfunding as their preferred method for capital formation
- Over 300,000 jobs have been created or supported as a direct result of investment crowdfunding proving it can be a jobs engine and live up to its namesake, the JOBS Act.
- Companies that have raised funds online have pumped over $3.4 billion into local economies by purchasing goods and services mainly from local vendors
It is important to note that funding raised in an online securities offering gets spent in the real economy as people are hired for jobs, money is committed to capital expenditures, taxes are generated, and innovation is boosted. All good for the economy – even more so as the economy sputters and the recession drags on.
Another interesting data point is that women and minority founders are seeing a higher success rate (67%) than white male founders (48%).
In 2021, the SEC took an important step in helping the ecosystem by increasing Reg CF from an anemic funding cap of $1.07 million to $5 million. Industry insiders believe the cap should actually be more than that – at least $10 million, or higher. The JOBS Act 4.0 seeks to improve upon Reg CF alongside other capitol formation policy goals. Hopefully, Congress will bump #J4 to the top of the legislative list, by now, the benefits should be clear.