Regulation Crowdfunding or Reg CF has surpassed $2 billion in money raised, according to an email from Crowdfund Capital Advisors (CCA).
Reg CF was created by the JOBS Act of 2012, signed into law during the Obama administration in a unique act of bipartisan legislation that probably could not be accomplished today. While the bill became law in 2012, it took several years for the Securities and Exchange Commission to create final rules, eventually allowing the security exemption to go into effect in 2016.
Initially, firms using Reg CF could raise up to $1.07 million in an online sales of securities. The amount was deemed to be too low, and several years later, the SEC, under the leadership of Chair Jay Clayton, increased the exemption to $5 million in any 12-month period.
Incredibly, many policymakers and advocacy groups slammed the exemption and sought to block the new rules. Opponents worried that Reg CF offerings would be peppered with fraud – something that has never truly occurred. Issuers must work either either a FINRA-regulated Funding Portal, a new entity created by law, or a Broker Dealer. Today, Reg CF has emerged as a viable path for smaller firms to raise growth capital from any investor 18 years or older.
CCA states that the path from $1 billion raised to the $2 billion mark – happened in just two years, unlike the first billion dollars that took about five years to achieve. The group reports that more than 6400 companies have raised money via 7400+ individual securities offerings that “showcases its dynamism and resilience.”
CCA notes:
“The investment crowdfunding phenomenon is changing the face of entrepreneurship. Over 85% of these businesses raise funds beyond major financial centers, pouring billions into local economies and supporting more than 400,000 jobs. The positive influence radiates through job opportunities and local commerce.”
The group goes on to extrapolate that firms raising money using Reg CF have boosted local economies by almost $5 billion due to the multiplier effect.
Firms that raise money use the funding to hire new employees and purchase equipment, rent offices, and develop new products and services. Online capital formation has become an important factor in generating economic activity. At the same time, new employees gain valuable skills that can be applied going forward regardless of the success of the funded firm.
While Reg CF has garnered solid traction, allowing smaller investors to participate in private securities offerings, more needs to be done by Congress. Industry insiders would like to see the exemption to be increased to $20 million, a rational step that would allow for more mature companies to use the exemption which also would reduce investor risk.
For its part, CCA and its principles have launched a new investment vehicle, D3VC, matching artificial intelligence (AI) with “promising crowdfunding ventures” in a fund that aims to connect venture capital and smaller investors to interesting opportunities. CCA describes securities crowdfunding as a “transformative force in the future of fundraising and investment.”